International Financial Reporting Standards

I recently attended a seminar on IFRS (International Financial Reporting Standards) addressed by a lot of distinguished speakers. I am giving below a summary of it.

• Accounting is the language of business. With globalisation, IFRS will emerge as the common language by which companies across countries will do business. (With the decline of USA as a superpower, US GAAP is likely to be replaced by IFRS).
• The current accounting system is rule based and based on historical cost. IFRS is based on principles. No court order of any country will be able to supersede IFRS.
• India has agreed to accept this by 2011. Since accounts also have one-year-old data, it means Indian companies have to be IFRS compliant by 2010. A great deal of preparation will be necessary long before the adoption date.

By adopting IFRS, Indian companies can bridge the Atlantic divide, integrate and then participate in the global economy.

• The advantage for Indian companies adopting IFRS will be ease in doing business with global clients, particularly in USA and Europe. These countries do not trust the accounts of Indian companies, nor most of the small to medium size auditors who audit these accounts. It will also mitigate the risk premium built by investors who are not conversant with Indian accounting standards.
• Moreover, foreign investors are more likely to invest in firms whose accounting is similar to accounting of the country of the investors.
• In the area of M&A, accounting for intangibles like goodwill with indefinite useful life need not be written off in IFRS leading to declaration of higher profits. An impairment test has to be done by the management of the company, whose judgement will be supreme.

There will be nothing like "extraordinary income" in IFRS.

Much more non – accounting information will be included and the judgement of the management will be of paramount importance in several matters. Doing away with the schedule XIV rule for depreciation is just one of the many examples.

Contributed By:

Prof. J. N. Mukhopadhyay

(Globsyn Business School)