perception of auditors on implimentation of ifrs in...

National Seminar on “IND-AS : A Road Map for IFRS in India”

VVPGC March 18 & 19, 2016

ISBN : 978-93-5254-333-5 1

PERCEPTION OF AUDITORS ON IMPLIMENTATION OF IFRS IN INDIAN

ACCOUNTING SYSTEM- A CASE STUDY WITH RESPECT TO BENGALURU

AUDITORS.

Girisha M C

Assistant Professor,

Dept. of Commerce and Management,

GFGC Periyapatna.

Dr K Nagendra Babu

Chairman,

Department of Studies in Commerce,

Manasagangothri, University of Mysore,

Mysore.

ABSTRACT

Today, the world’s financial markets are borderless. Companies (including small companies)

seek capital at the best price wherever it is available. Investors and lenders seek investment

opportunities wherever they can get the best returns commensurate with the risks involved. To

assess the risks and returns of their various investment opportunities, investors and lenders

need financial information that is relevant, reliable and comparable across borders.

Conversion is much more than a technical accounting issue. Ind AS (the converged IFRS

standards) in India may significantly affect a company’s day-to-day operations and may even

impact the reported profitability of the business itself. Conversion brings a one-time

opportunity to comprehensively reassess financial reporting.

This paper focusing on Convergence to IFRS is not a mere accounting exercise but will have

significant business implications. Hence, companies would augur (Predict) well to start

preparing early and not wait for the last moment to rush to converge. The relevant primary

data will be collecting field survey through questionnaires. The data collection will be on

Operational challenges for accountants by implementation of IFRS.

Key words - IFRS, accounting language, convergence of IFRS.



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INTRODUCTION

The history and development of international standards for accounting and auditing trails back

all the way to the late 1960s, but never have they reached greater prominence than today as

the world moves closer towards international convergence.

In the present era of globalization and liberalization, the World has become an economic

village. The globalization of the business world and the attendant structures and the

regulations, which support it, as well as the development of e-commerce make it imperative to

have a single globally accepted financial reporting system.

Today, the world’s financial markets are borderless. Companies (including small companies)

seek capital at the best price wherever it is available. Investors and lenders seek investment

opportunities wherever they can get the best returns commensurate with the risks involved. To

assess the risks and returns of their various investment opportunities, investors and lenders

need financial information that is relevant, reliable and comparable across borders.

Conversion is much more than a technical accounting issue. Ind AS (the converged IFRS

standards) in India may significantly affect a company’s day-to-day operations and may even

impact the reported profitability of the business itself. Conversion brings a one-time

opportunity to comprehensively reassess financial reporting.

LITERATURE REVIEW

Henry et.al., evaluated the difference between financial results under U.S. GAAP compared to

IFRS. Their results show that convergence between U.S. GAAP and IFRS is occurring. Using 2004

to 2006 reconciliation disclosures, the authors found that the calculated difference between

shareholders’ equity under U.S. GAAP and under IFRS declined from 2004 to 2006. In addition,

the difference between U.S. GAAP and IFRS reported net income during this period also

declined but remained significantly different. Pensions and goodwill appeared to be the

dominant reconciliation items.

Daske et al., examined 3,100 firms in 26 countries mandated to adopt IFRS in “Mandatory IFRS

Reporting around the World: Early Evidence on the Economic Consequences.” The study

examines the economic effects of IFRS, for both early and mandated adoption. The authors

concluded that a company’s adoption of IFRS creates strong economic benefits in countries

with rigid regulation over financial reporting. These benefits include an increase in the stock’s

market value, an increase in market liquidity, and a lower cost of capital. Companies with major

differences between GAAP and IFRS standards show the greatest benefit when supported by a

strong regulatory environment.



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INDIA & IFRS

The paradigm shift in the economic environment in India during last few years has led to

increasing attention being devoted to accounting standards as a means towards ensuring

potent and transparent financial reporting by any corporate. ICAI, being a premier accounting

body in the country, took upon itself the leadership role by establishing ASB, more than twenty

five years back, to fall in line with the international and national expectations. Today,

accounting standards issued by the Institute have come a long way. The ICAI as the accounting

standard - setting body in the country has always made efforts to formulate high quality

Accounting Standards and has been successful in doing so. Indian Accounting Standards have

withstood the test of time. As the world continues to globalize, discussion on convergence of

national accounting standards with International Financial Reporting Standards (IFRS) has

increased significantly

“IFRS is acceptable globally and provides a common accounting / reporting language to the

world.” International Financial Reporting Standards (IFRS) have received a lot of hype over the

past few years. It is important that accountants, finance professionals, and investors all need to

understand and learn the IFRS method, as its implementation has serious ramifications for

financial reporting.

IFRS is “A single set of high quality understandable and enforceable global accounting standards

that require high quality, transparent and comparable information in financial statements and

other financial reporting to help participants in the world's capital markets and other users

make economic decisions

On 2 January 2015, the Press Information Bureau, Government of India, Ministry of Corporate

Affairs (MCA) issued a note outlining the various phases in which Indian Accounting Standards

converged with IFRS (Ind AS) is proposed to be implemented in India, for Companies other than

Banking Companies, Insurance Companies and NBFCs

Implementation is a quantum leap from mere intent. With the standards and roadmap being

notified, the Government has kept its date with IFRS convergence. The ball is now firmly in India

Inc’s court. The corporate sector will need to do its part to make the implementation a success,

starting with an acknowledgement of the fact that this is not just an accounting change, but

something that impacts the whole organisation and the way they do business.

The Ind AS bring in several changes when compared to the current Indian GAAP, and many of

these would have a significant impact on reported earnings, and net worth; but these changes

are manageable, with adequate planning. This section summarises some of the critical GAAP



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differences that are likely to be pervasive with some companies and sectors being more

impacted than others.

India’s efforts towards convergence with IFRS is a giant leap forward and to make Indian

standards contemporary. However, due to the existence of certain carve-outs or deviations

from IFRS, these standards would not be considered as equivalent to IFRS, even though the

carve-outs are relatively minor. While some of these carve-outs are optional, there are certain

mandatory carve-outs, which may prevent companies from being able to state dual compliance

with IFRS as per the IASB. Ability to state full compliance with IFRS would be relevant for several

Indian companies that are raising funds from global investors, including from leading global

capital markets.

The transition to Ind AS has an organisation wide impact, and not just accounting. Companies

need to plan in advance and invest time. Given the pervasive nature of the impact of these new

standards, in addition to the financial reporting impacts, companies will also have to assess

impact on other stakeholders such as investors and analysts. Companies would also have to

determine the impact of the standards on areas such as tax planning, compliance with loan

covenants, incentive plans, new arrangements for acquisitions, funding, etc. This would also

require changes to systems and processes including, sales and contracting processes, IT

systems, internal controls, etc.

METHODOLOGY

This paper focusing on Convergence to IFRS is not a mere accounting exercise but will have

significant business implications. Hence, companies would augur (Predict) well to start

preparing early and not wait for the last moment to rush to converge. The relevant primary

data will be collecting field survey through questionnaires. The data collection will be on

Operational challenges for accountants by implementation of IFRS. The primary data collected

from 30 auditors in Bangalore.

Objectives of the study

To study the IFRS and its implications

To understand the importance of IFRS

To identify the operational challenges face by the auditors



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ANALYSIS AND INTERPRETATION

1. The information collected from 30 respondents. In this respondents there are 20

chartered accountants and 10 accounting and auditor

Chartered accountant Auditors

20 10

(Survey data)

(Survey data)

Interpretation – the information collected from 20 chartered accountants and 10 auditors.

2. Experience.

Less than 10 years 15

10 to 20 years 10

20 to 30 years 3

30 to 40 years 2

More than 40 years 0

(Survey data)

Interpretation- the data collected from chartered accountants and auditors, in this group there

are 15 members who have experience of less than 10 years. 10 respondents have more than 10

tears and less than 20 years of experience. Rest of 5 members have experience of more than 20

years in this field.

20

10

0

10

20

30

CA AUDITOR

15

10

3 2 0

0

5

10

15

20

Less than 10 years 10 to 20 years 20 to 30 years 30 to 40 years More than 40 years



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3. Implementation of IFRS in India brings valuable changes in Indian accounting system.

Strongly disagree 0

Disagree 4

Neither disagree nor agree 0

Agree 15

Strongly agree 11

(Survey data)

Interpretation- from the above data depicts that implementation of IFRS brings valuable

changes in Indian accounting system. 26 respondents agreed that there are valuable changes in

Indian accounting system after implementation. Other 4 members disagree with this

statement.

4. Implementation of IFRS is difficult in Indian business and accounting scenario

Strongly disagree 3

Disagree 1


Agree 15

Strongly agree 11

(Survey data)

0

4

0

15

11

0

5

10

15

20

Strongly disagree Disagree Neither disagreenor agree

Agree Strongly agree



ISBN : 978-93-5254-333-5 7

Interpretation- from the above table, it shows that there are many difficulties in Indian business

to implement IFRS. 26 respondents agree with this statement because of operational

difficulties. Other 4 respondents not agreed.

5. India need still more time to implement IFRS

Strongly disagree 10

Disagree 8


Agree 8

Strongly agree 4

(survey data)

Interpretation- from the above graph shows that majority of 18 respondents not willing to

postpone the implementation of IFRS in India. Other 12 respondent are not agreeing for

implementation right now in India.

6. IFRS in Indian accounting system focusing on good governance

Strongly disagree 0

Disagree 2


Agree 15

3 1 0

15

11

0

5

10

15

20



10 8

0

8

4

02468

1012





ISBN : 978-93-5254-333-5 8

Strongly agree 8

(survey data)

Interpretation- from the above table depicts that majority of respondents saying IFRS focusing

on good governance also in the global world. Only couple of respondents not agreed with this.

7. IFRS method of accounting system led to operational complexities for accountants

Strongly disagree 10

Disagree 3


Agree 5

Strongly agree 2

(Survey method)

Interpretation- from the above graph it clearly shows that 13 respondents said there is no

operational challenges on the part of chartered accountants only the problems for accountants

who maintain in the organisation. 10 respondents nor agree or disagree about this. Other 7

respondents says there will be operational difficulties to maintain accounts.

0

2

10 10

8

0

2

4

6

8

10

12



10

3

10

5 2

0

5

10

15





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8. IFRS implementation requires specialised training for accountants to maintain

accounts according to IFRS and to solve operational complexities.

Strongly disagree 0

Disagree 0


Agree 15

Strongly agree 5

(Survey data)

Interpretation- the above table shows that majority of 20 respondents interested in proposing

training for accountants to solve the operational complexities while maintaining accounts after

IFRS in India. Other 10 members neither disagreed nor agreed for training.

9. Convergence of IFRS throwing light upon healthy relationship for international

business.

Strongly disagree 0

Disagree 0


Agree 15

Strongly agree 5

(Survey data)

0 0

10

15

5

0

5

10

15

20



0 0

10

15

5

0

5

10

15

20





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Interpretation- from the above graph depicts that majority of 20 respondents agree about IFRS

implementation throwing light upon healthy relationship for international business in India.

Remaining 10 members neither disagree nor agree.

10. Harmonisation of accounting practices has led to the flow of foreign capital towards

Indian business.

Strongly disagree 0

Disagree 0


Agree 15

Strongly agree 5

(survey data)

Interpretation- from the above graph depicts that majority of 20 respondents agree about IFRS

implementation leeds to inflow of foreign . Remaining 10 members neither disagree nor agree.

11. Implementation of IFRS in India helps in inculcating ethics and transparency into

accounting practices.

Strongly disagree 8

Disagree 5


Agree 7

Strongly agree 0

(Survey data)

0 0

10

15

5

0

5

10

15

20





ISBN : 978-93-5254-333-5 11

Interpretation- from the above table and graph shows that mixed opinion about ethics in

accounting practice after implementation of IFRS in India. 13 respondents not agree with this

statement. 10 respondents are neither disagree nor agree. Remaining 7 respondents agree with

this ethical practice in India after IFRS convergence.

12. Performance of share market in India will be positive by IFRS practice from all the

companies.

Strongly disagree 0

Disagree 0


Agree 25

Strongly agree 5

(Survey data)

Interpretation- from the above table depicts that every respondents agree with this statement,

it clearly shows that implementation of IFRS in India booming Indian capital market and

financial inflow to the business in India.

8

5

10

7

0 0

5

10

15



0 0 0

25

5

0

5

10

15

20

25

30





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CONCLUSION

Harmonization of accounting practices aims at bringing down the disparities that exists in the

financial reporting system worldwide due to socio-economic, political cultural and legal

diversities among nations. The objective of consolidation is to facilitate the investors and other

stake holders getting comprehensive picture of the economic resources of the nation. Despite

the continual effort by the different organisation to achieve international harmony in

accounting and financial reporting, a complete harmony has not been possible so far owing

factors like absence of strong professional accounting bodies in some nations economic

consideration, nationalisation varied objectives of financial reporting and prevalence of

different legal system in different countries.

References-

1. Ball R.(2008) “ What is the Actual Economic Role of Financial Reporting” available at

http://ssrn.com/abstract=1091538

2. Capkun V. Jeny A.C Jeanjean T. and Weiss L.A (2008) “Earnings management and value

relevance during the Mandatory Transition from Local GAAP to IFRS in Europe” available

at http://ssrn.com/abstract=1125716, retrieved on 5 August 2010

3. Das Mohapatra A K (2012) “International Accounting” second edition, PHI learning

private limited, New Delhi.

4. Lantto A.M and Sahlstrom P (2009) “Impact of International Financial Reporting

Standard Adoption on Key Financial Ratio”, Accounting and Finance Vol 49, pp 341-361.

5. Lantto A.M (2007) Does IFRS improve the usefulness of Accounting information on code

law country?' available at http://ssrn.com/abstract=905218 retrieved on 10 August 2010

6. Stent W, Bradbury M. and Hooks J.(2010) “IFRS in New Zealand: Effects on Financial

Statements and Ratios”, Pacific Accounting Review, Vol 22, No 2, pp 92-107.

7. Turan M S and Dimple “Transition from GAAP to IFRS An evidence from UK“ Journal of

Accounting and Finance Volume25, No 2 ,pp57-66

8. FRS: A quick reference Guide by Robert Krik

9. http:// online library.wiley.com/doi/10.1002/jcaf.20406/abstract

10. http://icai.org/resoucre

11. http://www.pwc.com/enGX/gx/ifrsreportingservices/pdf/viewpoint_convergence.pdf

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