Importance Of IFRS …. How IFRS Is Inevitable?

iACT_IFRS

What IFRS ensures?

If financial reporting has to ensures good corporate governance, it must also have the following characteristics-

  1. Uniformity
  2. Consistency
  3. Reliability

 

How Globalization has impacted?

These two are taking place beyond the local boundaries-

  1. Investment
  2. Trading

Now in order to make the comparison amongst the different companies, a globally accepted framework is required.

How the countries are reacting?

IFRS as issued by IASB (International Accounting Standard Board) being adopted by more than 100 countries like EU nations, Australia, Pakistan etc. Others are expected either to adopt IFRS or to converge their own standards with these. One commitment undertaken by the member countries in 2009 at the G 20 summit was of converging AS with the IFRS by 2011. Even India has a favorable stand.

How much time we have? (For the convergence to take place)-

Voluntary Adoption –

  • Comparatives for the period ending 31 March 2015 or thereafter

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Mandatory Adoption –

  • Comparatives for the period ending 31 March 2016 or thereafter – This is for the following companies –
  1. Companies whose net worth is 500 crore INR or more
  2. JVs, Subsidiary, Holding, Associate of the above

 

  • Comparatives for the period ending 31 March 2017 or thereafter – This is for the following companies –
  1. Companies whose equity/debt securities are either listed or are in the process of being listed either in India or outside India and have net worth of less than 500 crore INR
  2. Unlisted companies having Net worth of 250 crore or more
  3. JVs, Subsidiary, Holding, Associate of the above

 

Which areas shall be impacted most owing to IFRS?

The transition will have major impact on the following areas of the listed companies-

  1. Revenue
  2. Operating Profit
  3. Goodwill
  4. ROE
  5. Net Profit

Sectors such as – Telecoms; Real Estate; Oil & Gas; Metals will bear most of the impact. As per the experts of the finance industry, the IFRS convergence may lead to a drop in overall EBITDA by 2% to 3% and an increase in the revenues by 4% to 5%.

What was the ‘fuel-injection’ behind IFRS?

Asian Financial Crisis of 1997-98 also attributed for this IFRS adoption. A research carried out by ACCA, post ten years showed that the CFOs of Indonesia, China, Singapore, Philippines, Cambodia, Vietnam were desirous of having a global framework that would allow their western investors to contribute more promptly.