Discuss about the Report for International Financial Reporting Standards of Management and Governance.
People recently all over the world are familiar with IFRS as an international accounting standard. IFRS was formerly Known as International Accounting Standards (IAS), but it was not until 2001 that the International Accounting Standards Board (IASB) took over and was responsible for setting the international standard. The organization since then continually came up with standards under the name IFRS. Many countries worldwide use IFRS as a standard measure of accounting. This essay is going to explore the history of IFRS and India as a country that has adopted the IFRS accounting system.
The history of IFRS dates way back into the history of international accounting standards. This mainly points back to the 1960s when companies in the United Kingdom were required to present their statements of accounts using the international standards. The International Accounting Standards history began in 1966. This was after a proposal was presented to come up with an International Study Group which consisted of three main institutes (Paglietti, 2009). The Institute of Chartered Accountants of England and Wales (ICAEW), the American Institute of Certified Public Accountants (AICPA) and the Canadian Institute of Chartered Accountants (CICA). The organization later founded the Accountants International Study Group (AISG) in February of 1967. This newly establishes organization started publishing of papers on various important topics on accounting every few months and thus created a need for change An agreement finally was set up in the establishment of international accounting standards in March 1973 for international use (Argento, Kees Camfferman & Stephen, 2008).
It wasn’t until June 1973 that the IASC came into existence. It was globally agreed that the stated intent released by the new international standards must be capable of quick acceptability and implementation worldwide. During its reign, the organization produced many comprehensive accounts articles dating back to the early history of International Accounting Standards. And between 1973 and before its collapse in 2001 the organization has been actively releasing a series of standards commonly known as International Accounting Standards (IAS). The identified their release with numerical sequence, beginning with IAS 1, and the last release was IAS 41 Agriculture published in December 2000 (Cotter, 2012).
A Standing Interpretations Committee (SIC) was established in the year 1997 to deal with contentious accounting issues. These issues were unique because they needed authoritative guidance as a control measure to stop the widespread variation that was presently in practice. In the year 2000 on February, the United States’ Security and Exchange Commission (SEC) did issue a concept release mainly focused on International Accounting Standards. In a press release of May, 19th 2000, ICAEW stated that they had a vision into the future, a time when the financial statements prepared in with the stipulated international accounting standards shall be recognized in the stock exchange markets throughout the world. IAS was endorsed by the International Organization of Securities Commissions (IOSCO) to be used as a link with the cross-border listings. In August the same year, the ICAEW issued a policy statement regarding the endorsement and enforcement of IAS with EU (Borker, 2012).
History of IFRS
On April of 2001, the IASC did re-establish and restructured its organization which gave way to the birth of IASB. The IASB stated that it would take over the body of standard issued by the board of International Accounting Standard Committee. However, it stated clearly that any new standards would be published in International Financial Reporting Standards (IFRS). In July the 23rd the same year a meeting of the Standards Advisory Council tabled a proposal to rename the Standing Interpretations Committee (SIC) to International Financing Reporting Issues Committee (IFRIC). This was accepted. This change led to releases from IFRIC to be categorized as abstracts rather that interpretations. The Standing Interpretations Committee (SIC) in 2001 was reconstituted and named International Financing Reporting Interpretations Committee (IFRIC) (Latifah, Asfadillah, and Sukmana, 2012).
In May of 2002, a publication of preference to International Financial Reporting Standards was issued by IASB. IASB said that it provided brief details of the main functions and purposes of the main structure regarding the new arrangements for setting worldwide standards. The European Council of Ministers on June 6th of 2002 did approve that would require all EU companies that had been listed on a regulated market to come up with accounts that were recognized by the International Accounting Standards for the accounting period that was to begin on or to other companies after January 1st, 2005.
In 2003 there was the issue of the first standard by IFRS, named IFRS 1. The very same year is when countries like Hong Kong, Australia, New Zealand and South Africa adopted the IFRS system of standardization. It was not until 2005 that IASB completed a stable platform of the IFRSs. And consequently, in Japan, the ASBJ and IASB did agree on a joint measure with IFRS and GAAP.
In 2006, China adopted the accounting standards with was in line with IFRS measure standards and had a goal of full convergence. The very same year is when the IASB and FASB in the United States of America decided to accelerate the convergence program of Memorandum of Understanding (MoU). It was not until 2007 that countries like Brazil, Chile, Canada, Israel and Korea established different timelines aimed at the adoption of IRS. However more than a hundred other countries that needed to adopt IFRS system required to have a permit of its usage.
In the year 2008, FASB and IASB did form a Financial Crisis Group to facilitate a joint response when dealing with the crisis. The same year Mexico and Malaysia announced their intentions to adopt IFRS. In 2009, IFRS' established a branch called Foundation Monitoring Board, and it was tasked with the responsibility of ensuring and enhancing public accountability. The very same year a board of trustees did conclude the first part of the Constitution Review. They introduced a three-yearly public consultation on agendas of IASB. The same year G20leaders supported the IASB work and called for an immediate move towards worldwide accounting standards. Japan also did approve the IFRS roadmap which permitted a voluntary adoption of IFRS in the country.
India, a country that uses IFRS technique of standardizing
In 2010 a board of trustees began reviewing of strategies in parallel with Monitoring Board governance review. The IASB did initiate the launching of dedicated investor liaison program. It was not until 2011 that Canada commenced the use of IFRS. The same year nearly 80 countries had adopted the IFRS for SMEs or the least did plan to do so. The same year the board of trustees did establish IASB Emerging Economic group. Reforms in governance were also made, and Hans Hoogervorst appointed the chairman of IASB and Ian Hackintosh, his vice president. In the year 2012 Mexico, Argentina, and Russia did commence the use of IFRS. IASB did complete its first three-yearly agenda consultation (Singh, and Newberry, 2008).
In 2013 the board of trustee concluded major revisions to Due Process Handbook. The trustee also established an Accounting Standards Advisory Forum which was responsible for holding inaugural meetings. It was also in 2013 that IOSCO and IFRS foundations agreed on a joint statement of protocols to facilitate the consistency in the application of IFRS worldwide. The same year IFRS published jurisdiction profiles to charge the progress towards global accounting standards.
Overview of IFRS
The IFRS standards had been formulated and approved by International Accounting Standards Board (IASB). These had been put forward for all the standards financial statements of profit companies and organizations. This covered enterprises dealing in financial, commercial, industrial, insurance companies and other mutual co-operatives entities. The IFRS standards had been recognized as a globally accepted reporting norms for all financial statements. Countries like New Zealand, Australia, and Netherlands had started using thru IFRS standards and some of this countries had started to report the numbers in dual system that is, in the newly adopted IFRS system and their national AS. The IFRS standards provided a common standard platform and a worldwide scale to compare the different financial reports of different companies across different countries globally (Hoogendoorn, 2006)
Institute of Chartered Accountants of India (ICAI) is regarded as the national accounting body of India. The body was established on July 1st, 1949 under the Chartered Accountants Act. The body was charged with the responsibility of regulating the profession of Chartered Accountancy in the country. ICAI holds as the only licensing regulatory body of accountancy professional and financial audit in India. Initially, the ICAI had set targets of the implementation of IFRS in India in the year 2007. By this time the IFRS international standards had been widely accepted and used in more than a hundred companies all over the world. Prime economies like Japan and Brazil had already initiated a roadmap for the convergence of IFRS. The USA was paving its way for the standards to be implemented in early 2014 (Ionascu, Ionascu, Sacarin, and Minu, 2014).
The accounting standard board based in the Institute of Charter Accounting in India (ICAI) formulated the accounting standards that were to apply to Indian companies. The standards were introduced to the country as a form of a recommendation. However, as time went by they were made compulsory. The amendment of companies Act that dated back in 1956 was amended in 1999 to pave the way for the provision of legal sanctity the adopted accounting standards. This Act stipulated that all companies in the country were required to follow standards and guidelines put forth by the central government of India. The government of India's Ministry of Corporate Affairs prescribed Accounting Standards 1 to 7 and then nine all the way o 29 which had been laid down by ICAI (Ray, 2012). The ministry also issued amendments to the regulations to harmonize the old and the newly adopted Accounting Standards published by ICAI. Due to the above minor changes made on the regulatory framework, the recently adopted Accounting Standards were implemented and made ready for the financial statements starting from the 7th of December 2006. To ascertain their implementation, there was the issue of notices to the three regulatory authority Reserve Bank of India (RBI). The other to receive an issue was Insurance Development and Regulatory Authority (IRDA), and the last t receive was Security Exchange Board of India (SEBI). These three were to ensure enforcement of the newly adopted accounting standards in the country. ICAI being a member of International Federal of Accountants (IFA) developed means of integrating the doctrines of International Financial Report Standards (IFRS). However, there were not fully adopted as ICAI made some modification on some norms mainly contributed to the Indian conditions. ICAI in accordance to the central government of India issued new guidelines focused on the implementation of IFRS in the country hence bridging the gap between the IFRS and Indian AS (Kinkela, Harris, and Malindredos, 2010).
The ICAI had proposed the implementation of IFRs to kick off in 2011 in India. In the first phase, IFRS will be adopted and made applicable to banks, large sized companies, listed companies, and insurance companies. The ICIA had another proposal to tweak the IFRS in accordance to the Indian suitability for SMEs. However, this will only happen after a successful implementation of IFRS in other companies, and this makes the IFRS implementation into SMEs to be expected to begin in 2017.
Studies show that there are many benefits that the country has gained since the convergence between the Indian GAAP and IFRS. Studies show that there are seven benefits of this convergence. There was an increased in access to worldwide market, there was the improvement of the brand value, there has been an increased transparency in financial reporting, there has been a real reflection of acquisition value, this merge has also enabled benchmarking with Indians, global peers, has also lowered the capital cost and has allowed the avoidance of multiple reporting (Firoz, Ansari, and Akhtar, 2011). Other studies have associated this convergence into categories of; confidence level, risk evaluation, economy, investors, accounting professionals and the industry (Thomas, 2009).
A study on the industry proves the benefits of the convergence with IFRS. This has been associated with the increased confidence in investors’ minds aiming at India. The benefit also is seen with a reduction in load of financial reporting. This convergence has also been associated with simplifying the process of generating individual or group financial statements. The other benefit is the reduction in costs associated wth the generation of the numerous financial reports. This benefits as studies shows will enable India as a growing economic country to generate capital from the international markets at very reduced costs (Malwitz, 2009). This mainly is as a result of investors gaining confidence in the country and their financial reports as they are in agreement with the worldwide used accounting standards. This is in the aftermath of the minimized workload of financial statements due to the low costs of preparing individual or group financial statement. From this point of view, it can be reasoned out that the financial investors massively save on costs that would have been incurred while using different sets of accounting standards in an attempt to generate that statement. India has also benefited with a boost in the cross-border merger and acquisition as a result of the adoption of IFRS accounting standards (Kieso, Weygandt, and Warfield, 2010).
Benefits with the accounting professionals; the convergence was somehow associated with problems at the initial phase however with time India has helped in the accounting professionals as they can now sell their accounting expertise across the border. This shows that India has given its accountant's population a free ticket to sell their expertise to other countries because the accounting standards are the same, and this has helped with the unemployment problem in the country (Jain, 2011).
Investors and the corporate world; this merger has enabled India to receive timely and relevant accounting information that has been compared with varying legal framework given the fact that it is based on common accounting standards. This has helped those who want to invest outside India as it improves the confidence of these investors. In the past, this was a huge trouble as the accounting standards were different and this was mainly associated with increased costs. Therefore, it can be concluded that the convergence with IFRS has improved the country’s investors’ confidence and understanding in quality financial reporting (Ball, 2006). In a report released about the convergence, it showed that it had improved the country's relationship and reputation with Indian's corporate world and the vast global community.
Economy; from all the above discuss aspects of the benefits of the convergence the ultimate attribute is to the economy of India since all of this points at the improvement of the industrial sector in India. They stipulate how corporate houses and accounting professionals will benefit and also shows how investors confidence improved due to the little risk involved with the IFRS compliant nations. It also indicates that the country has benefited from the available extended global market as its adoption of IFRS has enabled the country to grow in the global business (Daske, Hail, Leuz, and Verdi, 2008).
IFRS did present a challenge to the corporation in its initial stages of adoption as there was an elevated cost due to dual reporting before the full convergence was achieved. A problem in the accounting framework was noted as it necessitated a change in the taxing structure that was present in the Income Tax Act and Company Act in the attempt to make the financial statements acceptable (Poria, and Guides, 2009). A challenge was also seen when the accounting sector had to train their auditors, tax authorities, stakeholders, and regulators in the attempt made to achieve consistency and uniform application of IFRS. The option also came with additional costs that must be incurred during the second reporting exercise before a company fully adopts the IFRS and costs associated wit training and adjustments of quantity and quality fo products. Enterprises that took the IFRS standard incurred new expenses in the IT modifications for data collection which was a major requirement if the new standard had to be fully implemented (Jain, 2011).
The convergence with IFRS also proved a challenge in the consistency regarding the prevailing of the legal and regulatory requirements in India. For example, the Accounting Standards (AS) 25 did not allow the disclosure of interim statements of finance due to Clause 41 however by the adoption of the IFRS standard this was a requirement to present a format of half-yearly or the quarter-yearly financial results (Paul, and Burks, 2010).
The IFRS standards are the world most trusted and recognized standard as shown by a report released. Countries that have accepted and adopted the IFRS standards do benefit from the availability of large markets for their products and the benefits of foreign investors who create job opportunities this country. The convergence and adoption of IFRS by the India were a brilliant move. Despite the few short-coming that comes with the new adoption, benefits realized from it are so much that it has opened up India as a whole to global economic markets and investments. And since it is a growing country it has mostly benefited from this move nd the commercial standards of India is currently on the rise (Nobes, 2006).
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