International Financial Reporting Standards (IFRS), as a language of financial reporting, is gaining importance in the era of globalization. More than 100 countries from different parts of the globe are in the process of adopting IFRS. In India, the Institute of Chartered Accountants of India (ICAI) has recently released a paper on convergence with IFRS. The convergence with IFRS is likely to bring in significant challenges. The convergence may affect the net worth, capital and capital adequacy of the Indian banks. This article brings out the challenges and gives a road map for convergence.

In June 2002, the European Union (EU) adopted a regulation which requires all the listed European companies to adopt IFRS in their financial statements by January 1, 2005. During 2002 and 2008, nearly 100 countries were proceeding towards the adoption of IFRS. By 2011, nearly 150 countries are expected to adopt IFRS. Global convergence results in a lot of benefits for the companies. Management information will be improved for decision making. Due to IFRS, there will be better access to capital from different countries and there is a possibility of reduced cost of capital. Usage of one consistent reporting system in subsidiaries is possible. The IFRS also facilitate mergers and acquisitions for enhanced competitiveness. Investors also will be benefitted by getting good decisions. Confidence will be built and better understanding of risk and return is possible. Comparison of performance is possible among the same companies because of uniform reporting system.

Even policy makers can strengthen the capital markets and there will be better access to the global capital markets. There will be the possibility of promoting cross-border investments. From the shareholders perspective also, there will be greater credibility and improved economic prospects. Better financial reporting enhances the transparency of companies. From April 1, 2011 onwards, IFRS will be applicable to all listed companies, banks, mutual funds, and insurance companies, whose turnover exceeds Rs. 100 cr or public/bank borrowing exceeds Rs. 25 cr, including holdings and subsidiaries of the above entity. The ICAI approach to convergence will be at two levels, one at stage-wise approach and the other, at once approach. In case of any conflicts with regulators or laws, the latter will be adopted. In the case of the banking sector, an important element of transition into IFRS is the convergence of IFRS with RBI guidelines. Successful adoption is based on flexibility and acceptability of the standards by the RBI.

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