IFRS
 
Meaning of Convergence with IFRS
  1. Convergence means to achieve harmony with IFRSs; in precise terms convergence can be considered "to design and maintain national accounting standards in a way that financial statements prepared in accordance with national accounting standards draw unreserved statement of compliance with IFRSs", i.e., when the national accounting standards will comply with all the requirements of IFRS.
  2. But convergence doesn't mean that IFRS should be adopted word by word, e.g., replacing the term 'true & fair' for 'present fairly', in IAS 1, 'Presentation of Financial Statements'. Such changes do not lead to non-convergence with IFRS.
  3. The IASB accepts in its 'Statement of Best Practice: Working Relationships between the IASB and other Accounting Standards-Setters' that "adding disclosure requirements or removing optional treatments do not create noncompliance with IFRSs. But additional disclosures or removing of optional treatment should be made clear so that users of the IFRS are aware of the changes.
Why Convergence to IFRS?
  1. A single set of accounting standards would enable internationally to standardize training and assure better quality on a global screen.
  2. It would also permit international capital to flow more freely, enabling companies to develop consistent global practices on accounting problems.
  3. It would be beneficial to regulators too, as a complexity associated with needing to understand various reporting regimes would be reduced.
Benefits of Convergence
  1. Convergence with IFRS eliminates multiple reporting such as Indian GAAP, IFRS, US GAAP
Increase Comparability
  1. IFRS will give more comparability among sectors, countries and companies.
  2. This will result in more transparent financial reporting of a company's activities which will benefit investors, customers and other key stakeholders in India and overseas.
Access to Global Capital Markets
  1. Convergence with IFRS will enable Indian entities to have easier access to global capital markets and eliminates barriers to cross-border listings.
  2. It encourages international investing and thereby leads to more foreign capital flows to the country.
Benefits for Investors
  • Financial statements prepared using a common set of accounting standards help investors better understand investment opportunities as opposed to financial statements prepared using a different set of national accounting standards.
Benefits for the Industry
  1. Currently companies need to prepare additional financial statements based on multiple reporting formats to arise capital in global market.
  2. Convergence with IFRS will eliminate the requirement for dual set of financials statements and thereby reduces the cost of raising funds by the companies
IFRS balance sheet will be closer to Economic Value
  • Historical cost will be substituted by fair values for several balance sheet items, which will enable a corporate to know its true worth.
Benefits To The Accounting Professional
  • Convergence to IFRS will increase the opportunities for Indian professionals in abroad as they will be able to sell their services as experts in different parts of the world.
Improvement in Financial Reporting
  1. Better quality of financial reporting due to consistent application of accounting principles and improvement in reliability of financial statements.
  2. This, in turn, will lead to increased trust and reliance placed by investors, analysts and other stakeholders in a company’s financial statements.

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