International Financial Reporting System (Ifrs) Convergence

2895 Words Mar 28th, 2011 12 Pages
ABSTRACT

International Financial Reporting System (IFRS) convergence
- effects on Indian banking System
As Indian economy is gradually attuned to the global best practices, the country is slated to converge the Indian Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS) from 01.04.2011 The Banking and Insurance sectors are excluded from this cut off time period and the convergence activities are ongoing. There is need for convergence of RBI guidelines also with IFRS. As it has significant impact on financial position and performance of banks, this study has highlighted the concept of IFRS in general and Banks in particular. It discusses on the impact, gaps and issues relevant to
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3. Difference between GAAP and IFRS  IFRS are the less-detailed financial reporting rules developed by ISAB that have become widely mandated, adopted or emulated in by over 100 countries. The IFRS is increasingly being adopted by companies across the globe for preparing their financial statements. On the other hand, the US GAAP has been developed by the Financial Accounting Standards Board or FASB for listed companies. Securities Exchange Commission has asked US companies for transition to IFRS by 2016.

 There are quite a few similarities between IFRS and US GAAP and the differences are rapidly getting reduced owing to the convergence agenda. The differences are seen in revenue recognition, expense recognition, arena of financial liabilities and equity, criteria for consolidation, method of costing inventory, contingencies, debt covenant violations. The main difference between GAAP and IFRS is that GAAP is based on rules, while IFRS is based on principles.

4. Benefits to the Change to IFRS
a) The stringent disclosure requirements will improve the reporting standards of liabilities such as future pension costs and employee stock schemes.
b) IFRS is easier to use and will result in better reporting
c) Investors will prefer IFRS
d) IFRS is a “global” approach; comparability to financial statements from other countries will be feasible and easier
e) Lower cost of
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