Enterprises are willing to toddle (walk) down to the Global Market and want to reach their products and services to the Global Customers, as well inviting the Global Investors to invest in their company.
An organization follows certain Accounting Standards notified by the Government of the corresponding countries. In order to attain the capital beyond the frontiers then it has to prepare Financial Statements according to the policies of the other countries, from where it expects to gain the capital.
The Global Investors would like to compare the Financial Statements based on uniformed standards. Hence, it laid the seed for the formation of the Standard which are followed by all the organization around the World, who are willing to step towards the International Business.
Having multiple Accounting Standards from country to country it is against the interest of the public. Therefore, the government of the various countries found the requirement of the Global Standards to bring about uniformity, rationalization, comparability, transparency, and adaptability of Accounting Standards in the preparation and presentation of Financial Statements.
Hence, Global Standards will reduce the capital gaining cost as the companies need not to translate their Financial Statement and as well the Investor will trust the companies for the investment, as the investors can easily compare the Financial Statement against the various companies.
International Accounting Standards Board
A London based group named International Accounting Standards Committee (IASC) has taken the responsibility of developing and setting of the Global Standards known as International Accounting Standards. This committee was established purely in public interest in June, 1973.
In the preparation of IAS, IASC has been transformed as International Accounting Standards Board. It consists of the Professional Accounting Bodies of 75 countries including the ICAI. The members of the IASB has taken the responsible to promulgate the Standards formulated by the IASB and propagating these Standards in their respective countries.
The main objective of the IASB is to formulate and publish the IAS, that to be followed in the presentation of Audited Financial Statements.
- Between 1973 – 1999: IASC restructured its organization in the formation of IASB.
- Between 1973 – 2001: IASC released IAS.
- The IASB and IAS released by the IASB came into effect on 1st April, 2001.
- 2001-Present: IASB issued the IAS of current and future standards.
- IASB publishes its standards in a series of pronouncements (a formal public statement) called International Financial Reporting Standards (IFRS) and these pronouncements continue to be designed as International Accounting Standards.
- Even thought, IASB has not yet rejected the standards issued by IASC.
- IASB approved IASB Resolution on IASC standards at the meeting on 1st April 2001. And confirmed all the IASC standards and Standard Interpretations Committee’s (SIC) Interpretations.
International Financial Reporting Standards
IFRS are considered as “Principle based” set of standards as they dictate the broad rules rather than any specific accounting treatment. Major nations are adopting these standards up to some extent. These standards are being used by; the public companies to list in the Stock Exchange; Insurance and Stock Exchanges Companies, Banks to prepare statutorily required reports. Beyond that lenders and Governments are taking IFRS to fulfill the local financial reporting obligations related to financing or licensing.
IFRS in India
Indian companies are acquiring the overseas companies; hence they need to follow the internally accepted standards to convince the foreign enterprises; in the preparation and presentation of the Financial Statements. Indian Capital Market is also willing to converge with IFRC. Therefore, the convergence of Indian Accounting Standards with the IFRC would require changes in our Laws.
ICAI, is already on its way to minify the deviations in convergence of IFRC. For this purpose ICAI constituted a Task Force to examine the various issued involved. While adopting IFRS as it is, in our Standards, ICAI makes some deviations from the corresponding IFRS according the legal and other conditions prevailing in India.
Accounting Standard Board of ICAI with consultation of the Core Group, constituted by the MCA (Ministry of Corporate Affairs) decided that in India there will be two sets of Accounting Standards for the convergence of India Accounting Standards with IFRS.
Existing Accounting Standards
These standards are not converged with the IFRS and will be followed by the entities which are not falling within the prescribed threshold limits of the IFRS, in the preparation and presentation of Financial Statements.
These Standards are formulated with the convergence of the IFRS. The MCA has hosted 35 converged Indian Accounting Standards and these are known as Ind AS. These standards are formulated by eliminating the differences between the IFRS and AS, vice versa. These standards should be followed by the entities falling with the threshold limits prescribed by the IFRS.