Indian Accounting System And International Financial Reporting Standards Accounting Essay
1. History: The roots of accounting system in India had been evolved in early 16th century when India had built trade links with Europe and cardinal Asia.
Later, with entry of east India company had made a immense impact on trade and commercialism of India. The British raj ( regulation ) states that the accounting and fiscal pattern between India and England was about similar.Furthermore at the clip of independency India in 1947, there were some alterations in accounting patterns to fit up to the Indian economic system. The accounting pattern varies from different little unorganised rural countries and little scale urban industrial sector.
In India, big figure of concerns is holding a conservative mentality and do n’t desire to unwrap any fiscal information sing their company due to holding fear rivals and keep privateness ( Perumpral, S.E. et Al. 2009 ) .
1.1 Significant alterations in economic system: Indian economic system policy has seen an of import alteration in the twelvemonth 1991, when the authorities had liberalized the economic system for foreign coactions and investings. Some sections of the populace sector which were antecedently with authorities were privatized. With this important alteration India emerged as a major state in export of industrial and consumer goods, etc.
With this first phase of globalisation besides gave the chance to interact with major international organisations like United Nations, the universe bank and many more. Still the populace sector has an of import topographic point in Indian economic system as all industries that are fabricating to function national defense mechanism is with Indian authorities ( Perumpral, S.E. et Al.
2009 ) .2. Current Accounting pattern in India: All the accounting patterns done by the populace and the organized private sector companies are based on the regulations of The Companies Act,1956, and in many standards they are similar to International Accounting Standards. The of import amendments in this act which are modified are in the old ages 1965 and 1969, which introduced the regulations and ordinances of fixing cost histories and the cost audit demands.
There have ever been research attempts from some organisations to fit the altering demand of accounting system with quickly altering economic environment. These organisations include ‘Indian accounting association ‘ , ‘Indian council of societal scientific discipline research ‘ and ‘Institute of Chartered Accountants of India ‘ ( ICAI ) . Besides all these organisations there is ever been a cultural and political influence on Indian accounting patterns ( Perumpral, S.E.
et Al. 2009 ) .2.1 RoIe of ICAI: Institute of Chartered Accountants of India ( ICAI ) is a legal organic structure came into being under hired comptrollers act of 1949 ( more specifically Act no.
XXXVIII of 1949 ) , with the intent for modulating the hired comptrollers profession in India. As being a long being in Indian economic system ICAI has made it ‘s acknowledgment as a taking accounting organic structure because of it ‘s part in keeping high accounting, scrutinizing, supplying instruction and puting up of ethical criterions. Until now ICAI has issued 32 different criterions ( ICAI, 2010 ) .ICAI has once more brought a important alteration by presenting The Accounting Standard Board ( ASB ) in 1977, to harmonise diverse accounting patterns of India and to convey them together to a common platform with the planetary patterns ( Shankaraiah, A K.
and Rao, D. N. , 2004 ) .3.
Harmonization of criterions: Accounting criterions trades with mensurating system and contains regulations for fixing and showing fiscal statements. Under the planetary concern environment there is demand to develop a common accounting linguistic communication that can be spoken and understood by all companies throughout the universe. The fiscal coverage system should be of a planetary criterion to pull foreign companies and besides to entree to more place investors ; these all can be possible by harmonisation of accounting criterion. The end behind puting criterion is that they help in conveying uniformity in fiscal coverage and besides makes it more comparable and consistent ( Bharathan, V.
, 2005 ) .3.1 Issues with divergent accounting patterns: Accounting differences causes job in rating and therefore in the determination devising procedure. It besides puts extra costs of fiscal coverage and leads to troubles for transnational companies in construing minutess.
For illustration, By the terminal of the fiscal period in 1994, British telecom harmonizing to UK GAAP accounted a net net income of ?1767, but under the regulations of US GAAP it reduced to ?1476. These qualitative differences can merely be eliminated utilizing internationally accepted individual set of criterions ( Bharathan, V. , 2005 ) .4.
Criticisms to current Indian accounting criterion: There are some unfavorable judgments to Indian accounting criterions as, that they are really loosely based and general that gives opportunity to utilize similar accounting methods for similar events. For illustration, the accounting for disbursals which are incurred under a strategy called voluntary retirement strategy, in which 1 can utilize the different methods runing from present value amortisation of future pension to pay as you go method.Another ground for divergent accounting patterns in India is deficiency of coordination between companies act 1956 of India, income revenue enhancement act 1961 commissariats and accounting criterion. Though in India at present, ICAI sets the accounting criterion but in the procedure of fixing criterions one could easy see the deficiency of involvement by company statute law in the planning of accounting regulations.
This resulted in several spreads in demand of company jurisprudence refering fiscal statements like gaining per portion, amalgamations, future hard currency flow information etc. ( Bharathan, V. , 2005 ) .Before the period of 1990 ‘s, Indian companies were non concerned towards corporate administration.
In that period the companies, investors suffered from weak system with hapless revelation patterns, deficiency of transparence but, that status had started bettering after the procedure of liberalisation. The conditions further improved with the constitution of a commission on corporate administration by “ Securities and exchange board of India ” ( SEBI ) to raise the criterion of administration of all the companies ( Rajagopalan, R. , 2003 ) .4.
1 Why planetary accounting criterion? : Harmonizing to IIM professor Mr. R.Narayanaswamy, in such development phase where, Indian concerns are going planetary in their operations there is an of import demand to follow planetary accounting criterion and to get the better of bing fiscal unfavorable judgments. The ground for acceptance of such planetary criterions as because of their quality, transparence and acceptableness make them internationally recognized.
By these planetary criterions Indian companies can pass on more cost expeditiously with other states. Mr. Narayanaswamy besides concerns about being uneffective monitoring of describing entities. Harmonizing to him, SEBI lacks in enrolling the sort proficient staff they require.
Another issue is that there is no criterion which serves to concern combinations, the one AS 14 which is there- lone trades with merger, but many concerns come in contact by inter-company investings. The criterions associating to gross acknowledgment, presentation of fiscal statements and many more are outdated and there is demand to be reworked on them ( Narayanaswamy, R. , 2007 ) .5.
IFRS: Is the accounting model which are being set by standard puting private sector organic structure, international accounting criterion boards ( IASB ) , which replaced IASC foundation in 2001 ( IASB, 2010 ) .5.1 Adoption of IFRS: Indian authorities and ICAI has decided to to the full meet with international fiscal coverage criterions ( IFRS ) and will be functional from April 1,2011. The president of ICAI Ved Jain said, that the determination of following a common accounting criterion is to assist the investors who are seeking an chance to put in different geographical countries as good.
Presently more than 110 states including China which have adopted IFRS pattern.Besides at that place many more states like Japan, Canada which will get down follow it shortly ( Financial Express, 2008 ) . Budgets are being passed every twelvemonth without meaningful treatments on of import issues because of different positions of different members. Merely little sum of voices come up on that issues and yet they are being forced down ( ICAI, 2009 ) .
5.2 Benefits of following IFRS: Adoption of IFRS will enable the Indian companies to hold more easy entree to international capital markets because many stock exchanges require or permit IFRS certified histories. Presently, to name the securities abroad Indian companies have to fix another set of fiscal statements that are acceptable in the undermentioned state. IFRS will take this demand of fixing double fiscal statements and therefore reduces the cost of raising capital which was earlier dearly-won form foreign markets.
Preparation of fiscal statements harmonizing to IFRS will increase comparison and besides enable foreign companies to develop more thorough apprehension of fiscal statements of Indian companies. Besides the companies, the comptrollers of India will besides derive more cognition and experience in working with IFRS and now they would be globally acceptable. There are benefits for ICAI besides every bit now it can concentrate more on empirical and theoretical research which can be good for Indian accounting profession ( Mercer, 2009 ) ( appendix-1 ) .5.
3 Some farther Amendments in using IFRS in India: There are some criterions of accounting for points like investing belongings, portion based payments, minerals geographic expedition, insurance contracts which requires amendment. The convergence procedure from Indian GAAP to IFRS will be achieved by several alterations in the current Indian accounting criterions. For illustration, current Indian accounting criterion ( AS-14 ) which deals with mergers will be modified in conformity to IFRS 3 which is on concern combinations and acquisitions.The new criterions will be issued in those countries which the current Indian accounting criterion does non cover.
For illustration, a new criterion has to be issue on portion based payments to be harmonizing with IFRS 2. Indian criterion compositors will necessitate to let go of slightly, similar first clip acceptance criterion that will be in conformance with IFRS 1. If any accounting criterion ca n’t be converged to conformance of IFRS because of non being harmonizing to Indian jurisprudence or tribunal order, so the commissariats of the said jurisprudence will be ( Khatri, J. 2009 ) ( Appendix-2,3 ) .
All those listed public and private companies along with all those who are in procedure of being listed holding grosss in surplus of Rs. 100crore or whose adoptions transcending Rs. 25crore demands to follow IFRS. Besides all of those private companies, which in the public market have issued debt instruments.
Last all those private companies like Bankss, insurance companies keeping assets in fiducial capacity ( Gajra, R. , 2008 ) .5.4 Complications in using IFRS in India: The basic rule of IFRS is being based on “ just value ” accounting, whereas, Indian GAAP works on the footing of historical cost accounting.
Further, to decrease any possible negative impact like renegociating debt compacts there is a demand to reconsider the direction programs. The company direction should take a right, practical and proactive attack in fixing their programs for the company from such a passage ( Wadhwani, V. , 2009 ) .Harmonizing to Mr.
Sai Venkateshwaran, the passage procedure from to IFRS will be complicated because, in India there will big figure of companies which will be following IFRS. ICAI has taken the first measure by publishing whitepaper which states the wide lineation for this conversion. Besides these several more legislative alterations like amendments to the companies act, regulations and ordinances of SEBI, the income revenue enhancement act etc. hold to be made.
To add up to these the current accounting and the manner of presentation counsel will be modified harmonizing to IFRS. Before using IFRS all the different accounting organic structures like ICAI, companies act, SEBI, income revenue enhancement governments and regulators like RBI ( Reserve Bank Of India ) should work together to fix a regulative landscape for this passage in 2011. Another challenge is to develop big pool of resources like comptrollers from both industry and profession to obtain the aim of this passage ( Giriprakash, K. And Varadarajan, V.
K. , 2008 ).6. Decision: Indian fiscal system has seen many alterations from get downing, but with the mentality of within the state, but now this historical alteration to follow IFRS in India will enable it to utilize the same criterions which the other counties in the universe are utilizing.
To savor the full benefits of IFRS there should be more serious preparation of people who will be acquire affected by this passage and besides proper deduction of several amendments are required. India is already traveling really quickly in the growing in all the facets whether it ‘s in fabrication, puting, exporting. Deductions of IFRS will ensue in more addition in the rate of growing of India.