International Journal of Advanced Research in

Management and Social Sciences ISSN: 2278-6236

RELEVANCE OF INTERNATIONAL FINANCIAL REPORTING STANDARDS IN THE

GLOBALIZED ECONOMY-AN EMPIRICAL STUDY
Dr. B. Shekhar*
Prasad R.A.**

Abstract: There are many accounting standards in the world. As accounting is a language of
the business, each country is using a version of its own generally accepted accounting
principles also known as GAAP. These allow firms to report their financial statements in
accordance to the GAAP that applies to them. The complication lies within whether the firm
does business in multiple countries. How can investors deal with multiple standards, which
ones are accurate, and how can corporations be compared based upon their financial
statement, The answer to these questions lies within the adoption of the International
Financial Reporting Standards, or IFRS, which is being developed and supported by the
International Accounting Standards Board (IASB) for the objective to implement the uniform
accounting standard in all the countries across the world. Approximately 120 nations and
reporting jurisdictions permit or require IFRS for domestic listed companies, although
approximately 90 countries have fully confirmed with IFRS as promulgated by the IASB and
include a statement acknowledging such conformity in audit reports.
Keywords: Need, Implementation, Development, Beneficiaries of IFRS in India, and
company’s perception towards IFRS.

*Reader, Department of Studies and Research in Commerce, Tumkur University, Tumkur,

Karnataka State, India.
**Research Scholar, Department of Studies and Research in Commerce, Tumkur University,
Tumkur, Karnataka State, India.

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INTRODUCTION
Over the years, most countries have developed a set of accounting principles accounting
rules that serve as a common basis for reporting the financial status of businesses to the
public operating within their borders. These common accounting principles are formally
referred to as Generally Accepted Accounting Principles (GAAP). It is unique to each country.
Their purpose is to provide a common and accepted standard for evaluating and comparing
the financial status of businesses. The national accounting standards applicable to the India
are often referred to as Indian GAAP. It is derived from a composite of principles, standards,
and preferred practices established by Indian regulators. GAAP system different from one
country to another country. Say for example Indian GAAP different from European GAAP.
European GAAP differs from US GAAP. This type of different GAAP systems create big gap in
between different country’s accounting system and it create confusion in the minds of
foreign investors who ability to invest their money on different profitable investment
sectors across the world.
A set of accounting standards developed by the International Accounting Standards Board
(IASB) that is becoming the global standard for the preparation of public company financial
statements or Recognized international accounting standards do exist and are formally
known as the International Financial Reporting Standards (IFRS). IFRS includes the standards
and interpretations issued by the International Accounting Standards Board (The IASB is an
independent accounting standard-setting body, based in London. It consists of 15 members
from multiple countries, including the United States. The IASB began operations in 2001
when it succeeded the International Accounting Standards Committee. It is funded by
contributions from major accounting firms, private financial institutions and industrial
companies, central and development banks, national funding regimes, and other
international and professional organizations throughout the world.)as well as the
International Accounting Standards (IAS) and interpretations of the International Accounting
Standards Committee. ‘‘high-quality’’ international accounting standards that are
transparent, understandable, and enforceable, and that are rigorously applied. The
Foundation also seeks to use the standards it develops through the IASB as the basis for the
convergence of national accounting standards and IFRS into a single set of high-quality
international accounting standards.

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REVIEW OF LITERATURE
Nams Shahhis study entitled as “Financial Premisis” state thatInternational Financial
Reporting Standards (IFRS) provides a set of principles to be followed while accounting for
transaction and events in financial statements. Unlike GAAP it provides management
greater discretion and flexibility in preparing financial statement. Now a day’s foreign
investors expect to have uniform accounting standard across all countries.In present
scenario, when companies located in any country are trading globally, there is a need for
global accounting standard.
Wikipediasays about“International Financial Reporting Standards (IFRS)” are designed as a
common global language for business affairs so that company accounts are understandable
and comparable across international boundaries. They are a consequence of growing
international shareholding and trade and are particularly important for companies that have
dealings in several countries. They are progressively replacing the many different national
accounting standards.
SaiVenkateshwaran his study entitled as “The Road to IFRS in India” state
that,International Financial Reporting Standards (IFRS) is fast becoming the global
accounting language. Over 100 countries have now adopted IFRS and many more have
committed to make the transition in the next few years. The benefits of global standards are
widely acknowledged. For companies, however, the conversion to IFRS is a major change
both for the finance function and for the wider business.
Bhuvanesh Sharma his study entitled as“IFRS - Challenges and Need for India Inc”say that,
The International Financial Reporting Standards (IFRS) aims to make international financial
reporting comparisons as easy as possible because each country has its own set of
accounting rules. For example, U.S. GAAP is different from Canadian GAAP and both are far
apart from India GAAP. Synchronizing accounting standards across the globe is an ongoing
process in the international accounting community. It creates confusion to accounting users.
STATEMENT OF THE PROBLEM
Emergence of the Global Economy and growing integration of world's capital markets,
financial reporting has undergone significant changes. Many market participants are
considering the question of whether it is possible or desirable to move toward a single
"globally accepted financial reporting standard" so that these entities' can speak a uniform

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global "language" for financial reporting, even though IFRS gain more importance for
India,Still some of the Companies are neglecting implementation of IFRS due to lack of
knowledge about IFRS how it will be beneficial to companies. So this study mainly tells
about how IFRS beneficial in India.
OBJECTIVES OF THE STUDY
To study on the advantage of IFRS for foreign Investor’s point of view
 To provide a brief introduction about IFRS
 To analyze the beneficiary satisfaction level of corporate sectors about IFRS.
 To study on the importance of IFRS in Indian investment.
RESEARCH METHODOLOGY
In order to reach the above stated objectives the study has covered both primary and
secondary data. The primary data was collected through questionnaires. Secondary data
was collected through published sources like magazine, books, journals and websites.
THE IASB, HAS FOUR STATED GOALSIN REGARDS TO IFRS,
a. To develop global accounting standards requiring transparency, comparability and
high quality in financial statements
b. To encourage global accounting standards
c. When implementing global accounting standards, to take into account the needs of
emerging markets
d. Converge various national accounting standards with the global accounting
standards
It is believed that IFRS, when adopted worldwide, will benefit investors and other users of
financial statements by reducing the cost of investments and increasing the quality of the
information provided. Additionally, investors will be more willing to provide financing with
greater transparency among different firms' financial statements. Furthermore,
multinational corporations serve to benefit the most from only needing to report to a single
standard and, hence, can save money. It offers the major benefit where it is used in over
120 different countries.

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IMPLEMENTATION AND DEVELOPMENT OF IFRS IN INDIA

 Implementation
According to the Companies Act, 1956.Under Section 211(3C), there will be two separate
sets of Accounting. The two sets would be as described below:
First set- it would comprise of the Indian Accounting Standards which are converged with
the IFRS (IFRS converged standards). It shall be applicable to specified class of companies;
Second set-itwould comprise of the existing Indian Accounting Standards (Existing
Accounting Standards) and would be applicable to other companies including small and
medium companies (SMCs).
Table No.1 showing applicability of First set of IFRS standards to specified class of
companies in phase manner in India
Phase Effective date Specified class of companies
I April 1, 2011 • Companies in Nifty 50
• Companies in Sensex 30
• Companies shares or other securities listed on stock
exchanges outside India
• Companies (whether listed or not) having net worth in excess
of Rs 1,000 crores

II April 1, 2012 • All insurance Companies

III April 1, 2013 • Companies (whether listed or not) having net worth in excess
of Rs 500 crores but less than Rs. 1, 000 crores.
• All scheduled commercial Banks
• Urban cooperative Banks having net worth in excess of 300
crores
• NBFCs-NIFTY 50 or SENSEX 30
• NBFCs listed or not having networth exceeding 1000 crores
IV April 1, 2014 • All listed companies with net worth less than Rs 500 crores
• Urban cooperative Banks having net worth 200 to 300 crores
• NBFCs: Unlisted but having net worth between 500 to 1000
crores
• NBFCs: all Listed

ICAI in October 2007, the IFRS should be applicable to Public Interest Entities (PIE). PIE has
been defined to include:
a) All listed companies
b) All banking companies

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c) All financial institutions

d) All scheduled commercial banks
e) All insurance companies and all NBFC.
The Institute of Chartered Accountants of India (ICAI) has already given a tentative roadmap
for implementation of IFRS standards to the Corporate Affairs Ministry. All companies
having net worth of over Rs 1,000 crore should implement IFRS from April 1, 2015. Those
having net worth of over Rs 500 crore and up to Rs 1,000 crore, IFRS has to be implemented
from April 1, 2016 and for companies, having net worth of below Rs 500 crore but listed, the
timeframe would be April 1, 2017.
 Development
IFRS was published by the IASB in June 2003 but in India it came into existence on 2011. It
sets out most of the transitional requirements that an entity applies when it first adopts
IFRS and also specifies various disclosures to explain the effects of transition to IFRS.
The objectives of IFRS are
I. To maintain transparency for users of financial statement such as investors,
stakeholders and public
II. To comparable over all periods presented,
III. To provides a suitable starting point for accounting under IFRS, and can be
generated at a cost that does not exceed the benefits to users.
The Indian GAAP is influenced by several standard setters and influenced by Statute, namely
Companies Act 1956, Income Tax Act 1961, Banking Regulation Act, Insurance Act etc and
directions from regulatory bodies like RBI, SEBI, and IRDA.
SCOPE OF THE STUDY AND ANALYSIS
In order to achieve our research objectives selected 20 Indian companies to know they are
willing to apply the IFRS. As the IFRS increase comparability of the financial statements, and
that makes the companies eligible to access foreign finance, from international markets. So
we wanted to see, if the main reason why Indian companies apply the IFRS, is the foreign
financing opportunity or anything else

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Table No 02. Showing companies that are willing to apply IFRS

Opinion Frequency Percentage
Yes 16 80%
No 04 20%
Total Companies 20 100%
Primary source
From the above table shows that, 80% of the companies are liked to implement IFRS in their
companies and they are keen interested to get beneficial from IFRS such as grab the
opportunity of foreign capital, maintain transparency in financial statement, show the
reputation and improve the brand image of the company in international levels and etc.
only 20% of the respondent company’s directors are showing negligence or reluctance
towards implementation of IFRS in their company because of some reasons, such as
negligence towards foreign investment, to maintain national sovernity and few companies
believe that, their country’s GAAPs are golden standards so it’s enough for their business,
and they may have fully satisfaction towards existing GAAP system.
Now here concentrate towards why 80% of the investors interested in IFRS implementation
in their company. Here consider only 16 Respondents Company’s level of satisfaction about
IFRS.
Table no 03. Showing reasons behind the company for ready to apply IFRS

Sl. Particular Strongly Agree Neutral Agree Total

No No. of No. of No. of No. of

. counts % counts % counts % counts %
01 Attracting Foreign
Investment 15 93.75 nil 00 01 6.25 16 100
02 Maintain
Transparency,
accurate 12 75 03 18.75 01 6.25 16 100
in accounting
statement
03 Build Good Image
of the company
In international 11 68.75 02 12.50 03 18.75 16 100
level
04 Improvement of 12 75 01 6.25 03 18.75 16 100
international trade
05 To minimize the

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confusion to
accounts evaluator,
such as
accountants,
auditors, actuaries, 07 43.75 05 31.25 04 25 16 100
andfinancial analyst
and etc.
Source: Primary data
Out of 100% of respondents, 93.75 % of the respondent companies willing to implement
IFRS in their companies because of attract the foreign investment. According to them when
companies are implement IFRS in their companies it will useful to foreign investors for
analyze the financial statement and they can get accurate knowledge about companies. It
will not make confusion in the minds of the investors at a time analyze financial statement
around the world.
75% of the respondents are strongly agreed with IFRS provide accurate, transparent
financial statement all over the world. IFRS is nothing but similar or accounting standard all
over the world so it will reduce difference in between different country’s GAAP system.
Out of 100% of respondents, 75 % of the respondent companies are keen interested in
implementation of IFRS because it will be directly or indirectly impact on development
ofinternational trade. 68.75% of the respondent companies are strongly believe in IFRS
implementation in their companies financial accounting statement because it will bring
good reputation to the business in international level and rest of the members are given
positive view but according to them, there is no much impact of IFRS on improvement of
brand image.
43.75% of respondents companies are strongly agree with IFRS implementation in
accounting procedure because they want to try to minimize the risk of accounting evaluator
viz, auditor, chartered accountants, actuaries and etc.
NEED OF IFRS IMPLEMENTATION IN INDIA
Following arguments in favour of IFRS implementation in India
1) Reducing Costs and Time:
The Indian companies which are operating in two or more countries of the world are
preparing financial statements separately for each country which is wasting time and
money. Thus, the implementation of uniform accounting practice will reduce time and cost.

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2) Quality of Information
Implementation of uniform accounting practice will provide much better quality of
information
3) Globalization impact
The impact of globalization causes spectacular changes of development of MNC’s in India.
This has created the need for a single accounting or uniform accounting practices bring
more accurate, transparent and satisfying the needs for demanding user.
4) Access of capital from overseas
Major Indian companies raising capital from foreign investment in the form of FII and FDI.
Foreign investors require information about financial statement. Uniform accounting
standard helpful to know about company’s performance thoroughly though financial
statements, but foreign investors fail to get knowledge about different GAAP system.

BENEFITS OF IFRS IMPLEMENTATION IN INDIA

1) IFRS provide better, transparent, accurate financial information to stakeholder,
shareholders of the company and Indian regulatory system.
2) With the help of IFRS, investors can increase ability to secure cross border listing
3) IFRS limiting multiple accounting standards, conventions, principles, procedure.
Establish single accounting standards.
4) It’s helpful to access capital from worldwide and increases the efficiencies of global
capital management.
5) Uniform accounting standard enabled investors to understand investment
opportunity as against multiple set of national accounting standard.
6) Minimize the barriers of MNC’s and reduce the risk associated with dual filings of
accounts.
7) Minimize the cost on preparation of multiple financial accounting statements.
8) IFRS facilitates global investment opportunities inbound and outbound and also
reduced cost of capital.
FINDINGS
 One of the major point is that, the need of IFRS only for multinational companies but
what about domestic companies?. Domestic companies are not ready to implement

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IFRS in their accounting practice. They feel IFRS is useless to their organization and
they satisfied with existing GAAP system.
 In India usage of IFRS in accounting implemented by only few companies. so even
accounting preparer, and evaluator (such as accountants, auditors, actuaries, and
financial analyst) facing problem with respect to preparation of IFRS. Because how
they can understand without knowing thoroughly about IFRS principle, standards
and etc.
 Even US believe that, US GAAP is golden standard and it’s better then IFRS. so its
begin conflicts with respect to implementation of IFRS. There is no use IFRS if all
countries are not followed IFRS similarly.

SUGGESTIONS
 Two hands come together at same time it creates soundness, unless using two
hands at different direction. In the same way all the countries want to follow and
implement IFRS, it become worth full. So all the countries want to implement IFRS
strictly,
 Financial statement preparers and auditors will have to become knowledgeable
about the international standards. Others, such as actuaries and valuation experts
who are engaged by management to assist in measuring certain assets and liabilities,
are not currently taught IFRS and will have to undertake comprehensive training.
Professional associations and industry groups have begun to integrate IFRS into their
training materials, publications, testing, and certification programs, and many
colleges and universities are including IFRS in their curricula. Some textbooks are
already covering IFRS
 Expansion and wealth maximization is objectives of each andevery business.even
domestic industries also expect the same. In the future they may also enter into
international trade. If they implement IFRS now itself means there is no need to
takeheadache about implementation of IFRS after get entry to international
business.
CONCLUSION
Business can present its financial statements on the same basis as its foreign competitors,
making comparisons easier. Furthermore, companies with subsidiaries in countries that

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require or permit IFRS may be able to use one accounting language company-wide, hence it
will helpful to foreign investors for analyzing the accounting statements and get knowledge
about company performance. IFRS removing the confusion from the minds of investor
because it gives accurate, transparent single accounting statements. Need of IFRS in India
raises along with along with development of MNC’s in India.
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