Convergence Of India To Ifrs Accounting Essay

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1. INTRODUCTION

1.1 Background Information

Globalization and liberalization of global market are rapidly increasing (Kersten and Blecker, 2008). Companies and countries have tried to cooperate and collaborate in regard to their accounting standards, principles and policies (D&B, 2011). Business managers utilize accounting information set establish organizational goals, assess their progress towards the set goals, and handle corrective measures where necessary (Hati and Rakshit, 2002). Therefore, it can be seen that the successes that can be realized in an organization primary relies on how well organizational management set, evaluate and improve their performance based on the accounting information. International accounting system (IAS) of information offers its services to diverse types of users including: government agencies, enterprise managers, investors, and the public, just mention but a few (Samir, 2003). Many accountants also work in business organizations at various capacities as internal auditors, managerial accountants, system experts, financial vice presidents, income tax specialists, financial controllers, chief executives, and managerial consultants. These vary from one organization to another hence may make their financial standards and policies be also different. Thus, accounting is a service to management, a critical success tool, which should not be misused or else its services will fail to achieve its designed goals.

With increasing pace of globalization, international investors need to access financial information that is developed on harmonized accounting procedures and standards (Reddy, 2000). In fact, without harmonization in the methodology used to arrive at various financial reports, expected economic diversities can not be separated from other alternative accounting procedures and standards. In this regard, harmonization is used to reconcile diverse point of views that are more of practical than general (Hati and Rakshit, 2002). Both public and private organizations require accounting information to coordinate their investments in various economic sectors. In line with the upward trend of international business transactions, the need to harmonize various investments decisions has also gone up. Hence, a suitable financial information system can lend a hand to international enterprises realize their managerial functions across the globe. Besides, standardizing the way in which financial reports are prepared can also improve the value of accounting system to users, regulators and investors.

International Financial Reporting Standards (IFRS) refers to accounting rules, principles and methods issued by the International Accounting Standards Board (IASB) (Rivera, 1989). This board is an independent London-based organization. IRFS purport to be a group of financial standards that are applicable equally to financial reporting worldwide. From 1973 to 2000, these international financial standards were issued by a predecessor to IASB called International Accounting Committee (IASC), which was established in 1973 (Rivera, 1989). This predecessor organization was founded by professional accounting bodies in France, Japan, Germany, Australia, Mexico, Ireland, United Kingdom, United States, and Netherlands. During its establishment period, IASC principles were referred to as International Accounting Standards (IAS) (Rivera, 1989). From the year 2001, IASB has taken up the responsibility of developing financial rules that can be used across the globe (Hati and Rakshit, 2002).

IASB uses the new label IFRS to describe these rules though old rules, IAS issued by IASC are also recognized. Transition to IFRS has come with its own challenges to firms including: cost of change, time factors, technical differences, and inadequate knowledge and experience (Hati and Rakshit, 2002). The fair value of IFRS is also likely to make reported earnings and book values volatile hence distorting the firm's financial profile. Such factors can prompt the organization to adopt a different financial behavior and motivate them to restructure and re-strategize their decision making processes to counteract negative effects of their accounting figures (Hati and Rakshit, 2002).

Standardization in the context IFRS refers to not only development but also agreement upon technical standards (Hati and Rakshit, 2002). Standard in this respect is just a document that has uniform technical specifications, methods, practices, criteria, and processes. Some standards are compulsory while others are not. The latter being voluntary are usually available and can be accessed when someone chooses to use them. Some standards are de facto implying to a requirement or a norm that are not only having an informal but also dominant status (Memani, 2006). Some of these standards are de jure implying that they are formal and legally recognized (Memani, 2006). Being a global issue, IFRS is being conceptualized differently from one nation to the other (Hati and Rakshit, 2002). Its convergence with the national accounting standards can thus be perceived differently.

In India, the journey to IFRS convergence was started in the year 2011, and it stands high chances of altering the manner in which India will handle its financial reports. This is due to the fact that IFRS has become the most widely used accounting standards following its adoption in more than 100 countries (Nobes and Robert, 2008). ICAI being a reputable accounting body took the leadership role by establishing ASB. Since its launch, ICAI has always been successful in its effort to formulate quality accounting standards thus the Indian Accounting Standards have stood the test of time. However, the rationale behind Indian companies adopting global financial standards like IFRS is based on the fact that India is still a growing economy, which continuously integrates with the global world. Thus, the Institute of Chartered Accountants of India (ICAI) introduced a requirement that all the Indian public interest entities to converge with IFRS with effect on or after 1st April 2011 (Khatri and Lehery, 2011). The Ministry of Corporate Affairs (MCA) also showed its commitment to see that various entities in India converge with IFRS by issuing a notification that 35 accounting standards in India had been converged with IFRS (Khatri and Lehery, 2011).

The paradigm shift in the economy of India in the last few years has resulted in increasing attention to accounting standards. However, the standards should remain sensitive to local conditions: economic environment and legal requirements (Young and Guenther, 2008). Thus, AS in India should correspond to IFRS so as to ensure consistency with economic environments, legal conditions and regulations. India has been one of the most Asian countries with international trades with regard to imports and export of food, technology and agriculture-based products (SCC, 2012). As if this is not enough, India in the recent years has been identified as the major recipient of global DFI (Direct Foreign Investment) (FnBNews, 2012). It is considered as a significant global investor with increasing international investments targeting rich markets including Africa, US, UK, and other Asian-pacific nations among others (FnBNews, 2012).

1.2 Problem Statement

The background study revealed quite a number of issues that this study was focused to study. India has not only been revealed as a potential recipient of DFI but also as an active nation with international investments. Rapid pace of globalization also crops in to heighten the rate at which India should understand standards, principles, procedures and practices of other countries. Among these are the financial and accounting aspects, which are presented in the IFRS. Even though India has shown significant moves in harmonizing and standardizing its accounting policies with IFRS, there are a number of global factors that have great potential in impacting the efficiency and effectiveness of IFRS, and must be properly addressed for its success. These propositions place the current study in good position to carry out a study on convergence of India to IFRS to examine the harmonization and standardization process of accounting policies and its effect on accounting disclosures in India.

1.3 Aim/ Objectives

The aim of this study is to examine the harmonization and standardization process of accounting policies and its effect on accounting disclosures in India. In this respect, the following objectives were formed:

To examine the conversance level of Indians with IFRS convergence.

To establish the state of convergence to IFRS in India.

To establish success factors associated with convergence to IFRS in India.

To find out the impacts of convergence to IFRS in India.

To find out challenges in the convergence to IFRS in India.

1.4 Research Questions

Are Indians well conversant with the concept of convergence to IFRS?

What is the state of conversance with convergence to IFRS in India?

What success factors can be associated with convergence to IFRS in India?

What are the impacts of convergence to IFRS in India?

What challenges are faced in the convergence to IFRS in India?

1.5 Research Significance

The significance of this study could be attributed to its vast contribution to both professional and academic pool of knowledge. The study will bridge the gaps in academic field by adding more knowledge with regard to IFRS convergence in India and its implied impacts on accounting disclosures. The research thus opens more opportunities to study this topic in various nations in this globalization era. The findings will be useful to diverse sectors of economy. The government of India will be able to understand various challenges associated with the newly adopted IFRS so that they help respective stakeholders in harmonizing their organizational financial needs and the IFRS's needs. Apart from helping the local investors in India have enough knowledge on their fate with IFRS, the findings in this study will be significant in helping DFI in India. As a result, the study will be the central reconciliatory tool in embracing international investments. This is due to the fact that good understanding on IFRS adoption challenges and effects will enable prospective investors to develop counteractive measures for sustainable investment value.

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CHAPTER TWO

2.0 REVIEW OF LITERATURE

2.1 Conceptualization of IFRS convergence

In the context of this study, Khatri and Lehery (2011) say that convergence in the Indian context refers to elimination of the difference between IRFS and the GAAP standard of India. It is like aligning GAAP to be familiar with International Financial Accounting Standards (IFRS), and can sometimes adopt IRFS the way it is. Since its recognition in 1973, the IASC (International Accounting Standard Committee) was also launched to act as the IASB (International Accounting Standards Board) with the objectives of improving International Accounting Standards (IAS) for global acceptance. This has seen many AS (Accounting Standards) harmonized with IFSR due to increasing level of cross-boarder transfer of funds.

2.2 Accountant Standards setting in India

In Barth, Landsman and Lang (2007), it is noted that the Accounting Standards Board (ASB) was launched in India in the year 1977, which has helped to harmonize majority of Indian Accounting Standards with global Standards (IFSR). Due to liberalization and globalization of Indian economic policies, and increase need for effective corporate governance, harmonization of Accounting standards in India have been taken seriously from the early 1990s. The composition of the board that monitored convergence with IFSR ensured contribution of all interest groups including representatives, government departments, professional bodies, industries, financial institutions, and academic bodies. This signifies that the concept of IFSR in India must have been supported by all sectors of economy in India. The setting of Accounting Standards in India through this board involved arriving at an optimal balance of the requirements of diverse financial information for different interests groups, which have a stake in financial reporting. In trying to achieve consensus on this issue, the board made considerable consultations, research, and discussions at different stages of standard formulation. Currently, India is said to have fully implemented policies that would ensure compliance with the IFSR.

2.3 Need for convergence of Accounting Standards

Armstrong et al. (2009) say that with the inception of liberation and globalization, the world has developed to be an economic village. Many manufacturing companies are going across the border; and various entities enter the global market to achieve their capital needs. Enterprises also find their securities listed in the stock exchanges across the borders, which is a sign of integration of capital market. Based on these issues, there is need for financial reporting standards that can be accepted across the globe. Thus, the IFSR is currently recognized as acceptable global financial reporting standards (GFRS). In this view, nearly 100 countries, including India, currently use this standard alongside its convergence policies.

In the view of Indapurkar, Anindita and Gwalior (2009), convergence with IFRS refers to the harmony that is achieved between any national financial standards and IFRS. It implies to the design and maintenance of national accounting standards in agreement with International Accounting Standards. Based on this perspective, the authors argue that transition from national accounting standards to IFSR would enable various entities in India to generate compliant, explicit and unreserved financial statements. The transition would enable Indian entities to be fully IFRS compliant and give an "unreserved and explicit statement of compliance with IFRS" in their financial statements. The authors explain that the new concept of IFRS will be used with regard to its additional portion of accounting equations. In their view, IFRS is just new rules governing international accounting practices.

2.4 The conceptual framework of IFRS

KPMG (2008) explains that the structure of IFRS is perceived as principle based set of standards that implement broad regulations and dictate certain treatments. Thus, IFRS structure comprises the standards and frameworks issued before and after the year 2001. Before 2001, IFRS considers International Accounting Standard (IAS) and Standing Interpretations Committee (SIC) while after the year 2002, IFRS considers IFRS issued after 2001, IFRIC (International Financial Reporting Interpretations Committee) and the Framework for the Preparation and Presentation of Financial Statements. In addition, it entails the Framework for preparation and Preparation of Financial Statements, which mainly describes the principles behind IFRS. In their publication, a framework is perceived as the foundation of accounting standards, which states that the major goal of financial statements is to provide information about financial position of the organization, performance and changes in the firm's financial position that is significant in helping users make decisions, as well as providing current financial position of the entity to public in general and shareholders in particular. Generally, the IFRs financial statement is made up of related elements: Statement of financial position, Comprehensive income statement, Statement of recognized income or expense/Statement of changes in equity, and Cash flow statement.

2.5 IFRS Convergence in India

Nobes and Robert (2008) say that the roadmap to IFRS convergence was started in India in the year 2011, and it stands high chances of altering the manner in which India will handle its financial reports. This is due to the fact that IFRS has become the most widely used accounting standards following its adoption in more than 100 countries. In this regard, Nobes and Robert (2008) perceive that it is vital for Indian companies to adopt these global standards as well as their financial reporting aspects. Behind this proposition is the fact that India is still a growing economy, which continuously integrates with the global world thus raising its capital from any part of the world. Based on this fact, the authors say that the Institute of Chartered Accountants of India (ICAI) introduced a requirement that all the Indian public interest entities to converge with IFRS with effect on or after 1st April 2011. Khatri and Lehery (2011) add that the Ministry of Corporate Affairs (MCA) also showed its commitment to see that various entities in India converge with IFRS. In this context, the ministry issued a notification that 35 accounting standards in India had been converged with the global financial standards (IFRS).

In the view of De Jong, Rosellon, and Verwijmeran (2006), IFRS is associated with economic implications. Based on their demonstration, the authors established that 71% of firms, which are affected by IAS, buy back their preference shares thus maintaining the classification as equity. In summary, their study concluded that international financial standards (IFRS) can lead to a decrease in the use of financial instruments, which would add to the diversity of capital structure. It can also change the real capital structure of a firm.

Carmona and Trombetta (2008) examined the implications claimed by De Jong, Rosellon, and Verwijmeran (2006) as well as the logic of principle-based systems. In their study, the authors suggest that the principle-based approach to the standards and its internal flexibility supports the application of IFRS/IAS to nations with different institutional conditions and accounting traditions. Logically, this is these conditions suit in the description of India thus justifying the concept of IFRS. Besides, the authors noted that there are some changes associated with principle-based approach with regard to accountants' expertise thus impacting on their educational background, training programs as well as business models of accounting firms.

Daske et al. (2008) studied on the effects of IFRS on market liquidity and established that the liquidity of the market usually increase around the time when IFRS is introduced. His study also noted a decrease in firm's cost of capital as well as an increase in equity valuation but only if it is justified for the possibility that the effects take place before the official adoption of IFRS. Moreover, the researchers learnt from the partitioned samples of the study that the benefits accrued to capital market occur only in countries where entities have incentives for transparency and strong legal enforcement.

Callao et al. (2009) examined the performance of first-time adopters of IFRS and established that such adopters have had diverse financial reporting among other nations. Based on their cluster analysis, the authors identified four groups, which prove that the impact of IFRS on financial statements of both European and Asian firms are not related to the traditional accounting systems.

Carmona and Trombetta (2008) examined the implications claimed by De Jong, Rosellon, and Verwijmeran (2006) as well as the logic of principle-based systems. In their study, the authors suggest that the principle-based approach to the standards and its internal flexibility supports the application of IFRS/IAS to nations with different institutional conditions and accounting traditions. Logically, this is these conditions suit in the description of India thus justifying the concept of IFRS. Besides, the authors noted that there are some changes associated with principle-based approach with regard to accountants' expertise thus impacting on their educational background, training programs as well as business models of accounting firms.

In Ramanna and Sletten (2009), a sample of 102 non-European Union countries was studied and the researchers established that firms have diverse decisions strategies in the adoption of IFRS. Their study showed that more powerful countries are most unlikely to adopt IFRS. This is because these countries are still unwilling to leave their standard-setting authority to the international body. On this note, it can still not be confirmed that IFRS reduces the cost of information in a globalized economy. In conclusion, the authors noted that a nation is most likely to adopt IFRS especially if its trade countries or partners within its physical region are also IFRS adopters. This conclusion can be used to evaluate the position of India in succeeding in this new global concept. In particular, India should be weighed based on her trade countries.

Armstrong et al. (2009) conducted a study in which European stock market reactions to 16 events associated with IFRS adoption in Europe was examined. The study established that firms with lower quality of pre-adoption information had incrementally positive reaction to the IFRS adoption, and this was most noted in banks. However, firms with higher quality pre-adoption information showed a different reaction. In the latter case, the adoption of IFRS is most likely when it comes with benefits to the investors. Thus, the authors finally concluded that positive reaction to the adoption of IFRS is likely in firms with high quality pre-adoption information, which is also the case with investors that expect net convergence benefits.

Ball (2005) was concerned about how different countries show substantial implementation of IFRS. In his perception, this may result in risk uniformity. Ball also feels that by simply having uniform accounting standards may not produce the expected impact if objectives and approach to accounting differs. This implies that the adaptors of IFRS in India need to reconcile any difference that they may exist between firm's goals and approaches so as to establish their compatibility with IFRS.

2.6 IFRS in the Indian Context

Ramanna and Sletten (2009) say that the paradigm shift in the economy of India in the last few years has resulted in increasing attention to accounting standards. This ensures transparent and potent financial reporting by corporate bodies. ICAI being a reputable accounting body took the leadership role by establishing ASB. Since its launch, ICAI has always been successful in its effort to formulate quality accounting standards thus the Indian Accounting Standards have stood the test of time. However, the authors draw to the attention of Indians that the world has changed due to globalization, hence there is need to adopt IFRS. In this regard, ICAI in conjunction with continues to formulate AS based on IFRS. However, Young and Guenther (2008) note that the standards should remain sensitive to local conditions: economic environment and legal requirements. Thus, AS in India should correspond to IFRS so as to ensure consistency with economic environments, legal conditions and regulations.

In the view of Hati and Rakshit (2002), ICAI can only make changes on IFRS when making AS only in unavoidable conditions but this must be consistent with law and economic conditions. In the review of AS in India, these bodies only focus on deviations from IFRS. Based on these procedures, the authors assert that AS issued by ICAI and notified by government exhibit much convergence with IFRS. However, the author poses one question after convergence with IFRS. From these perspectives, it can be seen that the India GAAP should be converged with IFRS.

2.7 Beneficiaries of convergence with IFRS

There are many studies that point out the benefits of convergence between the India GAAP with IFRS. Ball and Shivakumar (2005) say that the concept of globalization should open door for deeper understanding on why India converge GAAP to IFRS. In his study, the author established seven benefits associated with this convergence: transparency in financial reporting, increased access to global capital market, improved brand value, lower capital cost, reflection of true acquisition value, benchmarking with global peers, and avoidance of multiple reporting. In other studies, these benefits categorized into groups: risk valuation, confidence level, economy, investors, accounting professionals, and the industry.

The industry - Samir (2007) notes that the industry is one of the beneficiaries of convergence with IFRS. First, this is due to increased confidence in the minds of international investors aiming at India. Second, the benefit is associated with reduced load of financial reporting. Third, the convergence simplifies the process of generating group or individual financial statements. Forth, it leads to reduced cost of preparing financial statements. Based on these benefits, Samir (2003) and Srkant (2005) add that the convergence with IFRS will enable India generate capital from international markets at reduced costs. This is because the investor will develop the confidence that their financial statements are in agreement with globally used accounting standards. Thus, it minimizes the load of financial reporting due to lower costs of preparing group or individual financial statements. From this perspective, it can be reasoned that investors save cost that would be incurred in using different sets of accounting standards to generate such statements. Srikant further reasons that the convergence with IFRS will boost the cross-boarder merger and acquisitions.

Accounting professionals - Rivera (2003; 2011) and Ernst and Young (2011) say that although convergence is associated with teething problems at its initial phases, it benefits the accounting professionals since they would be enabled to sell their expertise across the boarder. Based on this proposition, it can be reasoned that by converging with IFRS, India will gives its accountants an opportunity to sell and serve in different parts of the world due to the fact that the accounting standards are the same. Logically, this improves the marketability of these professionals since employers will never be required to train them (Leuz and Verrecchia, 2000).

Investors and the corporate world - According to Most (2011), convergence with IFRS yield reliable, timely, and relevant accounting information that can be compared across varying legal framework given that it is based on common sets of accounting standards. Analytically, Most (2011) reasons that this facilitates those who want to invest outside India. Just like the industry's case, this also improves the confidence of these investors. Comparatively, these cannot be achieved in the case of different sets of accounting standards, which is mostly associated with increased costs. Therefore, it can be learnt that the convergence with IFRS improves the investor's understanding and confidence in quality financial reporting. In the view of Reddy (2000; 2009), convergence with IFRS would improve the relationship and reputation of Indian corporate world and the global community. In India, corporate houses first, benefit from the achievement of higher consistency levels, between external and internal reporting. Second, the corporate benefit is associated with improved access to international market. Third, such corporate will improve their risk rating. The risk rating aspect can be understood from the Chowdhury's view of risk valuation. Chowdhury (2010) says that convergence with IFRS will eliminate barriers to cross-boarder listings, and this will be a benefit to firms that subscribe to a risk premium if the related financial information lacks IFRS in its preparation. As a result, these will make the global corporate world more competitive due to increasing comparability with other global competitors.

Economy - From what can be seen, the above benefits attributes to economic benefits since the discussion entails how the industry sector would grow as well as the benefits to corporate houses and accounting professionals. It also shows how investor's confidence is improved due to low risk rating exhibited in IFRS compliant nations. In IASCF (2008), it is noted that the need for convergence with IFRS in India has been increased due to expansion of global market. The author says that India is still considered a growing economy with international trading partners. Thus, its convergence with IFRS enables its growth through global businesses. The publication also argues that the concept of IFRS in India will enable India maintain efficient and orderly capital markets. Through the concept of international businesses and global partners, there will be increased capital formation. The convergence will also encourage more inflow of foreign income due to common reporting standards.

2.8 Challenges in IFRS adoption in India

Hati, and Rakshit (2011) says that the concept of IFRS is new in India thus cannot be exempted from challenges associated with new systems. In their empirical survey, the authors noted that IFRS adoption comes with much initial reporting cost during which the corporate is practice dual reporting before full convergence is achieved. They also add that the accounting framework of India will be affected, which will necessitates alteration of Income tax Act and Company Act so as to make financial statements acceptable. Moreover, the accounting sector will be needed to train their employees, auditors, stakeholders, tax authorities, and regulators so as to achieve consistent and uniform application of IFRS. From this study, it can be learnt that IFRS adoption comes with additional costs that must be incurred by the corporate (McComb, 1982). Therefore, it can be supported that lack of trained professionals can negatively impact on the implementation and adoption of IFRS in the sense that some corporate bodies will comply while others will not.

Doupnik (2009) adds to the above proposition by saying that companies in India that wish to comply with IFRS need to incur new costs in IT modifications for data collation, which is a major requirement in achieving the required level financial reporting and disclosure. In this regard, it can be reasoned that lack of appropriate infrastructure in some corporate will affect the convergence process. In another view, Doupnik notes that the difference that exists between the Indian GAAP and IFRS will affect corporate decisions as well as corporate financial performance.

In the view of Nobes, and Robert (2008), convergence with IFRS is challenged by consistency with prevailing regulatory and legal requirements in India. For instance, Accounting standard (AS) 25 does not allow presentation and disclosure of interim financial statements because at Clause 41, there is a prescription of a presentation format of half yearly or quarterly financial results. Similarly, the AS 21 describes control as ownership of more than fifty percent of voting potential of an enterprise. The definition of 'control' is based on the concept of holding a company and a subsidiary company as per the Act 1956. However, the IAS 27 defines control as "the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.

Memani (2006) established that reluctance to IFRS adoption is associated with the level of Indian economy. With regard to the fact that different markets in India are not supposed to have the necessary depth and breath, much reluctance has been witnessed in adopting fair value approaches in evaluating various assets and liabilities. Therefore, given fair value is the fundamental principle behind IFRS, it implies that India will still be slow to achieve full convergence. However, sudden convergence with IFRS can also cause adverse economic impacts (Most, 1984). Based on these findings, it can be argued that the Indian industries need proper preparation for the adoption and convergence with IFRS. This will mainly be adjustment of accounting standards. For instance, the revised version of AS 15 allows deferment of expenditure incurred due to termination of services arising in a voluntary retirement scheme for the financial period. This is revision was based on the fact that the economic structure of India is undergoing gradual change.

According to Daskeet et al. (2008), conceptual difference is the major challenge to IFRS convergence. For instance, AS 29 does not particularly address constructive obligation while IAS 37 specifically address this in the context of "creation of a provision". As a result, some cases of provisions need to be recognized at early stages. Moreover, the authors say that a universal fact is that people are always reluctant to change. On this proposition, the author argues that unhelpful attitude of corporate world brings more challenge to the convergence with IFRS in India.

In De Jong, et al. (2006), implementation challenges that are experienced in the convergence with IFRS in India are due to the complexity in recognizing and measuring its requirements as well as the extent of disclosure on varying entities; some of which are public interest and some non public interest. The authors argue that the criteria regarding which entities are public interest and which are non public interests is not clear. Thus, since IFRS convergence is required in the public interest entities, this will be a challenge to its fair implementation.

Under the International Organization of Securities Commissions, which was formed to harmonize varying disclosure practices in various countries, it was revealed that significant differences exist between the Indian GAAP and IFRS. On this note, the authors noted that India has not been consistent with the pace of IFRS adoption in other countries. This is due to the fact that the India GAAP still remains sensitive to local economic and legal conditions and requirements respectively.

In Carmona and Trombetta (2008), it is acknowledged that policy makers in India have come a long way to understand the essence of converging GAAP with IFRS. However, this must come with many challenges. The authors note that convergence with IFRS is not only a technical exercise but also initiate an overall change in both perspective and objective of accounting in the country. The researchers identified certain key areas that need close attention while handling conversions from GAAP to IFRS. Within the context of viewing convergence as more than just technical exercise, the Rivera (1989) reasons that even after the introduction of IT, the preparers, auditors and users will continue experiencing practical implementation problems with IFRS. This suggests that convergence with IFRS in India needs dedicated support even after its introduction including structuring of ESOP schemes, tax planning, employee training, and modification of IT system among others.

2.9 Risks involved in convergence with IRFS in India

Epstein (2009) feels that the biggest risk converging Indian GAAP with IFRS is attributed to the fact that accounting entities will underestimate the complexity in the process. In their view, they recommend that accounting entities need to recognize in prior those teething problems usually creep in the convergence process. The complexity aspect in the convergence process is attributed to the introduction of fair value and present value.

Callao et al. (2009) say that IFRS has increased financial reporting risks. This is due to its technical complexities, management time during its implementation, and manual workarounds. Another risk that studies linked to IFRS is that it does not recognize the adjustments that are passed through court schemes. As a result, such items are recorded through income statements. The study further revealed that the way IFRS framework treats expenses is different from the existing ways. On this note, expenses are treated like "premium payable on redemption of debentures, discount allowed on issue of debentures, underwriting commission paid on issue of debentures". As a result, such differences will result in a change in income statement hence leading to much confusion and complexities. It is further noted that convergence with IFRS will result in a different definition of 'equity', which then result in tax benefits of hybrid systems in which 'interest' is perceived and handled as receiving a dividend.

At the ground level, Chowdhury (2001) says that accounting companies and small firms will find it very difficult to keep the pace with convergence with IFRS. This connotation can be justified by difference in resources and capital required for uniform convergence pace. In essence, it is made compulsory that companies prepare consolidated financial statements that would prompt them to provide information about unlisted companies under IFRS. However, this may result in increased challenges to both small and medium corporate in India.

According to Bushmann and Piotroski (2006), financial statements based on IFRS are more complex compared to financials statements that are based on Indian GAAP. This kind of complexity seems to threaten the perceived usefulness of IFRS in decision making. Thus, the risk associated with this is that convergence with IFRS would be perceived as technical compliance rather than a ways through which financial position and performance can be communicated. Moreover, pronouncements and laws are country specific, which implies that even India cannot just drop its laws altogether. Based on this proposition, it can be reasoned that the convergence with IFRS needs proper evaluation to establish whether the IFRS statements fit for use in India. In the context of India, the researchers established that it is not yet very clear whether IFRS should directly be used in India or should just converge with the Indian GAAP.

2.10 Successful implementation and convergence with IFRS in India

Based on the risks and challenges of convergence with IFRS, it is significant to know what actually takes place in the successful adoption and convergence with IFRS. The first thing here should be an acknowledgement based on previous sections of this study that there is global harmonization of accounting standards and principles. As a result, India has been identified as a rich ground for this concept.

Based on immense benefits that India has received from the international market, Ball, Robin and Wu (2006) feel that India needs avoid an escapist path of converging to IFRS. Instead, the country needs to go a long way to understand various challenges, various risks, and then get well prepared to converge with IFRS. Ball, Robin and Wu (2006) suggest that if India is not having an active role in setting accounting standards internationally, then it would be safer for it to approach the convergence from the endorsement perspective in which the country should accept temporary quirks and carve outs. With regard to difficulties and challenges associated with IFRS convergence, it is suggested that the best way to go is to adopt all IFRSs from a specified future date. On this note, the authors noted that ICAI also adopted IFRS for public interest entities based on the success that this approach has shown in other countries. This means that successful implementation and convergence with IFRS in India has to consider cross-border success cases.

Lantto, Anna-Maija and Sahlström (2009) say that tax authorities need to consider the implications of IFRS on direct and indirect taxes and gives appropriate guidance from a tax perspective. ICAI should also try their best to train and upgrade the accounting professionals. Companies need to fully understand and use IFRS as their basis of reporting their daily financial statements as well as a means of tracking their performance with regard to management accounts, forecasts and budgets. Beke (2010) adds that IFRS requires industry specialization However, lack of its specific guidance and common reliance on Indian GAAP has led to absence of industry specific themes. In his conclusion, the author says that companies should be mandatory for companies to prepare financial statements that are not only compliant to IFRS but also the Indian GAAP.

2.11 Shifting to IRFS: First Time adopters Things to remember

The discussion above can be sued to support that IFRS convergence is a challenge to new adaptors. However, Ball (2005) provides summarized solutions on key areas to be remembered. First, it should be remembered that the first reporting financial year with regards to IFRS in India occurred on or after 1st April 2011. On this note, the author states that there is great essence to remember the adoption date, reporting date, and transition date.

However, Daske, et al. (2007) considers both old and new IFRS adopters in various aspects of financial statements they should provide with regard to IFRS. The author says that the major objective of IFRS is to make sure that the first corporate interim financial report and financial statement for the entire period covered by the statements exhibit high quality information. This means that the information should exhibit much transparency for comparability purposes over the entire period presented. The information should also provide starting point for accounting in compliance with IFRS as well as generated at a cost not exceeding the benefits.

2.12 Presentation and disclosure of IFRS financial statements

According to Chowdhury (2010), the first IFRS financial statements will be presented in compliance to the presentation and disclosure requirements IAS 1R as well as other financial standards and interpretations under IFRS. Apart from the exceptions of first time adopters from certain aspects of IFRS, IFRS 1 does not exempt entities from presentation and disclosure requirements. An opening IFRS balance sheet should be prepared and presented at the date of transition to IFRSs given that this will be starting accounting period. The same accounting policies will be used by the entity in opening IFRS balance sheet. The policies should also be used in all the period presented in the first IFRS statements. An entity may apply different versions of IFRS, which is not yet mandatory in case that IFRS does not allow early application. In the process of opening the first IFRS balance sheet, an entity is required to recognize all liabilities and assets needed by IFRS does not recognize them. However, items should not be recognized as assets or liabilities if IFRS does not provide for them. The process also requires reclassification of liabilities, assets, and items of equity based on the provisions of IFRS. Entities should employ IFRS in evaluating all recognized liabilities and assets. However, entities should remember that the accounting policies used in the first generation of a balance sheet may differ from the ones used for the same date with the Indian GAAP. Finally, the resulting adjustments emerge from transactions and events before the IFRS transaction date. Thus, an entity needs to directly recognize such adjustments in retained earnings at the date of transition to IFRSs.

In conclusion, this review added more strength to this study by revealing to the researcher eminent areas to be examined under each study objectives above. The review showed that the current scope of the study is relevant given what other studies say about IFRS and its adoption not only in India but also other nations. Analytically, the review in this part support that IFRS is a good concept in economic development, and worth being supported. However, it is accompanied with its own challenges and risks, which must be properly addressed to reduce failures. In India, all these apply due to the existence GAAP standards. Thus, the central idea in the context of the study topic is between the GAAP of India and IFRS.

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

Research methodology is part of the study, which details how the researcher went about the design process, data collection and analysis. Thus, a study on convergence with IFRS in India required that the researcher develop appropriate design for the study, data collection method and data analysis methods in order to arrive at the desired results as detailed below.

3.1 Data types and sources

Two major data types that were used in this study were primary and secondary data (Innovations Insights.2006). Thus, data was obtained from both primary and secondary sources (Glasow, 2005).

Secondary data refers to information contained in the existing literature on the subject of study. The use of secondary data in the study helped to identify the main areas to address in the study. Therefore the process helped the researcher to come up with relevant research questions and objectives. It also helped the researcher to develop clear understanding and interpretation of collected data through deductive reasoning. Therefore major sources of this type of data were: books, journals, institutional reports, magazines, and published news. However, only relevant sources of secondary data were selected for this research.

Primary data was gathered through appropriate data collection approaches and tools. This type of data came from individuals in major financial institutions, companies and organizations from private, public and international sectors, which in one way or another are touched by the concept of IFRS. Two data collection tools that were used to collect primary data were interviews and questionnaires (Innovations Insights, 2006). This enabled this study to gather first hand information with well defined parameters based on the questions and objectives. The study employed online techniques to gather primary data. The online option was appropriate for the researcher in order to reduce the cost of travelling to every institution in India for the study. Hence, it helped to reduce the cost for the study and increase convenience to both respondents and the researcher (Innovations Insights, 2006).

3.2 Research Design

In the view of Glasow (2005), research design is the glue that keeps all aspects of the research together. The design in this study provided appropriate approaches used during data collection, measurement and analysis based on research questions and objectives. It also influenced the data types that were collected. Thus, the study employed exploratory research design (Saunders, Lewis and Thornhil, 2007) in which a survey based approach was used to collect data. The design employed in this study seemed suitable given that the current literatures do not exhaustively present the current status of convergence with IFRS in India and its impacts in the socioeconomic future of India. The literature also fails to present corporate attitudes towards convergence of the Indian GAAP with IFRS, implications of convergence with IFRS to small-medium organizations, and the potential of India in handling emerging challenges associated with convergence with IFRS.

Thus, the study had all the opportunity to use exploratory design to reveal these underlying issues of IFRS in the Indian context. From the literature review, it was observed that majority of information presented talks only about large corporate while there are small companies, investors and organizations whose views should be studies so as to come up with ways of gaining uniform pace in the IFRS convergence.

The exploratory design chosen for this study also chosen due to the qualitative nature of data that was to be collected. Qualitative data entailed descriptions of words and signs that the researcher used to interpret the experiences of Indians with the concept of IFRS. These words and symbols were extracted from both primary and secondary sources. Once data was captured, they were summarized, and then filtered before they could be analyzed to achieve the findings of the study. In this regard, the analysis of data focused on experiences and perceptions of Indians towards IFRS and its convergence with the Indian GAAP.

3.3 Data collection techniques

This study used online questionnaires and interview forms to gather primary data. The questions in the two collection approaches were in simple English to achieve accurate responses from every respondent regardless of his or her socio-economic differences. The questionnaires had closed end questions to enable the researcher get only relevant data for the study thus making analysis easy. However, the interview forms had open ended questions so as to gather as much information as possible (Saunders, Lewis and Thornhil, 2007). The design of the questions was done in a manner that could reveal the views of Indians with regard to four major categories: the implication of convergence with IFRS to small to medium organizations, the implications of convergence with IFRS to the future of socioeconomic conditions in India, and the current status of convergence with IFRS in India, and the potential of India in managing emerging challenges associated with convergence with IFRS.

The research questions were made simple and short to improve their clarity thus avoiding bias responses. The use of both interview and questionnaire was also justified to ensure that what was not effectively answered in the questionnaire could be addressed in the interview. Hence, questionnaires were sent first to the respondents then followed by interview forms to identify such gaps.

3.4 Data collection procedure

The researcher ensured that ethical principles were in place before embarking on data collection. In this regard, the researcher first sought permission from relevant authorities to avoid any inconvenience that could arise in the process of the study. Asking for permission in this regard could also improve the trust between the researcher and the stakeholders in the institutions of the study. The CEOs in various organizations were requested to allow the researcher to use their organizations in the study. Both the interview and questionnaire questions were pre-tested before they were sent to respondents. This was to enable the researcher identify and fix probable gaps and weaknesses (Holmes, Dahan and Ashari, 2005).

The questionnaires and interview forms were mailed to respective respondents in time to allow maximum understanding and responses. Every respondent was then notified through phone calls. Having received responses on questionnaires, the dates for the interviews were fixed in thorough consultation with respondents to achieve maximum response level (Holmes, Dahan and Ashari, 2005). However, venue was least considered given the fact that it was online. Hence, every respondent free to choose any place provided the place had reliable internet access and mobile phone network.

Before the interview could be initiated through the online chat windows, the researcher assured the respondents of the protection of their privacy. Just like the questionnaire, the researcher used anonymous numbers to identify respondents. Every group of respondents from the same institution had anonymous number associated with him or her, and every respondent had an extension of the anonymous identifier. For instance, 1-1, 1-2, 1-3, 1-4, etc and 2-1, 2-2,2-3,2-4, etc. The researcher reduced inadequate and biased responses by letting respondents know that the survey was purely for academic purposes, and was totally not associated with any political or economic reasons.

Each interview session per person was allocated 40minutes followed by a one-one phone interview for 20minutes. The researcher maintained order by introducing one interview question at a time while noting down responses. The researcher explained the questions in various dimensions to fit different categories of respondents for the study. However, some few minutes were allowed to elapse for proper interpretations before respondents answer. In the multiple chat windows, the researcher handled one group of respondents from one organization at a time. The interview questions were copied and pasted in multiple chat windows for various respondents' windows. Phone responses were recorded through audio-tapes and note-taking. Interview responses were copied from chat windows and pasted in MsWord-file after each interview question to avoid confusion.

3.5 Sampling frame

This study used purposive random sampling (Saunders, Lewis and Thornhil, 2007; Glasow, 2005) to get participants. The researcher selected 18organizations for the study. These organizations were in three main categories: private, public and foreign sectors. Thus, each sector had six institutions represented in the study. The six organizations from every sector comprised small, medium and large organizations. Thus, there were two organizations from each sub-category. In total, it can be seen that the study used six large organizations, six medium organizations and six small organizations. The criterion for reaching this selection was governed by the number of employees in each organization. From every organization, the researcher selected the CEO, the Financial Manager, the Assistant Financial Manager, the Auditor, the Assistant Auditor, the Human Resources Manager, the Assistant Human Resources Manager, the Operations Manager, the Risk Manager, and the Legal Officer. This means that 10respondents were chosen from every organization. As a result the total sample size was 180. The rationale for choosing these professionals was linked to the fact that these people could give rich information with regard to convergence to IFRS in India but in various dimensions. The assistant managers in the study were also meant to gather reliable data that senior managers could hide or not answer effectively.

3.6 Data analysis

The study on convergence with IFRS took a qualitative dimension but utilized both qualitative and quantitative techniques to analyze the gathered data. In qualitative approach, the researcher used theoretical knowledge that was strongly grounded on the existing literature to interpret data (Srivastava and Hopwood, 2009). In this regard, it implies that conclusions were partly made based on the content of literature review. Besides, the researcher employed insightful reasoning and interpretation to interpret data. This was done after the data had been grouped according to common features: cues, word-stress as well as comments among others. The data was collated. In the process, irrelevant responses encountered were filtered to improve the reliability of the findings. The researcher cross tabulated the transcribed data and compared them to arrive at rough categories of findings. Ontological and epistemological theories were used to subject rough findings to objective and subjective reasoning (Saunders, Lewis and Thornhil, 2007). Thus, the process required the use of inductive and subjective reasoning to test the truth in the existing notions, theories and concepts about convergence with IFRS in India. Similarly, the researcher used these reasoning based on the aforementioned theories to develop new concepts and theories about the convergence with IFRS in India. In summary, the qualitative analysis was based on what past studies say and what respondents say alongside existing conditions at the time of this study. Quantitative technique used to analyze the gathered was based on statistical software SPSS. The researcher used this software to compute the percentages of various responses for every question. This led to generalization of results. In order improve validity and reliability of the statistical results, the researcher further conducted the Chi-square tests to show levels of significant difference that might exists among the responses.

Quantitative technique used to analyze the gathered was based on statistical software SPSS. The researcher used this software to compute the percentages of various responses for every question. This led to generalization of results. Thus, generalized results were obtained through descriptive statistics. In order improve validity and reliability of the statistical results, the researcher further conducted the Chi-square tests for equal proportions using SPSS. This was to show levels of significant difference that might exist among the responses. In other words, the test was meant to determine the difference in agreement between the respondents regarding every questionnaire question. The test process required formation of both null and alternate hypotheses for every questionnaire question. In order to assess the implication of the tests results, the researcher used the chi square statistic value and its corresponding p value. In cases, where the statistical p value is less than 0.05, it was concluded that there is a significant difference between the agreements of the respondents regarding that particular question. Likewise, a statistical p value of more than 0.05 signified no significance difference in response. Hence, in comparison, occurrence of significant difference in response signified weak findings while its absence signified strong findings

CHAPTER FOUR

4.0. ANALYSIS

Descriptive statistics

From the following table we can observe that 28.9% of the respondents were aged between 25 - 34 years. Following bar chart also shows taller bar corresponding to the same.

Age

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

< 18 Years

24

13.3

13.3

13.3

18-24 years

35

19.4

19.4

32.8

25 - 34 years

52

28.9

28.9

61.7

35 - 40 years

35

19.4

19.4

81.1

40 - 60 years

34

18.9

18.9

100.0

Total

180

100.0

100.0

From the following table we can observe that 30.6% of the respondents were General managers. Following bar chart also shows taller bar corresponding to the same.

Designation

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Senior Manager

39

21.7

21.7

21.7

Assistant Manager

42

23.3

23.3

45.0

General manager

55

30.6

30.6

75.6

Supervisor

26

14.4

14.4

90.0

Employee

18

10.0

10.0

100.0

Total

180

100.0

100.0

From the following table we can observe that 29.4% of the respondents were educated up to master's degree. Following bar chart also shows taller bar corresponding to the same.

Education Level

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

High school

10

5.6

5.6

5.6

College degree

33

18.3

18.3

23.9

Bachelor's degree

39

21.7

21.7

45.6

Masters degree

53

29.4

29.4

75.0

Doctorate degree

45

25.0

25.0

100.0

Total

180

100.0

100.0

From the following table we can observe that 51.1% of the respondents were males. Following bar chart also shows taller bar corresponding to the same.

Gender

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Male

92

51.1

51.1

51.1

Female

88

48.9

48.9

100.0

Total

180

100.0

100.0

From the following table we can observe that 66.7% of the respondents were married. Following bar chart also shows taller bar corresponding to the same.

Marital Status

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Married

120

66.7

66.7

66.7

Single

33

18.3

18.3

85.0

Divorced

8

4.4

4.4

89.4

Separated

19

10.6

10.6

100.0

Total

180

100.0

100.0

From the following table we can observe that 44.4% of the respondents had monthly income of more than 40001 INR. Following bar chart also shows taller bar corresponding to the same.

Monthly income

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

0- 10000 INR

9

5.0

5.0

5.0

10001-20000 INR

19

10.6

10.6

15.6

20001-30000 INR

24

13.3

13.3

28.9

10001-40000 INR

48

26.7

26.7

55.6

More than 40001 INR

80

44.4

44.4

100.0

Total

180

100.0

100.0

From the following table we can observe that 40.6% of the respondents were working in the industry for 2 - 5 years. Following bar chart also shows taller bar corresponding to the same.

How long have worked in the industry?

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Less than 2 years

50

27.8

27.8

27.8

2-5 years

73

40.6

40.6

68.3

6 - 10 years

45

25.0

25.0

93.3

More than 10 years

12

6.7

6.7

100.0

Total

180

100.0

100.0

From the following table we can observe that 83.3% of the respondents were well conversant with the subject of convergence of India to IFRS: Harmonization and standardization of accounting policies and its effect on accounting disclosures. Following bar chart also shows taller bar corresponding to the same.

Are you well conversant with the subject of Convergence of India to IFRS: Harmonization and Standardization of Accounting Policies and its Effect on Accounting Disclosures?

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Yes

150

83.3

83.3

83.3

No

30

16.7

16.7

100.0

Total

180

100.0

100.0

From the following table we can observe that 33.9% of the respondents agreed that Convergence in the Indian context entails elimination of the difference between IRFS and the GAAP standard of India. Following bar chart also shows taller bar corresponding to the same.

Convergence in the Indian context entails elimination of the difference between IRFS and the GAAP standard of India

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

21

11.7

11.7

11.7

Disagree

24

13.3

13.3

25.0

Neither Agree nor Disagree

17

9.4

9.4

34.4

Agree

61

33.9

33.9

68.3

Strongly Agree

57

31.7

31.7

100.0

Total

180

100.0

100.0

From the following table we can observe that 43.3% of the respondents strongly agreed that liberalization and globalization of Indian economic policies, and increase need for effective corporate governance, harmonization of accounting standards in India have been taken seriously from the early 1990s. Following bar chart also shows taller bar corresponding to the same.

Liberalization and globalization of Indian economic policies, and increase need for effective corporate governance, harmonization of accounting standards in India have been taken seriously from the early 1990s

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagr

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