Each nation follows its own accounting standards and policies. In any case, in the previous couple of decades, the worldwide monetary situation has changed drastically. Presently there are transnational organizations that work in numerous countries. So now there is a necessity for a standard that can be accepted worldwide. At this point of situation, convergence with IFRS came into the picture.
So let us look why there is a need for convergence of IFRS or convergence with IAS (Indian Accounting standard).
A London based board IASB (International Accounting Standards Board) formed the IFRS (International Financial Reporting Standards). Moreover, the motive behind the IFRS formation is to provide a uniform accounting standard worldwide. Further, they are guideline based standards that draw the standards and guidelines for financial reporting.
At present, our worldwide economy is incredibly integrated. Organizations raise capital from over the globe. They likewise market and sell their items in different nations. This outcome results in having tax liabilities in different nations too. Thus this has prompted an interest for a worldwide standard for accounting.
A definitive objective of the IFRS is to standardize accounting by giving a typical worldwide language to worldwide business. So if an organization has dealings in a few nations it just distributes one lot of financial reports that satisfy the statutory prerequisites of the nations it works in. Likewise worldwide standard at that point it turns out to be a lot simpler for clients of these financial reports to analyze them.
Comprehensively the IFRS comprise of the accompanying:
IASB keep on refreshing these worldwide standards to stay aware of the cutting edge exercises. A definitive objective is a worldwide convergence however they have begun by concentrating on Europe. Today there are roughly 120 nations that have acknowledged the IFRS as their accounting standards. 90 of these nations are completely integrated with the IFRS. Among these 120 nations are Australia, the UK, Japan, Canada and so forth.
ICAI’s Accounting Standard Board (ASB) is the one who formulates Indian Accounting Standards as per the Ministry of Corporate Affair. These standards are furnished keeping the financial condition and practices of India in mind. The convergence of IFRS in India was made to suit the Indian organizations and the divulgence necessities of the Indian government.
On the contrary, IFRS are framed as per the worldwide standards and conditions. In general terms, convergence means crossing over any barrier between the two, i.e. the IFRS and the Indian AS. Convergence will include an arrangement of the two sets of standards. The trade-off is finished by embracing the policies of the IFRS either completely or in a part.
In the event that the accounting standards are converged, it will help in promoting the international business and will also increase the capital inflow into the nation. This will enable India's economy to develop and extend. International contributing will likewise mean increasing capital for local organizations too.
Convergence helps financial specialists who wish to put resources in foreign economies and markets. It makes it a lot simpler for them to study and compare the financial reports of foreign organizations. Since the financial reports are made utilizing a similar set of standards it is additionally simpler for the financial specialists to comprehend and dissect them.
With worldwide accepted standards the business can easily upswing ahead. So convergence is essential for the business also. It will enable the business to bring down the expense of foreign capital. It will permit simple entry into the market if that organization is not consumed by embracing two distinct sets of standards.
Convergence will profit the clients of the financial reports also. It will make it simpler for them to comprehend the financial position. What's more, this will produce better transparency and raise the certainty of the investment fund by investors.
Right off the bat, it will absolve organizations from keeping up discrete accounting books as indicated by standards. This will spare plenty of work hours and cash for the department that manages finance. And furthermore arranging and executing audit will likewise turn out to be simpler.
It will be particularly useful for those organizations that have numerous subsidiaries in different nations. Furthermore, the capital cost will likewise lessen since capital would be easily available and more accessible.
There are some critical challenges of convergence to IFRS and the Indian Accounting Standard. Some of them are:
The IFRS use is getting so broad that it has already been either converged or adopted in 100 Countries including Hong Kong, European Union, South Africa, Australia, Russia etc. As Companies have now begun globalizing their business operations, IFRS is progressively becoming very important.
However, the dilemma regarding the difference between IFRS adoption and IFRS Convergence still persist. In spite of the fact that in like manner speech, numerous countries are utilizing them conversely, however, there is a noteworthy distinction between the two which all IFRS user must comprehend and actualize.
In simple words, IFRS adoption is when the country implements the IFRS in a similar way the IASB issued it. Moreover, the country adopting IFRS have to adhere 100% with the IASB guidelines.
On the contrary IFRS, convergence is when the country accounting standard board with the guidance of IASB develops a compatible Accounting Standards. Thus, we can say that countries that are converging with IFRS may sometime deviate from the original IFRS guidelines issued by the IASB.
The IFRS Adoption supporter thinks that IFRS convergence alone can't wipe out all the difference between the two sets of Standards. On the other hand, IFRS convergence supporter believes that more IFRS conversion will make adoption simpler and less expensive and may even make IFRS adoption superfluous.