Infosys-Oracle Blog

Come 2011 and there would be a major transformation in the manner Indian companies present their profit and loss accounts and balance sheets. 2011 is when it becomes mandatory for them to adopt International Financial Reporting Standards (IFRS)

What is IFRS
-- International Accounting Standard Board (IASB) has issued principles based pronouncements comprising of standards and interpretations which are popularly known as IFRS (International Financial Reporting Standards).

-- Replaces existing Country specific Accounting Standard which are rule based

-- IFRS compliance is not just accounting change, its impact will be on all entities connected with an organization including shareholders and employees. Policy and Procedural changes need to be analyzed across all areas e.g. Organization, Taxation, Systems, Processes and Controls

Impact on Financial Statements:

Extensive Disclosures: The market value of Financial Derivatives, ESOPS, Properties , Machineries etc need to be disclosed as opposed to current practise of accounting only at historical cost. This would facilitate all stakeholders to assess the correct market value of organization.

Greater transparency: Goods will have to be sold to end consumer to be reflected as revenue instead of existing rule of recognizing revenue by just sending the goods to distributors godown

Risk related disclosures: Investors would have better access to information on company's exposure to interest rate risk, forex risk etc since such disclosures would be mandatory under IFRS. This in turn would help better risk management for the investor

Information Complexity: Since it is a principles based accounting standard, their may be lack of uniformity in disclosures by companies leading to increased complexity for investor. Investors must adjust themselves to such fluctuations

Overall it would increase the length of financial statements due to extensive disclosures but facilitate better and informed decision making for all stakeholders

To conclude, post IFRS the Financial Statements would be Re Born for ever, so are you ready for the change?