IFRS-9 and its Impact in India By Athulya - April 13, 2019 Last Updated at: Oct 06, 2020 0 5825 IFRS-9 and its impact in India IFRS-9 And Its Impact In India The Institute of Chartered Accountants of India (ICAI) has recently unveiled the Exposure Draft on Interest Rate Benchmark Reform-Phase 2 (Proposed amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16). Amendments to these IFRS Standards were proposed to help companies provide useful information to investors about the effects of interest rate benchmark reform on financial statements. What is IFRS? The International Financial Reporting Standards (IFRS) are the accounting guidelines that are developed by the International Accounting Standards Board (IASB). It provides a common accounting language globally that can be used by the companies to prepare Balance Sheets and financial statements. The increased globalization and cross-border business relations have made it mandatory for the financial reports of different countries to communicate a similar language. As of now, it is already applicable in approximately 120 countries. As each country has its own set of accounting standards, IFRS reporting makes it easy to compare and understand the company accounts across international boundaries. IFRS principles would open more doors for public investing and trading as the companies would be clear and transparent about their global market information. IFRS accounting demands extensive disclosures about the company’s management and internal financial transactions. So that the companies would be held accountable for any errors or poor judgement made on their part. Thus, IFRS system ensures a greater degree of responsibility introduced in the financial reporting and disclosure system. Get Your Taxes Prepared by Experts Purpose of IFRS: As per Indian Generally Accepted Accounting Principles (I-GAAP), the revenues are computed net of excise and duties, and the current investment is valued at cost or market value. However, as per IFRS, the revenues are calculated by adding excise duty and the investments are to be valued at Fair Value. The main purpose of implementing IFRS is that it shall lower the cost of capital and bring in new opportunities. It will also improve brand value and enable benchmarking with global peers. IFRS accounting network even projects when the cost is feasible for FV and when it should not be used for FV. Computing financial statements at Fair Value gives a true and fair picture of the company’s financial position rather than just complying with the legal provisions. Steps have been taken by Indian authorities to fully converge I-GAAP with IFRS for remarkable development and upgradation of standards. Understanding IFRS 9 As per the needs of IFRS 9, only those financial assets and liabilities will be influenced that are provided at fair value through P/L Account or those gains and losses in income that are of comprehensive nature. IFRS 9 will have significant effects on the financial institutions and financial stability of the economy. It introduced changes across classification and measurement of financial assets for financial institutions. It made provisions of hedge accounting to better manage risk activities. Initiated a framework to impair the expected losses. The Need for IFRS 9 IFRS 9 is a game changer and is the urge of the developing economies like India. The primary objective of IFRS 9 is to get quality approved, timely information about the credit risk that affects the economic conditions of India. IFRS 9 establishes an “expected loss” model, which is a new method to recover loans and receivables and eliminates the impairment of assessments for equity instruments. Simply, a method to look forward and measure the anticipated losses before they actually occur. It provides a model that will bring cross-coordination between risk, finance, credit and business units. Although, there are some of the areas where India has deviated from IFRS and need to polish them out are Leasing, current vs non-current liabilities, revenue recognition and foreign currency convertible bonds. Impact of IFRS in India In an Indian market economy where activities are mostly carried out by small and medium-sized companies, determining a reliable Fair Value is difficult. India is an emerging economy. Thus, it does not have adequate skilled resources to meet the demands of complex technology and proper trainers which is required for successful implementation of IFRS. Cost of complying with the provisions of IFRS is comparatively higher than the benefits received by it. Understanding IFRS is complicated as it is mostly based on models and analytic. Regardless, of the challenges faced in the adoption of IFRS, Indian companies have experienced a huge liberalization over the past few years since the new standards came into force. Greater efficiency and transparency with more refined performance in the state of affairs. With IFRS, companies in India can present themselves in the foreign markets as well which could not have been possible with the traditional methods of accounting principles. Conclusion IFRS is a global accounting language which will have international acceptance and will provide a common accounting platform in each and every part of the world. In this era, where the world is converging internationally there is need of accounting standards which have universal acceptance. Accounting in accordance with IFRS will mean the transactions of similar nature will be recorded in a similar manner everywhere leading to the same set of financial statements. 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