The remarkable acceptance of IFRS by 140+ countries across the globe indicates that it will become a ‘de-facto language for financial reporting globally.
IFRS replaced earlier accounting standards, such as GAAP (General Accepted Accounting Principles). GAAP was developed over many years by different organizations and was not always consistent from country to country or company. The main goal of IFRS is to make financial reports more transparent and easier to understand by investors, creditors, and regulators.
A global, uniform standard in financial reporting is required to achieve a definite reporting structure, sustainable reporting of business affairs, reduce redundancy, and enhance comprehensiveness and comparability.
However, while discussing global harmonisation in financial reporting, it should be noted that the disparities in accounting standards are not just inter-economy but also intra-economy. Within a country, gradations in standards exist.
Thus, it is essential to evaluate whether sustainable reporting by adopting a common global standard like IFRS will ensure holistic sustainability in financial reporting.
Also, the current and potential usefulness of such reporting should be evaluated. Further, the present and potential usefulness of sustainable reporting standards are assessed for India’s chosen country.
The adoption of IFRS by different countries is either in the form of integration of the international standards with the existing accounting standards or replacing the existing ones. The latter is not opted for because it is a sudden change and may impact the entire economy.
Therefore, the former alternate opts for transit to the IFRS system. Thus, the economies are in the preparatory, transition, or incorporated phases.
IFRS is a principle-based standard and is based on the IAS framework. It can, therefore, be interpreted differently based on the management’s interpretation. Despite the variations, the theoretical advantages of using IFRS as a universal financial language exhibit evidence academically.
Businesses that support using International Financial Reporting Standards, investors, and other stakeholders need high-quality global accounting standards that reflect economic reality in their reporting. The standard-setting process is not biased by any legal or national constraints, which leads to more neutrality and, thus, sustainability.
IFRS is intended to unify the standards for financial reporting. Sustainable reporting ensures that the companies’ performance reporting is triple-bottom line reporting, including financial and non-financial reporting like social, environmental, and corporate governance perspectives.
Thus, IFRS does not solely achieve sustainable reporting but jointly with GRI, achieves the motive.
IFRS in India
Indian Accounting Standards (Ind AS) are based on and have converged considerably with IFRS Standards as established by the Board. India has not embraced IFRS Standards for domestic company reporting and has not yet formally committed to doing so.
The Indian economy is still nascent, and there are many challenges before the companies it will be important for the finance sector to adopt IFRS for financial accounting in India. The financial accounting and reporting standards will play a vital role in developing the Indian economy and financial management.
It’s the need of the hour for financial services to make their transition and adapt to this financial accounting standard for Indian companies. It is believed that the adoption of IFRS will help all Indian companies to focus on financial statement analysis more efficiently and effectively. As the financial scenario of the companies has changed and the financial trends have started emerging, it is the finance sector’s responsibility to transition to IFRS.
The adoption of IFRS in India will help financial services and companies, especially the small and medium ones in the industry, to focus on reporting financial statements. Also, these financial statements will bring clarity and transparency to Indian companies’ financial reports.