It will now be advisable for Indian companies listed on the US stock exchanges to comply with International Financial reporting Standards (IFRS) as spending money on the new US GAAP, which is financial accounting standard, FAS161 is not going to have long-term benefits.
At present, the companies listed on the US stock exchange have to prepare two set of statements which is by the Indian GAAP as well as by the US GAAP. Once the Indian accounting standards are fully converged with IFRS, then an Indian company listed on the US stock exchange preparing financial statements under Indian GAAP would not be required to prepare a separate financial statement under US GAAP. This would save the compliance cost for the Indian companies listed on the US to a great extent.
The Institute of Chartered Accountants of India(ICAI) president Ved Jain said, "Taking the 2007 announcement of SEC into consideration, it will be more advisable for the Indian companies who are listed on the US stock exchange to follow IFRS. Moreover, early adoption of IFRS is always encouraged as it would allow the users of getting a proper disclosure of the financial statements that would help them to re-evaluate the operations. Moreover, the information on the financial statements would be available to its users on a timely basis".
According to the decision taken on November 15, 2007 by the Securities and Exchange Commission for the companies listed in the US which said, "Financial statements from foreign private issuers in the US will be accepted without reconciliation to US Generally Accepted Accounting Principles only if they are prepared using (IFRS) as issued by the International Accounting Standard Board.
US Financial Accounting Standards Board (FASB) has come out with even more detailed statement of financial accounting standard which is FAS-161. This is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Although, FAS-161 has its own set of advantages in the form of better disclosures relating to financial instruments like derivatives but still for the Indian companies, to go by IFRS would be a better option. This is because FAS-161 is not going to have long-term benefits.
Some of the companies that follow the US GAAP are Wipro Ltd, Infosys Technologies, Satyam Computer Services Ltd, Patni, Bharti Airtel. The companies who are listed on the US stock exchange have an option to choose either between the US GAAP or IFRS.
These companies will not be required to give reconciliation statement if they follow IFRS and not the US GAAP. Reconciliation statements are prepared to identify the difference between the financial statements prepared under one set of GAAP and another set of GAAP.