IFRS, Auditing Compliance to change accounting practices
January, 10th 2011
Salman Khurshid, Minister of State for Corporate Affairs, recently announced that India will adopt a new set of accounting standards, which are fully convergent with IFRS, from april1, 2011. Compliance with new accounting standards will significantly change the accounting practices in India and will align Indian accounting practices with global accounting practices. This will enhance the confidence of investors in financial statements issued by Indian companies. There are many in the accounting profession and in the corporate world who opposed the early implementation of accounting standards fully convergent with IFRS.
There were many arguments some are trivial like if USA can decide to adopt IFRS after the year 2014, what is the hurry to implement IFRS in India. The others are serious like fair value accounting will lead to large scams. It goes to the credit of the government that it has decided to stick to the well thought out road map issued by it earlier. New set of accounting standards will increase disclosure requirements, which will improve corporate governance.
It is true that there will be teething problems. But India has the capability to overcome them quickly. We have seen ability of Indian companies to manage business in a new economic environment when India opened up the economy. Indian companies demonstrated their capability to take advantages of opportunities emerged from the restructuring of the economy and to compete equally with global leaders. Indian accountants and auditors will demonstrate similar capabilities in the new accounting environment. A positive externality that will arise is that India will be able to contribute significantly in formulation of IFRS as learning from implementing new accounting standards will help the accounting profession to identify issues in implementing IFRS in an emerging economy like India.
This change in accounting practices will enhance the responsibilities of the audit committee and the auditor. It will be a challenge to ensure the integrity of corporate financial reports.