With the issuance of second-generation accounting standards, accounting practices in India have changed significantly. The Institute of Chartered Accountants of India (ICAI) and the regulators have done a commendable job in catching up with global standards in a short duration. 
 
The first of the second-generation standards (AS-16) was made applicable from the accounting year commencing on April 1, 2000. In the subsequent five years, ICAI has issued 13 more accounting standards and revised the crucial standard on pension accounting. 
 
The new and revised accounting standards mandate much more disclosure and try to reduce the number of off-balance-sheet items. For example, while only a few years back, derivative instruments were off-balance-sheet items, companies are now required to recognise derivative instruments in the balance sheet as an asset or a liability. 
 
The models in the revised standards are much more complex than the age-old transaction-driven historical cost model. The accounting profession has responded well to the challenges of the revised standards. Companies are voluntarily disclosing more information than what is mandated by accounting standards and other statutes. 
 
The impetus for improving corporate financial reporting came from the globalisation of Indian capital markets. India is looking for significant foreign investment in Indian companies, either in the form of foreign direct investment (FDI) or portfolio investment. 
 
Moreover, well performing Indian companies have listed their securities on foreign capital markets, including US capital markets. 
 
The first important step for attracting foreign capital is to bring corporate financial reporting practices on a par with the best global practices. Therefore, companies that intend to attract foreign capital voluntarily issue financial statements prepared under US GAAP or International Financial Reporting Standards (IFRS). ICAI, on its part, has initiated action to quickly bridge the gap between IFRS and Indian GAAP. 
 
Convergence is the buzzword in the international arena. IASB and the Financial Accounting Standards Board (FASB) the US standard-setting body have entered into an MoU to work towards the convergence of IFRS and US GAAP. A road map published in February 2006 states that a common set of high-quality global standards remains a long-term strategic priority of both the FASB and IASB. 
 
Many countries and territories including China, the European Union, and Australia have adopted the IFRS. India takes the IFRS into consideration in the process of setting its own accounting standards. It departs from the IFRS only if justified by the local environment and practices. The recently issued accounting standards indicate that ICAI intends to keep these deviations to a minimum. The National Advisory Council on Accounting Standards (NACAS), which advises the central government, requires explanations for deviations from the corresponding IFRS in accounting methods and principles stipulated in an accounting standard before recommending them for observance by companies registered under the Companies Act. 
 
We may expect that in the future, revised accounting standards will not deviate from the IFRS on any substantive issue. For example, there is no major difference between the draft of the proposed accounting standard on Financial Instruments: Recognition and Measurement and IAS-39. This raises the question of the justification for having separate Indian accounting standards instead of adopting the IFRS forthright. 
 
Many favour the present practice of issuing Indian Accounting Standards while basing them on the IFRS. They argue that before an IFRS is mandated for observance by Indian entities, it should go through due diligence to examine whether its principles and methods can be enforced in India. This assumes that the business environment in which Indian firms operate differs significantly from developed countries or that Indian institutions are not capable of enforcing complex accounting standards. The first assumption might have been correct when the Indian economy was a closed one, or in the earlier stages of liberalisation, but not now. The second assumption is not correct because the Indian accounting profession has a long history and the quality of Indian accounting education is not inferior to global standards. 
 
There are many benefits of adopting the IFRS without modification. First, Indian companies that access international finance will not have to prepare two sets of financial statements. Whenever a company prepares two sets of financial statements, one based on Indian standards and the other based on the US GAAP or IFRS, the profit reported in one set of financial statements differs from the other set. Usually, the profit reported in financial statements prepared using Indian accounting standards is higher than that reported in the other set of financial statements. This confuses Indian investors. It also gives an impression that Indian accounting standards are not as robust as US GAAP or IFRS, although this is not necessarily true. This situation will be avoided if India adopts the IFRS. 
 
Second, once the IFRS is adopted, Indian accountants will gain experience in working with globally accepted accounting standards. This will provide them a lot of opportunities after the accounting services are opened under a WTO agreement. 
 
Once India adopts the IFRS instead of maintaining its separate standards, ICAI should focus on empirical and theoretical research to help the Indian accounting profession and enhance Indias position in the international standard-setting process. ICAI should issue industry-specific guidance notes providing guidance in applying the IFRS. Field studies will help to understand issues in the implementation and enforcement of the IFRS in different industries in India and will support the preparation of guidance notes. These will also enrich the material for continuing professional education. 
 
India's contribution to the formulation of the IFRS is inadequate right now. The IASB, which issues the IFRS, has 14 members from different geographical regions. 
 
Even though India is an important destination for international investors, international service providers, and products manufactured elsewhere in the world, it has no representation on this board. India not been assigned any project for developing a discussion paper or a basic draft of a new accounting standard, or for the revision of an existing standard. 
 
Bias against developing countries in appointing board members cannot be ruled out as a cause. At the same time, it must also be accepted that the Indian accounting and auditing profession has not much to showcase for strengthening its claim for membership of IASB. 
 
The world is moving towards a system of unified accounting standards and a globalised accounting profession. 
 
Rather than holding on to a system of national standards from a misplaced sense of national pride, we should seriously debate whether the resources of the Indian accounting profession might not be better devoted to developing the capability of the profession, which helps it earn its rightful place in world accounting. 

Asish K Bhattacharyya