Page 45 - CA_ELG_Volume I_ELG-Sample

Paper 1 Principles and Practices of Accounting Theoretical Framework 1.35

Financial statements need to be uniform, rational, comparable, transparent and
adaptable. Having a number of accounting standards around the world is against the
public interest. If accounting for the same events and information produces differ-
ent reported numbers, then it is evident that accounting will be increasingly discred-
ited in the eyes of those using the numbers. It leads to confusion, making it prone to
error and facilitates fraud. The solution for all these is to have a single set of high
quality global standards, which facilitates public interest. It results in cross-border
flow of money, global listing and comparability of financial statements.

For the companies which are listed in both domestic and foreign country carrying out global
operations, the convergence is very much significant as it eliminates some costly require-
ments such as reinstatement of financial statements. It sets a new standard of accountabil-
ity and higher transparency. It reduces operational challenges for accounting firms.

1.21.2 IFRS as Global Standards

In the interest of public, a need to formulate and publish International Accounting Stan-
dards that are to be followed in the preparation and presentation of audited financial
statements arose.

Upon its formation, International Accounting Standards Board (IASB) issued state-
ments about current and future standards. Those pronouncements are designated as
“International Accounting Standards” (IAS). These were issued to promote acceptance
and observance of International Accounting Standards worldwide. These standards are
“principle based”. In fact, they establish broad rules which need to be followed, rather
than dictating specific treatments. Every major nation is moving towards adopting
International Financial Reporting Standars (IFRS) to some extent. IFRS is being man-
dated by regulatory authorities for listing of companies, banks and insurance companies.

1.21.3 Benefits of Convergence with IFRS
(Significance of Issue of Ind AS)

ƒ Economy: Markets have expanded globally, thereby need for convergence emerged.
International business increases and It facilitates maintenance of orderly capital
markets.It helps to increase the capital formation by promoting international invest-
ing which in turn leads to more foreign capital flows.

ƒ Investors: Investor’s confidence is high especially when the Ind AS used is accepted
globally. It provides the investor with relevant, reliable, timely and comparable infor-
mation across the jurisdictions which enables them to better understand investment
opportunities and take decisions.

ƒ Industry: Capital can be raised at lower cost due to high confidence among investors
because of uniform and comparable financial information. The process of preparing
Individual and Group Financial Statements are simplified, thereby reducing the bur-
den of financial reporting.

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