A Crucial Step Towards Harmonization Of Accounting Standards

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: Recently, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) signed a Convergence Agreement to create a single set of key International Standards. This is a path breaking step towards harmonization of Accounting Standards. So, what are its implications? Read on.

Harmonization of Accounting Standards
Accounting bodies across the globe, including the IASB, formerly the International Accounting Standards Committee (IASC), based in UK and International Organization of Securities Commissions (IOSCO), have been relentlessly striving to harmonize the Accounting Standards (AS), also referred to as Generally Accepted Accounting Principles (GAAP), with the International Accounting Standards (IAS) issued by the IASB after making necessary amendments considering the domestic conditions. Harmonization ensures reliable and high quality financial reporting, disclosures and performance comparisons of multinationals, having subsidiaries and/or associates in other countries having their own set of GAAP, and other enterprises against their domestic and international peers. In India, AS are being harmonized with the IAS as India is one of the members of the IASB. To align the Indian GAAP with the IAS, the Institute of Chartered Accountants of India (ICAI) has so far issued 28 AS and 1 Guidance Note (GN), as compared to the existing 34 (41 less 7 already withdrawn) IAS issued by the IASB. In the future, the ICAI is planning to issue new AS and/or GN to harmonize the Indian GAAP with the IAS after giving due considering to the Indian economic and financial considerations. For Indian companies, planning to access international markets for capital, it is necessary for them to restate their financial statement in accordance with the GAAP of that country. Many Indian companies have issued American Depository Receipts (ADR) and American Depository Shares (ADS) in the US stock markets like the New York Stock Exchange (NYSE) or NASDAQ and Global Depository Rights (GDR) in the London Stock Exchange or the Luxembourg Stock Exchange, in which case, the Indian companies will have to restate their financial statements under US GAAP and IAS respectively and also prepare a reconciliation of significant variations between the GAAPs. For those companies, which have issued a combination of ADR/ADS and GDR, they would have to restate their financial statements under US GAAP and IAS. The FASB and IASB ink a Convergence Agreement