Auditing and consulting firms PricewaterhouseCoopers and KPMG are working with the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) on adopting international financial reporting standards (IRFS) for banks in India.
“Currently, the RBI is working on the procedures for the adoption of IFRS accounting standards. It should come out with guidelines soon,” said Bhavna Doshi, senior advisor with KPMG.
All listed companies and enterprises dealing with public funds will be required to prepare and present financial statements using accounting principles and methods stipulated in IFRS, once it is adopted, starting on or after April 1, 2011. The International Accounting Standards Board (IASB) issues IFRS.
“Most countries throughout the world, including European countries and the US, are adopting total convergence with IFRS,” said Doshi, adding that once the standards are adopted in India, the financial impact of convergence for Indian banks will be significant.
Difference will be especially felt in areas related to loan loss provisioning, financial instruments and derivative accounting, she added.
“There is likely to be a significant impact on the financial position and performance of banks, directly affecting key parameters like capital adequacy ratios and outcomes of valuation metrics,” she noted.
Doshi also said that with IFRS in place, the historic cost will be substituted by fair values for several balance sheet items. This will enable corporates to know their true worth. “By providing transparent and comparable financial information, IFRS reporting will provide a thrust to cross-border acquisitions,” she commented.
It will also enable partnerships and alliances with foreign entities and lower the cost of integration in post-acquisition periods, pointed out experts.
However, for successful implementation of IFRS, there needs to be a dedicated team for project implementation with proper knowledge of IFRS, said Kumar Dasgupta, partner with PWC.