Question

Recent decades have seen a growing pursuit of convergence of the national accounting standards with IFRS around the world.

Required:

a) Discuss the fundamental drivers of convergence and rationalise your view on whether achieving full convergence is a feasible objective, giving particular consideration to the implications of the adoption of IFRS for emerging economies.

b) In their seminal paper, Perry and Nolke (2006) argued that proliferation of IFRS and the growing reliance of such standards on the fair value accounting principle "reflects and reinforces changed relations of production in which the financial sector increasingly dominates the productive sector". Evaluate the relative strength of the above claim and critically evaluate any other arguments you are aware of that are commonly put forward by the proponents and/or opponents of fair value accounting.

Answer 1

There is a growing pursuit of convergence of the national accounting standards with IFRS around the world. The same has happened with my country i.e. India.

In India, we were earlier using Accounting Standards (AS) which were developed as per Indian business conditions and needs of the hour. However, as times passed, and more and more International Companies entered India, a need was felt that financial statement made as per Indian Accounting standards were different and not appropriate as per International Financial Reporting standards. Hence, Indian Financial Statement have to be remade as per Internal Financial Reporting standards.

In order to address this issue, Indian Accounting Standards were converged with International Financial Reporting Standards and rechristened as Ind AS. I would like to convey here that although Ind AS were made keeping IFRS in mind, still there were certain converges which were to be filled with a stipulated time and not immediately. This lag was given to enable Indian accounting professional time to adapt to the new standards. Further, introduction of Ind AS brought consistency in the accounting practices and principles followed by companies in India and other companies across world. This leads to enhanced accessibility and acceptability of financial statements by global investors.

Now, i would like to enumerate various drivers of convergence of Ind AS with IFRS.

• Wider acceptability:

IFRS are widely acceptable and give enhanced confidence to the user of financial statements. Ind As will serve the same utility as they are also derived from IFRS.

• Changes in standards as per economic situations:

Principles of Ind AS are revised/modified in case there is any major change in economy. Ind AS 29 is ‘Financial Reporting in hyper inflationary Economies’ which deals with situations related to inflation.

• Comparability of Financials:

Financial statements prepared using Ind AS are easily comparable with the financial statements prepared by companies of other countries.

• Attracts Foreign Investment:

Adopting Ind AS may attract foreign investors to invest in Indian Companies as that will ensure better comparability with similar companies across the globe.

• Saves financial statement preparation cost:

For multinational companies, it will be beneficial as it will be able to use the same accounting standards in all the markets in which they operate. This will save preparation costs of aligning financial statements of Indian company with other operations.