Impact of international financing reporting standards (‘IFRS’) on Indian banks

Abstract

The transition from Indian Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) is a much talked about issue in the accounting and business fraternity in India today. The ICAI has proposed convergence with IFRS from the account period commencing on or after 1 April 2011 for listed and other public interest entities such as banks, insurance companies and other large sized entities. Convergence in India would be facilitated by the fact that historically, Indian accounting standards have been based on principles as against rules. However, given the nature of accounting and peculiarities of the Indian economic environment, the process of convergence has its own set of challenges. The conflicting legal and regulatory requirements related to financial statements, the technical preparedness of industry and accounting professionals, and the economic environment prevailing in the country will pose challenges to this convergence. One of the key challenges for India will be monitoring the developments in IFRS based on changes/new standards introduced by IASB as well as incorporating these standards into the converged set of Indian accounting standards. Banking system as a whole has seen a major turmoil during past few years. One of the major reasons quoted for the same is lack of disclosure on the part of financial entities. Introduction of IFRS will lead to reduction in information gap and hence lead to better decision making along with better comparability when compared to international counter parts. The objective of the report is to discuss some of the challenges to be faced by Indian Banking system, while adopting IFRS accounting standard, in depth and provide insights into the perspectives of regulators, the government, the organization and the investors especially the common public who are always with lack of information. The experience of other entities moving towards IFRS experience significant internal as well as external benefits and that IFRS reporting contributes to the effective management of the business. The high demanding disclosure requirement of IFRS with no exemptions, banking system will need to collect and publish additional information which will be in addition to existing disclosure norms set by RBI and other regulators in India. The report takes an insight into what are few major Balance sheet heads which will be impacted due to new norms. The study will also compare the existing norms with the new IFRS norms and will point out what additional information need to disclose by the banking system.