Professional Documents
Culture Documents
INTRODUCTI
ON
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1-INTRODUCTION:
Global accounting standards have been one of the main focuses of attention in the accounting
community since the 1970s. At the present time, over one hundred countries have adopted or
plan to adopt the International Financial Reporting Standards (IFRS) for listed companies. The
International Accounting Standards Boards (IASB) stated goal is to achieve harmonization
and convergence of accounting rules. However, it is well known that financial reporting
outcomes are determined by the interaction between accounting standards, preparers incentives,
regulation, enforcement, and other institutional features of the economy. In addition, it is difficult
to infer from voluntary IFRS adoption studies the implications of mandatory IFRS adoption.
Therefore, it is difficult to state with confidence that mandatory IFRS adoption is optimal and
leads to improved financial reporting quality.
In an increasingly interconnected global economy, many market participants
are considering the question of whether it is possible or desirable to move toward a more uniform
global language for financial reporting. The proponents of this idea argue that a uniform set of
global accounting standards, supported by strong governance, independent standard-setting and a
sound regulatory framework, could benefit investors and businesses alike. Others suggest that
trying to establish a uniform set of global standards would run the risk of overlooking the unique
economic, political, cultural, legal and regulatory realities that exist in different nations and
regions. Over the past decade, this global discussion has intensified. In 2001, the International
Accounting Standards Board (IASB) adopted the first International Financial Reporting
Standards (IFRS) to serve as a possible pathway for establishing uniform global accounting
standards. Since then, IFRS has been adopted or become accepted in over 100 countries. Over
this same period, the Financial Accounting Standards Board (FASB) and the IASB have begun
an effort to converge IFRS and the Generally Accepted Accounting Principles in the United
States (US GAAP), essentially working to make the two sets of accounting standards
increasingly similar to each other. More recently, some market participants have raised the
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possibility of transitioning entirely from US GAAP to IFRS for public company financial
reporting in the United States. In the coming years, critical decisions will need to be made
regarding the use of global accounting standards in the United States. Market participants will be
called upon to determine whether achieving a uniform set of high-quality global accounting
standards is feasible, what sort of investments would be required to achieve that outcome, and
whether it is a desirable goal in the first place. This dialogue will be critical to the future of
financial reporting and of fundamental importance to the long-term strength and stability of the
global capital markets.
Convergence with IFRS has gained momentum in recent years all over the
World. 110+ countries including European Union, Australia, China, New Zealand, and Russia
currently require or permit the use of IFRS. Apart from India, countries like Japan, Sri Lanka,
Canada and Korea have also committed to adopt IFRS from 2011. United States of America has
announced its intention to adopt IFRS from 2014 and it also permits foreign private filers in the
U.S. Stock Exchanges to file IFRS complied Financial Statement, without requiring the
presentation of reconciliation statement.
In this scenario of globalization, India cannot insulate itself from the developments taking
place worldwide. In India, so far as the ICAI is concerned, its aim has always been to comply
with the IFRS to the extent possible with the objective to formulate sound financial reporting
standards. The ICAI, being a member of the International Federation of Accountants (IFAC),
considers the IFRS and tries to integrate them, to the extent possible, in the light of the laws,
customs, practices and business environment prevailing in India. The Preface to the Statements
of Accounting Standards, issued by the ICAI, categorically recognizes the same. Now, as the
world globalizes, it has become imperative for India also to make a formal strategy for
convergence with IFRS with the objective to harmonize with globally accepted accounting
standards.
In the present era of globalization and liberalization, the World has become an economic
village. The globalization of the business world and the attendant structures and the regulations,
which support it, as well as the development of e-commerce make it imperative to have a single
globally accepted financial reporting system. A number of multinational companies are
establishing their businesses in various countries with emerging economies and vice versa.
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1.2-LITERATURE REVIEW:
IFRS have been recently developed due to expansion of boundaries of business and few
researcher conducted study on this issue. There is so many studies have been conducted in
outside India because of non-adoption of IFRS by the Indian organizations and also due to
continuous extension of convergence in India. However, ICAI recently announced to compliance
with IFRS by Indian organization since 2013. The following is a summary of research studies at
international context under different part of section viz.
Katarina Struharova, Karle steker, Milana Otrusinova (2011). In this paper they discuss what
the shift to IFRS mean for Czech companies and what is the impact of possible adoption or
convergence plans on Czech companies.
Dr. Naseem Ahmad and Professor Nawab Ali Khan (2010), define that all major economies
have established time lines to converge with or adopt IFRSs in the near future.
Amanda Paul and Eddy Burks (2009), provide a history of IFRS and discuss the timeline
of convergence, along with advantages and disadvantages. This paper will also address
the future impact on accounting education
George Iatridis(2010), This study investigates the impact of the implementation of the
International Financial Reporting Standards (IFRSs) on key financial measures of UK firms
and the volatility effects of IFRS adoption. The findings show that IFRS implementation has
favorably affected the financial performance (e.g. profitability and growth potential) of firms.
The study also demonstrates that following the fair value orientation of IFRSs the transition
to IFRSs appears to introduce volatility in income statement figures.
Ramona Dzinkowski(2007), this study provide the information that On March 6, the US
Securities and Exchange Commission (SEC) held a round table on the roadmap to IFRS
convergence. According to the panel of about 20 experts, not only was the general consensus a
resounding "yes", but reconciliation to US GAAP is looked upon as a mostly futile and
expensive exercise. Most investors both in and out of the US are not relying on the reconciliation
to US GAAP to make investment decisions; they use the IFRS or local country GAAP. If the
SEC takes the recommendations resulting from this forum, in the very near future people can
expect the reconciliation requirement to be dropped, potentially before 2009. In the interim it
will be thinking very carefully about whether it should give US firms the opportunity to file
under the IFRS should they wish to, or mandate that as of a certain date, US firms must be filing
under the IFRS.
Financial Reporting Standards, or IFRS, which is being developed and supported by the
International Accounting Standards Board (IASB).
With more and more countries adopting the IFRS as their accounting standard, over 120 as of
April 2011, investors and analysts should be well advised on how this transition affects
company's reporting, and what it means moving forward. To do this, this study will look at the
background of IFRS, the benefits, its goals, the fundamental differences between IFRS and U.S.
GAAP &IAS, convergence of IFRS & its impact, challenges etc.
The past few decades have seen the advent of globalization whereby many entities have and
are expanding or making significant acquisitions in the global arena, for which huge capital is
required. One of the key challenges that faced by all such entities is the compliance requirements
imposed by various stock exchanges across the world for financial information. Today majority
of stock exchanges across the world will accept or require financial statements to be prepared
under IFRS. India being one of the key global players, migration to IFRS will enable Indian
entities to have access to international capital markets.
To establish the difference between the Indian accounting standards & International
accounting standard.
To make a case study of Wipro Ltd under Indian GAAP and IFRS to determine their
implications and impacts on financial statement
1.5-RESEARCH METHODOLOGY:
1.5.1-Scope of the study- scope is limited to an analysis of the convergence of IFRS
in Indian scenario taking the case study of Wipro.
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1.5.2-Sources of data- Data are collected from the secondary sources such as
Published sources & unpublished sources. Published sources are Newspaper & Magazines,
research scholars, Government publications etc. Un-published sources are un-published material
found with research scholars and Referring various website.
1.7-CHAPTER PLAN:
CHAPTER-1: Chapter 1 is the introduction part. It includes literature review, importance of
the study, objective of the study, scope of the study, sources of data collection, time frame, and
limitation of the project and chapter plan.
CHAPTER-3: Chapter 3 is all about convergence of IFRS and its impact. It covers need for
global convergence with IFRS, challenges in the way of global convergence, benefits of
convergence with IFRS, major areas impacted by convergence with IFRS.
CHAPTER-4: Chapter 4 deals with comparative analysis of IFRS and IND AS.
CHAPTER-5: Chapter 5 is all about adoption of IFRS in Indian companies. The financial
data of WIPRO ltd was taken into consideration and how the company reports its financial
figures by using both IFRS and Indian GAAP which is clearly mention.
CHAPTER-6: It is the conclusion part. This chapter include summary of the project, findings
and suggestion.
CHAPTER-2
IFRSCONCEPTUAL
FRAMEWORK
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2.1-INTRODUCTION OF IFRS:
International Financial Reporting Standards (IFRS) are designed as a common global
language for business affairs so that company accounts are understandable and comparable
across international boundaries. They are a consequence of growing international shareholding
and trade and are particularly important for companies that have dealings in several countries.
They are progressively replacing the many different national accounting standards. The rules to
be followed by accountants to maintain books of accounts which are comparable,
understandable, reliable and relevant as per the users internal or external.
2.3-OBJECTIVE OF IFRS:
The objective behind the IFRS is to create a common platform for better
understanding of accounting internationally.
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By adopting IFRS, a business can present its financial statements on the same
basis as its foreign competitors, so that it is very easier for comparisons.
To bring about convergence of national accounting standards and international
accounting standards and IFRS to high quality solution.
To take account of, as appropriate, the special needs of small and medium sized entities
and emerging economies.
2.4-IMPORTANCE OF IFRS:
A single set of accounting standards would enable internationally to standardize training and
assure better quality on a global screen, it would be also permit international capital to flow more
freely, enabling companies to develop consistent global practices on accounting problems. It
would be beneficial to regulators too. As a complexity associated with needing to understand
various reporting regions would be reduced.
2.5-SCOPE OF IFRS:
IASB standards are known as International financial Reporting standards (IFRS).
All International Accounting Standards (IASS) and Interpretations issued by the former
IASC & SIC continue to be applicable unless and until they are amended or withdrawn.
IFRSS apply for the purpose of preparing financial statements and other financial
Reporting by profit oriented entities, those engaged in commercial, industrial and
financial activities.
IFRS is appropriate for all entities. Other than profit oriented business entities.
Here the financial statements are intended to meet the common needs of shareholders,
creditors, employees. As well as provide information regarding financial position,
performance and cash flows of business entity.
Other financial reporting includes information provided outside financial statements that
assist in the interpretation of a complete set of financial statements or improves users
ability to make efficient economic decision.
IFRS apply to individual company and consolidated financial statements.
A complete set of financial statements include a balance sheet, an income statements, a cash
flow statement, a statement showing either all changes in equity or changes in equity other than
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those arising from investments and distributions to owners, a summer of accounting policies and
explanatory notes.
Present all non-owner changes inequity that is comprehensive income either in one
statement or in two statements a separate income statement and a statement of
comprehensive income).components of comprehensive income may not be presented in
new standard.
Present statement of cash flow.
Make necessary disclosure by the way of a note.
The revised IAS 1 is effective for annual periods beginning on or after 1 January 2009.
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2.7-STRUCTURE OF IFRS:
IFRS are considered a principle based set of standards in that establish broad rules as well
As dictating specific treatments.
accounting principle for companies with domestic and international business operations. United
States (U.S.) companies are still required to use generally accepted accounting principles
(GAAP), although they can report their global financial information under the international
framework as well.
The IASB is the international equivalent of the U.S. financial accounting Standards Board
(FASB). The IASB is a private, nonprofit organization responsible for assessing the financial
needs of the global business environment and developing accounting standards that meet the
needs of bankers, investors and other stakeholders. The IASB has 15 board members that help
guide and direct the organization on which international accounting situations should be
addressed through international financial reporting standards. The IASB creates the standards
using two basic assumptions: accrual basis and going concern. The accrual basis requires
companies to record transactions as they occur; a going concern means the entity will continue
into the foreseeable future. International financial reporting standards are created using a due
process that was developed and is monitored by the IASB. When developing new standards, the
IASB considers the relevance of information released to users, determines whether a current
guideline exists for the specific accounting information, assesses the possibility of creating a
quality accounting standard and identifies constraints that might exist. This process may be time
consuming since the IASB must consider all the countries that use international financial
reporting standards for reporting accounting information. The IASB usually allows individuals in
the international accounting community to provide input and comments during the due process
phase. This review and comment process allows the IASB to modify potential accounting rules
prior to releasing them as official reporting standards.
The IASB and FASB have been working on a convergence process to create a universal,
global set of accounting principles. This convergence process is attempting to merge the
international financial reporting standards and GAAP to create one set of accounting principles
companies can use when reporting financial information. While most U.S. companies must use
GAAP for reporting financial accounting information domestically, foreign countries are
commonly adopting international financial reporting standards for their standard accounting
principles overall. These dual accounting principle guidelines mean U.S. companies must spend
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more time developing international financial statements and translating financial information to
meet the specific needs of domestic and international users of financial information.
works in the close corporation with stakeholders around the world, Including investors, national
standard-setters, regulators, auditors, intellectuals and others who have an interest in the
development of global standards. Between 1973 and 2001, the International Accounting
Standards Committee (IASC) released International Accounting Standards. The IASC
restructured its organization in years 1997 to 1999, which resulted in the formation of IASB.
Subsequently, IASB published its standards in a new series of pronouncements called
International Financial Reporting Standards (IFRS).
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These are the standards which are being converged by eliminating the differences of the
Indian Accounting Standards vis--vis IFRS. These standards shall apply by all the companies
falling under the phase I to phase III.
These are the standards used, at present, by Indian Companies under the Companies Act,
1956. Companies not falling within the threshold limits prescribed for IFRS compliance in the
respective phases shall continue to use these standards in the preparation and presentation of
financial statements.
CONCLUSION:
In this chapter it is tried to explain, detail background of International Financial
Reporting Standard & its scope & objective and its benefits to an organization. The Ministry
of Corporate Affairs had issued a press release setting different phase for adoption of IFRS.
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CHAPTER-3
CONVERGENCE
OF IFRS & ITS
IMPACT
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Accounting is the language of business, but every country has its own language which is
called generally accepted Accounting Principles (GAAP). Accounting standards would yield
financial statements that could be effortlessly interpreted by any user around the world.
However, different countries have local accounting standards or principles which spell out the
accounting treatment and disclosure requirements for preparing the financial statement. These
standards may have different accounting treatment for the same type of transaction in two
different countries. This makes difficult for the end user to understand the financial statements
for taking any economic decisions unless these are prepared based on uniform accounting
standard. Converging of domestic Accounting standard with IFRS will bring almost the entire
world on one single uniform accounting platform with good number of attendant benefits to large
number of entities for doing global business. Moving from Indian Accounting standard to IFRS
is not merely changing from one set of accounting policies to another but involves a number of
business implications. Basically there will be major change in the profitability and the way in
which business management is looked at by various stakeholders and calculation of various
leveraging ratios due to the convergence to IFRS. This chapter throws lights on need for global
convergence with IFRS, present status of its implementation, its impact on discloser
requirements and advantages in the Indian scenario.
so that can be applied anywhere in the world, allowing investors to compare the performance of
business entities across geographic boundaries.
The harmonization of financial reporting around the world will help to raise confidence of
investors in the information they are used to make their financial decision. If accounting for same
events and information produces divergent reported financial statements due to adoption of
different set of accounting standards, then it is self evident that accounting will be increasing
discredited in the eyes of users of the financial statements. Also for the companies with multiple
listing in both domestic and foreign country, the convergence is very much essential.
position to understand the differences between the rules governing financial reporting in the
foreign country as compared to own country. Translation and reinstatements of financial
statements are of extreme importance in a rapidly globalizing world.
Business Combination
Group Accounts
Fixed Assets and Investment Property
Presentation of Financial Statements
Experts are of the opinion that there will be major impact on the profitability and the way in
which business management is looked at by various stakeholders due to the convergence to
IFRS. Also it is expected that there will be deviation in the way major leveraged ratios are
calculated after the convergence with IFRS. The following areas, where significant accounting
changes are anticipated are discussed below:
3.4.1
BUSINESS COMBINATION:
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3.4.2-GROUP ACCOUNTS:
There are many key differences with regard to the accounting for Group Accounts under
IFRS. Under IAS- 27(Revised), consolidated and separate Financial Statements, the preparation
of group accounts is mandatory, subject to a few exemptions, whereas, preparation of
consolidated financial statements (CFS) is required only for listed entities under Indian GAAP.
Also, the application of equity method or proportionate consolidation to associates /Jointventures is mandatory under IAS-27(Revised) whereas preparation of financial statements (CFS)
is required only for listed entities under Indian GAAP. The application of equity method or
proportionate consolidation to associates/ joint-ventures is mandatory, subject to a few
exceptions even if an entity does not have any subsidiaries as per IAS-27(Revised). Under Indian
GAAP, application of the equity method or proportionate consolidation is required only when the
entity has subsidiaries and prepares CFS. Under IAS-27(Revised), consolidation is required for
all subsidiaries, whereas, there are two exemptions from consolidation provided under Indian
GAAP. Potential voting rights, which are currently exercisable, are considered for determination
of control under IFRS; Indian GAAP is silent on whether potential voting rights are to be
considered for control. However, under AS-23, potential voting rights are not considered for
determining significant influence in the case of and associate. Thus, an analogy can be drawn in
the case of a subsidiary as well. Both, IFRS and Indian GAAP require use of uniform accounting
policies for preparation of CFS. However, Indian GAAP provides an exemption on the grounds
of impractically.
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IFRS allows a 3 months time gap between financial statements of a parent or investor and its
subsidiary, associates or jointly controlled entity. Indian GAAP allows a 6 months time gap for
subsidiaries and jointly controlled entities. For associates, there is no time gap prescribed. Under
IFRS, changes in ownership interest of a subsidiary (that do not result in the loss of control) are
accounted for as an equity transaction and have no impact on goodwill or the income statement.
No Guidance is given in Indian GAAP for changes in ownership interest of subsidiary that do not
result in loss of control. IFRS requires losses incurred by the subsidiary to be allocated between
the controlling (parent) and non- controlling equity investment in the subsidiary. Under Indian
GAAP, excess losses attributable to minority shareholders over the minority interest are adjusted
against the majority interest unless, the minority has a binding obligation to, and is able to, make
good the losses.
3.4.3-FIXED ASSETS AND INVESTMENT PROPERTY:
As per the provision contained in IAS-16, property, plant and Equipment mandates
component accounting, whereas, AS-10 recommends, but does not require, component
accounting. IFRS requires depreciation to be based on the useful economic life of an asset. In
Indian GAAP, depreciation is based on higher of useful life or schedule-XIV rates. Major repairs
and overhaul expenditure are capitalized under IFRS as replacement costs, if they satisfy the
recognition criteria, whereas, in most cases, Indian GAAP requires these is to be charged off to
the profit and loss account as incurred. IFRS requires estimates of useful lives and residual
values to be reviewed at least at each financial year-end. In Indian GAAP, there is no need for an
annual review of estimates of useful lives and residual values.
Both IFRS and Indian GAAP permit the revaluation model for subsequent measurements. If
an asset is revalued, IFRS mandates revaluation to be done for the entire class of property, plant
and equipment to which that asset belongs, and the revaluation to be updated periodically. In
Indian GAAP, revaluation is not required for all the assets of the given class. It is sufficient that
the selection of the assets to be revalued is made on systematic basis, e.g. an entity may revalue a
class of assets at other location. Also there is no need to update revaluation regularly under
Indian GAAP.
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Under IFRS, depreciation on the revaluation portion cannot be recouped out of revaluation
reserve and will have to be charged to the income statements over the useful life of the asset,
whereas Indian GAAP permits depreciation on revaluation portion to be recouped out of
revaluation reserve to the income statement.
IFRS provides details rules for classification of an asset as an investment property and allows
subsequent measurement of investment property at cost or at fair value. Indian GAAP requires
investment property to be recognized at cost less diminutions other than temporary diminutions
in value.
Under IFRS, intangible assets can have indefinite useful life. Such assets are required to be
tested for impairment and are not amortized. Under Indian GAAP, there is no concept of
indefinite useful life.
3.4.4-PRESENTATION OF FINANCIAL STATEMENTS:
IAS-1 (Revised 2007) Presentation of financial statements (effective from annual accounting
periods beginning on or after 1st January 2009) is significantly different from the corresponding
AS-1. While IAS-1 (Revised) sets out overall requirements for the presentation of financial
statements, guidelines for their structure and minimum requirements for their content, Indian
GAAP offers no standard outlining overall requirements for presentation of financial statements.
In Indian, for various entities, the statutes governing the respective entities lay down formats of
financial statements. For example, in the case of companies, format and disclosure requirements
are set out under schedule-VI to the companies Act, 1956. For entities such as partnership firms,
the statute governing those entities does not lay down any specific format of financial statements.
IAS-1 (Revised) recognizes the true and fair override provisions. The true and fair override
concept is generally not permitted under GAAP. While Clause 49 of the listing agreement
contains provision relating to the true and fair override, no practical guidance is available.
Further IAS-1(Revised) requires the presentation of a statement of comprehensive income as part
of the financial statements. This statement presents all the item of income and expense
recognized in profit and less, together with all other items of recognized income and expense.
Entities may present all item together in a single statement or present tow linked statements
displaying the items of income and expense recognized in profit and loss (the income statement),
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and statement beginning with profit or loss and displaying all item included in other
comprehensive income (the statement of comprehensive income). The concept of other
comprehensive income does not prevail under Indian GAAP, however, information relating to
movement in reserves, etc. is generally presented the caption reserves and surplus in the balance
sheet.
3.4.5-ADDRESSING SENSITIVITY TO LOCAL CONDITIONS:
The issue of convergence with IFRS has gained considerable momentum in India. At present,
the accounting standards board (ASB) of the institute of Chartered accountants of India (ICAI)
formulates the accounting standards based on IFRS. However, these standards remain sensitive
to local conditions, including the legal and economic environment. Accordingly, the accounting
standards issued by the ICAI depart from the corresponding IFRS in order to ensure consistency
with the legal, regulatory and economic environments of India.
3.4.6-APPLICATION OF FAIR VALUE CONCEPT:
Further, the IFRS are principle-based standards and the application required the increased use
of fair value accounting (FVA) for valuation and measurement of assets and liabilities. Fair value
is defined as an estimate of the price an entity would have realized if it had sold an asset or paid
if it had been relieved of a liability on the reporting date in an arms length exchange motivated
by normal business considerations. Evidence shows that FVA would result in added volatility in
the earning and equity, especially for the banking and financial institutions. Possible reason for
many countries to delay adopting to the IFRS is attributed to the economic downslides being
faced by them of late, mainly in the us and other European countries, where there is formidable
opposition to the adoption of fair value concept, apprehension being that, applying fair value to
their assets and liabilities may results in triggering the contagion effect.
3.4.7-LEGISLATIVE CHANGE:
Important issue for detailed discussion is the one relating to the bringing in suitable
legislative changes required to various laws- compliance to which is mandatory for all the
entities whether in the public, government or private domain. For example, the format of
reporting of financial statements is as per the guidelines provided by IASB. IAS-1 requires
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presentation of financial position in a flowing format. This is significantly different from the
provisions contained in the schedule VI of the companies Act, 1956 for public and private
limited companies and as per the banking Regulations Act for banking and insurance entities.
Suitable amendments needs to be brought in to these legal enactments enabling the entities
converging to IFRS to present the financial statements as prescribed. In addition to regulatory
challenges, IFRS convergence in India will face other challenges such as training, shortage of
resources, information systems, etc.
3.4.8-FINANCIAL STATEMENTS:
Under the new standards the complete set of financial statements comprises of the following:
Balance sheet as at the end of the period (along with the statement of changes in equity
annexed thereto)
Statement of profit and loss (including other comprehensive income)
Statement of Cash flows for the period
Notes comprising the summary of significant accounting policies and other explanatory
information
Balance sheet as at the beginning of the earliest comparative period when an entity
applies an accounting policy retrospectively or makes a retrospective restatement of items
in the financial statements or when it reclassifies items in its financial statements.
3.4.9-BALANCE SHEET:
The balance sheet or the statement of financial position as it is called in the international
accounting standards is to be drawn as per Schedule VI of the companies Act. The present
Schedule VI is proposed to be amended to make it in line with IAS-1. Each entity is required to
present current and non-current assets, and current and non-current liabilities, as separate
classifications in its balance sheet. As an exception to this general rule, an entity may provide the
classification based on the liquidity if such information is reliable and more relevant.
The current and non-current classification is aimed at providing useful information by
distinguishing the net asset that are continuously circulating as working capital from those used
in the entities long term operations. This classification highlights the assets that are expected to
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be recovered within the current operating cycle and liabilities that are due for settlement within
the same period.
Thus the classification of liabilities will no longer be on the line of secured and unsecured.
Similarly the assets will be classified as non-current and current instead of the present
classification as fixed assets and current assets. Presently long term loans and advances are also
classified as current assets. In the proposed schedule VI they will be classified as Non-current
Assets.
3.4.10-STATEMENTS OF CHANGES IN EQUITY:
The statement of changes in equity is similar to the existing schedule of Reserves and
Surplus. Under the new statement, the entity shall present a statement of changes in equity
showing the following information:
Total comprehensive income for the period showing separately the total amounts
beginning and at the end of the period separately disclosing the changes resulting from:a) Profit or loss
b) Each item of other comprehensive income and
c) Transactions with the owners in their capacity the owners, showing separately the
contribution by and the distributions to the owners and the changes in the ownership
interest in the subsidiaries that do not result in loss of control.
3.4.11-STATEMENT OF CASH FLOWS:
The Cash Flow statement provides information to assess the ability of entity to generate cash
and cash equivalents and also the needs of the entity.
3.4.12-STATEMENTS OF PROFIT OR LOSS:
The statement requires an entity to present all items of income and expenses in a period in
profit or loss unless other standards require/ permit otherwise. All material items of income and
expenses are required to be disclosed along with the nature and amount separately.
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The IAS-1 permits presentation of expenses by using either their nature or their functions
within the entity. The general method adopted in India is to present expenses on the basis of their
nature. Accordingly Indian AS-1 requires the presentation only by the nature of expenses.
NOTES
The Notes to account present information about the basis of preparation of the financial
statement and the specific accounting policies, they disclose the information required by the
standards that is not presented elsewhere in the financial statements. Such information is relevant
to understand the financial statements. The notes should be present in a systematic manner. There
should be proper cross-referencing of the items in the financial statements with that in the notes.
Generally the orders in which the notes are to be presented are as under:
profit and loss, statement of changes in equity and the cash flow.
Disclosure of contingent liabilities and unrecognized contractual commitments and
Non-financial disclosure e.g. financial risk management objectives and policies
It may be useful to note that the information required to be disclosed currently under
schedule-VI such as quantitative details, CIF value of imports, FOB values, of exports etc. will
not be required to be disclosed in the notes to the accounts.
3.5-IMPACT:
This study seeks to establish if the adoption of International Financial Reporting Standards
(IFRS) in Kenya has been associated with higher accounting quality for listed companies. The
International Accounting Standards Board (IASB), in its objectives and preamble, supposes that
the beneficial effects from IFRS adoption include transparency, accounting quality and reduced
cost of capital. Based on these assumptions, this study applied accounting quality measures;
earnings management, timely loss recognition and value relevance to find out whether the
adoption of IFRS has led to improvements in accounting quality in companies listed in Kenya.
The methodology is based on prior literature definition of metrics of accounting quality mainly
earnings management, timely loss recognition and value relevance. The study differs from the
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previous ones by overcoming difficulties in controlling for confounding factors faced in previous
studies which could have led to less reliable results. Three out of the eight metrics indicated that
quality had marginally improved while five indicated that it had marginally declined. These
mixed outcomes are very much in line with findings in other studies and the study contributes to
the debate by explaining why accounting quality outcomes are still not consistent with IFRS
promises in spite of improved test conditions.
CONCLUSION:
IFRS are help in to maintain a harmony, while preparing the financial statement. There are
certain challenges face by auditor & other while convergence the IFRS in global level. If the
company are adopted the IFRS, there are certain benefit can get in the form of presentation of
Financial Statement & treatment of Fixed Asset & other investment etc. The Impact in adoption
of IFRS help in Transparency, accounting quality & reduction cost of capital, reliability, accuracy
in presenting the Financial Statement.
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CHAPTER4
COMPARATIVE
ANALYSIS OF
IFRS AND IND AS
29
Accounting standards are written documents, policy document issued by experts accounting
body or by government or other regulatory body covering the aspects of recognition,
measurement treatment, presentation and disclosure of accounting transaction in the financial
statement. Till now, 32 Accounting standards have been issued by the ICAI as against the 41
International Accounting standards out of which seven accounting standards are superseded
effectively now there are 34 International accounting standards. There are also eight international
financial reporting standards (IFRS).
Generally Accepted Accounting Principles (GAAPs) includes accounting conventions, rules,
procedures and accounting standards, accepted accounting practices both promulgated and non
promulgated. GAAPs consist of four components: the requirements of law, judgments of various
courts of law; pronouncements of the governing body from time to time; and requirements of
regulatory Authority SEBI.
In 2001, the international fraternity of accountants took stock of the situation and constituted
the International Accounting Standards Board (IASB) to evolve and prescribe norms for
treatment of several items in the preparation and presentation of financial statements. IASB
adopted all the 41 standards issued by the IASC till 2001. These standards were thoroughly
revised and updated in view of the changes in industry and the need for rationalization. Now
only 34 standards are functional. The US Finance Accounting Standards Boards (FASB) and the
IASB are in the process of eliminating the differences in some of the standards. The International
Finance Reporting Interpretations committee
This committee meets periodically to discuss and spell out their interpretations. Some of the
other major international bodies in the realm of international accounting are the European
Commission (EC), the UN, the International Federation of Accounts (IFAC) and the organization
for Economic Cooperation and Development (OECD).
accounting standards.
To analysis the applicability of accounting standards in respect of their size.
LEVEL-1 ENTERPRISES
LEVEL-2
ENTERPRISES
31
LEVEL-3
ENTERPRISES
Listed companies
To be listed companies
Banks
Financial institutions
Insurance companies
Enterprise having
Turnover more than INR
Enterprise not
Covered under level-1
and level-2
500 million
Enterprise whose
500 million
Enterprises whose
borrowing exceeds INR
100 million
Holding or subsidiary
Companies of above
Listed companies
Level II and Level III enterprises are considered as SMES. Level I enterprises are required to
comply fully with all the accounting standards. No relaxation is given to Level II and Level III
enterprises in respect of recognition and measurement principles. Relaxations are provided with
regard to disclosures requirements. Accordingly, Level II and Level III enterprises are fully
exempted from certain accounting standards, which mainly lay down disclosure requirements.
INDIAN ACCOUNTING STANDARDS
TABLE 2: INDIAN ACCOUNTING STANDARDS AND ITS APPICABILITY LEVEL
AS
Particulars
no
AS-1
Applicability
level
Disclosure
of
1,2,3
accounting
policies
32
AS-2
Valuation
of
1,2,3
inventories
AS-3
Cash
flow
statement
AS-4
Contingencies
1,2,3.
and events
occurring after
of this standard.
date
AS-5
1,2,3.
and accounting
policies disclosure.
policies
AS-6
Depreciation
1,2,3.
accounting
AS-7
Construction
contracts
1,2,3.
33
AS-8
Accounting for
Withdrawn
research and
development(this
standard has been
withdrawn with
effect on
01.04.2004 for all
levels of
enterprises and
AAS 26 is
applicable)
AS-9
Revenue
1,2,3.
recognition
AS10
Accounting
1,2,3.
AS11
The effect of
1,2,3
changes in
foreign exchange
rates
AS12
Accounting
1,2,3.
for government
grants
AS13
Investments
1,2,3.
34
AS14
Accounting
1,2,3.
for amalgamation
AS15
AS-
Accounting
1,2,3.
for retirement
benefits in the
financial
statements of
employers
accounting, disclosure.
Borrowing costs
1,2,3.
16
qualifying
assets,
conditions
of
capitalizing
borrowing
costs,
commencement,
Segment
Segment
reporting
related
to
business
&
17
reporting
2-with
modification
3-with
modification
disclosure.
AS-
Related party
18
disclosures
2-with
modification
3-with
disclosure.
modification
35
AS-
Leases
19
2-with
modification
3-with
modification
AS-
Earnings per
20
share
2-with
modification
3-with
modification
AS-
Consolidated
21
financial
statements
AS-
Accounting for
1,2,3.
22
taxes on income
AS-
Accounting for
23
investments in
consolidated
contingencies, disclosure.
deferred
1
financial
statements
AS-
Discontinuing
24
operations
36
financial report.
AS-
Interim financial
25
reporting
AS-
Intangible assets
1,2,3.
26
AS-
Reporting of
27
interests in joint
2-with
ventures
modification
disclosure.
3-with
modification
AS-
Impairment of
28
assets
2-with
modification
3-with
modification
disclosure.
AS-
Contingent
29
liabilities and
contingent asset
disclosure.
37
AS-
Financial
From 1/4/2009
30
instrument
recommendatory
recognition and
from 1/4/2011
measurement
mandatory
except SMEs
AS-
Financial
Recommendator
31
instrument:
y form
presentation
01/04/2009
AS-
Financial
Recommendator
32
instrument:
y form
disclosures
01/04/2009
PARTICULAR
APPLICABILIT
Y LEVEL
38
IAS-
Presentation of
1,2,3.
financial
statements
IAS-
Inventories
1,2,3.
IAS-
Cash Flow
Statements
1.
IAS-
Accounting
policies, changes
1,2,3.
in accounting
estimates and
errors
IAS-
10
IAS-
Construction
11
contract
1,2,3.
1,2,3.
IAS-
Income Taxes
1,2,3.
12
39
IAS-
Segment
14
Reporting
2-with
modification
3-with
modification
IAS-
Property, plant,
16
and Equipment
1,2,3.
IAS-
Leases
2-with
modification
3-with
modification
dividends.
Revenue
1,2,3.
Employee benefits
1,2,3.
17
IAS18
IAS19
IAS-
Accounting for
20
government grants
1,2,3.
and disclosure of
government
assistance.
IAS-
The effects of
1,2,3.
21
changes in foreign
exchange rates
IAS-
Borrowing costs
1,2,3.
IAS-
Related party
1,2,3.
24
disclosures
23
IAS-
Accounting and
26
reporting by
retirement benefit
plan
IAS-
Consolidated and
1.
27
separate financial
statements
IAS-
Investments in
28
associates
1.
IAS-
Financial
29
reporting in
hyperinflationary
hyperinflationary economy.
economies
41
IAS-
Interests in joint
31
ventures
2-with
modification
IAS-
33
2-with
modification
IAS-
Interim financial
34
reporting
retrospective adjustments.
IAS-
Impairment of
36
assets
2-with
modification
IAS-
Provisions,
1,2,3.
37
contingent
liabilities and
contingent assets
IAS-
Intangible assets
1,2,3.
38
IAS-
Financial
39
instruments:
1,2,3.
recognition and
measurement
42
IAS-
Investment
40
property
1,2,3.
IAS-
Agriculture
41
There are significant variations between the Indian and international accounting standards.
Prevailing laws of the land significantly contribute to the variances between accounting
standards of one country with the other.
Table 4: COMPARATIVE ANALYSIS OF ACCOUNTING STANDARDS (ISSUED BY
ICAI) IN INDIA Vs INTERNATIONAL ACCOUNTING STANDARDS
N.OF
LEVEL OF
TITLE OF ACCOUNTING
COMPARABLE
LEVEL OF
THE
COMPANIES
STANDARDS
IAS
COMPANIES
AS-1
1,2,3.
Disclosure of accounting
IAS-1
1,2,3.
Valuation of inventories.
IAS-2
1,2,3.
IAS-7
1.
IAS-10
1,2,3.
IAS-8
1,2,3.
policies.
AS-2
1,2,3.
AS-3
1.
AS-4
1,2,3.
Contingencies
and
events
1,2,3.
43
AS-6
1,2,3.
Depreciation accounting.
IAS-16
1,2,3.
IAS-38
AS-7
1,2,3.
Accounting
for
construction
IAS-11
1,2,3.
contracts.
AS-8
With drawn
(irrelevant
Not applied
after
issuing AS 26)
AS-9
1,2,3.
Revenue recognition.
IAS-18
1,2,3.
AS-
1,2,3.
IAS-16
1,2,3.
1,2,3.
IAS-21
1,2,3.
IAS-20
1,2,3.
10
AS11
AS-
1,2,3.
12
AS-
Accounting
for
government
grants.
1,2,3.
1,2,3
1,2,3.
Accounting
1,2,3.
13
AS-
(IAS-22) IFRS 3
1,2,3.
IAS-19
1,2,3.
IAS-23
1,2,3.
14
AS15
benefits
for
in
retirement
the
financial
statements of employers.
AS-
1,2,3.
Borrowing cost.
16
44
AS17
AS18
AS19
AS20
AS-
1.
Segment reporting.
IAS-14
1.
2-with
2-with
modification
modification
3-with
3-with
modification
modification
Related party
IAS-24
2-with
2-with
modification
modification
3-with
3-with
modification
modification
leases
IAS-17
2-with
2-with
modification
modification
3-with
3-with
modification
modification
1.
IAS-33
1.
2-with
2-with
modification
modification
3-with
3-with
modification
modification
Consolidated
financial
45
IAS-27
21
AS-
statements
1,2,3.
IAS-12
1,2,3.
IAS-28
22
AS23
associating
in
consolidated
financial statements.
AS-
Discounting operations.
IAS-34
1,2,3.
Intangible assets.
IAS-38
1,2,3.
1.
IAS-31
1.
24
AS25
AS26
AS27
AS28
2-with
joint ventures.
2-with
modification
modification
3-with
3-with
modification
modification
1.
2-with
IAS-36
1
2-with
modification
modification
3-with
3-with
modification
modification
46
AS-
1.
and
IAS-37
From 1/4/2009
IAS-36
recommendatory.
& measurement.
29
AS30
Contingent
liabilities
contingent asset.
From1/4/2011
mandatory
except SMEs
AS31
AS32
Recommendatory Financial
form 01/04/2009
instrument
Recommendatory Financial
from 01/04/2009
Partly covered
IAS-13
instrument
CONCLUSION:
There is a need for continued improvement in accounting standards and disclosure rules to
resolve various accounting aspects and to simplify, to a greater extent, the financial reporting
system. In our country in the light of above, it is found that effort is on to match Indian standards
with the international accounting standards, through there are significant variations between the
Indian and international accounting standards.
47
CHAPTER-5
ADOPTION OF IFRS
48
A CASE STUDY ON
WIPRO
49
PARTICULAR
IFRS
rupees in millions
CHANGE %
Goodwill
PPE & Intangibles
Available for sale investment
Investment in equity accounted
Inventories
Trade receivables
Unbilled revenue
Cash & cash equivalents
Net tax assets
Other assets
TOTAL ASSETS
56521
52563
16426
1670
7587
50370
14108
49117
2672
20984
272018
56143
53287
16293
1670
7587
50123
14108
49117
5759
23203
277290
378
-724
133
0
0
247
0
0
-3087
-2219
-5272
CHANGE
0.67
-1.38
0.81
0
0
0.49
0
0
-115.53
-10.57
-1.94
29667
15
29667
0
0
15
0
100
allotment
50
Retained earnings
Cash flow hedging reserve
Other reserves
TOTAL EQUITY
Minority interest
Loan & borrowings
Trade payables
Unearned revenues
Other liabilities & provisions
TOTAL LIABILITIES
119957
-16886
3546
136299
237
56892
40191
8734
29665
135719
126646
-14533
5601
147381
0
56892
40191
8734
24092
129909
-6689
-2353
-2055
-11082
237
0
0
0
5573
5810
-5.58
13.93
-57.95
-8.13
100
0
0
0
18.79
4.28
5.2: INTERPRETATION:
Analyzing the financial statements of WIPRO for the year 31.3.2009. It is observed
there is 1.94% increase in the total assets value as per IFRS when compared with the
total assets value as per Indian Accounting Standards.
There is increase in the value of Net tax asset including deferred taxes in IFRS
reporting by 115.53% when compared with the amount reported under Indian
Accounting Standard. The reason being as per IAS 12, A deferred tax asset should be
recognized for deductible temporary differences, unused tax losses and unused tax
credits to the extent that is probable that taxable profit will be available in the future
to realize the tax benefits and Balance sheet approach is followed in recognizing
deferred taxes . Whereas in Indian Accounting standards the deferred tax asset in
respect of carry forward losses is recognized if it is virtually certain that sufficient
future taxable income would be available in the future to realize the tax benefits and
contingent liabilities and contingent assets) and IFRS 2 (Share based payment). Under
IAS 17 Leases, leases of land are classified as operating leases unless the title to the
leasehold land is expected to be transferred to the company at the end of lease term.
So, there is a reclassification of land from Property Plant and equipment to other
assets under IFRS reporting resulting in this no impact on equity. Under IAS 18
Revenue, in respect of multiple element arrangement comprising delivered products
and installation services, the Company defers and recognizes revenue relating to
installation services when those services are rendered. Earlier in Indian Accounting
standard the entire revenue is recognized when the products are delivered in
accordance with the contractual terms and the expected cost of installation is also
accrued. This has an impact on the income statement. Under IAS 39(Financial
instruments: Recognition and Measurement), loans and receivables are recognized at
amortized cost, which is carried at historical cost under Indian Accounting standards.
This has an impact on the equity.
The total equity has increased by nearly 8.13% in IFRS when compared to the Indian
accounting standards. IFRS 2 share based payment each tranche of vesting interest is
treated as a separate reward and the stock compensation expense relating to that
tranche is amortized over the vesting period of the underlying tranche. Earlier Indian
standard permits an entity to recognize the stock compensation expense, relating to
share option which vest in a graded manner on the straight line basis over the
requisite vesting period for the entire award. Under IFRS minority interest is reported
as a separate item within equity whereas under Indian standards minority interest is to
be presented separately from equity.
52
The total liability has decreased by 4.28% in IFRS when compared to Indian
accounting standards. Under IAS 10 Events after the balanced sheet date, the liability
for dividend is recognized only when it is approved by shareholders. Under Indian
accounting standards the liability is recognized in respect of proposed dividend on
company's equity share even though the dividend is expected to be approved by the
shareholders subsequent to the reporting date.
Under IAS 1 Presentation of financial statement, share application money received
and pending allotment is reported under other liabilities whereas in Indian Accounting
standards share application money pending allotment to be presented as a separate
item within equity.
5.3: FINDINGS:
The total assets under IFRS is more than the Indian accounting standards by 1.94%
which shows that Indian accounting is more conservative. The most probable reasons are
its fair value measurement, difference in the basis of interest capitalization, deferred tax
asset recognition and difference in accounting for foreign currency forward contracts. It
shows that the Indian accounting standards are conservative.
The equity under IFRS has increased by 8.13% when compared to Indian accounting
standard. Minority interest are treated as part of equity and under IFRS 1 First time
adoption, adjustments required to move from previous GAAP to IFRS should be
recognized directly in retained or if appropriate another category of equity at the date of
transition to IFRS.
The total liabilities under IFRS are decreased by 4.28% when compared to the Indian
accounting standards. The provision for proposed dividend is recognized in IFRS only
when it is approved by shareholders who resulted in reduction of provision.
53
300000
250000
200000
IGAAP
150000
IFRS
100000
50000
0
ASSETS
Equity
Liabilities
0.29
0.14
0.94
1
0.15
ANALYSIS:
54
0.26
0.14
0.93
0.88
0.15
We examine that the Return on Equity and Net profit ratio as reported under IGAAP and
IFRS remains the same. There is a decrease in the leverage or debt equity ratio in IFRS
accounting when compared to IGAAP accounting. The reduction in this ratio in IFRS is due
to increase in value of Equity by 8.13% in IFRS accounting and reduction in value of Total
Liabilities by about 4.28% in IFRS accounting when compared with IGAAP accounting.
There is reduction in return on equity mainly because of increase in the equity value by about
8.13% and decrease in Net profit by about 0.61% in IFRS reporting when compared to
IGAAP reporting.
There is reduction in Total asset Turnover mainly because of increase in Total assets by
about 1.94% and decrease in turnover by about 0.04% in IFRS reporting when compared
with IGAAP reporting.
CONCLUSION:
The study investigates the financial statement implications of adopting IFRS by Wipro. It is
observed that the net income position in IFRS reporting and Indian GAAP is not much varied.
But there are differences in the Total liability and Equity position which is mainly because of
reclassification between Equity and Total liability. The provision under IFRS is reduced mainly
because dividend provision is not recognized in IFRS. Fair value measurement of Available for
sale investment and the share compensation expense recognized in IFRS is higher, as in IFRS
reporting accelerated amortization of stock compensation expense in the initial years following
the grant of options, whereas in Indian GAAP reporting recognizes the stock compensation
expenses in graded manner on a straight line basis over the requisite vesting period for the entire
award which resulted in increase in share based payment reserve. Overall the return on equity,
return on asset, total asset turnover and net profit ration are not significantly affected by
converging to IFRS but the leverage ratio shows significant change on converging with IFRS.
There are also significant changes in the Total Equity and total liability position on convergence
to IFRS but not prominent changes in the Total Asset Position. All these observations make us
conclude that IFRS is fair value oriented and Balance Sheet oriented accounting where there are
more transparent disclosures and Indian GAAP is conservative approach.
55
56
CHAPTER-5
SUMMARY AND
CONCLUSION
after 1st April, 2011.The countries which have adopted IFRSs have done so for similar
types of entities.
In the public interest, a single set of high quality, understandable and enforceable global
accounting standards that require high quality, transparent and comparable information
in financial statement and other financial reporting to help participants in the world
capital markets and others users make economic decision.
The IASBs has produced so far a high quality global standard acceptable all over the
world and the progress remained steady and focused.
International Accounting Standards Board (IASB) and its member countries are
committed towards promoting the use and rigorous application of those standards.
The perception of stakeholders & the markets likely to be affected by these changes
Further this would provide high quality, transparent and comparable information in
financial statement and other financial reporting to help participants in the world capital
markets and others users make economic decision.
Conversion to IFRS will have unique repercussion for each country, depending on how
each national GAAP differs. In the case of India, there are a number of differences &
similarities that need to be carefully looked at.
A common set of accounting principles will help companies with operations in different
countries & facilitates cross border transactions.
58
In our study of financial statements of Wipro Ltd, follows Indian GAAP as well as IFRS,
due to its operation in different country. It is found out that deviations are prominent in
some areas and not so prominent in others.
SUGGESTION:
Currently the IFRS is not complete as it does not contain:
IFRS common practice or industry concept reflects disclosures & relational structures
commonly observed in the financial statements in practice.
There should be proper disclosure & feedback to the management, so that management
In order to improving the IFRS, the above point must keep in mind.
CONCLUSION:
The convergence of financial reporting and accounting standards is a valuable process that
contributes to the free flow of global investment and achieves substantial benefits for all capital
market stakeholders. It improves the ability of investors to compare investments on a global
basis and, and thus, lowers their risk of errors of judgment. It has the potential to create a new
59
standard of accountability and greater transparency, which are of significant value for market
participants including regulators. Focused on realistic economic representation, financial
reporting should address the legitimate needs of key stakeholders and provide a comprehensive
overview of financial information. Every stakeholder should gain from active participation in
shaping the successive phases of the convergence process.
The convergence with IFRS is now at a very crucial stage in India. There is a need to develop
an enabling regulatory framework and infrastructure that would assist and facilitate IFRS
convergence. The government would need to frame and revise laws in consultation with the
NACAS and the ICAI. Similarly, regulatory such as IRDA, RBI, SEBI, and CBDT would have
to consider accepting IFRS in place of the existing set of prescribed accounting rules.
Convergence is lengthy process and it may take years to reach the important goal of a single set
of accounting standards.
BIBLIOGRAPHY
60
REFERENCES:
1) Katarina Struharova, Karle steker, Milana Otrusinova (2011), Shift to IFRS what
(Katarina Struhaovss, Shift to IFRS what would this mean for Czech, Issue 2,
Volume 5, 2011)would this mean for Czech companies
2) Dr. Naseem Ahmad and Professor Nawab Ali Khan (2010), Global convergence of
financial reporting this article define that all major economies have established
3)
18) http://en.wikipedia.org
62