Adopt, adapt, and converge?

The two terms though used interchangeably but there is a faint but important difference. Adoption- is process of adopting IFRS as issued by IASB, with or without modifications. Modifications being, generally in the nature of additional disclosures requirement or elimination of alternative treatment. It involves an endorsement of IFRS by legislative or regulatory with minor modifications done by standard setting authority of a country. Convergence- is harmonization of national GAAP with IFRS through design and maintenance of accounting standards in a way that financial statements prepared with national accounting standards are in compliance with IFRS. Many jurisdictions have cultural, legal, or political obstacles to an immediate full adoption of IFRSs. In the light of those obstacles, some countries decide on strategies of continuous convergence with IFRSs. Put differently, they have decided to bring their national standards to a point where the amounts reported in the financial statements are the same as in IFRS financial statements. We respect the reasons why those jurisdictions reach that decision, and work with them to support their convergence process. However, in doing so, it is our ultimate objective to make full adoption of IFRSs possible because we believe that only then will a country be able to fully benefit from the advantages of using IFRSs. Only recently, in January this year and as a result of the second Constitution Review, the Trustees of our organization emphasized, through an amendment to the Constitution, that convergence is not an objective in itself but is a means to achieve the adoption of IFRSs. While convergence may be the necessary preparation for some countries to adopt IFRSs, the simplest, least costly and most straightforward approach is to adopt the complete body of IFRSs in a single step rather then opting for long-term convergence. Certainly, this is a significant change, but the alternatives may be more difficult and may be of less benefit to a country in the long run. The main reason why most companies want to use IFRSs in their financial statements is the ability to demonstrate to the investor community that their financial statements are IFRS-compliant. For that purpose it is not sufficient that the standards have converged. The only way to make a valid that claim is to apply all the standards as issued by the IASB and make the compliance representation required by IAS 1. Hence, while convergence is good, adoption is necessary to be truly able to harvest the benefits of the change The benefits of global adoption of IFRS are significant for investors. Global adoption will create a common denominator from which regulators and supervisors can assess the operations of the entities and markets they oversee. It will permit investors to compare the financial position of companies across borders, potentially allowing investors to more efficiently allocate capital on a global basis. The goal of standards is to develop accounting and valuation principles that provide consistent and accurate context and structure to reporting. Convergence of Standards is not just a theoretical issue these days. Countries are beginning to impose use of IAS which carries with it implications for national valuation standards. India today has become an international economic force. Indian companies has surpassed in several sectors of the industry that includes, ITES, software, pharmaceutical, auto spare part to name a few. And to stay as a leader in the international market India opted the changes it need to interface Indian stakeholders', the international stakeholders' and comply with the financial reporting in a language that is understandable to all of them. In response to the need several Indian companies have already been providing their financial statements as per US GAAP and/or IFRS on voluntary basis. But, however this is becoming more of a necessity then just being a best practice. In the coming years, critical decisions will need to be made regarding the use of global accounting standards in India. 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.

Performance measures, based on Indian GAAP may need revisiting as it may change in IFRS adoption by fair amount on account of valuation aspect. Expectation of investor and market will also be required to be of paramount importance to manage in the adoption of process.