IFRS, it is a term many of you might be familiar with. Especially the accountant knows the real meaning of this single acronym. However, for the common people who don’t know much about accounting niche, IFRS stands for International Financial Reporting Standards that are used to target the business affairs on large scale.
For a business personnel, they have their own meaning and importance of IFRS for their industry. The most surprising thing is the opinion about IFRS accounting remains consistent in India. However, with time the perceptions are changing. And now when union look behind all they come up is one term to describe their previous perceptions – Myth!
Here is a quick peek into such myth that can change your mind in just a matter of few minutes. Get started to go through the IFRS India transition myths that we believed.
1. Comfortable Transition Deadline with IFRS
On an average, the European and Australian Union needed more than a year for the transition and only 95 percent companies could go through this phase. Out of other companies, 40 percent of them took around 2 years to undergo the change. The fact happened is that India only got maximum of 8 months to be prepared for IFRS accounting standards as Institute of Chartered Accounting of India (ICAI) needed to publish the comparative numbers.
However, other countries got the total time span of 2-3 years due to the release of interpretation in advance. This IFRS deadline helps them in having the proper step-by-step map to overcome the transitions in the company. What left everyone confused is that ICAI still needs some time to come up with the final standards.
Another thing that comes out was that since Indian companies have less time, they must go through the IFRS. And immediately start to plan out things by using every resource they can put their hands on. If a company fail to do so, they might suffer a huge loss that can expose them to the risk of the restatement, damage in market reputation, cost overrun and product market risk.
2. Limited Changes in Accounting Measures
Companies keep a track of IFRS due to the changes it might bring the accounting sector. It is given a finance priority by the senior management of the companies making it highly important. The main impacts of IFRS can be observed in the multiple business units, spanning divisions and cross-functional operations that companies went through.
You might have seen many companies changing the working process and designs of their vital processes just to follow the IFRS guidelines. The main department of the companies such as procurement, HR, IT, Sales, Legal and business development unit is the main that went through this process. Another thing is that if the accounting policies are changing then you will have to change other papers as well such as debt covenants, third-party contracts, and key leadership metrics.
The stakeholders must be convinced the finance will impact the cross-functional work and it is important to support the transitions. The companies who had made the changes in their business units and the functions that had an impact. Because of the IFRS transition went through much more effect of the transitions around 55 percent. However, the companies that don’t follow them won’t be able to see the changes. It also needs less than 90 percent of your time to complete the transition.
3. Auditors and Consultants
Companies believe that they can depend on the consultants and auditors for the transition process. They put a lot of load of the transition on them just so they can identify the changes in accounting. However, this is simply not correct. An auditor and consultant only need to have a minimum of work in the transition. Main work actually depends upon the internal finance team that can update the needed activities of the transition.
Yes, the need for internal staff during the time of transition becomes the topmost priority. Companies require the efforts and team in order to invest in the IFRS project training. This allows the company to properly train the team on the basis of IFRS guidelines. It also preserves IFRS and GAAP convergence as they can simply track down all the changes.
It is important for the companies to decide needing supports (internal and external) at the start of the transition. Each stage has a different need and it is important to know the need of the auditor sign-off points. If you fail to do so then you might suffer from some extra pay like pointless consulting pay and the corrections during the time of planning a project.
4. Transition is Inexpensive
The transitions were estimated to cost around 30 lakhs to 1 crore. Apart from this, they will need a total of 16 external and internal full-time employee to perform basic tasks during the transition phase. Other than that, it is important to complete new IT system that can work according to the IFRS balance sheet example. Around 50 percent companies make these changes and 20 percent don’t even think about it.
The other extra charges include the reporting cost, systems change and auditor fees that swamped the system at the last moment. However, there are certain ways to avoid this scenario. Few scenario such as planning robust ideas, testing systems, reporting daily working details including IFRS bad debt and auditors accounting system sign off.
No matter what the myths are and what you believe in, in the end, it is you who knows what will work for the companies in the best possible manner. However, it is essential to track down the changes and their impacts to make a steady decision and sharpening your performance in all the discipline and sectors of the business. IFRS might be the biggest area of concern but if you plan then you can easily beat it to transform.