IFRS CONVERGENCE IN INDIA: EVOLUTION, PERCEPTIONS AND OUTCOME

Abstract

Globalization has created an unavoidable demand for convergence of financial reporting, which has resulted in significant changes in accounting procedures around the world. Therefore, regulatory alterations in financial reporting practices due to the emergence of international financial reporting standards (IFRS) indicates significant changes in the financial performance of Indian enterprises. The motivation for this study comes from ongoing debates on its effects on various facets of accounting. This study aims to address the following research questions in the light of evolution, perceptions, micro-and-macro economic impact of convergence to IFRS in India: 1. How has financial reporting practices evolved and what impact has IFRS had on Indian corporations? - Describes how the financial reporting practices have evolved in India with an exclusive focus on implementation and impact of first-time adoption of IFRS converged Ind-AS on Indian companies. 2. What are the critical factors influencing the perceptions of accounting professionals about Ind AS implementation? - Examines the factors that affecting perceptions of preparers on Ind-AS. 3. What is the impact of Ind-AS on the macro-economic factors in India, majorly FDI? - Analyses whether Ind-AS has a relationship with macroeconomic factors (including foreign direct investments, gross domestic product, exchange rates, interest rates and governance etc.) in India vs. the UK. First part of the study subscribes to ongoing deliberations on harmonizing accounting standards in developing countries. It investigates the steps undertaken by India to be at par with IFRS. It dives into literature to explain the evolution of India's financial reporting practices and accounting harmonization processes. It highlights anticipated benefits and challenges of IFRS convergence in India, along with quantitative impact of Ind-AS on various industries represented by large-cap Indian companies and probable reasons behind it. The quantitative analysis includes the financial impact on critical parameters of financial statements prepared for the first time under Ind-AS. We used ANOVA test to ascertain the significance of Ind-AS on key parameters–Profit/PAT, EBITDA, Revenue, Net Worth and Taxes. Whereas, qualitative impact analysis assessed the quality of Presentation and Disclosure concerning key Ind-AS. The findings and conclusions are vi limited to first-time adoption experience of standalone financial statements of non-financial large cap Indian companies listed on Bombay Stock Exchange (BSE). Second part of the thesis aims at identifying, confirming and prioritizing the critical factors affecting perceptions of accounting professionals for convergence in Indian context. The study extends IFRS literature by contributing to an existing factor model developed by Fontes et al. (2016) for Ind-AS. We used a questionnaire survey based on relevant literature and expert interviews. We used Exploratory Factor Analysis (EFA) and Confirmatory Factor Analysis (CFA) to explore, confirm and rank the critical factors. The findings streamline twenty-four sub-factors into six significant factors–Institutional, Personal, Contextual, Standard-specific, Operational, and Metamorphic factors. Further, Eigen values of EFA revealed that contextual, Personal and Institutional are three key factors primarily affecting the perceptions of accounting professionals. Final part examines a relationship between IFRS, and macroeconomic variables as suggested by Gordon et al. (2012). It majorly employs FDI data of India to verify IASB’s assumption of transparency increases the investment inflow. It identified the relationship between FDI & IFRS convergence in India and compares pre-and-post convergence of FDI flows to India. The comparison is motivated by examining the various consequences of Ind-AS. Our motivation was elated with responses on the ‘benefits of convergence to IFRS’ in initial interviews conducted for Objective 2. We employed t-test, correlation, and regression analysis to extract meaningful results from the data. T-test results indicate that India has a significant effect on its FDI flows due to Ind AS rather than the UK. Correlation results revealed that IFRS in India is associated with an increase in FDI inflows. Whereas regression analysis revealed that in case of India, 84% of variance in FDI is explained by macro-economic factors considered with a significant change due to convergence whereas in case of the UK, 88% of variance in FDI is explained by these variables whereas IFRS adoption is insignificant. The study thus reviews the decision of Indian accounting standards setters to converge with IFRS. It proposes a framework for Indian standards-setters, policymakers and stakeholders for effective investment decisions. Apart from considering the individual perceptions, this research also examines the decision's underlying quantitative impact on the micro as well as macro-economic factors. Thus, the final analysis brings forth interesting results for consideration by the concerned authorities at the individual, firm, and national level.