The Evolution of Indian Accounting Standards: Its History and Current Status with Regard to International Financial Reporting Standards

Topics: International Financial Reporting Standards, Financial statements, International Accounting Standards Board Pages: 17 (5328 words) Published: September 11, 2009
1. Introduction
Propelled by globalization, world attention today is centered on two emerging market economies, India and China. China's managed liberalization has allowed it to achieve more rapid growth and has attracted a larger portion of direct foreign investment. India, with its messy democracy and nod to individualism in recent times promises a more exciting market environment with greater potential for future growth. The liberalization of the Indian economy since 1991 has exposed Indian firms to foreign competition and foreign investment. As a result, the information needs required by both managers and investors have changed. A first step in this process is the demand for transparency in the financial reporting. This transparency is rapidly occurring in India as the country catapults into becoming a major economic power propelled on by the combined forces of the technological revolution, the opening up of its borders and the privatization of many infrastructure industries such as transportation and communication. This paper addresses the adoption and applicability of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) to India.3 Specifically, the paper highlights some major areas where the country lacked harmonization with IAS in 1993 and the rapid congruence with IAS in the decade that followed. The attempt to achieve congruence with IAS appears to be more a by-product of the country's rapid economic growth rather than its catalyst. However, continued growth and the attraction of foreign capital to domestic ventures will depend on the transparency of the financial dealings. The Institute of the Chartered Accountants of India, (ICAI), India's standard setting body, is increasingly attempting to provide this transparency by revisions and additions to accounting standards, and by Exposure Drafts which aim to bring India more in line with International Financial Reporting Standards. The focus of this paper is on the evolution of these Indian Accounting Standards.

2. Literature review

In order to effectively review the literature with regards to harmonization of accounting standards in general, it is deemed appropriate to first examine the International Accounting Standards Board's (IASB) position, reasons for harmonization, and recent efforts towards this goal. Epstein and Mirza (1997) define the IASB's goals as first, to promote the acceptance of proposed accounting standards across the world; and second, to continue improvement in the harmonization of accounting standards, regulations, and procedures. As of 1990, sixteen countries had achieved 100% conformance with the thirty IAS that existed at the time, and seven developing countries such as Pakistan and Malaysia had adopted IAS fully as their own national standards (Gernon, Purvis, & Diamond, 1990). As of October 2007, a total of seventy-three countries have made IFRS a requirement for reporting for domestic listed companies.

Despite this seemingly widespread acceptance, some research suspects the irrelevance or inapplicability of common standards in certain national environments ([Larson and Kenny, 1996], [Larson and Kenny, 1995, Summer] and [Fechner and Kilgore, 1994]). Based on their research, Larson and Kenny (1996) conclude that the adoption of IAS depend on a country's economic development theory, and its proposed level of adoption of the IAS. They also find no support for the hypothesis that there is a positive correlation between adoption of IAS and level of economic growth, and between adoption of IAS and level of equity market development (Larson & Kenny, 1995).

In a panel discussion of policy setters concerning harmonization of accounting standards in 1990, several panel members noted that harmonization of accounting standards may not be appropriate or cost effective. They suggested large, multinational companies around the globe had...

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Echeverri-Gent, 2001, August John Echeverri-Gent, Political economy of India 's fiscal and financial reform, Center for Research on Economic Development and Policy Reform (2001, August).
Epstein and Mirza, 1997 Barry J. Epstein and Abbas Ali Mirza, IAS 97: Interpretation and application of International Accounting Standards, John Wiley & Sons, Inc., New York, NY (1997).
Fechner and Kilgore, 1994 Harry H.E. Fechner and Alan Kilgore, The influence of cultural factors on accounting practice, The International Journal of Accounting 29 (1994), pp. 265–277.
Fischer et al., 1993 Paul M. Fischer, William J. Taylor and J. Arthur Leer, Advanced accounting (5th Edition), College Division, South-Western Publishing Co., Cincinnati, OH (1993).
Gernon et al., 1990 Helen Gernon, S.E.C. Purvis and Micheal A. Diamond, An analysis of the implications of the IASC 's Comparability Project, School of Accounting, University of Southern California: SEC and Financial Reporting Institute (1990).
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