Measurement of Profitability under IFRS and IGAAP Among Selected Indian Companies

Measurement of Profitability under IFRS and IGAAP Among Selected Indian Companies

Globalization has resulted in expansion of Indian companies across the world. There arouse a need for a common set of accounting standard for harmonization of financial statements. The six Indian companies listed on Bombay Stock Exchange and National Stock Exchange has converged to International Financial Reporting Standards (IFRS) from the financial year 2007-2008. The consolidated financial statements are prepared under both Indian Generally Accepted Accounting Principles (IGAAP) and International Financial Reporting Standards (IFRS). Therefore, this study focused on measurement of profitability under IFRS and IGAAP for the six companies which have adopted IFRS voluntarily. There are differences in treatment of items under IGAAP and IFRS like revenue recognition, foreign currency transactions and translations, fixed asset valuation, depreciation and impairment losses, etc. The analysis showed that there is gradual increase in profitability ratios under IFRS and there may be increase observed in future. Since, this study analyses results on six Indian listed companies until financial year 2011-2012. The reasons for the differences in profitability ratios are also discussed. There are many Indian companies which have not converged into IFRS. Therefore, the challenges faced by Indian companies and measures taken by ICAI to adopt IFRS are also studied from auditors. This showed that the companies are facing difficulty to converge into IFRS due to mainly fair value accounting, new method of presentation, tax liability and transparency in disclosure of items. The companies have to incur cost for valuation of fixed assets because an auditor is not an expert in valuation. This study concludes stating that there is need for sufficient training for the management and all users of financial information, which may gear up the companies to adopt IFRS in near future. Keywords: Harmonization, IGAAP, IFRS, fair value accounting

G Nandini.

Commerce