Meeting our stakeholders’ needs
IFRS Accounting Standards: Driving Global Transparency and Comparability
In an increasingly interconnected world, the accounting profession’s role in providing high-quality, comparable financial information across different capital markets becomes even more important. IFRS Accounting Standards issued by the International Accounting Standards Board (IASB) bring transparency to capital markets, and improve the international comparability and quality of financial information—thus benefitting investors, jurisdictions, companies and society.
The IASB’s Standards enable domestic and foreign investors, and other market participants, to make informed economic decisions and help countries to secure cross border investment. Investments from global players have been critical to economic activity in many countries, including in India. At present, more than 140 jurisdictions in the world have adopted our reporting standards. The principles-based nature of the standards accommodates different settings, practices and systems through a single coherent framework of high-quality global standards.
Transparent and Open Standard-Setting Architecture
Stakeholders have confidence in IFRS Accounting Standards because the IASB conducts an open and transparent standard-setting process where we encourage and consider input from multiple perspectives from around the world through public consultations. Everything related to the standard-setting process—exposure drafts, comment letters from stakeholders, and meeting papers—are published on our website.
The development of an IFRS Accounting Standard is carried out during IASB meetings which are broadcast live and are available on our website for later viewings. India has been actively engaged with all of our standard-setting activities by participating in the consultation exercises and outreach events. Moreover, we receive valuable contributions from our Indian stakeholders through our wide network of advisory committees and groups.
Indian Accounting Standards (Ind-AS): Convergence, Carve-Outs and Full Alignment
Some countries have fully adopted the IASB’s Standards. India has opted to converge its Indian Accounting Standards (Ind-AS) with IFRS Accounting Standards. This convergence framework provided companies in India the time and space to adapt to the international set of accounting standards. We recognise that there is significant learning, the potential redesigning of existing systems and for the expedient coordination between multiple institutions to embed the changes in the system.
Nevertheless, India has substantially converged to IFRS Accounting Standards which underscores India’s commitment to best practice. It is also a testament to the important work undertaken by the ICAI, the Ministry of Corporate Affairs and the National Financial Reporting Authority to align the Ind-AS closely with the IFRS Accounting Standards.
The IASB Perspective on Carve-Outs
India is coming close to a full alignment with global accounting standards notwithstanding the existing carve-outs. In our view, carve-outs would ideally offer temporary relief only. Our position on carve-outs is that they may impact the level of comparability for companies and investors across jurisdictions.
The IASB remains hopeful that in due course these carve-outs can be removed so that companies in India can harness the full benefits of IFRS Accounting Standards. For a country like India with diverse industries, practices and interests, the principles-based IFRS Accounting Standards are the most appropriate regime. India is widely recognised as an economy with strong growth and the full adoption of IFRS Accounting Standards will help to further enhance its reputation as a country with a robust business environment.
“India is widely recognised as an economy with strong growth and the full adoption of IFRS Accounting Standards will help to further enhance its reputation as a country with a robust business environment.”
The IASB Five-Year Work Plan (2022–2026)
Let me now turn to the IASB’s work plan priorities. Last year, the IASB conducted a public consultation and asked our stakeholders around the world for their input into the strategic direction and the balance of the IASB’s activities for the five-year period from 2022 to 2026. This is an exercise the IASB undertakes every five years. We obtained valuable input from our stakeholders — including from the ICAI — through comment letters, webinars and outreach events to decide on new projects. The IASB has been analysing the feedback and we are expecting to publish a feedback statement on this project soon. But I can share with you that we have decided to add three accounting technical projects to our future work plan.
1. Comprehensive Review of Intangible Assets Standard (IAS 38)
Major ProjectThe first project will be a comprehensive review of our intangible assets Standard, IAS 38, which is more than twenty years old. This project would start with research to determine the scope of the project and how to sequence possible stages for such a project. This is one project where we expect to work closely with the recently established International Sustainability Standards Board (ISSB) in the areas that overlap both boards’ remits.
2. Statement of Cash Flows and Related Matters (IAS 7)
Comprehensive / Targeted ReviewThe second project is the statement of cash flows and related matters. Here, we will initially consider the scope of the project should be to comprehensively review the statement of cash flows Standard, IAS 7, or to make more targeted improvements. It is worth noting that the existing IFRS Accounting Standard for cash flow statements is even older than the one for intangible assets.
3. Accounting for Climate-Related Risks in Financial Statements
Narrow-Scoped Standard-SettingThe third project is accounting for climate-related risks in financial statements. As climate-related risks will primarily be for the ISSB to consider, we expect to work closely with our colleagues on any work that we do in this project. Our primary objective will be to investigate whether any narrow-scope amendments might be needed at our side to facilitate connected standards in that area.
Intangible assets and cash flow statements could develop into large standard-setting projects while the climate-related risks in financial statements might be addressed as a narrow-scoped standard-setting project.
Reserve List of Projects
Further to these three projects, the IASB has decided to create a reserve list of projects that would be added to the work plan only if additional capacity becomes available. For example, further IASB resources may be at our disposal if current projects on the work plan are completed sooner than envisaged. These projects include operating segments and pollutant pricing mechanisms.
Prioritising Active Consultations
Overall, consistent with our stakeholder feedback, we will prioritise existing projects before starting new ones. We are progressing several projects that have already been out for consultation and are now in the current work plan—projects such as Primary Financial Statements (PFS) and Goodwill and Impairment.
- Primary Financial Statements (PFS): The objective of the PFS is to improve how information is communicated in financial statements with an emphasis on information about performance in the statement of profit and loss.
- Goodwill and Impairment: Goodwill and Impairment explores whether companies can, at a reasonable cost, provide investors with more useful information about the acquisitions those companies make.
You can find further information on these projects on our website. We remain committed to finishing our existing projects. I hope you will stay tuned to, and engage with, further developments from us on all these projects.
The International Sustainability Standards Board (ISSB) & Connected Reporting
I have mentioned our sister board, the ISSB, several times. You will know that the ISSB was established late last year, built on the same model as the IASB. International investors and others with global portfolios have been calling for high quality, transparent, reliable and comparable company reports on sustainability matters. The creation of the ISSB was a response to this and is a significant development for all of us. At the end of March, they issued two exposure drafts on climate and general sustainability-related disclosures and are soliciting input from a wide range of market participants on these.
Seamless Standard Connectivity: IASB and ISSB Alignment
Meanwhile, stakeholders have told us that they would like to see connectivity between the standards set by the IASB and those set by the ISSB. Both boards agree that there should be no gaps or unnecessary overlap between the two sets of requirements. Thus, it is important for the boards to interact frequently, not only between the leadership of the two boards but also between the technical staff.
We will work in close cooperation to ensure the compatibility and connectivity between our IFRS Accounting Standards and the ISSB’s IFRS Sustainability Disclosure Standards. Each board is independent, and our standards will complement each other to provide investors and other capital market participants with comprehensive information to meet their needs. In fact, this is one of the key benefits of having the two boards within the same organisation. I encourage you to follow further developments on this.
Conclusion: The Vital Role of Accountants in Building Trust
Our stakeholders in India have been active supporters of IFRS Accounting Standards. We have an established relationship with them and we hope that they will continue to engage with us and make their voices heard through our consultative groups and processes.
I started this piece stressing the important role that accountants play in society. We have always appreciated the participation of accounting professionals in our work. Accountants have much to contribute to foster trust and confidence not just in the world of business and finance but in society at large. You are the driving force of changes in organisations, to make them fit for purpose for the world we live in and to prepare them for the world that is to come.
“I will finish by congratulating the ICAI on this special issue and send you the IASB’s best wishes.”