Accounting Globalization: Issues and Challenges of IFRS Implementation in Indian Banks

IFRS goal is to create comparable, reliable, and transparent financial statements that will facilitate greater cross-border capital raising, trade and better corporate governance practices. Thus acceptance of IFRS is gaining momentum across the globe. The Indian Banking industry  is no exception and is stringently regulated  wherein GAAP have been obviated . All the scheduled banks are required to convert their opening balance sheets as of 1st  April 2013 as per the new reporting standards.  Banks are currently following the prudential norms of Reserve Bank of India (RBI) and Institute of Chartered Accountants of India (ICAI), which are very prescriptive and require limited use of judgment. IFRS on the other hand requires a case by case assessment of the facts and circumstances regarding future cash flows. This clearly shows that convergence to IFRS will pose significant challenges for banks involving higher disclosures by banks .The conversion challenge for the sector is compounded since the main standard of concern, IAS39, is being replaced with a new standard, IFRS9, in three phases: Recognition and measurement, Impairment and  Hedge accounting. The purpose of this paper is to analyze the impact of the new accounting system involving a major shift from prescriptive norms to the system involving greater judgment. The paper  elaborates the preparedness on Indian Banks to adopt the new accounting system, the challenges  before  it and the areas on which the banks must focus on to adopt the system. Keywords: IFRS, Convergence to IFRS, challenges before Indian banks, financial reporting   system