You are a high-rolling international investor, akin to say a George Soros. Your

Question

You are a high-rolling international investor, akin to say a George Soros. Your staff researches and often recommends international investments that you may be interested in and possibly purchase. They have become experts on the economic, political, legal and cultural environments of many countries of the world. They have analyzed the financial positions of many investments using the financial reporting standards of those countries. The world is rapidly moving toward a single set of standards such as IFRS so that the comparing of financial statements can be done easier. Is it a good idea to have your staff start sending you reports using only IFRS? Why may converting all financial statements to IFRS not be the most appropriate action to take nor be the best standard for measuring operating performance of the possible investments in those countries?

Explanation / Answer

International Financial reporting standards are standard issued by IFRS Foundation and internsational accounting standard board, to provide a comon gloabl language for a busines affairs so that the company accounts are comparable and understandable across the globe. IFRS are used in many parts of the world mainly European union, India,Australia , Middle east, Singapore etc. The IFRS adoption will be helpful to investors and users of financial statements, by reducing the costs of comparing alternative investments opportunities and increasing the quality of data.

However some of the countries are not diretly adopting IFRS as it is, due to differences in political and legal structure and Financial reporting framework of the Country. So in such scenario man countries converging to IFRS instead of adopting. For example we can consider the case of India, which converged their local GAAP with IFRS in phased manner with new set of IFRS converged standards Known as Ind AS. In such scenario asking staff to send reports in IFRS is not worthwhile.

Continuing the example of India , the phased manner in which the IFRS has been converged was as below :

Phase I : All listed and unlisted companies with Nethworth exceeding Rs500 Crores ( From FY 2016-2017)

Phase ll : All Listed , and unlisted companies with Networth exceeding Rs.250 Crores but less than 500 Crores( FY 2017-18)

As per present implmentation schedule companies unlisted companies having less than 250 Crores networth will not be converged with IFRS standards and it the Financial statement of such companies will be prepared as per Local GAAP only. Hence in such type of scenario converting all Financial statement to IFRS will not be useful for measuring operating performance of an possible investment. The staff can submit the report in IFRS format if that Country have totally adopted the IFRS and doesnt continue with their local GAAP. However for countries like USA, Local GAAP will always be there and hence reporting as per Local GAAP will be worthwhile in such type of Scenario.

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