Page 30 - ISCDEBK-XI

4.4 Double Entry Book Keeping—ISC XI
International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS), like Indian Accounting Standards, are
the international accounting standards based on which financial statements of enterprises are
prepared and presented. These standards have been formulated with the aim that globally
financial statements are prepared by all the entities following same accounting standards so
the users across the world are able to understand them in the same manner.

International Accounting Standards Board (IASB) was set up in the year 2001 taking over the
International Accounting Standards Committee (IASC) which was set up in 1973. IASC had
issued International Accounting Standards which have been adopted by the IASB to be replaced
by IFRS upon their issuance. IFRS are referred to as principles based accounting standards as
IASB places emphasis on developing standards based on sound and clearly stated principles.

In view of the fact that economic environment and laws differ in each country and India is
no exception. India decided to issue its own accounting standards that are equivalent to IFRS.
The Institute of Chartered Accountants of India has issued IFRS equivalent Indian Accounting
Standards titled IND–AS.

Difference between IFRS and Indian Accounting Standards
IFRS are Principle based standards while Indian Accounting Standards are Rule based.

Unlike Indian Accounting Standards, IFRS do not prescribe any form for preparing the
financial statements. For example, under the Indian laws, Balance Sheet and Statement of
Profit & Loss are prepared according to Schedule III of the Companies Act, 2013 or in the
form as near thereto. Contrary to this, IFRS does not prescribe form for preparing the financial
statements. It prescribes that the items may be shown in the Balance Sheet according to the
principle associated with it. Elaborating it, Redeemable Preference Shares are shown as Share
Capital in the Balance Sheet under Schedule III of the Companies Act, 2013. But, under IFRS
based Balance Sheet, it is shown as borrowing. The principle being that preference shares carry
fixed rate of dividend and have to be redeemed after the specified date. Therefore, in the real
sense it is loan.

IFRS are based on Fair Value Concept while Indian Accounting Standards are based on
Historical Cost Concept.

Indian Accounting Standards require that assets should be carried in the Balance Sheet at their
historical cost and depreciated on the basis of their useful life. But, in the IFRS based Balance
Sheet, fair value concept may be adopted. It means that assets be valued at their fair value each
year and difference be debited or credited to the Income Statement.