International Financial Reporting Standards (IFRS) Adoption on Financial Decisions

Abstract

Expansion of business environment in 1990s changed the financial set up of India from the conventional bank based borrowings to market based one. This necessitated companies to address global stakeholders. The regulatory requirement of different countries also necessitated companies to do multiple reporting i.e., one as per home country standard and the other as per the host country standard. To avoid multiple reporting and to address global stakeholders, a uniform system of reporting was felt necessary to facilitate comparisons, which resulted in the establishment of International Accounting Standard Board (IASB) which issued International Financial Reporting Standards (IFRS). Financial reporting is to present financial information about the status of a company which is used by the stakeholders before any decisions are made with regard to investment, finance, dividend etc. Users of financial reports are; investors, creditors, employees, customers, competitors, government, public etc. and purpose of usage of these reports differ from person to person. Certain Indian companies having listed in foreign stock exchanges are reporting IFRS voluntarily in their financia statements. The present study tries to understand the impact of this voluntary adoption of International Financial Reporting Standards on the financial decision makers, through a case analysis of Wipro Ltd. The analysis compared the major financial parameters under IFRS and Indian GAAP as reported by Wipro Ltd. for a period of four years from 2009-10 to 2012 - 13. The results postulate an increase in liquidity ratio; equity ratio; interest coverage ratio; marginal increase in debt equity ratio; and no significant increase in profitability ratios except net profit ratio which rose marginally in the year 2013. Overall the results indicate that the adoption of fair value accounting and strict requirement in adhering to accounting standards have strengthened the financial indicators and provided the decision makers a transparent, true and fair accounting highlighters.