FAIR VALUE ACCOUNTING; INDIAN COMPANIES

Fair value accounting and its effects on Indian companies

Table of Contents

CHAPTER I3

Introduction3

Background of the study4

Aims and Objectives6

Research questions6

Significance of the study8

Rationale of the study8

CHAPTER II10

Literature Review10

The historical development of Indian accounting standards14

Comparative analysis of the international accounting standards and the accounting standards and practices of India19

IAS 2 - Inventories21

IAS 7 - Cash flow statements22

IAS 8 - Net profit or loss for period, fundamental errors and changes in accounting policies23

IAS 11 - Construction contracts23

IAS 12 - Accounting for taxes on income24

IAS 14 - Reporting financial information by segment24

IAS 16 - Property, plant and equipment25

IAS 17 - Accounting for leases25

IAS 19 - Retirement benefit cost25

IAS 21 - The effects of changes in foreign exchange rate26

IAS 22 (superseded by IFRS 3) - Business combinations27

IAS 24 - Related party disclosure27

Summary of Literature34

CHAPTER III37

Theoretical Framework37

Arguments In Favour Of Full Fair Value40

Criticisms Of The Fair Value Model42

CHAPTER IV49

Results & Discussion49

Application Of Fair Value To Financial Instruments50

Instruments with an active market53

Financial instruments without a market or with a somewhat inactive market.55

Valuation techniques and models:55

Characteristics of valuation techniques:57

CHAPTER V67

Conclusions67

References70

Fair value accounting and its effects on Indian companies

CHAPTER I

Introduction

Propelled by globalization, world attention today is centered on two emerging market economies, India and China. China's managed liberalization has allowed it to achieve more rapid growth and has attracted a larger portion of direct foreign investment. India, with its messy democracy and nod to individualism in recent times promises a more exciting market environment with greater potential for future growth. The liberalization of the Indian economy since 1991 has exposed Indian firms to foreign competition and foreign investment. As a result, the information needs required by both managers and investors have changed. A first step in this process is the demand for transparency in the financial reporting. This transparency is rapidly occurring in India as the country catapults into becoming a major economic power propelled on by the combined forces of the technological revolution, the opening up of its borders and the privatization of many infrastructure industries such as transportation and communication. This paper addresses the adoption and applicability of International Accounting Standards (IAS) and International Financial Reporting Standards ( IFRS) , issued by the International Accounting Standards Board (IASB) to India. Specifically, the paper highlights some major areas where the country lacked harmonization with IAS in 1993 and the rapid congruence with IAS in the decade that followed.

Background of the study

The issue that this research addresses concerns with the adoption of International Financial Reporting Standards (IFRS) as a method of financial reporting by the Indian companies. The Indian Charted Accountancy Institute (ICAI) has convened with the IFRS and the Indian government to completely adopt IFRS as the primary method for disclosures by the publically listed companies in 2011. This research tries to study the impact, this change in the accounting standard compliance policies would bring about. Since there are a myriad number of areas where the research could be conducted, our attention is focused primarily on one of the major issues that countries deal ...