Question

Bijoux Corporation is a multinational company operating in several parts of the globe. The Company’s headquarter is located in Paris France. Most of the company’s raw materials are procured locally in France. A highly toxic cleaning agent called Zoe, however, must be imported from abroad. Bijoux Corporation buys its needed quantity of Zoe from India. The management plans to open a wholly owned subsidiary in Malaysia and start selling its products in Southeast Asian countries and China. To finance the operation, Bijoux Corporation has just obtained approval for listing its stock in Frankfort Stock Exchange in Germany.

Enumerate and briefly discuss various accounting issues that Bijoux Corporation might face in this situation due to international standards.

Answer 1

It is well known that companies all over the world have become more and more internationally oriented during last few decades. They create fusion, make investment, conduct trade and co-operate over country borders. International Financial Reporting Standards (IFRS) is becoming the global language of business with over 40% of the world having moved to IFRS in the past few years. By 2018, it is expected that all companies in major markets will be using IFRS. The globalization creates an increased need for communication in the terms of language, awareness of culture differences and domestic customs. Moreover the financial communication such as accounting and financial results is just as important for business leaders and employees to master.

Therefore there are several challenges that will be faced on the way of IFRS convergence. These are:

1. Difference in GAAP and IFRS:

Adoption of IFRS means that the entire set of financial statements will be required to undergo a drastic change. The differences are wide and very deep routed. It would be a challenge to bring about awareness of IFRS and its impact among the users of financial statements.

2. Training and Education:

Lack of training facilities and academic courses on IFRS will also pose challenge in India. There is a need to impart education and training on IFRS and its application.

3. Legal Consideration:

Currently, the reporting requirements are governed by various regulators in India and their provisions override other laws. IFRS does not recognize such overriding laws. The regulatory and legal requirements in India will pose a challenge unless the same is been addressed by respective regulatory.

4. Taxation EFFECT :

IFRS convergence would affect most of the items in the financial statements and consequently the tax liabilities would also undergo a change. Thus the taxation laws should address the treatment of tax liabilities arising on convergence from Indian GAAP to IFRS.

5. Fair value Measurement:

IFRS uses fair value as a measurement base for valuing most of the items of financial statements. The use of fair value accounting can bring a lot of instability and prejudice to the financial statements. It also involves a lot of hard work in arriving at the fair value and valuation experts have to be used.

These are the issues Bijoux Corporation might face in this situation due to international standards.