This article investigates the rationale behind the International Financial Reporting Standards (IFRS) and its impact on the financial and accounting world. The adoption of IFRS puts a big question to us in the present globalized environment as to how to develop internationally acceptable accounting standards that are also acceptable locally. Moreover, it focuses on the emerging challenges and opportunities in adopting IFRS in the Indian context.

Accounting standards constitute the basis for preparation of financial statements and provide essential information for carrying on the audit, in almost all countries of the world. Accounting standards are concerned with the system of measurement and disclosure rules for preparation and presentation of financial reports. They are the set of authoritative statements that describe as to how particular types of transactions, events and various costs should be recognized and reported in the financial statements. Accounting standards disseminate valuable information to different users of the financial statements i.e., shareholders, creditors, management, investors, suppliers, competitors, etc. The rationale of these standards is to improve and benchmark the quality of financial reporting.

The rapid growth of international trade and globalization, the developments of new technologies, and the emergence of international competitive forces is causing a great amount of distress to the financial environment. Along with the process of globalization, the awareness of capital markets has increased manifold and the size of the investing public is multiplying. Foreign Institution Investors (FIIs) are investing in a big way globally; Indian companies are no exception with foreign investments through Global Depository Receipts (GDRs) and American Depository Receipts (ADRs). All these forces lead to the legislation that is required to bring about uniformity, rationalization, comparability, transparency and adaptability in financial statements. And this highlights the need to have norms for preparation and presentation of financial statements. A financial reporting system of global standard is a prerequisite for attracting foreign as well as present and prospective investors at home.

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