Influence of transnational economic alliances on the IFRS convergence decision in India—Institutional perspectives

Abstract

This study contributes to the literature on global governance by highlighting the importance of not losing sight of the nation state as an important player in the transnational governance arena. Specifically, literature on global (accounting) regulation devotes a great deal of attention to the roles of organisations and agencies with transnational remit (such as global standard setters, donor agencies) while often downplaying the significant impacts of the more traditional cross- country links forged through economic relationships and resource dependencies between national and transnational institutional fields. This was specially noted in the case of the indirect influences of the US’s decision to delay IFRS convergence. While being interpreted as an indirect source of influence, such a decision played a very significant role on the convergence negotiations in India. The study shows how the US influence was channelled through Japan with which India has significant trade and economic relations and, most importantly, holds a joint forum specifically to discuss convergence issues. The consequences of India’s links with countries such as US and Japan in the decision-making process provide a vivid indication of the important roles of cross-governmental relationships in the global governance arena, and also question the position of transnational organisations as pervasive powers in such governance. The study’s findings clearly demonstrate that the pursuit of full IFRS convergence strongly favoured by the transnational forces was invariably challenged in the Indian context by the influences of powerful nation states advocating a more cautious approach.

Keywords:

• IFRS convergence
• Decision-making
• Role of nation states
• Institutional fields
• Transnational networks
• India
• Resource dependency

Notes

1 The term NIC is used for developing countries that have surpassed most other developing countries in economic growth but have not yet achieved the status of a developed country.

2 http://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/india/.

3 The recognition of provision has been pointed as a difference using the examples of AS 29 and IAS 37 Constructive Obligation. The requirements of IAS 37 stipulate the creation of provision on the basis of constructive obligation which would result in the recognition of provision at an early stage. The concept paper cites an example of restructuring of an enterprise where an early recognition of a provision would not be appropriate since a liability cannot be stated to be crystallised at such an early stage. The discussion of such conceptual differences in the paper reflects differences in the opinion of the ICAI with regard to the timing of recognising the provision and also the judgement of related determining factors.

4 The IDA provides financial assistance to the world’s poorest countries. Countries graduating from IDA are those that have made significant developments in terms of per capita income, creditworthiness, economic and political progress and no longer receive substantial funds under this scheme (IDA, 2016).

5 Please see below.

6 Trade with EU constitutes 13.5% of India’s overall trade with the world in 2015-16 making EU its largest trading partner. This constitutes 2.2% of EU’s overall trade with the world and ranks India as its 9^th largest trading partner. EU exports to India increased from € 21.3 billion in 2005 to € 37.8 billion in 2016 (European Commission (EC, 2017).

7 During the period of 2003–2012, Indian companies have invested $56 billion in Europe. During this time-period Indian companies financed 511 Greenfield projects and acquired interests in 411 companies. UK, Germany, Netherlands and Belgium are the four main countries attracting Indian corporate investors. UK attracts the major share of investments with approx. 43% of Indian corporate investments ($ 24 billion) followed by Germany ($ 6.9 billion). Major acquisitions include Tata Motors $ 2.3 billion purchase of Jaguar and Land Rover and Tata Steel’s $13.3 billion acquisition of Anglo-Dutch steel maker Corus (EICC Report, 2012).