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Weekly Case Notes--Essar Energy: Indian GAAP, U.S GAAP or IFRS
Internal issues:
The company needs to change their accounting standards to IFRS without sufficient knowledge of IFRS.
The company needs to hire new employees that have the adequate IFRS knowledge and sensitive to the differences between IFRS and Indian GAAP.
The employees require extra time for training
There were huge accounting tasks needs to involve many employees under various departments, such as the plant head required to provide a classification of PP&E and their estimated working life.
External Issues:
The Indian auditors don't have enough knowledge of IFRS.
The external stakeholders such as banks and financial institutes are not familiar with IFRS this may affect the investment from them.
Under IFRS some performance measures improves, wile other financial numbers were adversely affected. This change may confuse the shareholders and investors.
Alternatives:
1) Outsource a accounting firm to do the accounting service according to IFRS for Essar energy. While the internal accounting departments continues doing Indian GAAP.
2) Adopting IFRS internally and train the employees with IFRS standard
3) Incorporate a new accounting corporation to do the accounting service for Essar Group and other Indian companies
Recommendation: Outsource can solve the internal issues such as human resource challenge. It saves time and efforts to train the employees. The work will pass to the accounting firms that fully understand the IFRS. However the Essar is the multinational organization, IFRS is the most widely used in the worldwide. Outsource accounting firm will discourage the global expansion of Essar. In additional there is a movement in India to convergence with IFRS. So Essar will use IFRS sooner or later. Therefore better adopt the IFRS in the Essar Group. Besides outsourced accounting firm may not have fully understand the financial position for Essar. The internal employees will
Internal issues:
The company needs to change their accounting standards to IFRS without sufficient knowledge of IFRS.
The company needs to hire new employees that have the adequate IFRS knowledge and sensitive to the differences between IFRS and Indian GAAP.
The employees require extra time for training
There were huge accounting tasks needs to involve many employees under various departments, such as the plant head required to provide a classification of PP&E and their estimated working life.
External Issues:
The Indian auditors don't have enough knowledge of IFRS.
The external stakeholders such as banks and financial institutes are not familiar with IFRS this may affect the investment from them.
Under IFRS some performance measures improves, wile other financial numbers were adversely affected. This change may confuse the shareholders and investors.
Alternatives:
1) Outsource a accounting firm to do the accounting service according to IFRS for Essar energy. While the internal accounting departments continues doing Indian GAAP.
2) Adopting IFRS internally and train the employees with IFRS standard
3) Incorporate a new accounting corporation to do the accounting service for Essar Group and other Indian companies
Recommendation: Outsource can solve the internal issues such as human resource challenge. It saves time and efforts to train the employees. The work will pass to the accounting firms that fully understand the IFRS. However the Essar is the multinational organization, IFRS is the most widely used in the worldwide. Outsource accounting firm will discourage the global expansion of Essar. In additional there is a movement in India to convergence with IFRS. So Essar will use IFRS sooner or later. Therefore better adopt the IFRS in the Essar Group. Besides outsourced accounting firm may not have fully understand the financial position for Essar. The internal employees will