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IFRS

CONVERGENCE TO IFRS FROM


INDIAN GAAP-
IMPACT AND CHALLENGES

PRESENTED BY

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IFRS

NOMAN AGASHIWALA (PG-FIN)


03

CONVERGENCE TO IFRS FROM INDIAN GAAP-

IMPACT AND CHALLENGES

PROJECT SUBMITTED IN THE PARTIAL FULFILLMENT

OF THE

POST GRADUATE DIPLOMA IN MANAGEMENT

TO

THAKUR INSTITUTE OF MANAGEMENT STUDIES AND


RESEARCH

BY

Mr. NOMAN AGASHIWALA

PGDM –FINANCE
2008-10

UNDER THE GUIDANCE OF


PROF. JYOTI NAIR

THAKUR INSTITUTE OF MANAGEMENT STUDIES AND


RESEARCH
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IFRS

KANDIVALI (MUMBAI)

CERTIFICATE

This is to certify that the study presented by Mr. NOMAN I. AGASHIWALA


to THAKUR INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH in
the partial fulfillment of the POST GRADUATE DIPLOMA IN MANAGEMENT
under CONVERGENCE TO IFRS FROM INDIAN GAAP- IMPACT AND
CHALLENGES has been done under my guidance in the year 2008-10

The project is in the nature of original work. Reference work and relative
sources of information have been given at the end of the project.

Signature of the Candidate

Forwarded through Research Guide


JYOTI NAIR

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IFRS

TABLE OF CONTENTS

Background of IFRS..................................................................................................11

Scope of IFRS........................................................................................................................................12

Benefits of IFRS....................................................................................................................................19

Adoption of IFRS..................................................................................................................................21

Challenges of IFRS................................................................................................................................24

There are several impediments and practical challenges to adoption of and full compliance with IFRS in
India. These are:.....................................................................................................................................24

The need for a change in several laws and regulations governing financial accounting and reporting in
India. In addition to accounting standards, there are legal and regulatory requirements that determine
the manner in which financial information is reported or presented in financial statements. For example,
the Companies Act, 1956 determines the classification and accounting treatment for redeemable
preference shares as equity instruments of a company, whereas these may be considered to be a
financial liability under IFRS. The Companies Act (Schedule VI) also prescribes the format for
presentation of financial statements for Indian companies, whereas the presentation requirements are
significantly different under IFRS. Similarly, the Reserve Bank of India regulates the financial reporting
for banks and other financial institutions, including the presentation format and accounting treatment
for certain types of transactions..............................................................................................................24

The recent announcement by the MCA is encouraging as it indicates government support for the
timetable for convergence with IFRS in India. However, the announcement stops short of endorsing the
roadmap for convergence and the full adoption of IFRS that is discussed in ICAI's concept paper. In the
absence of adequate clarity and assurance that Indian laws and regulations will be amended to conform
to IFRS, the conversion process may not gain momentum.....................................................................24

There is a lack of adequate professionals with practical IFRS conversion experience and therefore many
companies will have to rely on external advisers and their auditors. This is magnified by a lack of
preparedness amongst Indian corporate as this project may be viewed simply as a project management
or an accounting issue which can be left to the finance function and auditors. However, it should be
noted that IFRS conversion would involve a fundamental change to an entity's financial reporting
systems and processes. It will require a detailed knowledge of the standards and the ability to consider
their impact on business transactions and performance measures. Further, the conversion process will

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IFRS

need to disseminate and embed IFRS knowledge throughout the organization to ensure its application
on an ongoing basis................................................................................................................................25

Another potential pitfall is viewing IFRS accounting rules as "similar" to Generally Accepted
Accounting Principles in India (Indian GAAP), since Indian accounting standards have been formulated
on the basis of principles in IFRS. However, this view disregards significant differences between Indian
GAAP and IFRS as well as differences in practical implementation and interpretation of similar
standards. Further, certain Indian standards offer accounting policy choices, which are not available
under IFRS, for example, use of pooling of interest method in accounting for business combinations.. 25

There is an urgent need to address these challenges and work towards full adoption of IFRS in India.
The most significant need is to build adequate IFRS skills and an expansive knowledge base amongst
Indian accounting professionals to manage the conversion projects for Indian corporates. Leveraging
the knowledge and experience gained from IFRS conversion in other countries and incorporating IFRS
into the curriculum for professional accounting courses can do this.......................................................25

Ultimately, it is imperative for Indian corporates to improve their preparedness for IFRS adoption and
get the conversion process right. Given the current market conditions, any restatement of results due to
errors in the conversion process would be detrimental to the company involved and would severely
damage investor confidence in the financial system. .............................................................................26

Cost Formulae........................................................................................................................................51

Consistency of cost formulae for similar inventories..............................................................................51

Standard..................................................................................................................................................52

Cash and Cash equivalents.....................................................................................................................52

Format and content of cash flow statement.............................................................................................52

Cash flows associated with extraordinary items.....................................................................................52

Disclosure of interest paid and received.................................................................................................52

Disclosure of dividend paid....................................................................................................................53

Disclosure of dividend received..............................................................................................................53

Disclosure of taxes paid..........................................................................................................................53

Disclosure of cash payments...................................................................................................................53

Particulars................................................................................................................. 53

Particulars................................................................................................................. 53

Standard..................................................................................................................................................54

Standard..................................................................................................................................................55
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IFRS

Revenue Definition.................................................................................................................................55

(*)Termination Benefits..........................................................................................................................61

Basic EPS...............................................................................................................................................67

Consolidated Financial Statements –..................................................................................................68

Fringe Benefit tax...................................................................................................................................72

Scope......................................................................................................................................................73

Discontinuing Operations –................................................................................................................74

Intangible Assets –..............................................................................................................................75

Useful life...............................................................................................................................................75

(*)Contingent assets...............................................................................................................................79

(*)Restructuring cost..............................................................................................................................79

Optional exemptions.................................................................................................94

Mandatory exceptions ........................................................................................................................98

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IFRS

ACKNOWLEDGEMENT

It gives me great pleasure to present before you, my final project report for
the year 2008-2010.

I express my gratitude towards our director Mrs. Mrinalini Kohojkar, for giving
us an opportunity to work on this report.

I take this opportunity to thank our respected project guide Prof. Jyoti Nair,
for giving us an opportunity to undertake this project. Her guidance has been
invaluable to me to while preparing this report. She provided us with valuable
suggestions and excellence guidance about this industry, which proved very
helpful to me and helped me to gain theoretical knowledge as well as
experience in the practical field.

Last but not the least, I am also thankful to CA Nikhil Joganputra for his
valuable insights and sharing his experience on these topic, and to my
friends, to all known and unknown individuals who have given me their
constructive advise, suggestions, encouragement, co-operation and
motivation to prepare this report.

- Noman Agashiwala

(Thakur Institute of Management Studies and Research -


PG)
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IFRS

EXECUTIVE SUMMARY
The International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board (IASB) are increasingly being
recognized as Global Reporting Standards. More than 100 countries such as
countries of European Union, Australia, New Zealand, and Russia currently
require or permit the use of IFRSs in their countries. Countries such as China
and Canada have announced their intention to adopt IFRSs from 2008 and
2011 respectively. United States of America has also taken-up convergence
projects with the IASB with a view to permit filing of IFRS-Compliant Financial
Statements in the US Stock Exchanges without requiring the presentation of
reconciliation statement. In view of the benefits of convergence with IFRSs to
the Indian economy, its investors, industry and the accounting professionals,
the Concept Paper has been developed with the objective of exploring:
 The approach for achieving convergence with IFRS.
 Laying down a roadmap for achieving convergence with the IFRSs with
a view to make India IFRS-compliant.
 And also to study impact and challenges India will face to converge
with IFRS.
Keeping in view the complex nature of IFRSs and the extent of differences
between the existing ASs and the corresponding IFRSs and the reasons
therefore, the ICAI is of the view that IFRSs should be adopted for the public
interest entities such as listed entities, banks and insurance entities and
large-sized entities from the accounting periods beginning on or after 1st
April, 2011.

In order to get more clarity on these issues, we have taken example of NACIL
(National Aviation Company India Ltd.).Project studied the present accounting
procedure in NACIL and steps taken by them for converging with IFRS.
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IFRS

ACCOUNTING STANDARDS----OVERVIEW
A financial reporting system supported by strong governance, high quality
standards, and firm regulatory framework is the key to economic
development. Indeed, sound financial reporting standards underline the trust
that investors place in financial reporting information and thus play an
important role in contributing to the economic development of a country. The
Institute of Chartered Accountants of India (ICAI) as the accounting
standards-formulating body in the country has always made efforts to
formulate high quality Accounting Standards and has been successful in
doing so. Indian Accounting Standards have withstood the test of time. As the
world continues to globalize, discussion on convergence of national
accounting standards with International Financial Reporting Standards
(IFRSs)1 has increased significantly.

The forces of globalization prompt more and more countries to open their
doors to foreign investment and as businesses expand across borders the
need arises to recognize the benefits of having commonly accepted and
understood financial reporting standards. In this scenario of globalization,
India cannot insulate itself from the developments taking place worldwide. In
India, so far as the ICAI and the Governmental authorities such as the
National Advisory Committee on Accounting Standards established under the
Companies Act, 1956, and various regulators such as Securities and
Exchange Board of India and Reserve Bank of India are concerned, the aim
has always been to comply with the IFRSs to the extent possible with the
objective to formulate sound financial reporting standards. The ICAI, being a
member of the International Federation of Accountants (IFAC), considers the

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IFRS

IFRSs and tries to integrate them, to the extent possible, in the light of the
laws, customs, practices and

business environment prevailing in India. The Preface to the Statements of


Accounting Standards, issued by the ICAI, categorically recognizes the same.
Although, the focus has always been on developing high quality standards,
resulting in transparent and comparable financial statements, deviations
from IFRSs were made where it was considered that these were not
consistent with the laws and business environment prevailing within the
country. Now, as the world globalizes, it has become imperative for India also
to make a formal strategy for convergence with IFRSs with the objective to
harmonize with globally accepted accounting standards.

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IFRS

INTRODUCTION TO IFRS
Background of IFRS
Users of financial statements have always demanded transparency in
financial reporting and disclosures. However, the willingness and need for
better disclosure practices have intensified only in recent times.
Globalization has helped Indian Companies raise funds from offshore capital
markets. This has required Indian companies, desirous of raising funds, to
follow the Generally Accepted Accounting Principles (GAAP) of the investing
country. The different disclosure requirements for listing purposes have
hindered the free flow of capital. This has also made comparison of financial
statements across the globe impossible. An International body called
International Organization of Securities Commissions (IOSCO), to harmonize
diverse disclosure practices followed in different countries initiated a
movement. The capital market regulators have now agreed to accept IFRS
(International Financial Reporting Standards) compliant financial statements
as admissible for raising capital. This would ease free flow of capital and
reduce costs of raising capital in foreign currencies.
Most jurisdictions that report under IFRS, including the EU, mandate
the use of IFRS only for the listed companies. However, in INDIA, IFRS would
apply to a wider group of entities than their international counterparts. This
is primarily because of a large number of private enterprises getting
covered under the size criteria based on their turnover and/or their
borrowing. Companies also may need to convert to IFRS if they are a
subsidiary of a foreign company that must use IFRS, or if they have a
foreign investor that must use IFRS.
The policy makers in India have also realized the need to follow IFRS
and it is expected that a large number of Indian companies would be
required to follow IFRS from 2011. This poses a great challenge to the
makers of financial statements and also to the auditors.

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IFRS

Meaning of IFRS
International Financial Reporting Standards (IFRS) is a set of
accounting standards, developed by the International Accounting Standards
Board (IASB) that is becoming the global standard for the preparation of
public company financial statements. IFRS is a principles-based accounting
system, meaning it is objective-oriented allowing for more presentation
freedom.

Objectives of IFRS
 to develop, in the public interest, a single set of high quality,
understandable and enforceable global accounting standards that
require high quality, transparent and comparable information in
financial statements and other financial reporting to help
participants in the world's capital markets and other users make
economic decisions;
 to promote the use and rigorous application of those standards;
 in fulfilling the objectives associated with (1) and (2),
 to take account of, as appropriate, the special needs of small and
medium-sized entities and emerging economies.
 to bring about convergence of national accounting standards and
International Accounting standards and IFRS to high quality
solutions.
Scope of IFRS
1. IASB Standards are known as International Financial Reporting
Standards (IFRS’s).
2. All International Accounting Standards (IAS’s) and Interpretations
issued by the former IASC and SIC continue to be applicable unless and
until they are amended or withdrawn.
3. IFRS’s apply to the general-purpose financial statements and
other financial reporting by profit-oriented entities -- those engaged in
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IFRS

commercial, industrial, financial, and similar activities, regardless of their


legal form.
4. Entities other than profit-oriented business entities may also find
IFRSs appropriate.
5. General-purpose financial statements are intended to meet the
common needs of shareholders, creditors, employees, and the public at
large for information about an entity's financial position, performance,
and cash flows.
6. Other financial reporting includes information provided outside
financial statements that assists in the interpretation of a complete set of
financial statements or improves users' ability to make efficient
economic decisions.
7. IFRS apply to individual company and consolidated financial
statements.
8. A complete set of financial statements includes a balance sheet,
an income statement, a cash flow statement, a statement showing either
all changes in equity or changes in equity other than those arising from
investments by and distributions to owners, a summary of accounting
policies, and explanatory notes.
9. If an IFRS allows both a 'benchmark' and an 'allowed alternative'
treatment, financial statements may be described as conforming to IFRS
whichever treatment is followed.
10. In developing Standards, IASB intends not to permit choices in
accounting treatment. Further, IASB intends to reconsider the choices in
existing IASs with a view to reducing the number of those choices.
11. The provision of IAS 1 that conformity with IAS requires
compliance with every applicable IAS and Interpretation requires
compliance with all IFRSs as well.

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IFRS

Pronouncements of IFRS

International Financial Reporting Standards (IFRS)


First-time Adoption of International Financial Reporting
IFRS 1
Standards
IFRS 2 Share-based payment
IFRS 3 Business Combinations (Revised)
IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments

International Accounting Standards (IAS)


IAS 1 Presentation of financial statements (Revised)
IAS 2 Inventories
IAS 7 Cash Flow Statements
Accounting Policies, Changes in Accounting Estimates and
IAS 8
Errors
IAS 10 Events after the balance sheet date
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 19 Employee Benefits
Accounting for government Grants and Disclosure of
IAS 20
Government Assistance
IAS 21 The Effects of Changes in Foreign Currency Rates
IAS 23 Borrowing Costs (Revised)
IAS 24 Related Party Disclosures
IAS 26 Accounting and Reporting by Retirement Benefit Plans
IAS 27 Consolidated and Separate Financial Statements (Revised)
IAS 28 Investments in Associates
IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 31 Interests in Joint Ventures
IAS 32 Financial Instruments: Presentation
IAS 33 Earnings per share
IAS 34 Interim Financial Reporting
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets

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IFRS

IAS 39 Financial Instruments: Recognition and Measurement


IAS 40 Investment Property
IAS 41 Agriculture

International Financial Reporting Interpretation Committee (IFRIC)


Changes in Existing Decommissioning, Restoration and Similar
IFRIC 1
Liabilities
Members Shares in Co-operative Entities and Similar
IFRIC 2
Instruments
IFRIC 4 Determining whether an Arrangement contains a Lease
Rights to Interests arising from Decommissioning, Restoration
IFRIC 5
and Environmental Rehabilitation Funds
Liabilities arising from Participating in a Specific Market -
IFRIC 6
Waste Electrical and Electronic Equipment
Applying the Restatement Approach under IAS 29 Financial
IFRIC 7
Reporting in Hyperinflationary Economies
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment
IFRIC 11 IFRS 2 - Group and Treasury Share Transactions
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IAS 19 - The Limit on a defined Benefit Asset, Minimum
IFRIC 14
Funding Requirements and their Interaction
IFRIC 15 Agreements for the Construction of Real Estate
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
IFRIC 17 Distributors of Non-cash Assets to Owners
IFRIC 18 Transfers of assets from customers

Standard Interpretation Committee (SIC)


SIC 7 Introduction of the Euro
Government Assistance - No specific Relation to operating
SIC 10
activities
SIC 12 Consolidation- Special Purpose Entities
Jointly Controlled Entities - Non-Monetary Contributions by
SIC 13
Ventures
SIC 15 Operating Leases – Incentives
SIC 21 Income Taxes - Recovery of Revalued Non-Depreciable Assets
SIC 25 Income Taxes - Changes in the Tax Status of an Entity or its

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IFRS

Shareholders
Evaluating the Substance of transactions Involving the Legal
SIC 27
Form of a Lease
SIC 29 Disclosure - Service Concession Arrangements
SIC 31 Revenue - Barter Transactions Involving Advertising Services
SIC 32 Intangible Assets - Web Site Costs

Need for Convergence with IFRSs


In the present era of globalization and liberalization, the World has become
an economic village. The globalization of the business world and the
attendant structures and the regulations, which support it, as well as the
development of e-commerce make it imperative to have a single globally
accepted financial reporting system. A number of multi-national companies
are establishing their businesses in various countries with emerging
economies and vice versa. The entities in emerging economies are
increasingly accessing the global markets to fulfill their capital needs by
getting their securities listed on the stock exchanges outside their country.
Capital markets are, thus, becoming integrated consistent with this World-
wide trend. More and more Indian companies are also being listed on
overseas stock exchanges. Sound financial reporting structure is imperative
for economic well-being and effective functioning of capital markets.
The use of different accounting frameworks in different countries, which
require inconsistent treatment and presentation of the same underlying
economic transactions, creates confusion for users of financial statements.
This confusion leads to inefficiency in capital markets across the world.
Therefore, increasing complexity of business transactions and globalisation of
capital markets call for a single set of high quality accounting standards. High
standards of financial reporting underpin the trust investors place in financial
and non-financial information. Thus, the case for a single set of globally
accepted accounting standards has prompted many countries to pursue
convergence of national accounting standards with IFRSs. Amongst others,

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IFRS

countries of the European Union, Australia, New Zealand and Russia have
already adopted IFRSs for listed enterprises. China has decided to adopt IFRS
from 2008 and Canada from 2011. Insofar as US is concerned, Financial
Accounting Standards Board (FASB) of USA and IASB are also working
towards convergence of the US GAAPs and the IFRSs. The Securities &
Exchange Commission (SEC) has mooted a proposal to permit filing of IFRS-
compliant financial statements without requiring presentation of a
reconciliation statement between US GAAPs and IFRS in near future.
Appendix II contains list of countries which require or permit the use of IFRSs
for various types of the entities such as listed entities, banks etc.

Benefits of achieving convergence with IFRSs


There are many beneficiaries of convergence with IFRSs such as the
economy, investors, industry and accounting professionals.

The Economy
As the markets expand globally the need for convergence increases. The
convergence benefits the economy by increasing growth of its international
business. It facilitates maintenance of orderly and efficient capital markets
and also helps to increase the capital formation and thereby economic
growth. It encourages international investing and thereby leads to more
foreign capital flows to the country.

Investors
A strong case for convergence can be made from the viewpoint of the
investors who wish to invest outside their own country. Investors want the
information that is more relevant, reliable, timely and comparable across the
jurisdictions. Financial statements prepared using a common set of
accounting standards help investors better understand investment
opportunities as opposed to financial statements prepared using a different
set of national accounting standards. For better understanding of financial
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IFRS

statements, global investors have to incur more cost in terms of the time and
efforts to convert the financial statements so that they can confidently
compare opportunities. Investors’ confidence would be strong if accounting
standards used are globally accepted. Convergence with IFRSs contributes to
investors’ understanding and confidence in high quality financial statements.

The industry
A major force in the movement towards convergence has been the interest
of the industry. The industry is able to raise capital from foreign markets at
lower cost if it can create confidence in the minds of foreign investors that
their financial statements comply with globally accepted accounting
standards. With the diversity in accounting standards from country to
country, enterprises which operate in different countries face a multitude of
accounting requirements prevailing in the countries. The burden of financial
reporting is lessened with convergence of accounting standards because it
simplifies the process of preparing the individual and group financial
statements and thereby reduces the costs of preparing the financial
statements using different sets of accounting standards.

The accounting professionals


Convergence with IFRSs also benefits the accounting professionals in a way
that they are able to sell their services as experts in different parts of the
world. The thrust of the movement towards convergence has come mainly
from accountants in public practice. It offers them more opportunities in any
part of the world if same accounting practices prevail throughout the world.
They are able to quote IFRSs to clients to give them backing for
recommending certain ways of reporting. Also, for accounting professionals in
industry as well as in practice, their mobility to work in different parts of the
world increases.

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Benefits of IFRS
 By adopting IFRS, you would be adopting a "global financial reporting"
basis that will enable your company to be understood in a global
marketplace. This helps in accessing world capital markets and
promoting new business. It allows your company to be perceived as
an international player.
 A consistent financial reporting basis would allow a multinational
company to apply common accounting standards with its subsidiaries
worldwide, which would improve internal communications, quality of
reporting and group decision-making.
 In increasingly competitive markets, IFRS allows a company to
benchmark itself against its peers throughout the world, and allows
investors and others to compare the company's performance with
competitors globally.
 In addition, companies would get access to number of capital markets
across the globe.

Disadvantages of IFRS
 Despite a general consensus of the inevitability of the global
acceptance of IFRS, many people also believe something will be lost
with full acceptance of IFRS.
 Further certain issuers without significant customers or may resist IFRS
because they may not have a market incentive to prepare IFRS
financial statements.
 Some other issuers may have to stick with existing GAAP because it is
required for filings with other regulators and authorities, thus resulting
in extra costs than currently incurred by following only existing GAAP.
 Another concern is that many countries that claim to be converting to
international standards may never get to 100 percent compliance.

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IFRS

Most reserve the right to carve out selectively or modify standards


they do not consider in their national interest, an action that could
lead to incomparability – one of the very issues that IFRS seeks to
address.

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IFRS

ADOPTION & CHALLENGES OF IFRS

Adoption of IFRS
More than 12,000 companies in almost 100 nations have adopted
IFRS, including listed companies in the European Union. Other countries,
including Canada and India, are expected to transition to IFRS by 2011.
Some estimate that the number of countries requiring or accepting IFRS
could grow to 150 in the next few years. Other countries, such as Japan and
Mexico, have plans to converge (eliminate significant differences) their
national standards.
In India, the ICAI has issued a document titled "Concept paper of
convergence with IFRS in India" to evaluate the need for Indian GAAP to
change to IFRS. In the paper, the ICAI notes that as the world globalizes, it
has become imperative for India to make a formal strategy for convergence
with IFRS with the objective of harmonize with globally accepted accounting
standards. In respect of many advantages to various stakeholders viz. the
economy, industry, investors, and accounting professionals, it does caution
that the convergence would require some fundamental changes to the
corporate laws and regulations currently guiding the accounting and
reporting space in India. In view of the difficulties, which may be perceived
during adopting IFRS, the ICAI has decided that IFRS should be adopted for
public interest entities from the accounting periods commencing on or after
1 April 2011.
Adopting IFRS will likely impact key performance metrics, requiring
thoughtful communications plans for the Board of Directors, shareholders
and other key stakeholders. Internally, IFRS could have a broad impact on a
company's infrastructure, including underlying processes, systems, controls,
and even customer or lender contracts and interactions.
Adopting IFRS by Indian corporate is going to be very challenging but
at the same time could also be rewarding. Indian corporate are likely to reap

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IFRS

significant benefits from adopting IFRS. The European Union's experience


highlights many perceived benefits as a result of adopting IFRS. Overall,
most investors, financial statement makers and auditors were in agreement
that IFRS improved the quality of financial statements and that IFRS
implementation was a positive development for EU financial reporting (2007
ICAEW Report on 'EU Implementation of IFRS and the Fair Value Directive').
The current decline in market confidence in India and overseas coupled with
tougher economic conditions may present significant challenges to Indian
companies.
IFRS requires application of fair value principles in certain situations
and this would result in significant differences from financial information
currently presented, especially relating to financial instruments and
business combinations. Given the current economic scenario, this could
result in significant volatility in reported earnings and key performance
measures like EPS and P/E ratios. Indian companies will have to build
awareness amongst investors and analysts to explain the reasons for this
volatility in order to improve understanding, and increase transparency and
reliability of their financial statements.

This situation is worsened by the lack of availability of professionals with


adequate valuation skills, to assist Indian corporate in arriving at reliable fair
value estimates. This is a significant resource constraint that could impact
comparability of financial statements and render some of the benefits of
IFRS adoption ineffective.

Although IFRS are principles-based standards, they offer certain accounting


policy choices to preparers of financial statements. For example, the use of
a cost-based model or a revaluation models in accounting for investment
properties. This could reduce consistency and comparability of financial
information to a certain extent and therefore reduce some of the benefits

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IFRS

from IFRS adoption. The International Accounting Standards Board (IASB)


which is an international standard-setting body formulates IFRS.

However, the responsibility for enforcement and providing guidance


on implementation vests with local government and accounting and
regulatory bodies, such as the ICAI in India. Consequently, there may be
differences in interpretation or practical application of IFRS provisions,
which could further reduce consistency in financial reporting and
comparability with global peers. The ICAI will have to make adequate
investments and build infrastructure to ensure compliance with IFRS.

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IFRS

Challenges of IFRS
There are several impediments and practical challenges to adoption of
and full compliance with IFRS in India. These are:
The need for a change in several laws and regulations governing financial
accounting and reporting in India. In addition to accounting standards,
there are legal and regulatory requirements that determine the manner
in which financial information is reported or presented in financial
statements. For example, the Companies Act, 1956 determines the
classification and accounting treatment for redeemable preference
shares as equity instruments of a company, whereas these may be
considered to be a financial liability under IFRS. The Companies Act
(Schedule VI) also prescribes the format for presentation of financial
statements for Indian companies, whereas the presentation
requirements are significantly different under IFRS. Similarly, the
Reserve Bank of India regulates the financial reporting for banks and
other financial institutions, including the presentation format and
accounting treatment for certain types of transactions.
The recent announcement by the MCA is encouraging as it indicates
government support for the timetable for convergence with IFRS in India.
However, the announcement stops short of endorsing the roadmap for
convergence and the full adoption of IFRS that is discussed in ICAI's
concept paper. In the absence of adequate clarity and assurance that
Indian laws and regulations will be amended to conform to IFRS, the
conversion process may not gain momentum.

24
IFRS

There is a lack of adequate professionals with practical IFRS conversion


experience and therefore many companies will have to rely on external
advisers and their auditors. This is magnified by a lack of preparedness
amongst Indian corporate as this project may be viewed simply as a
project management or an accounting issue which can be left to the
finance function and auditors. However, it should be noted that IFRS
conversion would involve a fundamental change to an entity's financial
reporting systems and processes. It will require a detailed knowledge of
the standards and the ability to consider their impact on business
transactions and performance measures. Further, the conversion
process will need to disseminate and embed IFRS knowledge throughout
the organization to ensure its application on an ongoing basis.
Another potential pitfall is viewing IFRS accounting rules as "similar" to
Generally Accepted Accounting Principles in India (Indian GAAP), since
Indian accounting standards have been formulated on the basis of
principles in IFRS. However, this view disregards significant differences
between Indian GAAP and IFRS as well as differences in practical
implementation and interpretation of similar standards. Further, certain
Indian standards offer accounting policy choices, which are not available
under IFRS, for example, use of pooling of interest method in accounting
for business combinations.

There is an urgent need to address these challenges and work towards full
adoption of IFRS in India. The most significant need is to build adequate
IFRS skills and an expansive knowledge base amongst Indian accounting
professionals to manage the conversion projects for Indian corporates.
Leveraging the knowledge and experience gained from IFRS conversion in
other countries and incorporating IFRS into the curriculum for professional
accounting courses can do this.

25
IFRS

Ultimately, it is imperative for Indian corporates to improve their


preparedness for IFRS adoption and get the conversion process right. Given
the current market conditions, any restatement of results due to errors in
the conversion process would be detrimental to the company involved and
would severely damage investor confidence in the financial system.

Meaning of ‘Convergence’ with IFRS


Before discussing the contours of the convergence strategy with a view to
meet the above mentioned objectives, the word ‘convergence’ needs to be
clearly understood.
In general terms, ‘convergence’ means to achieve harmony with IFRSs; in
precise terms convergence can be considered “to design and maintain
national accounting standards in a way that financial statements prepared in
accordance with national accounting standards draw unreserved statement
of compliance with IFRSs International Accounting Standard (IAS) 1,
Presentation of Financial Statements, which states that financial statements
shall not be described as complying with IFRSs unless they comply with all
the requirements of IFRSs. It does not imply that financial statements
prepared in accordance with national accounting standards draw unreserved
statement of compliance with IFRSs only when IFRSs are adopted word by
word. The IASB accepts in its ‘Statement of Best Practice: Working
Relationships between the IASB and other Accounting Standards-Setters’ that
“adding disclosure requirements or a removing optional treatment does not
create noncompliance with IFRSs. Indeed, the IASB aims to remove optional
treatments from IFRSs.”
This makes it clear that if a country wants to add a disclosure that is
considered necessary in the local environment, or removes an optional
treatment, this will not amount to noncompliance with IFRSs. Thus, for the
purpose of this Concept Paper, ‘convergence with IFRSs’ means adoption of
IFRSs with the aforesaid exceptions, where necessary. For a country to be
26
IFRS

IFRS-compliant, it is not necessary that IFRSs are applied to all entities of


different sizes and of different public interests. Even the IASB recognizes that
IFRSs are suitable for publicly accountable entities. The IASB has, therefore,
recently issued an Exposure Draft of an IFRS for Small and Medium-sized
Entities (SMEs)

PRESENT STATUS OF INDIAN ACCOUNTING STANDARDS


The Council of the Institute of Chartered Accountants of India constituted the
Accounting Standards Board on 21st April, 1977, to formulate Accounting
Standards applicable to Indian enterprises. Initially, the Accounting Standards
were recommendatory in nature. After gaining sufficient experience, the
Council of the Institute gradually started making the Accounting Standards
mandatory for its members, i.e., requiring the members to report on whether
an enterprise subject to audit had followed a mandatory Accounting
Standard. The legal recognition to the Accounting Standards was accorded
for the companies in the Companies Act, 1956, by introduction of section
211(3C) through the Companies (Amendment) Act, 1999, whereby it is
required that the companies shall follow the Accounting Standards notified by
the Central Government on a recommendation made by the National
Advisory Committee on Accounting Standards (NACAS) constituted under
section 210A of the said Act. The proviso to section 211(3C) provides that
until the Accounting Standards are notified by the Central Government the
Accounting Standards specified by the Institute of Chartered Accountants of
India shall be followed by the companies. The Government of India, Ministry
of Company Affairs (now Ministry of Corporate Affairs), issued Notification
dated December 7, 2006, prescribing Accounting Standards 1 to 7 and 9 to
29 as recommended by the Institute of Chartered Accountants of India, which
have come into effect in respect of the accounting periods commencing on or
after the aforesaid date with the publication of these Accounting Standards in
the Official Gazette. It may be mentioned that the Accounting Standards
27
IFRS

notified by the Government are virtually identical with the Accounting


Standards, read with the Accounting Standards Interpretations, issued by the
Institute of Chartered Accountants of India. The Reserve Bank of India (RBI),
being the regulator of banks in India, requires all the banks, through its
circulars/guidelines, to follow the Accounting Standards issued by the
Institute of Chartered Accountants of India. Further, the Securities and
Exchange Board of India (SEBI), through the Listing Agreement with stock
exchanges, requires all listed entities to comply with the Accounting
Standards issued by the Institute.Also, the Insurance Initially, Accounting
Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet
Date, and Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior
Periods Items and Changes in Accounting Policies, were made mandatory in
respect of accounting periods commencing on or after 1.1.1987. Five more
Accounting Standards, namely, AS 1, AS 7, AS 8, AS 9, and AS 10 were made
mandatory from 1st April, 1991. Thereafter, Accounting Standards were
generally made mandatory on the dates indicated in the standards
themselves upon their issuance Insurance Regulatory and Development
Authority (IRDA), which regulates the financial reporting practices of
insurance companies under the Insurance Regulatory and Development
Authority Act, 1999, through IRDA (Preparation of Financial Statements and
Auditor’s Report of the Insurance Companies) Regulations, 2002, requires
compliance with the Accounting Standards issued by the Institute of
Chartered Accountants of India for preparing and presenting their financial
statements by insurance companies. Presently, the Accounting Standards
Board (ASB) of the ICAI endeavors to formulate Indian Accounting Standards
(ASs) on the basis of IFRSs as it has been categorically recognised in the
Preface to the Statements of Accounting Standards, issued by the ICAI, that
“The ICAI, being a full-fledged member of the International Federation of
Accountants (IFAC), is expected, inter alia, to actively promote the
International Accounting Standards Board’s (IASB) pronouncements in the
country with a view to facilitate global harmonization of accounting
28
IFRS

standards. Accordingly, while formulating the Accounting Standards, the ASB


will give due consideration to International Accounting Standards (IASs)
issued by the International Accounting Standards Committee (predecessor
body to IASB) or International Financial Reporting Standards (IFRSs) issued by
the IASB, as the case may be, and try to integrate them, to the extent
possible, in the light of the conditions and practices prevailing in India.”
Accordingly, the Accounting Standards issued by the ICAI are based on the
IFRSs. However, where departure from IFRS is warranted keeping in view the
Indian conditions, the Indian Accounting Standards have been modified to
that extent. The major differences between the two are indicated in the
Appendix to the Accounting Standard itself, in respect of the recently
issued/revised Accounting Standards. Further, the endeavour of the ICAI is
not only to bridge the gap between Indian Accounting Standards and IFRSs
by issuance of new Accounting Standards but also to ensure that the existing
Indian Accounting Standards are in line with the changes in international
thinking on various accounting issues. In this regard, the ICAI makes a
conscious effort to bring the Indian Accounting Standards at par with the
IFRSs, including the Interpretations issued by International Financial
Reporting Interpretations Committee (IFRIC), by revising the existing
Accounting Standards. Indeed, of late, in respect of certain recently
issued/revised Indian Accounting Standards, no material difference exists
between the Indian Accounting Standards and the IFRSs, for example,
Accounting Standard (AS) 7, Construction Contracts.
Apart from the ICAI ensuring compliance with the IFRSs to the extent
possible, the National Committee on Accounting Standards (NACAS)
constituted by the Central Government for recommending accounting
standards to the Government, while reviewing the Accounting Standards
issued by the ICAI, considers the deviations in the Indian Accounting
Standards, if any, from the IFRSs and recommends to the ICAI to revise the
Accounting Standards wherever it considers that the deviations are not
appropriate.
29
IFRS

STRATEGY FOR CONVERGENCE WITH IFRS

Formulation of convergence strategy to achieve the objective specified in


requires cognisance of reasons for departure of Indian Accounting Standards
from the corresponding IFRSs as discussed in the previous chapter as well as
the complexity of the recognition and measurement requirements and the
extent of disclosures required in the IFRSs with a view to enforce these on
various types of entities, viz., public interest entities and other than public
interest entities (hereinafter referred to as ‘small and medium-sized
entities’).

Convergence with IFRSs − Public Interest Entities


Various IFRSs were examined from the point of view of their complexities in
terms of recognition and measurement requirements and the extent of
disclosures required therein to consider their application to various types of
entities. It is noted that those countries which have already adopted IFRSs,
i.e., countries which are fully IFRS-compliant, have done so primarily for
public interest entities including listed and large-sized entities. It is also noted
that the International Accounting Standards Board also considers that the
IFRSs are applicable to public interest entities in view of the fact that it has
recently issued an Exposure Draft of a proposed IFRS for Small and Medium-
sized Entities3. The ICAI, therefore, is of the view that India should also
become IFRS compliant only for public interest entities.
With a view to determine which entities should be considered as public
interest entities for the purpose of application of IFRSs, the criteria for Level I
enterprises as laid down by the Institute of Chartered Accountants of India4
and the definition of ‘small and medium sized company’ as per Clause 2(f) of
the Companies (Accounting Standards) Rules, 2006, as notified by the
Ministry of Company Affairs (now Ministry of Corporate Affairs) in the Official

30
IFRS

Gazette dated December 7, 2006, were considered. The ICAI is of the view
that in view of the complexity of recognition and measurement principles and
the extent of disclosures required in various IFRSs, and the fact that about
four years have elapsed since the ICAI laid down the criteria for Level I
enterprises, as far as the size is concerned, it needs a revision. Accordingly,
the ICAI is of the view that a public interest entity should be an entity:

whose equity or debt securities are listed or are in the process of listing on
any stock exchange, whether in India or outside India; or
(ii) which is a bank (including a cooperative bank), financial institution, a
mutual fund, or an insurance entity; or
(iii) whose turnover (excluding other income) exceeds rupees one
hundred crore in the immediately preceding accounting year; or
(iv) which has public deposits and/or borrowings from banks and financial
institutions in excess of rupees twenty five crore at any time during
the immediately preceding accounting year; or
(v) which is a holding or a subsidiary of an entity which is covered in (i) to (iv)
above.

It was considered whether it would be appropriate not to apply full IFRSs to


listed entities which do not fulfill the minimum turnover and/or borrowings
criteria, which do not fall in these criteria would not be required to follow
IFRSs. The ICAI is of the view that once an entity gets listed on a stock
exchange it assumes the character of a public interest entity and, therefore,
it would not be appropriate to exempt such entities from the application of
IFRSs. Similarly, a bank, a financial institution, a mutual fund, an insurance
entity and holding or subsidiary of a public interest entity also assumes the
character of a public interest entity.
Accounting Standards for Small and Medium-sized Entities
Once the IFRSs are applied to entities identified, an issue arises as to which
Accounting Standards should be applicable to entities which are not covered
31
IFRS

by (i.e., ‘Small and Medium-sized Entities’ (SMEs). The following three


alternatives were considered:
(i) The IFRSs should be modified to provide exemptions/relaxations as has
been done in the existing Accounting Standards issued by the ICAI/notified by
the Government of India;
(ii) The existing Accounting Standards with exemptions/relaxations as at
present, should continue to apply;
(iii) Apply the IFRS for SMEs (the Exposure Draft of which has been issued
recently) with or without modifications to suit Indian conditions.
The ICAI is of the view that since the IASB itself recognizes that the IFRSs are
too onerous for small and medium-sized entities, it would not be appropriate
to apply the IFRSs with exemptions/relaxations to SMEs. The ICAI is also of
the view that to continue to apply the existing Accounting Standards in India
to SMEs with the existing exemptions/relaxations would not be appropriate as
it would mean that the ICAI/the Government would have to keep on
modifying the existing Accounting Standards as soon as a change is made in
the corresponding IFRSs after considering the appropriateness thereof in the
context of Indian SME conditions. The ICAI is, therefore, of the view that it
may be appropriate to have a separate standard for SMEs. It was noted that
the proposed IFRS for SMEs was still at the Exposure Draft stage and it may
undergo changes when finally issued. Accordingly, whether the IFRS for SMEs
should be adopted in to or with modifications, should be examined when the
said IFRS is finally issued. The ICAI is of the view that a separate standard for
SMEs would be more useful from the following perspectives also:
(i) The small and medium-sized entities would not have to consider all the
IFRSs which are too voluminous; and
(ii) it would ensure convergence, to the extent possible, with the proposed
IFRS for Small and Medium-sized Entities being issued by IASB, even for this
class of entities.

32
IFRS

In this context, it is noted that in order to be an IFRS-compliant country, it is


not necessary to adopt the IFRS for Small and Medium-sized Entities to be
issued by IASB.
Whether the IFRSs should be adopted for Public Interest Entities stage-wise
or all at once from a specified future date
The ICAI examined the IFRSs and the existing Accounting Standards with a
view to determine the extent to which they differ from the IFRSs and the
reasons therefore to identify which IFRSs can be adopted in near future,
which IFRSs can be adopted after resolving conceptual differences with the
IASB, which IFRSs can be adopted after the industry and the profession is
ready in terms of the technical skills required, and which IFRSs can be
adopted after the relevant laws and regulations are amended. On the basis of
this examination, the ICAI has classified various IFRSs into the following five
categories:
Category I - IFRSs which do not involve any legal or regulatory
issues nor have any issues with regard to their suitability in the
existing economic environment, preparedness of industry and any
conceptual differences from the Indian Accounting Standards.
This category has further been classified into two parts as follows:

Category I A - IFRSs which can be adopted immediately as these do


not have any differences with the corresponding Indian Accounting
Standards.
The following IFRSs have been identified in this category:
 IAS 11, Construction Contracts
 IAS 23, Borrowing Costs

Category I B - IFRSs which can be adopted in near future as there


are certain minor differences with the corresponding Indian
Accounting Standards.
The following IFRSs have been identified in this category:
33
IFRS

 IAS 2 Inventories
 IAS 7,Cash Flow Statements
 IAS 20, Accounting for Government Grants and Disclosure of
Government Assistance
 IAS 33, Earnings Per Share
 IAS 36, Impairment of Assets
 IAS 38, Intangible Assets

Category II - IFRSs which may require some time to reach a level of


technical preparedness by the industry and professionals keeping in
view the existing economic environment and other factors.
This category also includes those IFRSs corresponding to which Indian
Accounting Standards are under preparation/revision. The following IFRSs
have been identified in this category:
 IAS 18, Revenue
 IAS 21,The Effects of Changes in Foreign Exchange Rates
 IAS 26, Accounting and Reporting by Retirement Benefit Plans
 IAS 40, Investment Property (Corresponding Indian Accounting
Standard is under preparation)
 IFRS 2, Share-based Payment (Corresponding Indian Accounting
Standard is under preparation)
 IFRS 5, Non-current Assets Held for Sale and Discontinued Operations
(Corresponding Indian Accounting Standard is under preparation)

Category III - IFRSs which have conceptual differences with the


corresponding Indian Accounting Standards.
This category has further been divided into two parts as follows:

34
IFRS

Category III A - IFRSs having conceptual differences with the


corresponding Indian Accounting Standards that should be taken up
with the IASB.
The following IFRSs have been identified in this Category:
 IAS 17,Leases
 IAS 19, Employee Benefits
 IAS 27,Consolidated and Separate Financial Statements
 IAS 28, Investments in Associates
 IAS 31, Interests in Joint Ventures
 IAS 37, Provisions, Contingent Liabilities and Contingent Assets

Category III B - IFRSs having conceptual differences with the


corresponding Indian Accounting Standards that need to be
examined to determine whether these should be taken up with the
IASB or should be removed by the ICAI itself.

The following IFRSs have been identified in this Category:


 IAS 12, Income Taxes
 IAS 24, Related Party Disclosures
 IAS 41, Agriculture (Corresponding Indian Accounting Standard is under
preparation)
 IFRS 3, Business Combinations
 IFRS 6, Exploration for and Evaluation of Mineral Resources
 IFRS 8, Operating Segments

Category IV - IFRSs, the adoption of which would require changes in


laws/regulations because compliance with such IFRSs is not possible
until the regulations/laws are amended.
 The following IFRSs have been identified in this Category:
35
IFRS

 IAS 1, Presentation of Financial Statements


 IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors
 IAS 10, Events After the Balance Sheet Date
 IAS 16, Property, Plant and Equipment
 IAS 32, Financial Instruments: Presentation (Exposure Draft of the
Corresponding Indian Accounting Standard has been issued)
 IAS 34, Interim Financial Reporting
 IAS 39, Financial Instruments: Recognition and Measurement (Exposure
Draft of the Corresponding Indian Accounting Standard has been
issued)
 IFRS 1, First-time Adoption of International Financial Reporting
Standards
 IFRS 4, Insurance Contracts
 IFRS 7, Financial Instruments: Disclosures

Category V - IFRSs corresponding to which no Indian Accounting


Standard is required for the time being.
However, the relevant IFRSs, when adopted upon full convergence, can be
used as the “fallback” option where needed.
 IAS 29, Financial Reporting in Hyper-inflationary Economies

Convergence with IFRS – Stage-wise Approach


The ICAI examined whether convergence with IFRSs can be achieved
stagewise as below:
 Stage I: Convergence with IFRSs falling in Category I immediately
 Stage II: Convergence with IFRSs classified in Category II and Category
III after a certain period of time, say, 2 years after various stakeholders
have achieved the level of technical preparedness and after conceptual
differences are resolved with the IASB.

36
IFRS

 Stage III: Convergence with IFRSs classified in Category IV only after


necessary amendments are made in the relevant laws and regulations.
 Stage IV: Convergence with IFRSs classified in Category V by way of
adoption on full convergence.
The ICAI considered in-depth the stage-wise adoption approach and its views
thereon are as below:
 If some IFRSs are adopted in the initial stages and the other IFRSs are
adopted later, this may result in mis-match between the requirements
of the adopted IFRSs in the first stage and the accounting standards
issued by ICAI/notified, corresponding to those IFRSs which are not
adopted. This is because many accounting standards are inter-related.
 Another problem can be that IFRSs adopted in one stage may not be
possible to be implemented fully until the adoption of the IFRSs to be
adopted at the later stage in view of their inter-relationship.
 Even, at present, it is found that when one IFRS is adopted, it results in
a number of changes in the corresponding Indian Accounting
Standards.
For example, the issuance of ED of AS 30, ‘Financial Instruments: Recognition
and Measurement’, corresponding to IAS 39, ‘Financial Instruments:
Recognition & Measurement’, has resulted in proposed limited revisions to
many other accounting standards such as AS 2, AS 11, AS 13, AS 21, AS 23,
AS 27, AS 28 and AS 29. Such an approach is fraught with the danger of
missing out certain minute aspects in other standards which may also require
revision.
 Further changes in IFRSs will also make the process more complex as
with every revision in IFRS, revisions may be required in the existing
Accounting Standards apart from the changes in the adopted IFRSs.
Though IASB has decided not to issue any revised IFRS or new IFRS
effective till January 1, 2009, but after that date this problem will
become acute.

37
IFRS

Convergence with IFRS – All-at-once Approach


In view of the above difficulties, the ICAI is of the view that it would be more
appropriate to adopt all IFRSs from a specified future date as has been done
in many other countries. After considering the current economic
environment, expected time to reach the satisfactory level of technical
preparedness and the expected time to resolve the conceptual differences
with the IASB, the ICAI has decided that IFRSs should be adopted for
public interest entities from the accounting periods commencing on
or after 1st April, 2011. This will give enough time to all the participants in
the financial reporting process to help in building the environment supporting
the adoption of IFRSs. Insofar as the legal and regulatory aspects are
concerned, the ICAI is of the view that, on adoption of those IFRSs, having
certain requirements in conflict with the laws/regulations, the latter will
prevail.
The ICAI is further of the view that this approach is appropriate because to
wait for full convergence until the relevant laws/regulations are amended
would not be practicable as such amendments may not take place for many
years.
The ICAI also examined whether an entity should have a choice to become
fully IFRS compliant before 1st April, 2011. The ICAI is of the view that an
early adoption of IFRSs should be encouraged. However, such an adoption
should be for all IFRSs and that it cannot be on selective basis.

Format of converged Accounting Standards


The ICAI considered whether the existing Accounting Standards should be
revised to make them fully compliant with IFRSs by the specified date or on
the specified date the IFRSs themselves should be adopted. In either case,
Indian-specific regulatory/legal aspects may be included in a separate
section, where appropriate. The ICAI is of the view that it would be more
cumbersome to follow the first approach, i.e., revising the Accounting
Standards. Therefore, the second approach should be, i.e., IFRSs, including
38
IFRS

the IFRS numbers, should be adopted from the specified date of 1st April,
2011. The IFRSs should be issued as Indian ASs, which would be considered
IFRS-equivalent. In order to facilitate reference to the existing Indian
Accounting Standards, along with the IFRS number, in the brackets, the
existing Accounting Standard number may also be given.
Role of various stakeholders to ensure convergence with IFRSs from
the specified date, i.e., accounting periods commencing on or after
1st April, 2011
The following sections deal with the role of various stakeholders in the
standard setting process to ensure smooth transition to the IFRSs from 1st
April, 2011, in respect of the listed and other public interest entities.

Role of the ASB of the ICAI


The ICAI considered whether it should altogether stop formulating Accounting
Standards hereinafter in view of the fact that from 1st April, 2011, the IFRSs
existing on that date would come into force for public interest entities. For
SMEs, IFRS for SMEs may similarly become applicable. In this context, it is
noted that, at present, the ICAI is in the process of formulating certain new
accounting standards corresponding to the IFRSs such as Accounting
Standard (AS) 30, ‘Financial Instruments: Recognition and Measurement’, and
Accounting Standard (AS) 31, ‘Financial Instruments: Presentation’, and that
Exposure Drafts in respect thereof have already been issued. It was also
noted that certain existing Accounting Standards such as Accounting
Standard (AS) 10, ‘Accounting for Fixed Assets’, is being revised and has
reached advanced stage of issuance. The ICAI feels that to stop work on such
Accounting Standards would deprive the country of converging with IFRSs
before the specified date of 1st April, 2011. The ICAI is, therefore, of the view
that it should continue to issue Accounting Standards in conformity with the
corresponding IFRSs which have, at present, reached advanced stage of

39
IFRS

formulation even if they fall within Category IV. This would also make the
transition to IFRSs from 1st April, 2011 smoother.
The ASB may consider revising Accounting Standards corresponding to IFRSs
indicated in Category IB and Category II on priority basis. For this purpose,
ASB may consider issuing a composite exposure draft of modifications in the
Accounting Standards corresponding to the IFRSs listed in Category IB and
issue exposure drafts of Accounting Standards corresponding to IFRSs falling
in Category II so that by the time the convergence date arrives, in respect of
these standards the country is already in convergence with IFRSs. While this
is a broad suggestion, the ASB may consider in-depth its work plan as to
which of these accounting standards are capable of being revised/issued
keeping in view various factors such as extent of changes required. Another
advantage of this process could be that certain International stock
exchanges, say, London Stock Exchange, may decide to allow listing on their
stock exchanges without requiring preparation of reconciliation statement
even prior to 1st April, 2011. For instance, the London Stock Exchange may
allow Indian companies to get listed without reconciliation statement from 1st
April, 2009 in case the convergence in respect of Categories IB and II and the
new accounting standards which are in the process of formulation are issued
by that time.

The ASB of ICAI should take up the conceptual differences with the IASB in
respect of IFRSs falling in Category III and it should resolve these differences
as soon as possible by either convincing the IASB to modify IFRSs or to satisfy
itself that the requirements in the concerned IFRSs are appropriate even in
the Indian conditions.
In respect of IFRSs falling in Category IV, i.e., IFRSs the adoption of which
would require changes in laws/regulations, the ICAI should initiate a dialogue
with the relevant departments of the Government or the authorities set up by
the Government such as the National Advisory Committee on Accounting
Standards which formulate laws and with the relevant regulatory authorities
40
IFRS

to convince them that either the legal provisions/regulations related to


recognition, measurement and disclosure requirements in the financial
statements should be withdrawn by 1st April, 2011, or the same should be
appropriately amended to ensure convergence with IFRSs.

The IASB has declared a stable platform for IFRSs up to January 1, 2009, i.e.,
the IASB will not make any IFRS effective before that date, which is issued
prior to that date. Thus, after 1st January, 2009, the IASB may issue new
IFRSs or revise the existing ones on frequent basis. The ASB of the ICAI
should play a more effective role by sending comments on the discussion
papers/Exposure Drafts of the proposed IFRSs. The ASB should also
participate in the Round-tables organized by the IASB on various drafts of
proposed new IFRSs/revised IFRSs. In other words, the ASB should play a
greater role in influencing the future IFRSs. The ASB should also play a similar
role in respect of the drafts of the Interpretations issued by the International
Financial Reporting Committee (IFRIC). In this context, the section related to
the ‘Role of ASB of ICAI in Post-convergence Scenario’ may also be referred
to.

The ASB can also play a greater role in influencing future IFRSs in the
following ways:
 By identifying experts on IFRSs in India, who can be appointed on the
IASB through the selection process followed by the IASB so that the
Indian concerns are expressed at the Board level.
 By nominating ASB staff on the IASB projects, on secondment basis or
otherwise. The ICAI notes that IASB welcomes such participation as is
evident from the fact that the staff of certain national standard-setters
is presently involved in various IASB projects. Also, IASB’s Statement
of Best Practices: Working Relationships between the IASB and other
Standard-Setters encourages the national standard setters to do so .

41
IFRS

Role of ICAI as an educator/trainer


With a view to prepare its existing and prospective members for the
impending adoption of the IFRSs from 1st April, 2011, the ICAI should
formulate strategies with regard to the following:
 To revise the syllabi of the pre-qualification Chartered Accountancy
Course to include IFRSs as a part of its curriculum;
 The Continuing Professional Education (CPE) Committee and the
Committee for Members in Industry should hold intensive workshops on
IFRSs to train the members in practice as well as in industry. In order to
encourage members to participate in the IFRS-specific workshops, the
ICAI may consider laying down minimum CPE hours requirements in
this regard, e.g., the ICAI may make it mandatory for its members to
attend a minimum number, say, 50 CPE hours of workshops on IFRSs
every year till 1st April, 2011 including those members who are in
industry;
 Preparation of educational material to guide its members on various
intricacies involved in the implementation of IFRSs. The educational
material may focus on those areas which are new compared to the
existing Accounting Standards.

Role of the Government and Regulators


The ICAI considers that the Government and the Regulators should play the
following role in making the country IFRS-compliant:
 The Government and the Regulators should establish legal and
regulatory environments that provide for compliance with all the IFRSs.
 The Government should frame/ revise laws in consultation with NACAS
to reflect the IFRSs. Similarly, various Regulators should frame/revise
regulations in consultation with ICAI. This should be considered as a
high priority.

42
IFRS

Role of Reporting Entities


The reporting entities to which IFRSs are recommended to be applied should
prepare themselves in the following ways:
 All the affected entities should design and implement an IFRS transition
programme and allocate the necessary resources. This includes
obtaining the commitment from the top down, i.e., from those charged
with governance to those responsible for financial reporting by
individual business units. Also, they should consider the
interdependencies between the transition to IFRSs and other financial
reporting projects, if any, such as compliance with laws and
regulations.
 The entities should prepare to implement IFRSs by identifying
differences and addressing required financial reporting system
changes.
 The entities should design and implement plans to change
management reporting system used to monitor the performance of the
business from the previously applied Accounting Standards to IFRSs.
 The entities should also provide IFRS training to staff at all levels
affected by the transition to IFRSs.
 The entities should actively contribute to the international standard-
setting process, in particular, to identify practical implementation
issues.
 The entities should consider at an early stage changes proposed by the
Exposure Drafts of IFRSs with a view to gauge the potential impact
thereof on their financial statements so that they are able to provide
informed comments on the drafts to the IASB/ICAI.

Role of Industry Associations


Industry associations such as Federation of Indian Chambers of Commerce
and Industry (FICCI), Associated Chambers of Commerce (Assocham) and
43
IFRS

Confederation of Indian Industries (CII) can also play an important role in


preparing their constituents for the adoption of the IFRSs in the following
ways:
 Holding round-tables on the Exposure Drafts of the IFRSs so that the
views of the Association can be sent to the IASB/ICAI.
 Conducting seminars/workshops on IFRSs for the industry participants
to provide them appropriate training.
 Provide industry-specific forums to their constituents to discuss the
industry specific issues in implementation of IFRSs.

Role of ASB in the post-convergence scenario


With regard to the role of ASB of the ICAI in the post-convergence scenario,
the ICAI decided to generally endorse the role of the national standard-
setters as envisaged in the Statement of Best Practices: Working
Relationships between the IASB and other Accounting Standard-setters,
issued by the IASB, as follows:

Role in formulation of IFRS- equivalent Indian Accounting Standards


1. ASB should undertake one or more of the following processes in adopting
IFRSs:
 determine whether each IFRS meets specified criteria set out in local
legislation/regulations;
 endorse the IFRS in the form of IFRS-equivalent Indian Accounting
Standards for the local regulatory framework, with changes, if
necessary, as mentioned at 2 and 3 below;
 present the standards for approval of NACAS for the purpose of
Government notification Therefore, adopting IFRSs would be an
ongoing process.

2. In general, working with the Government and regulators for adoption/


implementation of IFRSs, including deciding in rare circumstances whether
44
IFRS

any carving out of the IFRS requirements in the existing local conditions is
warranted in the public interest
.
3. In some cases, as at present, the ASB may continue the policy of removing
optional treatments and adding disclosure requirements to IFRSs when it
believes that doing so provides more comparable and useful information in
the country. When ASB makes any change to an IFRS, for example, adding a
disclosure that is considered necessary in the local environment, or removing
an optional treatment, this should be made clear so that users of the IFRS are
aware of the changes. In some cases, certain changes in terminology in IFRS
may be required keeping in view legal requirements, e.g., replacing the term
‘true & fair’ for ‘present fairly’, in IAS 1, ‘Presentation of Financial
Statements’. Such changes do not lead to non-convergence with IFRS.

4. Inevitably, questions of interpretation will arise when IFRSs are applied.


Accordingly, ASB should be familiar with the implementation of IFRSs in the
country. This familiarization process may involve, or depend upon, close
liaison with local capital market and industry regulators. If ASB believes that
an issue requires interpretation of IFRSs, it should request the IFRIC to
address the issue. If IFRIC includes the matter for interpretation on its
Agenda, interpretation/guidance on the matter should not be issued. If IFRIC
does not include the matter on its Agenda, it issues reasons therefore
including what a particular requirement of an IFRS means. This itself can
provide guidance to various stakeholders. The IFRIC or IASB staff may decide
that an amendment to an IFRS is the more appropriate course to follow. As
part of this process, other accounting standard setters that face a common
issue could work together to formulate a possible approach to the issue for
resolution by the IFRIC or the IASB.
IFRSs are intended to apply worldwide regardless of local legislative and
regulatory environments. However, some issues may relate to particular
legislative or other local requirements. In these cases, ASB may decide to
45
IFRS

issue guidance. Care needs to be exercised, however, to ensure that the


issues are not more widely relevant. In considering such issues, ASB should
liaise with the IFRIC, and if it believes it is necessary to issue any guidance, it
should avoid incompatibility with IFRSs.

Role of ASB in influencing IFRSs before their finalization


1. ASB should have a role in communicating IASB activities and outputs to
the industry and other stakeholders through educational and promotional
activities, including publishing or distributing IASB consultative documents in
the jurisdictions, and in both providing the IASB with feedback on these
activities and outputs themselves and encouraging them to provide feedback
to the IASB.

2. ASB should encourage various stakeholders to comment on IASB


consultative documents direct to the IASB as well as to the ASB.

3. Forums of communicating views other than comment letters are


increasingly important in gathering views, including forums on specific
issues. ASB should use these forums as a mechanism for encouraging the
stakeholders to participate in the IASB’s standard-setting process.

4. ASB can assist the IASB in identifying constituents who can be involved in
round-table discussions and other forums and the issues of particular
relevance to the stakeholders.

5. Without limiting the direct communication of ideas to the IASB, ASB has a
role in communicating the views and ideas of the stakeholders to the IASB
through the consultation process—providing a forum for views. Other
organizations, such as representative bodies with an interest in financial
reporting, may also contribute to this process. ASB should make its own
46
IFRS

submissions to the IASB on consultative documents and should convey its


views to the IASB rather than provide merely a synthesis of the views
expressed by the stakeholders.

6. ASB should make the IASB aware of any major conceptual differences of
opinion it may have with a project as early as possible in the life of a project.
This would require ASB to monitor closely the development of the project.

7. The IASB’s work programme is a subject on which it would be particularly


helpful for ASB to channel its views and those of the stakeholders in a
constructive manner. Since the IASB is unable to respond to every interested
party’s request to deal with a topic, ASB should seek the views of the
stakeholders on work programme priorities and collect and summarize them
for consideration by the IASB.

8. Direct involvement of ASB in the IASB’s projects would help to ensure that
a wide range of views and ideas are considered in the early stages of the
development of a project. The IASB may provide opportunities to ASB to be
directly involved with IASB projects in the following ways:
 Involvement in a ‘research project’ alone, or, in partnership with a team
of other standard-setters (either as a leader of the team or as team
member), under the guidance of IASB staff and selected Board
advisers.
 Involvement of the ASB staff in a ‘project team’ on an active IASB
project under the direction of the IASB directors.

9. ASB may conduct research or develop thinking on a topic that has not
been identified by the IASB as a current priority, and then present the results
of that work for consideration by the IASB and/or other national accounting
standard setters. For there to be an expectation that those materials would
be considered there would need to be some advance agreement both that
47
IFRS

the topic is worthy of consideration and that the IASB and/or other standard-
setters have a common interest in the topic.

10. The IASB would welcome offers of staff assistance from the ASB. To be
effective, from both the IASB’s perspective and that of the ASB, this
involvement needs to be undertaken with a clear understanding of the staff
member’s role and responsibilities.

11. The IASB establishes working groups for some projects, and invites
constituents to nominate candidates for membership of these groups. The
working groups are a source of expert advice and ideas for the staff in
progressing a particular project. ASB may be able to assist in the process of
making nominations to, and in facilitating the operations of, working groups
by identifying and encouraging suitable individuals to nominate themselves
and, if appointed, to liaise actively with those individuals and assist them
when needed.

12. The views of ASB can be a valuable source of independent thought in the
development of IASB documents. ASB should provide comments to the IASB
on consultative documents such as Exposure Drafts and Discussion Papers. If
time does not permit ASB-level input, comment from staff of the ASB can be
provided. If ASB is unable to comment on each consultative document it
should focus on those projects that are of particular importance to the
country, or those on which the ASB believes it can best contribute. It may
also be helpful for ASB to comment on other IASB documents, such as issues
papers and draft Discussion Papers when it believes that the IASB would
benefit from their input at an early stage.
Expectations from the IASB
To ensure smooth convergence with IFRSs, upto 2011 and thereafter also,
IASB is also expected to play an important role as follows:

48
IFRS

 Provide guidance on issues emerging on adoption of IFRSs on timely


basis at least upto 2011.
 Address concerns about the complexity and structure of the
international standards.
 Write standards in simple English that is understandable, clear and
capable of translation and consistent application.
 In developing the IFRS and setting effective dates, be cognizant of the
fact that the final standards are required to be translated in India for
the purpose of Government Notification.
 In considering changes to the IFRS, be cognizant of the cost vs. the
benefits of the proposed changes.
 Establish a process, or enhance the existing process to respond in a
timely manner to requests for interpretations.
 Consider the development of implementation guidance.

49
IFRS

DIFFERENCES BETWEEN INDIAN GAAP AND IFRS


Presentation of Financial Statements –
Standards followed On transition to IFRS
Particulars under Indian GAAP
Standard AS 1 – Disclosure of IAS 1 – Presentation of
Accounting Policies Financial Statements
Balance Sheet Required. The balance sheet Required. An entity is
is neither classified into required to present current
current and non-current nor and non-current assets,
is it in order of liquidity. and current and non-
current liabilities, as
separate classifications in
the statement of financial
position.
Income Required Required
Statement
Statement of Not required Required
Comprehensive
Income
Statement of No separate statement of A separate statement of
changes in changes in shareholder’s changes in shareholder’s
equity equity is required. equity is required.
Cash flow Required Required
statement
Accounting Required Required
Policies
Notes to Required Required
financial
statements
Preparation and Financial statements are Financial statements are
Presentation presented on a single-entity presented on a
parent company consolidated basis. On a
(standalone) basis. It is not voluntary basis, an entity
mandatory to prepare may present single-entity
consolidated financial parent company
statements but must use (standalone) financial
the consolidation standard if statements along with its
prepared. consolidated financial
statements.

Estimation Not required. The nature of the


Uncertainty uncertainty and the
carrying amounts of such
assets and liabilities at the
50
IFRS

end of the reporting period


are required to be
disclosed.
Income Disclosed as a separate item Fringe Benefit tax is
Statement after profit before tax on the included as a part of
Format face of income statement. related expense which
gives rise to incurrence of
tax.
Extraordinary Defined as events or Prohibited. All items of
items transactions clearly distinct income and expense are
from the ordinary activities considered to derive from
of the entity and are not an entity’s ordinary
expected to recur frequently activities.
and regularly.

Inventories –

Standards followed On transition to IFRS


Particulars under Indian GAAP
Standard AS 2 – Valuation of IAS 2 – Inventories
Inventories
Cost Formulae Stated at cost on weighted No change required.
average basis.
Consistency of Not specified Same cost formulae is
cost used for all inventories
formulae that have similar nature
for similar and use to the entity
inventories

51
IFRS

Cash Flow Statements –

Standards followed On transition to IFRS


Particulars under Indian GAAP
Standard AS 3 – Cash Flow IAS 7 – Statement of
Statements Cash Flows

Cash and Cash No provision in AS 3 for Cash may include bank


equivalents classification of bank overdrafts repayable on
overdrafts. demand but not short-
term bank borrowings;
these are considered to
be financing cash flows.

Format and content of Indirect method. No change required.


cash flow
statement
Cash flows associated Separately disclosed. Prohibited.
with extraordinary
items
Disclosure of interest Interest paid should be Interest paid should be
paid and received disclosed as financing disclosed as operating
cash flow and interest or financing. Interest
received should be received is disclosed as
disclosed as investing either operating or
cash flow. investing cash flow.

52
IFRS

Disclosure of Financing. Operating or financing.


dividend
paid
Disclosure of Investing. Operating or investing.
dividend
received
Disclosure of Operating. Similar.
taxes paid
Disclosure of No such requirement. Additional disclosure of
cash cash payments by a lessee
payments relating to finance lease
under financing activities,
additional disclosures in
CFS and for acquisition of
subsidiaries.

Events after the Reporting Period –

Standards followed On transition to IFRS


Particulars
under Indian GAAP
Standard AS 4 – Contingencies and IAS 10 - Events After the
Events Occurring after the Reporting Period
Balance Sheet Date

Accounting Policies, Changes in Accounting Estimates and Error –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 5 - Net Profit or Loss for IAS 8 - Accounting Policies,
the Period, Prior Period Changes in Accounting
Items and Changes in Estimates and Errors
Accounting Policies
Definition of AS 5 covers only items of IAS 8 covers all the items
prior period income and expenses under in financial statements.
items the definition of prior period
items. AS 5 do not include
balance sheet
misclassification, which do
not have an income
statement impact.
53
IFRS

Prior period Reported as a prior period An entity shall correct


items adjustment in current year material prior period errors
results. Comparatives are retrospectively in the first
not restated. set of financial statements
authorized for issue by
restating the comparative
amounts for the prior
period(s) presented in
which the error occurred.
Errors Prior period errors are Material prior period errors
included in determination of are corrected
profit or loss of the period in retrospectively by
which the error is restating the comparative
discovered. amounts for prior periods
presented in which the
error occurred or if the
error occurred before the
earliest period presented,
by restating the opening
statement of financial
position.

Property, Plant and Equipment –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 6 – Depreciation IAS 16 - Property, Plant
Accounting and Equipment

Method of Straight- Line basis Method. Similar but other methods


depreciation such as diminishing
balance method and the
units of production method
are also available.

Change in Requires retrospective re- Changes in useful life is


method of computation of depreciation considered as change in
depreciation and any excess or deficit on accounting estimate and
such re-computation be applied prospectively.
required to be adjusted in
the period in which such
change is effected.
(*)Reassessment Not currently required. Requires annual
of useful life and reassessment of useful life.

54
IFRS

depreciation
method

Revenue Recognition –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 9 – Revenue IAS 18 - Revenue
Recognition
IFRIC 13 - Customer
Loyalty Programmes

Revenue Revenue is the gross inflow Revenue is the gross


Definition of cash, receivables or other inflow of economic benefits
consideration arising in the during the period arising in
course of the ordinary the course of the ordinary
activities from the activities of an entity when
scheduled services (such as those inflows result in
passenger, excess baggage, increases in equity, other
mail, and cargo), and from than increases relating to
the use by others of contributions from equity
enterprise resources participants.
yielding handling and Amounts collected on
servicing revenue, behalf of third parties such
manufacturers credit and as sales and service taxes
incidental revenue. and value-added taxes are
excluded from revenues.
(IAS 18)
Measurement of Passenger revenue is Fair value of revenue from
revenue recognized on flown basis. sale of goods and services
While Cargo revenue is when the inflow of cash
recognized on uplift basis and cash equivalents is
after making the necessary deferred is determined by
adjustments for estimated discounting all future
cargo carriage beyond the receipts using an imputed
year-end. The Pool Revenue rate of interest. (IAS 18)
is accounted on accrual
basis as per the
arrangement with the
airlines concerned.
Interest Interest is recognized on a Interest income is
time proportion basis taking recognized using the
into account the amount effective interest method.
outstanding and the rate (IAS 18)
applicable.
55
IFRS

(*)Customer No specific guidance. The Award credits granted to


Loyalty company operates joint customers as part of a
Programmes “Frequent Flyer sales transaction are
Programme” for which the accounted for as a
estimated food cost and separately identifiable
legal liability if any for free component of the sales
travel under this transaction(s), with the
programme is provided for consideration received or
and charged to Profit and receivable allocated
Loss Account. between the award credits
and the other components
of the sale.

Fixed Assets –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 10 - Accounting for Fixed IAS 16 - Property, Plant
Assets and Equipment
Component AS 10 does not require full IAS 16 mandates
accounting adoption of the component component accounting.
approach. Aircraft are stated Under component
at purchase price. Other accounting approach, each
assets including aircraft major part of an item of
rotables are capitalized and equipment with a cost that
stated at historical cost. is significant in relation to
the total cost of the item is
depreciated separately.
Sale/scrap of Gain or loss arising out of Non-current assets
Fixed Assets sale/scrap of Fixed Assets classified as held for sales
including aircraft over the are measured at the lower
net depreciated value is of its carrying value and
taken to Profit & Loss fair value less costs to sell.
account as Non-Operating Non-current assets to be
Revenue or Expenses. disposed of are classified
as held for sale when the
asset is available for
immediate sale and the
sale is highly probable.

Foreign Exchange –

Particulars Standards followed On transition to IFRS


56
IFRS

under Indian GAAP


Standard AS 11 - The Effects of IAS 21 - The Effects of
Changes in Foreign Changes in Foreign
Exchange Rates Exchange Rates

Exchange Exchange differences on Similar to Indian GAAP,


Differences conversion of foreign exchange differences
currency loans/liabilities arising on translation or
taken/incurred after April settlement of foreign
01, 2004 in respect of currency monetary items
qualifying assets is are recognized in profit or
recognized in the Profit & loss in the period in which
Loss Account; or before 31 they arise.
March 2004 are capitalized
in the carrying amount of
these assets.

Translation in Foreign currency Assets and liabilities


the consolidated denominated current assets should be translated from
financial and current liabilities functional currency to
statements balances at the year-end presentation currency at
are translated at the year the closing rate at the date
end exchange rate of the statement of
circulated by Foreign financial position; income
Exchange Dealers and expenses at
Association of India (FEDAI), actual/average rates for
and the gains/losses arising the period; exchange
out of fluctuations in differences are recognized
exchange rates are in other comprehensive
recognized in the Profit and income and recycled to
Loss Account. profit or loss on disposal of
the operation.
Forward Forward exchange contract Accounted as a derivative.
Contracts intended for trading or It is covered in IAS – 39:
speculation purposes: Financial Instrument –
The premium or discount on Recognition and
the contract is ignored and Measurement.
at each balance sheet date,
the value of the contract is
marked to its current
market value and the gain
or loss on the contract is
recognized.

Accounting for Investments –

57
IFRS

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 13 - Accounting for IAS 39 - Financial
Investments Instruments: Recognition
and Measurement
Investments Investments are classified Financial instruments are
as long-term or current. classified as at fair value
through profit or loss if it is
Long-term investments are held for trading or has
carried at cost less provision been designated as at fair
for diminution in value. value through profit or loss
upon initial recognition.
Current investments are
carried at lower of cost and Financial instruments are
fair value. classified as held for
trading if these are
acquired or incurred
principally for the purpose
of selling or repurchase in
the near future, is part of a
portfolio that is managed
together and for which
there is evidence of recent
actual pattern of short-
term profit taking or
derivative that is not a
financial guarantee
contract or is not
designated as an effective
hedging instrument.

Financial instruments can


be designated at fair value
through profit or loss only
if it eliminates or reduces
measurement or
recognition inconsistency
or a group of financial
instruments are managed
and its performance
evaluated on a fair value
basis in accordance with a
documented risk
management strategy and
information about this
group of instruments are
58
IFRS

provided to key
management personnel.

Held-to-maturity
investments are non-
derivative financial assets
with fixed or determinable
payments and fixed
maturity that an entity has
positive intent and ability
to hold to maturity. Held to
maturity investments is
measured at amortized
cost using effective
interest method.
Investment in The entire instrument is The holder may:
convertible accounted for as debt ♦ designate the hybrid
bonds investment. instrument as at fair
value through profit or
loss subject to certain
conditions, or
♦ designate the debt
element as available for
sale with changes in fair
value recognized in
equity and the
conversion option as a
derivative with changes
in fair value recognized
in profit or loss, or
♦ recognize the debt
element as loans and
receivables and
measure at amortized
cost and the conversion
option as a derivative
with changes in fair
value recognized in
profit or loss.

Employee Benefits –

Particulars Standards followed On transition to IFRS


under Indian GAAP

59
IFRS

Standard AS 15 (Revised 2005) - IAS 19 - Employee Benefits


Employee Benefits
IFRIC 14 - The Limit on a
Defined Benefit Asset,
Minimum Funding
Requirements and their
Interaction
IAS 19, Actuarial Detailed actuarial valuation Similar, but detailed
valuation to determine present value actuarial valuation to
of the benefit obligation is determine the present
carried out at least once value of defined benefit
every three years and fair obligation and the fair
values of plan assets are value of plan assets is
determined at each balance performed with sufficient
sheet date. regularity so that the
amounts recognized in the
financial statements do not
differ materially from the
amounts that would have
been determined at the
end of the reporting
period.

IAS 19, Recognized immediately in - Recognized


Employee the statement of profit and immediately in profit or
benefits - loss as an income or loss;
actuarial gains expense.
and losses - Recognized
immediately in other
comprehensive income;
or

- Deferred up to a
maximum with any
excess of 10% of the
greater of the defined
benefit obligation or the
fair value of the plan
assets at the end of the
previous reporting
period being recognized
over the expected
average remaining
working lives of the
participating employees

60
IFRS

or other accelerated
basis.
-
(*)IFRIC 14, The No specific guidance. Addresses when refunds or
Limit on a reductions are regarded as
Defined Benefit available for recognition of
Asset, Minimum an asset; how funding
Funding requirements in future
Requirements may effect the availability
and their of reductions in future
Interaction contributions and when
minimum funding
requirement may give rise
to a liability.

(*)Termination An entity should recognize An entity should recognize


Benefits termination benefits as a termination benefits as a
liability and an expense liability and an expense
when, and only when only when it is
(a) the entity has a present demonstrably committed
obligation as a result of a to either:
past event; (i) terminate the
(b) it is probable that an employment of an
outflow of resources employee before the
embodying economic normal retirement date; or
benefits will be required to (ii) provide termination
settle the obligation; and benefits as a result of an
(c) a reliable estimate can offer made in order to
be made of the amount of encourage voluntary
the obligation. redundancy.
(*)Asset Ceiling If the net amount Similar but asset is limited
determined to be to the lower of the net
recognized in the balance total of any unrecognized
sheet is negative (an asset), actuarial losses and past
recognition of the asset is service cost and the
limited to the lower of: (a) present value of any
the asset resulting from available refunds from the
applying the standard, and plan or reduction in future
(b) the present value of any contributions to the plan.
economic benefits available
in the form of refunds from
the plan or reductions in
future contributions to the
plan.

61
IFRS

Borrowing Costs –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 16 - Borrowing Costs IAS 23 - Borrowing Costs
Recognition Borrowing cost that are Similar but borrowing costs
directly attributable to are also expensed as
acquisition, construction or incurred (not permitted for
production of qualifying qualifying assets for which
assets including capital the capitalization date falls
work-in-progress are in annual periods
capitalized up to the date of beginning on or after 1
commercial use of the January 2009).
assets. Recognizing, as an
expense when incurred is
not permitted.
(*)Capitalization No disclosure required. The disclosure
Rate requirements of IAS 23
require the entity to
disclose separately the
capitalization rate used to
determine the amount of
borrowing costs.

Segment Reporting –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 17 - Segment Reporting IFRS 8 – Operating
Segments

Determination of AS 17 requires an enterprise IFRS 8 requires operating


segments to identify two sets of segments to be identified
segments (business and on the basis of internal
geographical), using a risks reports about components
and rewards approach. The of the group that are
company is engaged in regularly reviewed by the
airline related business, chief operating decision
which is its primary business maker in order to allocate
segment, and hence, resources to the segment
segment results are not and to assess its
disclosed. The details of performance. For each
geographical wise revenue operating segment profit
earned based on either the or loss needs to be
location of production or recognized by the chief

62
IFRS

service facilities and other decision-maker.


assets of an enterprise; or
the location of its customers
are specified for areas such
as USA/Canada; UK/Europe;
Asia, Africa, & Australia; and
India.

Measurement The major revenue-earning Segment profit or loss is


asset of the company is the reported on the same
aircraft fleet, which is
measurement basis as that
flexibly deployed across its used by the chief
worldwide route network. operating decision-maker.
There is no suitable basis for
There is no definition of
allocation of assets to segment revenue,
geographical segments. segment expense,
Consequently, area-wisesegment result, and
assets are not disclosed. segment asset or segment
liability.
Entity wide Disclosures of airline related Requires disclosure of (a)
disclosures business as its primary external revenues from
business segment. each product or service;
(b) revenues from
customers in the country
of domicile and from
foreign countries; (c)
geographical information
on non-current assets
located in the country of
domicile and foreign
countries.

Related Party Disclosures

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 18 – Related Party IAS 24 - Related Party
Disclosures Disclosures

Identification Post employment benefit Related party includes post


plans are not included as employment benefit plans
related parties. for the benefit of
employees of the reporting
63
IFRS

entity or any entity that is


a related party of the
reporting entity.
Key No other transactions with Compensation of key
Management key managerial personnel management personnel is
Personnel except Remuneration and disclosed in total and
Perquisites to Chairman & separately for (a) short-
Managing Director and term employee benefits;
Functional Directors. (b) post-employment
Transactions such as benefits; (c) other long-
providing Airline services in term benefits; (d)
the normal course of Airline termination benefits; and
business are not included. (e) share-based payments.
However, compensation of
key management personnel
needs to be disclosed in
total as an aggregate of all
items.
Close relatives AS 18 includes specific IAS 24 adopts a more
relations as relatives. 'substance over form'
based approach in defining
relatives as close members
of the family, i.e., who
influence and can be
influenced by the
individual in his/ her
dealings with the reporting
entity.
Information to Name of the related party Relationships between
be disclosed and nature of the related parents and subsidiaries
party relationship where shall be disclosed and if
control exists is disclosed neither the entity's parent
for key managerial nor the ultimate controlling
personnel and relatives. party produces financial
statements available for
public use, the name of
the next most senior
parent that does so shall
also be disclosed.
The reporting entity should An entity shall disclose the
disclose the name, nature of the related party
relationship, nature, volume relationship as well as
of transactions and any information about the
other elements of the transactions and
related party transactions outstanding balances
necessary for an necessary for an
64
IFRS

understanding of the understanding of the


financial statements. Any potential effect of the
outstanding items relationship on the
pertaining to related parties financial statements. At a
at the balance sheet date minimum, disclosures shall
and provisions for doubtful include the amount of the
debts due from such parties transactions, amount of
at that date and amounts outstanding balances and
written-off or written-back in their terms and conditions,
the period in respect of provisions for doubtful
debts due from or to related debts related to the
parties. amount of outstanding
balances and the expense
recognized during the
period in respect of bad or
doubtful debts due from
related parties.

Leases –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 19 - Leases IAS 17 - Leases

IFRIC 4 - Determining
Whether an Arrangement
Contains a Lease

SIC 15 – Operating Leases


- Incentives

SIC 27 – Evaluating the


Substance of Transactions
Involving the Legal Form of
a Lease

IFRIC 12 - Service
Concession Arrangements
Interest in Leasehold land is recorded Recognized as operating
leasehold land as fixed assets. lease (i.e. prepayment)
unless the leasehold
interest is accounted for as
investment property and
the fair value model is
adopted. (IAS 17)
65
IFRS

Sale and Lease If sale and leaseback No change. (IAS 17)


Back transaction results in an
operating lease, and it is
clear that the transaction is
established at fair value,
any profit or loss shall be
recognized immediately.
If sale and leaseback results If a sale and leaseback
in finance lease, AS 19 transaction results in a
requires excess/deficiency finance lease, any excess
both to be deferred and of sales proceeds over the
amortized over the lease carrying amount shall be
term in proportion to the deferred and amortized
depreciation of the leased over the lease term. (IAS
asset. 17)
Initial direct Initial direct costs are either Initial direct costs are
costs of lessors recognized immediately in included in the
for assets under the statement of profit and measurement of the
a finance lease loss or allocated against the finance lease receivable
finance income over the and reduce the amount of
lease term. income recognized over
Initial lease costs incurred the lease term.
by manufacturer or dealer Initial lease costs incurred
lessors are recognized as by manufacturer or dealer
expense at the inception of lessors are recognized as
the lease. expense when selling
profit is recognized. (IAS
17)
Initial direct Initial direct costs incurred Initial direct costs incurred
costs of lessors by lessors are either by lessors are added to the
for assets under deferred and allocated to carrying amount of the
a operating income over the lease term leased asset and
lease in proportion to the recognized as an expense
recognition of rent income, over the lease term on the
or are recognized as an same basis as lease
expense in the statement of income. (IAS 17)
profit and loss in the period
in which they are incurred.
(*)Determining There is no such guidance. Arrangements that do not
whether an Payments under such take the legal form of a
arrangement arrangements are lease but fulfillment of
contains a lease recognized in accordance which is dependent on the
with the nature of expense use of specific assets and
incurred. which convey the rights to
use the assets are
accounted for as lease.
66
IFRS

(IFRIC 4)
(*)Evaluating the No specific guidance. If a series of transactions
Substance of involves the legal form of a
Transactions lease and can only be
Involving the understood with reference
Legal Form of a to the series as a whole,
Lease then the series is
accounted for as a single
transaction. (SIC 27)
(*)Service No specific guidance. Depending on the terms of
Concession the arrangement, a
Arrangements – financial asset is
recognition recognized where an
operator has the
unconditional right to
receive cash or other
financial asset from the
grantor over the life of the
arrangement. (IFRIC 12)

Earnings per share –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 20 – Earnings Per Share IAS 33 - Earnings per share

Basic EPS Basic earnings per share are An entity shall calculate
calculated by dividing the basic earnings per share
net profit or loss for the amounts for profit or loss
period attributable to equity attributable to ordinary
shareholders by the equity holders of the
weighted average number parent entity and, if
of equity shares outstanding presented, profit or loss
during the period. from continuing operations
attributable to those equity
holders.

Disclosure in AS 20 requires disclosure of IAS 33 permits that such


separate basic and diluted EPS disclosure be made only in
financial information both in the the consolidated financial
statements separate and consolidated statements of the parent
financial statements of the i.e. an entity being a
parent. parent who presents
consolidated financial
67
IFRS

statements may elect not


to make these disclosures
in its separate financial
statements.

(*)IAS 33, AS 20 does not require IAS 33 requires additional


Earnings per these disclosures. disclosures for EPS from
share - continuing and
disclosure discontinued operations.
Disclosure is also required
for instruments that could
potentially dilute basic
earnings per share in the
future, but were not
included in the calculation
of diluted earnings per
share because they are
anti-dilutive for the periods
presented.

IAS 33, Earnings The control number for The control number for
Per Share - determining dilution is net determining dilution is net
Extraordinary profit or loss from profit or loss from
items continuing ordinary continuing activities since
activities. EPS with and no item can be presented
without extraordinary items as extraordinary item.
is to be presented.

Consolidated Financial Statements –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 21 - Consolidated IAS 27 (2008) -
Financial Statements Consolidated and Separate
Financial Statements
SIC 12 Consolidation -
Special Purpose Entities
(*)Scope Indian GAAP does not A parent is required to
specify entities that are prepare consolidated
required to present financial statements to
consolidated financial consolidate all its
statements. subsidiaries.
A parent need not prepare

68
IFRS

consolidated financial
statements only if all the
following conditions are
met:
♦ the entity's debt or
equity instruments are
not traded in a public
market;
♦ the entity is not in a
process of filing its
financial statements for
the purposes of issuing
any class of instruments
in a public market; and
♦ any intermediate parent
of the entity produces
consolidated financial
statements available for
public use that comply
with IFRS’s.
Control Control is: Control is the power to
(a) the ownership, directly govern the financial and
or indirectly through operating policies of an
subsidiaries, of more than entity so as to obtain
one-half of the voting power benefits from its activities.
of an enterprise; or
(b) control of the
composition of the board of
directors in the case of a
company or of the
composition of the
corresponding governing
body so as to obtain
economic benefits from its
activities.
Potential voting Potential voting rights are The effect of potential
rights not considered in assessing voting rights that are
control. currently exercisable or
convertible, including
potential voting rights held
by another entity, are
considered when assessing
control.
Exclusion of Excluded from If on acquisition a
subsidiaries, consolidation, equity subsidiary meets the

69
IFRS

associates and accounting or proportionate criteria to be classified as


joint ventures consolidation if the held for sale in accordance
subsidiary was acquired with IFRS 5, it is included
with intent to dispose of in the consolidation but is
within twelve months or if it accounted for under that
operates under severe long- standard.
term restrictions which
significantly impair its ability
to transfer funds to the
parent.
Reporting dates The difference between the The difference between
reporting date of the the reporting date of the
subsidiary and that of the subsidiary and that of the
parent shall be no more parent shall be no more
than six months. than three months.
Accounting for Accounted at cost less Accounted either at cost
investments in impairment loss. less impairment loss or as
subsidiaries in available for sale with
separate changes in fair value
financial recognized in other
statements of comprehensive income.
the parent
(*)Goodwill Goodwill or capital reserve Goodwill or capital reserve
is determined on historical is determined on the basis
cost basis. of assets or liabilities
considered at their fair
value, amortization is also
provided.

Deferred Tax Asset –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 22 - Accounting for Taxes IAS 12 - Income Taxes
on Income
Guidance Note on SIC 21 - Income Taxes -
Accounting for Fringe Recovery of Revalued Non-
Benefits Tax Depreciable Assets

SIC 25 - Income Taxes -


Changes in the Tax Status
of an Entity or its
Shareholders

Deferred income Deferred taxes are Deferred taxes are


70
IFRS

taxes computed for timing computed for temporary


differences in respect of differences between the
recognition of items of profit carrying amount of an
or loss for the purposes of asset or liability in the
financial reporting and for statement of financial
income taxes. position and its tax base.

Recognition of Deferred taxes are generally Deferred income taxes are


deferred tax recognized for all timing recognized for all
assets and differences. temporary differences
liabilities between accounting and
tax base of assets and
liabilities.
(*)Recognition of No specific guidance in AS Current tax and deferred
taxes on items 22 tax is recognized outside
recognized in profit or loss if the tax
other relates to items that are
comprehensive recognized in the same or
income or a different period, outside
directly in equity profit or loss. Therefore the
tax on items recognized in
other comprehensive
income or directly in
equity, is also recorded in
other comprehensive
income or in equity, as
appropriate.
Recognition of Deferred tax asset for Deferred tax asset is
deferred tax unused tax losses and recognized for carry
assets unabsorbed depreciation is forward unused tax losses
recognized only to the and unused tax credits to
extent that there is virtual the extent that it is
certainty supported by probable that future
convincing evidence that taxable profit will be
sufficient future taxable available against which the
income will be available unused tax losses and tax
against which such deferred credits can be utilized.
tax assets can be realized.
(*)Deferred tax No specific guidance. If the potential benefit of
business the acquiree's income tax
combinations loss carry-forwards or
other deferred tax assets
did not satisfy the criteria
in IFRS 3 for separate
recognition when the
business combination was
71
IFRS

initially accounted but if


such benefit is
subsequently recognized,
goodwill is reduced to
record pre-acquisition
deferred tax assets which
are recognized within 12
months of the acquisition
date as result of new
information on facts and
circumstances that existed
on the acquisition date.
Classification Deferred tax assets are to Always classified as non-
be disclosed on the face of current, if current and non-
the balance sheet current classification is
separately after the head presented.
'Investments'. Deferred tax
liabilities are to be disclosed
after the head 'Unsecured
Loans'.
(*)Disclosure No such requirement. Reconciliation is presented
between the income tax
expense (income) reported
and the product of
accounting profit
multiplied by the
applicable tax rate.
Unrecognized deferred tax
liability on undistributed
earnings of subsidiaries,
branches, associates and
joint ventures.
Fringe Benefit Fringe benefit tax is to be Does not meet definition of
tax disclosed as a separate item income taxes and is
after determining profit reported as part of the
before tax for the period in underlying expense.
which the related fringe
benefits are recognized.
(*)SIC 21, No specific guidance. Measurement of deferred
Recovery of tax liability or asset arising
Revalued Non- from revaluation is based
Depreciable on the tax consequences
Assets from the sale of asset
rather than through use.
(*)SIC 25, No specific guidance. Current and deferred tax
Changes in Tax consequences are included
72
IFRS

Status of an in the profit or loss of the


Entity or its period of change unless
Shareholders the consequences relate to
transactions or events
recognized outside profit
or loss either in other
comprehensive income or
directly in equity in the
same or a different period.

Investments in Associates –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 23 - Accounting for IAS 28 - Investments in
Investments in Associates in Associates
Consolidated Financial
Statements

Significant Potential voting rights are The existence and effect of


influence not considered in assessing potential voting rights that
significant influence. are currently exercisable
or convertible are
considered when assessing
significant influence.

Scope Currently there is no Investments by venture


exemption for investments capital organizations,
made by venture capital mutual funds, unit trusts
organizations, mutual funds, and similar entities
unit trusts and similar including investment-
entities from applying equity linked insurance funds are
method. exempted from applying
equity method, if an
election is made to
measure such investments
at fair value through profit
or loss under IAS 39.
Accounting In Equity method. Similar but if the reporting
The If the reporting entity does entity does not prepare
Consolidated not have subsidiaries but consolidated financial
Financial has an associate, it would statements because it has
Statements not be required to prepare no subsidiaries, its
consolidated financial associates should be
statements. equity accounted.
73
IFRS

(*)Capital Capital reserve arising on Negative goodwill is


Reserve/Negativ the acquisition of an excluded from the carrying
e Goodwill associate by an investor amount of investment and
should be included in the is included as income in
carrying amount of determination of the
investment in the associate investor's share of
but should be disclosed associate's profit or loss.
separately.
Separate At cost less impairment loss. Either at cost or at fair
Financial value as available for sale
Statement Of with changes in fair value
The Investor recognized in other
comprehensive income.

Discontinuing Operations –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 24 - Discontinuing IFRS 5 - Non-current assets
Operations held for sale and
discontinued operations

(*)Classification An operation is classified as An operation is classified


discontinuing at the earlier as discontinued when it
of (a) binding sale has either been disposed
agreement for sale of the of or is classified as held
operation and (b) on for sale.
approval by the board of
directors of a detailed
formal plan and
announcement of the plan.

Interim Financial Reporting –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 25 - Interim Financial IAS 34 - Interim Financial
Reporting Reporting. Similar and
there are no material
differences between two
standards.

74
IFRS

(*)Compliance Condensed Balance Sheet, Similar but Condensed


with Condensed Income Statement of Changes in
requirements of Statement, Condensed Cash Equity is required.
law, etc. Flow, Explanatory Notes and
disclosures like EPS etc. is
required.

(*)Minimum A statute governing an Does not recognize law/


content of entity or a regulator may regulator prescribing
Interim financial require an entity to prepare format of financial
reporting and present certain statements.
information at an interim
date, which may be different
in form and /or content as
required by AS 25.

Intangible Assets –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 26 - Intangible Assets IAS 36 – Impairment of
Assets

IAS 38 – Intangible Assets

Measurement Measured only at cost. Intangible assets can be


measured at either cost or
revalued amounts.

Useful life Intangible assets are Useful life may be finite or


amortized over their useful indefinite.
life or five years whichever
is lower.

Annual Intangible assets are Goodwill and indefinite life


impairment test amortized over their useful intangible assets are
for goodwill and life or five years whichever required to be tested for
intangibles is lower to be assessed for impairment at least on an
impairment at least at each annual basis or earlier if
financial year end. there is an impairment
indication.
75
IFRS

Standards followed On transition to IFRS


Particulars under Indian GAAP
Standard AS 27 - Financial Reporting IAS 31 – Interests in Joint
of Interests in Joint Ventures Ventures

SIC 13 - Jointly Controlled


Entities - Non-Monetary
Contributions by Venturers
IAS 31, Interests At cost less impairment loss. Either at cost or at fair
in Joint Ventures value as available for sale
– separate investment with changes
financial in fair value recognized as
statement of the a component of
venture comprehensive income.
IAS 31, Interests At cost less impairment if If the reporting entity does
in Joint Ventures consolidated financial not prepare consolidated
– consolidated statements are not financial statements
financial prepared. because it has no
statements subsidiaries, its jointly
controlled entities should
be either proportionately
consolidated or equity
accounted.
IAS 31, Interests Equity method accounting is Investments in jointly
in Joint Ventures not permitted. controlled entities can be
– alternative proportionately
accounting consolidated or equity
methods. accounted by the venturer.
IAS 31, Interests There is no such exemption. IAS 31 is not applicable for
in Joint Ventures investments made by
- other venture capital
arrangements organisations, mutual
funds, unit trusts and
similar entities including
investment-linked
insurance funds that upon
initial recognition are
classified as at fair value
through profit or loss
under IAS 39.

SIC 13 - Non- No specific guidance. Recognition of


Monetary proportionate share of
Contributions by gains or losses on
76
IFRS

Ventures contributions of non-


monetary assets in
exchange for an equity
interest is generally
appropriate.

Impairment of Assets –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 28 - Impairment of IAS 36 – Impairment of
Assets Assets

IFRIC 10 – Interim
Reporting and Impairment
Goodwill Uses "bottom-up/ top-down" Allocated to cash
approach under which the generating units that are
goodwill is, in effect, tested expected to benefit from
for impairment by allocating the synergies of business
its carrying amount to each combination.
cash-generating unit to Allocated to the lowest
which portion of that level at which goodwill is
carrying amount can be internally monitored by
allocated on reasonable management, which
and consistent basis. should be larger than an
operating segment.
(*)IFRIC 10, No corresponding Where an entity has
Interim pronouncement to IFRIC 10. recognized an impairment
Reporting and loss in an interim period in
Impairment respect of goodwill or an
investment in either an
equity instrument or a
financial asset carried at
cost, that impairment is
not reversed in subsequent
interim financial
statements nor in annual
financial statements.

Provisions, Contingent Assets and Contingent Liabilities –

Particulars Standards followed On transition to IFRS


under Indian GAAP
Standard AS 29 - Provisions, IAS 37 - Provisions,
77
IFRS

Contingent Liabilities and Contingent Liabilities and


Contingent Assets Contingent Assets

IFRIC 1 – Changes in
Existing Decommissioning,
Restoration and Similar
Liabilities

IFRIC 5 - Rights to Interests


arising from
Decommissioning,
Restoration and
Environmental Funds

IFRIC 6 - Liabilities arising


from Participating in a
Specific Market – Waste
Electrical and Electronic
Equipment
Recognition of Provisions involving a No change.
provisions substantial degree of
estimation in measurement
are recognized when there
is a present obligation as a
result of past events and it
is probable that there will be
an outflow of resources.

(*)IFRIC 1, No specific guidance. Provisions are adjusted for


Changes in changes in the amount or
Existing timing of future costs and
Decommissionin for changes in market-
g, Restoration based discount rates.
and Similar
Liabilities
(*)IFRIC 5, No specific guidance. Deals with the accounting
Rights to in the financial statements
Interests arising of the contributor for
from interests in
Decommissionin decommissioning,
g, Restoration restoration and
and environmental
Environmental rehabilitation funds
Funds established to fund some
or all of the costs of
78
IFRS

decommissioning assets or
to undertake
environmental
rehabilitation.

(*)IFRIC 6, No specific guidance. Provides guidance for


Liabilities arising liabilities for waste
from management costs and
Participating in a requires recognition of an
Specific Market - obligation to contribute to
Waste Electrical the costs of disposing of
and Electronic waste equipment based on
Equipment the entity's share of
market in the
measurement period.
(*)Contingent Contingent assets are not Contingent assets are
assets disclosed in the financial disclosed in the financial
statements. statements where an
inflow of economic benefits
is probable.

(*)Restructuring Requires recognition based IAS 37 requires


cost on general recognition provisions on the basis of
criteria for provisions i.e. constructive obligations.
when the entity has a A constructive obligation
present obligation as a to restructure arises only
result of past event and the when an entity has a
liability is considered detailed formal plan for
probable and can be reliably the restructuring and has
estimated. raised a valid expectation
in those affected that it
will carry out the
restructuring by starting
to implement that plan or
announcing its main
features to those affected
by it.

New standards AS 30, AS 31 and AS 32 are recently being proposed


by Indian GAAP
Financial Instruments: Recognition and Measurement –

Particulars Indian GAAP On transition to IFRS


79
IFRS

Standard AS 30 - Financial IAS 39 - Financial


Instruments: Recognition Instruments: Recognition
and Measurement and Measurement

IFRIC 9 - Reassessment of
Embedded Derivatives
General There is no definition of All financial assets,
Recognition financial instrument. financial liabilities and
Principle Currently, derivatives are derivatives are recognized
not required to be in the statement of
recognized in the balance financial position when
sheet except for certain these meet the definition
forward exchange contracts and recognition criteria of a
within the scope of AS 11. financial instrument.

A financial instrument is a
contract that gives rise to a
financial asset in one entity
and a financial liability or
equity in another entity.
Derivatives and No equivalent standard on Measured at fair value.
embedded derivatives.
derivatives
Derivatives and No equivalent standard on Hedge accounting
hedge derivatives. (recognizing the offsetting
accounting effects of fair value
changes of both the
hedging instrument and the
hedged item in the same
period's profit or loss) is
permitted in certain
circumstances, provided
that the hedging
relationship is clearly
defined, measurable, and
actually effective.

IAS 39 provides for three


types of hedges:
• fair value hedge: if an
entity hedges a change
in fair value of a
recognized asset or
liability or firm
commitment, the
change in fair values of
80
IFRS

both the hedging


instrument and the
hedged item are
recognized in profit or
loss when they occur;

• cash flow hedge: if an


entity hedges changes in
the future cash flows
relating to a recognized
asset or liability or a
highly probable forecast
transaction, then the
change in fair value of
the hedging instrument
is recognized in other
comprehensive income
until such time as those
future cash flows occur.
The ineffective portion of
the gain or loss on the
hedging instrument is
recognized in profit or
loss in the period of such
change; and

• hedge of a net
investment in a foreign
entity: this is treated as
a cash flow hedge.
A hedge of foreign currency
risk in a firm commitment
may be accounted for as a
fair value hedge or as a
cash flow hedge.

Derecognition of No specific guidance on Financial liabilities are


financial derecognition of financial derecognized only when
liabilities liabilities, the obligation specified in
the contract is discharged
or cancelled or have
expired.

81
IFRS

Financial Instruments Presentation–

Particulars Indian GAAP On transition to IFRS


Standard AS 31 - Financial IAS 32 - Financial
Instruments: Presentation Instruments: Presentation

Classification Of Capital instruments are Capital instruments are


Financial classified based on legal classified as liability or
Liabilities form - redeemable equity depending on the
preference shares will be issuer's contractual
classified as equity. obligation to deliver cash or
other financial asset, for
example redeemable
preference shares will be
classified as financial
liability.

Treasury Shares Acquiring own shares is If an entity reacquires its


permitted only in limited own shares (treasury
circumstances. Shares shares), these are shown as
repurchased should be deduction from equity.
cancelled immediately and
cannot be held as treasury
shares.

Offsetting There are no offset rules. Financial asset and


financial liability can only
be offset if the entity has a
legally enforceable right to
set off the recognized
amounts and intends to
either settle on a net basis,
or to realize the asset and
settle the liability
simultaneously.

Classification of Currently, the entire Split the instrument in


Convertible instrument is classified as liability and equity
Debts debt based on its legal form component at issuance.
and any interest expense is
recognized based on the
coupon rate.

82
IFRS

IFRS IMPLEMENTATION AT NACIL---ANALYSIS

Introduction of NACIL –
National Aviation Company of India Limited (NACIL) is a Government
Company within the meaning of Section 617 of the Companies Act, 1956 and
is under the administrative control of the Ministry of Civil Aviation. National
Aviation Company of India Limited has been established as a Government
Company to be engaged in the business as an airline for providing air
transport and allied services. This Scheme proposes the amalgamation of AI
and IA in the Transferee Company, which would result in consolidation of the
business of all in one entity (i.e. National Aviation Company of India Limited,
the Transferee Company).
AIR INDIA Limited (“AI” or the “Transferor No 1 Company”) is a Company
incorporated under the Companies Act, 1956, having its registered office at
Air India Ltd, 3rd Floor, Tower-II, Jeevan Bharati, 124, Connaught Circus, New
Delhi - 110 001. AI is a Government Company, within the meaning of Section
617 of the Companies Act, 1956 and is under the administrative control of
the Ministry of Civil Aviation, Government of India. AI is an unlisted Company.
AI is primarily engaged in the business as an airline for providing air transport
and allied services.
Indian Airlines Limited (“IA” or the “Transferor No 2 Company”) is a public
company registered under the Companies Act, 1956 and having its registered
office at 113, Gurudwara Rakabganj Road, New Delhi 110 001. IA is a
Government Company within the meaning of Section 617 of the Companies
Act, 1956 and is under the administrative control of the Ministry of Civil
Aviation. IA is an unlisted company. IA is primarily engaged in the business as
an airline for providing air transport and allied services.
National Aviation Company of India Limited (the Transferee Company) is a
Company incorporated under the Companies Act1956, having its registered
office at Airlines House, 113 Gurudwara Rakabganj Road, New Delhi 110 001.
83
IFRS

PROFILE OF FINANCE DEPARTMENT OF NACIL (I) -


The present competitive environment of business has put the focus on
availability of finance for an operation of the company and as such Finance
department plays a major role in growth and survival of the company.
The Finance department has become an integral part of the management
decision making process for planning, organizing & implementing operations
of the company. Finance department has to analyze the past & current
data/performances/trends to forecast future planning.
One of the main activities of Finance besides sourcing of finance for
operations is to relate the entire activity of the airlines into financial terms
and relate expenditure into its category and recognize revenue. By booking
the revenue and expenditure into appropriate heads the finance department
has to describe the company. The Balance Sheet & a Profit & Loss a/c duly
audited has to be prepared as on March 31st every year.
ROLE OF FINANCE DEPARTMENT IN NACIL (I) -
 Management of Financial Resources
 Planning & Budgetary Control
 Advisory Functions
 Financial Scrutiny and Checks
 Maintain Financial & Cost Accounts
 Analysis of various costs and submitting reports.

OBJECTIVES OF FINANCE DEPARTMENT -


 Submitting the Regional Profit & Loss a/c & Balance Sheet as on 31st
March every year.
 Ensuring Compliance of Statutory laws - Taxation/Accounting
standards.
 Ensuring audit of Annual accounts & Dealing with Statutory
Auditors/Government Auditors/ Internal auditors.

84
IFRS

 Preparing yearly Revenue Budget & Capital Budget of the Region.


 Advisory role to the Regional Director in financial matters.
 Conveying financial sanctions, analysis of financial data/and also as a
Finance nominee in various contracts.

ACCOUNTING SYSTEM OF WESTERN REGION IN NACIL -


The accounting at Western Region can be divided into:
1. Expenditure Accounting including Non-traffic revenue.
2. Foreign Station Accounting
3. Revenue Accounting
I] Expenditure Divisions:
 Expenditure on aircraft fuel, insurance, aircraft spares, aircraft loan
interest payments are taken care at headquarters.
 All other expenditures viz. Salaries, staff payments, landing, housing,
parking to AAI(Airport Authority of India), maintenance of aircraft,
outside repairs are taken care at regions.

Expenditure Division is further divided into different sections as under:


1. Stores Accounting: Dealing with transactions routed through Stores
department by means of Purchase Orders. Further Divided into :
a. Foreign Accounting: Dealing with receipt and dispatch of goods
monitored by Purchase/Repair orders in respect of aircraft items
imported from foreign vendors. The payments advices received from
headquarters through Debit/Credit notes are linked to GRAN by this
section. Accounting of all foreign transactions related to store
expenditure is done by this section along with reconciliation of stock
accounts, accounting of duty, freight, and export freight are carried
out.
b. Local Purchase: Dealing with receipt, dispatch and payment of
Local Purchase transactions routed through

85
IFRS

Purchase/Repair/Maintenance orders. Accountings of transactions


into respective accounts along with reconciliation of Stock accounts
are being done.
c. Costing section: Raising of Bills in respect of jobs undertaken for
Outside parties, Loan items, and monitoring expenditure related to
accident jobs undertaken on aircraft work orders. Plus accounting
for Material issues and preparation of six monthly Cost statements
like Labor Utilization, Material costs.

2. Bill Passing Division: Deals with payments of Contractual nature and


Staff claims including medical bills:
a. Outside Party payments: Payments like Catering bills, Crew
Accommodation bills, paying of AAI charges like Landing,
Navigation, Parking, License Fees, Rentals, Property Taxes,
Electricity, Water, Telephone, Canteen , Hire of Transport, etc. which
are being done by scrutiny, certification etc. Also deals with raising
of bills on Other Operators for handling services rendered. Also
deals with imprest accounting of cash floats given to different
locations/stations.
b. Staff Claims: Traveling allowances, Claims for meals, conveyances,
and settlement of all medical bills, CFMS claims, and Hospitalization
bills of serving/retired personnel.

3. Pay-Rolls: Deals with salary processing of the Western Region staff by


means of change advices in respect of any change in the salary quantum
of each staff. The section is divided into category wise reporting of the
salary. Also deals with Income-tax matters of staff like declarations,
payments of tax deducted to Income Tax department. Have regionally
implemented the salary processing and printing of pay slips of the staff.

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IFRS

A Final settlement section deals with all payments/recoveries of staff


that cease to be in service. Payment of Gratuity, Provident Fund, and
Encashment of Leave etc in respect of cess staff is done by the section.
Also deals with the monitoring of Loans granted to any employee by the
company.

4. Cash & Bank: Headquarters makes periodical transfer to the


Disbursement account through which the payments of
cheques/withdrawals of cash are made. Processing of all payments by
cheques to outside parties, cash payments towards staff claims, salary
payments. Monitoring of cash/bank balances at base and at different
locations. Has implemented the Electronic Clearing system for clearances
of salary.

5. Finance & Budget: To draw the yearly Trial Balance, Balance-sheet as


per Corporation format, Schedule VI format and getting the same audited.
Monitoring of sanctions conveyed for various expenditure, Deals also with
settlement of Civil Engineering bills of various projects. Also deals with
settlements of baggage/cargo claims of passengers, coverage of
insurance in respect of cash/staff etc. Provide for depreciation of assets of
Western region. Reconciliation of all assets with stores ledger. Have
adopted a customized computerized system of financial accounting
package for their work.

Miscellaneous:
Besides, finance nominees are in various tender committees constitutes a
part of regular committees for Stores tender & Civil tenders. Finance also
deals with various mandatory agencies & authorities like Income tax, Sales
tax, Service tax, Government auditors, statutory auditors, Tax auditors, PF
auditors etc.

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IFRS

II] Foreign Station Accounting -


 Established in Western Region to cater to the needs of Foreign Stations
under the region.
 Gulf region accounting is done in Western Region.

At present, the following stations in Gulf with NACIL (I) are managed through
GSA (General Sales Agency):
Sr. Station GSA
No.
1 UAE (SHJ, DXB, FUJ, RAS) M/s. Arabian Travel Agency Ltd.
2 Muscat – Oman M/s. National Travel & Tourism
3 Bahrain M/s. Dadabhai Travel
4 Kuwait M/s. House of Travel
5 Riyadh – Kingdom of Saudi M/s. Naba Tourism & Transport Co.
Arabia Ltd.

In Israel (off-line station), we have M/s.Turbo Tourism & Aviation Ltd. as


Passenger Sales Agent.

PAYMENTS:
a. GSA makes all payments in the Station on the approval of Country
Manager/Accounts Manager out of Revenue collection at the station.
b. The Statement for Payments along with supporting Bills/vouchers is
forwarded by GSA to the Regional Office on monthly basis except Kuwait
where the Reports are prepared on fortnightly basis.
c. On scrutiny of the payments accounting action is taken at the Regional
Finance Dept. and entries are booked in INR.
d. Debit Notes are raised in respect of the following payments-
i. Fuel- Debit Note is forwarded to headquarters on monthly basis.
ii. Advance to Cabin crew/ Engineers, technician- amount paid to
staff from other Region is debited to concerned Region through
Debit Notes.

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IFRS

iii. Local Taxes-Debit Note is forwarded to CRA.


e. The major heads of account are -Hotel Accommodation, Traveling
Advance, Fuel, Airport Taxes, Reimbursement of out of pocket expenses to
Flying Crew, Sales Promotion, Publicity, Food Service (Cabin Crew, Cockpit
Crew), Meal to Passenger, Handling Expenses, Landing Fees, Navigation
Charges, Salary, Hire of Transport, Conveyance, Housing & Parking Fee,
Telephone etc.

The above mentioned accounts are reflected in Regional Trial Balance, Profit
and Loss Statement & Balance-Sheet. In case it is proposed to have Regional
Trial Balance for Gulf including NACIL (A), the above accounting procedure
needs to be followed in respect of accounts maintained by NACIL (A) at
respective stations.

III] Revenue Accounting -


i. Revenue collections of these stations (including agents) are sent to
headquarters on day to day basis.
ii. Central revenue accounts (CRA) situated at headquarters compile the
various revenue collections of all stations and work out the revenue of the
company.
iii. Other revenue viz. handling, outside party works etc are accounted for at
the regions.
Types of Revenue in NACIL (I):
 Traffic - passenger, excess baggage, freight, mail, charter and
aircraft lease.
 Incidental - handling, outside party repair, Cancellation fee and
Commission
 Non-operating – Bank interest, sale of surplus assets
Sections in Revenue Department -
 Outstation Screening

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IFRS

 Station Accounts
 Bills Receivables
 Agency Section
 Cargo Agency

1. Outstation Screening
• Screening, cross-checking and verifying all revenue documents
reported at Outstations
• Maintenance of CVD control statement at outstations &
reconciliation.
• Dispatch of documents to EDP/CRA.
• Raising debit notes for short collection/billing.

2. Station Accounts
• Independent accounting unit set up at all stations in the NACIL
network to service the agents and direct sales.
• Reports the sales in appropriate forms and deposits the collection
in banks.
• Meeting the petty cash expenditure.
• Station Debit Recovery.
• Various activities :
- Issuing CVDs, receiving F/N sales reports.
- Realization of dues and verifying stock statement.
- Dispatch of reports to ARD/CRA.

3. Bills Receivables
• Screening & cross-checking of bills & invoices through EDP
• Controlling & Accounting of Credit Sales

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IFRS

• Dispatch of bills
• Billing & Accounting of charter revenue
• Controlling & Accounting of to-pay transactions
• Compilation of various reports.
4. Agency
Agency is a retailer of travel and related products. Whilst this refers to the
sales person employed to sell travel products, the term is often applied in
reference to the business that is established to sell travel products (the travel
agency).
Agency means a person / group of persons / body who is an interface
between the customer and the airlines by selling the airlines product i.e.
Space. In airlines the space sold is in form of passenger seats or cargo space.
Today almost 85% of the sales of passenger tickets of NACIL (I) are through
agents. As such agency accounting forms a very important function.

5. Cargo Revenue
Cargo sales are generated from different Airports and through Agents.
Cargo sales of Airport are being accounted at CRA. ARD reports for sales
generated through agents and their realization to CRA. The cargo system
has been automated through which automated Airway Bills are generated
through system developed by M/s. Kale Consultancy. It provides airlines
with full financial control and automation of their revenue accounting
process. It delivers business value by helping to maximize revenue,
minimize costs, and shorten the time span to billing, thereby enabling
increased cash flow.

STEPS FOR TRANSITION TO IFRS FOR NACIL


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IFRS

IFRS -1 (First-Time Adoption of IFRS)


IFRS 1, First Time Adoption of International Financial Reporting
Standards is the guidance that is applied during preparation of a company’s
first IFRS-based financial statements. NACIL need to apply IFRS 1 when they
transition from Indian GAAP to IFRS and prepare their first IFRS-based
financial statements.
The date of transition to IFRS is defined as the “the beginning of the
earliest period for which an entity presents full comparative information
under IFRS in its first IFRS financial statements”. A first-time adopter is
required to prepare an opening balance sheet at the date of transition. This
opening balance sheet is prepared in accordance with IFRS 1, including the
general principle of retrospective application, the optional exemptions and
mandatory exceptions. The opening IFRS balance sheet need not be
published as part of the first IFRS financial statements; however it is used as
a basis for preparation of those financial statements.
The following timetable illustrates first-time adoption of IFRS in 2010 for
financial year where comparative statements is prepared for one year –

Opening IFRS Balance Sheet Approach

2010 2011 2012

Time
01.04.2010 31.03.2011 31.03.2012
01.04.2010

Previous Indian Reporting Date


Date of
GAAP Reporting
Transition
to IFRS

First IFRS with IFRS


comparatives for
2011
In short, the entity’s first IFRS financial statements shall include at least three
statements of financial position, two statements of comprehensive income,
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IFRS

two separate income statements (if presented), two statements of cash flows
and two statements of changes in equity and related notes, including
comparative information.
A first time adopter of IFRS is required to comply with all IFRS standards
effective at the reporting date with preparation of opening balance sheet in
accordance with the provisions of IFRS 1. A first-time adopter is required to:
 Recognize all assets and liabilities whose recognition is required by
IFRS;
 Not recognize items as assets and liabilities if IFRS does not permit
such recognition;
 Reclassify items recognized under previous GAAP as one type of asset,
liability or component of equity, but are a different type of asset,
liability or component of equity under IFRS; and
 Apply IFRS in measuring all recognized assets and liabilities.

All IFRS presentation and disclosure requirements shall be fulfilled in the


first IFRS financial statements. In particular, some of the standards, which
may have a significant impact on an entity’s presentation and disclosure
requirements, are;
 IAS 14 Segment Reporting,
 IAS 19 Employee Benefits,
 IAS 32 Financial Instruments,
 IAS 33 Earnings per Share,
 IAS 36 Impairment of Assets,
 IAS 38 Intangible Assets,
 IFRS 2 Share-based Payment,
 IFRS 3 Business Combinations, and
 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

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IFRS

Optional exemptions
In a number of areas, retrospective application of IFRS will require
significant resources and may in certain situations be impracticable. IFRS 1
therefore provides ten optional exemptions to the general principle of
retrospective application. As these exemptions are optional, entities may
change their accounting policies retrospectively in these areas if they
desire, provided that they are able to calculate the effects reliably.
An entity that elects to apply one of the below exemptions is not required to
apply any or all of the other exemptions. Analogous application of the above
exemptions to other areas is not permitted.

 Business combinations
An entity may apply IFRS 3 to business combinations prior to the date of
transition provided that it obtained the information necessary to apply IFRS
3 at the date of the business combination. Business combinations before the
date from which IFRS 3 are applied are accounted for in accordance with
IFRS 1, Appendix B2. Assets and liabilities acquired in a business
combination shall be recognized and measured in the opening balance
sheet in accordance with IFRS. Goodwill written off against equity under
Indian GAAP shall neither be recognized as an asset in the opening IFRS
balance sheet nor included in the gain or loss on subsequent disposal or
impairment of the subsidiary that gave rise to it.

 Fair value or revaluation as deemed cost


A first-time adopter may elect to measure individual items of property, plant
and equipment at fair value at the date of transition to IFRS. Fair value is
then deemed cost at that date. Deemed cost is an amount used as a
surrogate for cost or depreciated cost at a given date.
Deemed cost forms the basis for the cost of the asset under IFRS at the date
the valuation was performed and not the date of transition. Depreciation
under IFRS is determined from the date deemed cost is applied up until the
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IFRS

date of transition. An adjustment is recognized in retained earnings if the


amount recognized under Indian GAAP is materially different to the amount
that would have been recognized under IFRS.

 Employee benefits
Under IAS 19 Employee Benefits, pension plans are classified as either
defined contribution plans or defined benefit plans. Accounting for defined
benefit plans is significantly more complex than for defined contribution
plans. Provisions for defined benefit plans are calculated on the basis of a
number of actuarial assumptions, and cumulative actuarial gains and losses
are recognized in accordance with IAS 19. IFRS 1 requires that the entity
identify all defined benefit plans and compares Indian GAAP with IAS 19. Any
changes in applied accounting policies are made retrospectively except for
an optional exemption concerning actuarial gains and losses and the
accumulated effect of the changes is taken to equity in the opening balance
sheet.

Cumulative translation differences


On translation of a foreign operation in accordance with IAS 21 The Effects
of Changes in Foreign Exchange Rates, certain exchange differences are
recognized as a separate component of equity as well as requires to
disclose reconciliation of the opening and closing balances. Under IFRS 1 a
first-time adopter may elect not to calculate this translation difference
retrospectively and thereby set corresponding translation differences at the
date of transition, determined in accordance with previous GAAP, to zero.
The gain or loss on subsequent disposal of a foreign operation then includes
only foreign exchange differences that arose subsequent to the date of
transition.

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IFRS

Compound financial instruments


The general principle in IFRS 1 requires a first-time adopter to apply IAS 32
retrospectively and separate all compound financial instruments into a debt
and equity portion. The classification of the components is based on
conditions that existed at the date when the instrument first satisfied the
criteria for recognition in IAS 32 without considering events subsequent to
that date. If the liability component is no longer outstanding at the date of
transition, retrospective application of IAS 32 results in two categories of
equity, the cumulative interest in retained earnings and the original equity
component.

Assets and liabilities of subsidiaries


If a subsidiary makes the transition to IFRS at a later point in time than its
parent, the subsidiary may in its own opening IFRS balance sheet continue
with the same carrying amounts that are used in the parent's consolidated
financial statements before any consolidation adjustments. Alternatively,
the subsidiary itself may choose to apply IFRS 1 at its date of transition.
A similar election is available to an associate or joint venture that becomes
a first-time adopter later than an entity that has significant influence or joint
control over it. The associate or joint venture may then continue with the
same carrying amounts that were used as a reporting basis under IFRS by
the entity that has significant influence or joint control over it.

Designation of previously recognized financial instruments


IAS 39 Financial Instruments: Recognition and Measurement permits an
entity to designate a financial asset or financial liability as at fair value
through profit or loss or as available-for-sale. Despite this requirement, IFRS
1 permits a first-time adopter, at the date of transition, to designate a
financial asset or financial liability as at fair value through profit or loss or as
available-for-sale. The basis for this exemption is that a first-time adopter
applied previous GAAP at the date of initial recognition and would therefore
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IFRS

not have been able to take advantage of the election, which was available
to entities already reporting under IFRS. If an entity uses this exemption it
shall disclose certain information.

Share-based payments
A first-time adopter has an option not to apply IFRS 2 Share-based Payment
retrospectively to equity instruments (equity-settled transactions) granted
on or before 7 November 2002. IFRS 1 provides an additional exemption
from retrospective application of IFRS 2 for equity instruments that were
granted after 7 November 2002 and that vested before the later of (a) the
date of transition and (b) 1 January 2005. If a first-time adopter elects to
apply the exemption it is nevertheless required to disclose information that
enables users of the financial statements to understand the nature and
extent of share-based payment arrangements that existed during the
reporting and comparative periods.

Insurance contracts
In contrast to the general principle of IFRS 1, an entity issuing insurance
contracts (insurer) may elect on first-time adoption to apply the transitional
provisions of IFRS 4 Insurance Contracts. These transitional provisions
require an insurer to apply IFRS 4 prospectively for reporting periods
beginning on or after 1 January 2005 with optional earlier application.

Changes in existing decommissioning, restoration and similar


liabilities
In terms of IFRIC 1 Changes in Existing Decommissioning, Restoration and
Similar Liabilities, changes in the estimated timing or amount of the outflow
of resources embodying economic benefits required to settle an existing
decommissioning, restoration or similar liability, or a change in the discount
rate, shall be added to, or deducted from, the cost of the related asset. The
adjusted depreciable amount of the asset is depreciated prospectively over
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IFRS

its remaining useful life. For a first-time adopter, retrospective application


of these requirements would require an entity to construct an historical
record of all such adjustments that would have been made in the past,
which in many cases will not be practicable.

Mandatory exceptions
IFRS 1 contains four mandatory exceptions to the general principle of
retrospective application.

Derecognition of financial assets and financial liabilities


Financial assets and liabilities shall be recognized and measured in the
opening IFRS balance sheet in accordance with the version of IAS 39 that is
effective on the reporting date. However, a first-time adopter may elect to
apply the IAS 39 derecognition requirements retrospectively from an earlier
date provided that the information required to do so was obtained at the
time of initial accounting for the transaction.

Hedge accounting
A first-time adopter is required in its opening IFRS balance sheet, to:
Measure all derivatives at fair value; and
Eliminate all deferred gains and losses arising on derivatives that were
reported under previous GAAP as assets and liabilities.
In terms of IAS 39 a hedging relationship only qualifies for hedge accounting
if a number of restrictive criteria are satisfied, including appropriate
designation and documentation of effectiveness at inception of the hedge
and subsequently. As a result, in order for a hedging relationship to qualify
for hedge accounting at the date of transition, the hedging relationship must
have been fully designated and documented as effective in accordance with
IAS 39 at the date of the transaction
A first-time adopter may under previous GAAP have deferred or not
recognized gains and losses on a designated fair value hedge of a hedged
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IFRS

item that is not measured at fair value. In that case the hedged item is
adjusted in accordance with the implementation guidance to IFRS 1. If the
forecast transaction is not highly probable, but is still expected to occur, the
entire deferred gain or loss is recognized in equity.

Accounting estimates
Accounting estimates required under IFRS that were made under previous
GAAP are not adjusted except for differences in accounting policies or
unless there is objective evidence that they were in error. When restating
the opening IFRS balance sheet, the entity may have information available
that was not available at the time the estimate was made. The primary
objective of this exception is to prevent entities from adjusting estimates
that were made, based on the circumstances and information available at a
particular date, with the benefit of hindsight. An estimate required under
IFRS that was not required under previous GAAP should reflect conditions
that exist at the date of transition. In particular, estimates of market prices,
interest rates or foreign exchange rates shall reflect market conditions at
the date of transition.

Assets classified as held for sale and discontinued operations


Retrospective application of IFRS 5 requires an entity to reverse
depreciation on non-current assets classified as held for sale from the date
those assets satisfied the held for sale criteria. However, an entity that has
a date of transition prior to 1 January 2005 shall not reverse previous
depreciation of non-current assets classified as held for sale because it
applies IFRS 5 prospectively in accordance with the transitional provisions of
IFRS 5.

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IFRS

The transitional provisions of IFRS 5 require prospective application from 1


January 2005. However, if the valuation and other information needed to
apply IFRS 5 retrospectively was obtained at the time the non-current assets
originally met the criteria to be classified as held for sale, an entity may
select an earlier date from which IFRS 5 is applied prospectively.

 Presentation and disclosure requirements:


The first IFRS financial statements shall be presented in accordance with the
presentation and disclosure requirements in IAS 1 Presentation of Financial
Statements and the other standards and interpretations under IFRS.

A number of reconciliation between previous GAAP and IFRS are required in


the first IFRS financial statements. These include reconciliation of equity at
the date of transition and the beginning of the current reporting period as
well as of the net profit or loss for the comparative period as illustrated
below for an entity with a reporting date of 31 March 2010 disclosing one
year of comparatives. Furthermore, supplementary explanations necessary
for understanding the transition to IFRS are also required in the first IFRS
financial statements. The reconciliation shall distinguish between errors
made under previous GAAP (if any) and adjustments arising due to changes
in accounting policies.

 Interim reporting

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IFRS

IFRS does not require an entity to publish interim reports. If, during the
reporting period, the entity elects to prepare interim reports under IAS 34,
IFRS 1 requires a range of further information in the interim report, including
reconciliation between previous GAAP and IFRS as well as presentation of
restated comparative information in accordance with IAS 34.

Comparative information
To comply with IAS 1 an entity's first IFRS financial statements shall include
at least one year of comparative information under IFRS. If an entity elects
or is required to present more than one year of full comparative information
prepared in accordance with IFRS, the date of transition is the beginning of
the earliest period presented.
All comparative information subsequent to the date of transition is restated
and presented in accordance with IFRS. If an entity presents more than one
year of comparative information not in accordance with IFRS, the entity shall
a) label the previous GAAP information clearly and b) provide qualitative
disclosure of the nature of the main adjustments that would make the
information IFRS compliant.

Other disclosures required by IFRS 1


A first-time adopter is required to disclose the fair value and the
classification and carrying amount in the previous financial statements of
financial assets and financial liabilities that are designated either as at fair
value through profit or loss or as available-for-sale.
If the election to use fair value, revalued amount or an event driven value is
applied to an item of property, plant and equipment, investment property or
intangible asset, the following disclosure is required in the entity's first IFRS
financial statements:

 Aggregate of those fair values; and


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IFRS

 Aggregate adjustment to the carrying amounts reported under previous


GAAP.

 Indian GAAP-
Accounting principles should be consistent for financial information
presented in comparative financial statements. US GAAP does not give
specific guidance on first-time adoption of its accounting principles.
However, first-time adoption of Indian GAAP requires full retrospective
application. Some standards specify the transitional treatment upon first-
time application of a standard and specific rule for carve-out entities and
first-time preparation of financial statements for the public. There is no
requirement to present reconciliation of equity or income statement on
first-time adoption of Indian GAAP.

CONCLUSION
Though convergence with IFRS will improve the overall financial reporting
and transparency of companies and safeguard the interests of
stakeholders, there are various challenges which Indian Inc will have to
face while converging with IFRS. The major challenge is to train the staff
according to new accounting standards and to make sure that there is
proper mechanism for implementing such strategy. ICAI, ASB and
government have taken various steps and have drafted proper
implementation strategy to ensure effective and efficient convergence of
I-GAAP to IFRS.

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REFERENCES

BOOKS –
1. Taxmann’s “Student’s Guide to Accounting Standards” By D. S. Rawat
2. Paper on “Concept Paper on convergence with IFRSs in India” by Institute of Chartered
Accountants of India (ICAI)
3. Research report on IFRS by Delloitt
4. Research report on IFRS by KPMG

WEBSITES –
1. www.iasplus.com
2. www.caclubindia.com
3. www.wikipedia.com
4. www.feeismind.com
5. www.icai.org

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