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Sikkim – Maniple University of health, Medical and technological

science Distance Education wing, Syndicate House, Maniple – 576104




STANDARDS) & IT’S CONVERGENCE IN INDIA” submitted in partial

fulfillment of the requirement for the degree of Masters of Business

Administration to SIKKIM MANIPAL UNIVERSITY In India, is my original

work and not submitted for the award of any other degree, diploma,

fellowship, or any other similar title or prizes.




Registration No-



IT IS Certified that this project report titled, “ IFRS(International Financial

Reporting Standards) & It’s Convergence in India ” is the bona-fide work of
NAME ,registration Id ____,Who carried out the project work under my






Many students may have done work on this project in different ways/styles. I
have also tried to work on this project in a different way.

It was for the first time I got the opportunity to work in such a prestigious
and well known organization. And things, which I have experienced in my
training time, are going to help me throughout my lifetime. I have worked on
this project with great enthusiasm and zeal. I have tried to cover almost all
the things, which I have experienced and learned from the company‟s

No doubt at present working atmosphere is fine but it needs some

alternations, keeping in mind this view; I have also suggested some
improvements/suggestions. The title, which is:

“ IFRS(International Financial Reporting Standards) & It’s Convergence in


The main goal of my project is to find out the frequency, uses, modifications,
improvements and appropriate suggestions .It would be my great pleasure,
if this project can help this company to achieve its goal higher.












IFRS – Overview

Introduction to IFRS

IFRS stands for International Financial Reporting Standards

A new perspective on financial reporting which focuses on transparency of

financial information and uniformity of practice.IFRS is gaining momentum
throughout the world as a single, consistent accounting framework and is
positioned to become the predominant GAAP (Generally Accepted Accounting
Principles) in the near future.

More than 100 countries have moved to, or base their local standards on IFRS. In
2005 UK, rest of the Europe and Australia moved to IFRS. In 2007, China moved
to IFRS. Brazil and Canada are expected to move to IFRS in 2010 and 2011
respectively. India, one of the biggest emerging markets is going to shift to IFRS in

What is IFRS?

IFRS is set of established accounting standards that is rapidly gaining worldwide

acceptance. Standards are promulgated by the London based IASB (International
Accounting Standard Board), which includes representatives from major countries,
including the US.

Businesses across the world have gone global, but financial statements are still
based on the GAAP of respective countries, with the changing times there was
always a need of a system like IFRS, which can allow us to base our financial
reports on a single platform GAAP. With the introduction of IFRS in globe,

opportunities will increase and the basic understanding of financial statements is

going to get better in a layman terms.

IFRS is principle based, drafted lucidly and is easy to understand and apply.
However, the application of IFRS requires an increased use of fair values for
measurement of assets and liabilities. The focus of IFRS is on getting the balance
sheet right, and hence, can bring significantly volatility to the income statement.



 How will IFRS impact the financial statements of businesses and what
would be the conversion efforts?
 What challenges, other than converting the financial statements, will the
entity face?
 What approach or strategy should be followed in transiting IFRS?
 How to convert Indian GAAP balance sheet to IFRS on first time adoption?
 What are the key differences between IFRS and Indian GAAP?
 Challenges faced by INDIA in convergence?



A substantial theoretical literature is accessible on IFRSs and convergences with IFRSs in

different parts of the world. Researchers have examined the effects of the transition to IFRS in
different economies. A number of effects have been identified in previous studies to influence the
economies of the globe

Michael Cohn [2011] suggests that New York CPAs see problems in IFRS work plan. The New
York State Society of CPAs sees comparability and quality as two of the main obstacles to the
adoption of International Financial Reporting Standards in the U.S. The NYSSCPA
recommended that before proposing any form of IFRS adoption, the SEC should identify which
standards would require a U.S. exception. The NYSSCPA also suggested a timeline of five years
for IFRS implementation; the need for education and training for financial statement users; early
adoption possibilities; and the needs of non-public companies.

Andrew Hickley [2011] says that India is raising "significant uncertainty" about its
convergence on IFRS accounting standards as it has made numerous modifications and carve-
outs from the global rules. India is at risk of creating a country-specific version of the standards
that differ from those used worldwide, despite agreeing to adopt IFRS by 31 December
2011. Despite Indian officials previously indicating that it will fully endorse the standards, the
"latest developments introduce ambiguity about the country's commitment towards an IFRS-
compliant financial reporting system". So India’s IFRS may be country specific.

Hans Hoogervorst, new chairman of IASB [2011] says IFRS Adoption is in “Economic
Interest of U.S.”. According to him U.S. investors invest globally, and U.S. companies
seek international capital, and it is in the economic interest of the U.S. to adopt IFRSs.
Investors similarly will be able to better diversify their portfolios and benefit from
increased comparability.


Robert Bruce [2011] investigates on IFRSs in Europe. Europe has adopted IFRSs in 2006. He
emphasized on the effects of convergence with IFRSs in Europe. Michael Wells [2010] examined
the role of IASB and impact of IFRSs implementation on SMEs. Sieta [2010] compared the costs
to financial statement prepares of making the transition to International Financial Reporting
Standards (IFRSs) relative to the benefits to financial statement users from receiving “higher
quality” IFRS-based information (measured as incremental value-relevance for listed companies
in the UK, Hong Kong and Singapore).

Andrew Hickley [2011] examined that Global accounting regulators will propose a two-year
delay to the IFRS 9 standard. An International Accounting Standards Board meeting proposes
that the effective date of the IFRS 9 project is extended to 1 January, 2015. International
Financial Reporting Standard 9 covers the classification and measurement of financial assets
along with a methodology for impairment and hedge accounting. The two standard (The US
Financial Accounting Standards Board and International Accounting Standards Board) setters
disagreed on whether early adoption of IFRS 9 and other standards on revenue recognition,
leases and insurance contracts should be allowed.

Pat Sweet [2011] KPMG is warning that the latest standards published by the International
Accounting Standards Board (IASB) could have a significant impact on consolidation evaluation
and joint venture accounting for many companies. Mike Metcalf, technical accounting partner at
KPMG in the UK said: ‘The introduction of IFRS 10 and 11 could change the shape of the
balance sheet for organisations in industries such as the mining, property and financial sectors,
requiring preparers and investors to adjust to a new financial reporting regime.’


Chen et al [2010] in their study of financial data of publicly listed companies in 15 member
states of European Union (EU) before and after the full adoption of IFRS in 2005 found that the
majority of Accounting Quality indicators improved after IFRS adoption in the EU. They found
that there is less of managing earnings towards a target, a lower magnitude of absolute
discretionary accruals and higher accruals quality. The study also showed that the improved
accounting quality is attributable to IFRS, rather than changes in managerial incentives,
institutional features of capital markets and general business environment.

Iatridis [2010] concluded, on the basis of data of firms listed on London stock exchange, that the
IFRS implementation has favourably affected the financial performance (measured by
profitability and growth potential) of firms. The study also demonstrated tha the fair value
orientation of IFRS, the transition to IFRS appears to introduce volatility in Income statement

Ali & Ustundag [2009] in their paper on development process of Financial Reporting Standards
around the World and its practical results in a developing country, Turkey. They observe that
Turkey has encountered several complications in adaption of IFRS such as complex structure of
the International standards, potential knowledge shortfalls and other difficulties in application
and enforcement issues.

Epstein [2009] in his article on Economic Effects of IFRS adoption emphasized on the fact that
universal financial reporting standards will increase market liquidity, decrease transaction costs
for investors, lower cost of capital and facilitate international capital formation and flows.

Paananen & Lin [2009] gave a contrary view to prior research that IFRS adoption ensures
better quality of accounting information. Their analysis of German companies reporting showed
that accounting information quality has worsened with the adoption of IFRS over time. They also
suggested that this development is less likely to be driven by new adopters of IFRS but is driven
by the changes of standards.


I. Tsalavoutas [2008] compared the International Financial Reporting Standards (IFRSs) and
Greek GAAP and also analysed the impact of implementing IFRSs on financial statements.
Robert Reiter [2007] focused on the issues of implementation of IFRSs in Austria. He studied the
difference between local GAAP of Austria and IFRSs. Street et al. [2000], Ucieda Blanco and
Garcia Osma [2004] and Haverty [2006] thus measure the difference between IAS/IFRSs and US
GAAP based earnings of non-US companies with US listings.

Armstrong et al. [2007] suggested that cultural, political and business differences may also
continue to impose significant obstacles in the progress towards this single global financial
communication system, since a single set of accounting standards cannot reflect the differences
in national business practices arising from differences in institutions and cultures.

Baingani and Agrawal [2005] examined the difference between the Indian Accounting
Standards and IFRSs. They studied the framework of IFRS implementation and how the
convergence with IFRSs in India will contribute the firms to present their financial statements in
more transparent manner to their shareholders diversified all over the world so as to achieve the
objective of bringing the Indian Economy in power with other economies in the world .

Martin Gottlob [2005] identified the effect of the transition to IFRS on shareholders' equity an
on the net profit of a company. Paul Sutcliffe [2004] compared International Public Sector
Accounting Standards (IPSAS), Top of Form Government Finance Statistics Manual
2001(GFSM 2001) and European System of National and Regional Accounts (ESA95).He also
studied the convergence of IPSAS with IFRSs



The purpose of the study is effective implementation of IFRS and its convergence. Apart from
looking into the existing Accounting policies, the study conducted looks for the required
infrastructure and environment.

Type of Research

Exploratory research is used for the study. This study is exploring new area of the Accounting
standards which a company has to implement. This study is explaining the need for IFRS and its
implementation. The study is quantitative research in nature.

Data Collection

Data has been collected by using secondary source of data. The secondary data is collected from
internet, newspaper, magazine and literature.




A set of financial reporting standards issued by the International Accounting Standards Board
(IASB) is recognized under the brand name IFRSs. IFRSs is a trade mark of the International
Accounting Standards Committee Foundation. IFRSs comprise of:

a. International Financial Reporting Standards (IFRSs)

b. International Accounting Standards (IAS)
c. Interpretations originated by the International Financial Reporting Interpretations
Committee( IFRIC)

d. Interpretations issued by the former Standing Interpretations Committee (SIC).

Presently there are eight International Financial Reporting Standards, twenty nine International
Accounting Standards, fifteen IFRIC interpretations and eleven SIC interpretations

The IASB is an independent standard setting body of the International Accounting Standards
Committee Foundation (IASC Foundation).

History of International Accounting Standards (IAS)

In June 1973 the International Accounting Standards Committee (IASC) came into existence,
with the stated intent that the new International Standards t released must be “capable of rapid
acceptance and implementation world wide”. The IASC survived for 27 years, until 2001, when
the organization was restructured and the International Accounting Standards Board (IASB)
came into existence.

Between 1973 and 2000 the International Accounting Standards Committee (IASC) released a
series of standards called ‘International Accounting Standards’ in a numerical sequence that
began with IAS 1 and ended with IAS 41 Agriculture which was published in December 2000.


The Standing International Committee (SIC) was established in 1997 to consider contentious
accounting issues that needed authorative guidance to stop widespread variation in practice

IASB stated that they would adopt the body of standards issued by the board of the International
Accounting Standards Committee (which would continue to be designated ‘International
Accounting Standards’ but any new standards would be published in a series called international
Financial Accounting Standards (IFRSs).

The first IFRS was published in JUNE 2003 (IFRS 1: First time Adoption of International
Financial Reporting Standards)

Structure of IASC Foundation and IASB

The International Accounting Standards Board (IASB) was previously run as the International
Accounting Standard Committee (IASC), which operated in from 1973 until 2001. The IASC
was founded in June 1973 as a result of an agreement by accountancy bodies in Australia,
Canada, France, Germany, Japan, Mexico, the Netherlands, the UK and Ireland and the US.
These countries formed the board of IASC initially. The purpose of the Board was to work
towards the improvement and harmonization of accounting standards and reporting.

In March 2001, as part of restructuring the IASC foundation was set up in Deleware as a not-for-
entity. The IASC in turn gave approval for the IASB to assume standard setting responsibilities.
The objectives of the IASC Foundation and of the IASB are:

 To develop, a single set of high quality, understandable and enforceable global

accounting standards that require high quality, transparent and comparable information in
financial statements to help participants in the world’s capital markets

 To promote the use and rigorous application of those standards:

 In fulfilling the objectives associated with (i) and (ii), to consider, 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 International Financial Reporting Standards to high quality

IASC Foundation Constitution that were approved by the Trustees in June 2005, effective 1 July
2005 constitutes IASC Foundation with 22 Trustees. (Initially, the IASC Foundation Board of
Trustees had 19 Trustees) with geographical balance of trustees as indicated below:

 6 from North America.

 6 from Europe.

 6 from the Asia/Oceania region

 4 from any area, subject to establishing overall geographical balance.

On restructuring, the International Accounting Standards Committee (IASC) was renamed as

International Accounting Standards Board (IASB). The principal responsibilities of the IASB are

 Develop and issue International Financial Reporting Standards and Exposure Drafts

 Approve Interpretations developed by the International Financial Reporting

Interpretations Committee (IFRIC).

It has 14 members, of whom 12 serve full-time and two part-time.

IFRSs are developed following an international consultation process, involving interested

individuals and organizations from around the world. The standard setting process is supported
by an external advisory council, the Standards Advisory Committee (SAC).


Figure 4.1 The New Structure

Due Process of IFRS

 The due process explains the steps followed by the IASB in the standard setting process.
The due process is stated below:

 Identification and review the issues associated with the topic by the staff and evaluation
of the application of the Framework to the issues.

 Carrying out a study of the national accounting requirements and practice and exchanging
views about the issues with national standard-setters.

 Consulting the Standards Advisory Council about the advisability of adding the topic to
the IASB's agenda

 Formation of Working Group to advise the IASB and its staff on the project;

 Publishing a Discussion Paper for public comment


 Getting Exposure Draft approved by vote of at least nine IASB members, including any
dissenting opinions held by IASB members (in exposure drafts, dissenting opinions are
referred to as 'alternative views') and publishing for public comment an exposure draft.

 Publishing within an exposure draft the basis for conclusions.

 Considering comments received within the comment period on Discussion Paper and
Exposure Drafts.

 Considering the desirability of holding a public hearing and the desirability of conducting
field tests and, if considered desirable, holding such hearings and conducting such tests.

 Approving a standard by votes of at least nine IASB members and include in the
published standard any dissenting opinions.

 Publishing within a standard a basis for conclusions, explaining, among other things, the
steps in the IASB's due process and how the IASB dealt with public comments on the
exposure draft.


The International Financial Reporting Interpretations Committee (until 2002 known as the
Standing Interpretations Committee) has 14 members appointed by the Trustees for terms of
three years.

The responsibilities of IFRIC are:

 To interpret the application of International Financial Reporting Standards (IFRSs) and

provide timely guidance on financial reporting issues not specifically addressed in IFRSs
or IASs, in the context of the IASB's framework, and undertake other tasks at the request
of the Board.

 To publish Draft Interpretations for public comment and consider comments made within
a reasonable period before finalizing an Interpretation.

 To report to the Board and obtain Board’s approval for final Interpretations.


Convergence with IFRS

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 adopted 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. And hence India also needs to converge to
IFRS with the view to be listed in US Stock exchange.


Converging with IFRS will have multiple benefits for Indian entities especially those who aspire
to go global. Some of the benefits of convergence with IFRS are explained below:

i. Accessibility to foreign capital markets

The force of globalization has enabled the concept of “open economy” and increasing numbers
of countries has opened doors for foreign investment and foreign capital. Many Indian entities
expanding and making their presence felt in international arena. Huge amount of capital
commitment are required in this process for which entities have to list their shares in various
stock exchanges around the world. Majority of stock exchanged either require or permit IFRS
complaint accounts. Adaptation of IFRS will enable Indian entities to have access to international
capital markets.

ii. Reduced Cost

At present when Indian entities list their securities abroad they have to make another set of
accounts which are acceptable in that country. Convergence with IFRS will eliminate this need
for preparation of dual financial statements and thereby reduce the cost of raising capital from
foreign markets.


iii. Enhance Comparability

If the Financial statements of Indian entities are made in lines of IFRS, they will have greater
comparability and will enable foreign companies to have broader and deeper understanding of
the entities relative standing. This will also facilitate mergers, amalgamation and acquisition

iv. Boon for multinational group entities

Entities in India may have a holding, subsidiary or associate company in some other nation.
Compliance with IFRS for all group entities will enable the company management to have all the
financial statements of the group in one reporting platform and hence will facilitate the
consolidation process.

v. New Opportunities for the professionals

Migration to IFRS will not only be beneficial for Indian corporate, it will also be a boon to
Indian accounting and other associated fields. India is a country with immense human resource.
With knowledge of IFRS Indian professional can emerge as a leading accounting service
provider around the globe. This convergence will also open the flood gate of opportunities for
valuers and actuaries as IFRS is fair value based accounting standard.

vi. Valuation

Improve the key metrics that analysts use to measure and evaluate client performance and price
shares – Under IFRS instruments are fair valued.

vii. Transparency

Better chance to raise capital

Global Developments in IFRSs Adoption


IFRSs Adoption Timeline & Process

1. China Converged to IFRSs in 2007.

China adapted IFRS There are major differences between Chinese adopted IFRSs and IASB
issued IFRSs.
May be comparatively Indian GAAP differences with the IASB issued
IFRSs will be of little higher degree only. But India is considered as
IFRSs non-compliant.

2. Israel Israel is second only to Canada in the number of foreign private issuers
that register with the SEC and has adopted IFRS with effect from 1.5.
Adapted IFRS with two 2008.

3. Chile Adopted IFRS in 2009 -2011 in a phased manner.

Banks and other financial institutions and major listed
( open) companies adopted IFRSs with effect from 1.1.2009.

5. Brazil Adopted IFRS in 2010 , The accounting aspects of the company law has
been changed.

5. Canada Publicly accountable enterprises adopted IFRSs with effect from

May follow adoption

6. South Korea Korean Financial Supervisory Commission announced that all listed
companies will be required to prepare their annual financial statements
Pursuing convergence under K-IFRSs beginning in 2011. All listed companies other than
model financial institutions are allowed make early application with effect
from 2009.

7. Mexico To adopt IFRSs by 2012. Early adoption with effect from 2008

8. Japan Adopted voluntarily by 2010



A single set of accounting standards would have the following benefits:

 Ease to standardize training and assure better quality of accounting profession

 It would also permit international capital to flow more freely

 It would enable companies to develop consistent global practices on accounting


 It would be beneficial to regulators as a complexity associated with needing to

understand various reporting regimes would be reduced.

 It would enhance comparability between financial statements of various companies

across the globe

 It would reduce time and resources required to prepare different set of accounts for
companies listed in various exchanges of the world and for companies having global
group companies.

 To help in global harmonization



Accounting Standards in India are issued by Accounting Standard Board (ASB) of Institute of
Chartered Accountants of India and are largely based on IFRS. However, India has not been able
to keep pace with the amendment and additions made in IFRS from time to time. This is largely
because of its sensitivity to local conditions including the conflicting legal and economic
environment. However, with the opening of Indian economy in near past, the convergence to
IFRS has become unavoidable. Keeping this in view, ASB decided to form an IFRS task force in
August 2006. Based on the recommendation of this task force, the Council of ICAI, in its 269th
meeting decided to fully converge with IFRS from the accounting periods commencing on or
after 1st April 2013. At initial stage, this convergence will be mandatory for listed and other
public interest entities like banks, insurance companies, NBFCs, and large sized organizations
with high turnover or annual income.

Meaning of Accounting Standards and position in Indian context

Accounting Standards are in the nature of a structural framework within which credible financial
statements can be prepared. At present, there are 32 Accounting Standards in India (1 withdrawn,
31 effective). The formulation process started in year 1977.

In Indian context today Accounting standards notified by the Government of India are part of
company law and thus are required to be followed by corporates in preparation of financial


Financial Statements in this context mean:

1. Balance Sheet

2. Profit and Loss Account

3. Cash Flow Statement



First-time Adoption Of IFRS

Date of transition is the beginning of the current period rather than first date of earliest
comparative i.e. all transition date impacts, exemptions and prohibitions to be applied on date of
transition and not retrospectively as permitted by IFRS 1 in certain cases.

Option to present comparative financial statements as memorandum accounts but not mandatory.

Ind-AS 101 provides two option to present first Ind-AS financial statement

Option I (No Comparative) Option II (With Comparative)

Two Balance Sheet (including one SOCE) Four Balance Sheet(including two SOCE)

One Statement of Profit & Loss Two Statements of Profit & Loss.

One Statement of cash Flow Two Statements of cash Flow

Related notes. Related notes.

Latest previous GAAP financial statement Latest previous GAAP financial statement
reclassified to the extent practicable. reclassified to the extent practicable.

Date of transition Date of Transition


The beginning of the current period for which The beginning of the current period for which entity
entity adopt Ind-ASs in accordance with Ind-Ass adopt Ind-ASs in accordance with Ind-Ass notified
notified under companied Act, 1956 under companied Act, 1956
The beginning of the earliest comparative period for
which entity adopt Ind-ASs in accordance with Ind-
notified under companied Act, 1956.
Apply Consistency of accounting policy on both
date of transition.


Reconciliation of equity as on the date of Reconciliation of equity as at beginning of the

transition. earliest comparative period.

Significant difference explaining the impact of its Reconciliation of its total comprehensive income for
total comprehensive income. comparative period

Reconciliation of equity as at the end of the

comparative period.

IFRS 101 provides only one option to present first IFRS financial statement includes at

Three Statement of financial positions

Two Statement of comprehensive income

Two Statement of change in equity

Related notes including comparative information


Reconciliation of equity as at beginning of the earliest comparative period.

Reconciliation of its total comprehensive income for comparative period

Reconciliation of equity as at the end of the comparative period.

First time adopter present latest corresponding previous periods’ financial statements
prepared as per the previous GAAP when presenting first Ind-AS financial statement.


Deletion of certain exceptions which are applicable at the date of transition.

Corridor approach for recording actuarial gain and losses arising from accounting for employee

Option to expense out capitalise borrowing cost.

A first-time adopter may elect to continue with the carrying value of all property, plant and
equipment as at the date of transition to Ind-AS in accordance with previous GAAP. Provided the
fact and accounting policy are disclosed by the entity until that significant block of such assets is
fully depreciated or derecognised from the balance sheet.

IFRIC 4 (Determining whether an Arrangement contains a Lease) has been deferred.

If it is impracticable to apply retrospectively the effective interest method or the impairment

requirements for financial instruments, the fair value of the financial asset at the date of
transition shall be the new amortised cost of that financial asset at the date of transition.

Ind AS 101 provides an option to recognise exchange difference arising on translation of certain
long term monetary item from foreign currency to functional currency, first in equity & then
transferred to profit & loss in an appropriate manner (as a consequence of paragraph 29A
inserted in Ind AS 21).

Ind-AS 101 allows a company to measure non-current assets held for sale and discontinued
operations at the lower of carrying value and fair value less cost to sell.

Exploration for and Evaluation of Mineral Resources

Ind AS 106 has been deferred for implementation.

Presentation of Financial Statements

The term ‘balance sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of
Profit and Loss’ is used instead of ‘Statement of comprehensive income’.

Statement of change in equity to be shown as a part of the Balance Sheet.

All the items of income & expenses are presented only in a single statement.

Expenses are classified in the profit & loss by their nature whereas IFRS also permits
classification by function.

Revenue & Construction contract

Real Estate Developers contractors can recognise revenue on percentage of completion method
under ‘Construction contracts’ rather than under ‘revenue standard’ based on risks and rewards

etc. whereas Under IFRS, revenue is recognised only when the conditions of revenue recognition
for sale of goods or services are met.

Investment Property

After initial recognition, investment property is measured at cost only whereas IFRS permits fair
valuation model also.


No specific standard has been currently released for agriculture accounting whereas IAS 41
exists for this under IFRS.

Consequently biological assets & agriculture produce at the point of harvest will be measured at

Construction Contract

IFRIC 12 & SIC 29 (Service Concession Arrangements) have been deferred for implementation


IFRIC 4 (Determining whether an Arrangement contains a Lease) has been deferred for

Insurance Contracts

Ind-AS 104 has been deferred for implementation.

The Effect of Change in Foreign Exchange Rates Insurance Contracts

An option to recognise exchange difference arising on translation of certain long term monetary
item from foreign currency to functional currency, first in equity & then transferred to profit &
loss in an appropriate manner whereas IAS 21, all such differences are charged immediately in
profit & loss.

Employee Benefits

Actuarial gain & losses for both post-employment defined benefit plans & other long-term
employment are recognised in other comprehensive income. The actuarial gain recognised in
other comprehensive income are recognised immediately in retained earnings and shall not be
reclassified to profit & loss in a subsequent year whereas IAS 19 permits various options for the
treatment of actuarial gain & losses.


The rate to be used to discount post-employment benefit obligation are determined by reference
to the market yields on government bonds whereas IAS 19 requires use of high quality of
corporate bonds.

Statement of Cash Flow

Interest & Dividend are classified as a financing/investing activity in cash flow statement
whereas IAS 3 also permits operating classification.

Government Grants

Non-monetary government grants are measured only at fair value whereas IFRS also permits
nominal value of such grants.

Grants related to assets, including non -monetary grants are presented only by setting up the
grants as deferred income whereas IFRS also permits to present such grants by deducting the
grant in arriving at the carrying amount of the asset.

Related Party Disclosure

Disclosures which conflict with confidentiality requirement of statue/regulations are not required
to be made since accounting standard cannot override legal/regulatory requirements.

Earnings per share (EPS)

 EPS is required to be presented in both, consolidated as well as separate financial

statement whereas under IFRS, EPS is required to be presented only in consolidated
financial statement if both consolidated & separate financial statements are presented.
EPS in separate financial statement is disclosed voluntarily.

 Where any items of income and expense may be charged directly to equity as required
by law which is otherwise required to be recognized in profit or loss in accordance with
accounting standards. For the purpose of calculation of basic and diluted EPS, these
amounts are included in profit or loss irrespective of whether these amounts are debited
or credited to equity. Consolidated and separate financial statement

Ind AS 27 does not provide any exemption to parent from presenting consolidated financial
statement whereas IAS 27 provides exemption to parent in certain circumstances.

Ind AS 27 provides the format for the consolidated financial statement in Appendix C (similar to
schedule VI) whereas IAS 27 does not prescribe any format.


Ind AS 27 does not mandate the presentation of consolidated financial statement as requirement
to present consolidated or separate financial statement is regulated by governing statutes whereas
IAS 27 mandates the presentation of consolidated financial statement subject to limited

Investment in Associates

Ind AS 28 provides the difference between financial statement of associate and investor, should
not be more than 3 months unless impracticable whereas IAS 28 does not provide any exception.

Ind AS 28 requires the use of uniform accounting policies in the financial statement unless
impracticable whereas IAS 28 does not provide any exception.

Gain on bargain purchase (Excess of the investor’s share of the net fair value of the associate’s
identifiable assets and liabilities over the cost of investment) on acquisition of investment in
associates is recognised in capital reserve whereas IAS 28, it is recognised in profit and loss.

The applicability or exemption to the Ind As is governed by the Companies act and the Rule
made thereunder.

Business combination

Gain on bargain purchase is recognised in other comprehensive income and accumulated in

equity as capital reserve.

Gain on bargain purchase is recognised directly in equity as capital reserve if there is no a clear
evidence of the underlying reason for classification of the business combination as a bargain

Whereas IFRS 3, it is recognised in profit and loss.

Business combination of entities under common control are included in the scope and are
accounted for using the ‘pooling of interest’ method (Appendix C provide the additional
guidance in this regard) whereas IFRS 3 excludes common control transaction from its scope


Comparison between IFRSs and Indian GAAP covering major areas of differences:

Table 1.4

AS 9(Revenue Recognition) IAS 18(Revenue)

Deals with the timing of the recognition of Revenue shall be measured at the fair value of the
revenue. consideration received or receivable.
Revenue is the gross inflow of economic Fair value is the amount for which an asset could
benefits during the period arising in the course of be exchanged, or a liability settled, between
ordinary activities of an entity when those knowledgeable, willing parties in an arm’s length
inflows result in increase in equity, other than transaction.
increases related to contributions from equity
participants. Amounts collected on behalf of
third parties such as sales and service taxes and
revenue added taxes are excluded from revenues.

It is recognized on a time proportion basis taking Interest income is recognized using the effective
into account the amount outstanding and the rate interest method

AS9 (Net Profit or Loss for the Period, Prior IAS 8(Accounting Policies, Changes in
Period Items and Changes in Accounting Accounting Estimates and errors)

Prior period errors are included in determination Prior period errors* are corrected by
of profit or loss of the period in which the error
is discovered and are separately disclosed in the (i) restating the comparative amounts for prior
statement of profit and loss in a manner that the period presented in which the error occurred
impact on current profit or loss can be perceived
(ii) if the error occurred before the earliest prior
Changes in accounting policies: Changes in period presented, restating the opening balances
accounting policies require prospective of assets, liabilities and equity for the earliest
application under IGAAP. prior period presented.

Accounting for errors (Prior period errors): Changes in accounting policies: Changes in
Under GAAP errors would require adjustment in accounting policies would require retrospective
the year of detection application
Accounting for errors (Prior period errors):
Under IFRS, errors would require a retrospective



AS 21(Consolidated Financial Statements) IAS 27(Consolidated and Separate Financial


It is not specify that entities are required to A parent is required to prepare consolidated
present consolidated financial statement. financial statements to consolidate all its

A mare ownership more than 50% of equity Control is the power to govern the financial
share is sufficient to constitute control over the and operating policies of an entity so as to
company. obtain benefits from its activities.

Difference between subsidiaries and parent Difference between subsidiaries and parent
should not be more than 6 months. should not be more than 3 months.

Accounted at cost less impairment loss. Accounted either at cost less impairment loss
or as available for sale with changes in fair
value recognized in other comprehensive

GAIL (I) Ltd ’s existing accounting policy

Company is consolidating its financial statements on the basis of the Indian Accounting
Standards. Consolidated financial statements are prepared under historical cost convention on
accrual basis and in conformity with applicable Indian Accounting Standards.

In preparing consolidated financial statements, the financial statements of the parent and its
subsidiaries should be combined on a line by line basis by adding together like items of assets,
liabilities, income and expenses.


The preparation of the Consolidated Financial Statements requires management


to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities, expenses of the reporting period. The difference between the
actual results and estimates are recognized in the period in which the results are known or

AS 27(Financial Reporting of Interests in Joint IAS 31(Interests in Joint Ventures)


At cost less impairment loss. Separate financial statements prepared Either at

cost or at fair value as available for sale
investment with changes in fair value
recognized as a component of comprehensive

Equity account method is not permitted Investments in jointly controlled entities can be
proportionately consolidated or equity
accounted by venturers

At cost less impairment if consolidated financial If the reporting entity does not prepare
statements are not prepared. consolidated financial statements because it has
no subsidiaries, its jointly controlled entities
should be either proportionately consolidated or
equity accounted.

No specific guidance Recognition of proportionate share of gains or

losses on contribution of non- monetary assets
in exchange for an equity interest is generally

AS 2(Valuation of Inventories) IAS 2(Inventories)

Work in progress for service providers is scope Work in progress is applicable for
service providers

No exclusion for inventories held by Inventory held by commodity brokers is scope

commodity brokers out.


AS 18(Related Party Disclosures) IAS 24(Related Party Disclosures)

Intra group transactions and outstanding Intra group transaction and

balances are eliminated on consolidation of
financial statement outstanding balances are not eliminated on
consolidation of financial statements.

Post employee benefit plan is not include in Related party includes Post employee benefit
related party. plan for the benefit of employees of an entity.

Compensation of key management is disclosed Compensation of key management personnel is

in total as an aggregate of all items of disclosed in total and separately for different
compensation employee benefits.

GAIL (I) Ltd’s existing accounting policy

Compensation of key management personnel is disclosed in total, not separately. Company is

having joint ventures and subsidiaries as a related party.

Accounting treatment:

(1) Identifying related party relationships and transactions

(2) Identifying outstanding balances between an entity and its related parties.

AS 18(Presentation of financial statements) IAS 24(Presentation of financial statements)


The financial statements include The financial statements include

a statement of financial position a statement of financial position
a statement of comprehensive income a statement of comprehensive income
a statement of cash flows a statement of changes in equity (SOCIE)
Notes comprising a summary of significant a statement of cash flows
accounting policies and other explanatory
notes. Notes comprising a summary of significant
accounting policies and other explanatory
a statement of financial position as at the
beginning of the earliest comparative period
when an entity applies an accounting policy
retrospectively or makes a retrospective
restatement of items in its financial statements,
or when it reclassifies items in its financial

AS 6 & AS 10 (Depreciation & Fixed IAS 16(Property, Plant & Equipment)


Indian GAAP prescribes use of historical Initial Recognition:

cost basis.
As per IFRS, an item of property, plant and
Revaluations are permitted, however, no equipment shall be measured at its cost.
requirement on frequency of revaluation.
Measurement After Recognition:
On revaluation, an entire class of assets is
revalued, or selection of assets is made on a As its accounting policy, an entity shall choose
systematic basis. either:
Cost Model or
Revaluation Model
The selected policy is to be applied to an entire
class of property, plant and equipment.
Regular Revaluations shall be made so that the
carrying amount does not differ materially from
fair value. Recognised as Revaluation Reserve.


Indian GAAP requires allocation of IFRS requires allocation of Depreciation on a

depreciation based on the useful lives of systematic basis to each accounting period over
assets or the minimum rates prescribed by the useful life of the asset.
the Indian Companies Act, whichever is

For impairment of assets Indian GAAP also IFRS requires that assets be reviewed for
has adopted the provisions of IFRS with impairment and impairment losses recognized
effect from 1.4 2004 & 1.4.2006 for certain in the accounts.
enterprises. For certain enterprises, the
provision applies w.e.f. 1.4.2008

AS 26 (Intangible assets) IAS 38(Intangible assets)

Indian GAAP requires capitalisation if IFRS requires capitalisation if recognition

recognition criteria are met. criteria are met. Intangible assets must be
amortised over useful life.
Intangible assets must be amortised over
useful life with a rebuttable presumption of Intangibles assigned an indefinite useful life
not exceeding 10 years. must not be amortised but reviewed annually for
Revaluations not permitted.
Revaluations are permitted.


Modifications in GAIL (I) LTD

Table 1.5

Components AS 9(Revenue Recognition) IAS 18(Revenue)

1. Revenue It is accounted for on the basis of bills The company needs to account the
recognition raised/due for the year. In GAIL (I) transmission revenue on a
Ltd the revenue is recognized when percentage of completion basis.
the bill is raised and the bill is raised
only when the stage as defined in the
contract is complete and not the
percentage of work completed.
2. Accounting for DEPB income is recognized on DEPB income should be
export benefits receivable basis recognized on accrual basis and
(DEPB License) the same should be netted off
from COGS.
3. Consultancy Fee Consultancy fee is accounted for on Consultancy fee is accounted for
the basis of bills raised/due for the on the basis of fair value in which
year. It also includes supplies and an asset could be exchanged, or a
expenses forming part of the contract liability settled, between
which are recoverable from the knowledgeable, willing parties in
customers. In Construction an arm’s length transaction.
Management/Supervision Contracts,
fee is calculated as a percentage on the
value of work done/built-up cost of
each contract as determined by the
Management, pending customer's
approval, if any.
4. Construction Where the outcome of a construction Where the outcome of a
Projects contract/project can be estimated construction contract/project can
reliably, revenue and costs associated be estimated reliably, revenue and
with the construction costs associated with the
contracts/projects are recognized when construction contracts/projects are
the bill is raised and the bill is raised recognized on a percentage of
only when the stage as defined in the completion basis.
contract is complete and not the
percentage of work completed.


Components AS 9(Inventories) IAS 18(Inventories)

1. Classification of Work in progress in services is Common classifications of

Inventories excluded in AS 2. inventories are merchandise,
production supplies, materials,
work in progress and finished
goods. The inventories of a
service provider may be
described as work in progress.
The suggested classification of
gas is as follows
1. Natural Gas (Includes all gas in
pipelines except for those inside
the plant network
2.Work in progress (Gas inside
the plant network)
3.Finished Goods (Petro
Chemicals , Petroleum products
and LPG )
2. Accounting for Construction Surplus is accounted as Construction Surplus should be
Construction Surplus inventory. accounted for as Capital Work in
progress as compared to the
current practice of accounting the
same as inventory.

Components AS 6 & 10(Depreciation & Fixed IAS 16 (Plant, Property &

Assets) Equipment components)


1. Recognition Replacement expenses, Major Additional items will be required to

criteria (Capital) spares, Servicing be recognised as PPE by the
equipments Company like :
Major inspection and repair Replacement expenses
expenses are excluded from AS 10
Major (Capital) spares
Servicing equipments
Major inspection and repair
Adjustment needs to be made in
carrying cost of PPE in the opening
balance sheet to reflect the above
2. Cost of acquisition Asset retirement obligation is not There are certain differences in the
capitalized as part of PPE and valuation of PPE. They are
administrative overheads are
capitalized as part of cost of PPE Asset retirement obligation which
needs to be capitalised as part of
PPE under IFRS
Foreign exchange differences: Till
Year 2002-03 foreign exchange
differences were adjusted to the cost
of PPE. The same needs to be
removed from cost of PPE due to
retrospective application of IFRS.
Administrative overheads are not
capitalised as part of cost of PPE
under IFRS.
Adjustment needs to be made in
carrying cost of PPE in the opening
balance sheet to reflect the above

3. Subsequent Spare parts and servicing equipment IFRS provides specific guidelines
expenditure (Major are usually carried as inventory and regarding the subsequent cost that
repairs, inspections recognised in profit or loss as are required to be adjusted to the
and replacement consumed. cost of the assets. They are :
Subsequent expenditure – Parts:


New parts used to replace an

existing part of PPE are capitalised
if the recognition criteria’s are met.
The replaced part is de recognised as
Major Repairs: Cost of major repairs
is recognised as part of PPE when
the recognition criteria are met.
Major Inspection: Whenever a major
inspection is performed, its cost is
recognised in the carrying amount of
the item of property to which the
inspection relates. If a part of plant
is replaced during the inspection
then the same is derecognised.
Adjustment needs to be made in
carrying cost of PPE in the opening
balance sheet to reflect the above
4. Stand by Stand – by equipments when All stand-by equipment, when
equipments purchased, are not capitalized as purchased, will be capitalised as a
fixed assets. sub asset of the equipment/plant and
depreciated over the shorter of the
life of the equipment or the life of
the plant of which it is part of. The
accounting and useful life of the
stand by equipments needs to be
evaluated based on the said
5. Servicing Spare parts and servicing equipment
equipments and are usually carried as inventory and
Major spare parts recognised in profit or loss as
consumed. However, major spare
parts and stand-by equipment
qualify as property, plant and
equipment when an entity expects to
use them during more than one
period. A detailed analysis of the
spare parts of the company needs to
be carried on to identify major
spares that fulfill the above criteria.
Necessary adjustments need to be


made in opening balance sheet to

reflect the above guidelines.

6.Componentisation On the date of transition, the Under IFRS, each part of an item of
Company identify whole as a single property, plant and equipment with a
asset and also depreciate them as a cost that is significant in relation to
single asset the total cost of the item shall be
depreciated separately. This is called
a “componentisation” approach. On
the date of transition, the Company
will have to identify all significant
components of an asset and
depreciate them separately over their
individual useful lives
7. Useful life and The Company considesr a flat 5% of Under IFRS, the depreciable amount
Residual Values asset cost as residual value of all of PP&E is determined after
assets. deducting its residual value (or
salvage value), defined as the
The company apply the minimum estimated value of the asset at the
rates specified in Schedule XIV of end of its useful life less any
the Indian Companies Act, 1956 for disposal costs.
depreciation of assets
The Company should estimate the
actual useful life of each item of
property, plant and equipment and
depreciate the asset over its
estimated useful life.

Components AS 26(Intangible assets) IAS 38(Intangible assets)

1. Intangibles assets License for HDPE unit given to M/s Under IFRS, An intangible asset
(including Goodwill Mitsui Chemicals Inc, License for is an identifiable non-monetary
on consolidation) GAILTEL from VSNL are excluded asset without physical substance.
(IAS 38) from AS 26 Based on this criteria, there are
two new intangibles which need
to be recognized as per IFRS:
a) License for HDPE unit given
to M/s Mitsui Chemicals Inc


b) License for GAILTEL from



1. In GAIL (I) LTD, under IFRS, the mandate for revenue recognition is recognized only at
the point when the customer acknowledges the receipt because only then that the risks
and rewards are passed onto the customer. This implies that all the billing applications
and contract to be changed and it may add four to five days to the time when revenue can
be recognized.

2. *Prior Period errors are omissions from, and misstatements in, the entity’s financial
statements for one or more prior periods arising from a failure to use, or misuse of,
reliable information that:

i. Was available when financial statements for those periods were authorized to issue

ii. Could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements.

Accounting Policies of GAIL (I) Ltd under GAAP:

Prior period errors are treated in current year under a separate head (prior period adjustments)
which contains the net amount of the error. The information regarding the adjustment is given
under a schedule for the detailed information regarding Net amounts.

Accounting Treatment in case of errors occurred in previous year under IFRSs:


 Change is made in respective head of previous year. This will lead to change in reserves
of that year, opening balance of current year and reserves of current year without
affecting final outcome.

 Notes should be written to state in detail the changes made in respective head wise and
year wise because many times we use the net results which is insufficient to understand.

Accounting Treatment in case of errors occurred before previous year under IFRSs:

 Change in opening balance and reserves of previous year and also opening balance and
reserves of current year.

 Notes to state the changes with respective head wise and year wise.

3. IFRSs 6 (Exploration Business)

GAIL is free to select an accounting policy for exploration business. However in view of
consistency with practices being followed by other companies, it should undertake the following
two changes :

1. Instead of carrying the drilling cost in CWIP till the time the result of drilling has been
identified and then this cost should be transferred to the cost of the tangible extraction

2. Deprecation should be provided based on the utilization of the Gas Reserve.


For the Period Ended 31st March 2010
(According to GAAP)




For the Period Ended 31st March 2010
(According to GAAP)



For the Period Ended 31st March 2011
(According to IFRS)
( crores)

Revenue from operations 24556.40
Other Income 541.10
Changes in inventories of finished goods and work in
progress 5.59
Raw material consumed 17629.37
Employee Benefit Expenses 621.20
Depreciation and Amortisation Expenses 561.82
Impairment of Property,Plant & Equipment and Intangible
Assets 0.00
Other Expenses 2097.23
Finance Costs 70.00
Profit Before Tax 4123.47
Income tax expenses 1438.63
Profit for the year from continuing operations 2684.84
Profit(Loss) for the year from discontinued operations 0.00
Profit for the year 2684.84
Other Comprehansive Income :
Exchange difference in translating foreign operations 0.00
Gain (loss) on fair value changes in available for sale 0.00
financial instrument
Gain (loss) on fair value changes in Cash Flow Hedges 0.00
Gain on revaluation of Property,Plant and Equipment 0.00
Actuarial Gain (loss) on defined benefit pension plans 0.00
Other Comprehensive Income net of tax 0.00
Total Comprehensive Income for the year 2684.84
Earning per share(Rs.per share) 21.16


For the Period Ended 31st March 2011
(According to IFRS)

(Rs. in crore)

ASSETS 2010-2011
Property, Plant & Equipment 11733.85
Capital Work-in-progress 2330.49
Goodwill 0.00
Other Intangible Assets 197.25
Investments in Subsidiaries 251.70
Investments in Joint Ventures 1087.80
Investments in Associates 166.79
Investments – Others 566.74
Available for Sale Investments 0.00
Total non-current assets

Inventories 631.70
Trade Receivables 1095.04
Loans & Advances 7606.18
Other Current Assets 8.26
Cash & Cash Equivalents 3916.51
Total current assets



Share capital 1268.48
Retained Earnings 15075.52
Other components of Equity 0.00

Non-controlling Interest 0.00

Total Shareholders’ Equity 16344.00

Long-term borrowings 1332.34
Deferred tax 1389.56
Long-term provisions 165.65
Total non-current Liabilities

Trade and other payables 5448.31
Short-term borrowings 0.00
Current portion of long-term borrowings 148.04
Current tax payable 3950.88
Short-term provisions 813.53
Total current Liabilities 10360.76



For the Period Ended 31st March 2011


(According to IFRS)

Rs. in Crores

Share Retained General Capital Share Investment Bond Total

Capital Earning Reserve Reserve Premium Allowance Redemption Equity
(P&L A/c Reserve Reserve
A/c) (BBR)

Balance as on 845.65 9836.84 2013.14 1.86 0.27 146.48 160.64 13004.88


Profit during 2803.58 2803.58

the year

Dividends (1038.83) (1038.83)

Dividend Tax)

Issue of Bonus 422.83 (422.83) 0


Transfer (312.01) 407.37 (0.12) (127.37) 32.13 0

Balance as on 1268.48 11289.58 1997.68 1.74 0.27 19.11 192.77 14769.63


Profit during 3139.72 3139.72

the year

Dividends (1110.35) (1110.35)

Dividend Tax)

Transfer (311.01) 314.00 (0.12) (2.87) 0

Balance as on 1268.48 13007.94 2311.68 1.62 0.27 19.11 189.90 16799.00



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 corporates 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 will involve a fundamental
change to an entitys 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 organisation to ensure its application on an ongoing basis.




1. This study found that Adoption of IFRS brings greater transparency and uniformity to
global business this in turn builds confidence which helps create economic partnerships
and growth. This IFRS adoption will create reputation among other business firms. IFRS
implementation makes easy Comparability and access to global capital markets. IFRS
implementation will make valuation easy and improve the key metrics that analysts use to
measure and evaluate client performance and price shares. Under IFRS instruments are
fair valued. It also supports corporate governance to make operations effective and

2. Conversion to IFRS offers the possibility to streamline and reduce costs. Early adoption
planning can reduce costs of implementation.

3. Study shows that GAIL (I) Ltd will be able to retain trust among stakeholders because
after implementing IFRS investors can have better and more transparent financial
information available and universally accepted financial statements. Because IFRS is
Single, uniform set of high quality and internationally accepted accounting standards.



1. GAIL (I) Ltd should run the system compatible with IFRS and also Indian Accounting
System. This will help company to retain all data for the future use.

2. Proper training should be provided to the employees of the company. For this knowledge
sharing programs will be conducted in the company. The trained employees will be the
asset of the company who can handle IFRS implementation in companies as well as earn
revenue by rendering consultancy services to other companies.

3. Proper documentation and accounting procedures should be maintained. Documentation

is needed for the new entrants to understand the history of the new system and changes
made in the existing system. So they can easily learn the concepts and procedures of the
new system.

4. Seminars and presentations can be encouraged by the company which will ultimately
impart knowledge to the employees. This study recommends the knowledge sharing
scheme which will be supportive for the effective IFRS implementation in the GAIL (I)

5. Study on IFRS must be provided to students in accounting subject.


Knowledge Sharing Scheme:

 For IFRS implementation, company need to follow a scheme for educating the employees
of the company about IFRS. Following are the steps in the IFRS implementation in GAIL
(I) Ltd.

 GAIL (I) Ltd need to identify the employees who should attend the knowledge sharing

 GAIL (I) Ltd has to group the offices which can be given training at feasible location for
the cost control. GAIL (I) Ltd need to make the batches according to the stages of the
knowledge sharing process.


Duration of the training is also specified to make training more effective.

Knowledge sharing:

I. Awareness:

1. This is the first stage of knowledge sharing.

2. This awareness program is mainly designed for the key management

personnel of the company.

3. These employees will be made aware by the seminar and work shop on the

4. The location for such seminar and work shop will be corporate office of the
company inNew Delhi.


5. This stage includes the employees from financial and non- financial



1. This is the second stage of the knowledge sharing program.

2. This program is designed for the middle management of the company who
need to understand IFRS in more detailed manner.

3. For the purpose of giving conceptual knowledge to the employees Company can
club two or more offices which can easily get training at a place.

4. These employees will be given proper training so they can train other

III. Action plan:

1. This is the plan for providing training to the operating level of the company.

2. These employees need to have a guide who will give the training to them.

3. These guides will be given the training separately so they can be able to
provide training to the employees.

4. It contains detailed education for the employees who will work with IFRSs.

5. Each employee at operation level has to be trained for IFRS adoption.

This all process will help company in the IFRS adoption so employees will become familiar with
new system.



In summary, this paper develops a model to study the framework of IFRS implementation in
India and ascertains the impact of IFRS implementation. Further, the paper investigates the
major sections of IFRS and the consequential impact of these sections on the balance sheet and
profit & loss account. It also studied the similarity and difference between Indian GAAP &

Convergence with IFRSs will assist to present their Financial Statements in more true and
transparent manner. Transition to IFRS will also bring uniformity; this in turn builds confidence
which helps create economic partnerships and growth.

IFRS implementation also makes easy Comparability and access to global capital markets.
Moreover, it will make valuation easy and will improve the key metrics that analysts use to
measure and evaluate client performance and price shares. In addition, it also supports corporate
governance to make operations effective and efficient. Furthermore, conversion to IFRS offers
the possibility to streamline and reduce costs. Hence early adoption planning can reduce costs of

The result of this study will also contribute in assisting other firms in India to present their
financial statements in more transparent manner to their shareholders diversified all over the
world so as to achieve the objective of bringing the Indian Economy in power with other
economies in the world .

What should banks focus on to meet this challenge?

Develop / strengthen a data capture system to enable the impairment assessment after
determining tactically where information will be collected / who will make the impairment
assessment / templates and information gathering and storage systems, etc.


Use and align this process of information gathering and assessment to strengthen the credit risk
management function and feed into other strategic initiatives such as internal ratings, Basel II
compliance, and potential application of internal ratings based/advanced approaches.

Improve and strengthen the loss forecasting mechanisms within the organization in parallel with
fine tuning risk adjusted pricing for fresh loans being sanctioned by the bank.

Certain system changes would need to be made for accounting for impairment; for example,
computation of discounted future cash flows to facilitate the booking of the required accounting

Required Use of Fair Value for More Financial Instruments

Fair value measurement is infrequently used under Indian GAAP and in most cases where it is,
the aim is primarily to capture a lower of cost or fair value measurement base. Under IFRS, there
may be a significant increase in the extent that fair value measurement needs to be used. For
instance, all financial assets and liabilities will need to be initially measured at fair value. While
in a number of instances, fair values may be represented by transaction prices, the onus on banks
will be to prove that transaction prices represent fair value. In addition, there will be a number of
instances where unrealized gains can/should be recognized (for example, trading instruments and
those where the bank elects the fair value option). Further, due to the stringent criteria prescribed
under IFRS, a Held to Maturity (HIM) classification, (which currently results in an amortised
cost valuation basis for a significant part of most Indian banks’ investment portfolio), is unlikely
to be available leading to fair value measurement for a substantial part of the portfolio. Again,
this is a significant shift from current accounting treatment under Indian GAAP.

What should banks focus on to meet this challenge?

 Fair valuation methodologies and practices would need to be re-examined to ensure that
they are current, up to date, and are validated and back tested in the current market

 Adequately trained personnel need to be made responsible for this significant area of
expertise and judgment

 Profit planning and budgeting need to be fine tuned to incorporate the expected increase
in income statement volatility arising of the increased use of fair values as a measurement


Challenges in convergence faced by INDIA:

Limitations of Study

 Accurate financial information cannot be accessed sometimes hence lack of primary data
may also be a hindrance.

 Doing research on particular sector in short span was also a limitation.

Scope of Study

This study of IFRS Implementation will help to analyze the situations and overcome the
problems which can be faced by the company. This report will allow company to work
proactively on the implementation of IFRSs.


Key Learning

1. The major learning from this project was that I gained theoretical as well as practical
knowledge as IFRS standards are implemented.

2. I gained knowledge about IFRS and its workings.

3. I learned about IFRS and its convergence in India.

4. Challenges faced by India in convergence.


Annexure I

Table 6 .1 List of IFRS

Sl No. Title Coverage

62 1 IFRS 1 First Time Covers a framework for switching over from one set
Adoption of of accounting rules / GAAP to IFRSs based
International Financial accounting;
Reporting Standards
Grants concession for applying retrospective
restatement of accounts ;

Explains how the carrying amount of the assets and

liabilities should be determined for the purpose of
opening IFRSs balance sheet.

2 IFRS 2 Share - based Covers measurement of share -based payment

Payment transactions, their accounting treatment and

3 IFRS 3 Business Introduces fair value based acquisition accounting for

Combinations business combination transactions;

Explains identification and segregation of intangible

assets from goodwill on acquisition;

Distinguishes purchase consideration of a business

combination from the assets / liabilities arising from
pre-existed business relationship or payment for
future employment;

Introduces a concept of full goodwill.

4 IFRS 4 Insurance This is not a comprehensive standard for insurance

Contracts accounting.

It covers few areas of insurance accounting , namely –

segregation of embedded derivative from insurance

contracts; segregation of insurance component from
investment component.

5 IFRS 5 Non current This standard covers the technique of carving out non-
Assets Held for Sale and current assets which are held for sale from other items
Discontinued Operations of non-current assets which are in use.

This is for better understanding and analysis of

financial performance and position of the reporting


Table 6.2 List of IASs

Sl No. Title Coverage

1 IAS 1 Presentation of Covers structure and contents of financial statements;

Financial Statements
Basic principles of presentation of financial statements.

To be followed for the preparation and presentation of

stand-alone (non-consolidated) as well consolidated
financial statements.

2 IAS 2 Inventories Explains methodology for inventory valuation;

Elaborates norm for writing down inventories to net

realisable value when cost is higher;

Elaborates norm for writing back the inventories which

were previously written down;

Explains the norm for expensing inventories.

3 IAS 7 Statement of Cash Explains the methodology for the preparation and
Flows presentation of Statement of Cash flows;

Classifies cash flows into operating, investment and

financing cash flows.

4 IAS 8 Accounting Covers retrospective restatement of change in accounting

Policies, Changes in policies;
Accounting Estimates
Covers the technique of giving prospective effect to
and Errors
change in accounting estimates;

Covers the techniques of prospective correction of


5 IAS 10 Events after the Classifies the post reporting period transactions / events
Reporting Period into : adjusting and non-adjusting events;

Covers accounting and / or disclosures of those

transactions / events.

6 IAS 11 Construction Explains percentage of completion accounting for

Contracts revenue recognition of partly completed construction

Also covers the circumstances when revenue recognition65

of a construction contract is limited to just amount that
will be collectible.

Table 6.3 List of IFRIC Interpretations

IFRIC Interpretations Linked to Outline of the issue covered


1. IFRIC 1 Changes in IAS 8

Existing IAS 16 How to give effect to change estimated liability arising
Decommissioning, out of Decommissioning, Restoration and Similar
Restoration and Similar IAS 23 Liabilities
Liabilities IAS 36

IAS 37

2. IFRIC 2 Members'
Shares in Co-operative IAS 32 Covers classification issue of member Shares in

Entities and Similar IAS 39 Co-operative Entities and Similar Instruments



IAS 16
3. IFRIC 4 Determining
Specifies characteristics to classify certain type of
Whether an Arrangement IAS 17
arrangements as lease.
Contains a Lease
IAS 38


5. IFRIC 5 Rights to Provides guidance on the accounting for contributor’s

Interests Arising from interest in Joint Decommission Fund and recognition of
Decommissioning, liability arising out of the failure of other members of
Restoration and IAS 27 the fund.
IAS 28
Rehabilitation Funds

IAS 31

IAS 37

IAS 39

SIC 12

5. IFRIC 6 Liabilities
Arising from Participating IAS 8 Provides guidance on the recognition of waste
in a Specific Market - management liability of prior period(s) set under a
Waste Electrical and IAS 37 legislation which is linked to market share in that period.
Electronic Equipment

6. IFRIC 7 Applying the

Restatement Approach IAS 12
under IAS 29 Financial
IAS 29 Explains how to make restatement of deferred tax item.
Reporting in

7. IFRIC 8 Explains that goods and services received as a

consideration under share based payment should be
Scope of IFRS 2 * IAS 8
valued applying IAS 2.
On amendment of IFRS 2 in June 2009, this IFRIC is
now withdrawn.

IAS 39 Sets out principles for reassessment of embedded

8. IFRIC 9 Reassessment derivative after an entity first becomes party to the
of Embedded Derivatives contract. Reassessment is permitted only when terms of
IFRS 3 the contract is changed.

9. IFRIC 10 Interim IAS 34 Explains that impairment loss recognised on goodwill

Financial Reporting and and certain financial assets in an interim financial report


IAS 36 is not reversible while preparing annual financial

statements even if such impairment loss would not be
Impairment IAS 39
required to be recognised had the interim financial
report was not prepared.

Provides guidance on accounting for share based

transaction with employees when the entity chooses or
required to buy such shares from others to fulfil the

IAS 8 commitment.
10. IFRIC 11*
IAS 32 It also clarifies accounting treatment for share based
IFRS 2: Group and payments in which a parent company grants its shares to
Treasury Share IFRS 2 the employees of its subsidiary, and the subsidiary
Transactions company grants shares to the employees of its parent in
consideration of service rendered.

On amendment of IFRS 2 in June 2009, this IFRIC is

now withdrawn.


IAS 8,11

17,18,20, Guides on the accounting by operators for public-to-

11. IFRIC 12 Service private service concession arrangements.
Concession Arrangements 23,32,36,


SIC 29

12. IFRIC 13 Customer Guides on accounting for award credit granted to the
IAS 18
Loyalty Programmes customers by an entity.
IAS 37


13. IFRIC 14
IAS 19 – The Limit on a
IAS 8 Addresses the issues relating to refunds or reductions in
Defined Benefit Asset,
Minimum Funding IAS 19 future obligations in the context of employee benefits.

Requirements and their

IAS 37

13. IFRIC 14
IAS 19 – The Limit on a
IAS 8 Addresses the issues relating to refunds or reductions in
Defined Benefit Asset,
Minimum Funding IAS 19 future obligations in the context of employee benefits.

Requirements and their

IAS 37

Establishes methodology for classification whether sale

IAS 1,8
of real estate is
15. IFRIC 15 Agreements 11,18,37
for the Construction of Real i. sale of goods

Estate IFRIC 12,

ii. sale of services or
iii. Construction contracts.

15. IFRIC 16 Hedges of a Explains the methodology of identifying hedging
Net Investment in a Foreign IAS 21 instruments for the purpose of hedging net investments
Operation in foreign operations and accounting thereof.
IAS 39

16. IFRIC 17 Distributions IAS 1 Establishes accounting methodology for non-cash

of Non-cash Assets to distribution to owners.
IAS 10,
Non-cash distributions include distribution of property,
IAS 27
plant equipment, businesses, ownership interest in
IFRS 3 another entity, disposal group, etc.





17. IFRIC 18 IAS 8

Provides guidance of accounting for property, plant and
Transfer of Assets from IAS 16 equipment received from customers.
Customers IAS 18

IAS 20


* Interpretations contained in IFRIC 8 and IFRIC 11 are now included in IFRS 2 (as amended
in June 2009).


Table 6.4 List of SIC Interpretations

SIC Interpretations Linked to Outline of the issue covered


Discusses issues relating to application of IAS 21 for
1. SIC 7 Introduction of
IAS 10 changeover from national currency to EURO by a
the Euro
member state of the EU.

IAS 27

2. SIC 10 Government Explains accounting treatment of Government Grants

Assistance – No Specific IAS 8 directed to encourage operation in a particular industry
Relation to Operating IAS 20 or grant to start a business in undeveloped areas but not
Activities linked to operating activities.


3.SIC12 Consolidation – IAS 19

Special Purpose Entities Discusses the circumstances when SPE should be
IAS 27
IAS 32


5. SIC 13 Jointly IAS 8

Controlled Entities – IAS 16
Deals with venturer’s accounting for non-monetary
contribution to JCE.
Contributions by IAS 18
Venturers IAS 31

5. SIC 15 Operating Techniques recognising incentives in an operating
Leases – Incentives lease.
IAS 17



6. SIC 21 Income Taxes IAS 12 Interprets the term ‘recovery’ in relation to an asset that
– Recovery of Revalued is not depreciated and is revalued in accordance with
Non-Depreciable Assets IAS 16 Para 31 of IAS 16.

IAS 40

7. SIC 25 Income Taxes IAS 1

– Changes in the Tax Guides accounting for tax consequences of a change in
Status of an Enterprise the tax status of the entity or its shareholders.
or its Shareholders IAS 12


IAS 11

8. SIC 27 Evaluating the IAS 17

Substance of Guides on lease classification and accounting for an
IAS 18
Transactions in the Legal arrangement if it is not classified as a lease transaction.
Form of a Lease IAS 37

IAS 39



IAS 16

9. SIC 29 Disclosure – IAS 17

Explains disclosure relating to a service concession
Service Concession
IAS 37 arrangement. See IFRIC 12 for accounting techniques.

IAS 38



10. SIC 31 Revenue –

Deals with an issue of measurement of fair value by a
Barter Transactions IAS 8
seller of the advertisement services received or
Involving Advertising IAS 18



IAS 11

11. SIC 32 Intangible IAS 16 Explains accounting treatment of web site development
Assets – Website Costs IAS 17 costs.

IAS 36

IAS 38





Company journals
 Ernst & Young Annual IFRS outlook
 KPMG India Advisory on IFRS
 Deloitte Touch Tohmatsu Global IFRS outlook
 Price Waterhouse Coopers IFRS advisory for Indian companies
 Grant Thornton IFRS advisory