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3 –Day Intensive Course on IFRS – WIRC

IFRS in India.

Before IFRS Overtakes you, You Takeover IFRS.

1. A brief about IFRS

What are IFRS ?


Who issues IFRS ?
How many IFRS are there at present ?

2. Why & when do we need to follow IFRS in India?

3. Impact of IFRS on Indian Industries

4. Latest Development of IFRS in India.

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1.1 What are IFRS ?

“IFRS” stands for International Financial Reporting Standards. However, as


the name indicates these are not just the reporting standards but, also the
accounting standards, laying down principles for recognition, measurement,
of assets , liabilities , equity , income and expenses , and presenting and
disclosing them. They are at present developed and issued by International
Accounting Standard Board (IASB), prior to which they were developed and
issued by International Accounting Standard Committee (IASC)

1.2 What is IASC & IASB ?

IASC (which was the predecessor body to IASB), was founded in June
1973. It was set up as a result of an agreement by accountancy bodies in
ten national jurisdictions which constituted the original board, being
Australia, Canada, France, Germany, Japan, Mexico, the Netherlands,
the UK, Ireland and the US.

The IASC subsequently expanded to include representatives from over


100 countries and by 2000 the membership included 143 bodies in 104
countries, representing over two million accountants.

The IASC developed and issued International Accounting Standards


(IAS). Standing Interpretation Committee issued interpretations (SIC)

In 2001, the IASC was superseded by the IASB, which had a new
structure of associated bodies and significantly increased financial
resources. IASB also has interpretation committee known as “
International Financial Reporting Interpretation Committee” ( IFRIC).
Interpretation of IFRIC are known with codification of “IFRIC”

The IASB issues IFRS, but has adopted all the IASC’s IAS. Any
reference in this present to IFRS should be taken as including IAS,
unless there is a specific statement to the contrary.

1.3 To summarise :

International Financial Reporting Standards (IFRSs) are Standards and


Interpretations adopted by the International Accounting Standards Board
(IASB).
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They comprise:

(a) International Financial Reporting Standards; ( IFRS)


(b) International Accounting Standards; (IAS) and
(c) Interpretations developed by the International Financial Reporting
Interpretations Committee (IFRIC) or
(d)the former Standing Interpretations Committee (SIC).

Tally of effective IFRS is as under :

Issued By

IFRS ( IFRS 9 effective 1.1.2013 - IASB 09


IAS IASC 29
IFRIC IASB 16
SIC IASC 11
----
Total…………… 65
==

1.4 List of IFRS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (9)

IFRS – 1 : FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL


REPORTING STANDARDS
IFRS – 2 : SHARE BASED PAYMENTS
IFRS – 3 : BUSINESS COMBINATIONS
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 : DISCLOSEURES
IFRS – 8 : OPERATING SEGMENTS
IFRS – 9 : FINANCIAL INSTRUMENTS ( Effective from 1.1.2013)

INTERNATIONAL ACCOUNTING STANDARDS (29)

IAS – 1 : PRESENTATION OF FINANCIAL STATEMENTS


IAS – 2 : INVENTORIES
IAS – 7 : STATEMENT OF CASH FLOWS
IAS – 8 : ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES
AND ERRORS
IAS – 10 : EVENTS AFTER THE REPORTING PERIOD
IAS – 11 : CONSTRUCTION CONTRACTS
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IAS – 12 : INCOME TAXES
IAS – 16 : PROPERTY, PLANT & EQUIPMENT
IAS – 17 : LEASES
IAS – 18 : REVENUE
IAS – 19 : EMPLOYEE BENEFITS
IAS – 20 : ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF
GOVERNMENT ASSISTANCE
IAS – 21 : THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
IAS – 23 : BORROWING COSTS
IAS – 24 : RELATED PARTY DISCLOSURES
IAS – 26 : ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS
IAS – 27 : CONSOLIDATED & SEPARATE FINANCIAL STATEMENTS
IAS – 28 : INVESTMENTS IN ASSOCIATES
IAS – 29 : FINANCIAL REPORTING IN HYPERINFLATIONERY 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
IAS – 39 : FINANCIAL INSTRUMENTS : RECOGNITION & MEASUREMENT
IAS – 40 : INVESTMENT PROPERTY
IAS – 41 : AGRICULTURE

IFRIC INTERPRETATIONS (16)

IFRIC – 1 : CHANGES IN EXISTING DECOMMISSIONING, RESTORATION AND


SIMILAR LIABILITIES
IFRIC – 2 : MEMBER’S SHARE IN CO-OPERATIVE ENTITIES AND SIMILAR
INSTRUMENTS
IFRIC – 4 : DETERMINING WHETHER THE ARRANGEMENT CONTAINS A
LEASE
IFRIC – 5 : RIGHTS TO INTERESTS ARISING FROM DECOMMISSIONING,
RESTORATION AND ENVIRONMENTAL REHABILITATION FUNDS
IFRIC – 6 : LIABILITIES ARISING FROM PARTICIPATING IN A SPECIFIC
MARKET - WASTE ELECTRICAL AND ELECTRONIC EQUIPMENT
IFRIC – 7 : APPLYING THE RESTATEMENT APPROACH UNDER IAS-29
FINANCIAL REPORING IN HYPERINFLATIONERY ECONOMIES
IFRIC – 9 : REASSESSMENT OF EMBEDDED DERIVATIVES
IFRIC – 10 : INTERIM FINANCIAL REPORTING & IMPAIRMENT
IFRIC – 12 : SERVICE CONCESSION ARRANGEMENTS
IFRIC – 13 : CUSTOMER LOYALTY PROGRAMMES
IFRIC – 14 : THE LIMIT ON A DEFINED BENEFIT ASSET, MINIMUM
FUNDING REQUIREMENTS AND THIS INTERACTION
IFRIC – 15 : AGREEMENTS FOR THE CONSTRUCTION OF REAL ESTATE
IFRIC – 16 : HEDGES OF A NET INVESTMENT IN A FOREIGN OPERATION
IFRIC – 17 : DISTRIBUTIONS OF NON-CASH ASSETS TO OWNERS
IFRIC – 18 : TRANSFER OF ASSETS FROM CUSTOMERS

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IFRIC – 19 : EXTINGUISHING FINANCIAL LIABILITIES WITH EQUITY
INSTRUMENTS

SIC INTERPRETATIONS (11)

SIC – 7 : INTRODUCTION OF THE EURO


SIC – 10 : GOVERNMENT ASSISTANCE – NO SPECIFIC RELATION TO
OPERATING ACTIVITIES
SIC – 12 : CONSOLIDATION – SPECIAL PURPOSE ENTITIES
SIC – 13 : JOINTLY CONTROLLED ENTITIES – NON-MONETARY
CONTRIBUTIONS BY VENTURERS
SIC – 15 : OPERATING LEASES – INCENTIVES
SIC – 21 : INCOME TAXES – RECOVERY OF REVALUED NON-DEPRECIABLE
ASSETS
SIC – 25 : INCOME TAXES – CHANGES IN TAX STATUS OF AN ENTITY OR ITS
SHAREHOLDERS
SIC – 27 : EVALUATING THE SUBSTANCE OF TRANSACTION INVOLVING
THE LEGAL FORM OF A LEASE
SIC – 29 : SERVICE CONCESSION ARRANGEMENTS : DISCLOSURES
SIC – 31 : REVENUE – BARTER TRANSACTIONS INVOLVING ADVERTISING
SERVICES
SIC – 32 : INTANGIBLE ASSETS – WEB SITE COSTS

2. Why IFRS ? –

2.1 Need to have one common accounting language.

While national variations in accounting practices have endured for many


years, more recently there has been pressure to harmonise financial
reporting practice and regulation on a global basis in order to reduce such
inconsistencies. In short, it is becoming less acceptable to report the
same transactions differently according to where they occur.

Accounting practices and financial reporting should be a universal


language – that’s need of the hour.

IFRS is ramification of globalisation.

India is converging ( not adopting) with IFRS in a phased manner , with 1st
Phase beginning in April,2011 and third and the last phase in April,2014.

2.2 Why & when do we need to follow IFRS in India?

2.2.1 Why India needs to follow IFRS.


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International Financial Reporting Standards (IFRS) is fast becoming the
global accounting language. Over 100 countries have now adopted IFRS
and many more have committed to make the transition in the next few years.
The benefits of global standards are widely acknowledged.

In 2000, IOSCO endorsed the use of 30 selected IAS for the purposes of
cross border securities registrations and the financial statements of
multinational entities.

Thus, making listing on international stock exchanges, consequently making


fund raising a less onerous and less costlier affair.

2.2.2 Is it advantageous to Switch over to IFRS ?

Preparing accounts as per IFRS help enhance the transparency and


comparability of their financial statements.

Easy listing and raising of funds from international market.

Also if one prepares accounts in widely acknowledged accounting standard ,


that is, in an accounting language understood by potential investors, it will
make one global. Fund managers and investors prefer the financial statements
prepared as per widely accepted accounting standards.

There are a variety of reasons for moving to IFRS. For example, banks are
increasingly requiring IFRS-compliant financial statements if entities want
them to issue a credit rating.

We cannot afford to be left behind we have to move with the time.

2.2.3. When are we moving to IFRS ?

Principally, India has taken two major decisions for moving to IFRS.

a) To converge with IFRS and not adopt IFRS.

Technically, convergence means accepting IFRS with permitted


modifications. Thus, not to adopt ,i.e., not to fully accept IFRS as
they have been issued by IASB.( and its predecessor IASC). Hence ,

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there will be some difference Indian version of IFRS and IFRS as
issued by IFRS.

b) To implement IFRS in phased manner, beginning April,2011 through


April,2014.

As a result of deciding to implement IFRS in a phased manner, there will be ,


two sets of accounting standards U/s 211(3C) of the Companies
Act,1956.

(i) First set of accounting standards will be comprised of Indian


standards which are converged with IFRS. Tentatively titled
“IND-AS”

Thus, the companies covered in implementation phases will


follow the First set of accounting standards, viz., Indian
standards which are converged with IFRS.

(ii) The second set of accounting standards would comprise of


the existing Indian Accounting Standards and would be
applicable to other companies, including Small and Medium
Companies (SMCs). They will continue of have prefix code of
“As”

Thus , concurrently we will have two sets of accounting standards. Following


Table summarises the phases of implementation of IFRS.

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1st April,2011 1st April,2012 1st April, 2013 1st April,2014

Phase – I Insurance All ScheduledPhase III


Companies Commercial Banks +
Urban Commercial
Bank NW* > 300 Cr. +
NBFC
NSE Nifty – 50 Phase II – CompaniesOnly Listed
BSE Sensex -30 whether listed or not Companies having
Companies - (Other Net < 1,000 Cr But >Net Worth Less than
than banking \ 500 Cr. ( No distinctionRs. 500 Cr
Insurance \ NBFC ) between listed or not)
Companies ,
whether listed or
not Having Net
Worth > 1,000 Cr
Companies whose
shares or other
securities listed on
Stock Exchanges
outside India
*NW = Net Worth .Also note above phases of implementation will be applicable
to “Companies” only and not entities.

NW for 1st Phase as of 31st March 2009.

Companies or entities not covered in any of above categories will be covered


by the second set of accounting standards. In other words they will continue to
apply the existing accounting standards (AS)

2.2.4 How IFRS are different from Indian accounting


standards?

In the first place, conceptually IFRS are principle based accounting standards,
involving more of judgements as against Indian standards, which are mix of
rule based and principle based.

There is lot of emphasis on Fair Value concept. However, fair value is not
really a new concept to us, but it is used more often than in Indian Standard.

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The differences between IFRS and IGAAP can be categorised as follows:

a. Macro Level Differences


b. Micro Level Differences

a. Macro Level Differences:

At Macro level, we have altogether new standards like :-

Standard for Business Combination – IFRS-3


Standard for Accounting for Share Based Payments – IFRS-2
Standard for Exploration for and Evaluation of Mineral Resources –
IFRS-6
Standard for Accounting for Investment Property – IAS-40
Standard for Accounting for Agricultural Property – IAS-41
IFRIC 12 Service Concession Arrangements IFRIC 12
Determining whether an Arrangement contains a Lease.IFRIC 4

b. Micro Level Differences:

At Micro Level, to mention few, the differences are :

No fixed rates for Depreciation.

Revenue to be recognised at fair-value.

Revenue to be split into identifiable transactions.

Accounting for Customer Royalty.

Use of effective interest method for recognising Interest Incomes &


Expenses.

Detailed exhaustive accounting for derivatives & hedge accounting


Concept of discounting.

Treating Redeemable shares as debts and not capital.

Provisions extending beyond a year to be discounted.

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Disclosures are voluminous & enormous as compared to Indian
Standards.

No Prior Period Items- Restatement is going to be more often than


otherwise.

No extraordinary items.

In terms of presentation, it will have impact on the form and the


contents of the Financial Statements.

Financial Statements – IFRS Financial Statements – I GAAP


Statement of Financial Position Balance Sheet
Statement of Comprehensive Profit & Loss Accounts
Income – ( OCI )
Statement of Cash Flow Statement of Cash Flow
Statement of Changes in Equity (Not a separate statement)
Notes to accounts Notes to accounts
In case of restatements – Opening Not required
Balance Sheets of the earliest
comparative period

3. Impact of IFRS on Indian Industries

As a result of different recognition criteria of income, the IFRS is going to


affect almost all the industries across the board.

However, the industries which are going to get affected the most are
Realty Sector, Banking, Oil & Gas Industries, telephone & telecom
industries , rate regulated entities.

Consolidation is a must not only of the controlled entities but also that of
the entities where the entity is a beneficiary, as a result of concept of
Special Purpose Vehicle.

Impact will not only be on just the accounting but also on the Internal
Control, corporate governance and internal audits as well.

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4. Status of IFRS in India

As mentioned earlier above, INDIA is converging with IFRS. ASB &


NACAS are in process of finalising Indian Converged Standards, tentatively
titled as “Ind-AS”. These Standards will form part of first set of Accounting
Standards & will be applicable to Phase – I Companies.”

As mentioned earlier , India is converging with IFRS and not ADOPTING


IFRS, there will be some deviation from the IFRS as adopted by IASB.

To mention few of them :

1. IAS 41 may not be accepted in full, it stress rigorous rules for fair
valuation of agricultural products.

2. Negative goodwill, i.e., gain on bargain purchase is recognised as IFRS


in Profit or loss Accounts. But under the proposed Indian standards it will
be recognised in Capital reserves and NOT in Profit & Loss Account.

3. It is proposed that Corridor approach will not be followed for Employee


Cost in IAS 19.

4. For 1st Time adoption comparatives will not be given for one year. For
example, if the company’s First IFRS Financial Statements are for the year
end 1st March, 2012. In that case, the date of transition would be 1 st
April,2010, and the entity has to give comparatives of 2010-11 as per IFRS
along with 2011-12 , which is naturally as per IFRS.

However, in Indian context, 1st IFRS Financial Statements are that for the
year ended 31st March,2012, and the date of transition will be 1st
April,2011 and there is no onus of giving comparatives for 2010-11 as
per IFRS.

Once the standards are adopted by NACAS and notified, one will be able
to ascertain the exact differences between IFRS and Indian version of
IFRS.

5. Opportunities for Indian CAs.


IFRS is opening deluge of opportunities for Indian CA fraternity. There is
a huge demand for IFRS trained CAs, not only in India but abroad also.

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Knowledge of IFRS will take you beyond the boundaries of India. As this
will preclude the need to learn accounting afresh for any international.

Besides , IFRS , one can also pursue valuation course. Fair value is going to
be used more frequently then otherwise. This will increase the need of
qualified valuers.

6. As an Auditor also you also know IFRS.

Even if one is not associated with conversion of IFRS assignment, as an


Auditor one needs to be conversant with IFRs. In fact, the responsibility of
Auditor will get compounded after adoption of IFRS. IFRS involves many
judgements , hence proper documentation need to be done and verified by the
Auditor. Use of an expert\ specialist will be more frequent than now.

End of Document

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