Indian Accounting Standards (Including IFRS) LEARNING OBJECTIVES ee pee » To define the Preface to the statements of Accounting Standards. > To state the meaning and significance of Accounting Standards. > To understand the advantages and disadvantages of Setting Accounting Standards. > To know the applicability of Ind AS. > To know the Accounting Standard setting up process in India. > To highlight the list of all IAS /IFRS issued. » To understand the International Accounting Standards and need of convergence of Accounting Standards. The Institute of Chartered Accountants of India being the premier accounting body in India has tried to improve its accounting standards continuously in the country. However, the most important step in developing accounting standards in the country has been setting up of an Accounting Standards Board in 1977. Important function of this Board is to formulate accounting standards so that such standards will be established by the Council of the Institute of Chartered Accountants. It has been made clear by the Institute that while formulating the accounting standards, the Accounting Standards Board (ASB) will keep in view customs, usages, applicable laws and the business environments in India and the Institute of Cost Accountants of India and the International Accounting Standards issued by the International Accounting Standards Committee. It is gratifying to note that the Institute of Chartered Accountants of India and the Institute of Cost Accountants of India are both members of International Accounting Standards Committee. This development will go a long way in the uniform adoption of International Accounting Standards in the country. The standards formulated by Accounting Standards Board are initially recommendatory in nature, but many organisations in the corporate sector have adopted these standards voluntarily. In the formulation and finalisation of accounting standards, the Accounting Standards>» INDIAN ACCOUNTING STANDARDS (INCLUDING iFpe Board seeks the views and guidance of industrial concerns, governments and other interested parties, The establishment of the Accounting Standards Board (ASB) itseip marked a commendable effort by the Institute of the Chartered Accountants in it, endeavour to formulate and harmonise accounting practices, and has played a significan, role in improving corporate practices. PREFACE TO THE STATEMENTS OF ACCOUNTING STANDAR| 1. Formation of the Accounting Standards Board — 1.1. The Institute of Chartered Accountants of India (ICA), recognising the need to harmonise the diverse accounting policies and practices in use in India, constituted the Accounting Standards Board (ASB) on 21st April, 1977. ition of the ASB is fairly broad-based and ensures participation of al] iaisesterars in the standard-setting process. Apart from the elected members of the Council of the ICAI nominated on the ASB, the following are represented on the ASB: 1.2. @ @w ii) @) @) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) Nominee of the Central Government representing the Department of Company Affairs on the Council of the ICAI. Nominee of the Central Government representing the Office of the Comptroller and Auditor General of India on the Council of the ICAI. Nominee of the Central Government representing the Central Board of Direct Taxes in the Council of the ICAI. Representative of the Institute of Cost and Works Accountants of India. Representative of the Institute of Company Secretaries of India. Representatives of Industry Associations (1 from Associated Chambers of Commerce and Industry (ASSOCHAM), 1 from Confederation of Indian Industry (CII) and 1 from Federation of Indian Chambers of Commerce and Industry (FICCI). Representative of Reserve Bank of India. Representative of Securities and Exchange Board of India. Representative of Controller General of Accounts. Representative of Central Board of Excise and Customs. Representatives of Academic Institutions (1 from Universities and 1 from Indian Institutes of Management). Representative of Financial Institutions. Eminent professionals co-opted by the ICAI (they may be in practice or in industry, government, education, ete.). Chairman of the Research Committee and the Chairman of the Expert Advisory Committee of the ICAI, if they are not otherwise members of the Accounting Standards Board. Representative(s) of any other body, as considered appropriate by the ICAI.INDIAN ACCOUNTING STANDARDS (INCLUDING IFRS) i 2. Objectives and Functions of the Accounting Standards Board 2.1. Following are the objectives of the Accounting Standards Board: (i) To conceive of and suggest areas in which accounting standards need to be developed. (i) To formulate Accounting Standards with a view to assisting the Council of the ICAI in evolving and establishing Accounting Standards in India. (iii) To examine how far the relevant International Accounting Standard/ International Financial Reporting Standard (see paragraph 2.3 below) can be adapted while formulating the Accounting Standard and to adapt the same. (iv) To review, at regular intervals, the Accounting Standards from the point of view of acceptance or changed conditions, and, if necessary, revise the same. (v) To provide, from time to time, interpretations and guidance on Accounting Standards. (vi) To carry out such other functions relating to Accounting Standards. 2.2. Important function of the ASB is to formulate Accounting Standards so that such standards may be established by the ICAI in India. While formulating the Accounting Standards, the ASB will take into consideration the applicable laws, customs, usages and business environment prevailing in India. 2.3. The ICAI, being a full-fledged member of the International Federation of Accountants (IFAC), is expected, inter alia, to actively promote the International Accounting Standards Board's (IASB) pronouncements in the country with a view to facilitate global harmonisation of accounting standards. Accordingly, while formulating the Accounting Standards, the ASB will give due to consideration to International Accounting Standards (IASs) issued by the International Accounting Standards Committee (Predecessor body to IASB) or International Financial Reporting Standards (IFRSs) issued by the IASB, as the case may be, and try to integrate them, to the extent possible, in the light of the conditions and practices prevailing in India. 2.4. The Accounting Standards are issued under the authority of the Council of the ICAI. The ASB has also been entrusted with the responsibility of propagating the Accounting Standards and of persuading the concerned parties to adopt them in the preparation and presentation of financial statements. The ASB will provide interpretations and guidance on issues arising from Accounting Standards. The ASB will also review the Accounting Standards at periodical intervals and, if necessary, revise the same. 3. General Purpose Financial Statements 3.1. For discharging its functions, the ASB will keep in view the purposes and limitations of financial statements and the attest function of the auditors. The ASB will enumerate and describe the basic concept to which accounting principles should be oriented and state the accounting principles to which the practices and procedures should conform. 3.2. The ASB will clarify the terms commonly used in financial statements and suggest improvements in the terminology wherever necessary. The ASB will3.3. 3.4. 3.5. INDIAN ACCOUNTING STANDARDS (INCLUDING ire examine the various current alternative practices in vogue and endeavour , eliminate or reduce alternatives within the bounds of rationality. Accounting Standards are designed to apply to the general purpose finangia) statements and other financial reporting, which are subject, to the attest, function of the members of the ICAI. Accounting Standards apply in respect ¢ any enterprise (whether organised in corporate, co-operative or othe, forms) engaged in commercial, industrial or business activities, irrespective o¢ whether it is profit oriented or it is established for charitable or religioy, purposes. Accounting Standards will not, however, apply to enterprises only carrying on the activities which are not of commercial, industrial or business nature. (e.g., an activity of collecting donations and giving them to flood affecteg people), Exclusion of an enterprise from the applicability of the Accounting Standards would be permissible only if no part of the activity of such enterprise is commercial, industrial or business in nature. Even if a very small proportion of the activities of an enterprise is considered to be commercial, industrial or business in nature, the Accounting Standards would apply to all its activities including those which are not commercial, industrial or business in nature. The term ‘General Purpose Financial Statements’ includes balance sheet, statement of profit and loss, a cash flow statement (wherever applicable) and statements and explanatory notes which form part thereof, issued for the use of various stakeholders, Governments and their agencies and the public. References to financial statements in this Preface and in the standards issued from time to time will be construed to refer to General Purpose Financial Statements. Responsibility for the preparation of financial statements and for adequate disclosure is that of the management of the enterprise. The auditor's responsibility is to form his opinion and report on such financial statements. 4. Scope of Accounting Standards 4.1. 4.2. 4.3. Efforts will be made to issue Accounting Standards which are in conformity with the provisions of the applicable laws, customs, usages and business environment in India. However, if a particular Accounting Standard is found to be not in conformity with law, the provisions of the said law will prevail and the financial statements should be prepared in conformity with such law. The Accounting Standards by their very nature cannot and do not override the local regulations which govern the preparation and presentation of financial statements in the country. However, the ICAI will determine the extent of disclosure to be made in financial statements and the auditor's report there0”: Such disclosure may be by way of appropriate notes explaining the treatment of particular items. Such explanatory notes will be only in the nature % clarification and therefore need not be treated as adverse comments on thé related financial statements, The Accounting Standards are intended to apply only to items which af material. Any limitations with regard to the applicability of a specif” Accounting Standard will be made clear by the ICAI from time to time. The dat® from which a particular Standard will come into effect, as well as the class enterprises to which it will apply, will also be specified by the ICAI. However ™ standard will have retroactive application, unless otherwise stated.INDIAN ACCOUNTING STANDARDS (INCLUDING IFRS) Ea 4.4. 4.5, 4.6. 4.7. 5. Procedure for Issuing an Accounting Standard The Institute will use its best endeavours to persuade the Government, appro- priate authorities, industrial and business community to adopt the Accounting Standards in order to achieve uniformity in preparation and presentation of financial statements. In formulation of Accounting Standards, the emphasis would be on laying down accounting principles and not detailed rules for application and implementation thereof. ‘The Standards formulated by the ASB include paragraphs in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. An individual standard should be read in the context of the objective stated in that standard and this Preface. ‘The ASB may consider any issue requiring interpretation on any Accounting Standard. Interpretations will be issued under the authority of the Council. The authority of Interpretation is the same as that of Accounting Standard to which it relates. Broadly, the following procedure is adopted for formulating Accounting Standards: 5.1. 5.2. 5.3. 54, 5.5. The ASB determines the broad areas in which Accounting Standards need to be formulated and the priority in regard to the selection thereof. In the preparation of Accounting Standards, the ASB will be assisted by Study Groups constituted to consider specific subjects. In the formation of Study Groups, provision will be made for wide participation by the members of the Institute and others. The draft of the proposed standard will normally include the following : (@) Objective of the Standard, (6) Scope of the Standard, (c) Definitions of the terms used in the Standards, (@_ Recognition and measurement principles, wherever applicable, (e) Presentation and disclosure requirements. The ASB will consider the preliminary draft prepared by the Study Group and if, any revision of the draft is required on the basis of deliberations, the ASB will make the same or refer the same to the Study Group. The ASB will circulate the draft of the Accounting Standard to the Council members of the ICAI and the following specified bodies for their comments: () Department of Company Affairs (DCA) (i) Comptroller and Auditor General of India (C&AG) (iii) Central Board of Direct Taxes (CBDT) (iv) The Institute of Cost and Works Accountants of India (ICWALD (v) The Institute of Company Secretaries of India (ICSD (vi) Associated Chambers of Commerce and Industry (ASSOCHAM), Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI)5.6. 5.7. 5.8. 5.9. 5.10. 5.11. INDIAN ACCOUNTING STANDARDS Reserve Bank of India (RBI) Securities and Exchange Board of India (SEBI) (ix) Standing Conference of Public Enterprises (SCOPE) (x) Indian Bank’s Association (IBA) Gai) Any other body considered relevant by the ASB Keeping in view «| nature of the Accounting Standard thy The ASB will hold a meeting with the representatives of specified bodieg ascertain their view on the draft of the proposed Accounting Standard, os? basis of comments received and discussion with the representatives of specin® bodies, the ASB will finalise the Exposure Draft of the proposed Ac, Standard. The Exposure Draft of the proposed standard will be issued for comments by ty members of the Institute and the public. The Exposure Draft will Specifically 4, sent to specified bodies (as listed above), stock exchanges, and other interes groups, as appropriate. After taking into consideration the comments received, the draft of the proposed standard will be finalised by the ASB and submitted to the Council of the ICA, The Council of the ICAI will consider the final draft of the proposed Standard, and if found necessary, modify the same in consultation with the ASB. The Accounting standard on the relevant subject will then be issued by the ICAI. For a substantive revision of an Accounting Standard, the procedure followed for formulation of a new Accounting Standard, as detailed above, will be followed, Subsequent to issuance of an Accounting Standard, some aspect(s) may require revision which are not substantive in nature. For this purpose, the ICAI may make limited revision to an Accounting Standard. The procedure followed for the limited revision will substantially be the same as that to be followed for formulation of an Accounting Standard, ensuring that sufficient opportunity is given to various interest groups and general public to react to the proposal for limited revision. Counting 6. Compliance with the Accounting Standards 6.1. 6.2. The Accounting Standards will be mandatory from the respective date(s) mentioned in the Accounting Standard(s). The mandatory status of at Accounting Standard implies that while discharging their attest functions, it will be the duty of the members of the Institute to examine whether the Accounting Standard is complied with in the presentation of financial statements covered by their audit. In the event of any deviation from the Accounting Standard, it will be their duty to make adequate disclosures in theit audit reports so that the users of financial statements may be aware of such deviation. Ensuring compliance with the Accounting Standards while preparing th® financial statements is the responsibility of the management of the enterprise Statutes governing certain enterprises require of the enterprises that Ga financial statements should be prepared in compliance with the India’ Accounting Standards, e.g., the Companies Act, and the Insurance RegulatoryINDIAN ACCOUNTING STANDARDS (INCLUDING IFRS) 13: and Development Authority (Preparation of Financial Statements and Auditor's Report of Insurance Companies Regulations, 2000. 6.3. Financial Statements cannot be described as complying with the Accounting Standards unless they comply with all the requirements of each applicable Standard. Meaning and Definition of Accounting Standards ‘Accounting standards are written/policy documents issued by the government or professional institutes or other regulatory body covering various aspects of recognition, measurement, treatment, presentation and disclosure of accounting transactions in the financial statements. According to T.P. Ghosh “Accounting Standards are the policy documents issued by the recognised expert accountancy body relating to various aspects of measurement, treatment and disclosure of accounting transactions and events.” Kohler has also defined accounting standard as “a mode of conduct imposed on accountants by custom, law or professional body.” Significance of Accounting Standards Accounting Standards play an important role to facilitate uniform preparation and reporting of general purpose financial statements published annually for the benefit of various users of such statements. They are very useful for investors and other external groups in assessing the progress and prospects of alternative investments in different entities in different countries. Standards will help all users of reading financial statements on a true and fair view on uniform basis. They become reliable, uniform and consistent. Accounting standards will raise the standards of audit itself in its tasks of reporting in the financial statements. The standard accounting reports published shall be easily aggregated and used particularly if they are concerned with the meaning-fulness of the number for the purposes of economic planning, market analysis and the like. All of these factors have been important determinants of the establishment of accounting standards. Advantages and Disadvantages of Setting Accounting Standards The Accounting Standards seek to describe the accounting principles, the valuation techniques and methods of applying the accounting principles in the preparation and presentation of financial statements so that they may give a true and fair view. The ostensible purpose of the standard setting bodies is to promote the dissemination of timely and useful financial information to investors and certain other parties having an interest in entities’ economic performance. The setting of accounting standards has the following advantages : (i) Standards reduce to a reasonable extent or eliminate altogether confusing variations in the accounting treatment used to prepare financial statements. (ii) There are certain areas where important information are not statutorily required to be disclosed. Standards may call for disclosure beyond that required by law. (iii) The application of accounting standards would, to a limited extent, facilitate comparison of financial statements of enterprises situated in different parts of the world and also of different enterprises situated in the same country.| = INDIAN ACCOUNTING STANDS Ng + that differences in t, However, it should institutions, rise to differences 1 ‘Accounting standa: different groups of different so there w' standards will provi party will have the conflicts between dit @) However, there a1 (@ Alternative solutions to certain recommend them. Therefore, ‘accounting treatments may becom (ii) There may be trend towards rigidity an accounting standards. (iii) Accounting standards cannot override th be noted in this traditions and legal in accounting standards rds are the tool society. It is tru ill be conflict b de uniformity in knowledge of the § fferent groups of society. re some disadvantages of setting ect fea one country to another giy, practiced jn different countries, the financial conflict between j f each stake holder ; he interest of ig that the Mie interests. The Accounting a the accounting treatment. Hence eag}, affairs ; it will reduce the financiaj 1 systems is to remove of accounting standards : roblems may have arguments tp tiny 7 accounting Pro” ween different alternative the choice e difficult. _ ; d away from flexibility in applying the e statute. The standards are required to be framed within the ambit of prevailing statutes. List of Indian Accounting Standards (i.e. Ind AS) The Ministry of Corporate issued the Companies (Indian ‘Affairs through notification dated February 16, 2015 has ‘Accounting Standards) Rules, 2015 which lay down a roadmap for companies other than insurance companies, banking companies and non- banking finance companies for implementation of Ind AS converged with IFRS. The notification of these IFRS converged standards fills up the gaps that exist in the previous accounting guidance and India now can claim to have financial reporting standards that are virtually at par with the leading global standards. This will improve India’s place in global ranking on corporate governance and transparency in financial reporting. A list of these standards is given below : Indian Accounting Standard (Ind AS) 101 Indian Accounting Standard (Ind AS) 102 Indian Accounting Standard (Ind AS) 103 Indian Accounting Standard (Ind AS) 104 Indian Accounting Standard (Ind AS) 105 Indian Accounting Standard (Ind AS) 106 Indian Accounting Standard (Ind AS) 107 Indian Accounti i ing Standard (Ind AS) 1 Indian Accounting Standard (Ind AS) ioe ing Standard (Ind AS) 110 ae eyandard (Ind AS) 111 ing Standard (Ind AS) i Aagpunting Standard (Ind AS) 335 Thdian ting Standard (Ind AS) 114 First-time Adoption of Indian Accounting Standards Share-based Payment Business Combinations Insurance Contracts Non-current Assets Held for Sale and Discontinued Operations Explorati . Revornation for and Evaluation of Mineral Financial Instruments : Disclosures Operating Segments Financial Instruments Consolidated Fi " manci solnt Arrangemente anaes ere fe Interests in Other Entries easurement gulatory Deferral AccountsINDIAN ACCOUNTING STANDARDS (INCLUDING IFRS) az Indian Accounting Standard (Ind AS) 115 Indian Accounting Standard (Ind AS) 1 Indian Accounting Standard (Ind AS) 2 Indian Accounting Standard (Ind AS) 7 Indian Accounting Standard (Ind AS) 8 Indian Accounting Standard (Ind AS) 10 Indian Accounting Standard (Ind AS) 12 Indian Accounting Standard (Ind AS) 16 Indian Accounting Standard (Ind AS) 17 Indian Accounting Standard (Ind AS) 19 Indian Accounting Standard (Ind AS) 20 Indian Accounting Standard (Ind AS) 21 Indian Accounting Standard (Ind AS) 23 Indian Accounting Standard (Ind AS) 24 Indian Accounting Standard (Ind AS) 27 Indian Accounting Standard (Ind AS) 28 Indian Accounting Standard (Ind AS) 29 Indian Accounting Standard (Ind AS) 32 Indian Accounting Standard (Ind AS) 33 Indian Accounting Standard (Ind AS) 34 Indian Accounting Standard (Ind AS) 36 Indian Accounting Standard (Ind AS) 37 Indian Accounting Standard (Ind AS) 38 Indian Accounting Standard (Ind AS) 40 Indian Accounting Standard (Ind AS) 41 Applicability of Ind AS Revenue from Contracts with Customers Presentation of Financial Statements Inventories Statement of Cash Flows Accounting Policies, Changes in Accounting Estimates and Errors Events after the Reporting Period Income Taxes Property, Plant and Equipment Leases Employee Benefits Accounting for Government Grants and Disclosure of Government Assistance The Effects of Changes in Foreign Exchange Rates Borrowing Costs Related Party Disclosures Separate Financial Statements Investments in Associates and Joint Ventures Financing Reporting in Hyperinflationary Economics Financial Instruments : Presentation Earnings per Share Interim Financing Reporting Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Intangible Assets Investment Property Agriculture As per the notification released by the Ministry of Corporate Affairs (MCA) on 16 February 2015, the roadmap for Ind AS implementation is as follows: Financial Year | Mandatorily Applicable To: 2016-17 | greater than 500 crore INR 2017-18 f npanies wh ‘crore INR and all listed companies 2018-19 | onwards : - 2015-16 or Entities, not under the mandatory roa later adopt Ind AS Companies (listed and unlisted) whose net worth is equal to or| ‘Unlisted companies whose net worth is equal to or greater than 250 | When a company’s net worth becomes greater than 250 crore INRON : INDIAN ACCOUNTING STANDARDS (INCLUDING fe Whenever a company gets covered under the roadmap, Ind AS becomes mandato its holding, subsidiary, associate and joint venture companies will also have to adopt Inj AS (irrespective of their net worth). For the purpose of computing the net wo, reference should be made to the definition under the Companies Act, 2013. In accordance with section 2 (57) of the Companies Act, 2013, net worth is computed as follows: Net worth means the aggregate value of the paid-up share capital and all reserye, created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure no, written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation. Ind AS will apply to both consolidated as well as standalone financial statements of company. While overseas subsidiary, associate or joint venture companies are not required to prepare standalone financial statements under Ind AS, they will need to prepare Ind AS adjusted financial information to enable consolidation by the Indian parent. Presently, insurance companies, banking companies and non- banking finance companies (NBFCs) are not required to apply Ind AS. The Ind AS rules are silent when these companies are subsidiaries, associates or joint ventures of a parent covered under the roadmap. It appears that these companies will need to report Ind AS adjusted financial information to enable consolidation by the parent. In case of conflict between Ind AS and the law, the provisions of law will prevail and financial statements are to be prepared in compliance with the law. Principles of Ind AS The entities’ general purpose financial statements give information about performance, position and cash flow that is useful to a different users in making financial decisions. These users include shareholders, creditors, employees and the general public. A complete set of financial statements under Ind AS includes the following: © Balance sheet at the end of the period © Statement of profit and loss for the period © Statement of changes in equity for the period . Statement of cash flows for the period; notes, comprising a summary of significant accounting policies and other explanatory information Comparative financial information in respect of the preceding period as specified Balance sheet as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement ° items in its financial statements, or when it reclassifies items in its financial statements having an impact on the balance sheet as at the beginning of the preceding period. India has chosen a path of International Financial Reporting Standards (IFRS) convergence rather than adoption. Hence, Ind AS are primarily based on the IFRS issue by the International Accounting Standards Board (IASB). However, there are certain carve-outs from the IFRS. There are also certain general diff e Ind AS an IFRS. These differences are stated here under: | erences between InINDIAN ACCOUNTING STANDARDS (INCLUDING IFRS) The transitional provisions given in each of the standards under IFRS have not been given in Ind AS, since all transitional provisions related to Ind AS, wherever considered appropriate, have been included in Ind AS 101, First-Time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-Time Adoption of International Financial Reporting Standards. © Different terminology is used in Ind AS when compared to IFRS, e.g. the term ‘palance sheet’ is used instead of ‘statement of financial position’ and ‘statement of profit and loss’ is used instead of ‘statement of comprehensive income’. Salient Features of First-Time Adoption of IND AS: IND AS 101 ‘An entity moving from Indian GAAP to Ind AS needs to apply the requirements of Ind AS 101. It applies to an entity’s first Ind AS financial statements and the interim reports presented under Ind AS 34, ‘Interim financial reporting’, which are part of that period. The basic requirement is for full retrospective application of all Ind AS, effective at the reporting date. However, there are a number of optional exemptions and mandatory exceptions to the requirement of retrospective application. ‘The exemptions cover standards for which it is considered that retrospective application could prove too difficult or could result in a cost likely to exceed related benefits to users. The exemptions are optional. Any, all or none of the exemptions may be applied. The optional exemptions relate to the following: © Share-based payment transactions © Insurance contracts © Deemed cost © Leases * Cumulative translation differences Investment in subsidiaries, joint ventures and associates Assets and liabilities of subsidiaries, joint ventures and associates Compound financial instruments Designation of previously recognised financial instruments ccee Fair value measurement of financial assets or financial liabilities at initial recognition Decommissioning liabilities included in the cost of property, plant and equipment . Financial assets or intangible assets accounted for in accordance with service concession arrangements Borrowing costs Extinguishing financial liabilities with equity instruments Severe hyperinflation Joint arrangements Stripping costs in the production phase of a surface mine Designation of contracts to buy or sell a non-financial item> i °;”»}» INDIAN ACCOUNTING STANDARDS: © Revenue from contracts with customers © Non-current assets hel Further, there are mandatory exce] summarised below: Derecognition of financi Hedge accounting Non-controlling interests Classification and measurement of financial assets Impairment of financial assets Embedded derivatives Government loans e Estimates Comparative information is prepar continued operations 1d for sale and dis ying the Ind AS requirements ., ptions in app! ‘al assets and liabilities ed and presented on the basis of Ind AS. Almost al, adjustments arising from the first-time application of Ind AS are adjusted against opening retained earnings (or, if appropriate, another category of equity) of the first period that is presented on an Ind AS basis. Disclosures of certain reconciliations from Indian GAAP to Ind AS are required. ‘This standard does not provide exemptions from the presentation and disclosure requirements in other Ind ASs. The standard requires that an entity's first Ind AS founcial statements shall include at least three Balance Sheets, two Statements of Profit and Loss, two Statements of Cash Flows and two Statements of Changes in Equity and related notes, including comparative information for all statements presented. This , statement also requires that an entity shall explain how the transition from previous GAPP to Ind ASs affected the reported Balance Sheet, financial performance and cash flows. INTERNA’ |AL FINANCIAL REPORTING STANDARDS (IFRS) Introduction IFRS is not a monster which is going to gobble up the existing Financial Reporting System practiced by the corporate in India. Rather, it is a much refined system of Financial Reporting which is going to benefit all the stakeholders in the years to com: together with improved Corporate Governance and increased free flow of capital across the globe. : Likewise, implementation of convergence with IFRS is not at all a complex exercis? giving tension, stress and sleepless nights to the CEOs and CFOs. On the contrary itis = excellent opportunity of learning an advanced system of Financial Reporting fo" veryone engaged in the Accounting, Financ’ d Ai i in every business organisation. ing and Auditing functions at every ler! At the same time, IFRS is not an entirel, inancii i J » TF ly new Financial Reporting System for us? ae Generally speaking, the current Indian GAAP covers 76-80% of IFRS already: Therefore, am only needs to learn this remaining 20-25% portion of the IFRS to facilitate com] i isati i ‘i eae ance by his/her organisation and continue Financial Reporting under IF a iINDIAN ACCOUNTING STANDARDS (INCLUDING IFRS) what is IFRS ? ‘The term IFRS has both, a narrow and a broad meaning. Narrowly, IFRS refers to the new numbered series of pronouncements that the IASB is issuing, as distinct from the IAS series issued by its predecessor IASC. * More broadly, IFRS refers to the entire body of IASB pronouncements, including Standards and Interpretation approved by the IASB, IASC, and SIC. + IFRS is principle based Standards, drafted lucidly and 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 in IFRS is more towards getting the balance sheet right and hence brings significant volatility in the income statement. Features of IFRS Following are the main features of IFRS : (i) IFRS are principle-based standard as compared to rule based standards. (ii) IFRS are drafted in clear and simple language and are easy to understand and apply. (ii) IFRS emphasis that various transactions should be treated on the basis of their economic substance. (iv) Fixed assets are recorded at current cost under the IFRS. (v) The assets, liabilities, revenues and expenses under IFRS are reported in functional currency of the place where the entity operates. (vi) Under IFRS the useful life of the asset has to be computed again and again until the asset is removed from the books of accounts. (vii) Under IFRS, depreciation is not calculated on the total value of an asset but on the cost of component parts of the equipment or asset (i.e. Component Accounting). Objectives behind IFRSs (i) To develop a single set of high quality, understandable and enforceable global accounting standards that will form the stable platform for international accounting. (ii) The correct adoption of IFRSS will bring more transparency and a higher degree of comparability, both of which promise many benefits for the organisations as well as economies. Assumptions in IFRS @ Going Concern Assumption i. indefinite period of time in the future. (ii) Measuring Unit Assumption i.e. assets and liabilities are shown in the Balance Sheet at current or fair value. (iii) Accrual Assumption i.e., transactions are recorded on accrual basis. (iv) Constant Purchasing Power Assumption i.e., the value of capital would be adjusted to price index at the end of each financial year. the entity would continue to exist for anUERES INDIAN ACCOUNTING STANDARDS (INCLUDING MSIF RG) Since 2001 the Accounting Standards issued by the International Accoyn, i Standard Board are designated as International Financial Reporting Standards (Fy ng IASB achieves its objectives primarily by developing and publishing Internatig, Financial Reporting Standards (IFRSs) for general purpose financial statements | other financial reporting. The objective of International Financial Reporting Standards’ to meet the common information needs of wide range of users such as shareholde.’ creditors, employees and public at large relating to financial statements. , List of International Financial Reporting Standards So far IASB has issued fifteen Financial Reporting Standards given as follows : IFRS-1. First-time Adoption of International Financial Reporting Standards IFRS-2. Share-based Payment 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 : Disclosures IFRS-8. Operating Segments IFRS-9. Financial Instruments IFRS 10. Consolidated Financial Statements IFRS 11. Joint Arrangements IFRS 12. Disclosure of Interests in Other Entities IFRS 13. Fair Value Measurement IFRS 14. Regulatory Deferral Accounts IFRS 15. Revenue from Contracts with Customers Difference Between IFRS and Indian GAAP or Accounting Standards (i) IFRS are based on principles contrary to the Indian Accounting Standards which are based on rules. For example under Schedule III of the Companies Act, redeemable preference share are shown under the head ‘Share Capital’ but IFRS require that it should be shown under the head ‘loan’. (i) IFRS are based on the concept of ‘Fair value’ but Indian Accounting Standards are based on the concept of ‘Historical Cost’ concept. Need for Convergence with IFRSs The globalisation of the business world and the regulations, which support it, as we! as the development of e-commerce make it imperative to have a single globally accept financial reporting system. A number of multi-national companies are establishing the businesses in various countries with emerging economies and vice versa. The entities emerging economies are increasingly accessing the global markets to fulfill their capit needs by getting their securities listed on the stock exchanges outside their countt’ Capital markets are, thus, becoming integrated consistent with this World-wide tre” JINDIAN ACCOUNTING STANDARDS (INCLUDING IFRS) TE More and more Indian companies are also being listed on overseas stock exchanges. Sound financial reporting structure is imperative for economic well-being and effective functioning of capital markets, The use of different accounting frameworks in different countries, which require inconsistent treatment and presentation of the same underlying economic transactions, creates confusion for users of financial statements. This confusion leads to inefficiency in capital markets across the world. Therefore, increasing complexity of business transactions and globalisation of capital markets call for a single set of high quality accounting standards. High standards of financial reporting strengthen the trust investors place in financial and non-financial information. Thus, it has become the need of the day to have a single set of globally accepted accounting standards has prompted many countries to pursue convergence of national accounting standards with IFRSs. Benefits of Achieving Convergence with IFRSs The economy, investors, industry and accounting professionals all stand to gain from the convergence. () The Economy : The convergence benefits the economy by increasing growth of its international business. It assists the maintenance of orderly and efficient capital markets and also helps to increase the capital formation and thereby economic growth. It encourages international investors to invest and thereby leads to more foreign capital flows to the country. (ii) Investors : The investors who wish to invest outside their own country want the information that is more relevant, reliable, timely and comparable across the jurisdictions. Financial statements prepared using a common set of accounting standards help investors better understand investment opportunities as opposed to financial statements prepared using a different set of national accounting standards. To understanding the financial statements better, global investors have to incur more cost in terms of the time and efforts to convert the financial statements so that they can confidently compare opportunities. Investors’ confidence would be strong if accounting standards used are globally accepted. Convergence with IFRSs add to investors’ understanding and confidence in high quality financial statements. The industry : The industry is able to raise capital from foreign markets at lower cost if it can create confidence in the minds of foreign investors that their financial statements comply with globally accepted accounting standards. With the diversity in accounting standards from country to country, enterprises which operate in different countries face a multitude of accounting requirements prevailing in the countries. The burden of financial reporting reduces with convergence of accounting standards because it simplifies the process of preparing the individual, group financial statements, and thereby reduces the costs of preparing the financial statements using different sets of accounting standards. (iv) The accounting professionals : It offers accounting professionals more opportunities in any part of the world if same accounting practices prevail throughout the world. They are able to advise the clients on financial reporting to fulfil the compliance of any regulatory body of any country of the world.ACCOUNTING 90 a es ii it people s And Chalien fits as may be looked outs, the diftey convergence Wl Despite several Li that will be faced 07 the way 0! ° i will be several challen se tL IFRS : Adoption of IFRS means that the entire tf 1. Difference in GAAP an wed to undergo & drastic change. eeee ma financial statements will be reared henge to bring ‘about awarent s “i ide and very deep routed. | 7 eee paane the users of financial an og facilities ene d 2, Training and Education : Lach” © need to be educated on IFRS and it, TERS will also pose challenge in India, — TT) officer and Vice Chairman of the Bo application Cae Noi praca ‘Deloitte &Touche partner noted that’Educating ofAT&T Corporation Or they must do their business is not a trivial activity,” 100,000 employees ulatory Considerations : Currently, the repomine tea tvertenty 8. Legal and fjous regulators in India and their provisions override other lays, SFR does not Necogmise such overriding laws. The regulatory and Lae ee in) TERS dor ot a challenge unless the same is been addressed by resbective SUR tory. Taxation : IFRS convergence would affect most of the items in the financial, 1 abilities would also undergo a change. Thus the statements and consequently the tax uld als de taxation laws should address the treatment of tax liabilities arising on convergence from | Indian GAAP to IFRS. 5. Fair Value Measurement : IFRS uses fair value as a measurement base for valuing most of the items of financial statements. The use of fair value accounting can _ bring a lot of volatility and subjectivity to the financial statements. It also involves a lot of hard work in arriving at the fair value and valuation experts have to be used. 6. Re-negotiation of Contract : The contracts would have to be re-negotiated which is also a big challenge. This is because the financial results under IFRS are likely to be very different from those under the Indian GAAP 7. Reporting Systems : Companies would have to ensure that the existing business reporting model is amended to suit the reporting requirements of IFRS. The information | systems should be designed to capture new requi quirements related t ent disclosures, related party transactions, etc. 0 Bed assets, Som arene much more than a technical accounting issue. IFRS or Ind AS may rae i af Feet enone ofa company’s day-to-day operations and may eve ported profitability of the business itself. Since the timeline in the roadmapINDIAN ACCOUNTING STANDARDS (INCLUDING IFRS)_ wea a Fe 10. uu. OR What is the legal status of accounting standards in India? OR What is meant by accounting standards ? State briefly the merits of issuing accounting standards. Write a note on Formation of the Accounting Standards Board set up in India. State the objectives and functions of the Accounting Standards Board. Write a note on Scope of Accounting Standards. Describe briefly the procedure for issuing an Accounting Standard. Write a note on compliance with the Accounting Standards. Explain briefly the advantages and disadvantages of setting Accounting Standards. Write a note on the significance of Accounting Standards. OR Write a note on the significance of accounting standards. Are all Indian Accounting Standards mandatory from the very beginning ? Give a list of Ind-ASs. Explain the meaning and need for IFRS. Compare the Ind AS with International Financial Reporting System. (IFRS) Give salient features Ind AS 101.