NFRS Convergences (Final) 21

IFRS
ROADMAP TO
GLOBAL
ACCOUNTING
HIGHWAY
Suvod Associates- "Member TIAG"

IFRS
NEPAL FINANCIAL REPORTING STANDARDS

(NFRS)
By:
CA (Dr) S.K.LAL
B.Sc. , FCA,Ph.D
Email: casushillal@gmail.com
Ph. No. : 09999763018

IFRS
Content
1. About the IFRS Foundation
2. About the IASB
3. About the IFRS Interpretations Committee
4. What are NFRS
5. Why Convergence to IFRS
6. Benefits of Convergence
7. Implementing IFRS/NFRS- converged Standards:

Challenges for SMPs
8. Technical process for Implementing
9. Implementation Strategy
10. Global lesson in IFRS

IFRS
About the IFRS Foundation

IFRS
The IFRS Foundation is an independent, not-for-profit private sector organisation working
in the public interest. Its principal objectives are:
 to develop a single set of high quality, understandable, enforceable and globally accepted
international financial reporting standards (IFRSs) through its standard-setting body, the IASB;
 to promote the use and rigorous application of those standards;
 to take account of the financial reporting needs of emerging economies and small and medium-
sized entities (SMEs); and
 to bring about convergence of national accounting standards and IFRSs to high quality
solutions.
The governance and oversight of the activities undertaken by the IFRS Foundation and its
standard-setting body rests with its Trustees, who are also responsible for safeguarding the
independence of the IASB and ensuring the financing of the organisation. The Trustees are
publicly accountable to a Monitoring Board of public authorities.

IFRS
About the IASB

IFRS
The IASB (International Accounting Standards Board)
The IASB is the independent standard-setting body of the IFRS Foundation. Its
members responsible for the development and publication of IFRSs, including
the IFRS for SMEs and for approving Interpretations of IFRSs as developed by
the IFRS Interpretations Committee (formerly called the IFRIC). All meetings of
the IASB are held in public and webcast. In fulfilling its standard-setting duties
the IASB follows a thorough, open and transparent due process of which the
publication of consultative documents, such as discussion papers and exposure
drafts, for public comment is an important component. The IASB engages
closely with stakeholders around the world, including investors, analysts,
regulators, business leaders, accounting standard-setters and the accountancy
profession.

IFRS
About the IFRS Interpretations

Committee

IFRS
The IFRS Interpretations Committee
The IFRS Interpretations Committee (formerly called the IFRIC) is the

interpretative body of the IASB. The Interpretations Committee comprises voting
members appointed by the Trustees and drawn from a variety of countries and
professional backgrounds. The mandate of the Interpretations Committee is to
review on a timely basis widespread accounting issues that have arisen within the
context of current IFRSs and to provide authoritative guidance (IFRICs) on
those issues. Interpretation Committee meetings are open to the public and
webcast. In developing interpretations, the Interpretations Committee works
closely with similar national committees and follows a transparent, thorough and
open due process.

IFRS
What are NFRS?

IFRS
International
Financial
reporting
Standard (IFRS)
International
Financial
Nepal
Reporting
Accounting
Interpretations
NFRS Standard
(NAS)
Committee
(IFRIC)
Standing
Interpretations
Committee
(SIC)

IFRS
Presently there are 13 Nepal Financial

Reporting Standards, 27 Nepal Accounting
Standards , 16 IFRIC Interpretation excluding
3, 8, 9 & 11 and 8 SICs Interpretation

IFRS NFRS GROUPED INTO FOUR SEGMENTS
A) PRESENTATION STANDARDS
1. First –time Adoption of NFRS - NFRS 1
2. Presentation of Financial Statements - NAS 1
3. Statements of Cash Flow - NAS 7
4. Accounting Policies, Changes in Accounting Estimates and Errors - NAS 8
B) BALANCE SHEET &PROFIT AND LOSS RELATED STANDARD
5. Share Based Payments - NFRS 2

6. Insurance Contracts - NFRS 4
7. Inventories - NAS 2
8. Construction Contracts - NAS 11
9. Income Taxes - NAS 12
10. Property, Plants and Equipments - NAS 16
11. Leases - NAS 17
12. Revenue - NAS 18
13. Employee Benefits - NAS 19
14. Accounting for Government Grants and Disclosure of Government Assistance - NAS 20
15. The Effects of Changes in Foreign Exchange Rates - NAS 21
16. Borrowing Costs - NAS 23
17. Impairment of Assets - NAS 36
18. Provisions, Contingent Liabilities, and Contingent Assets - NAS 37
19. Intangible Assets - NAS 38
20. Financial Instruments-Recognition and Measurement - NAS 39
21. Investment Property - NAS 40
22. Agriculture - NAS 41
IFRS NFRS GROUPED INTO FOUR SEGMENTS contd….
C) GROUP STATEMENTS STANDARDS

23. Business Combinations - NFRS 3
24. Consolidated and Separate Statements - NAS 27
25. Investments in Associates - NAS 28
D) DISCLOSURE STANDARDS
26. Non-Current Assets held for Sale and Discontinued Operations
- NFRS 5
27. Events after Reporting Period - NAS 10
28. Operating Segments - NFRS 8
29. Related-Party Disclosures - NAS 24
30. Accounting and Reporting by Retirement Benefit Plans - NAS
26
31. Financial Instruments: Presentation - NAS 32

32. Earnings per Share - NAS 33
33. Interim Financial Reporting - NAS 34
34. Exploration for and Evaluation of Mineral Resources - NFRS 6
35. Financial instrument Disclosures - NFRS 7

IFRS
List of NFRSs
S. No. TITLE
NFRS 1 First-time Adoption of Nepal Financial Reporting
1
Standards
2 NFRS 2 Share-based Payment
3 NFRS 3 Business Combinations
4 NFRS 4 Insurance Contracts
NFRS 5 Non-current Assets Held for Sale and Discontinued
5
Operations
6 NFRS 6 Exploration for and evaluation of Mineral Resource
7 NFRS 7 Financial Instruments: Disclosures
8 NFRS 8 Operating Segments
9 NFRS 9 Financial Instruments
10 NFRS 10 Consolidated Financial Statements
11 NFRS 11 Joint Arrangements
12 NFRS 12 Disclosure of Interests in Other Entities
13 NFRS 13 Fair Value Measurement
IFRS
List of NASs
S. No. TITLE
1 NAS 1 Presentation of Financial Statements
2 NAS 2 Inventories
3 NAS 7 Statement of Cash Flows
4 NAS 8 Accounting Policies, Changes in Accounting Estimates and

Errors
5 NAS 10 Events After Reporting Period
6 NAS 11 Construction Contracts
7 NAS 12 Income Taxes
8 NAS 16 Property, Plant and Equipment
9 NAS 17 Leases

IFRS
List of NASs(Contd……..)
10 NAS 18 Revenue
11 NAS 19 Employee Benefits
12 NAS 20 Accounting for Government Grants and Disclosure of Government
Assistance
13 NAS 21 The Effects of Changes in Foreign Exchange Rates
14 NAS 23 Borrowing Costs
15 NAS 24 Related Party Disclosures
16 NAS 26 Accounting and Reporting by Retirement Benefit Plans
17 NAS 27 Consolidated and Separate Financial Statements
18 NAS 28 Investments in Associates
19 NAS 32 Financial Instruments: Presentation

IFRS
List of NASs(Contd……..)
20 NAS 33 Earnings per Share
21 NAS 34 Interim Financial Reporting
22 NAS 36 Impairment of Assets
23 NAS 37 Provisions, Contingent Liabilities and Contingent Assets
24 NAS 38 Intangible Assets
25 NAS 39 Financial Instruments: Recognition and Measurement
26 NAS 40 Investment Property
27 NAS 41 Agriculture

IFRS
List of interpretations (IFRICs)
S. No. TITLE
1 IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar
Liabilities
2
IFRIC 2 Members’ Shares in Co-operative Entities and Similar Instruments
3
IFRIC 4 Determining whether an Arrangement contains a Lease
4
IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds
5 IFRIC 6 Liabilities arising from Participating in a Specific Market—Waste

Electrical and Electronic Equipment
6
IFRIC 7 Applying the Restatement Approach under IAS 29
7
IFRIC 10 Interim Financial Reporting and Impairment
8 IFRIC 12 Service Concession Arrangements

IFRS
List of interpretations (IFRICs) (Contd……)
9 IFRIC 13 Customer Loyalty Programmes
10 IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and their Interaction
11 IFRIC 15 Agreements for the Construction of Real Estate
12 IFRIC 16 Hedges of a Net Investment in a Foreign Operation
13 IFRIC 17 Distributions of Non-cash Assets to Owners
14 IFRIC 18 Transfers of Assets from Customers
15 IFRIC 19 Extinguishing Financial Liabilities with Equity

Instruments/EM>
16
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

IFRS
List of interpretations (SICs)
S. No.
TITLE
1
SIC-7 Introduction of the Euro
2
SIC-10 Government Assistance—No Specific Relation to
Operating Activities
3
SIC-15 Operating Leases—Incentives
4
SIC-25 Income Taxes—Changes in the Tax Status of an Enterprise
or its Shareholders
5
SIC-27 Evaluating the Substance of Transactions Involving the
Legal Form of a Lease
6
SIC-29 Disclosure—Service Concession Arrangements
7
SIC-31 Revenue—Barter Transactions Involving Advertising
Services
8 SIC- 32 Intangible Assets—Web Site Costs

IFRS
Why Convergence
to IFRS/NFRS?
IFRS
• A single set of accounting standards would enable internationally to

standardize training and assure better quality on a global screen.
• It would also permit international capital to flow more freely, enabling

companies to develop consistent global practices on accounting
problems.
• It would be beneficial to regulators too, as a complexity associated

with needing to understand various reporting regimes would be
reduced.
IFRS
Benefits of
Convergence.
IFRS
Single Reporting Increase Comparability
• IFRS/NFRS will give more

• Convergence with comparability among sectors,
IFRS/NFRS eliminates countries and companies.
multiple reporting such as
Indian GAAP, IFRS, US • This will result in more transparent
GAAP financial reporting of a company’s
activities which will benefit investors,
customers and other key stakeholders
in India and overseas
Access to Global Capital Benefits for Investors

Markets
•Convergence with IFRS/NFRS • Financial statements prepared

will enable Indian entities to using a common set of
have easier access to global accounting standards help
capital markets and eliminates investors better understand
barriers to cross-border listings. investment opportunities as
opposed to financial statements
• It encourages international
prepared using a different set of
investing and thereby leads to
national accounting standards
more foreign capital flows to the
country.
IFRS
IFRS/NFRS balance sheet
will be closer to economic Benefits to the
value accounting professional
•Historical cost will be substituted by • Convergence to IFRS/NFRS will

fair values for several balance sheet increase the opportunities for
items, which will enable a corporate Indian professionals in abroad as
to know its true worth they will be able to sell their
services as experts in different parts
of the world
Benefits for the

Industry Improvement in financial
reporting
• Currently companies need to prepare • Better quality of financial reporting due to
additional financial statements based consistent application of accounting
on multiple reporting formats to principles and improvement in reliability
arise capital in global market. of financial statements.
• Convergence with IFRS/NFRS will • This, in turn, will lead to increased trust
eliminate the requirement for dual and reliance placed by investors, analysts
set of financials statements and and other stakeholders in a company’s
thereby reduces the cost of raising financial statements
funds by the companies
IFRS
Implementing IFRS/NFRS- converged

Standards: Challenges for SMPs

IFRS
Timelines for implementation of IFRS/NFRS-converged

Standards (For NEPAL)
ICAN is of the view that IFRS to be adopted for public interest

entities such as listed multinational manufacturing
companies, banking and financial institutions Insurance
companies, and other listed companies on phase wise basis.
The view is further strengthened by convergence process being
initiated by Accounting Standards Board (ASB) of Nepal.

IFRS
Timelines for implementation of IFRS/NFRS-converged
Standards (For NEPAL) contd…...
The non-standing IFRS/NFRS Implementation

Committee chaired by President, ICAN and
representatives from Ministry of Finance, Central
Bank, Insurance Board, Office of the Registrar of
Companies and professional members at its first
meeting held on 29th Mangsir 2068 has decided to
adopt stage-wise approach for implementation of
IFRS for financial reporting.

IFRS
Features of IFRS/NFRS-converged standards
 Principle –based standards
 More use of fair valuation approach
 Substance over form
 More Judgmental elements involved
 Faithfull Representation
 Frequent Changes

IFRS Key areas of impact
 Key areas of impact requiring auditor’s involvement of successful

implementation of IFRS/NFRS- converged Standards
IT/Technology Accounting &

enablement Reporting
Implementing
IFRS/NFRS-
converged
Standards Systems &
People
Awareness Procedures
& Training
Business &
Financial
Impact

IFRS
Challenges for SMPs: Risks associated with application of judgments
 Implementation of principle-based IFRS/NFRS-converged Standards has the

potential for increased audit risk due to application of judgments
 This may lead to disagreement between auditors and management audit whether a
company had used proper judgments or not.
 SMPs will now have the difficult task of assessing appropriateness of

management’s judgments as a detailed set of rules may not exist.
 The reliability of audit evidences is influenced by its source. Now the evidences
will increasingly be based upon the management’s judgments which may be
difficult to document.

IFRS
Challenges for SMPs: Risks associated with application of judgments

(Contd…)
Some Examples;
Areas of Judgment under IFRS/NFRS – converged standards
a) Recognition of revenue in multiple- element arrangements (NAS 18).
b) Determination of control and the need to consolidate (NAS 27)
c) Recognition of right to use the asset as intangible asset under service

concession arrangement (IFRIC 12)

IFRS
Challenges for SMPs: Application of fair valuation approach
 The implications of application of fair valuation approach would be far more

complex and challenging as compared to the existing Indian- GAAPs.
 SMPs may have difficulty in determining fairness of fair values disclosed by

the management.
 More reliance has to be placed on the work of other technical experts, such as
technical valuers.
 Problem will be acute when fair values are not easily available in the market.

IFRS
Challenges arising from First-time adoption of IFRS/NFRS-converged Standards
First-time adoption of IFRS/NFRS-converged Standards involves certain challenging

tasks, such as:
 Standard corresponding to NFRS 1 may require retrospective application of IFRS-

converged Standards unless specifically exempted.
 Retrospective application is a great challenge
 Recognition and disclosure of all assets and liabilities whose recognition or

disclosure is required by IFRS/NFRS-converged standards and that are not
recognized or required to be disclosed under existing GAAPs.
 Derecognition of assets and liabilities if IFRS-converged standards do not permit

such recognition
IFRS
Challenges arising from First-time adoption of

IFRS/NFRS-converged Standards (Contd…..)
 Reclassification of items that the entity recognised differently under previous GAAPs
 Identification of incremental disclosures and changes to exiting practices.

 Comparatives as per IFRS/NFRS-converged Standards on notional basis where an
entity opts to do so.
 Selection of correct accounting policies
 Determination of estimates
 Presentation and disclosures relating to the transition in an entity’s first
IFRS/NFRS-converged Standards compliant financial statements.

IFRS
Challenges for SMPs in getting themselves ready for convergence
 For successful implementation of IFRS/NFRS-converged standards ,SMPs need to

ensure the followings:
 Sufficient experience and knowledgebase

 Skilled and sufficient audit staff
 Assessing the training needs and providing the appropriate level of training and
knowledge to its staff
 Understanding the broader impact of the Standards on earnings, key ratios, incentive
compensation arrangements, IT system changeover requirements and investors relations
etc.
 Proper audit documentation that provides clear audit trail of the judgments and
conclusion reached

IFRS
Challenges for SMPs in getting themselves ready for convergence

(Contd…..)
 Determination of the extent and quality of audit evidences required to

support the judgments made and conclusions reached.
 Ensuring that proper internal controls are in place.

IFRS
Challenges for SMPs in getting the management ready for

convergence
 To implement IFRS/NFRS-converged standards, SMPs need to ensure that

the management has taken the following actions:
 Analysis of differences between current accounting policies and

requirements of IFRS-converged standards
 Capturing of sufficient data to meet the additional disclosure requirements.
 Identification of impact of IFRS/NFRS on business issues such as impact
on reserves and dividend policy, remuneration and incentive schemes etc.
 Planning and implementation of the transition process.
 If a SMP is engaged as advisor in implementation of IFRS/NFRS-converged

Standards, it needs to get itself ready for the above mentioned factors also.

IFRS
Challenges due to frequent changes to the IFRSs/NFRSs
 Frequent changes to IFRS/NFRS-converged Standards due to changes in

IFRS/NFRS by IASB is a great challenge for SMPs.
 They have to keep themselves abreast of the latest IFRS/NFRS-converged

Standards.
 SMPs have to influence management to make adequate changes in their
systems to absorb the changes made from time to time
 SMPs need to analyse the impact of those changes on the businesses, time
and again

IFRS
Challenges in implementation of Accounting Standards for Small and

Medium –size Entities
 SMPs not engaged in implementation of IFRS/NFRS would also have to

update themselves, as existing Accounting Standards applicable to Small and
Medium-sized Entities (SMEs) would also be revised by the ASB on the basis
of IFRS.
 These revised Standards may not be as onerous as the Converged Accounting

Standards as presently being formulated to be applied to public interest
entities.
 Though these Standards might be less onerous than the IFRS/NFRS- converged
Standards, SMPs would have to get themselves ready for implementing the
same as many features of IFRS/NFRS may get incorporated in these Standards.

IFRS
Implementation Strategy

IFRS
ORGANISATION (X Ltd.)
IFRS/NFRS Steering Committee ADVISORS Leadership

including senior management and advisory team
IFRS/NFRS Core committee including Strategic Business Unit

Qualified Manager with
(SBU) heads and relevant stakeholders across each
implementation team
operating business segment
Consolidation team for

working with IT specialists External specialists as and
for re-mapping existing when the need arises
trial balance to prepare in areas of MTM and
IFRS/NFRS compliance actuarial valuation, etc.
financials with disclosures

IFRS
Technical Process

IFRS
Design & Quality

Strategy
Diagnostic implement Controls
development
−Detailed design and

−Analysis of the Company’s −Assists in selecting project mapping for −Periodic meetings
Reporting for applicable appropriate IFRS/NFRS respective GAAP changes with stakeholders
GAAP needing convergence accounting policies to best during the entire
to IFRS/NFRS. suit the Company’s needs −Develop tools for key project to assess and
transition areas to Rectify potential
−Analysis of the Company’s −Identification of key IFRS/NFRS deviations
Business processes and resources for training and reporting.
reporting systems implementation −Ongoing
−Liaising with Audit involvement
−15th July 2011 restated −Research into relevant Committee and of the Company’s
financials with report on industry, IFRS/NFRS auditors for senior management
strategic changes and development And management smooth transition and ADVISORS
potential impact on business strategies.
IFRS
Technical Processes
Phase I – Diagnostic
 Assess with senior management of the Organisation, the accounting policies that
require
IFRS/NFRS convergence
 Assess impact on Group’s net profits and net worth by restating prior year ended 15
July
2016 financial statements with reconciliations from GAAP to IFRS/NFRS
 Advice management to simulate impact of accounting policy elections on net worth

of forthcoming three years operational budgets

IFRS
Technical Processes
Phase I – Diagnostic (contd.)
 Assess Organisation Group’s future business strategies to determine potential impact

arising
from changes in accounting policies
 Integrated future management plans
 Detailed technical analysis with evaluation of Organisation Group’s key accounting

policies
that need convergence to IFRS/NFRS.
 High level implementation plan with estimated time frames for Phase II and
III of
the convergence project

IFRS
Technical Processes
Phase II – Strategy development
 Advise on the changes required to the key accounting policies, business process and
MIS reporting systems
 Identification of key account balances that will need fair value computation for opening
balance sheet as at 16th July 2016
 Advise management to develop a communication strategy with Audit

Committee and identifying changes required to accounting manuals, IT / ERP
systems and internal audits
 Advise management to develop appropriate communication strategy with

stock markets, analysts and third party users of financial statements

IFRS
Technical Processes
Phase II – Strategy development (contd.)
 Identification of resources required at each strategic business unit level
 Developing training plans to assist senior management educate stakeholders in

an Organisation
 Developing milestones in line with industry bench marks and best business
practices globally

IFRS
Technical Processes
Phase III – Design and implementation
 Advise on business process re-engineering for those areas where existing

accounting policies differ from IFRS/NFRS.
 Advise on revision of MIS reporting systems to generate IFRS/NFRS

compliant financial reports.
 Advise on undertaking fair value computations for key financial assets and
liabilities

IFRS
Technical Processes
Phase III – Design and implementation (contd.)
 Advise on tax planning to enable restructuring the Organisation Group’s

financial assets and
liabilities
 Advise on mergers and acquisition targets’ accounting
 Advise on changes to reporting systems to enable preparation of the first

balance sheet as at 16th
July 2016 in compliance with NFRS1- First time adoption of NFRS
standards.

IFRS
Technical Processes
Phase IV- Quality Controls
−Periodic meetings with stakeholders during the entire project to

assess and rectify potential deviations
−Ongoing involvement of the Company’s senior management and

ADVISORS

IFRS
Global lessons learned in IFRS/NFRS

implementation

IFRS
Technical Processes
Global lessons learned in IFRS/NFRS implementation
1. Start early invest appropriate time and thoughtfulness:

Despite knowing well ahead that the proposed changes were coming, many companies still
underestimated the level of effort required to adopt and make the transition to these new
standards.
2. Develop and actively manage realistic project plans. Take an enterprise-wide approach.
Clearly, key success factors in implementing these changes were having appropriate project
planning activity and incorporating business units outside of Finance.
3. Potential pitfalls from inadequately planned and implemented convergence includes:
 Scrambling at or after the transition date and facing the risk of being unable to make certain desirable
accounting policy elections
 Using manual work-arounds and spread-sheet based calculations that result in higher risk of errors
and inadequate financial reporting controls
 Worrying that missing assumptions in their spread-sheet analysis might lead to inappropriate
conclusions on accounting policies
IFRS
Technical Processes
Deliverables
The key deliverables arising from the aforesaid technical processes include:
 Assisting in the formation of a Steering Committee and Core Committee

 Training of key management personnel at corporate
 Diagnostic study and resulting impact analysis report for presentation to the Board of
Directors of the Company
 Hand holding exercise throughout the period of implementation including preparation
of opening balance sheet, year end financials as at the respective year ends
respectively
 Interacting with and resolving technical issues with auditors of the Company
 Assist each Committee in relevant presentations to the Board of Directors
 Interacting with third party service providers including valuers, actuaries, etc.
 Enabling smooth transition at each SBU level
 Assist in making changes to the accounting manual for compliance with IFRS /NFRS
reporting requirements

IFRS
Areas of Convergence
• First time adoption of IFRS/NFRS
• Consolidation
• Business Combinations
• Amortisation of acquisition costs
• Foreign Currency
• Equity and liability classification
• Hedge Accounting
• Property, plant and equipment and Intangibles
• Asset revaluation reserve
• Depreciation on revaluation
• Employee benefits
• Tax effect accounting
• Revenues
• Investments recognition as financial instruments
• Investments impairment

IFRS
First time adoption of

IFRS/NFRS
Our response (ADVISORS’
IFRS/NFRS requirement
response)
The following must be prescribed: We will advise on the best suited strategy to
Statement of financial position enable management ascertain the most
Statement of comprehensive income preferred disclosure policies and presentation
formats that best describes the Company’s
Statement of changes in equity image and business philosophies
Statement of cash flows
Notes, including accounting policies
Statements of financial position maybe We will advise management on the alternate

presented between current and non-current strategies for preparing the first statement of
items or in the order of liquidity if that is more financial position as at 16 July 2016.
appropriate.
Statement of comprehensive income requires We will review disclosures as per the available
certain items to be disclosed. An analysis of policy elections in IFRS/NFRS 1 and other
expenses is required to be disclosed by applicable IFRS/NFRS as well as IFRICs.
nature or by function on the face of the
statement of comprehensive income or in the
notes.
IFRS
Consolidation
IFRS/NFRS requirement Our response (ADVISORS’
response)
Consolidation is based on a control model We will discuss with management to identify the
which is the power to govern the financial and companies in which the company has
operating policies of an entity so as to obtain controlling interests as defined under
benefits from its activities. All subsidiaries are IFRS/NFRS for the purposes of consolidation.
consolidated.
All group Companies needs to be evaluated for However, if not practicable to use uniform
existence of control and needs to be accounting policies, the subsidiary companies
consolidated if the control exists. shall be restated for significant differences with
Uniform accounting policies are used the Holding Company and consolidated
throughout the group. accordingly.
For the purpose of consolidated financial Where necessary, we will advise management
statements, the carrying amount of assets and on fair valuation and minority interest
liabilities of subsidiaries is fair value at computations to comply with IFRS/NFRS
acquisition and movements as per normal reporting requirements.
accounting thereafter.
Minority interest is recognised initially based
on the minority’s share of the amounts
recognised in the purchase accounting,
excluding goodwill.

IFRS
Business Combinations
response)
All business combinations are accounted for
using purchase accounting, with specific We shall discuss with management to identify
exemptions. A business can be an operation key business combinations undertaken before
managed for the purpose of providing a return the year ending 15 July 2015 and any proposed
to investors or lower costs. An entity in its for the year ending 15 July 2016. The potential
development stage can meet the definition of financial impact will be assessed based on the
a business. applicable IFRS/NFRS accounting principles
provided for in IFRS/NFRS 3. We will advise
The cost of acquisition is the amount of cash
management on the relevant adjustments to be
or cash equivalents paid, plus the fair value of
posted to the opening statement of financial
other purchase consideration given, plus any
position at 16 July 2016.
costs directly attributable to the acquisition
(i.e., internal costs may be included but
cannot be general administrative costs and
there is no requirement for directly attributable
costs to be incremental). The fair value of
securities issued by the acquirer is
determined at the date of exchange.

IFRS
Amortisation of acquisition costs

response)
As per IFRS/NFRS, cost of an acquisition is We shall review the various acquisitions
measured as the fair value of the assets undertaken by the company and the goodwill or
given, equity instrument issued and liabilities capital reserves recognised for each such
incurred or assumed at the date of the transaction. We shall review compliance with the
transaction, plus costs directly attributable to relevant IFRS/NFRS 3 for Business
the acquisition. The excess of the cost of Combinations, Impairment testing as per NAS 36
acquisition over the fair value of the and NAS 38 for intangibles. Adjustments will be
Company’s share of identifiable net assets is discussed with senior management and
recorded as goodwill. Any negative goodwill recognised in the opening statement of financial
arising on acquisition is recognised in the position as per available exemptions under IFRS
income statement. The positive goodwill is /NFRS 1.
tested for Impairment at each reporting date.

IFRS
Foreign currency
response)
An entity measures its assets, liabilities, revenues We shall review with management the
and expenses in its functional currency, which is functional currency issue based on the
the currency that best reflects the economic criteria set out in IFRS/NFRS.
substance of the underlying events and
circumstances relevant to the entity, i.e. the Further, we shall also discuss with
currency of the primary economic environment in management the various foreign currency
which the entity operates. Functional currency of denominated contracts to ensure compliance
an entity may be different from the local currency. with NAS 21 relating to recognition of
realised / unrealised forex gains and losses
in the income statement.

IFRS
Equity and liability classification

response)
A financial instrument is a financial liability if We shall advise management on the most
the issuer can be obliged to settle in cash or appropriate classification financial
by delivering another financial instrument. instruments. Based on the terms and
conditions of the financial instruments they
may need to be classified as current and non
The components of compound financial current liabilities thereby reducing equity and
instruments, which have both liability and having potential impact on the debt equity
equity characteristics, are accounted for covenants of the company.
separately.
Minority interests in the statement of financial Minority interest is presented separately from
position are classified as equity but are liabilities and equity of the parent’s
presented separately from the parent shareholders.
shareholders’ equity.

IFRS
Hedge accounting
response)
NAS 39 requires the company to prepare a We will discuss with management and review the
quantitative assessment of effectiveness of hedge effectiveness quantitative assessment
each hedge entered into regardless of and documentation is implemented prior to the
critical terms matching. This implies that adoption date of IFRS/NFRS.
hedge effectiveness must be assessed
quantitatively
There are various other requirements In relation to fair value hedges which meet the
under NAS 39 relating to fair value hedges conditions for hedge accounting, we will review
and hedged risks that need to meet the recognition, measurement and disclosure of
detailed disclosure and measurement any gain or loss from re-measuring the hedging
criteria. instrument at fair value.
In case of any gain or loss attributable to the

hedged risk on remeasurement of the hedged
item, we shall review the carrying amount of the
hedged item and the impact recognised in the
income statement. Where the adjustment is to
the carrying amount of a hedged interest-bearing
financial instrument, the adjustment is fully
amortised by maturity.

IFRS
Property, plant and equipment and

Intangibles
response)
Property, plant and equipment are We will review with management the overall
componentised and depreciated separately. Fixed Assets Register and advise management
When an item of property, plant and on the most suitable approach towards
equipment comprises individual components componentisation. This will need significant
for which different depreciation methods or inputs from the SBU heads and internal
rates are appropriate, each component is technical experts of the company to make a fair
depreciated separately. assessment of the cost benefits analysis before
determining an item of PPE as a component
with its own estimated useful life.
An intangible (including IPRs for Know-how) For items without a useful life, we shall advise
asset with a finite life is amortised on a on the principles of impairment testing of each
systematic basis over its useful life. There is intangible asset at each balance date. We will
no presumption under IFRS/NFRS regarding evaluate the basis of Goodwill recognised in the
useful life of an intangible asset. statement of financial position and advise
management on the basis of impairment testing
adopting the cash generating unit model.

IFRS
Asset revaluation reserve

response)
When an item of property, plant and We will discuss with management and advise on
equipment is revalued, the entire amount of the alternate strategies on revaluation of fixed
upward revaluation is recognised in equity. assets of the company. This policy may need to
Any downward revaluation is first recognised be in line with the long term objectives of the
in equity to the extent of earlier upwards company and its growth plans. Also the
revaluation and the deficit is recognised in the revaluation strategy will need to consider the
income statement. impact on the return on capital employed and the
company’s ability to sustain the returns and
deliver on the commitments to the shareholders
and other stakeholders of the entity.

IFRS
Depreciation on revaluation
response)
On recognition of revaluation reserve in equity, We will discuss with management and advise
a deferred tax liability is recognised to the on the potential impact arising from the change
extent of depreciation that will be disallowed in in accounting policy. The prior claw back of
future years on the revaluation component. At depreciation from revaluation reserve as per
end of each financial year, the tax equivalent of GAAPs may need to be reversed to ensure
the amount of depreciation disallowed for tax compliance with IFRS/NFRS. We will discuss
purposes is clawed back from the tax liability with management and assess the best way
into revaluation reserve until the end of the forward and the ability to recognise the
useful lives of the assets. On sale of the financial impact from this change in accounting
revalued asset, the entire revaluation surplus policy through the opening retained earnings of
is transferred to retained earnings as the company as at opening statement of
distributable profits. financial position date.
This will have an impact on the opening

deferred tax liability recognition of the
company and minimise the potential impact on
future operation results of the company.

IFRS
Employee Benefits
response)
Under IFRS/NFRS, actuarial gains and We shall review the existing various employee
losses of defined benefits plans are benefits under ESOPs gratuity, superannuation,
recognised either in profit or loss, or provident fund and pension benefit schemes to
immediately directly in equity. Amounts assess the potential impact arising from alternate
recognised directly in equity are not recycled plans available to management for recognition of
to profit or loss. the gains and losses either an equity or through
income statement depending on constructive
If actuarial gains and losses of a defined
obligation principle. Based on the most
benefits plans are recognised in profit or loss,
appropriate method, we shall review with
then gains and losses that exceed a
management the potential impact from the
“corridor” generally are required to be
corridor approach and suggest application of the
recognised over that average remaining
same approach consequently across the Group
working lives of employees in the plan.
Faster recognition in profit or loss is The fair value of stock options on issue date and
permitted. The corridors is 10 percent of the subsequent reporting dates are ascertained
greater of the obligation and the fair value of independently using either of the most predefined
plan assets at the beginning of the period. valuation models- Black Scholas or Binomial. We
will review the resulting impact recognised in
ESOPs are accounted at fair value against equity and on exercise of the opens the resulting
intrinsic value under the GAAP impact is, recognised through the income
statement.

IFRS
Tax effect accounting
response)
Deferred tax liabilities and assets are We shall review the existing tax issues of the
recognised for the estimated future tax effects company with senior management and identify
of temporary differences and tax lose carry- potential areas of recognition of deferred tax
forwards. A temporary difference is the assets and liabilities to enable effective tax
difference between the tax base of an asset or planning using the probability method instead
liability and its carrying amount in the financial of exiting virtual certainty method required by
statements. GAAP.
A deferred tax liability is not recognised if it

arises from:
1. The initial recognition of goodwill. However,
any temporary differences is recognised
subsequently if the goodwill is tax deductible.
2. The initial recognition of an asset or liability
in a transaction that is not a business
combination, and at the time of the transaction
affects neither accounting profit nor taxable
profit.
Deferred tax is not recognised in respect of

investments in subsidiaries, associates and
joint ventures if certain conditions are met.
IFRS
Revenue
response)
Revenue is recognised when- We will advise on the best suited accounting
a) The entity has transferred to the buyer the policies for revenue recognition.
significant risks and rewards of ownership Also we will review the terms of sales with
of the goods; management and advice most appropriate
b) The entity retains neither continuing accounting treatment.
managerial involvement to the degree
usually associated with ownership nor
effective control over the goods sold;
c) The amount of revenue can be measured
reliably;
d) It is probable that the economic benefits
associated with the transaction will flow to
the entity; and
e) The costs incurred or to be incurred in
respect of the transaction can be
measured reliably.
Also terms of sales needs to be evaluated to

identify any financing elements like extended
credit period.

IFRS
Investments recognition
response)
Investments other than those held in controlled We shall review with management the
entities or associates or joint ventures will need consistent classification of the investments
to be classified into three categories for into the three categories permitted under
recognition and disclosures in the financials: IFRS/NFRS.
1. Available for sale (AFS)
2. Held for trading (HFT) We shall assist management in appropriate
3. Held to maturity (HTM) recognition of the potential impact arising from
re-classification into HFT and AFS categories
in the income statement and equity.
Except for HTM, all instruments are carried at
fair value. Unrealised gains or losses are
recognised for Considering the significant impact that may
AFS in shareholders funds arise from changes in the classifications and
treatment of existing hedging exposures of the
HFT in income statement company, we will review with management to
HTM carried at amortised cost ensure the resulting day zero gains are
appropriately recognised in the financial
statements.

IFRS
Investments Impairment
response)
Investments will need to be distinguished We shall review disclosure requirements of the
between those held in controlled entities or investments in controlled entities, associates and
associates or joint ventures and those held as joint ventures accounted under the equity
financial instruments. method.
The first category of investments mentioned We shall review the potential impact arising from
above are to be tested periodically for impairment testing on carrying values
impairment on the carrying value. The
resulting impairment losses are recognised For investments in associates and controlled
through equity first and on sale of the entities, we shall review the impairment testing
investments, the net impact is recognised in undertaken by identification of each cash
the income statement in the period the generating unit and assessing their respective
investment is sold. carrying values.
The second category (financial instruments

except HFT) are also to be tested periodically
for impairment on the carrying value. The
resulting impairment losses are recognised /
reclassified into income statement
immediately on such impairment.

NFRS Convergences (Final) 21

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NFRS Convergences (Final) 21

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IFRS

Suvod Associates- "Member TIAG"

NEPAL FINANCIAL REPORTING STANDARDS

Suvod Associates- "Member TIAG"

2. About the IASB

3. About the IFRS Interpretations Committee

4. What are NFRS

5. Why Convergence to IFRS

7. Implementing IFRS/NFRS- converged Standards:

8. Technical process for Implementing

10. Global lesson in IFRS

About the IFRS Foundation

Suvod Associates- "Member TIAG"

 to promote the use and rigorous application of those standards;

Suvod Associates- "Member TIAG"

About the IASB

Suvod Associates- "Member TIAG"

The IASB (International Accounting Standards Board)

Suvod Associates- "Member TIAG"

About the IFRS Interpretations

Suvod Associates- "Member TIAG"

The IFRS Interpretations Committee

The IFRS Interpretations Committee (formerly called the IFRIC) is the

Suvod Associates- "Member TIAG"

What are NFRS?

Suvod Associates- "Member TIAG"

Presently there are 13 Nepal Financial

Suvod Associates- "Member TIAG"

5. Share Based Payments - NFRS 2

C) GROUP STATEMENTS STANDARDS

31. Financial Instruments: Presentation - NAS 32

Suvod Associates- "Member TIAG"

1 NAS 1 Presentation of Financial Statements

3 NAS 7 Statement of Cash Flows

4 NAS 8 Accounting Policies, Changes in Accounting Estimates and

5 NAS 10 Events After Reporting Period

6 NAS 11 Construction Contracts

7 NAS 12 Income Taxes

8 NAS 16 Property, Plant and Equipment

Suvod Associates- "Member TIAG"

14 NAS 23 Borrowing Costs

15 NAS 24 Related Party Disclosures

16 NAS 26 Accounting and Reporting by Retirement Benefit Plans

17 NAS 27 Consolidated and Separate Financial Statements

18 NAS 28 Investments in Associates

19 NAS 32 Financial Instruments: Presentation

Suvod Associates- "Member TIAG"

21 NAS 34 Interim Financial Reporting

22 NAS 36 Impairment of Assets

23 NAS 37 Provisions, Contingent Liabilities and Contingent Assets

24 NAS 38 Intangible Assets

25 NAS 39 Financial Instruments: Recognition and Measurement

26 NAS 40 Investment Property

Suvod Associates- "Member TIAG"

5 IFRIC 6 Liabilities arising from Participating in a Specific Market—Waste

8 IFRIC 12 Service Concession Arrangements

10 IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum

11 IFRIC 15 Agreements for the Construction of Real Estate

12 IFRIC 16 Hedges of a Net Investment in a Foreign Operation

13 IFRIC 17 Distributions of Non-cash Assets to Owners

14 IFRIC 18 Transfers of Assets from Customers

15 IFRIC 19 Extinguishing Financial Liabilities with Equity

Suvod Associates- "Member TIAG"