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Necessity of IFRS IFRS & INDIA. Benefit of Adopting IFRS for Indian Companies. 3 6 7 8 9 11 2 . IFRS Challenges.International Financial Reporting Standards. Difference between IFRS and Indian GAAP. INDEX TOPIC Meaning of IFRS. PAGE NO.

Structure of IFRS IFRS are considered a "principles based" set of standards in that they establish broadrules as well as dictating specific treatments. International Financial Reporting Standards comprise: • International Financial Reporting Standards (IFRS) . IAS were issued by the International Accounting Standards Committee (IASC). are a "principles-based" set of standards that establish broad rules rather than dictating specific accounting treatments.issued after 2001 • Standing Interpretations Committee (SIC) . From 1973 to 2001. Objective of financial statements The framework states that the objective of financial statements is to provide information about the financial position. WHAT IS IFRS? International Financial Reporting Standards (IFRS). together with International Accounting Standards (IAS).standards issued before 2001 • Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) .International Financial Reporting Standards.issued before 2001 There is also a Framework for the Preparation and Presentation of Financial Statements which describes of the principles underlying IFRS Framework The Framework for the Preparation and Presentation of Financial Statements states basic principles for IFRS.standards issued after 2001 • International Accounting Standards (IAS) . In April 2001 the International Accounting Standards Board (IASB) adopted all IAS and began developing new standards called IFRS. performance and changes in the financial position of an entity that is useful to a wide range of users in 3 .

the effect of transactions and other events are recognised when they occur.the financial statements are prepared on the basis that an entity will continue in operation for the foreseeable future Qualitative characteristics of financial statements The Framework describes the qualitative characteristics of financial statements as being • Understandability • Relevance • Reliability and • Comparability Elements of Financial Statements The Framework sets out the statement of financial position (balance sheet) as comprising:• Assets .the residual interest in the assets of the entity after deducting all its liabilities and the statement of comprehensive income (income statement) as comprising: • Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or reductions in liabilities • Expenses are decreases in such economic benefits.and to provide the current financial status of the entity to its shareholders and public in general.a present obligation of the entity arising from past events.International Financial Reporting Standards.resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity • Liabilities . 4 . Underlying assumptions The underlying assumptions used in IFRS are: • Accrual basis . making economic decisions. not as cash is received or paid • Going concern . the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits • Equity .

8) • a balance sheet • income statement • either a statement of changes in equity(SOCE) or a statement of recognised income or expense ("SORIE") • a cash flow statement • notes. the IASB issued a revised IAS 1 Presentation of FinancialStatements. Content of financial statements:IFRS financial statements consist of (IAS1.36).7). On 6 September 2007. • disclose income tax relating to each component of other comprehensive income • 5 disclose reclassification adjustments relating to components of other . An entity preparing IFRS accounts for the first time must apply IFRS in full for the current and comparative period although there are transitional exemptions (IFRS1.International Financial Reporting Standards. 'comprehensive income' ) either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). The main changes from the previous version are to require that anentity must:  present all non-owner changes in equity (that is. Components of comprehensive income may not be presented in the statement of changes in equity.  present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement. including a summary of the significant accounting policies Comparative information is provided for the previous reporting period (IAS 1.

Early adoption is permitted. comprehensive income IAS 1 changes the titles of financial statements as they will be used in IFRSs: • 'balance sheet' will become 'statement of financial position' • 'income statement' will become 'statement of comprehensive income' • 'cash flow statement' will become 'statement of cash flows'. Japan has introduced a roadmap for adoption that it will decide on in 2012 (with adoption planned for 2016).companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting langauge company wide. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS. Furthermore. are expected to transition to IFRS by 2011.making comparisons easier.or if they have a foreign investor that must use IFRS. Necessity of IFRS:By adopting IFRS. Some estimate that the number of countries requiring or accepting IFRS could grow to 150 in the next few years. How widespread is the adoption of IFRS around the world? More than 12000 companies in approximately 113 nations have adopted IFRS. Still other countries have plans to converge (eliminate significant differences) their national standards with IFRS 6 . Mexico plans to adopt IFRS for all listed companies starting in 2012.Companies may also benefit by using IFRS if they wish to raise capital abroad. a business can present its financial statements on the same basis as its foreign competitors. including Canada and India.International Financial Reporting Standards. The revised IAS 1 is effective for annual periods beginning on or after 1 January 2009. Other countries.including listed companies in the European Union.

however. Accordingly. including the legal & economic environment. at a meeting held in August 2006.ICAI istaking up the matter of convergence with IFRS with NACAS and other regulatorsincluding RBI. at least for listed and large entries. insurance. that convergence with IFRS would be important policy decision. as well as the fact.The objectives of the Task Force were to explore: • The approach for achieving convergence with IFRS .Keeping in mind the extent of differences between IFRS and Indian Accounting Standards.considered the matter and supported the council’s view that there would be several advantages of converging with IFRS. regulatory and economic environments of India. and • Laying down a road map for achieving convergence with IFRS with a view to make India IFRS – complian Based on the recommendation of the IFRS Task Force.ICAI is taking various other steps as wellas to ensure that IFRS is effectively adopted from 1 April 2011 7 . at its269th meeting decided to converge with IFRS. the ASB of the ICAI formulates Accounting Standards based on IFRS. At a meeting held in May 2006. the ASB decided to form an IFRSTask Force . these standards remain sensitive to local conditions. the council of ICAI. IFRS & INDIA:The issue of convergence with IFRS has gained significant momentum in India.IFRS will be adopted for listed and other public interestentities such as banks .The ASB. for accounting periods commencingon or after 1 April 2011. the council of ICAI expressed the view that IFRS may be adopted in full at a future date. IRDA and SEBI. Government of India. At present. companies and large – sized organizations. the Accounting Standards issued by the ICAI depart from the corresponding IFRS in order to ensure consistency with the legal. With an objective to ensure smooth transition to IFRS from 1 April 2011.International Financial Reporting Standards.The NACAS has been established by the Ministry ofCorporate Affairs.

Recognizing the convergence efforts of ICAI & MCA. • ICAI will also discuss.International Financial Reporting Standards. to continue to do so after 2011 BENEFITS OF ADOPTING IFRS FOR INDIAN COMPANIES:The decision to converage with IFRS is a milestone decision and is likely to provide significant benefits to Indian corporates. the European Union has recently allowed entries to use Indian GAAP for listing on a European securities market without reconciliation through to 2011. abolish risk premiums and will enable access to all major capital markets as IFRS is globally acceptable. These include: • Formulations of work – plan. the MCA issued a press release in which it committed to IFRS convergence by 1 April 2011.It will also reduce accountants’ fees. In May 2008. and • Conducting training programmes for members of ICAI and others concerned to prepare them to implement IFRS. to reflect conditions specific to India and areas of conceptual differences. Lower Cost of Capital : Migration to IFRS will lower the cost of raising funds. where changes in certain IFRS may be required.The majority of stock exchanges require financial information prepared under IFRS. Enable benchmarking with global peers and improve brand value: Adoption of IFRS will enable companies to gain a broader and deeper understanding of the entity’s relative standing by looking beyond country and regional milestones.Some of them are listed below: Improved access to international capital markets : Many Indian entries are expanding or making significant acquisitions in the global arena. with the IASB those areas.Migration to IFRS will enable Indian entities to have international capital markets. for which large amounts of capital is required. as it will eliminate the need for preparing a dual set of financial statements. and if the convergence plan is achieved. 8 . removing the risk premium that is added to those reporting under Indian GAAP.

as it mandates accounting for net assets taken over in a business combination at fair value. accountants are most sought after globally. 9 . implementation of SOX. with few exceptions. increasing financial regulations and global economic growth.International Financial Reporting Standards.Hence. Accounting resources is a major challenge. even if they have not been recorded in the acquiree’s financial statements New opportunities : Benefits from the adoption of IFRS will not be restricted to Indian corporates. business combinations. will boost the growth prospects for the BPO/KPO segment in India. Escape multiple reporting : Convergence to IFRS. Further. adoption of IFRS will facilitate companies to set targets and milestones based on global business environment. instead the amount gets added to goodwill. by all groups entities. will enable company managements to view all components of the groups on one financial reporting platform. rather than merely local ones. which in – turn.IFRS will overcome this flaw. Purchase consideration paid for intangible assets not recorded in the acquirer’s books is usually not recorded in the financial statements. This will eliminate the need for multiple reports and significant adjustment for preparing consolidated financial statements in different stock exchanges. India can emerge as an accounting services hub for the global community. with a population of more than 1 billion has only approximately 145000 Chartered Accountants.With a wide pool of accounting professionals. strengthening of corporate governance norms. are recorded at carrying values rather than fair values of net assets acquired.India.the true value of the business combination is not reflected in the financial statements.In fact it will open up a host of opportunities in the service sector.It also requires recognition of intangible assets. accountants. which is far below its requirement. IFRS CHALLENGES:Some of the challenges are listed below: Shortage of resources : With the convergence to IFRS. Reflects true value of acquisitions : In Indian GAAP. valuers and actuaries.As IFRS is fair value focused it will provide significant opportunities to professionals including.

cyber terrorism and data corruption. will government authorities tax unrealized gains arising out of the accounting required by the standards on financial instruments? From an entity point of view. students. Training : If IFRS has to be uniformly understood and consistently applied. entries need to enhance their IT security in order to minimize the risk of business interruption .A company’s management must understand the differences in the way the entity’s performance will be reviewed.Reported profits may be different from perceived 10 . training needs of all stakeholders. Managing market expectations and educating analysts will therefore be critical.Tax authorities should ensure that there is clarity on the tax treatment of items arising from convergence to IFRS.As financial accounting and reporting systems are modified and strengthened to deliver information in accordance with IFRS.other regulatory issues and the risks involved will have to be considered by the entities Communication: IFRS may significantly change reported earnings and various performance indicators. including CFOs. It is imperative that IFRS is introduced as a full subject in universities and in the Chartered Accountancy syllabus. a thorough review of existing tax planning strategies is essential to test their alignment with changes created by IFRS. Taxes IFRS convergence will have significant impact on financial statements and consequently tax liabilities. regulators and tax authorities need to be addressed.International Financial Reporting Standards. both internally and in the market place and agree on key messages to be delivered to investors and other stake holders. Information systems: Financial accounting and reporting systems must be able to produce robust and consistent data for reporting financial information. audit committees. auditors.The systems must also be capable of capturing new information for required disclosures. such as segment information.For example.in particular to address the risk of fraud. fair values of financial instruments and related party transactions. teachers.Tax. analysts.

commercial performance due to the increased use of fair values. 11 .Tax authorities should ensure that there is clarity on the tax treatment of items arising from convergence to IFRS. Difference between IFRS and Indian GAAP Some of them are listed below :Subject Historical cost IFRS Generally uses historical cost. biological assets and certain securities are revalued to fair value Indian GAAP Uses historical cost. and the restriction on existing practices such as hedge accounting.other regulatory issues and the risks involved will have to be considered by the entities. Significant changes to the plan may be required to reward an activity that contributes to an entity’s success. but intangible assets.such as . as the entity’s financial results may be considered different. and employee compensation plans may be materially different under IFRS. the indicators for assessing both business and executive performance will need to be revisited. will government authorities tax unrealized gains arising out of the accounting required by the standards on financial instruments? From an entity point of view. Derivatives. but property.For example.bank covenants or FCCB conversation trigger. Management compensation and debt covenants: The amount of compensation calculated and paid under performance – based executive. plant and equipment may be revalued to fair value. Consequently.Tax. property plant and equipment (PPE) and investment property may be revalued to fair value. Certain derivatives are carried at fair value No comprehensive guidance on derivatives and biological assets. a thorough review of existing tax planning strategies is essential to test their alignment with changes created by IFRS. within the new regime.Re – negotiating contracts that referenced reported accounting amounts.International Financial Reporting Standards. IFRS convergence will have significant impact on financial statements and consequently tax liabilities. may be required on convergence to IFRS.

estated and. if Comparatives are r Correction of 12 Does not prescribe a standard format. A liquidity presentation of assets and liabilities is used instead of a current/non-current presentation. Extraordinary items Prohibited. where the effect of period(s) not presented is adjusted against opening retained earnings. Certain minimum items are presented on the face of the income statement. industry-specific formats are prescribed by industry regulations prescribed by industry regulations Defined as events or transactions clearly distinct from the ordinary activities of the entity and are not expected to recur frequently and regularly. although expenditure is presented in one of two formats (function or nature). insurance.International Financial Reporting Standards. but certain income and expenditure items are disclosed in accordance with accounting standards and the companies act. only when a liquidity presentation provides more relevant and reliable information Accounting standards do prescribe a particular format but certain items must be presented on the face of the balance sheet Formats are prescribed by the Companies Act and other industry regulations like banking. Changes in accounting policy Comparatives are restated. Disclosed separately The effect and impact of change is included in current-year income statement. The impact of change is disclosed separately. Certain minimum items are presented on the face of the balance sheet. unless specifically exempted. Balance sheet Does not prescribe a particular format. etc. Income statement Does not prescribe a standard format. Restatement is not .

Recognised on an accrual basis. the opening balances of assets. practice varies with respect to recognition of discounts and premiums. Exclusion if investment is held-for-sale. required.International Financial Reporting Standards. 13 . Allocated on a systematic basis to each accounting period over the useful life of the asset . Similar to IFRS.year income statement with separate disclosure No specific guidance. Interest expense Recognised on an accrual basis using the effective interest method. Exclusion if it meets the definition of a subsidiary or exemptions similar to non-consolidation of subsidiaries Required for certain amalgamations when all the specified conditions aremet. which is subject to joint control. liabilities and equity for the earliest prior period presented are restated. the depreciation is computed by applying a higher rate. Entities elect and consistently apply either purchase or pooling-of-interest accounting for all such transactions. Special purposes Consolidated where the substance entity (SPE) of the relationship indicates control. The effect of correction is included In current. errors the error occurred before the earliest prior period presented. except where the useful life is shorter as envisaged under the Companies Act or the relevant statute. No specific guidelines Normal business combination accounting would apply Uniting interests method of Prohibited Business combinations involving entities under common control Depreciation Not specifically addressed. Definition of Contractual arrangement whereby joint two or more parties undertake an venture economic activity. Similar to IFRS.

Termination indemnity schemes are accounted for based on actuarial present value of benefits. Intangibles assigned an indefinite useful life are not amortised but reviewed at least annually for impairment. similar to IFRS. On revaluation. Treated the same as a long-term investment and is carried at cost less impairment Similar to IFRS. Revaluations are permitted in rare circumstances. no requirement on frequency of revaluation. Capitalised if recognition criteria are met. Contingencies 14 . or selection of assets is made on a systematic basis. Disclose unrecognised possible losses and probable gains. an entire class of assets is revalued. however.International Financial Reporting Standards. amortised over useful life. no specific guidance. Historical cost or revalued amounts are used. With the adoption of AS 15 (revised). Generally. Measu Investment property preciated cost or fair value. however. voluntary retirement expenses are recognised on acceptable of the plan by employees and amortised over 3 to 5 years. with changes in fair value recognised in the income statement. except that contingent gains are neither recognized Acquired intangible assets Capitalised if recognition criteria are met. Regular valuations of entire classes of assets are required when revaluation option is chosen Property. timing of recognising liability could differ. Termination benefits termination benefits arising from redundancies are accounted for similarly to restructuring provisions. all intangibles are amortised over useful life with a rebuttable presumption of not exceeding 10 years. Revaluations are not permitted Historical cost is used. Revaluations are permitted. plant and equipment. Prior to AS 15 (revised).

quarterly. Similar to IFRS. Non-adjusting events are disclosed. However.g. Quarterly results include financial results relating to the working of the Company and certain notes thereo Convertible debt Derecognition of financial liabilities Post-balancesheet events Interim financial reporting 15 . except non. with proceeds allocated between equity and debt. grants received are directly credited to capital reserve (in equity).adjusting events are not required to be disclosed in financial statements but are disclosed in report of approving authority e.year) is imposed by local regulator or is at discretion of entity. pursuant to the listing agreement. Similar to IFRS conceptually. Directors Report. treatment would be similar to IFRS based on substance of the transaction. all listed entities in India are required to furnish their quarterly results in the prescribed format. Government grants Recognised as deferred income and amortised when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. although several differences in detail. half. No specific guidance. Difference between carrying amount and amount paid is recognised in income statement.International Financial Reporting Standards. Similar to IFRS. Contents are prescribed and basis should be consistent with full-year statements. in practice. Financial statements are adjusted for subsequent events. providing evidence of conditions that existed at the balance sheet date and materially affecting amounts in financial statements (adjusting events).g. Frequency of reporting (eg. Convertible debt (fixed number of shares for a fixed amount of cash) is accounted for on split basis. Entities may offset capital grants against asset values. in certain cases. nor disclosed.. For e. Liabilities are derecognised when extinguished. Convertible debt is recognized as a liability based on its legal form without any split.

16 .International Financial Reporting Standards.

17 .International Financial Reporting Standards.

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