Agenda

SECTION 1 Indian GAAP -Current Framework

SECTION 2 International Framework (IFRS)-Background & New Era

SECTION 3 IFRS Convergence Approach

SECTION 4 The Task Ahead- How well are we prepared?

Overall objective of this session is to summarize the background

of Indian accounting standards and financial reporting
framework–current one and the proposed one

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Current Framework for banks – Who are the
key
Professional & Technical Expertauthorities
Bodies here
Legal ? Authorities
and Regulatory

ICAI (Council and Accounting Standard Board) MCA (Ministry of Corporate Affairs)
¨ASB was formed in 1977 and has been issuing ¨ Notifies or prescribes accounting standards/practices to
accounting standards (AS’s) since then be followed by the companies – the standards notified
are basically AS’s recommended by ICAI and NACAS
¨AS’s received ‘Legal’ recognition in 1999 when
section 211(3C) of Companies Act 1956 was amended
to this effect

NACAS RBI (Reserve Bank of India)

(National Advisory Committee on Accounting ¨ Being a Banking sector Regulator, RBI issues
Standards) Circulars, Guidelines on specific topics/accounting
matters affecting banks
¨Constituted in 1999 u/s 210A of Co. Act 1956
¨It’s Role is to ‘Advise’ Central Govt. on formulation SEBI (Securities & Exchange Board of India)
of and laying down of AS’s for companies or a class ¨ Being regulator of securities market, SEBI can issue
of companies circulars/notification on accounting matters for listed
¨Effectively, it reviews and clears AS’s of ICAI for entities
notification by MCA under Co. Act 1956

RBI and SEBI have a representation on both

the above bodies
¨Overall there is a well balanced framework to take care of all stakeholders.
¨Indian AS’s have generally been in line with IFRS principles or concepts, definitely so in case of recent 3
standards.
International Framework – Background and
New Era standards ?
Who issues the international
• International standards are issued by the International Accounting Standards Board (IASB) of ‘IASC Foundation’.
• IASC Foundation refers to ‘International Accounting Standards Committee Foundation’ which is a ‘not-for-profit’
corporation incorporated in USA but primarily operates from London, UK.

What is the genesis of the international standards?

• Recognizing the need for international harmonization of accounting standards, way back in 1973, professional
accountancy bodies of leading economies such as UK, USA, Japan, Germany, Canada, Australia etc. established an
international body called ‘International Accounting Standards Committee (IASC)’.
• Accounting standards were issued by Board of IASC and were titled as ‘International Accounting Standards (IAS)’.

Dawn of New Era – Year 2001

• However, there was emergence of country level accounting standards called National GAAPs (generally accepted
accounting principles) e.g. UK GAAP, US GAAP, Indian GAAP and so on. Over a period of time, there were many
gaps between these country level GAAPs.
• As a result, around the year 2000, the international fraternity of Accountants did a thorough introspection and
decided to revise the whole international framework as follows:
 IASC Foundation was established.
• Standards setting body was renamed as ‘International Accounting Standards Board (IASB)’.
• Title of new standards issued was changed to ‘International Financial Reporting Standards (IFRS)’. Note :there
are certain standards with title ‘IAS’ still valid, of course there are revisions/refinements in those.

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International Framework – Background and
New? Era
What does the term ‘IFRS’ denote
Strictly speaking, the term ‘IFRS’ denotes the following pronouncements under International GAAP:

 International Financial Reporting Standards (IFRS)

 International Accounting Standards (IAS) those which are still valid
 Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the Standing Interpretation Committee (SIC).
However, in practice IFRS is interchangeably used to denote individual accounting standards as well as International GAAP collectively.

21st century has ushered in a Golden Era for IFRS.

The notable events are:
A) Adoption of IFRS by EU for listed companies from 1st January 2005
B) China adopting accounting standards substantially in line with IFRS in 2006
C) US SEC removing reconciliation requirement for non-US companies in 2007
D) Brazil, Canada, India, Japan establishing IFRS convergence timelines in 2007

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 International Framework – Governance
¨ It’s membership comprises EU, IOSCO’s Technical Committee & Emerging Markets
overview ?
Committee, US SEC, Japanese Financial Services Agency and as an observer
Chairman of Basel Committee on Banking Supervision (BCBS)
Monitoring
Board ¨ A formal link ( via MOU) b/w Trustees and the above Public Authorities

¨ Responsible for giving strategic direction to and raising funds for IASCF. Also,
responsible for appointing members of the IASB, IFRIC and SAC

Trustees ¨ Total 22 Trustees representing various regions of the world, current mandate is to
have SIX members each from Asia/Oceanic, Europe, North America regions and
balance FOUR from any area. (Mr. Mohandas Pai, Director, Infosys
Technologies Ltd is a Trustee member)

IASB ¨ IASB is solely responsible for setting accounting standards and developing and
pursuing the ‘Technical’ agenda
(International
Accounting Standards ¨ Again, to have good international representation, there are mandatory number of
Board) members required from various regions of the world

¨ It’s role is to interpret application of IASs/IFRSs and provide timely guidance on

IFRIC financial reporting issues
(International Financial Reporting
Standards Interpretation Committee)

SAC ¨ Advise IASB on technical agenda and priorities; communicate views of various
(Standards Advisory organizations/individuals.(Mr. Shailesh Haribhakti, Managing Partner
Council) & CEO of M/s Haribhakti & co. is a member)

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IFRS Convergence Timeline and its Approach
in
India‘s accounting standard setters India
and the Central Government have selected
‘IFRS’ as our new framework and announced the adoption date as 1 April 2011. st

1) In toto-adoption (‘Auto Mode’) i.e. simply start using IFRSs from a selected date
and depend entirely on IASB for formulating standards
What are the
adoption 2) Carve out approach i.e. review IFRSs issued by IASB, carve out sections not
required and endorse rest of the IFRSs for local use (approach followed by
approaches European Union)
available?
3) Local equivalents approach i.e. develop & roll out IFRS equivalent Local
Accounting Standards (Approach followed some countries e.g. Australia)

Approach Option (3) above. It is stated that local accounting standard setters will bear
chosen by in mind that the above approach ensures ‘unreserved’ statement of
us ? compliance with IFRSs.

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The task aheadWe–have
how well are we prepared?
a ‘Marathon’ ahead
• There are many Indian standards which have major differences with IFRSs. The key ones are:
• AS 1 (IAS 1) – Disclosure of accounting policies, AS 10 (IAS 16 ) – Accounting for fixed assets
 AS 22 (IAS 12) – Accounting for taxes on income, AS 17 (IFRS 8) – Segment reporting
 AS 9 (IAS 18)- Revenue recognition, AS 11 (IAS 21- The effects of changes in foreign exchange rates , AS 14 (IFRS 3) – Accounting for amalgamations,
AS 19 (IAS 17) – Leases, AS 15 (IAS 19) – Employee Benefits, AS 28 (IAS 36) – Impairment of assets
 There are few IFRSs where either Indian standards are under preparation or have not yet come into force. These include a few
critical ones relating to financial instruments AS 30 (IAS 39), AS 31 (IAS 32), AS 32 (IFRS 7) & AS xx (IAS 40) – Investment
properties
Accounting • Framework for the preparation and presentation of financial statements needs alignment with IFRS

Standards
Setters –
ICAI, NACAS

¨ Major alignments required in the legal and regulatory framework

Legal and
 Banking Regulations Act 1949 & RBI circulars
Regulatory
Framework  Companies Act 1956

Industry ¨ Need a focussed approach and sensitization at all levels of the organization
-Preparers and¨ However, in the corporate world, some signs of ‘Enthusiasm and Leadership’ visible by
Users of F/S early adoption of standards on financial instruments viz. AS 30/31 (e.g. Infosys, )
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The task ahead –what is required to win the Marathon?

Teamwork & Partnership

required within each bank and among all external stakeholders

IFRS Convergence is not just a ‘Finance/Accounting’ issue but

‘Entity wide’ issue and also it is a ‘Country Wide’ issue.
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