IND AS AND IFRS

- DIFFERENCES AND IMPACT

BACKGROUND
Context Who uses IFRS standards ?

• Accounting is a media which communicates

• Necessary to follow standardized, comprehensive and unified

accounting standards
GAAP

Principles Conventions Standards

Rule based
• In India, IFRSs implementation roadmap is completed almost by
Principle extending its coverage to NBFCs (Non Banking Financial Companies)
based form this year
• Global:
• International Accounting Standards Board • Complete harmony is hard to achieve due to the individual prerogatives
• International Financial Reporting Standards of each country

• Domestic: • Roadmap:
• Institute of Chartered Accountants of India • FY18: Net worth>=2.5Bn (Excl. BFSI)
• FY19: All Banks & Insurance companies; NBFC>=5Bn
• FY20: All listed NBFCs; Unlisted NBFC (2.5Bn-5Bn)
ADVANTAGES AND CHALLENGES
Advantages IGAAP vs IndAS
• Financial statement made under IFRS are accepted by stock exchange
all over the world • Revenue recognition
• IGAAP: No unbundling
• Convergence with IFRS developed transparency of financial statements • Impact: Deferral of revenue
globally
• Employee benefits
• Convergence with IFRS would build the reputation of Indian businesses • IGAAP: Changes in actuarial assumptions charged to income
statement
• Help accounting professionals to sell their talent globally • Impact: Reduction in volatility of income

Challenges
• Still unable to achieve complete comparability
• High degree of differences between Indian GAAP and IFRS
• Multiple regulators with overlapping provisions override IFRS
• Fair value measurement not applicable under IGAAP
• Consolidation
• IGAAP: Based on legal ownership
• Impact: Certain entities might not need consolidation
• Loan provisioning
• IGAAP: NPA recognition as per incurred loss method
• Impact: NPA recognition to be advanced
• PPE
• IGAAP: Intangibles to have definite lives
• Impact: Amortization expense to reduce
CONVERGENCE NOT ADOPTION
• Carve outs are generally perceived as non-desirable, since they dilute the key purpose of converging with IFRS

• There are only seven carve-outs, basically deviations between Indian accounting standards and IFRS

Ind AS 1, Presentation of financial statements Ind AS 28, Investment in Associates and Joint Ventures

IFRS IFRS
- If any condition of a non current loan agreement is breached, the - The investor should change the financial statements of the
loan to classified as current associate by using same accounting policies

Carve Out Carve Out

- Entity does not need to classify the liability as current if the lender - In Ind AS 28, the phrase, ‘unless impracticable to do so’ has been
agrees added in the relevant requirements

Reason
- In Indian banking system, customer-banker relationships are
developed whereby in case of any procedural breach, a loan is
generally not recalled. In many cases, a breach is rectified after
the balance sheet date and before the approval of financial
statements
Reason
- Certain associates, e.g., regional rural banks (RRBs), being
associates of nationalized banks, are not in a position to use the
Ind AS, as these may be too advanced for the RRBs
CONVERGENCE NOT ADOPTION
• Carve outs are generally perceived as non-desirable, since they dilute the key purpose of converging with IFRS

• There are only seven carve-outs, basically deviations between Indian accounting standards and IFRS

Ind AS 17, Leases Summary

IFRS - Law overrides accounting standard

- Rentals to be charged to statement of profit and loss on straight-
line basis in case of operating leases - Gain on bargain purchase in M&A recognized as capital reserve

Carve Out - Loan with covenant breached to continue as non current if

- Shall be charged to the statement of profit and loss in accordance
with the lease agreement
Reason
- Considering the Indian inflationary situation, lease agreements
contain periodic rent escalation. Accordingly, where there is
periodic rent escalation in line with the expected inflation so as to
compensate the lessor for expected inflationary cost increases,
the rentals shall not be straight-lined.
payment is not demanded
- Long term employee benefit to be discounted at Gsec rates
- Accounting policies of JVs can be different if adoption is
impracticable
- No straight line escalation for lease rentals
- Foreign exchange fluctuations on long term monetary items can
be continued to be accounted as per IGAAP
 DIFFERENCES
Ind AS 32:-Financial Instrument presentation
 IFRS:-Split the financial instrument into liability and
equity conversion option as an embedded derivative
on the contractual terms
 Ind AS 32 :- The conversion option is embedded in a
foreign currency convertible bond under certain
situation
Ind AS 24 :- Related party disclosure
 IFRS :- There is a need to provide related party
disclosures that are in conflict with the
confidentiality requirement.
 Ind As 24 :- eliminates the need to provide related
party disclosures that are considered to conflict with
the confidentiality requirements of statute, a
regulator or similar competent authority, on the
basis that accounting standards cannot override
legal/regulatory requirements
 DIFFERENCES
Ind AS 28 :- Investment in Associates
 IFRS :- In case of individual financial statement
,interests in joint venture are accounted for either at
cost or investment in accordance with IFRS 9 using
equity method
 Ind AS 28 :- Equity method in not permitted for
individual financial instrument
Ind AS 33 :- Earning per share
 IFRS:- When an entity is presents both separate and
consolidated financial statements ,EPS is required to
be presented only in the consolidated financial
statement
 Ind AS :- EPS is required to be presented in both
consolidated and separate financial instruments
 DIFFERENCES
Ind AS 40 :- Investment property
 IFRS :-Investment property is measured initially at
cost. Transaction costs are included in the initial
measurement. Subsequently they can be measured
using either cost value or fair value
 Ind AS :-Investment property are measure at using
cost model. Fair value model is not permitted.
Ind AS 29 :- Hyperinflationary economies
 IFRS:-No need to disclose the time for which
hyperinflation will continue in economy
 Ind AS :-There is disclosure required regarding
duration of the hyperinflationary situation existing in
the economy