INTERNATIONAL FINANCIAL

REPORTING STANDARDS - IFRS

IFRS
 It is designed as a common global language for business affairs
 So that the company accounts are understandable and comparable
across international boundaries.
 It is consequence of international share holding – and trade and
dealings among several countries
 They are also replacing many different national accounting standards
 Make it more comparable and understandable for users both internal
and external.
 Global language of reporting is important because of Foreign direct
investment FDI, FII, Mergers and acquisitions, Franchising and
business outsourcing etc.,
 IFRS makes the language of business – accounting – more useful –
comparable, reliable , transparent financial statement
 This will also enable cross-border capital raising, trade and
commerce across the globe
 IFRS - are principles, specifications, interpretations –
developed by International accounting standards board
(IASB) , based at London , UK
 IFRS are globally accepted accounting standards
developed by IASB
 The objective is to facilitate international comparisons for
true and fair valuation of a business enterprise.
 Ministry of corporate affairs, Govt of India has opted for
convergence of Indian accounting standards with that of
IFRS to bring uniformity, comparability, transparency ,
rationalization, and adoptability
 This has resulted in introduction of revised Schedule VI to
companies act 1956.
HISTORY OF IFRS
 IFRS were ossied between 1973 and 2001 by Board of the
internattional accounting standards committee.
 On 1st april 2001 the new International accounting standards Board
toook over from IASC
 These are the days of free trade and national independent economies
 Many companies do international business rather than doing
business in home country
 They need both home and foreign capital markets for raising finance.
 After 2001 – a single set of rule are used over 115 countries under
the name IFRS
 Earlier IFRS was known under the name IAS ( international
accounting standard ) - between 1973 – 2000
 Later IAS committee C took responsibility to build IFRS
UNDERLYING ASSUMPTIONS IN IFRS
 1.Economic entity : separate entity concept – the
company must separate its activity from the owners and
other business.
 2. Going concern : the company will have long life and
will operate for foreseeable future
 3. Monetary Unit assumption: Money is used as a
common denominator for measurement of and analysis
 It ignores Inflation and deflation

 4. Accrual basis : accounts are recorded as an when the

events occur and not when cash is paid or received
MEANING OF IFRS
 It is a set of International accounting standards – mode of
reporting different transactions
 The goal of IFRS is to make the international comparisons
as easy as possible .
 Eg. US GAAP is different from Canadian GAAP
 Why IFRS ?
 Investors act on global market,
 National standards do not work on global market
 Cross border business in hindered by national standards
 Small and medium sized entities can use simplified
version of IFRS
 They are known as IFRS for SMEs
OVER VIEW OF IFRS
NEED FOR IFRS
 1. globalization of economies - need for more transparency – more
diverse and demanding audience
 2. companies raising capital overseas, FIIs, venture capitalists , global
investors want information according to IFRS
3. Global Investors invested in different economies find it difficult to
understand and compare the financial results – based on differing
accounting standards
 4. MNCs operating in different countries need harmonization - need to
present consolidated financial picture - need accounting standards
 5. Indian MNCs operating offshore need harmonization
 6. capital market regulators like SEBI – have to regulate their domiciles
as well as overseas
 7. increasing awareness and emphasis on corporate governance and
voluntary compliance of IFRS
 8. corporates having plans to raise capital overseas - prepare in advance
to comply IFRS
SIGNIFICANCE OF IFRS IN INDIA
 1. it will eliminate blockades to cross border listings
 2. Indian firms require funds for their expansion from abroad – they
also acquire firms outside India
 3. Major prerequisites of getting listed in European markets is
preparation of accounts as per IFRS
 4. it enhances comparability among sectors, benefits investors,
investors, customers and other stake holders in India and abroad
 5. by adopting IFRS comparison becomes easier – among investors,
bankers , if same reporting procedure is followed
 6. for raising funds Indian companies have to provide financial results
to interested parties - need for IFRS
 7. convergence with IFRS will remove multiple reporting and related
costs – same reports can be used at entity level and at consolidated level
 8. adoption of IFRS eliminate multiple financial reporting standards –
as they set single financial reporting
SIGNIFICANCE OF IFRS – IN INDIA
 10. adoption of IFRS will enhance the reliability and image
of financial reporting's by Indian companies abroad –
increased cross border listing, and investment opportunities
 11. it will enhance the allocation of capital on global basis
and reduces cost of capital
 12. to comply with regulatory requirements of international
stock market for raising capital
 13 it will enable Indian companies to access cheaper credit
abroad
 14. companies can have better quality of financial reporting
as it leads to reliability of financial statements
 15 corporate houses can identify its true worth and fair
valuation of many balance sheet items
BENEFICIARIES' OF CONVERGENCE
WITH IFRS
 1. Investors : makes accounting information more reliable , relevant,
timely and comparable
 Prepared with common set of accounting standards - to investors willing
to invest difft countries
 Increases confidence of investors
 2. Industry : implementation of IFRS will enhance confidence in the minds
of the foreign investors
 3. It will make preparing individual and group financial statements easier
and simplest
 4. it will help the accounting professionals to sell their talent and expertise
across globe
 5. corporate world : it will build reputation and lasting relationship of
Indian corporates with international financial entities - better access to
global financial markets
 6. The economy : IFRS leads to increased trade and commerce and
ultimately it will lead to strong national economy
ADVANTAGES OF ADOPTING IFRS
 1. By Adopting IFRS a business can present its financial statements
on the same basis as that of its foreign competitor - comparison is
easier
 2. if he company is a subsidiary of a foreign company – there is
need to convert to IFRS
 3. if they have a foreign investor they must use IRS
 4. IFRS gives a better access to global markets – reduces the cost of
capital
 5. provides impetus to cross border acquisition
 6. avoid multiple reporting, and reduce cost of the finance function
 7. promises more accurate, timely comprehensive financial
statements – which are relevant to international standards
 8. IFRS makes the statements more understandable to the investors
- makes them more informed
 9;. Helps the companies and stake holders to have true and fair view
of companies transactions . -
DIS ADVANTAGES OF IFRS
 1. some analysts feel that US GAAP is a gold standard,
by adopting IFRS quality is lost
 2. the significant costs associated with adopting IFRS
outweigh the benefits.
 3. it is complex and costly. If it is required to be adopted
by small and medium sized business , it will be a big
disadvantage to SMEs - involves a large transition costs
 4. the benefits of IFRS can be seen only after a long time
–after harmonization – to improve consistency.
HUMAN RESOURCE ACCOUNTING
 Human resource accounting is about measuring the value
of human resources in enterprises.
 It includes figure and non-figure reporting on such issues
as costs , benefits of training, staff turnover, absenteeism,
value of knowledge of employees etc.,
 Human resource accounting is the process of identifying
and measuring data about human resources and
communicating information of interested parties
 It deals with investments in people and with economic
results of those investment
RATIONALE FOR EMERGENCE OF HRA
 At Macro level:
 There is a change in production patterns , employment
patterns , changing roles of governments, enterprises and
individuals
 At Micro level: Reasons for developing HRA

 To improve human resource management

 To retain qualified labour force

 To focus on employees as assets

 To create and improve the company image through

presentation of HRA
 To attract future employees
FOCUS ON HRA
 Traditionally value of an enterprise is measuared within
the traditional balance sheets – eg. Buildings, production
plant etc.,
 With the emergence of knowledge economy , the
traditional approach is questioned
 The need for recognition of human capital is considered
as an important part of the enterprise’s total value
 This has given rise to two questions :

 A. how to assess the value of human capital – in addition

to enterprise’s tangible assets
 B. how to improve development of human capital in
enterprises
METHODS OF VALUATION OF HUMAN
RESOURCES
 1. Historical cost method :
 here the Human resources are valued at the unexpired portion of
the costs of recruiting, training and development of employees
 This is simple method – meets the test of traditional principles of
accounting
 2. Replacement cost :
 This method requires an estimation of replacing the existing
personnel under existing organizational conditions
 The costs include: cost of recruitment, training and development,
opportunity cost during the intervening period till the new
recruit attains efficiency of old employee
 Practical difficulty in this method is to find identical replacement
of exist human resources in actual practice
 3. Standard cost method : to avoid above complications
here we consider standard costs of recruiting, hiring,
training and developing the employees are considered
 The standard costs so arrived are considered as value of
Human resource for accounting purpose
 4. Present value : the present value of human resource
would represent the discounted value of the estimated
further net contributions of the employees to the earnings
of the company
 It is complicated because the assumption about the
probable stay of the employees with firm at the different
stages of his service is difficult.
 .:
 4. current purchase power method:
 Under this method the historical cost of investment in
human resources is converted into current purchasing
power of money with help of index numbers
 This method lacks verifiability
OBJECTIONS AGAINST THE TREATMENT
OF PEOPLE AS ASSETS
 1. People cannot be owned by the organization like other
physical assets
 People cannot be treated as slaves in modern society
 2. there is no assurance of future benefits from human
resources - this is not tenable – even if we consider
fixed assets – the element of obsolescence will be
considered before buying the asset
 3. this may not be recognized by tax laws -
 However this is not tenable – this can be overcome by
incorporating value of human resources in financial
statements - accounting for tax purpose can b e taken up
separately
MODELS OF HRA
 1. Lev schwartz Model:
 this model is based on the assumption that the employee stay with the firm
till retirement.
 In 1996 Infosys – first – introduced this model
 The company valued its human resources assets at 1.86 billion
 Infosys gave utmost importance to the role of employees in contributing to
the company's success
 2. Eric Flamholtz motel :
 this model relaxes this unrealistic approach said above
 It considers the probability of expected stay with the firm at different stages
of services of each employee
 3. Jiggi-Lau Model:
 This model introduces group as basis of such calculation
 Based on historical data regarding employee turnover patterns.
 Term group refers to homogeneous group of employees working in a group
CONCLUSION
 The current accounting method is not able to provide the
actual value of the employee capabilities and knowledge.
 This affects future investments of the company

 Hence , cost of human resources development and

recruitment increases.
 However , it may be noted that although no separate
head like “Human Assets” appear in Balance sheet ,
accountants are not totally unaware of the existence of
the human resources.
 Accountants recognize it in the process of valuation of
goodwill and its disclosure in the Balance sheet.
FORENSIC ACCOUNTING
 It is concerned with the detection and prevention of financial fraud
and white collar criminal activities
 In simple words, it is the use of accounting skills to investigate frauds
and analyze financial information to use in legal proceedings.
 George A Manning : defines “Forensic accounting as the science of
gathering and presenting financial information in the form that will be
accepted by a court of jurisprudence against perpetrators of economic
crimes “
 Forensic accounting is a very important tool to detect , investigate and
prevent the frauds
 It may be a stock market fraud or bank fraud , or cyber fraud -
forensic accounting is indispensible tool
 In short forensic accounting means “The integration of accounting ,
auditing, and investigative skills creates the specialty known as
forensic a accounting “
SOME OF THE SCAMS IN INDIA
 2G spectrum scam – 1,75,000 crore
 Satyam Scam - 8000 crore

 Fodder scam – 950 crore

 Harshad Mehta scam – 4000 crore

 Ketan parekh Stock market scam – 1500 crore

 Common wealth games scam

 Hawala scandal

 Etc., etc.,
USES OF FORENSIC ACCOUNTING -
FOLLOWING AREAS
 1. Fraud detection where employees commit fraud –
forensic accountant tries to locate the assets created out of
funds defalcated - interrogate and bring out hidden truth.
 2. Criminal investigation: The report of the accountant is
considered in preparing and presentation as evidence
 3. Cases relating to professional negligence :
 eg. Non-conformation to Generally accepted accounting
standards (GAAS) or non compliance of auditing practices
or ethical codes of any profession - measure the loss due to
such professional negligence
 4. Arbitration and mediation service to business community
: as they undergo special training in the area of alternative
dispute resolution.
USES OF FORENSIC ACCOUNTING –
CONTD
 5. settlement of insurance claims:
 Insurance companies engage Forensic accountants for
accurate assessment of claims
 Policy holders seek the services of forensic accountant
when they want to challenge claim settlement worked
out by insurance companies
 6. Dispute settlement :

 They handle contract disputes, construction claims,

infringement of patent and trade marks cases, liability
arising out of breach of contracts.
ROLE OF FORENSIC ACCOUNTANT
 Forensic accountants are engaged by insurance companies,
Banks, police force, govt agencies
 They are useful in the following areas :
 1. they may be called upon by police to assist in criminal
investigation - - on examination of the documents forensic
accountant gives his opinion
 2. personal injury claims : insurance companies take their advise
to decide about the claim and quantum of payment
 3. fraud investigations: assist business in investigation - tracing,
asset identification and recovery - find out the individuals who
did the crime etc.,
 4. matrimonial disputes : Help the advocates in Divorce cases in
trace locate and evaluate assets and decide about the share of the
divorcing couple in the assets of the business
ROLE OF F A
 5. Professional Negligence : to assess whether there is
negligence and quantify the loss
 6. Expert witness cases : Attend court to testify in civil
and criminal court hearings as expert witnesses - attend,
present and assist presiding judge to decide the case
 7. Mediation and arbitration: Provide dispute resolution
services to clients - to save time
 8. Litigation consultancy : work with lawyers, clients
and assist them with evidence , strategy and case
preparation
 9. assisting in electronic data recovery and enforcement
of intellectual property rights.
TECHNIQUES OF FORENSIC
ACCOUNTING
 1. Benford’s Law : it is a mathematical tool Where the
variables under consideration are subjected to statistical and
mathematical tests
 2. Theory of relative size factor (RSF) : it highlights all
unusual fluctuations which may be routed from fraud or
genuine errors
 3. computer assisted auditing tools (CAATs)
 They are computer programs the auditor use as a part of the
audit procedures to process data - without depending on the
client. They involve:
 A. testing transactions and balances
 B. identify inconsistencies' and significant fluctuations
 C. redoing calculations performed by accounting systems.
 4. Data mining techniques : these techniqus are designed
to automatically mine large volumes of data for new
hidden or unexpected information.
 5. Ratio Analysis :

 Calculation of data analysis ratios for key numeric

fields .
 Useful for finding financial health of the company or
finding out or identifying symptoms of fraud
ENVIRONMENTAL REPORTING :
 It is a part of corporate reporting
 It is a decade old
 Important from the point of view of corporate governance
 Protecting the environment is the social responsibility and
commitment of corporations towards the society
 Environmental reporting is a public disclosure just like
financial performance information
 Environmental report is needed by employees, local
communities, society, shareholders, customers, government
and environmental groups
 Environmental reporting refers to systematic statement of
environmental burden and programs and related to the
activities of the company
INFOSYS HIGHLIGHTED THE FOLLOWING ISSUES IN
THEIR ENVIRONMENTAL REPORTING DURING 2013-
2014 – IN THEIR ANNUAL REPORT

 Health , safty, environmental policy

 Energy efficiency strategies

 Green building

 Adoption of renewable energy

 Video and audio conferencing emissions,

 Water efficiency,

 Waste management

 Bio diversity
LIST OF SOME OF THE OTER
COMPANIES , DISCLOSE
ENVIRONMENTAL REPORTING
 Bajaj auto
 BHEL
 Bharati Airtel
 HLL
 Hindustan zinc
 ITC
 Infosys
 L&T
 M&M
 ONGC
 TCS
 Tata Motors
 Wipro
CORPORATE SOCIAL REPORTING (CSR) :

 CSR is referred as the process of communicating the social and

environmental effects of organization on the society - to certain
interest groups
 Objectives of CSR:
 1. identify and measure the periodic net social contribution of an
individual firm
 2. whether the firm’s activities are consistent with the social
priorities
 Indicate the firm’s goals, policies and programs and contribution to
social goals
 4. To provide relevant information to outsiders with regard to the
discharge of their social responsibilities
 Note : Infosys has highlighted the following issues in its CST :
health care, education, rural development, culture, destitute care etc.,
TARGET COSTING
 Concept originated in Japan – 80% of assembly industries and 60% of
processing industries practice it
 Emerged in Japan in 1960s – in response to difficult market
conditions
 This was required to meet the tough competition from western
competitors in terms of quality , price and production
 now spread to USA
 Basic idea of target costing is cost reduction
 The marketing dept will determine market price before introduction of
the product
 A desired margin of profit is deducted from the selling price to arrive
at the target maximum cost of the product
 Product cost will be compared with the target cost
 If the projected product cost is more than the target cost then modify
the product to make it cheap and match with target cost
 Definition : “ Final cost of a product or service that must be
achieved in order to generate the desired level of sales
revenue and income “
 According to Sakurai (1989) : “ it is a system for reducing cost
and promoting the use of cost – engineering such as JIT , TQM
etc., “

 In target costing it is the market price that determines the

product cost
 Target costing is a method of calculating target cost by working
backwards from target selling price - cost is targeted to give
desired amount of profit
 It is a systamatic process of cost management and profit
planning