An Introduction
International Financial Reporting
Standards (IFRS)
2
Preparation and Presentation of Financial Statements - India
Basic Framework
Generally Accepted Accounting Practices (Accounting Standards & Guidelines) - Indian GAAP
Selected Accounting Policies
Regulatory Requirements
Preparation and Presentation of Financial Statements
INDIA
Basic Framework
Regulatory Requirements
Indian GAAP
Accounting Policies
Accounting Treatment difference
Disclosure requirements
Impact in Financial Statements Vs
US
Basic Framework
Regulatory Requirements
US GAAP
Accounting Policies
Differences
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Need for understanding the differences
Business going global
Consolidation of financial statements
Enhance confidence of global stakeholders
Facilitate international acquisitions
Provide Standardized Quality of MIS across global businesses
Requirement of Global Financial Reporting Language
International Accounting Standard Committee formed in 1973 (IASC)
Functions of IASC
Issue of International Accounting Standards (IAS)
IAS 1 to IAS 41 from 1973 to 2001
Issue of Standing Interpretations Committee (SIC)
SIC 1 to SIC 32 till 1973 to 2001
IASC replaced by International Accounting Standard Board (IASB) in 2001
Issue of International Financial Reporting Standards (IFRS)
IFRS 1 to IFRS 8
Issue of International Financial Reporting Interpretation Committee (IFRIC)
IFRIC 1 to IFRIC 16
Some of these IAS considered While framing local Standards
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From IAS to IFRS
International Accounting Standards Committee (IASC)
1973
2000
International Accounting Standards Board (IASB)
2001
Future
International Accounting Standards (IAS)
International Financial Reporting Standards (IFRSs)
IFRS
IAS SIC IFRS IFRIC
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List of IAS/IFRS
IAS NO TITLE
CORRESPONDING AS
1 Presentation of Financial Statements 1
2 Inventories 2
7 Cash Flow Statements 3
8 Net Profit or Loss for the period, Fundamental Errors and Change
in Accounting Policies 5
10 Events after the Balance Sheet date 4
11 Construction Contracts 7
12 Income taxes 22
14 Segmental Reporting 17
15 Information reflecting the effect of changing prices -
16 Property, Plant and Equipment 6 & 10
17 Leases 19
18 Revenue 9
19 Employees Benefits 15
20 Accounting for Govt Grants and Disclosure of Government
Assistance 12
21 The effects of changes in the foreign exchange rates 11
22
8
IAS NO TITLE CORRESPONDING
AS
23 Borrowing Costs 16
24 Related Party Disclosures 18
26 Accounting and Reporting by Retirement Benefits Plan -
27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries 21
28 Accounting for Investments in Associates 23
29 Financial Report in Hyper Inflationary Economics -
30 Disclosure in the financial statements of the Banks and similar Financial Institutions -
31 Financial Reporting of Interest in Joint Ventures 27
33 Earning per Share 20
35 Discontinuing Operations 25
36 Impairment Assets 28
37 Provisions, Contingent liabilities and Contingent assets 29
38 Intangible Assets 26
39 Financial Instruments : Recognition and Measurement 30 & 31
40 Investment Property -
41 Agriculture -
IFRS 1 First Time Adoption of IFRS -
IFRS 2 Share Based Payment -
IFRS 3 Business Combinations 14
IFRS 4 Insurance Contracts -
IFRS 5 Non current assets held for sale and discontinued operations -
IFRS 6 Exploration for and Evaluation of Mineral Resources -
IFRS 7 Financial Instruments : Disclosures 31
IFRS 8 Opening Segments -
IFRS Today and Tomorrow
– Today IFRS is used in over 100
countries:
• Required across all EU countries, starting in 2005
• Argentina, Brazil, Canada and India have announced mandated use
– By 2014, it is expected that:
• All major countries will have adopted IFRS to some extent
• China and Japan will be
substantially converged to IFRS
• U.S. public companies will begin to be required to use IFRS
Accounting Standards Used by Global Fortune 500
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IFRS and India
Formulation and issue of Accounting Standard (AS) by Accounting Standard Board of the ICAI
Convergence with IFRS required
Formation of IFRS Task Force
Achieving convergence with IFRS
Laying down a road map for the above
Adoption of IFRS effectively from 1st April 2011.
Compliance with IFRS
Compliance with IFRS includes:
– All active standards (IASs and IFRSs)
– All active interpretations (SICs and IFRICs)
– IFRS requires presentation of comparative period
Must make explicit and unreserved statement of compliance
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First Time Implementation (IFRS 1)
Applicable when an entity makes its first explicit and unreserved reference to IFRS
Generally apply retrospectively all IFRS effective at reporting date
Certain exemptions can be elected
Some exceptions that must be followed
Requires one year of comparative financial information
Transition adjustments recognized in retained earnings
Must explain effect of transition to IFRS
Key Dates
01/04/2010 01/04/2011 31/03/2012
First IFRS Reporting Date Date of
Transition
Date of Applicability
Comparative period under IFRS First IFRS reporting period
Last reporting under Indian GAAP
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Key Differences
IFRS Vs Indian GAAP
Key Differences between IFRS and Indian GAAP
Inventory
Events occurring after Balance Sheet Date
Prior Period Items and changes in Accounting policies
Fixed Assets
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INVENTORY
Valuation of Inventories (AS 2) Vs
Inventories (IAS 2)
Key Differences - Inventory
Particulars IFRS Indian GAAP US GAAP
Scope IAS 2 includes provisions relating to the work in progress of a service provider
AS 2 excludes work in progress arising in the normal course of business of service provider. Hence there is no guidance for the same.
Similar to Indain GAAP
IAS 2 does not apply to inventories held by commodity traders
There is no scope exemption in AS 2 for any inventory held by commodity traders
Similar to Indain GAAP
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Key Differences - Inventory
Particulars IFRS Indian GAAP US GAAP
Inventory Valuation Inventories are carried at the lower of cost or net
realizable value
Inventories are carried at the lower of cost or net
realizable value
Lower of cost or market subject to upper/lower limit of NRV
Frequency of
Assessment of NRV A new assessment of Net Realizable Value is required to be made in each
Reporting period
No specific guidance in AS 2.
Write Down Reversal is required for a subsequent increase in value of inventory previously write down
Reversal is required for a subsequent increase in value of inventory previously write down
Reversal of write down of inventory is not permitted
Key Differences - Inventory
Particulars IFRS Indian GAAP US GAAP
Cost Formula
Application The following cost formula allowed :
a) FIFO Method
b) Weighted Average Cost
LIFO method is not allowed
The following cost formula allowed :
a) FIFO Method
b) Weighted Average Cost
LIFO method is not allowed
The following cost formula allowed :
a) FIFO Method
b) Weighted Average Cost c) LIFO Method
Consistency in cost
formula application The same cost formula is used for all inventories that have a similar nature and use to the entity
Not specified. However consistency is a
fundamental principle
The same cost formula is used for all inventories that have a similar nature and use to the entity
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Key Differences - Inventory
Particulars IFRS Indian GAAP US GAAP
Cost of Inventory Cost of inventory excludes only Selling Cost,
Not Distribution Cost
Cost of inventory does not include
Selling & Distribution Cost as per AS 2
Similar to AS 2
Purchase under Deferred Settlement Terms
Difference between the purchase price of inventory for normal credit terms and the amount paid for deferred settlement terms is
recognized as interest Expense
Inventories purchased on deferred settlement terms are not explicitly dealt with in the accounting standard on inventories
Disclosure
Requirements Disclosure requirements are same except the following : a) Any write down and
reversal of any write down b) Circumstances they led to
reversal of a write down c) Carrying amount of
inventory that are pledged as securities
No specific requirements for disclosure
EVENTS AFTER THE BALANCE SHEET DATE
Contingencies and Events occurring after the
balance sheet date (AS 4) Vs
Events after Reporting Period (IAS 10)
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Key Differences – Events after Balance Sheet Date
Particulars IFRS Indian GAAP US GAAP
Proposed Dividend An Entity should not recognize the proposed dividends as a liability at the balance sheet date.
Companies are required to make provision for proposed dividend, even though they are proposed after the balance sheet date
Similar to IFRS
Date of authorization Date of authorization for issue of financial statements and the authorizing authority should be specifically mentioned in
financial statements itself
No such requirements in AS 4
Similar to IFRS
Disclosure of
Non Adjusting events Material Non Adjusting Events are required to be disclosed in the financial statements
Non adjusting events are required to be disclosed in the report of approving authority
PRIOR YEAR ITEMS
Net P & L for the period, Prior Period items and change in Accounting Policies (AS 5)
Vs
Accounting policies, Changes in Accounting Estimates and Errors (IAS 8)
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Key Differences – Prior Period Items, Change in Accounting Policies
Particulars IFRS Indian GAAP US GAAP
Definition
Prior Period Errors Broad definition of Prior Period items. It includes all the items in the financial statements
AS 5 covers only Income and Expenses in the definition of prior period items
Prior Period Errors Prior Period errors are to be corrected retrospectively and restate the opening balances of assets, liability and equity
Reported as a prior period adjustment in current year results.
Comparatives are not required to restate.
Similar to IFRS
Extraordinary Item It prohibits disclosure of any items as Extraordinary Items
Separate disclosure is required as per AS 5
Impending Changes It requires disclosure of any impending change in
accounting policy
It does not require such disclosure
Similar to IFRS
Key Differences – Prior Period Items, Change in Accounting Policies
Particulars IFRS Indian GAAP US GAAP
Absence of standard
or interpretation It provides specific guidance on the selection of accounting policies where there is no IFRS or interpretation that specifically applies to a transaction.
No specific guidance under AS 5
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FIXED ASSETS
Accounting for Fixed Assets (AS 10) Vs
Properly, Plant and Equipment (IAS
16)
Key Differences – Fixed Assets
Particulars IFRS Indian GAAP US GAAP
Definition Tangible Items that
a) Are held for use in the production or supply of
goods or service, for rentals to others, or for administrative
purposes; and
b) Are expected to be used during more than one period
Fixed Asset is an Asset held with the intention of being used for the purpose of
producing or providing goods or services and is not held for sale in the ordinary course of business
Initial Measurement
of cost Initial measurement of cost also includes
a) Fair value gains or losses on qualifying cash flow hedges
relating to the purchase of PPE in a foreign currency
b) Cost of dismantling and removing the item or restoring the site on which PPE is located
No specific guideline on the measurement of gains/losses on qualifying cash flow
hedges and capitalization of dismantling and site
restoration cost
Similar to IFRS except hedge gains or losses on qualifying cash flow hedges are not included
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Key Differences – Fixed Assets
Particulars IFRS Indian GAAP US GAAP
Capitalization It mandates component Accounting. Each major part of the plant to be
depreciated separately
AS 10 does not require full adoption of component accounting. It is stated that accounting of asset may be improved through allocation of cost to various parts of the asset
Does not require a
component approach for depreciation
Determination of
Depreciation The depreciation amount of an item of PPE is allocated on a systematic basis over its useful life.
Higher of the following : a) Depreciation calculated
as per the rate specified in the Schedule XIV of the Companies Act.
b) Depreciation as determined based on estimated useful life of the assets
Similar to IFRS
Key Differences – Fixed Assets
Particulars IFRS Indian GAAP US GAAP
Depreciation Method A variety of depreciation methods can be used to allocate the depreciable amount on systematic basis over its useful life
Can be followed either SLM or WDV
Similar to IFRS
Change in
Depreciation Method Changes in the depreciation method are considered as change in accounting Estimate
Prospective effect in current period
Changes in the depreciation method are considered as change in accounting Policies and effects to be quantified and disclosed
Retrospective effect in computation of depreciation
Similar to IFRS
Review of Useful Life
and Residual Value Re assessment of
useful life and residual value is required at least at each
financial year end
AS 10 does not specify any such requirement
Similar to IFRS
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Key Differences – Fixed Assets
Particulars IFRS Indian GAAP US GAAP
Subsequent Costs Cost of replacement is to be capitalized
The carrying amounts of those parts that are replaced is to be derecognized
Replacement cost is Expensed
No requirement for decapitalizing the
carrying
amount of replaced items
Similar to IFRS
Major inspection cost and overhaul expenditure
The cost of major inspection and overhaul expenses are to be capitalized
The expenditure that increases the benefit over previously assessed capacity is capitalized.
The inspection cost and overhaul expenses are expensed
Similar to IFRS
Purchase under Deferred Settlement Terms
The cost of an item of PPE is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as interest over the period of credit.
No specific guideline under AS 2 with respect to fixed asset acquisition under deferred
settlement scheme
Key Differences – Fixed Assets
Particulars IFRS Indian GAAP US GAAP
Revaluation If an entity adopts the revaluation model, re valuation is required to be made with regular period to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period
No specific requirement on frequency of
revaluation
Similar to IFRS
Group
Revaluation If an item of PPE is revalued, then the entire class of PPE to which that asset belongs to be revalued.
Revaluation Approach is ad hoc in nature.
Similar to IFRS
Depreciation on
revaluation Depreciation on revalued portion cannot be recouped out of
revaluation reserve
Depreciation on revalued portion can be recouped out of revaluation reserve
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Key Differences – Fixed Assets
Particulars IFRS Indian GAAP US GAAP
Compensation Compensation received from third parties against loss of items of PPE are to be included in Profit
& Loss when the compensation becomes receivable
No specific requirement.
Way Forward
Minutes of the meeting to be documented
Drafting the Action Plan to be taken
Mapping the differences for other areas
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