CHAPTER 5
IFRS 1 – First time adoption of IFRS
Definitions – quick reference
Date of transition to IFRSs -The beginning of the earliest period for which an entity presents
full comparative information under IFRSs in its first IFRS financial statements.
Deemed cost -An amount used as a substitute for cost or depreciated cost at a given date.
Subsequent depreciation or amortization assumes that the entity had initially recognized the
asset or liability at the given date and that its cost was equal to the deemed cost
Fair value -The amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction.
First IFRS financial statements The first annual financial statements in which an entity
adopts IFRSs by an explicit and unreserved statement of compliance with IFRSs.
First IFRS reporting period -The latest reporting period covered by an entity’s first IFRS
financial statements.
First-time adopter -An entity that presents its first IFRS financial statements.
IFRSs- Standards and Interpretations adopted by the IASB, comprising: • International
Financial Reporting Standards; • International Accounting Standards; and • Interpretations
developed by the IFRIC or the former Standing Interpretations Committee (SIC).
Opening IFRS statement of financial position-An entity’s statement of financial position at
the date of transition to IFRSs.
Previous GAAP -The basis of accounting that a first-time adopter used immediately before
adopting IFRSs.
Objective
The objective of this IFRS is to ensure that an entity’s first IFRS financial statements,
and its interim financial reports for part of the period covered by those financial
statements, contain high quality information that:
(a) is transparent for users and comparable over all periods presented;
(b) provides a suitable starting point for accounting in accordance with International
Financial Reporting Standards (IFRSs); and
(c) can be generated at a cost that does not exceed the benefits.
Scope
An entity shall apply this IFRS in:
(a) its first IFRS financial statements; and
(b) each interim financial report, if any, that it presents in accordance with IAS 34
Interim Financial Reporting for part of the period covered by its first IFRS financial
statements.
Recognition and measurement
An entity shall prepare and present an opening IFRS statement of financial
position at the date of transition to IFRSs. This is the starting point for its
accounting in accordance with IFRSs.
An entity shall use the same accounting policies in its opening IFRS statement of
financial position and throughout all periods presented in its first IFRS financial
statements. Those accounting policies shall comply with each IFRS effective at
the end of its first IFRS reporting period.
Implication of IFRS
IAS 1 - COMPONENTS OF FINANCIAL STATEMENT
It defines complete set of general purpose financial statements that contains 5
components:
1. Statement of financial position;
2. Statement of profit or loss and other comprehensive income;
3. Statement of changes in equity;
4. Statement of cash flows;
5. Notes with summary of significant accounting policies and other
explanatory information
It describes the general features of financial statements:
1. fair presentation and compliance with IFRS;
2. going concern;
3. accrual basis of accounting;
4. materiality and aggregation;
5. offsetting;
6. frequency of reporting;
7. comparative information; and
8. consistency of presentation.
It sets the minimum requirements for the content of financial
statements; their identification and structure.
IFRS in Indian Scenario
IFRS adoption procedure in India To rationalize accounting practices in the
country, the Indian government in 1949, established Institute of Chartered
Accountants of India by passing ICAI Act, 1949. Accounting Standard Board
was Constituted by ICAI in 1977 in order to create harmony among the
diversified accounting policies and Practices in India.
Three steps process was laid down by the accounting professionals in India
which are Summarized as follows:
Step 1 – IFRS Impact Assessment
This is the first step. In this step the firm will assess the impact of IFRS
adoption on Accounting and Reporting issues, on procedures and systems, and
on core business of the entities. Then the firm will find the key conversion dates
according to IFRS training plan has laid down. As and when the training plan is
in place, the firm will have to identify the important Financial Reporting
Standards which will apply to the firm and also the variations among the present
financial reporting standards being followed by the firm and IFRS both.
Step 2 – Preparations for IFRS Implementation
This is the second step of the process, which will carry out such activities
required for IFRS implementation process. Then the firm will reform the
internal reporting systems and processes. IFRS first deals with the adoption and
implementation of first-time adoption process.
Step 3 – Implementation
This is the final step of the process which deals with the actual implementation
of IFRS. The initial phase of this step is to prepare an opening Balance Sheet at
the date of transition to IFRS. To understand the actual impact of the transition
from the Indian Accounting Standards to IFRS is to be developed. This will
follow the full application of IFRS as and when it is required.
BENEFICIARIES OF CONVERGENCE WITH IFRS
Some of benefits of IFRS is discussed below..
1. The Investors: Convergence of Indian Accounting Standards with IFRS
makes accounting information more reliable, relevant, timely and comparable
across different legal and economic frameworks and requirements since it
would then be prepared by using a common set of accounting standards which
will facilitate the investors who willing to invest in the countries apart from
India. It will also develop better understanding of financial statements
worldwide which increase the confidence among the people as investors., from
whole of the world.
2. The Industry: The other important is the industry which in the event of
convergence with IFRS will be benefited because of some basic reasons. Firstly
it will enhance confidence in the minds of the foreign investors, secondly, it
decreases the burden of financial reporting, thirdly, it would make the process of
preparing the individual and group financial statements easier and simplest, and
the last and important one is that this will reduce cost of preparing the financial
statements using different sets of accounting standards.
3. Accounting Professionals: However, there would be initially many problems
but convergence with IFRS would surely benefit the accounting professionals
and it will be helpful them to sell their talent and expertise across the globe. 4.
The Economy: All the discussions made above explains how convergence with
IFRS would help industry grow and is beneficial to the corporate entities in the
country as this would make the internal andexternal highly consisted, and it will
report improvement in the risk rating among the foreign investors. Moreover,
the international comparability is also benefiting the industrial and capital
markets in the country which lead to better economy across the country.
PROBLEMS AND CHALLENGES IFRS are formulated by International
Accounting Standard Board.
However, the responsibility of convergence with IFRS vests with local
government and accounting and regulatory bodies, such as the ICAI in India.
Thus ICAI need to invest in infrastructure to ensure compliance with IFRS.
India has several constraints and practical challenges to adoption and
compliance with IFRS. So there is a need to change some laws and regulations
governing financial accounting and reporting in India. Therefore, there are
several challenges that will be faced on the way of IFRS convergence. These
are:
1. Difference in GAAP and IFRS: Adoption of IFRS means that the entire set of
financial statements will be required to undergo a drastic change. The
differences are wide and very deep routed. It would be a challenge to bring
about awareness of IFRS and its impact among the users of financial statements.
2. Training and Education: Lack of training facilities and academic courses on
IFRS will also pose challenge in India. There is a need to impart education and
training on IFRS and its application.
3. Legal Consideration: Currently, the reporting requirements are governed by
various regulators in India and their provisions override other laws. IFRS does
not recognize such overriding laws. The regulatory and legal requirements in
India will pose a challenge unless the same is been addressed by respective
regulatory.
4. Taxation Effect: IFRS convergence would affect most of the items in the
financial statements and consequently the tax liabilities would also undergo a
change. Thus the taxation laws should address the treatment of tax liabilities
arising on convergence from Indian GAAP to IFRS.
5. Fair value Measurement: IFRS uses fair value as a measurement base for
valuing most of the items of financial statements. The use of fair value
accounting can bring a lot of instability and prejudice to the financial
statements. It also involves a lot of hard work in arriving at the fair value and
valuation experts have to be used.
Job profiles after IFRS External auditor
Your IFRS qualification can supplement your job as an external auditor. Your
job will be to spot inconsistencies or disparities in company operations.
Finance controller
Your IFRS expertise will come in handy when you work on the company
balance sheets and income statements. You will ensure that the business is
running per the regulations.
Financial consultant
As a consultant, you can help companies switch to IFRS standards in their day-
to-day operations. You can set up your own practice or freelance with clients.
Accountant with global corporations
MNCs are looking for accountants with IFRS expertise as they follow the
international accounting standards. Candidates who have done their ACCA,
CIMA or CA have an edge when they do the IFRS course.