ANALYSIS OF FINANCIAL
STATEMENTS
International Financial Reporting
Standards
Group Members
• Shradha Savla (15)
• Bhavik Shah (21)
• Vijayeta Shetty (42)
• Sujata Bimari (52)
• Kavita Verma (59)
• Ritesh Mehta (71)
Roadmap
1. What is IFRS?
2. What is the need for IFRS?
3. IFRS Challenges
4. Key differences between IFRS and Indian GAAP
5. Example
6. Effects of IFRS on various sectors
7. Effects of IFRS on Accounting Professionals
8. Conclusion
What is IFRS?
International Financial Reporting Standards (IFRS)
is a set of accounting standards, developed by
the International Accounting Standards Board
(IASB) that is becoming the global standard for
the preparation of public company financial
statements.
Some Facts…
• IFRS are developed by IASB.
• IFRS Comprises: 8 IFRSs and 31 IASs.
• In 2005, the EU formally adopted IFRS.
• By 2011 more than 150 countries will adopt IFRS.
• IFRS Task force of India decided to converge with
IFRS on or after 1 April 2011.
Need for IFRS
• Enabling companies to develop consistent global
practices in presentation & disclosure of
transactions and events in financial statements.
• Greater transparency.
• Improved access to international capital markets.
• Lower cost of capital.
• Enable benchmarking with global peers.
• Escape multiple reporting.
• Reflects true value of acquisitions.
IFRS Challenges
• Awareness.
• Shortage of Resources.
• Training.
• Alignment with other statutory body.
• Several legislative changes
Key differences: IFRS and Indian GAAP
Particulars Indian GAAP IFRS
Conceptual – rule based – provides scope of
Difference – less flexible judgment
– SEBI, ROC, RBI, IRDA, etc. play an – requires information to be
important role in defining rules.
presented on the basis of
substance rather than
rules.
Fairly True and Fair presentation of financials. –IAS allows overriding true
Presented and fair concept in extreme
Statements cases.
–emphasis is on fairly
presented statements.
Contd…
Particulars Indian GAAP IFRS
Presentation – the Companies Act, 1956, defines format – IAS-1 Presentation of financial
of balance sheet &related statements. statement provides guidelines and
– For listed companies, Insurance overall requirements
companies, Banks, etc., regulatory – For example it defines certain
authorities also guide as to how the information, which is to be
financials are to be projected. presented on the face of balance
sheet.
Extra- Extraordinary items are required to be There is no provision of presenting
ordinary items separately disclosed in Indian GAAP. extraordinary item, separately.
Contd…
Particulars Indian GAAP IFRS
Reports Acc. to the companies Act, 1956 IAS-1 require a business entity to
a business entity is required to present present:
Balance sheet Balance sheet
Profit and loss A/c Income Statement
Notes to accounts Cash Flow Statement
cash flow statement is not mandatory but Statement of change in Equity
required in some cases. Notes to accounts
Cash Flow statements are mandatory
Depreciation The Companies Act, 1956 IAS-16 Property Plant and Equipments
defines minimum rate of depreciation to allows management to charge
be applied by company. depreciation, based on useful life of
asset.
Contd…
Particulars Indian GAAP IFRS
Useful life of assets There is no need for an annual review IFRS requires estimates of
of estimates of useful lives and residual useful lives and residual values
values. to be reviewed at least at each
financial year-end
Revenue recognition AS-9 Revenue Recognition provides an IAS 18
option to use ‾ Provides that revenue can be
either proportionate completion recognized when risks
method or completed service method. rewards and controls have
been transferred to the buyer.
‾ In construction contracts,
stage of completion method
can be applied to recognize
revenue, if reliable valuation
is possible.
Contd…
Particulars ‾Indian GAAP ‾IFRS
Revenue ‾AS-9 Revenue Recognition provides to IAS 18 provides that revenue can be recognized when
recognition ‾use either ‾ risks rewards and controls have been transferred to
‾ proportionate completion method or the buyer.
‾ completed service method. In construction contracts,
‾ stage of completion method can be applied to
recognize revenue, if reliable
‾ valuation is possible.
Uses historical cost, but property, plant and
Valuation of ‾Generally uses historical cost, but intangible assets,
equipment may be revalued to fair value. Certain
assets derivatives are carried at fair value. property plant and equipment (PPE) and investment
No comprehensive guidance on derivatives and
property may be revalued to fair value. Derivatives,
biological assets.
biological assets and certain securities are revalued to
fair value.
Goodwill Does not require goodwill to be tested for IAS-36 Impairment of assets requires Goodwill to be
impairment at each balance sheet date. tested for impairment at each balance sheet date.
Contd…
Sr. No
Particulars Indian GAAP IFRS
Share-based Allows Fair Value method, or intrinsic value IAS 19 provides that a share-based payment
employee method. Hence, choice is available here. to employees is to be taken into account,
benefits using Fair Value method.
Related party AS 18 define related party, where one party has IAS 24 – Related Party Disclosures defines
disclosures ability to control the other party or exercise related party in terms of control or
significant influence over the other party in making significant influence, but several types of
financial/operating decisions. exemption are granted, particularly for
Related parties have been specifically defined in the relationships within a group.
standard. This is a principled-based definition and
includes close family members.
Income Taxes AS 22 Accounting for Taxes on Income is based on IAS 12 is based on the balance Income
the income statement liability method, which Taxes sheet liability method which focuses
focuses on timing differences on temporary differences
EXAMPLE
Indian GAAP v/s IFRS
Infosys B/L Sheet-Indian GAAP
Infosys
B/L Sheet
IFRS
Infosys B/L Sheet-IFRS
Effects of IFRS on Various Sectors
Banking Sector
• Financial reporting policies for provision for loan
losses and investments.
• Impact on available capital and capital adequacy
ratio.
• Regulatory review process needs to be adjusted.
• Extensive use of fair valuation techniques poses
additional implementation challenges.
Contd…
IT Sector
• Technology companies enter into bundled
contracts and multiple offerings.
• Stock options
• Outsourcing contracts
• Discounting of receivables & payables
• Foreign exchange derivatives
Contd…
Real estate, Construction & Infrastructure Sector
• Real estate companies will adopt fair value for measuring
and reporting their investment properties.
• There will be no amortization cost.
• Take cognizance of multiple-element contracts and
barter transactions
• For infrastructure companies, the IFRS provision on
“service concession arrangements” will have far-reaching
consequences.
Effects on Accounting Professionals
• Needs to assist standard setters in formulating
and enacting convergence plans.
• Provide IFRS training and education.
• Support the preparation of national language
translations of IFRS.
• Increasing job opportunities.
Conclusion