An Introduction
to IFRS
Converged Ind
AS
What is IFRS? Why?
Roadmap to IFRS
IFRS Converged Ind
AS
Key Carve-Ins and Carve-Outs in Ind AS
Comparison between Ind AS and existing
AS
.
Generally Accepted Accounting
Principles
The common set of accounting principles,
standards and procedures that companies use to
compile their financial statements. GAAP are a
combination of authoritative standards (set by
policy boards) and simply the commonly
accepted ways of recording and reporting
accounting information.
Indian GAAP is based on Widely Accepted
Accounting practises and principles and the
Accounting Standards issued by ICAI.
2
IFRS and Its
Importance
• IFRS is a single set of high quality, understandable, enforceable
and globally accepted financial reporting standards based upon
clearly articulated principles.
• From 2001 onwards, almost 120 countries have required or
permitted the
use of IFRSs and all the G20 countries except India.
• Why IFRS is required?
Better understanding of Financial Statements globally and
increased
confidence among investors.
Decreased burden of Financial Reporting and lower cost of
preparing financial statements.
Beneficial for Accounting professionals to render their
services around
International Financial 3
the globe.
community.
Raise the reputation and relationship of Indian corporate
Components of
IFRS
The IFRS consists of:
1) The Conceptual Framework for the Financial
Reporting
2) International Accounting Standards (issued by
IASC)
3) SIC (Standing Interpretation Committee)
Interpretations
4) International Financial Reporting Standards (issued
by IASB)
5
5) IFRIC (International Financial Reporting Interpretation
The Conceptual
Framework for Financial
Reporting
The Framework states the basic principles for IFRS and
hence it’s a
“must-read” document. It discusses
objective of financial statements, qualitati
underlying
characteristics
assumptions
of financial
used in IFRS, ve
statements, elements of
statements, recognition of elements of financi
financial
statements, al
measurement of elements of financial
statements and concepts of capital and maintenance.
The Framework was amended in September 2010.
6
The International Accounting
Standards Committee (IASC)
• The IASC, which was the predecessor body to the IASB, was
founded in June 1973. It was set up as a result of an agreement
by accounting bodies in ten national jurisdictions which
constituted the original board, being Australia, Canada, France,
Germany, Japan, Mexico, the Netherlands, the UK, Ireland and
the US.
• The IASC subsequently expanded to include representatives
from over 100 countries and by 2000 the membership included
143 bodies in 104 countries, representing over two million
accountants.
• The IASC developed and issued International Accounting
Standards (IAS). 7
•
Standing
Interpretation
Committee (SIC)
Standin Interpretation Committee
constituted
g under [Link] a committee
The interpretations issued by them are called SIC
Interpretations which gives explanation about
ambiguous terms and provisions of IAS.
They deal with more specific situations not
covered in the standard itself, or issues that
arose after the publishing of certain IAS.
8
The International Accounting
Standards Board (IASB)
• The International Accounting Standards Board (IASB) is
the independent, accounting standard setting body of
IFRS Foundation.
• The IASB was established on April 1, 2001, as the
successor to the International Accounting Standards
Committee (IASC). It is responsible for developing
International Financial Reporting Standards(IFRS).
• The IASB issues IFRS, but has adopted all the IASC’s
9
IAS.
International Financial Reporting
Interpretation Committee
IASB’s interpretative body is known as The IFRS
Interpretation
Committee (formerly known as IFRIC).
This committee is responsible to review and solve
certain accounting issues arising from IFRSs currently
in place and provide guidance on those issues. In other
words, committee issues interpretations called IFRICs.
Each IFRIC must then be approved by IASB. IFRS
Interpretations Committee has 14 voting members
drawn from different countries and professional
backgrounds. 10
General Features of
IFRS
• Fair presentation and compliance
with IFRS
• Going concern
• Accrual basis of Accounting
• Materiality and aggregation
• Offsetting
• Frequency of reporting
• Comparative information
• Consistency of presentation
11
The Preface to Indian Accounting Standards states:
“2.3 The ICAI, being a full-fledged member of
the International
Federation
promote of the
Accountants
International
(IFAC), is expected,
Accounting
inter alia,
to actively
pronouncements in the Standards
country Board’s
with a (IASB)
harmonisation of accounting
view to standards.
facilitate Accordingly, global
while
formulating the Accounting Standards, the ASB will give due
consideration to International Accounting Standards (IASs)
issued by the International Accounting Standards
Committee (predecessor body to IASB) or International
Financial Reporting Standards (IFRSs) issued by the IASB, as
the case may be, and try to integrate them, to the extent
possible, in the light of the conditions and practices
prevailing in India.”
Further, the President’s budget message in July 2014 stated:
“128. There is an urgent need to converge the 12
current
Indian accounting standards with the International Financial
Reporting Standards (IFRS).”
In July 2014, the Finance
Minister in his Budget speech
proposed the adoption of the
new Indian Accounting
Standards (Ind AS – the
converged IFRS standards) by
Indian companies voluntarily
from FY 2015-16 and
mandatory from FY 2016-17.
Indian
Accounting
Standards
14
IFRS Converged Ind
AS
Ind AS is a set of accounting standards notified by
the Ministry of Corporate Affairs which are
converged with International Financial Reporting
Standards(IFRS). These accounting standards are
formulated by Accounting Standards Board of
Institute of Chartered Accountants of India. Now
India will have two sets of accounting standards
viz. existing accounting standards under
Companies (Accounting Standard) Rules, 2006 and
IFRS converged Indian Accounting Standards (Ind
AS). The Ind AS are named and numbered in the
same way as the corresponding IFRS. 15
Roadmap to
IFRS Phase I Phase II Volunta
ry
Adoption
Year of FY2016-17 FY2017-18 FY2015-16 or
Adoptio thereafter
n
Covered Companies
(a) Listed Net All listed Any Company
worth>= Co.'s and could
Compani ₹500 Cr In the voluntarily
es process of adopt IFRS
Listing converged
(b) Net Net Ind AS
Unlisted worth>= worth>=
Compani ₹500 Cr ₹250 Cr
es
Group Holding, Holding,
Companies Subsidiary, Subsidiary,
Joint Joint
Key Carve-ins and
Carve-outs in Ind
AS
Ind AS 1
Ind AS 10
Ind AS 17
Ind AS 28
Ind AS 101
Ind AS 103
Ind AS 115
17
Ind AS 1- Presentation of
Financial Statements
IAS 1 Ind AS
1
Ind AS 1 clarifies that where there
is a breach of material provision of
IAS 1 requires that in case of a long term loan arrangement on or
loan liability, if any condition of before the end of the reporting
the loan agreement which was period with the effect that the
classified as non-current is liability becomes payable
breached on the reporting date, demand,
on the entity does
such loan should be classified as classify the loan as current, if the
not
current even if the breach is lender agreed, after the reporting
rectified subsequently. period and before the approval of
the financial statements for issue,
not to demand payment as a
consequence of the breach.
18
Ind AS 1- Presentation of
Financial Statements
Reason for Carve-out
• Indian loan arrangements generally contains large number of
conditions. Those conditions may be substantive or procedural but
not substantive. Generally in case of Substantive breaches, banks
may recall the loan. But, in case of procedural breaches, banker
generally does not recall the asset.
• In many cases the breach may be rectified subsequently which will
again make the loan into non-current nature. The carve-out will help
the user of financial information to know the true nature of
19
liabilities.
Ind AS 10- Events after
the reporting
period
IAS Ind AS 10
10
As a consequence to Carve out
stated in Ind AS 1, Ind AS 10
provides that rectification any
Rectification of any breach after breach of any material provision
the reporting date is a non- of the loan arrangement with the
adjusting event. effect that liability becomes
payable on
demand,
become an adjusting [Link]
20
Ind AS 17-
IAS
Leases Ind AS
17 17
Ind AS 17 states that in case of
operating leases, lease rentals shall be
IAS 17 requires all lease rentals to be charged to the statement of profit and
charged to statement of profit or loss on loss in accordance with the lease
straight line basis in case of operating agreements unless the payments to the
lessor are structured to increase in line
lease even if the payments to the lessor
with expected general inflation to
are not on that basis unless another compensate for the lessor’s expected
systematic basis is more representative inflationary cost increases. If the
of the time pattern of the user’s benefit. payments vary because of factors other
than general inflation, then this
condition is not met.
Reason for Carve-out:
Considering the Indian inflationary situation, lease agreements contain periodic rent
escalation. Thus, rentals shall not be straight-lined. 21
Ind AS 28- Investment in Associates
and Joint Ventures
IAS Ind AS
28 28
IAS 28 requires that if the
associate has
accounting policies from that of
different In Ind AS 28, A carve-in has been
the investor, the investor should done. the
change the financial statements practicable phrase, ‘unless to
I.e.
of the associates by using same inserted. do so’
accounting policies. has
been
Reason for Carve-in:
Certain Associates may not be in a position to use Ind AS since it would be too
advanced for them. Accordingly the above stated words have been added to exempt
such associates.
e.g.: RRBs being associate of Nationalized Banks. 22
Ind AS 101- First time adoption of
Indian Accounting
Standards
IFRS 1 Ind AS
101
As per IFRS 1, on the date of Ind AS 101 provides an option to
transition the items of Property, the entities to use carrying values
plant and equipment shall be of all items of property plant and
determined by applying IAS 16 equipment on the date of transition
‘Property, Plant and Equipment’ in accordance with the previous
retrospectively or the same should GAAP as an acceptable starting
be recorded at fair value. point under Ind AS.
Reason for Carve-out:
In case of old companies, the computation of fair value of asset and retrospective
application of Ind AS 16 may not be possible.
This option would be helpful for the voluntary adoption of Ind AS.
23
Ind AS 101- First time adoption of
Indian Accounting
Standards
Ind AS 101 allows the first time adopters to continue the policy adopted for exchange
differences arising from the translation of long-term monetary items recognized
in the financial statements for the period ending immediately before the
beginning of the Ind AS financial reporting as per the previous GAAP. IFRS 1 does
not provide such as option.
Reason for Carve-in:
Para 46A of AS 11 provides an option to recognize long-term foreign currency
monetary item in the statement of profit and loss as part of cost of property, plant and
equipment or to defer its recognition in the statement of profit and loss over the loan
period in case of loan is not related to acquisition of fixed asset. To provide transition
relief, entities availed such option to continue the same.
24
Ind AS 103- Business
Combinations
IFRS 3 Ind AS
103
As per Ind AS 103, bargain purchase
As per IFRS 3, bargain
gain to be recognized in
gain
purchase arising from Business
comprehensive
other income
combination to be recognized
accumulated and
profit
in or loss as income.
in reserve. equity as
Capital
Reason for Carve-out:
At present the bargain purchase gain is treated as Capital reserve. Since the bargain
purchase gain is an unrealised gain, inclusion into the free reserves of the company
may affect the companies.
25
Ind AS 115- Revenue from Contracts
with Customers
IFRS 115 Ind AS 115
Ind AS
115 states
As per IFRS 15, all types of
the contact. I.e. where penalty
that itis
penalties which may be levied in the
inherent in of
performance of contract should be determination
transaction
should price, it shall form part
be of
considered in the nature of variable
the variablefor
accounted consideration otherwise,of
as per the substance it
consideration for recognizing
shall not considered for determining
revenue.
the consideration and the transaction
price shall be considered as fixed.
26
A Quick Comparison
between Ind AS and
Existing AS
The comparison is not an exclusive one. Only few differences are discussed.
27
Existing Ind
AS AS
• Financial statements comprises of:
• Financial statements comprises of:
1. Statement of financial position
1. Balance Sheet 2. Statement of profit or loss and a Other
Comprehensive Income for the period
2. Statement of profit and loss
3. Statement of changes in equity
3. Cash flow statement 4. Statement of cash flows
5. Notes comprising of significant
4. Statement of changes in equity, if accounting policies and other
applicable explanatory information
Ind AS itself requires comparative period
5. Notes to Accounts, Disclosure of information in the financial statements
whereas the comparative figures given now
Accounting Policies and other as per statutory requirement.
explanatory notes as required.
28
Existing Ind
AS AS
• AS 1 doesn’t need an explicit • Ind AS 1 need an explicit statement of
statement of Compliance with all the Compliance with all the Indian
Accounting Standards. Accounting Standards.
• AS 1 doesn’t require for a Disclosure • Ind AS 1 require for a Disclosure of
of Judgements and Assumptions Judgements and Assumptions made by
made by management while framing management while framing accounting
accounting policies. policies.
• Format of Balance Sheet and • Format for Statement of financial
Statement of Profit and loss is not position and statement of profit or loss
given by the AS. and other comprehensive income is
given in Ind AS.
• As per AS 5, extra ordinary items are • Ind AS 1 prohibits presentation of any
required to be disclosed separately in income or expense as extraordinary in
the Statement of Profit and loss. the financial statements.
29
Existing Ind
AS AS
• AS 2 excludes ‘Selling and • IAS 2 excludes only ‘Selling costs’ and
Distribution costs’ from the cost of not ‘Distribution costs’.
Inventories.
• Ind AS 2 provides explanation that
• AS 2 doesn't have an explanation for relates to inventory of service providers.
inventory of Service Provider.
• Ind AS 7 specifically includes Bank OD
• AS 3 is silent about the treatment of repayable on demand as Cash and Cash
Bank OD repayable on demand. equivalent.
• Ind AS 8 does not allow a change in
• AS 5 allows change in Accounting accounting policy as a consequence of
policy if required by Law. change in statute.
• Proposed dividend dividend • As per Ind AS 10, Proposed dividend or
or declared after period is dividend declared after reporting period
reporting recognized financial is not recognized in the financial
in the statements.
statements. 30
Existing Ind
AS AS
• AS 22 computes deferred tax based • Ind AS 12 requires to compute deferred
on Income statement approach. tax based on balance sheet approach.
• AS 6 requires that change in • Ind AS 16 states that change in
Depreciation method shall be treated depreciation method shall be treated as
as change in Accounting policy. change in accounting estimate.
• AS 20 does not require Basic and • Ind AS 33 require Basic and Diluted
Diluted EPS from Continuing and EPS from Continuing and Discontinuing
Discontinuing operations. operations.
• AS 29 requires contingent asset • Ind AS 37 requires disclosure of
disclosure in approving authority’s contingent assets in the financial
report. statements when the inflow of economic
benefits is probable.
• Ind AS 37 requires discounting the
• AS 29 prohibits discounting the amounts of provisions, if effect of time
amounts of provisions value of money is material.
31
Existing Ind
AS AS
• AS 26 deals only with Intangible • Ind AS 38 ‘Intangible Assets’ deals in
assets acquired on amalgamation in detail in respect of intangible asset
the nature of purchase and silent acquired in a business combination.
about acquired on merger.
• Ind AS 38 gives specific rule for asset
• AS 26 requires that method as per AS acquired in exchange of non-monetary
10 to be followed in respect of asset. It should normally be recorded at
intangible assets acquired in fair value of asset given up as per Ind
exchange. AS 38.
• As per AS 14, there are two method • Ind AS 103 recognizes only acquisition
for accounting for amalgamation. method for every business combination.
• As per AS 14, goodwill on • Ind AS 103 states that goodwill on
amalgamation should be amortized business combination need not be
over 5 years unless a longer period amortized. But, test of impairment
can be justifiable. should be made on annual basis as per
Ind AS 36.
32
Existing AS Ind
AS
• AS 21 does not make the preparation • Ind AS 110 makes preparation of
of Consolidated Financial Statements Consolidated Statements
by a parent mandatory. Financial mandatory for
a parent.
• AS 21 excludes from the give such
consolidation when the control is • Ind AS 110 does a
intended to be temporary. not
relaxation.
33
34