Dear professionals
 LET US DISCUSS
 IFRS
 April 13, 2015
1
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IFRS OVERVIEW
ICSI WITH RELIANCE
April 13, 2015
IFRS
April 13, 2015
Where are we moving
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Global vs Indian approach
Fair value vs historical cost
Reporting vs Accounting
Substance over Form
Group vs Standalones
Principles over rules
IFRS 8 Standards –
what is most critical?
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1 first time adoption
2
3 Business combination
4
5
6
7 financial instruments
8
An Overview of IFRS
(what we are moving towards)
Proposed
Global Approach
Fair Value A/cing
Group
Current
vs
vs
vs
Substance over Form
Principles over Rules
Indian Approach
Historical Value A/cing
Standalones
An Overview of IFRS
(Boards/Committees Involved)
 IFRS are standards and interpretations adopted by
the International Accounting Standards Board
(IASB)
 International Accounting Standards (IAS) were
issued by the International Accounting Standard
Committee (IASC) between 1973 and 2000.
An Overview of IFRS
(Boards/Committees Involved)
 The IASB replaced the IASC in 2001 and made a
couple of changes -
 Amended some IASs
 Replaced some IASs with new IFRSs
 Issued certain new IFRSs on topics for which
there was no previous IAS.
 Through committees, both the IASC and the
IASB have also issued interpretation of
standards.
An Overview of IFRS
(Boards/Committees Involved)
 IFRS Comprises:
 8 IFRSs and 30 IASs
 18 IFRIC (International Financial Reporting
Interpretations Committee) and 12 SICs
(Standard Interpretations Committee)
 There is also a framework for the Preparation &
Presentation of Financial
Statements which describes some of the
principles underlying IFRS.
IFRS in India - Why
 One language
 Comparability enhanced
 Understanding enhanced
 One set of books
 Access to Global capital markets
 Low cost of capital
 Attract foreign investment
 Elimination of multiple reports
 Reflect true value of acquisitions
 Schedule VI in today’s environment
IFRS in India - Who
 All public interest entities are required to adopt IFRS  Listed companies
 Banks, insurance companies, and financial institutions
 Turnover > Rs 100 crores
 Borrowing > Rs 25 crores
 Holding or subsidiary of any of the above
IFRS in India - When
 ICAI has set up a Task Force on Convergence with IFRS
 The task force has decided on date of adoption of IFRS
as April 1, 2011
 This means that date of transition is April 1, 2010
Calendar for IFRS Conversions
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The timetable below shows the illustrative transition timetable
Opening IFRS balance sheet*
1/4/2010
IFRS adoption date
01/04/2011
IFRS
Comparatives
Reporting
date for FS
31/03/2012
1st IFRS
Financial Statements
31 March 2012 seems a long way off, but there is a lot of work
required to convert, as we have seen in countries which have already
adopted IFRS
*For a March year -end, adopting IFRS in 2011 with one year
comparative
IFRS in India – How
(Practical implications for companies)
 Converting to IFRS is more than a technical
exercise; it presents many business challenges
and opportunities.
 Major conversions can take 12 - 18 months to
complete.
IFRS in India – How
(Practical implications for companies)
 Senior
management
will
need
the
time
to
understand the full impact of IFRS on the company
and
to
develop
the
right
messages
for
the
marketplace.
 Companies that fail to appropriately implement
IFRS may lose competitive advantage or may
present an inconsistent picture compared with
competitors. They may face regulatory actions too.
International Financial
Reporting Standards
IFRS
IFRS
IFRS
IFRS
IFRS
1
2
3
4
5
–
–
–
–
–
First time adoption of IFRS
Share Based Payment
Business Combinations
Insurance Contracts
Non-current assets held for
sale and discontinued operations
IFRS 6 – Exploration for and evaluation of
mineral resources
IFRS 7 – Financial Instruments-Disclosures
IFRS 8 – Operating Segments
Overview of differences
 Though Indian AS are based on IFRS, there are significant
differences between the two in many areas – for eg.:
 Legal differences
 Schedule VI
 Depreciation rates under schedule XIV
 Court schemes
 Shift from Historical cost basis to Fair Value
 Derivative Financial Instruments
 Tangible and intangibles acquired in business combinations
 Loans and advances e.g. Interest free deposits
Key accounting concepts
affected by IFRS
 Presentation of Financials – governed by IAS 1 instead
of Schedule VI
 Prior period items – coverage of Balance Sheet items
and restatement
 IFRS 1 on First Time Adoption
 Business combination – no pooling
 Consolidation of Financial Statements
 Control definition
 Uniform accounting policies
Key accounting concepts
affected by IFRS
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Tangible assets
 Component accounting
 Repairs, maintenance and overhauling – major expenses
 Revaluation
 Change in method of depreciation – prospective
 Deferred payment liability – recognition of interest
Intangible assets- revaluation permitted if active market
Provision, contingent liability and contingent asset
 Discounting
 Disclosure of contingent asset
Discounting of deferred revenue
Events after balance sheet date – proposed dividend
Deferred tax asset recognition - no virtual certainty
Consolidated Financial
Statements (CFS)
Indian GAAP
IFRS
Preparation of CFS
Not mandatory, except
for listed entities as per
SEBI rules
Mandatory (Exceptions:
Intermediate company, where
ultimate holding presenting CFS
under IFRS.
Potential voting
rights
AS 21 is silent. Per ASI
18 potential voting
rights not considered for
determining significant
influence in case of
associate
Potential voting rights currently
exercisable should be
considered control.
However such rights at a future
date are not considered control.
Control - definition
Ownership of more than
one half of the voting
power or control of the
composition of board of
directors’
Control is based on substance.
Control may exist even
pursuant to agreement with
other shareholders.
Consolidated Financial
Statements (CFS)
Indian GAAP
IFRS
Uniform accounting Required but if
policies
impracticable, disclosure
of items where different
policies followed
Mandatorily required
Preparation of FS
on the date of
acquisition for
computing parent
portion of equity in
a subsidiary
Required. If
impracticable, the FS of
immediately preceding
period can be used
Required (no alternative)
Goodwill
determination
Based on carrying value
Based on fair value due to
IFRS 3
IAS 16 – Property, Plant and
Equipment

Component accounting: Key impact on Capital intensive
industries
 In-depth analysis required to identify significant components
that make up a plant.
 Each significant component to be depreciated over its own
useful life
 Application would require technical knowledge – usually
cannot be provided by the accounting department on its own
IAS 32 / 39 – Financial
Instruments
Indian GAAP
IFRS
Financial Instruments
& Equity
AS-13 deals with investment in a
limited manner. Foreign
exchange hedging is covered by
AS-11.
IAS 32 and 39 deal with financial instruments
and entity’s own equity in detail including
matters relating to hedging.
Classification
No specific standard on financial
instrument. Classification based
on form rather than substance.
Preference shares are treated as
capital, even though in many
case in substance it may be a
liability
The Issuer of a financial instrument shall
classify the instrument, or its component
parts, on initial recognition as a financial
liability, a financial asset or an equity
instrument in accordance with the substance
of the contractual arrangement and the
definitions of a financial liability, a financial
asset and an equity instrument.
Loans & Receivables
Loans and receivables are stated
at cost. Interest income on loans
is recognised based on timeproportion basis as per the rates
mentioned in the loan
agreement.
Initial measurement of loans and receivables is
at fair value plus transaction cost. Subsequent
measurement is at amortised cost using
effective interest method.
IAS- 18 – Revenue Recognition
Indian GAAP
Measurement
(deferred payment)
IFRS
Measured by charges made to
Measured at fair value, discounting
customers, discounting not
required where inflow is deferred
normally required for deferred
inflow
Interest
income
Recognised at applicable rate.
Dividend
In case of dividends from
Recognition when the shareholder’s
subsidiaries, schedule VI
right to receive payment is
requires dividend to recognized
established.
Effective interest method is
followed.
in the period to which it pertains
even if declared after the
balance sheet date.
IAS 19 – Employee Benefits
Indian GAAP
IFRS
Actuarial
Gains/losses
All actuarial gains and
losses are recognized
immediately in P&L
- Actuarial Gain / loss below
10% corridor need not be
recognized
- Actuarial Gain / loss above
10% corridor can be deferred
over remaining service period
or on accelerated basis
Termination
benefit/VRS deferral
Permitted upto April 1,
2010 as part of
transitional provisions
Not permitted
Corridor Approach: A range of plus or minus 10% around the
Company's best estimate of post-employment benefit obligations.
Outside that range, it is not reasonable to assume that actuarial
gains or losses will be offset in future years.
IAS 12 – Income Taxes
Indian GAAP
IFRS
Approach
Income
statement or
timing
differences
approach
Balance sheet liability
approach or the
temporary differences
approach.
Deferred tax
– In case of
tax losses
Virtual certainty
Reasonable certainty
IAS 1 – Presentation
 IAS 1 does not lay down any format of financial statements
 Minimum items to be presented on face and in notes are
laid down
 Presentation more governed by substance; rather than form
 Preference shares to be classified as liability vs. equity
based on substance
 Portion of long-term loans payable with in twelve
months to be presented as current
Disclosures
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IFRS prescribes extensive disclosures as compared to Indian GAAP
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Few examples of additional disclosures required which may require
substantial additional work
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Critical judgements made by the management
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Key sources of estimation uncertainty
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Capital management policy and data
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Standards/ interpretations issued but not yet effective and their impact
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Determination of fair values and key assumptions used about the same
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Sensitivity analysis of fair values
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Various risks to which an entity is exposed, policies for management of
such risks and quantitative date relating thereto
Some interesting facts !
On 6 September 2007, the IASB issued a revised IAS 1 Presentation of
Financial Statements. The main changes from the previous version are
to require that an entity must:
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present all non-owner changes in equity (that is, 'comprehensive
income' ) either in one statement of comprehensive income or in two
statements (a separate income statement and a statement of
comprehensive income). Components of comprehensive income may
not be presented in the statement of changes in equity.
present a statement of financial position (balance sheet) as at the
beginning of the earliest comparative period in a complete set of
financial statements when the entity applies an accounting
'balance sheet' will become 'statement of financial position'
'income statement' will become 'statement of comprehensive
income'
'cash flow statement' will become 'statement of cash flows'.
Books on IFRS that one may
refer
The list of reference books for IFRS are as follows:
1. International Financial Reporting Standards (IFRSs) - published by
Taxmann Publications P Ltd.
2. A Guide through International Financial Reporting Standards July 2008Published by IASB.
3. IFRS : A Quick Reference Guide by Robert Kirk
4. Wiley IFRS: Practical implementation guide and workbook by Abbas Ali
Mirza, Graham J. Holt and Magnus Orrell
5. Wiley IFRS 2008: Interpretation and application of International
Accounting and Financial Reporting Standards 2008 by Eva K. Jermakowicz
In addition to the above, the following books can also be used for reference.
1. The IFRS Manual of Accounting authored by the UK Accounting
Consulting Services team of PricewaterhouseCoopers LLP and published by
CCH.
2. International GAAP® 2009 by Ernst and Young, published by Wiley.
Rammohan N Bhave
9322249833 and 9004043365
mohanbhave@gmail.com