IFRS workshop
All India Chartered Accountants Society
Session: AS convergence to IFRS
Aseem Vohra
July 10, 2010
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IFRS transition in India – Road Ahead
Impact of convergence
Process of transitioning financial reporting
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IFRS transition in India
… Road Ahead
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IFRS transition in India – an introduction
Need for Adoption in India
•
Global economy - need to speak in a language which is globally accepted.
•
International Financial Reporting Standards (‘IFRS’) has now evolved into being the
most widely accepted and trusted financial reporting language
•
Considering the emerging role of India in the global economy, it was imperative for India
to harmonize with global financial reporting standards
•
In August 2007, ICAI announced India’s intention to converge its reporting standards
with IFRS - ICAI released a concept paper on convergence
•
MCA has set up a core group to develop a roadmap for India's transition to IFRS –
roadmap released in January 2010
•
MCA also released a separate roadmap for Banking and Insurance Companies in
March 2010
•
SEBI amended the listing agreement to permit voluntary early adoption of IFRS (as
issued by IASB) by listed parent companies
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IFRS transition in India – an introduction
Progress to date
Highlights of the MCA Roadmap
MCA
reiterates
commitment
to transition
by 2011
MCA sets up
core group to
develop
roadmap
MCA's
roadmap on
transition
released
• Phased approach to convergence
• Companies (except banking &
insurance) - 2011 to 2014
• Banking & Insurance
Companies – 2012 to 2014
Oct 2007 May 2008 Feb 2009 July 2009 Nov 2009 Jan 2010 Mar / Apr
2010
ICAI released
concept paper
on
convergence
with IFRS
ICAI releases
update on
convergence
process
SEBI approves
move to permit
voluntary early
adoption of
IFRS
BFSI Roadmap
issued by MCA
Amendment to
listing agreement
permits IFRS
reporting
• Two separate sets of accounting
standards to be maintained under
Section 211(3C)
• Early adoption of IFRS converged
standards permitted
• Clarifications on implementation
matters issued by MCA
• Clarity still required on several
practical aspects
Government remains strongly committed to achieving the 2011 deadline
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IFRS transition in India – an introduction
Roadmap: Phased Approach
Listed (only
in India)
Listed
overseas (any
Company in Nifty or Sensex
Phase I
Phase I
NA
Net worth > Rs 1,000 Cr
Phase I
Phase I
Phase I
Net worth > Rs 500 Cr
upto Rs 1,000 Cr
Phase II
Phase I
Phase II
Net worth upto Rs 500 Cr
Phase III
Phase I
Exempt
Classes of Companies
Unlisted
securities)
• Companies in Phase II and III can early adopt from years beginning April 1, 2011 onwards
• Companies not covered in the 3 phases (including Small and Medium Companies can
voluntarily adopt converged standards
6
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IFRS transition in India – an introduction
Roadmap: Phased Approach
MANDATORY REQUIREMENT
Phases
Opening
balance sheet
date
First year end
(without IFRS
comparatives)
OPTION FOR EARLY ADOPTION
Opening
balance sheet
date
First year end
(with IFRS
comparatives)
Phase I
1 April 2011
31 March 2012
1 April 2010
31 March 2012
Phase II
1 April 2013
31 March 2014
1 April 2011
31 March 2013
Phase III
1 April 2014
31 March 2015
1 April 2011
31 March 2013
• March 31, 2011 information to be given in an additional column (in addition to existing
Indian GAAP comparatives)
• Phase II and III companies can early adopt from year starting April 1, 2011 onwards
7
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IFRS transition in India – an introduction
MCA roadmap - BFSI: A phased approach
Companies
Insurance
Companies
Opening
balance sheet
First financial
statements
April 1, 2012
March 31, 2013
April 1, 2013
March 31, 2014
Urban co-operative banks with net worth > Rs 200
cr but not exceeding Rs 300 cr
April 1, 2014
March 31, 2015
NSE- Nifty 50 or BSE- Sensex 30 Index
Listed & unlisted with net worth > Rs 1,000 cr
April 1, 2013
March 31, 2014
All other listed NBFCs
Unlisted NBFCs with net worth > Rs 500 cr (other
than above)
April 1, 2014
March 31, 2015
Criteria for phased implementation
All insurance companiesAll scheduled commercial banks
Banking
Companies
Non Banking
Financial
Companies
(NBFCs)
8
Urban co-operative banks net worth >Rs 300 cr
Urban Co-operative Banks with net worth less than Rs 200 Crores, Unlisted NBFCs with net worth less than Rs
500
Crores and Regional Rural Banks are exempt, though they may voluntarily opt to do so
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IFRS transition in India – an introduction
MCA Roadmap: clarifications
• Net worth:
• reference date for companies (other
than banking & insurance) is March
31, 2009
• Standalone net-worth to be
considered
• Net worth = share capital + reserves
– revaluation reserves –
miscellaneous expenditure – debit
balance of P&L
• Early adoption available for those in
Phase II & Phase III
• From April 1, 2011 onwards (opening
balance sheet on 1 April 2010)
• Once converged standards adopted,
cannot revert to existing Indian GAAP
9
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• Group situations
• each entity to apply its own criteria.
However, early adoption permitted
• Comparative information for first year
• no IFRS comparatives required – but
voluntary disclosures permitted
• IFRS or Indian GAAP
• Companies to follow converged
standards and not IFRS
• First public reporting
• SEBI to clarify on quarterly reporting
requirements (relevant for listed
entities in the Group)
IFRS transition in India – an introduction
Roadmap: Developments to track
Company law
Potential impact
•
•
•
•
• Several of these changes will
impact IFRS transition
strategies
• Key areas to watch out for
include:
Draft Companies (Amendment) Bill
NACAS to finalise amendments to Schedule VI
Schedule XIV to also be amended shortly
New Companies Bill under evaluation of Parliamentary
Committees will also need revision before enactment
Accounting Standards
• ICAI to finalise – NACAS to recommend by mid year
Taxation
• ICAI and CBDT set up joint study group to recommend
changes
• MCA considering a tax neutral state for year 1
• Direct Tax Code under evaluation of Parliamentary
Committees will also need revision before enactment
10
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• New standards, primarily
IFRS 1 equivalent as it would
spell out the exact transitional
provisions
• Tax laws – the Group would
like to minimize the tax impact
due to the transition to IFRS –
key decisions and accounting
choices would be impacted by
these changes
• Schedule VI being amended –
may require additional
disclosures and possibly
functional classification
IFRS transition in India – an introduction
International scenario
• IFRS continues to evolve
• IFRS 9 to replace IAS 39 (AS 30)
– in the process of development
– Part issued – significant portions in
progress.
– Expected completion date – end 2010
• Several significant projects in pipeline
– Apart from 3 exposure drafts (ED) relating
to Financial Instruments, 10 other EDs
expected in next 6 months
– Revenue recognition, leases, financial
statement presentation, income taxes, etc
• India working to a moving target
11
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Potential impact
• Several of these changes
could impact you significantly
• Key changes include revenue
recognition, leases, financial
instruments, etc
• Very important for you to
assess these likely changes
when making the transition
decisions and changes to
systems, processes and
business practices
IFRS transition in India – an introduction
Convergence
•
ICAI has already issued exposure drafts of all existing accounting standards that
will be converged with IAS and IFRSs
•
ICAI has also issued exposure drafts on new standards, which are not existing as
of now, key ones being:
– Ind-AS 41: equivalent to IFRS 1, First time adoption
– AS 40: equivalent to IFRS 9, Financial Instruments
– AS 33: equivalent to IFRS 2, Share based payments
– AS 37: equivalent to IAS 40, Investment properties
•
Once adopted, the converged accounting standards shall form the basis of
generally accepted accounting principles in India (Indian GAAP)
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Impact of convergence
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Impact of convergence
Potential Areas of Impact
Systems and processes, both
business and internal, would
undergo change
Key decision making metrics
would undergo change
Systems
impact
Organizational
impact
Financial
impact
Transactional accounting
Transition to IFRS reporting
Transition to IFRS is not an
'accounting' change; it impacts
all aspects of the enterprise
Accounting
impact
Non-routine accounting
Business management
Information systems
Impact of IFRS
conversion
Internal controls
Tax and regulatory
Investor relations
Knowledge transfer / sharing
Industry issues
Leadership Commitment
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Project Management
Impact of convergence
Wider Impact
Accounting and
Reporting
Systems & Processes
• Information Systems Change
• GAAP Differences
• Policy Choices
• Disclosure requirements
Strategic
• Dividend Policy
• Profitability projections
• Debt Covenant analysis
• Borrowing capacities
• Capital raising & Investment
decisions
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• Internal financial reporting
processes & Controls change
• Modification to Clause 49
documentation
People
• Training People on IFRS: All levels
(Audit committee, Senior
management, accountants)
• Performance management &
evaluation
• Regular knowledge update
Impact of convergence
Challenges to a enterprise
Generate the IFRS
financial information
• Getting employees IFRS
literate
• Gaining expertise to deal with
complex accounting matters
• Getting processes and systems
in place to generate IFRS
information
• Making the whole IFRS
reporting process, sustainable
and cost effective so as to be
able to generate information
every quarter
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Assess impact of IFRS
information on key
stakeholders
• Employees and management –
impact on performance linked
compensation structures
• Lenders – impact on key debt
covenants
• Investors and analysts – impact
on key performance metrics
• Stakeholders – communicating
with and educating on a timely
basis
• Tax authorities – still unclear on
how IFRS impacts taxation
Impact of convergence
Common issues and pitfalls
• Lack of a convergence plan
• Viewed as a technical accounting exercise resulting in under
estimation of efforts involved
• Lack of senior management commitment
• Significant investment in IT Systems and training manpower
• Lack of communication with stakeholders and users of
financial reports
• Difficulties in estimating fair values
• Complexities in the presentation of financial statements
• Non availability of skilled manpower
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Process of transitioning financial
reporting
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Process of transitioning financial reporting
• Cost and time shall be based on the size of an enterprise and
complexity of operations
• Process needs to be steered by the management
• Should be based on a focused approach using project
management principles
• Changes shall be required at all functional processes, controls
and data points
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Process of transitioning financial reporting
Key Activities
• Constitute a project management structure: all functions
• Draft a transition process
• Determine key accounting impact areas
• Determine areas of external assistance, valuation etc
• Coordinate with IT vendor and review of changes in ERP
functionalities
• Draft a detailed training program for different functional and
responsibility levels
20
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Process of transitioning financial reporting
Focused approach
Diagnostic
review
Implementation
Diagnostic
Study
Project Set
up
Research
Background
Decide
Way Forward
Identify
Problems
Give Authority
to Proceed
Recommend
Way Forward
Establish
Project
Governance
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Accounting
Issue
resolution
Prepare
Component
Evaluations
Resolve
Issues
Prepare
Instructions
Reporting
Initial IFRS
conversion
Implement ation
Prepare
Subsidiaries
IFRS
Accounts
Organisational
& Operational
Changes
Consolidate
& Analyse
Group IFRS
Accounts
Implement
new Systems
& Procedures
Sustainable
IFRS
reporting
Parallel run
reporting
Change -over
decision
Sustainable
and efficient
reporting
Process of transitioning
financial reporting
Aligning Operating processes
& controls
•
Currently processes & controls are
designed to capture, review & record
financial information as per Indian
GAAP
•
Converged AS shall bring in
additional information requirements
& accordingly new processes &
related controls need to be defined
•
An enterprise should consider the
following while drafting its transition:
– Impact on CEO/CFO
certification (Clause 49)
– Aligning Risk management
framework
– Aligning Internal audit function
& activity
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Process of transitioning
financial reporting
Human resources needs
•
Transition to different set of
accounting rules & principles
encompass resources at all levels for
all functions
•
Following functions need to be
proficient in converged AS before April
01, 2011:
– Accountants (data entry)
– Finance managers (Review
function)
– Chief Financial Officer (Review
function)
– Audit committee members
(Review function)
– Senior Management (Decision
Making)
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Process of transitioning financial reporting
Human resources needs – Training programs
24
Sessions
Indicative area of coverage
Induction workshops
•
•
•
Overview of IFRS and impacts
Introduction of Project Team and roles & responsibilities
Discussion on industry specific issues
Workshop for senior
management
•
•
•
•
Introduction to IFRS and potential impact
Areas of concern and questions they need to be asking to increase awareness
Impact on management reporting and human resources
Times lines, roles and responsibilities & risk management framework
Focused workshop
on areas of impact
•
•
•
•
Topical sessions run by specialists on detailed impact and way forward
Policy changes and disclosure required by an enterprise
Statement of procedures and interdependencies
Potential change management discussions
Workshop for non
accounting
personnel
•
•
Introduction to IFRS and potential impacts for their business process
Discussions on specific areas of non accounting impact
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Process of transitioning
financial reporting
Aligning Information
Systems
•
Converged AS shall require following
information systems to capture &
generate GAAP compliant information
– Internal MIS reporting
– Financial accounting
•
Current Information system to be
aligned depending upon application &
modules currently implemented
•
Integration exercise will at the
minimum include the following:
– Establishing new data
requirements
– Changes to Chart of Accounts
– Re-configuration of applications
– Manage parallel systems
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Illustrative timeline
Week
Phase
Activity
Detailed assessment of impact on
consolidated financial statements
I
Detailed assessment of impact on HR, IT,
Processes etc.
Preparation of shell consolidated IFRS
financial statements & reporting packs
II
Mapping of reporting packs back to Trial
Balance of each entity
Rolling out the reporting packs and
instructions for completion
III
Assistance with completion of reporting
packs and consolidation thereof
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Questions
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