AFTERMATHS OF IFRS
ON INDIAN CORPORATES
INTRODUCTION
IFRS is an accounting framework that
establishes
recognition,
measurement,
presentation
and
disclosure
requirements
relating to transactions and events that are
reflected in the financial statements. IFRS was
developed in the year 2001 by the International
Accounting Standards Board (IASB) in the public
interest to provide a single set of high quality,
understandable
and
uniform
accounting
standards.
NEED OF IFRS
To make a common platform for better
understanding of accounting, internationally.
 Synchronization of accounting standards across
the globe.
 To create comparable, reliable, and transparent
financial statements.
 To facilitate greater cross-border capital raising
and trade.
 To having company-wide one accounting
language which have subsidiaries in different
countries.
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SUGGESTIVE GUIDELINES
Understanding and analyzing the impact of IFRS
on financial performance
 Obtaining the new data required and adapting
systems to provide it
 Finding the resources and expertise needed to
make the changes
 Meeting
employee training and knowledge
sharing needs
 Aligning systems for reporting for statutory,
regulatory and internal purposes
 Gaining shareholder and analyst understanding
of the impact of changing to IFRS.
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IFRS AND INDIAN CORPORATES
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The use of international financial reporting standards
(IFRS) as a universal financial reporting language is
gaining momentum across the globe.
The Institute of Chartered Accountants of India (ICAI) has
recently released a concept paper on Convergence with
IFRS in India, detailing the strategy for adoption of IFRS
in India with effect from April 1, 2011. This has been
strengthened by a recent announcement from the Ministry
Of Corporate Affairs (MCA) confirming the agenda for
convergence with IFRS in India by 2011.
Adopting IFRS by Indian corporates is going to be very
challenging but at the same time could also be rewarding.
Indian corporates are likely to reap significant benefits
from adopting IFRS.
BENEFITS OF IFRS ON
INDIAN CORPORATES
There are likely to be several benefits to corporates in the
Indian context as well. These are:
 Improvement in comparability of financial information and
financial performance with global peers and industry
standards .
 Adoption of IFRS is expected to result in better quality of
financial reporting due to consistent application of
accounting principles and improvement in reliability of
financial statements.
 Better access to and reduction in the cost of capital raised
from global capital market since IFRS are now accepted as
a financial reporting framework for companies seeking to
raise funds from most capital markets across the globe.
IMPACT OF IFRS ON OIL & GAS
INDUSTRY
Areas of Potential Change
 Decommissioning estimates
 Asset exchanges
 Derivatives and long term contracts
 Take or pay arrangements
 Production imbalances between joint ventures
EFFECTS OF IFRS ON IT
INDUSTRY

The main effect on the IT industry is that the
changes in the systems and in the updation of the
existing to the newer version of IFRS enabled
accounting software
FIVE CONSIDERATION UNDER
IFRS
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IFRS is an accounting-driven but it can drive major
changes to IT systems as well as business processes
and personnel.
Experience indicates that IT costs generally
constitute more than 50 percent of IFRS conversion
costs.
Organizations benefit when they identify and
integrate the efforts of the IT team early in the IFRS
conversion process.
IT efforts will comprise a mix of short- and long-term
projects within the organization’s overall IFRS
initiative.
The IFRS conversion effort provides opportunities for
achieving synergies with other IT projects and
strategic initiatives.
IFRS:IMPACT ON INDIAN BANK
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The financial impact of convergence with IFRS
(International Finance Reporting System) will be
significant for banks in India, particularly in areas relating
to loan loss provisioning, financial instruments and
derivative accounting according to auditing and
consultancy firm KPMG.
IFRS: Developing a roadmap to convergence for the Indian
banking industry’, mentions how this is likely to impact
financial performance, directly affecting capital adequacy
ratios and the outcomes of valuation metrics that analysts
use to measure and evaluate performance.
In banking companies, financial reporting policies for
provision for loan losses and investments are specified by
the RBI.
REPERCUSSIONS OF IFRS ON BANKING’
FINANCIAL PERFORMANCE
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Adoption of IFRS requires a significant change to such
existing policies and could have a material impact on the
financial statements of financial companies
In addition to the financial accounting impact, the
convergence process is likely to entail several changes to
the financial reporting systems (including IT systems) and
processes adopted by banks.
By virtue of operating in a regulated industry, Banking
companies are subject to regulatory reviews and
inspections and are also subject to minimum capital
requirements.
Application of IFRS may result in higher loan losses and
impairment charges, thereby impacting available capital
and capital adequacy ratios.
WHO BEARS THE IMPACT OF
IFRS
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Over 700 members are now more aware of the impact the move to IFRS
will have on their business. Members realize that there is a lot to be done
for business in all sectors (big, small, profit, non-profit) and it needs to
start happening well before the January 2005 deadline. Members are
now also aware of the importance of creating a business strategy to
support a smooth transition to IFRS.
The pilot study results based on the first 100 listed entities (excluding
financial institutions) did not make us stand back and gasp for air, but it
did make us consider the impact these standards will have on business.
Members would be aware that this has a further impact on business,
including:
(a) the effect on performance-based bonus plans;
(b) the impact on the ability to pay a dividend;
( c) the ability to meet existing debt covenants.
(d) further emphasizes the need for business to consider the impact on
its operations.
TYPES OF IFRS
IFRS 1 First-time Adoption of IFRS
IFRS 2 Share-based Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 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
GENERAL DIFFERENCES
IFRS provides much less overall detail than
GAAP
 IFRS contains relatively little industry-specific
instructions as compared to GAAP.
 IFRS use a single-step method for impairment
write-downs rather than the two-step method
used in U.S. GAAP
 IFRS does not permit Last In First Out (LIFO).
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DISADVANTAGES
U.S. issuers without significant customers or
operations outside the United States may resist
IFRS because they may not have a market
incentive to prepare IFRS financial statements.
 Many people also believe that U.S. GAAP is the
gold standard, and that something will be lost
with full acceptance of IFRS.
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THANK YOU
IFRS1 FIRST TIME ADOPTION
OF IFRS
This report helps first-time adopters address the
challenges of IFRS (International Financial
Reporting Standards) 1. It puts the theory of
IFRS 1 into practice by illustrating the steps
involved in preparing the first IFRS financial
statements
IMPLICATION OF IFRS 1
When to apply.
 The opening balance sheet.
 The selection of accounting policies.
 The optional exemptions and mandatory
exceptions.
 Disclosures
 The interim financial statements
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IFRS
2
S
HARE
BASED
P
AYMENT
Goods or services received in a share-based payment transaction
are measured at fair value. Goods are recognized when they are
obtained and services are recognized over the period that they are
received. Equity-settled share-based payments are within the
scope of the share-based payment standard even if settled by
another group entity or by a shareholder. Cash-settled sharebased payments are within the scope of the share-based Payment
standard. However, there is no explicit guidance when the
liability is settled by a shareholder or another group entity.
Equity-settled grants to employees generally are measured based
on the grant date fair value of the equity instruments issued.
Grant date is the date on which the entity and the employee have
a shared understanding of the terms and conditions of the
arrangement. The service period may commence prior to the grant
date. Awards with graded vesting are accounted for as a separate
share-based payment arrangements. A share-based payment
transaction settled in redeemable shares is classified as cashsettled.
SPECIFIC REQUIREMENTS OF
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IFRS 2
Equity-settled share-based payment transactions, in which
the entity receives goods or services as consideration for
equity instruments of the entity (including shares or share
options);
cash-settled share-based payment transactions, in which
the entity acquires goods or services by incurring liabilities
to the supplier of those goods or services for amounts that
are based on the price (or value) of the entity’s shares or
other equity instruments of the entity;
Transactions in which the entity receives or acquires goods
or services and the terms of the arrangement provide either
the entity or the supplier of those goods or services with a
choice of whether the entity settles the transaction in cash
or by issuing equity instruments.
IFRS 3 BUSINESS
COMBINATION
This states that all business combinations are accounted for using
purchase accounting, with limited exceptions. A business
combination is to bringing together of separate entities or
business into one reporting entity. A business can be operated
managed for the purpose of providing return to investors or lower
costs. An entity in its development stage can meet the definition
of a business. In some cases the legal subsidiary is identified as
the acquirer for accounting purposes (reverse acquisition).The
date of acquisition is the date on which effective control is
transferred to the acquirer. The cost of acquisition is the amount
of cash equivalents paid, plus the fair value of other purchase
considerations given, plus any cost directly attributable to the
acquisition. The fair values of securities issued by the acquirer
are determined at the date of exchange. Costs directly
attributable to the acquisition may be internal costs but cannot be
general administrative costs. There is no requirement for directly
attributable cost to be incremental.
REQUIREMENTS
Recognizes and measure in its financial
statements the identifiable assets acquired, the
liabilities assumed and any non-controlling
interest in the acquire;
 Recognizes and measures the goodwill acquired
in the business combination or a gain from a
bargain purchase; and
 Determines what information to disclose to
enable users of the financial statements to
evaluate the nature and financial effects of the
business combination.
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IFRS 4 INSURANCE CONTRACT
An insurance contract is a contract under which one party
(the insurer) accepts significant insurance risk from
another party (the policyholder) by agreeing to
compensate the policyholder if a specified uncertain future
event (the insured event) adversely affects the
policyholder.The objective of this IFRS is to specify the
financial reporting for insurance contracts by any entity
that issues such contracts (described in this IFRS as an
insurer) until the Board completes the second phase of its
project on insurance contracts.
REQUIREMENTS
In particular, this IFRS requires:
(a) Limited improvements to accounting by
insurers for insurance contracts.
(b) Disclosure that identifies and explains
the amounts in an insurer’s financial
statements arising from insurance
contracts and helps users of those
financial statements understand the
amount, timing and uncertainty of future
cash flows from insurance contracts.
IFRS 5 NONCURRENT ASSETS HELD FOR SALE
AND DISCONTINUED OPERATIONS
Non-current assets, and some groups of assets and
liabilities known as disposal groups, are classified as held
for sale when specific criteria related to their sale are met.
Non-current assets (disposal groups) held for sale are
measured at the lower of carrying amount and fair value
less costs to sell, and are presented separately on the face
of the balance sheet. Assets classified as held for sale are
not amortized or depreciated. The comparative balance
sheet is not re-presented when a non-current asset
(disposal group) is classified as held for sale