IFRS and Indian Accounting Standards
International Financial Reporting Standards (IFRS)
Indian Accounting Standards
a. Indian Accounting Standards converged with IFRS – with
certain carve - outs (Ind AS) – Not yet implemented
b. Existing mandatory Indian Accounting standards (AS)
(Formulated by ICAI and notified u/s 211 of the Companies Act)
1
Scope of the discussion
 Carve-outs in converged Indian Accounting Standards (Ind AS) from
IFRS
 Difference between IFRS and existing Indian Accounting Standards
(AS)
 Recent developments / New standards
 New projects in IFRS
2
Carve - outs
 Presentation of financial statements (IAS -1)
• Classification of expenses
• Complete set of financial statements
‒ Statement of other comprehensive income
‒ Statement of changes in equity
 Treatment of foreign exchange differences on long term
monetary assets & liabilities (IAS 21)
 Conversion option embedded in FCCB (IAS 32-39)
 Changes in fair value due to changes in own credit risk
(IAS 32-39)
3
Carve – outs (contd...)
 Business combinations (IFRS 3)
• Common control transactions
• Gain on bargain purchase (negative goodwill)
 Employee benefits (IAS 19)
• Treatment of actuarial gains & losses
• Application of discount rates
 Revenue recognition – in contracts of construction in real
estate (IAS 11)
 Revenue from agreements for construction of real estate
(IAS 11 / IAS 18 / IFRIC 15)
4
Carve – outs (contd...)
 First time adoption (IFRS 1)
• Date of transition / deemed date of transition
• Comparatives – in prior period – Relaxation in converged
standards
• Reconciliation to explain transition to IFRS
• Exemptions
‒ Previous GAAP carrying value of PPE as deemed cost
(similar exemptions for Intangible assets and Investment properties)
‒ Unrealised foreign exchange difference on long term monetary
assets and liabilities
‒ Retrospective application of
• Effective interest method
• Impairment requirements
5
Carve – outs (contd...)
 Consolidated financial statements (IAS 27) mandated by
IFRS / regulations (SEBI)

Statement of cash flows (IAS 7)
• Interest & dividend
 Accounting policies, changes in accounting estimates and
errors (IAS 8).
• New Accounting Pronouncements & their impact
• Absence of standard or interpretation that specifically applies to a
transaction
 Investment property
• Cost model Vs. fair value model
6
Carve – outs (contd...)
 Determining whether an arrangement contains a lease
(IFRIC 4)
 Government grants (AS 20)
• Fair value Vs. Nominal value
 Disclosure which conflict with confidentiality requirements
of statues / regulations (IAS 24)
 Investments in associates (IAS 28)
• Excess of share acquired in fair value of asset & liability of
associate over cost
‒
in P & L or equity?
 No Indian standards yet formulated
•
•
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Accounting and Reporting by Retirement Benefit Plan (IAS 26)
Agriculture (IAS 41)
Differences between IFRS and existing Indian
Accounting Standards (AS)
 Conceptual differences
• Varying degree of focus on / importance of :‒
‒
‒
‒
‒
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Fair value
Time value of money
Substance over form
Legal control / control in substance
Legal obligation / constructive obligation
Differences between IFRS and existing Indian
Accounting Standards (AS)
 Presentation of financial statements (IAS 1 / AS 1)
• Components of financial statements
‒ Presentation of income statement / comprehensive income
‒ Statement of changes in equity
• Format of financial statements (Schedule VI)
• Classification of assets & liabilities
‒ Current - non current
‒ Classification of financial liabilities under refinancing arrangements
• Classification of expenses
9
Differences between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Presentation of financial statements (IAS 1 / AS 1) (Contd…)
•
•
•
•
Extraordinary items
Reclassification in financial statements
Critical judgments
Estimation of uncertainty
 Changes in accounting policies & estimates and errors (IAS
8 / AS 5)
• Accounting treatment of changes in accounting policies
• Accounting treatment of changes in accounting estimates
• Accounting treatment of errors
10
Differences between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Accounting of construction contracts (IAS 11 / AS 7)
• Percentage of completion method
• Recognition of revenue by real estate developers
• Service concession arrangements
 Income taxes (IAS 12 / AS 22)
•
•
•
•
Timing differences / temporary differences
P & L approach / balance sheet approach
Income / expenses recognised outside P & L account
Recognition of deferred tax assets
‒ Virtual certainty
‒ Reasonable certainty
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Differences between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Income taxes (IAS 12 / AS 22) (contd…)
• Revaluation of fixed assets
‒ Deferred tax liability (based upon sale rather than through use)
‒ Reasonable certainty
• Deferred tax in respect of business combinations
• Deferred tax on unrealised intra-group profits (in consolidated
financial statements)
• Numerical / tax rate reconciliation
12
Differences between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Property plant and equipment (IAS 16 / AS 6 / AS 10)
•
•
•
•
•
•
•
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Depreciation based on major components
Replacements costs
Cost of major inspections / overhauls
Revaluation
Treatment of revaluation reserve
Changes in method of depreciation
Decommissioning, restoration and similar liabilities
Differences between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Leases (IAS 17 / AS 19)
• Interest in leasehold land
• Initial direct costs / lease incentives
• Determination of whether an arrangement contains a lease (IFRIC
4)
 Revenue (IAS 18 / AS 9)
• Measurement of revenue
(When inflow receivable deferred - discounted by imputed rate of interest)
• Interest income
-
•
Revenue from services rendered
-
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Recognised using the effective interest method
Completed service contract method / Proportionate completion
method
Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Employee benefits (IAS 19 / AS 15)
• Treatment of actuarial gains & losses
‒ Income statement
‒ Other comprehensive income
‒ Corridor approach
• Discount rates
‒ Government bonds / high quality corporate bonds
15
Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 The effects of changes in foreign exchange rates (IAS 21 /
AS 11)
• Functional and presentation currency
• Treatment of exchange differences
‒ Financing cost
‒ Schedule VI
‒ Para 46 of AS 11
• Integral / Non – integral operations
‒ Income statement / Reserves (recycled to Income statement on
disposal)
‒ Other comprehensive income (recycled to Income statement when
control is lost)
16
Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Consolidated financial statements (IAS 27 / AS 21)
• Requirement for preparation
‒ By standard or by statute ?
•
•
•
•
•
•
•
•
When not required (Intermediate subsidiary)
Legal control / control in substance
Dual control
Potential voting rights
Uniform accounting policies
Time lag of 3 months
Presentation of Non-controlling interest
Partial disposal of investment in subsidiary
‒ When control retained
‒ When control lost
• Special Purpose Entities
17
Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Interest in Joint Ventures (IAS 31 / AS 27)
• Proportionate consolidation Vs. Equity method
‒ Issues involved
 Financial Instruments
•
•
•
•
Presentation (IAS 32 / AS 31)
Recognition and Measurement (IAS 39 / AS 30)
Disclosures (IFRS 7 / AS 32)
AS 30, 31, 32 - not yet notified
‒ Relevance of AS 30, 31, 32 ?
• Ind AS 32, 39, 107 - Prepared as converged standards
• AS 11 and AS 13 – Present mandatory standards
18
Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)

Financial Instruments (Contd …)
• Presentation (IAS 32 / AS 31)
‒ Liability Vs. Equity
• Form Vs. Substance
• Redeemable preference capital / convertible debentures
‒ Presentation of Treasury shares
‒ Conversion option
• Embedded in FCCB
• Embedded in entity’s functional currency
• Disclosures (IFRS 7 / AS 32)
‒ Detailed requirements of disclosures in IFRS 7 to evaluate
• The significance of financial instruments to an entity
• The nature and extent of their risks
• How the entity manages those risks
19
Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)

Financial Instruments (Contd …)
• Recognition and Measurement (IAS 39 / AS 30)
‒ Classification and Measurement
• Fair value through Profit & Loss (FVTPL)
• Held to Maturity (HTM)
• Available for Sale (AFS)
• Loans & Receivables
‒ Loans and receivables impairment
• Provisioning norms of RBI
• Subjective Vs. Objective approach
‒ New IFRS 9 for Financial Assets (1.4.2013)
‒ Impairment
• Recognition
• Reversal
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Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)

Financial Instruments (Contd …)
• Recognition and Measurement
‒ Derivative and embedded derivatives
‒ Derivatives and hedge accounting
• Fair value hedge
• Cash flow hedge
• Hedge of a net investment in a foreign entity
‒ De-recognition of financial assets and securitisation
‒ De-recognition of financial liabilities
‒ Recognition & measurement of financial guarantee contracts
21
Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Provisions, Contingent liabilities and Contingent assets
(IAS 37 / AS 29)
• Legal obligation Vs. Constructive obligation
• Discounting of liabilities to the present value
 Intangible Assets (IAS 38 / AS 26)
• Useful life may be finite or indefinite
• Amortisation or Impairment or both
22
Difference between IFRS and existing Indian
Accounting Standards (AS) (Contd…)
 Business Combinations (IFRS 3 / AS 14)
• Amalgamation in the nature of acquisition or pooling of interest
• Amalgamation between entities under common control
• Measurement of Goodwill
‒ Fair valuation of other assets and liabilities ?
• Negative Goodwill
‒ Bargain purchase (accounting treatment ?)
• Business combination achieved in stages
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Recent Developments / New Standards
 IFRS 9 Financial Instruments (w.e.f. - 1.1.2013)
• Limited to financial assets
• Requirements for financial liabilities are under finalization
• Second and third phase related to Impairment of financial assets
and Hedge accounting – when completed, IAS 39 will be
replaced
• Impairment of financial assets
‒ Incurred loss model Vs. Expected loss model
24
Recent Developments / New Standards (Contd.)
 Financial Assets (Under IFRS 9)
• Two measurement category approach
‒ Fair value / Amortised cost
• Classification based on assessment of the way in which the
instrument is managed (the entity’s business model)
• Hybrid contracts are classified in accordance with the
classification criteria in their entirety
• Strategic equity investments
‒ Option to record all fair value changes in OCI (No recycling
between P&L and OCI permitted)
• All Equity investments measured at fair value
‒ Cost exception for unquoted equity investments not available
25
Recent Developments / New Standards (Contd.)
 IFRS 10 Consolidated Financial Statements (w.e.f. –
1.1.2013)
• Changes the criteria for determination of control
‒ Earlier – Power to govern operating and financial policies
‒ Now – Whether the investor is exposed or has rights, to variable
returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee
• Prescribes
‒
‒
‒
‒
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The criteria for preparation of consolidated financial statements
Consolidation procedures
Presentation of Non-controlling interests
Treatment for changes in ownership interests
Recent Developments / New Standards (Contd.)
 IFRS 11 Joint Arrangements (w.e.f. – 1.1.2013)
• Joint arrangement has two characteristics
‒ A contractual arrangement
‒ 2 or more parties have joint control
• Joint arrangement is either a
‒ Joint Operation
‒ Joint Venture
• Joint Operation
‒ The parties that have a Joint Control have rights to the assets and
obligations for the liabilities relating to the arrangement
• Joint Venture
‒ The parties that have Joint Control have rights to the Net Assets of
the arrangement
27
Recent Developments / New Standards (Contd.)
 IFRS 11 Joint Arrangements (Contd…)
• Existence of a separate vehicle - Joint operation / Joint venture ?
‒ A joint arrangement that is not structured through a separate vehicle
is a Joint Operation
‒ If assets and liabilities held in a separate vehicle, it can be either a
Joint Venture or Joint Operation
• Accounting treatment under Joint operation / Joint venture
28
Recent Developments / New Standards (Contd.)
 IFRS 12 Disclosure of Interests in Other Entities (w.e.f. –
1.1.2013)
• Disclosure of interest in any of the following
‒
‒
‒
‒
Subsidiaries
Joint arrangements (Joint operations or Joint ventures)
Associates
Unconsolidated structured entities
• Disclosure requirements excluded from IFRS 10 and IFRS 11 combined in this standard
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Recent Developments / New Standards (Contd.)
 IFRS 12 Disclosure of Interests in Other Entities (w.e.f. – 1.1.2013)
(Contd…)
• Significant judgments and assumptions made in determining
‒ Control
‒ Joint Control or Significant Influence
‒ The type of joint arrangement (i.e. Joint operation or Joint venture)
when arrangement has been structured through a separate vehicle
• Prescribes separate lists of requirements of disclosure in case of
‒ Interest in Subsidiaries
‒ Interest in Joint arrangements & Associates
‒ Interest in unconsolidated structured entities
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Recent Developments / New Standards (Contd.)
 IFRS 13 Fair Value Measurements
• IFRS 13
‒ Defines Fair Value
‒ Sets out in a single IFRS a framework for measuring fair value
‒ Requires disclosures about fair value measurement
• Definition of Fair Value
‒
‒
‒
‒
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Exit price
To sell asset or paid to transfer a liability
An orderly transaction
At the measurement date
Recent Developments / New Standards (Contd.)
 IFRS 13 Fair Value Measurements (Contd…)
• Objective of IFRS 13
‒ To increase consistency and comparability through “Fair Value
hierarchy”
‒ Fair Value hierarchy categorizes and describes the inputs used in
valuation techniques in 3 levels - Level 1 Input, Level 2 Input and
Level 3 Input
• Overview of Fair Value measurement approach
• Guidance on Measurement
• Valuation techniques
‒ Market approach
‒ Cost approach
‒ Income approach
• Elaborate disclosure requirements
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New Projects in IFRS
 Revenue from Contracts with customers
(Joint Proposal under consideration)
• Uniform revenue recognition in complex transactions such as long
term service contracts and multiple element arrangements
• A company should recognise revenue when it satisfies a
performance obligation by transferring a good or service to a
customer. A good or service is transferred to a customer when the
customer obtains control of that good or service.
33
New Projects in IFRS (Contd…)
 Revenue from Contracts with customers (Contd…)
(Joint Proposal under consideration)
• When multiple elements / contracts are bundled together, apply
the following steps
‒
‒
‒
‒
‒
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Identify the contract(s) with the customer
Identify the separate performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the separate performance obligations
Recognise revenue when (or as) the entity satisfies each performance
obligation
New Projects in IFRS (Contd…)
 Leases (Joint Proposal under consideration)
• According to the World Leasing Yearbook 2010, leasing activity
in 2008 amounted to US$ 640 billion. However, the assets and
liabilities arising from many of those contracts are not shown in a
lessee’s Statement of Financial Position (Balance sheet)
• In the books of Lessee
‒ New project envisages that a lessee would recognise a liability to
make lease payments and a corresponding right to use asset upon
lease commencement
35
New Projects in IFRS (Contd…)
 Leases (Joint Proposal under consideration) (Contd…)
• In the books of Lessor
‒ There was a proposal to adopt “the receivable and residual
approach” (i.e. to allocate the carrying value of underlying asset
being leased between the right of use granted to the lessee and the
residual asset. However, at present the consensus is against this
approach in the books of lessor.
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Thank you
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