International Financial
Reporting Standards
IFRS – High level comparison with IGAAP
MCA Issues roadmap for IFRS
Conversion in India
Broad Overview
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MCA has issued a notification dated January 22 2010 for
a three phase adoption of IFRS by the companies in India
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Phase I : Opening balance sheet as at April 1 2011
Phase II : Opening balance sheet as at April 1 2013
Phase III : Opening balance sheet as at April 1 2014
Conversion roadmap for Banking and Insurance
Companies separately by February 28, 2010.
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Applicability to companies and the respective time lines
for the adoption of the three phases.
Phase
Date
Coverage
Phase I
Opening balance sheet as at
April 1 2011
(i)
Phase II
Opening balance sheet as at
April 1 2013
Companies not covered in Phase I and
having a net worth exceeding INR 500
crores.
Phase III
Opening balance sheet as at
April 1 2014
LISTED Companies which are not
covered in the earlier phases.
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Companies which are part of NSE
Index – Nifty 50
(ii) Companies which are part of BSE
Index – BSE 30
(iii) Companies whose shares or other
securities are listed on a stock
exchange outside India.
(iv) Companies whether listed or not
having NET WORTH of more than
INR 1000 crores.
Amendment to the Companies Act and the
related Schedules
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The MCA has proposed to prepare a draft Companies (Amendments) Bill
proposing for the changes in the Companies Act 1956 by February 2010.
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The institute of Chartered Accountants of India (ICAI) has submitted to the
MCA revised Schedule VI to the companies Act 1956. The NACAS shall
review the draft and the same submit a revised schedule VI to the MCA by
January 31 2010. Amendments to the schedule XIV will also be carried out in
a timely manner.
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Convergence of all the Accounting Standards with IFRS will be completed by
the ICAI by March 31 2010 and the NACAS will submit its final
recommendation to MCA by April 30 2010.
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The Central Board of Direct taxes and the Institute of Chartered Accountants
of India have jointly constituted a study group to identify direct tax issues
arising from convergence of Indian Accounting Standards [IAS] with the
International Financial Reporting Standards [IFRS].
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First time adoption - Key Steps
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Preparation of Opening IFRS balance sheet
Last financial statements under ‘previous GAAP’
First IFRS
Comparative period
Reporting period
First IFRS Financial Statements
31/03/2009
01/04/2010
Date of transition to IFRSs
opening IFRS balance sheet
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31/03/2011
31/03/2012
Beginning of the first
IFRS reporting period
Reporting period
IFRS-An Overview
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Brief about IFRS
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IFRS are standards and interpretations adopted by
the International Accounting Standards Board (IASB)
IFRS Comprises: IFRS, IAS, IFRIC and SIC
Principles based standards
IFRS focuses on
► increased use of fair values
► getting the balance sheet right
► Substance over form
► Fewer choice of accounting alternatives
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IFRS around the world
Countries that require or permit IFRS
Countries seeking convergence
with IASB or pursuing adoption of
IFRS (some decided already)
No definite announcement
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High Level GAAP Differences
Indian GAAP and IFRS
Key differences include….
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Differences related to Basic Principles
Acquisitions and Consolidation
Assets & Liabilities
Revenue & Expenses
Presentation & Disclosures
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Differences related to Basic
Principles
Basic Differences… Fair Value Focus
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Shift from Historical cost basis to Fair Value
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IMPLICATION: Substantial portion of Assets and
Liabilities stated at Fair Value
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Derivative Financial Instruments
Tangible and intangibles acquired in business combinations
Share based payment liabilities
Loans and advances e.g. Interest free deposits
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Basic Differences…
Indian GAAP
IFRS
Presentation of Financials
Largely governed by
Schedule VI
Governed by IAS 1
First Time Adoption
No specific standard.
Full retrospective
application would be
required
IFRS 1 grants 4 mandatory
exceptions and limited
voluntary exemptions from
full retrospective
applications
Disclosure re Impact on financials
in respect of standards finalized but
are mandatory in future dates.
Not required
Required
Differentiation between Current and
Non Current Assets / Liabilities
Unstructured
Requires separate
classification on face of
Financials
Disclosures of critical Judgments,
Key sources of estimation
uncertainty that have risk of
material adjustment in carrying
amounts of assets and liabilities
Not Required.
Required in Detail
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Basic Differences…
Indian GAAP
IFRS
Information to understand Not Required
entity’s objective, policies
and processes for
managing capital
Required in Detail
Change in accounting
policy
No detailed guidance. Effect of
changes in accounting policy
needs to be given in Income
Statement.
Retrospective effect to be
given by adjusting opening
retained earnings.
Comparatives are restated.
Prior Period definition
Covers only income and
expenses.
Elaborate. Covers all items
including balance sheet
misclassifications.
Prior Period adjustment
To be included in the
determination of net profit/ loss
of current period with relevant
disclosure
Restatement required.
Restatement of opening
balances of assets, liabilities
and equity
Proposed dividend
Provision mandated by statute.
Provision prohibited
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Acquisitions and
Consolidation
Business Combinations
Indian GAAP
IFRS
Pronouncements
No comprehensive standard. AS 14 deals
with amalgamations where acquiree
ceases to exist.
AS 10 deals with acquisition of division. AS
21 with consolidation of subsidiary.
IFRS 3 has comprehensive
coverage.
Pooling Method
Permitted under AS 14 if certain conditions Prohibited
are fulfilled
Acquisition date
The date of amalgamation as defined in the
amalgamation/ acquisition scheme.
The date on which the
acquirer effectively obtains
control of the acquiree.
Valuation of Acquiree
Generally book value, though fair value is
allowed under AS 14 as an alternative in
the case of purchase method and AS 10
Only fair value
Valuation of Acquiree
– Intangible Assets
Generally not valued if not in the books of
the acquiree
Valued even if not in the
books of the acquiree
provided fair value can be
measured reliably
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Business Combinations
Indian GAAP
IFRS
Valuation of Acquiree –
Contingent liabilities
Not valued
Valued and recognised as
actual liabilities if probable.
Provisional allocations
Not permitted except for
contingent consideration under
AS 14
Permitted over 12 months
Goodwill
Different treatment under
different AS. AS 14 requires
amortisation. AS 10 suggests
but does not mandate
amortisation. AS 21 is silent.
Amortisation prohibited.
Annual impairment test
mandatory
Negative goodwill
Capital reserve
P&L account
Subsequent adjustment
to Assets / liabilities
No adjustment permitted
12 month window period
allowed to get acquisition
accounting right
Reverse acquisition
Not dealt with
Accounted considering the
legal acquiree is in substance
the acquirer
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Consolidated Financial Statements (CFS)
Indian GAAP
IFRS
Preparation of CFS
Not mandatory, except for
listed entities as per SEBI
rules
Mandatory (Exceptions: Non- public
entities, Intermediate company,
unanimous consent of all owners
including minority owners, 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
Control is based on substance.
one half of the voting power Control may exist even pursuant to
or control of the composition agreement with other shareholders.
of board of directors’
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Consolidated Financial Statements (CFS)
Indian GAAP
IFRS
Uniform accounting
policies
Required but if impracticable,
disclosure of items where
different policies followed
Mandatorily required
Disclosure of Minority
Interest
Disclosed separately from
liability and equity of parent
shareholder
Within equity but separate from
parent shareholders’ equity
Preparation of FS on the Required. If impracticable, the Required (no alternative)
date of acquisition for
FS of immediately preceding
computing parent portion period can be used
of equity in a subsidiary
Goodwill determination
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Based on carrying value
Based on fair value due to
IFRS 3
Consolidated Financial Statements (CFS)
Indian GAAP
IFRS
SPE
No guidance
Consolidate if it satisfies SIC 12
criteria.
‘When the substance of the
relationship between an entity
and the SPE indicates that the
SPE is controlled by that entity’
Deferred tax impact on
elimination of unrealised
profit from intra-group
transactions.
Not recognized – line by line
totaling of parent and
subsidiary deferred tax
DT impact on such eliminations
is recognized.
Consolidation based on
Non- coterminous period
Maximum gap – 6 mths
Maximum gap – 3 mths
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Joint Ventures - Additional differences
Methods for recognizing
interest in joint venture
Indian GAAP
IFRS
Only proportionate
consolidation method
Proportionate consolidation
method or Equity method
(Exposure draft-proposes to
eliminate ‘proportionate
consolidation’)
51% ownership plus joint To be accounted as
control through
subsidiary – full consolidation
contractual agreement
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To be accounted as JV
Assets and Liabilities Related
IAS 16 - Property, Plant and Equipment
Indian GAAP
IFRS
Component approach
Not mandatory, rarely
followed
Mandatory
Recognition criteria for
subsequent
expenditure
Increase in future benefits
beyond its original standard
of performance
No requirement for decapitalization
Replacement are capitalized and
replaced part de-capitalized.
Repairs, maintenance
and overhauling
Expense off
Regular repairs are expensed off.
Major repairs and overhaul
expenditure is capitalized
Deferral of payment
beyond normal credit
terms
No specific guidance
Difference between cash price
equivalent and total payment to be
recognized as interest over period
of credit
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IAS 16 - Property, Plant and Equipment
Indian GAAP
IFRS
Depreciation
Useful life or Schedule XIV rates
whichever is higher
Useful life
Depreciation
methods
SLM and WDV
Various – SLM, diminishing
balances, units of
production method
Review of useful
life and residual
value
No need for annual review. Can be
reviewed periodically
To be reviewed atleast
annually
Depreciation –
change in method
Change in policy (retrospective effect)
Change in estimate
(prospective effect)
Provision for site
restoration
No guidance under AS 10 (However,
covered in GN on Oil & Gas and AS
29)
Mandatory
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IAS 16 - Property, Plant and Equipment
Indian GAAP
IFRS
Revaluation of assets
If revaluation does not cover all
assets, selection of asset to be
revalued to be made on a
systematic basis
Option of either cost or
revaluation method and to be
applied to an entire class of
PP&E
Revaluation frequency
No need to update regularly
Need to update regularly
Recoupment of
depreciation from
revaluation reserve
To the extent of revalued portion,
can be recouped
Cannot be recouped, has to be
charged to P&L account.
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IAS 38 - Intangible Assets
Indian GAAP
IFRS
Revaluation
Not permitted
Permitted for intangibles with active
markets. Other aspects similar to PPE.
Intangibles having
indefinite life
No such concept. All assets
considered to have definite
life.
No amortisation; only annual
impairment testing is required.
Amortisation period
10 year rebuttable
assumption
No such presumption. In case of assets
with definite life, amortization over
useful life is required.
Annual impairment
testing (irrespective
of indicators)
Required for intangible
asset not yet available for
use; and intangible asset
amortized over > 10 years
Required for goodwill, intangible asset
having indefinite useful life and assets
not available for use.
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Provisions, Contingent Liabilities and
Contingent Assets
Indian GAAP
IFRS
Measurement
Best estimate. No detailed
guidance.
IAS 37 provides detailed guidance on
measurement .It employs statistical
notion of expected value in estimating
settlement value of provision.
Restructuring
provision
Provision based on legal
obligation
Provision based on constructive
obligation
Contingent asset
Disclosure not permitted
Disclosure required where inflow of
economic benefit is probable.
Discounting
Prohibited
Required where effect of time value of
money is material discounting is
required.
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IAS 32 / 39 – Financial Instruments
Financial Instruments –
Primary Literature
Indian GAAP
IFRS
AS 31 – Financial Instruments:
Presentation
AS 30 – Financial Instruments:
Recognition & Measurement
AS 13 – Accounting for Investments
AS 11 – The Effects of Changes in
Foreign Exchange Rates
IAS 32 – Financial Instruments:
Presentation
IAS 39 – Financial Instruments:
Recognition & Measurement
IFRIC 9 – Reassessment of
Embedded Derivatives
AS 30 & AS 31 are not mandatory as
on date and the differences
discussed below are based on
existing Indian Standards & generally
accepted accounting practices.
Once AS 30 & AS 31 becomes
effective, there will be no
material differences between
IGAAP & IFRS
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Financial Instruments
Indian GAAP
IFRS
Initial recognition classification
No guidance
To be classified as a liability or
equity
Convertible instruments
No guidance
To be split into liability & equity
components; each component
recorded separately
Classification of
financial assets
No such requirement
Classified as FVPL, AFS, HTM and
L&R.
Valuation and De-recognition
principals are different for all.
Derivatives
No exhaustive guidance
all derivatives, except those used
for hedge purposes, are measured
at fair value and any gains/losses
are recognized in profit or loss
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Financial Instruments
Indian GAAP
IFRS
Hedge accounting
only AS 11 deals with forward
exchange contracts for
hedging foreign currency
exposures
3 types of hedging relationship; fair
value hedge, cash flow hedge &
hedge of net investments in a
foreign operation. Fulfillment of
certain conditions to apply hedge
accounting
Inter Corporate
Guarantees or Loans –
given or taken
No guidance
Considered as equity contribution
given / taken
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IAS 32 / 39 – Financial Instruments
Indian GAAP
Financial Instruments
& Equity
AS-13 deals with
investment in a limited
manner. Foreign exchange
hedging is covered by AS11.
IFRS
IAS 32 and 39 deal with financial
instruments and entity’s own equity in
detail including matters relating to
hedging.
Fair Valuation of Secured Loans
►Deferred payment credits
Fair valuation of Loans & Advances
►Security deposits
Fair valuation of Current Liabilities
►Trade deposits
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IAS 32 / 39 – Financial Instruments
Indian GAAP
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
Split Accounting
No split accounting is done
IFRS
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.
Compound financial instruments are
subjected to split accounting
whereby liability and equity
component is recorded separately.
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Revenue and expense related
Revenue Recognition
Indian GAAP
IFRS
Measurement
Measured by charges made to
customers, discounting not
normally required for deferred
inflow ( Reqd ..Installment sale)
Measured at fair value, discounting
required where inflow is deferred
Service income
AS 9 allows both, completed
service contract method or
proportionate completion
method.
IAS 18 requires percentage of
completion method to be followed.
Interest income
Recognised at applicable rate.
Effective interest method is
followed.
Barter
Transactions
Not much guidance.
Revenue recorded on dissimilar
exchange .Measurement at fair
value of goods transferred out/in.
Multiple
Element
Contracts
No guidance. There is an EAC
opinion which requires treatment
similar to IFRS.
The standard broadly requires that
each element is fair valued and
recognized when the underlying
service is performed.
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Employee Benefits
Indian GAAP
IFRS
Actuarial Gains/losses
All actuarial gains and
losses are recognized
immediately in P&L
►Actuarial
Discount rate
Government bonds
High Quality Corporate bond or
Government bond
Termination benefit Exp.
Provision based on legal
obligation
Provision made based on
constructive obligation
Termination benefit/VRS
deferral
Permitted upto April 1, 2010
as part of transitional
provisions
Not permitted
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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
Share-based Payments
Indian GAAP
IFRS
Scope
ICAI GN deals with Employee IFRS 2 deals with all types of
share-based payments. AS 10 share-based payments.
deals with fixed assets
acquired against securities. No
guidance on other share –
based payments.
Measurement
Fair value or Intrinsic value
with fair value disclosures
Fair value method only
Group ESOP plans
No specific guidance
Entities whose employees are
provided ESOP benefits are
required to account for the
charge in the Income Statement
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Income Taxes
Indian GAAP
IFRS
Approach
Income statement or
timing differences
approach
Balance sheet liability approach or
the temporary differences approach.
Temporary differences
No deferred tax
recognized for temporary
differences which are not
timing differences.
Deferred tax recognised:
►Revaluation of fixed assets
►Business combinations
Difference between fair value of
assets recorded and the tax base.
►Consolidation adjustments, say,
elimination of unrealised profits and
undistributed profits of subsidiaries,
associates, JVs
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Income Taxes
Indian GAAP
IFRS
Recognition of DTA in
case of tax losses
Recognised only if virtual
certainty supported by
convincing evidence for
availability of future taxable
profits
Recognised if it is probable
(reasonable certain) that future
taxable profit will be available. Entity
should also have convincing
evidence in such a case.
Fringe Benefit tax
Disclosed as separate line
item after PBT..
Included in related expense which
gives rise to FBT
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Leases
Indian GAAP
IFRS
Lease of Land
AS -19 – “Accounting for Leases”
scopes out lease agreements to
use lands
Included
In case of a combined lease, lease of
land and buildings need to be
considered separately. The land
element is normally an operating
lease unless title passes to the lessee
at the end of the lease term. The
buildings element is classified as an
operating or finance lease by applying
the classification criteria
Whether an
arrangement is a
lease (e.g. PPA’s)
Not leases
Leases under IFRIC 4, based on
- Substance of the arrangement
- Whether the fulfillment is dependant
on use of specific asset(s)
- Whether it conveys a right to use the
asset
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Presentation and Disclosure
related
Presentation
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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 of SOCIE as separate statement is required
Presentation more governed by substance; rather than
form
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Preference shares to be classified as liability vs. equity based on
substance
Classification of assets and liabilities as current or non-current
based on time of recovery/ settlement
Portion of long-term loans payable with in twelve months to be
presented as current
No items to be presented as extra-ordinary in the financial
statements
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Disclosures
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IFRS prescribes extensive disclosures as compared to Indian GAAP
Additional disclosures are required throughout the financial
statements
Few examples of additional disclosures required which may require
substantial additional work
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Critical judgements made by the management
Key sources of estimation uncertainty
Capital management policy and data
Standards/ interpretations issued but not yet effective and their impact
Determination of fair values and key assumptions used about the same
Sensitivity analysis of fair values
Various risks to which an entity is exposed, policies for management of
such risks and quantitative date relating thereto
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IFRS 1
First time adoption of IFRS
First time adoption – Key steps
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Decide First IFRS Reporting period
Decide on number of comparative period to be presented
along with first IFRS financial statement
Determine date of transition to IFRS
Prepare Opening IFRS balance Sheet
Prepare first IFRS financial statements
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IFRS 1 – General Principle
Step 1
Step 2
Recognise
all assets and
liabilities
required to be
recognised by
IFRS
De-recognise
allwithassets
and
European
liabilities not
permitted by
IFRS
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Step 3
Classify
Increased
all
items in
accordance
with IFRS
Step 4
Measure
allcomparatives
assets and
liabilities in
accordance
with IFRS
Optional exemptions under IFRS 1
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Business combinations
Fair value or revaluation as deemed cost
Employee benefits
Cumulative translation differences
Compound financial instruments
Assets and liabilities of subsidiaries, associates and joint
ventures
Designation of previously recognised financial
instruments
Share based payment transactions
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Optional exemptions under IFRS 1 ……Contd.
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Insurance contracts
Decommissioning liabilities included in the cost of
property, plant and equipment
Leases
Fair value measurement of financial assets or financial
liabilities at initial recognition.
A financial asset or an intangible asset accounted for in
accordance with IFRIC 12 “Service Concession
Arrangements”
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Mandatory exemptions under IFRS
►Derecognition
of financial assets and financial liabilities
►Hedge accounting
►Estimates
►Assets classified as held for sale and discontinued
operations
All the Accounting Standards needs to be applied
retrospectively
(Other than exclusions by Mandatory or Optional Exemptions)
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Thank you!