Dear professionals

LET US DISCUSS
IFRS
September 19, 2016

WELCOME TO HUGE GATHERING

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IFRS OVERVIEW

ICSI WITH RELIANCE

September 19, 2016

IFRS
September 19, 2016

Where are we moving

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?

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 todays 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

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

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
policies

Required but if
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, Required (no alternative)

the FS of immediately
preceding period can be
used

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 entitys 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.

Effective interest method is

Dividend

In case of dividends from

Recognition when the shareholders

subsidiaries, schedule VI

right to receive payment is

requires dividend to recognized

established.

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
Approach

Income
statement or
timing
differences
approach
Deferred tax Virtual certainty

In case of tax
losses

IFRS
Balance sheet liability
approach or the
temporary differences
approach.
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

IFRS prescribes extensive disclosures as compared to Indian GAAP

Few examples of additional disclosures required which may require substantial

additional work

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

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:

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