Post on 14-Apr-2017
A New Era of Financial ReportingThe Agra Branch of CIRC of ICAI30th April’2016
FCA Aditya SinghalM.Com, DISA(ICAI), DipIFRS (ACCA)+91 8800334745adityaagra@gmail.com
Current Global Reporting Requirements
2
IFRS
FIN REP
GSIB
IFRS 9
HKMA
BoE
Schedule
VI
*A New Era of Financial Reporting*
Stress
Testing
By CA Aditya Singhal
What is IFRS
• IFRS
• IFRS
• IAS
• IFRIC
• SIC
• Order of authoritativeness
• IFRS including any appendices
• Interpretations
• Appendices to IFRS that do not form part of the standards
• Implementation guidance issued by IASB
3*A New Era of Financial Reporting*By CA Aditya Singhal
Why IFRS ?
• Globalization
• Better transparency
• Cost effectiveness
• Scope of professional judgment
• Fair valuations
• Comparability
4*A New Era of Financial Reporting*By CA Aditya Singhal
IFRS Vs Indian Accounting Standards
• Substance over form
• Fair value
• Current and Non-Current Classification
• Discounting (Time value of money)
• Standards prevail over law
5*A New Era of Financial Reporting*By CA Aditya Singhal
IFRS across the world
Europe
2005
Australia
2005
Canada
2009/11
South Africa
2005
United States
(2019?)
Current or anticipated requirement
or option to use IFRS (or equivalent)
Brazil
2010
China
2007
India
2017/18
Chile
2009
Japan
(2016)
6*A New Era of Financial Reporting*By CA Aditya Singhal
7
Revised Road-map
Above limits not applicable to banks, insurance companies and NBFC’s
Listed companies, to-be listed companies, companies with net worth> Rs 250 crore and their subsidiaries and joint ventures
31st March 2018 with one year comparatives
Listed companies, to-be listed companies, companies with net worth> Rs 500 crore and their subsidiaries and joint ventures
31st March 2017 with one year comparatives
*A New Era of Financial Reporting*By CA Aditya Singhal
• Mandatory for accounting period ending on 31st March
2019
• Full Comparatives for 31st March 2018 need to be
provided in Ind AS
• As per Ind AS 101, an Ind AS Opening Balance Sheet
would need to be prepared as on 1st April 2017.
(effectively year ending 31st March 2017)
• RBI has mandated proforma Ind AS financial statements
for the half-year ended 30th September 2016 (clarity
awaited on the contents of the proforma)
8
Banks, Insurance companies, NBFC’s> 500
crores
*A New Era of Financial Reporting*By CA Aditya Singhal
The IFRS Architecture
Framework for preparation and presentation of Financial
Statements
IAS 1: Presentation of Financial Statements
IAS 7 Statement of Cash flow
IFRS 10: Cosl FS
IAS 34: Interim financials reporting
IFRS 1: First time Adoption
of IFRS
Other standards
10*A New Era of Financial Reporting*By CA Aditya Singhal
11
Framework for preparation and presentation of Financial
Statements
*A New Era of Financial Reporting*By CA Aditya Singhal
Framework for preparation and
presentation of Financial Statements
12
Underlying assumptions
>Accrual Basis
>Going Concern
Quantitative Characteristics
> Presentation
- Understand ability
- Comparability
> Content
- Relevance
- Reliability
Elements
Recognition
Measurement
*A New Era of Financial Reporting*By CA Aditya Singhal
13
IAS 1: Presentation of Financial Statements
*A New Era of Financial Reporting*By CA Aditya Singhal
Objective and Scope of IAS-1
14
Provide information about the financial position, financial
performance, and cash flow of an entity
that is useful a wide range of
users
Sets the overall requirement
for the preparation
and presentation of
financial statements
Provide guidance for
the format and structure of
financial statements
Set out the minimum content
requirement for financial statements
*A New Era of Financial Reporting*By CA Aditya Singhal
Assets - Liability - Equity - Income - Expenses
15
-Resource
-Controlled by an entity
-As a result of past event
-From which economic benefits are expected to flow to the entity
-Present obligation
-Arising from past events
-The settlement of which is expected to result in an outflow from the entity of economic benefits
-Residual interest in the entity’s assets after deducting all of its liabilities
-It is sub-divided in the statement of financial position
-Increase in economic benefit
- During the accounting period
- In the form of inflows, enhancement in assets or decrease in liability
-Other than those relating to contribution from equity participants
- Decrease in economic benefits
- During the period
- In the form of outflows, depletion of assets or incurrence of liability
- Other than that which relates t o distributions to equity participants
Financial Statements - Elements
*A New Era of Financial Reporting*By CA Aditya Singhal
General Feature of Financial Statement
Presentation
16
Fair PresentationCompliance with
IFRS
Going Concern Accrual
Materiality &
AggregationOffsetting
Comparative
InformationConsistency
*A New Era of Financial Reporting*By CA Aditya Singhal
Fair Presentation and Compliance with
IFRS
• Requires faithful representation of effects of transactions,
other events and conditions
• Required to make an explicit and unreserved statement of
compliance with IFRS in the notes (Not applicable in case of Ind- AS)
• An entity shall not describe financial statements as
complying with IFRSs unless they comply with all the
requirements of IFRSs
• Absence of an IFRS –management judgment : relevant
and reliable
• IFRS hierarchy
17*A New Era of Financial Reporting*By CA Aditya Singhal
Going Concern & Accrual
• Ability to continue operations for the foreseeable
future
• Management required to make an assessment of
the entity’s ability to continue as a going concern
– should cover a period of 12 months from the
end of the reporting period
18*A New Era of Financial Reporting*By CA Aditya Singhal
Materiality and Aggregation
19
Materiality
• Present separately each material class of similaritems
• An entity shall present separately items of adissimilar nature or function unless they areimmaterial
Offsetting
• An entity shall not offset assets and liabilities orincome and expenses, unless required orpermitted by an IFRS
*A New Era of Financial Reporting*By CA Aditya Singhal
Comparative Information &
Consistency
• Disclose comparative information in respect of the
previous period for all amounts reported in the current
periods financial statements
• Shall include comparative information for narrative and
descriptive information when it is relevant to an
understanding of the current period’s financial
statements
• Retain the presentation and classification of items in
financial statements from one period to another unless
IFRS requires a change in presentation or another
presentation or classification would be more
appropriate
20*A New Era of Financial Reporting*By CA Aditya Singhal
Identification of Financial Statements
• Clearly identify the financial statements and distinguishthem from other information in the same published document
• Prominently display following information• Name of reporting entity and any change in that information from
the end of the reporting period
• Whether the financial statements are of an individual entity or agroup of entities
• Date of the end of the reporting period covered by the set offinancial statements
• Presentation currency
• Level of rounding used in presenting amounts in the financialstatements
• Domicile and legal form of the entity including country ofincorporation and address of its registered office
• A description of the nature of the entity’s operations and itsprincipal activities
21*A New Era of Financial Reporting*By CA Aditya Singhal
Components of Financial Statements
22
Statement of Financial Position Statement of Comprehensive Income
Statement of changes in Equity Statement of Cash Flows
Notes, comprising a summary of significant accounting policies and other explanatory notes
A SOFP as the beginning of the earliest comparative period under certain circumstances
*A New Era of Financial Reporting*By CA Aditya Singhal
The Standard does not specify the order of presentation
or format to be used prescribes only certain minimum
lines items , with a provision that additional line items
may also be presented if so warranted by the nature or
function of the item.
For Example, under the head Property, Plant and
Equipment an entity may present if so warranted by the
assets that are measured using “Revaluation Model”.
By CA Aditya Singhal *A New Era of Financial Reporting* 23
Statement of Comprehensive Income
Current Vs Non-Current Classification
• Criteria for Classification as Current Assets:
An entity expects to realize the asset, or intends to sell or consume it, in its normal operating cycle,
holds it primarily for trading purposes,
expects to realize the asset within 12 months after the reporting period,
the asset is a cash or cash equivalent
• Criteria for Classification as Current Liabilities
it expects to settle the liability in the course its normal operating cycle
holds the liability primarily for trading purposes
or the liability is due to be settled within a year after the reporting period
it does not have an unconditional right to defer settlement of the liability for at least a year after the reporting period
24*A New Era of Financial Reporting*By CA Aditya Singhal
Statement of Comprehensive Income
• An entity shall present all items of income and
expenses recognized in a period:
• in a single statement of comprehensive income, or
• in two statements: a statement displaying components of profit
or loss (separate income statement) and a second statement
beginning with profit or loss and displaying components of
other comprehensive income (statement of comprehensive
income)
26*A New Era of Financial Reporting*By CA Aditya Singhal
Component of SOCI
27
Profit or Loss Account
Other Comprehensive
Income
Total Comprehensive
Income
*A New Era of Financial Reporting*By CA Aditya Singhal
Minimum Information in SOCI
• Revenue
• Finance costs
• Share of the profit or loss of associates and joint
ventures accounted for using the equity method
• Tax expense
• Post-tax profit or loss of discontinued operations
• Profit or loss
• Each component of other comprehensive income
classified by nature
• Total comprehensive income
28*A New Era of Financial Reporting*By CA Aditya Singhal
SOCI-Others
• An entity shall present additional line items, heading
and sub-totals in the statement of comprehensive
income when such presentation is relevant to an
understanding of the entity’s financial performance
• No item of income or expense shall be presented as
extraordinary items in the statement of comprehensive
income
29*A New Era of Financial Reporting*By CA Aditya Singhal
Statement of Changes in Equity (SOCIE)
• Statement of Changes in Equity (SOCIE) requirements
• Total comprehensive income for the period, showing separately the
total amounts attributable to owners of the parent and to non-
controlling interests
• For each component of equity, the effects of retrospective application
or retrospective restatement recognized in accordance with IAS 8-
Accounting Policies, Changes in Accounting Estimates and Errors
• For each component of equity, a reconciliation between the
carrying amount at the beginning and end of the period,
separately disclosing changes resulting from:
• Profit or Loss,
• Each item of other comprehensive income, and
• Transactions with owners in their capacity as owners showing
separately contributions by and distribution to owners
32*A New Era of Financial Reporting*By CA Aditya Singhal
Cash Flow- IAS 7
• An entity shall prepare a statement of cash
flows in accordance with IAS -7
• Special Attention
• Foreign Currency transactions
• Tax on Income
• Non-Cash transactions
• Transactions resulting in changes in ownership
interest
• Dividends
34*A New Era of Financial Reporting*By CA Aditya Singhal
Cash flow- IAS 7
• Disclosure requirement:
• Management commentary on special areas
• Reconciliation of opening and closing cash items
• Optional disclosure:
• Restricted cash
• Cash belongs to Joint ventures
• Cash flow relating to each reporting segments reported
• Minimum cash required to maintain the operating capacity
35*A New Era of Financial Reporting*By CA Aditya Singhal
Notes
• Present information about the basis of the preparation
of the financial statements and the specific accounting
policies
• Disclose information required by IFRS that is not
presented elsewhere in the financial statements
• Provide information that is not presented elsewhere in
the financial statements, but is relevant to an
understanding of any of them
37*A New Era of Financial Reporting*By CA Aditya Singhal
Notes- Sequence
• Statement of compliance with IFRS
• Summary of significant accounting policies
• Supporting information for items presented in the
statements of financial position
• Other disclosures including contingent liabilities, non-
financial disclosures
38*A New Era of Financial Reporting*By CA Aditya Singhal
First time Adoption - 5 step process
1. Identification of date of transition
2. Selection of accounting policies that comply with
IFRSs
3. Preparation of an opening IFRS balance sheet
4. Preparation of the first IFRS financial statements
5. Reconciliations and disclosures
41*A New Era of Financial Reporting*By CA Aditya Singhal
Identification of date of transition
42
•Transition Date - 1st April’ 2010
•Adoption Date - 1st April’2011
•Reporting Date - 31st March’2012
If entity presents comparative statements
•Transition/Adoption Date – 1st April’ 2011
•Reporting Date- 31st March’2012
If entity does not present comparative statements
*A New Era of Financial Reporting*By CA Aditya Singhal
Selection of accounting policies that comply
with IFRSs
a) Need to apply IFRS effective at the
Reporting Date.
b) May apply a new IFRS that is not yet
mandatory, if it permits early application.
c) Determine which exceptions to use
d) Take into account the exceptions to
retrospective application
43*A New Era of Financial Reporting*By CA Aditya Singhal
Preparation of an opening IFRS Balance Sheet
• Does not recognize items as assets or liabilities
if IFRS does not permit such recognition
• Recognize all assets and liabilities whose
recognition is required by IFRS
• Reclassify assets, liabilities and items of equity
as per the requirements of IFRS
• Measure all assets and liabilities in accordance
with IFRS
44*A New Era of Financial Reporting*By CA Aditya Singhal
Preparation of an opening IFRS Balance
Sheet
45
Assets/ Liability
as per IFRS?
Recognised under Indian
GAAP
Whether Measurement in line with IFRS?
Re-classify, if required by IFRS
Include as per IFRS
prescription
Recognised under Indian
GAAP?
Exclude and do not recognise
No Change required
Adjust carrying amount as per
IFRS
YES YES
YES
YES
NoNo No
*A New Era of Financial Reporting*By CA Aditya Singhal
ABC Corp presented its financial statements under the national GAAP of
“Strangeland” (country) until 2004. It adopted IFRS from 2005 and is required to
prepare an opening IFRS balance sheet as at January 1, 2004. In preparing the IFRS
opening balance sheet Exuberance Corp. noted
• Under its previous GAAP, ABC Corp. had deferred advertising costs of $1,000,000
and had classified proposed dividends of $500,000 as a current liability.
• It had not made a provision for warranty of $200,000 in the financial statements
presented under previous GAAP since the concept of “constructive obligation” was
not recognised under its previous GAAP.
• In arriving at the amount to be capitalized as part of costs necessary to bring an
asset to its working condition, Exuberance Corp. had not included professional fees
of $300,000 paid to architects at the time when the building it currently occupies
as its head office was being constructed.
By CA Aditya Singhal 46
Preparation of an opening IFRS Balance Sheet
*A New Era of Financial Reporting*
Preparation of the first IFRS financial
statements - Mandatory Exceptions
47
Assets held for sale and discontinued operations
(IFRS 5)
Non- Controlling interests
(IFRS 3)
Hedge accounting & Embedded derivatives
(IAS 39 & IFRS 9)
Derecognition of financial assets and financial liabilities
(IAS 39 & IFRS 9)
Estimates
(IAS 8 & 10)
*A New Era of Financial Reporting*By CA Aditya Singhal
Preparation of the first IFRS financial
statements - Optional Exemptions
48
Fixed Assets
•Use of fair value as deemed cost
•Decommissioning liabilities included in the cost of property, plant and equipment.
•Leases
•Service concession arrangements
•Borrowing costs
Business Combination
•Business combinations
•Assets and liabilities of subsidiaries, associates and joint ventures
•Investments in subsidiaries, jointly controlled entities and associates in separate financial statements
•Cumulative translation differences
Financial Instruments
•Compound financial instruments
•Designation of previously recognized financials instruments
•Fair value measurement of financial assets or financials liability at initial recognition
Others
•Employees benefits
•Share- based payment transactions
•Insurance contracts
*A New Era of Financial Reporting*By CA Aditya Singhal
Reconciliations and Disclosures
• Equity from previous GAAP to IFRS at the
transition date and the end of the last period
presented in the entity‘s most recent financial
statements under previous GAAP
• Net profit from previous GAAP to IFRS for the last
period in the entity's most recent financial
statements under previous GAAP.
• Other disclosures in the first IFRS financial
statements
49*A New Era of Financial Reporting*By CA Aditya Singhal
Challenges involved in First Time
Adoptions
1. Fair value override permitted under IFRS
2. Retrospective application
3. Barred – extraordinary items
4. Impact of change in accounting policy
5. The use of revaluation for fixed assets,
intangibles and investment property
…. cont
50*A New Era of Financial Reporting*By CA Aditya Singhal
Challenges involved in First Time
Adoptions
6. Consolidation of financials – Special purpose
entities
7. Goodwill/negative goodwill treatment
8. Revenue recognition of long term construction
contract
9. Impairment of non-current assets
10. Classification of financial instrument
51*A New Era of Financial Reporting*By CA Aditya Singhal
Role of CAs in Industry
• Change Agents
• Preparing internal processes to meet the information compilation
to meet the requirements of the IFRSs
• Developing Human Resources for Adaptation
• First time adoption
• The Board has to approve first time adoption choices (IFRS1)
• Detailed communication plan is necessary to educate stakeholders
and actively manage perceptions.
• Communication of key policy choices, interpretations and
accounting decisions to explain the financial results.
• Need for additional resources to replace those allocated to the IFRS
convergence programme.
• Budgets, forecasts, management accounts and KPIs need to be on
IFRS basis
53*A New Era of Financial Reporting*By CA Aditya Singhal
Role of CAs in Practice
• Handholding
• Consultation
• Advise on internal processes on adoptation
• Training HRs on IFRSs’ processes
• Guidance
54*A New Era of Financial Reporting*By CA Aditya Singhal
Key Learning Points
1. First time adoption is more of a business decision
than accounting
2. Doing it right at the first time is very critical
3. Judiciously applying the optional exemptions will
help reduce the GAAP difference
4. Practice with options will guide to refine decisions
5. Significant disclosure and reconciliation
requirements
56*A New Era of Financial Reporting*By CA Aditya Singhal