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IFRS

April 19, 2023

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IFRS OVERVIEW

ICSI WITH RELIANCEApril 19, 2023

IFRS

April 19, 2023

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 CurrentGlobal Approach vs Indian ApproachFair Value A/cing vs Historical Value A/cingGroup vs Standalones

Substance over FormPrinciples over Rules

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 today’s 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*

01/04/2011 31/03/20121/4/2010

Reporting date for FS

IFRS adoption date

IFRS Comparatives

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 1 – First time adoption of IFRSIFRS 2 – Share Based PaymentIFRS 3 – Business CombinationsIFRS 4 – Insurance ContractsIFRS 5 – Non-current assets held for sale and discontinued operationsIFRS 6 – Exploration for and evaluation of mineral resourcesIFRS 7 – Financial Instruments-DisclosuresIFRS 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, the FS of immediately preceding period can be used

Required (no alternative)

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 entity’s 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 time-proportion 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.

Indian GAAP IFRS

Measurement (deferred -payment)

Measured by charges made to

customers, discounting not

normally required for deferred

inflow

Measured at fair value, discounting

required where inflow is deferred

Interest income

Recognised at applicable rate. Effective interest method is

followed.

Dividend In case of dividends from

subsidiaries, schedule VI

requires dividend to recognized

in the period to which it pertains

even if declared after the

balance sheet date.

Recognition when the shareholder’s

right to receive payment is

established.

IAS- 18 – Revenue Recognition

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

IAS 19 – Employee Benefits

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 IFRS

Approach Income statement or timing differences approach

Balance sheet liability approach or the temporary differences approach.

Deferred tax – In case of tax losses

Virtual certainty 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 2008- Published 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