Presented by: Nayan Shah Ranjit Shetty Apurva

8/14/2019 Presented by: Nayan Shah Ranjit Shetty Apurva

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Presented By:Nayan Shah

Ranjit ShettyApurva ShethVishal Kothari

Pritesh maniarSurbhi Mondkar



International Financial Reporting StandardsIFRS was developed in the year 2001 by the

International Accounting Standards Board(IASB)

IFRS requirement includes IASsIFRS Comprises: 8 IFRSs and 31 IASs.It started of with EU making IFRS mandatoryfrom 2005 onwards.

By 2011 more than 150 countries wouldhave adopted IFRS.



IASB (International Accounting Standards Board) /IASC (Committee) was formed in the early 1970‘s,about the same time as the FASBEarly IAS standards allowed many options

Efforts were made to harmonize standards in theearly 1990sSome early adopters came from countries withmultinational companies but few local accountingrules (e.g., Switzerland, Australia)IASB was restructured in 2001 and began issuing in2003



Standards Advisory Committee (SAC)International Financial Reporting

Interpretations Committee (IFRIC)IASB-FASB Convergence Agenda

Objective of Financial ReportingQualitative characteristics



Globally AcceptedSimplifiedCost EffectivenessCross-border capital raising and tradeCreate comparable, reliable, andtransparent financial statementsCompany-wide one accounting language



to develop global accountingstandardsto promote the use and rigorousapplication of those standardsto take account of small and medium-sized entities and emergingeconomies.to bring about convergence for highquality solutions.



Pakistan –Already Reporting asper IFRS

Canada – to Converge in 2011US – Sooner or Later – To beComplete by 2014

India – 2011



Adoption or convergence with IFRS is now a globalphenomenon

EU, Australia, Russia and several other countries in theMiddle East and Africa have decided on a wholesale,mandatory change to IFRS.

US, South Africa, Singapore, Turkey and Malaysia arecommitted to convergence with the internationalbenchmark.

New information technologies have dramatically changedthe financial reporting environment



The use of IFRS as a universal financial reporting languageis gaining momentum across the globe, especially ascompared to a few years ago when a number of differentnational accounting standards existed.

More than 100 countries now require or allow use of IFRSand by 2011 the number is expected to increase to 150.Some of the major countries that are seeking to converge /adopt IFRS by 2011 include Canada, Korea, India andBrazil .



IFRS 1 First-time Adoption of International FinancialReporting StandardsIFRS 2 Share-based PaymentIFRS 3 Business CombinationsIFRS 4 Insurance ContractsIFRS 5 Non-current Assets Held for Sale and DiscontinuedOperationsIFRS 6 Exploration for and evaluation of MineralResourcesIFRS 7 Financial Instruments: DisclosuresIFRS 8 Operating Segments



1. Objective

2. Underlying assumptions

3. Qualitative characteristics



OBJECTIVE OF THE STANDARD:

To ensure that an entity’s first IFRS financial statements , and its interim financial reports containhigh quality information

1. Transparen t and comparable

2. Prepare and present an opening IFRS statement

3. Cost doesn’t exceed Benefit



Objective of this standard: The objective of this IFRS is to enhance theRelevance, Reliability and Comparability of theinformation that an entity provides in its financialstatements about a Business Combination and

its effects.Acquisition-date fair values

Joint Ventures not includedImpotant Terms : Acquirer, Acquiree, Acquisition

date, GoodwillDisclosure



Objective of standard: To prescribe the financial reporting for

InsuranceContracts by any entity that issues such

contractsNot only for Insurance CompaniesLocal GAAP accounting policies

Liability adequacy testinsurance liabilities



Objective of standard: To specify the accounting for non-current assetsheld for sale, and the presentation and disclosure of discontinued operations.Non-current assets (or disposal groups)

Discontinued Operation Assets (or disposal groups) classified as heldfor sale are :

1. Carried at the lower of the carrying amount and fairvalue less costs to sell.

2. Not depreciated or amortized.3. Presented separately on the face of the balance

sheet.



Search for mineral resourcesExploration and evaluation expenditures

Exploration and evaluation assets areexploration and evaluation expendituresrecognized as assets in accordance with theentity’s accounting policy.



Exploration and evaluation assets shall beassessed for impairment when facts andcircumstances suggest that the carryingamount of an exploration and evaluationasset may exceed its recoverable amount.

Disclosure



Objective of standard

To enable the users of the Fin Statements to

evaluate :1) the significance of financial instruments forthe entity’s financial position and performance

2) the nature and extent of risks arising from

financial instruments to which the entity isexposed during the period and at the reportingdate, and how the entity manages those risks.



This IFRS applies to all entities , including entities thathave few financial instruments (e.g. a manufacturerwhose only financial instruments are accounts receivableand accounts payable) and those that have manyfinancial instruments (eg a financial institution most of whose assets and liabilities are financial instruments).

Requires disclosure of information about the nature andextent of risks arising from financial instruments: –

1. qualitative disclosures about exposures to each class of risk and how those risks are managed; and

2. quantitative disclosures about exposures to each classof risk, separately for credit risk, liquidity risk and marketrisk (including sensitivity analyses).



An entity shall disclose information to enableusers of its financial statements to evaluate thenature and financial effects of the business

activities in which it engages and the economicenvironments in which it operates.



IFRS 8 Applies to the consolidated financialstatements of a group with a parent (and to theseparate or individual financial statements of anentity ):– whose debt or equity instruments are traded in a public

market; or– that files, or is in the process of filing, its (consolidated)financial statements with a securities commission or otherregulatory organisation for the purpose of issuing any classof instruments in a public market.



o ICAI, constituted the Accounting StandardsBoard (ASB) on 21st April, 1977

o At a meeting held in May 2006, the Councilof ICAI expressed the view to adopt IFRS.

o Based on the recommendation of the IFRS

Task Force, ICAI decided to converge withIFRS, for accounting periods commencingon or after 1 April 2011.

Friday, March 5, 2010



KEY DIFFERENCE BETWEEN IFRS,

INDIAN ACCOUNTING STANDARD& US GAAP



IFRS & US GAAP AS 1

Deals with overall

consideration,minimum structure& components of Financial

statements

Does not specificallyprescribe componentsof Financialstatements

Companies Act 1956

& Companies(AccountingStandards) Rules,2006



IFRS/IAS 7 & US GAAPAS 3

AS 3

It allows int. &div. paid or recd.as operating cashflow

It does notrequire disclosureof extraordinaryitems

It does not allow

It requiresdisclosure of extraordinaryitems



AS 6 & IAS 16 allows depreciationon revalued value of assets.

US GAAP prohibits revaluation of assets



AS 7 & IFRS/IAS 11 prescribes only %agecompletion method.

US GAAP prescribes completed contractmethod.



AS-10 & IFRS/IAS-16 allows revaluation of Fixed assets

US GAAP does not allow revaluation of Fixed assets



AS-13 covers investment in property,subsidiary, associates, fin. Instruments.

IFRS/ IAS-40 deals in property.

IFRS/ IAS-32 &39 deals in financialinstruments.

ICAI is planning to revise AS-13



AS-14 allows pooling of interest method &Purchase method.

IFRS-3 & US GAAP allows only Purchasemethod.



IFRS-3 requires recognition of negativegoodwill to P&L a/c.

AS-14 requires recognition of negativegoodwill to be credited to Capital Reserve.



AS-20 requires disclosure in parent separatefinancial statement as well as consolidatedstatement.

IAS-33 & US GAAP require disclosure inconsolidated financial statement.



AS-23 & IAS-28 US GAAP

It permits

investments inassociates to bemeasured usingequity method if itpreparesconsolidatefinancialstatements.

It requires use of

equity methodirrespectivewhether anentity hassubsidiaries



AS-26 & US GAAP do not permit revaluationof intangibles.

IFRS/IAS-38 permits revaluation of intangibles.



“reach an economic equal level playing fieldwithin the Community”“common political vision”Large risks of being drawn to US-GAAP

Why Did Australia adopt IFRS?

Why Did New Zealand adopt IFRS?



45

McKinsey Global Investor Opinion onCorporate Governance in 2002

Surveyed 201 professional investors from institutionswith an estimated $9 trillion under

management.

Covered 31 countries.



46

Single Accounting Standard

5% - Undesirable5% - Not sure

90% - desirable



47

What standard to chose as a global standard ?

78

76

65

41

Western Europe

Eastern Europe/Africa

Asia

Latin America

North America

22

24

35

41 59

24 76

IFRS

GAAP



48

Issues that impact the investment decisions

Accounting disclosure 7147

43

42

3746

32

32

3130

Shareholder equality

Market regulation and infrastructure

International Accounting Standards

Market liquidityProperty rights

Pressure on corruption

Insolvency and bankruptcy regulation

Fiscal environmentBanking system



49

What are the top reform priorities for policymakers

Strengthen shareholder rights

Improve accounting standards

More effective disclosure

Stronger enforcement

33

32

31

27

Percentage of investors selecting this option;multiple responses possible



1. For CompaniesLower Cost of capitalConsistent reporting format for subsidiaries indifferent countriesFacilitating multiple listing in different marketsEfficient allocation of resources.

Improved access to international capital marketsEnable benchmarking with global peers

Escape multiple reportingReflects true value of acquisitionsNew opportunities



2. For Small Investors

Global Investment opportunitiesBetter information for decision makingReduced Information Costsimprove average analyst forecast accuracy.Reduced cost of DebtRemoving barriers to cross-border acquisitionsand divestitures rewarding investors withincreased takeover premiums



3. For National EconomySmoothing the FDI ProcessHigher global economic growth

4. For StudentsHighly RemunerativeIFRS is the Future



Shortage of resources TrainingInformation systems

Tax PlanningCommunicationManagement compensation

and debt covenantsImpact on financial statementsDistributable profits

Alignment with other statutory bodiesManaging market, investors and analystsRunning out of TimeIncreased Volatility of ResultsSME Concerns

M a n a g e m e n t

r e p o r t i n g

s y s t e m

Empl oyeebenefit plans

Tax planning

IFRS

businessissues I n

v e s

t o r

r e l a t i o n s

F i n a n c i a l

a c c o

u n t i n g

a n d r e p

or t i n g

C o r p o

r a t e f i n a n

c e

a n d

s t r u c

t u r e d

f i n a n c i a l p r o d u c

t s

E m p l

o y e e

a n d

e x e c

u t i v e

c o m p e n

s a t i o nP e r f o r m a n

c e

i n d i c a t o r s



An IllustrativeExample

ValuechainSupportFunctions

Businessimpactof IFRS

Businessimpactof IFRS

AccountingDifferences

H u m a n R e s o u r c e s

T r a

n s a

c t i o n s

I T

T a x

Ris k Ma n a ge m e nt / C om p lia nce

F i n a n c e a n d

A c c o u n t i n g

P e r f o r m

a n c e

M a n a g e m

e n t

L e g a l

I n v

e s t o

r r e l a

t i o n s

T r e a s u r y

S a l e s / M

a r k e t i n g

N e w

P r o d

u c t D e

v e l o p

m e n

t

T r a d i n g

Customer Relationships

H e d g i n g / R i s k M a n a g e m e n t

S e c u r i t i z a t i o n A c t i v i t y

A s s e t / L i a b

i l i t y M a n a g e m

e n t

Minimal Moderate Significant

IFRS Conversionis not just an

accountingexercise



1. IASB Standards are known as International FinancialReporting Standards (IFRSs).

2. All IASs and Interpretations issued by the former IASC andSIC continue to be applicable unless and until they areamended or withdrawn.

3. IFRSs apply to the general purpose financial statementsand other financial reporting by profit-oriented entities

4. Entities other than profit-oriented business entities

may also find IFRSs appropriate.



5. General purpose financial statements are

intended to meet the common needs of all entities forinformation about an company’s financial position,performance, and cash flows.

6. Other financial reporting includes information

which improves users' ability to make efficienteconomic decisions.

7. IFRS apply to individual company and consolidatedfinancial statements.

8. IFRS includes complete set of financial statements



9. IFRS allows both a 'benchmark' and an'allowed alternative' treatment

10. IASB intends not to permit choices inaccounting treatment .

11. IFRS will present fundamental principles inbold face type and other guidance in non-boldtype

12. The provision of IAS 1 that conformity with IAS

requires compliance with every applicable IASand Interpretation requires compliance with allIFRSs as well.

http://www.iasplus.com/standard/ias01.htm

http://www.iasplus.com/standard/ias01.htm



Implemented by a broad network of experienced conversionspecialistsConsiders the broader impact on the business - accountingpolicies, people, financial reporting, tax and other businessprocesses and systems, stakeholder management, statutoryreporting and communications

Used by more than 1,300 companiesScalable and responsive to the unique complexities of eachclient’s businessEstablishes clear objectives with the client in the planning stageApplies a phased approach to IFRS conversionsIs a framework that is supplemented by deep business processand technical accounting and systems skills



How to Valuate ?

Some IFRSs require Fair Value Approach-Examples :

IFRS-3, Business Combinations



Fair value - for which the assets could beexchanged by willing parties in arm’s lengthtransaction.US GAAP provides a hierarchy of 3 levels of input data -

i. Level 1 - Quoted prices for identical items.ii. Level 2 - Observable information for similar

items.iii.Level 3 - Unobservable inputs to be used.



During Fair Valuation – effect flow throughprofit and loss account.Both unrealized gains and losses mayappear in profit and loss account.As per Indian Income Tax Act, 1961 – thisgain would be chargeable.

Therefore, Income Tax Act needs to be

changed accordingly so that unrealized gainmay not be taxed.



Suspension of AS 11 up to the period ending 31stmarch 2011Companies need not debit the forex loss to theincome statement – it should be adjusted to the

respective assets in the B/S by the process of capitalization of such forex loss The main objective of setting AS standards andpreparing financial statements is to provide trueand fair (reliable and relevant only whenunbiased) financial information to the intendedstakeholder of the company.



Islamic finance already plays a significantpart in the global economyBasic difference in INTEREST conceptthe Islamic finance industry is set to growfrom $700bn to $4trn by 2013despite the crisis Islamic banking is still

projected to grow by 15-20 % p.a.



in April 2009 asked accounting standardsetters to work urgently with supervisorsand regulators to achieve a single set of high-quality, global accounting standardsand meet deadlines outlined in the ActionPlan

SEC is likely to consider responses to itsproposed roadmap for the potential use of (IFRS) in the U.S. before the year’s end

IFRS d it l k t



IFRS and capital market



Not merely be a technical accounting conversionstructuring of contracts with customers andvendors, performance appraisal parametersand reward plans , and managing externalinvestor relations and communicationprior years’ errors and omissions will have to beeffected through restatement account (1538 us)investors and regulators look at any restatementnegativelyexplaining variations and volatility in earnings on aquarterly basis to stake holders



to defer implementation of AS-11 till 2011.decision is not yet notified by thegovernmentNACAS has favoured suspending for twoyears, the AS11 ( ICAI has not favoured )Example (imported 1000 kl edible oil)Companies MTM provisions (crores)

Tata steel 775

Tata motor 632 JSW steel 815

suzlon 741



material impact on the financial statements

requires a high level of judgment for loanlosses and investments

Derivative and hedge accounting(separate a/c )

De-recognition of financial assets(securitization )

Consolidation of entities ( not driven purelyby ownership structure )



changes in the systems of the existing to thenewer version of IFRS enabled accounting software

Technology companies enter into bundled contractsand multiple offerings.Outsourcing contracts ( IT platform, hardware on

lease )

Share based payments ( intrinsic value, fairvalue )Discounting of receivables & payablesAcquisitions ( financial included when control isobtained )Derivatives and hedge accounting ( strict

documentation )



Public-private partnership

(construction phase, subsequentoperations phase )Leases(financial lease or operational lease )Financial instrument(embedded derivatives-consumer price orlabour index )

discounting of long-term payables andreceivables(interest rates )



Co. Takes revenue from under-construction projects

Under the IFRS, only when an apartment isconstructed and ownership rights aretransferred, the transaction is recorded asrevenue

IFRS will erode profits of real estatecompanies



Minimum depreciation rate

Mould, pattern, development cost, toolingcost, new technology etc.

IFRS will result into Higher profits



Telecom companies provide package

offers comprising handset, prepaidminutes, messages, discounts, specialoffers and other incentivesMedia firms often bundle products,programmes or channels andpublicationsIn IFRS, bundled contracts and multiple

offerings under a package will requireaccounting of different componentsand revenues



Exploration and evaluation (E&E) expenditure

(flexibility )Development expenditure ( lack of guidelines )Mine closure and rehabilitation provisions

(provisions for DCF varied significantly )Resources and reserves reporting ( notaddressed )Revenue (information went beyond strict

disclosure )commodity price riskSegment reporting ( operating segments )



US is set to converge to IFRS by 2015

About 6,000 US companies transit 2014-2016.

Assuming that 3,000 small companies may implement

IFRS internally, the remaining 3,000 would need anexternal agency’s help

Each company may need a 5-10 member team for

implementation. Even if 20-30 per cent of the work is

outsourced its big opportunity for India

$1 billion opportunity



listed companies and public interestentities in the country are required to transitfrom the Indian accounting standards to IFRS byApril 1, 2011 and for that companies will haveto start preparing their accounts in that formatfrom 2010 onwards

Infosys Technologies, NIIT, Wipro, Mahindra &Mahindra, Tata Motors, Bombay Dyeing, DrReddy's Laboratories



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Presented by: Nayan Shah Ranjit Shetty Apurva

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