Project by, Harsh Sachdev Roll – 48

8/14/2019 Project by, Harsh Sachdev Roll 48

1/39

PROJECT BY, HARSH SACHDEV

ROLL 48SYBBI MMK


2/39

IFRS (International Financial

Reporting Standards ) IFRS are Standards, Interpretations and the

Framework adopted by the InternationalAccounting Standards Board (IASB).

Many of the standards forming part of IFRS are known by the older nameof International Accounting

Standards (IAS). IAS were issued between 1973 and 2001 bythe Board of the InternationalAccounting Standards

Committee (IASC) .


3/39


4/39

International FinancialReporting Standards

comprise International Accounting Standards(IAS) - standards issued before 2001

International Financial ReportingStandards (IFRS) - standards issuedafter 2001

Standing Interpretations

Committee (SIC) - issued before 2001 Interpretations originated from the

International Financial ReportingInterpretations Committee


5/39

( A Framework is the

foundation of accountingstandards )

Framework describes the principlesunderlying IFRS for the Preparation and Presentation of Financial

Statements. The Framework deals with: (a) The objective of financial reports; (b) The qualitative characteristics that

determine the usefulness of information infinancial reports;

(c) The definition, recognition andmeasurement of the elements from whichfinancial statements are constructed; and

(d) concepts of capital and capitalmaintenance.


6/39

Needs

The users of financial reportsinclude:- Present and Potential Investors.

Employees. Lenders. Suppliers and other trade creditors. Customers. Governments and their agencies and

the public. Public .


7/39

Objective of FinancialReports

Objective of financial reports is to provideinformation about the Financialposition , Financial performance and

Cash flows of an Entity that is useful toa wide range of users in makingEconomic decisions .

Financial reports prepared for this purpose

meet the common needs of most users.However, financial reports do not provideall the information that users may need tomake economic decisions since they

largely portray the financial effects of pastevents and do not necessaril rovide


8/39

Financial Position, FinancialPerformance & Cash Flows

The economic decisions that are taken byusers of financial reports require anevaluation of the ability of an entity togenerate cash and cash equivalents and of

the timing and certainty of theirgeneration. This ability ultimately determines, for

example, the capacity of an entity to pay

its employees and suppliers, meet interestpayments, repay loans and makedistributions to its owners.

Users are better able to evaluate this abilityto generate cash and cash equivalents if they are provided with information that


9/39

Example , an income statementprovides an incomplete picture of performance unless it is used inconjunction with the balance sheet,cash flow statement and thestatement of changes in equity.


10/39

Notes and SupplementarySchedules

Financial reports also contain notes andsupplementary schedules and otherinformation.

Example:- they may contain additionalinformation that is relevant to the needsof users about the items in the balancesheet and income statement.

They may include disclosures about the

risks and uncertainties affecting the entityand any resources and obligations notrecognised in the balance sheet (such asmineral reserves).

Information about geographical and industry


11/39


12/39

Accrual Basis In order to meet their objectives, financial

reports are prepared on the accrual basis of accounting. Under this basis, the effects of transactions and other events are recognisedwhen they occur (and not as cash or itsequivalent is received or paid) and they arerecorded in the accounting records andreported in the financial reports of theperiods to which they relate.

Financial reports prepared on the accrual basisinform users not only of past transactionsinvolving the payment and receipt of cashbut also of obligations to pay cash in thefuture and of resources that represent cashto be received in the future.


13/39

Hence, they provide the type of information about past transactionsand other events that is mostuseful to users in making economicdecisions.


14/39

Going Concern

Financial reports are normally prepared onthe assumption that an entity is a goingconcern and will continue in operation for

the foreseeable future. Hence, it is assumed that the entity hasneither the intention nor the need toliquidate or curtail materially the scale of

its operations; if such an intention or needexists, the financial report may have to beprepared on a different basis and, if so,the basis used is disclosed.


15/39

Qualitative Characteristicsof Financial Reports

Qualitative characteristics are the attributesthat make the information provided infinancial reports useful to users.

The four principal qualitative characteristicsare :-

1. Understandability

2. Relevance(A) Materiality


16/39

3. Reliability

(A)Faithful Representation(B) Substance Over Form(C) Neutrality

(D) Prudence(E) Completeness

4. Comparability

Th El f Fi i l


17/39

The Elements of FinancialStatements

Financial statements portray the financialeffects of transactions and other eventsby grouping them into broad classesaccording to their economiccharacteristics.

These broad classes are termed theelements of financial statements.

The elements directly related to the

measurement of financial position in thebalance sheet are assets, liabilities andequity.

The elements directly related to the

measurement of performance in the


18/39

The cash flow statement usually reflectsincome statement elements and changesin balance sheet elements.

The elements directly related to themeasurement of financial position areassets, liabilities and equity. These aredefined as follows:

(a)An asset is a resource controlled by the

entity as a result of past events and fromwhich future economic benefits areexpected to flow to the entity.

(b)A liability is a present obligation of theentity arising from past events , thesettlement of which is expected to resultin an outflow from the entity of resources embodying economic benefits.


19/39

Income & Expenditure

The elements of income and expenses aredefined as follows.

(a) Income is increases in economic benefitsduring the accounting period in the formof inflows or enhancements of assets ordecreases of liabilities that result inincreases in equity, other than thoserelating to contributions from equityparticipants.

(b) Expenses are decreases in economicbenefits during the accounting period inthe form of outflows or depletions of assets or incurrences of liabilities thatresult in decreases in equity, other thanthose relating to distributions to equity


20/39


21/39

ecogn on o eElements of Financial

Statements An item is recognized in the financial

statements when: it is probable future economic benefit

will flow to or from an entity and when the item has a cost or value

that can be measured withreliability.

stability


22/39

Recognition of Assets Asset is recognised in the balance sheet when it

is probable that the future economic benefitswill flow to the entity and the asset has a costor value that can be measured reliably.

Recognition of Liabilities A liability is recognised in the balance sheet

when it is probable that an outflow of resources embodying economic benefits will

result from the settlement of a presentobligation and the amount at which thesettlement will take place can be measuredreliably.


23/39

Recognition of Income Income is recognised in the income

statement when an increase in futureeconomic benefit related to an increase inan asset or a decrease of a liability hasarisen that can be measured reliably.

Recognition of Expenses Expenses are recognised in the income

statement when a decrease in future

economic benefit related to a decrease inan asset or an increase of a liability hasarisen that can be measured reliably.


24/39

Elements of Financial

Statements Measurement is the process of determining

the monetary amounts at which theelements of the financial statements areto be recognised and carried in thebalance sheet and income statement.

A number of different measurement basesare employed to different degrees and in

varying combinations in financial reports,including the following.


25/39

Historical cost Assets are recorded at the amount of cash

or cash equivalents paid or the fair valueof the consideration given to acquire themat the time of their acquisition.

Liabilities are recorded at the amount of proceeds received in exchange for theobligation, or in some circumstances (forexample, income taxes), at the amountsof cash or cash equivalents expected tobe paid to satisfy the liability in thenormal course of business.


26/39

Current cost Assets are carried at the amount of cash or

cash equivalents that would have to bepaid if the same or an equivalent assetwas acquired currently.

Liabilities are carried at the undiscountedamount of cash or cash equivalents thatwould be required to settle the obligationcurrently.


27/39

Realisable (settlement) value Assets are carried at the amount of cash

or cash equivalents that could currentlybe obtained by selling the asset in anorderly disposal.

Liabilities are carried at their settlementvalues; that is, the undiscounted

amounts of cash or cash equivalentsexpected to be paid to satisfy theliabilities in the normal course of business.


28/39

Present value Assets are carried at the present

discounted value of the future net cashinflows that the item is expected to

generate in the normal course of business. Liabilities are carried at the present

discounted value of the future net cashoutflows that are expected to berequired to settle the liabilities in thenormal course of business.


29/39

Concepts of Capital A financial concept of capital is adopted by

most entities in preparing their financialreport.

Under a financial concept of capital, such asinvested money or invested purchasingpower, capital is synonymous with the netassets or equity of the entity.

Under a physical concept of capital, such asoperating capability, capital is regarded asthe productive capacity of the entitybased on.

Example, Units of output per day .


30/39

Maintenance and theDetermination of Profit

Financial capital maintenance Under this concept, a profit is earned only if

the financial (or money) amount of the net

assets at the end of the period exceedsthe financial (or money) amount of netassets at the beginning of the period,after excluding any distributions to, and

contributions from, owners during theperiod. Financial capital maintenance canbe measured in either nominal monetaryunits or units of constant purchasing

power.


31/39

Physical capital maintenance Under this concept, a profit is earned only if

the physical productive capacity (oroperating capability) of the entity (or theresources or funds needed to achieve thatcapacity) at the end of the period exceedsthe physical productive capacity at thebeginning of the period, after excludingany distributions to, and contributionsfrom, owners during the period.


32/39

Adoption of IFRS Indias announcement to adopt IFRS for

financial reporting with effect fromreporting period 2011-12 along with

Brazil, Canada, Chile, Japan, Mexicoand South Korea is a timely action toremain with par with the globalstandardization process despitecriticalities involved in fair valueaccounting as well as rationale of reporting financial information basedon unstable market determined fairvalue or market unobserved inputsdriven fair value.


33/39


34/39


35/39


36/39


37/39

MAJOR ISSUES IN FIRSTTIME ADOPTION OF IFRS

Classification of assets and liabilitiesinto current and non-current.

Adopting Statement of Changes inEquity

Adoption Liquidity Based presentationfor Banks, Insurance Companies and

Other Financial Institutions Accounting Policies, changes inAccounting Estimates and Errors


38/39

Proposed Dividend and other post-reporting period information

Separation of Compound FinancialInstruments

Separation of embedded derivatives Fair value model for Property, Plant

and Equipment (PPE) and Intangibleassets

Reconciling depreciation charge of IFRS with minimum depreciation

Deferred Taxation Fair value and Minimum alternate Tax

Etc.


39/39

NEED FOR IFRS EDUCATION Apart from educating the preparers and the

auditors on the IFRS, there is a hugesocial responsibility of the government toeducate the investors and overhauling theaccounting education system.

University Grants Commission (UGC) and AllIndia Council for Technical Education(AICTE) have to take urgent lead inrevamping accounting education in India.

There is an urgent need for relooking underand post-graduate commerce educationcurriculum such that Indian graduates

Project by, Harsh Sachdev Roll – 48

Documents

Transcript of Project by, Harsh Sachdev Roll – 48