What is IFRS Why IFRS Benefits and challenges IAS v/s IFRS GAAP v/s IFRS Case study on Infosys
Meaning: Accounting Standards are the statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements.
Objectives of Accounting Standard To standardize the financial statement presentation To harmonize the diverse accounting policies followed To facilitate intra-firm and inter-firm comparison.
Globalization is the primary force behind the spread of IFRS To bring about convergence of national accounting standards and
International Accounting standards and IFRS to high quality standards.
IFRSs are high quality, understandable and enforceable global accounting standards
Applicable to all financial statements reporting of all profit- oriented entities.
IFRS are ‘principle based’ accounting standards A separate set of IFRS for Small and Medium-sized Enterprises has
been issued by the IASB in July 2009. International Financial Reporting Standards comprise of:
International Financial Reporting Standards (IFRS) - standards issued after 2001
International Accounting Standards (IAS) - standards issued before 2001 Interpretations originated from the International Financial Reporting
Interpretations Committee (IFRIC) – issued after 2001 Standing Interpretations Committee (SIC) - issued before 2001
A statement of financial position as at the end of the period A statement of comprehensive income for the period A statement of changes in equity for the period; A statement of cash flows for the period; A notes, comprising a summary of significant accounting policies,
and other explanatory information; and A comparative statement of financial position
There are two approaches for transition to IFRS–Convergence and Adoption
Adoption Abandoning the existing national GAAP and embracing IFRS Two years of dual reporting (IFRS) After reporting date, accounting and financial reporting as per
national GAAP is abandoned
Applicability Impact study
Accounting treatment as per IGAAP and that as per IFRS Measurement differences of the carrying values Assets and liabilities not recognised in IGAAP but required
to be recognised in IFRS Reclassification of assets and liabilities as required under
IFRS De recognition of assets and liabilities under IGAAP which
need not be recognised under IFRS
Estimated time for different stages Other Issues
Increasing growth of international business International investing and thereby lead to more foreign
capital inflows into the country Comparability between financial statements of various
companies across the globe Level of confidence to investors Reduce cost of compliances Professional opportunities to serve international clients Risk Evaluation
Consolidation of group financial statements made easier
Accounting and audit functions made easier and cheaper
Compliance with regulatory requirements of bodies such as stock exchanges
Mergers and acquisitions made easier Access to multinational funds
Awareness about international practices Training Increase in initial cost and IT systems Comply with the Companies Act, 1956,Income Tax Act, 1961,
SEBI, RBI, etc Training to stakeholders, employees, auditors, regulators, tax
authorities, etc needed Differences between Indian GAAP and IFRS may impact business
decision financial performance of an entity Limited pool of trained resource and persons having expert
knowledge on IFRS Management compensation plan Taxation Fair Value
IFRSs are principle-based standards instead of rule based.
IFRSs lay down treatments based on the economic substance over legal form.
Components of Financial statements Format of SOFP Format of Income statement Statement of cash flows Presentation of extraordinary items Dividends proposed after the end of the reporting
period Depreciation rates Change in the depreciation method
Entire class of assets to be revalued Component accounting Functional and foreign currency Goodwill Measurement of intangible assets Actuarial gain or loss Contingent asset- disclosure Entities operating in hyper-inflationary economies
IFRS 1: First time Adoption of International Financial Reporting Standards
IFRS 2: Share based Payment IFRS 3: Business Combinations IFRS 4: Insurance Contracts IFRS 5: 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
Permanent Differences
Timing Differences
Fair Value
Converging Balance sheet gain/loss
Presentation Recognition/ Disclosure
Measurement
IAS 32 IAS 39 IFRS 7
IAS 32, following items are not financial instruments Physical Assets Assets such as pre-paid expenses Deferred revenue expenses
Recognition of financial instruments Carrying amount of the liability component is determined first Carrying amount of the equity instruments, with the option to
convert the instrument into ordinary shares
Proceeds of - Carrying amount = Carrying amount
Issue of liability of equity
component instrument
IAS 39, financial assets to be classified in one of the below 4 categories Financial assets at fair value through profit and loss Loans and receivables Held to maturity investments Available for sale financial assets
IAS 16- Accounting Treatment of Fixed Assets Componentization Inspection Cost Depreciation
IAS 2- Inventory Cash discount on Inventory LIFO v/s FIFO