About ifrs........

IFRS - An Introduction

IFRS refers to International Financial Reporting Standards. These standards are issued by International Accounting Standard Board (IASB). IASB has issued so far 41 IAS and 8 IFRS. There are some differences between AS and IFRS, these standards (IFRS) are issued to sort out the differences and agreed to one way of accounting treatment and also enhance the comparability of Financial Statements. The Institute of Charatered Accountants of India has published the roadmap of convergence of IFRS with Accounting Standards in India and has also announced that it will converge with AS by April, 2011. However, the local business enviornment should be considered while convergence with IFRS.

Time Schedule for IFRS Implementation

• Converged AS (i.e. Ind-AS) would be the future;

• MCA has notified a “Three Phase Ind-AS” implementation in India;

• Phases Timeliness (Other than Insurance Companies, Banking Companies and NBFCs):

1. Phase I w.e.f. April 1st, 2011;

2. Phase II w.e.f April 1st, 2013;

3. Phase III w.e.f. April 1st, 2014

Phase I: Coverage Parameters

• NSE - Nifty 50 Companies;

• BSE - Sens*x 30 Companies;

• Shares or securities listed outside India;

• Net Worth > Rs. 1000 crores

Holding Subsidiary Case Study

• Case Study: How shall the Consolidated and Stand-alone Financial Statements be prepared ??

1. ABC Limited holds 70% in PQR Limited. While PQR Limited is covered in Phase III, ABC Limited is covered in Phase I;

2. ABC Limited holds 70% in PQR Limited. While PQR Limited is covered in Phase I, ABC Limited is covered in Phase III

Net Worth

Share Capital

(+) Reserves (excluding Revaluation Reserves)

(-) Miscellaneous Expenditure

(-) P & L A/c (Dr.)

Cut off Date

• Cut off Date means “on which date the Phases’ Parameters” have to be tested and fulfilled;

• As per MCA Notification, it would be the following:

1. Last date of the year preceding the year preceding to the previous comparative year

Cut off Date: Case Study

• ABC Limited has a net worth of Rs. 1,100 crore as at 31.3.2010 and a net worth of Rs. 1,000 crores as at 31.3.2009. Examine whether ABC Limited is covered in Phase I or not??

Recommendation:

1. Current Financial Year (IFRS) = 2011-12;

2. Previous Comparative Year (AS) = 2010-2011;

3. Year preceding to (2) above = 2009-2010;

4. Cut off Date = 31-03-2009 (Last date of 2008-2009)

5. Since as at 31.3.2009, N.W. = Rs. 1,000 crores, ABC Limited not covered in Phase I

Comparatives

• Two Options:

1. Option 1: Give Ind-AS Comparatives;

2. Option 2: Do not give Ind-AS Comparatives

• Additional Option for Option 2 Companies = they may add an additional column to indicate what the figures could have been if Ind-AS had been applied in that previous year

Regulatory Issues and Challenges

• Company Law:

1. Schedule XIV Rates;

2. What if conflict between Law and Ind-AS;

3. Managerial Remuneration payment on the basis of Effective Capital, considering that it keeps on changing w.r.t. fair value changes

• Direct and Indirect Taxation:

1. Revenue recognition principles changes, specially about finance income;

2. Whether TDS would be applicable over it;

3. FOREX Transactions;

4. Changes in Fair Value w.r.t. MAT

• Other Regulations (like SEBI, RBI, IRDA, FEMA, etc.):

1. Capital Employed;

2. Ratio Calculation;

3. Turnover;

4. EPS;

5. Consolidation;

6. Cap for Automatic/ Approval Routes under FEMA;

7. Treasury Stock

Chartered Accountants vis-à-vis Ind-AS

• Impact Analysis;

• Valuations;

• Reconciliations;

• Implementation;

• Periodic Reviews;

• Ind-AS Audits and much more

Meaning of Convergence with IFRS

• Convergence means to achieve harmony with IFRSs; in precise terms convergence can be considered “to design and maintain national accounting standards in a way that financial statements prepared in accordance with national accounting standards draw unreserved statement of compliance with IFRSs”, i.e., when the national accounting standards will comply with all the requirements of IFRS.

• But convergence doesn’t mean that IFRS should be adopted word by word, e.g., replacing the term ‘true & fair’ for ‘present fairly’, in IAS 1, ‘Presentation of Financial Statements’. Such changes do not lead to non-convergence with IFRS.

• The IASB accepts in its ‘Statement of Best Practice: Working Relationships between the IASB and other Accounting Standards-Setters’ that “adding disclosure requirements or removing optional treatments do not create noncompliance with IFRSs. But additional disclosures or removing of optional treatment should be made clear so that users of the IFRS are aware of the changes.

Why Convergence to IFRS?

• A single set of accounting standards would enable internationally to standardize training and assure better quality on a global screen.

• It would also permit international capital to flow more freely, enabling companies to develop consistent global practices on accounting problems.

• It would be beneficial to regulators too, as a complexity associated with needing to understand various reporting regimes would be reduced.

Benefits for the Industry

•Currently companies need to prepare additional financial statements based on multiple reporting formats to arise capital in global market.

•Convergence with IFRS will eliminate the requirement for dual set of financials statements and thereby reduces the cost of raising funds by the companies

Improvement in financial reporting

•Better quality of financial reporting due to consistent application of accounting principles and improvement in reliability of financial statements.

•This, in turn, will lead to increased trust and reliance placed by investors, analysts and other stakeholders in a company’s financial statements

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CA Ayush Agarwal

CA Ayush Agarwal

Meaning of Convergence with IFRS

• But convergence doesn’t mean that IFRS should be adopted word by word, e.g., replacing the term ‘true & fair’ for ‘present fairly’, in IAS 1, ‘Presentation of Financial Statements’. Such changes do not lead to non-convergence with IFRS.

Why Convergence to IFRS?

• A single set of accounting standards would enable internationally to standardize training and assure better quality on a global screen.

• It would also permit international capital to flow more freely, enabling companies to develop consistent global practices on accounting problems.

• It would be beneficial to regulators too, as a complexity associated with needing to understand various reporting regimes would be reduced.

Benefits of Convergence

Single Reporting

•Convergence with IFRS eliminates multiple reporting such as Indian GAAP, IFRS, US GAAP

Increase Comparability

•IFRS will give more comparability among sectors, countries and companies.

•This will result in more transparent financial reporting of a company’s activities which will benefit investors, customers and other key stakeholders in India and overseas.

Access to Global Capital Markets

•Convergence with IFRS will enable Indian entities to have easier access to global capital markets and eliminates barriers to cross-border listings.

• It encourages international investing and thereby leads to more foreign capital flows to the country.

Benefits for Investors

•Financial statements prepared using a common set of accounting standards help investors better understand investment opportunities as opposed to financial statements prepared using a different set of national accounting standards.

Benefits for the Industry

•Currently companies need to prepare additional financial statements based on multiple reporting formats to arise capital in global market.

•Convergence with IFRS will eliminate the requirement for dual set of financials statements and thereby reduces the cost of raising funds by the companies

IFRS balance sheet will be closer to economic value

•Historical cost will be substituted by fair values for several balance sheet items, which will enable a corporate to know its true worth

Benefits to the accounting professional

•Convergence to IFRS will increase the opportunities for Indian professionals in abroad as they will be able to sell their services as experts in different parts of the world

Improvement in financial reporting

•Better quality of financial reporting due to consistent application of accounting principles and improvement in reliability of financial statements.

•This, in turn, will lead to increased trust and reliance placed by investors, analysts and other stakeholders in a company’s financial statements

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About ifrs........

CA Ayush Agarwal

CA Ayush Agarwal

Meaning of Convergence with IFRS

• But convergence doesn’t mean that IFRS should be adopted word by word, e.g., replacing the term ‘true & fair’ for ‘present fairly’, in IAS 1, ‘Presentation of Financial Statements’. Such changes do not lead to non-convergence with IFRS.

Why Convergence to IFRS?

• A single set of accounting standards would enable internationally to standardize training and assure better quality on a global screen.

• It would also permit international capital to flow more freely, enabling companies to develop consistent global practices on accounting problems.

• It would be beneficial to regulators too, as a complexity associated with needing to understand various reporting regimes would be reduced.

Benefits of Convergence

Single Reporting

•Convergence with IFRS eliminates multiple reporting such as Indian GAAP, IFRS, US GAAP

Increase Comparability

•IFRS will give more comparability among sectors, countries and companies.

•This will result in more transparent financial reporting of a company’s activities which will benefit investors, customers and other key stakeholders in India and overseas.

Access to Global Capital Markets

•Convergence with IFRS will enable Indian entities to have easier access to global capital markets and eliminates barriers to cross-border listings.

• It encourages international investing and thereby leads to more foreign capital flows to the country.

Benefits for Investors

•Financial statements prepared using a common set of accounting standards help investors better understand investment opportunities as opposed to financial statements prepared using a different set of national accounting standards.

Benefits for the Industry

•Currently companies need to prepare additional financial statements based on multiple reporting formats to arise capital in global market.

•Convergence with IFRS will eliminate the requirement for dual set of financials statements and thereby reduces the cost of raising funds by the companies

IFRS balance sheet will be closer to economic value

•Historical cost will be substituted by fair values for several balance sheet items, which will enable a corporate to know its true worth

Benefits to the accounting professional

•Convergence to IFRS will increase the opportunities for Indian professionals in abroad as they will be able to sell their services as experts in different parts of the world

Improvement in financial reporting

•Better quality of financial reporting due to consistent application of accounting principles and improvement in reliability of financial statements.

•This, in turn, will lead to increased trust and reliance placed by investors, analysts and other stakeholders in a company’s financial statements

Leave a Reply

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