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Summary of IFRS 1 to 8


CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
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What is IFRS
 
International Financial Reporting Standards, or IFRS, is the collection of financial reporting standards developed by the International Accounting Standards Board (IASB), an independent, international standard setting organization. The aim of IFRS is to provide "a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements.". From 1973 to 2001, IAS were issued by the International Accounting Standards Committee (IASC). In April 2001 the International Accounting Standards Board (IASB) adopted all IAS and began developing new standards called IFRS. It is noteworthy that an IAS remains in effect unless replaced by an IFRS.
    In line of  Global Trend, the ICAI has proposed a plan for convergence with IFRS for listed entities, Banks, Insurance etc. with effect from accounting period commence on or after 1st April 2011. Large Scale entities defined as entities with turnover in excess of Rs.1 Billion or borrowing in excess of Rs.250 Million. For Other  ‘small and medium sized entities’ (SMEs)), a separate standard for SMEs may be formulated based on the IFRS for Small and Medium-sized Enterprises when finally issued by the IASB, after modifications, if necessary.

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
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List of IFRS
 
§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 

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
 416 likes  8997 points

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IFRS 1
First-time Adoption of International Financial Reporting Standards
 A first-time adopter is an entity that, for the first time, makes an explicit and unreserved statement that its general purpose financial statements comply with IFRSs.
An entity can also be a first-time adopter if, in the preceding year, its published financial statements asserted:
§Compliance with some but not all IFRSs.
§Included only a reconciliation of selected figures from previous GAAP to IFRSs. (Previous GAAP means the GAAP that an entity followed immediately before adopting to IFRSs.)
However, an entity is not a first-time adopter if, in the preceding year, its published financial statements asserted:
§Compliance with IFRSs even if the auditor's report contained a qualification with respect to conformity with IFRSs.
§Compliance with both previous GAAP and IFRSs.
Adjustments required to move from previous GAAP to IFRSs at the time of first-time adoption
§Recognize all assets and liabilities whose recognition is required by IFRS
§Not recognize items as assets or liabilities if IFRS does not permit such recognition
§Reclassify items that do not match IFRS requirements
§Apply IFRS in measuring all recognized assets and liabilities
§Difference amount is adjusted with Retained Earning
Recognition and measurement
§Opening IFRS Balance Sheet
§Date of transition to IFRS
§Same accounting policies
§Throughout all periods
 

 

Optional exceptions
§Business combinations that occurred before opening balance sheet date
§Property, plant, and equipment, intangible assets, and investment property
    carried under the cost model
§IAS 19 - Employee benefits: actuarial gains and losses
§IAS 21 - Accumulated translation reserves
§Compound financial instruments
§Transition date for subsidiaries etc
§FV measurement
§Share-based payments
§Comparatives for IAS39
§Comparatives for Insurance
§Decommissioning Liabilities
§Arrangements containing leases
§Comparatives for exploration
§Designation of financial assets and liabilities
Mandatory exceptions
§IAS 39 - Derecognition of financial instruments
§IAS 39 - Hedge accounting
§Estimates
§Assets held-for-sale and discontinuing operations
 
Different IFRS adoption dates of investor and investee
 
    A parent or investor may become a first-time adopter earlier than or later than its subsidiary, associate, or joint venture investee. In these cases, IFRS 1 is applied as follows:
1.If the subsidiary has adopted IFRSs in its entity-only financial statements before the group to which it belongs adopts IFRS for the consolidated financial statements, then the subsidiary's first-time adoption date is still the date at which it adopted IFRS for the first-time, not that of the group. However, the group must use the IFRS measurements of the subsidiary's assets and liabilities for its first IFRS financial statements except for adjustments relating to the business combinations exemption and to conform group accounting policies.  
2. If the group adopts IFRSs before the subsidiary adopts IFRSs in its entity-only financial statements, then the subsidiary has an option either (a) to elect that the group date of IFRS adoption is its transition date or (b) to first-time adopt in its entity-only financial statements.
3. If the group adopts IFRSs before the parent adopts IFRSs in its entity-only financial statements, then the parent's first-time adoption date is the date at which the group adopted IFRSs for the first time.
4. If the group adopts IFRSs before its associate or joint venture adopts IFRSs in its entity-only financial statements, then the associate or joint venture should have the option to elect that either the group date of IFRS adoption is its transition date or to first-time adopt in its entity-only financial statements
 

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
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IFRS 2 - Share-based Payment
    A share-based payment is a transaction in which the entity receives or acquires goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity. The accounting requirements for the share-based payment depend on how the transaction will be settled, that is, by the issuance of (a) equity, (b) cash, or (c) equity or cash.
    IFRS 2 applies to all entities. There is no exemption for private or smaller entities. Furthermore, subsidiaries using their parent's or fellow subsidiary's equity as consideration for goods or services are within the scope of the Standard. There are two exemptions to the general scope principle.
 
   First, the issuance of shares in a business combination should be accounted for under IFRS 3 Business Combinations. However, care should be taken to distinguish share-based payments related to the acquisition from those related to employee services.
    Second, IFRS 2 does not address share-based payments within the scope of paragraphs 8-10 of IAS 32 Financial Instruments: Disclosure and Presentation, or paragraphs 5-7 of IAS 39 Financial Instruments: Recognition and Measurement. Therefore, IAS 32 and 39 should be applied for commodity-based derivative contracts that may be settled in shares or rights to shares.
    IFRS 2 does not apply to share-based payment transactions other than for the acquisition of goods and services. Share dividends, the purchase of treasury shares, and the issuance of additional shares are therefore outside its scope
 
 
Measurement Guidance
 
    Depending on the type of share-based payment, fair value may be determined by the value of the shares or rights to shares given up, or by the value of the goods or services received:
§General fair value measurement principle. In principle, transactions in which goods or services are received as consideration for equity instruments of the entity should be measured at the fair value of the goods or services received. Only if the fair value of the goods or services cannot be measured reliably would the fair value of the equity instruments granted be used.
§Measuring employee share options. For transactions with employees and others providing similar services, the entity is required to measure the fair value of the equity instruments granted, because it is typically not possible to estimate reliably the fair value of employee services received.
§When to measure fair value - options. For transactions measured at the fair value of the equity instruments granted (such as transactions with employees), fair value should be estimated at grant date.
§When to measure fair value - goods and services. For transactions measured at the fair value of the goods or services received, fair value should be estimated at the date of receipt of those goods or services.
§Measurement guidance. For goods or services measured by reference to the fair value of the equity instruments granted, IFRS 2 specifies that, in general, vesting conditions are not taken into account when estimating the fair value of the shares or options at the relevant measurement date (as specified above). Instead, vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest.
§More measurement guidance. IFRS 2 requires the fair value of equity instruments granted to be based on market prices, if available, and to take into account the terms and conditions upon which those equity instruments were granted. In the absence of market prices, fair value is estimated using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm's length transaction between knowledgeable, willing parties. The standard does not specify which particular model should be used.
§If fair value cannot be reliably measured. IFRS 2 requires the share-based payment transaction to be measured at fair value for both listed and unlisted entities. IFRS 2 permits the use of intrinsic value (that is, fair value of the shares less exercise price) in those "rare cases" in which the fair value of the equity instruments cannot be reliably measured. However this is not simply measured at the date of grant. An entity would have to remeasure intrinsic value at each reporting date until final settlement.
§Performance conditions. IFRS 2 makes a distinction between the handling of market based performance features from non-market features. Market conditions are those related to the market price of an entity's equity, such as achieving a specified share price or a specified target based on a comparison of the entity's share price with an index of share prices of other entities. Market based performance features should be included in the grant-date fair value measurement. However, the fair value of the equity instruments should not be reduced to take into consideration non-market based performance features or other vesting features

 

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
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IFRS 3 ---Business Combinations
    A business combination is a transaction or event in which an acquirer obtains control of one or more businesses.. A business is defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return directly to investors or other owners, members or participants Acquirer must be identified. Under IFRS 3, an acquirer must be identified for all business combinations
   Acquisition method. The acquisition method (called the 'purchase method' in the 2004 version of IFRS 3) is used for all business combinations.
    Steps in applying the acquisition method are:
    1. Identification of the 'acquirer' - the combining entity that obtains control of the acquiree.
    2. Determination of the 'acquisition date' - the date on which the acquirer obtains control of the acquiree.
    3. Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest (NCI, formerly called minority interest) in the acquiree.
    4. Recognition and measurement of goodwill or a gain from a bargain purchase option.
   Measurement of acquired assets and liabilities. Assets and liabilities are measured at their acquisition-date fair value (with a limited number of specified exceptions).
    Goodwill
    Goodwill is measured as the difference between: the aggregate of (i) the acquisition-date fair value of the consideration transferred, (ii) the amount of any NCI, and (iii) in a business combination achieved in stages , the acquisition-date fair value of the acquirer's previously-held equity interest in the acquiree; and  the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed (measured in accordance with IFRS 3). If the difference above is negative, the resulting gain is recognised as a bargain purchase in profit or loss.

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
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IFRS 4 -- Insurance Contracts
An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing  to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.
       The IFRS applies to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds, except for specified contracts covered by other IFRSs. It does not apply to other assets and liabilities of an insurer, such as financial assets and financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement. Furthermore, it does not address accounting by policyholders.
        The IFRS exempts an insurer temporarily (ie during phase I of this project) from some requirements of other IFRSs, including the requirement to consider the Framework in selecting accounting policies for insurance cont.. However, the I
        a.  prohibits provisions for possible claims under contracts that are not in existence at the end of the reporting period (such as           .    catastrophe and equalization provisions).
b. requires a test for the adequacy of recognized insurance liabilities and an impairment test for reinsurance assets.
c. requires an insurer to keep insurance liabilities in its statement of financial position until they are discharged or cancelled, or expire, and to present insurance liabilities without offsetting them against related reinsurance assets.
        The IFRS permits an insurer to change its accounting policies for insurance contracts only if, as a result, its financial statements present information that is more relevant and no less reliable, or more reliable and no less relevant. In particular, an insurer cannot introduce any of the following practices, although it may continue using accounting policies that involve them:
a. measuring insurance liabilities on an undiscounted basis.
b. measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current fees charged by other market participants for similar services.
c. using non-uniform accounting policies for the insurance liabilities of subsidiaries.
The IFRS permits the introduction of an accounting policy that involves re measuring designated insurance liabilities consistently in each period to reflect current market interest rates (and, if the insurer so elects, other current estimates and assumptions). Without this permission, an insurer would have been required to apply the change in accounting policies consistently to all similar liabilities
 

 

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
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IFRS 5
Non-current Assets Held for Sale and Discontinued Operations
        The IFRS:
adopts the classification ‘held for sale’.
a)introduces the concept of a disposal group, being a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.
b)classifies an operation as discontinued at the date the operation meets the criteria to be classified as held for sale or when the entity has disposed of the operation.
§An entity shall classify a non-current asset (or disposal group)   as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.
§present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.
§For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active program to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except as permitted by paragraph 9, and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and
a)represents a separate major line of business or geographical area of operations,
b)is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or
c)is a subsidiary acquired exclusively with a view to resale.
A component of an entity comprises operations and cash flows
§that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use.
§An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because             its carrying amount will be recovered principally through continuing

 

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
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IFRS 6
Exploration for and Evaluation of Mineral Resources

§Exploration and evaluation expenditures are expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

§Exploration for and evaluation of mineral resources is the search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource.
§Exploration and evaluation assets are exploration and evaluation expenditures recognized as assets in accordance with the                                    entity’s accounting policy.
The IFRS:
a)permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8. Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies.
b)requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount.
c)varies the recognition of impairment from that in IAS 36 but measures the impairment in accordance with that Standard once the impairment is identified.
§An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment. Each cash-generating unit or group of units to which an exploration and evaluation asset is allocated shall not be larger than an operating segment determined in accordance with IFRS 8 Operating Segments.
 
§Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. When facts and circumstances suggest that the carrying amount exceeds the recoverable amount, an entity shall measure, present and disclose any resulting impairment loss in accordance with IAS 36.
 

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
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IFRS 7:-- Financial Instruments: Disclosures
Balance Sheet :--Disclose the significance of financial instruments for an entity's financial position and performance.This includes disclosures for each of the following categories:
§Financial assets & Financial liabilities measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition.
§Held-to-maturity investments.
§Loans and receivables.
§Available-for-sale assets. .
§Financial liabilities measured at amortised cost.
§Special disclosures about financial assets and financial liabilities designated to be measured at fair value through profit and loss, including disclosures about credit risk and market risk and changes in fair values
§Reclassifications of financial instruments from fair value to amortised cost or vice versa
§Disclosures about derecognitions, including transfers of financial assets for which derecogntion accounting is not permitted
§Information about financial assets pledged as collateral and about financial or non-financial assets held as collateral
§Reconciliation of the allowance account for credit losses (bad debts).
§Information about compound financial instruments with multiple embedded derivatives.
§Breaches of terms of loan agreements.
Income Statement and Equity :-Items of income, expense, gains, and losses,
 
§Held-to-maturity investments.
§Loans and receivables.
§Available-for-sale assets. .
§Financial liabilities measured at amortised cost.
§Interest income and interest expense for those
    financial instruments that are not measured at F.V through P/L
§Fee income and expense
§Amount of impairment losses on financial assets
§Interest income on impaired financial assets
 

 

Other Disclosures
§Accounting policies for financial instruments
§Information about hedge accounting, including:
§Descripttion of each hedge, hedging instrument, and fair values of those instruments, and nature of risks being hedged.
§for cash flow hedges, the periods in which the cash flows are expected to occur, when they are expected to enter into the determination of profit or loss, and a descripttion of any forecast transaction for which hedge accounting had previously been used but which is no longer expected to occur.
§If a gain or loss on a hedging instrument in a cash flow hedge has been recognised directly in equity, an entity should disclose the following: 
§The amount that was so recognised in equity during the period.
§The amount that was removed from equity and included in profit or loss for the period.
§The amount that was removed from equity during the period and included in the initial measurement of the acquisition cost or other carrying amount of a non-financial asset or non- financial liability in a hedged highly probable forecast transaction.
§For fair value hedges, information about the fair value changes of the hedging instrument and the hedged item.
§Hedge ineffectiveness recognised in profit and loss (separately for cash flow hedges and hedges of a net investment in a foreign operation).
§Information about the fair values of each class of financial asset and financial liability,
§Comparable carrying amounts.
§Descripttion of how fair value was determined.
§Detailed information if fair value cannot be reliably measured.
§Note that disclosure of fair values is not required when the  carrying amount is a reasonable approximation of fair value, such as short-term trade receivables and payables, or for instruments whose fair value cannot be measured reliably.
 

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )     23 May 2009

CA. Amit Daga
Finance Controller CA. CS. CFA. CIFRS. M.COM.  
 416 likes  8997 points

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IFRS 8 Operating Segments
    IFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated financial statements of a group with a parent): 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 other regulatory organisation for the purpose of issuing any class of instruments in a public market.  However, when both separate and consolidated financial statements for the parent are presented in a single financial report, segment information need be presented only on the basis of the consolidated financial statements.
Operating Segments
§IFRS 8 defines an operating segment as follows. An operating segment is a component of an entity:
§that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity);
§whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and
§for which discrete financial information is available.
Reportable segments
§IFRS 8 requires an entity to report financial and descripttive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria:
§its reported revenue, from both external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments; or
§the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss; or
§its assets are 10 per cent or more of the combined assets of all operating segments.
§If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue, additional operating segments must be identified as reportable segments (even if they do not meet the quantitative thresholds set out above) until at least 75 per cent of the entity's revenue is included in reportable segments
 

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