Prof.

Umesh Holani Dean, Faculty of Commerce & Management Jiwaji University, Gwalior

Meaning of Accounting Standard

Accounting standards are written policy documents issued

by expert accounting body or by government or other regulatory body covering the aspects of recognition, measurement, presentation and disclosure of accounting transactions in the financial statements. The purpose are to eliminate the non-comparability of financial statements and to provide a set of standard accounting policies, valuation norms and disclosure requirements.

Harmonization
It means maintaining uniformity in accounting principle

and practices at international level. Harmonization involves examining and comparing the different accounting systems in order to note points of agreement and disagreement, and the working towards bringing these system together.

Convergence
It means that all standard setters around the world should

agree on a single, high quality accounting standards. Convergence can be achieved in two ways: a. Either adopt IFRS b. Adopt IFRS to formulate the countrys own standards.

Why IFRS
Growth in international business

For consistency in financial reporting

Globalization of capital markets To reduce subjective decision

For tax authorities to deal with foreign income

History and Structure

The International Accounting Standards Committee (IASC)

was founded in June 1973 as a result of an agreement by accountancy bodies in Australia, Canada, France, Germany, Japan, Mexico, Netherlands, UK, Ireland and US. The purpose of the Board was to work towards the improvement and harmonization of accounting standards and reporting. Professional bodies of 75 countries were the members of IASC. In March 2001, as part of a restructuring, the IASC Foundation was set up in Delaware as a not-for-profit entity.

Contd.
The IASC in turn gave approval for the IASB to assume

standard-setting responsibilities. Objectives of the IASC Foundation are: i. To develop a single set of high-quality, understandable and enforceable global accounting standards. ii. To promote the use and application of those standards. iii. To take care of the requirements of small and mediumsized entities and emerging economies. iv. To bring about convergence of national accounting standards.

Structure of IASC Foundation

The foundation is governed by trustees. There are 22 trustees, appointed as follows:

6 from North America ii. 6 from Europe iii. 6 from Asia/ Oceania region iv. 4 from any area, subject to establishing overall geographical balance. The trustees should comprise individuals from different professional backgrounds such as auditors, preparers, users and academician. They should meet at least twice each year.
i.

International Accounting Standards Board (IASB)

The members of the IASB are appointed by the trustees. The IASB comprises 14 individual members; 12 full-time &

2 part-time. Members have professional competence & practical experience. Auditors, preparers and users with recent practical experience & academics are selected. Trustees appoint one of the full-time members to be the chairman of IASB, who is also the Chief Executive of the IASC Foundation. Each member of the IASB has one vote. A quorum is formed by at least 60% of the members of the IASB.

Publish exposure drafts

Consult SAC on major projects

Publish IFRS

Powers and objectives of IASB

Establish procedures for reviewing comments Form working groups Consider holding public hearings

Structure of Standard Advisory Council

It comprises more than 30 members, and a chairman, all

appointed by the trustees. The members are expected to be from diverse professional and geographical backgrounds. The SAC meets 3 or more times a year.

Powers and objectives of SAC

To provide forum where IASB consults individuals & representatives of organizations

To support the IASB in the promotion & adoption of IFRS throughout the world

Stages involved in standard setting process

Stage 1

Setting the agend

Stage 2

Project planning
Stage 3

Dvt. & publication of a discussion paper

Stage 4

Dvt. & publication of exposure draft- within 120 days

Stage 5

Dvt. & publication of an IFRS

Stage 6

Meeting with interested groups

International financial reporting interpretations committee (IFRIC)

Members & its chairman are appointed by the trustees.
IFRIC comprises 12 voting members. The trustees may appoint, the representatives of regulatory

organizations as non-voting members. The committee meets as and when required. 9 voting members form a quorum. Each member of the committee has 1 vote.

Powers & objectives of the IFRIC

To interpret the application of IAS/IFRS. To provide timely guidance on reporting issues. Working actively with the national standard-setters. Publish draft interpretations. To report to the IASB.

Benefits of IFRS implementation

Easier access to foreign capital market. Increased credibility of domestic capital market.

Increased credibility of companies.

Lower cost of capital to companies. Comparability of financial statements at global level. Greater transparency.

Greater understandability.
Reduced national standard setting cost. Ease of security market regulations.

Lower susceptibility to political pressures.

IFRS balance sheet will be closer to economic value. Required only one set of books of accounts. Portability of knowledge & education.

Barriers to IFRS implementation

Diverse interest of different countries.

More than one acceptable accounting treatment.

Some core areas in the standards are not complete. Difference in economic and social environment.

Gaps between developed and developing countries.

Illustration
Co. A propose to prepare and present IFRS for the FY

2008-09. How should the co. carry out transitions? Prepare opening IFRS balance sheet as on 1.04.07 (This is transition date) The co. has to present comparative information for one year as per IFRS so it has to restate the account of 2007-08 as per IFRS Prepare and present IFRS based financial statement to 2008-09. Now the effective date of IFRS is 1.4.2007.

Some important changes

As per AS 5 prior period item etc. are required to adjust against

opening reserves but as per IFRS. Financial statements of that year shall be changed. And there is no need to re-audit such change. It will required changes in Companies Act. Redeemable preference share now be classified as debt. Required change in dividend treatment and calculate debt equity rate. AS are principle based so it has no. of alternatives but IFRS are rule base so alternatives treatments are reduced. Under AS revaluation is performed for the whole class of assets but IFRS allowed revaluation on individual basis. Assets may be valued at fair value/current cost. Deferred revenue expenditure are now treated as expenses like: research expenditure, preliminary expenses, advertising, travelling cost etc.

Contd..
Dividend are accounted when declared not at the time of

proposal.

Components of Financial Statements according to IFRS

Balance Sheet-Statement of Financial Position

P&L- Statement of Comprehensive Income

Comprehensive income is classified as: Income from continuing operation

Income from discontinuing operation

Income from extraordinary items Cumulative effects of changes in accounting principles Statement of Cash Flows

Conclusion
Many countries around the world are currently adopted IFRS. As

of August 27, 2008, more than 150 countries including Australia, Singapore, Turkey, and all countries in the European Union required or permitted IFRS reporting. Many other countries are working on adopting IFRS but havent yet fully transitioned. Russia and the United States are still working on plans to implement the use. Other countries like India, Korea, Brazil and Canada have committed to make the transition by 2011. In US Securities & Exchange Commission permitted foreign companies to use IFRS but US domestic companies used it between 2014-2016 in a phased manner. But focus is on listed companies.

Contd.
In India large scale companies with turnover in excess of Rs 1

billion or bank and insurance companies borrowing in excess of Rs 250 million are required to adopt IFRS 01.04.2011. For convergence to IFRS ICAI are working closely with National Advisory Committee on Accounting Standards (NASCAS).

Thank You