An Introduction

International Financial Reporting Standards

(IFRS)

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 Preparation and Presentation of Financial
Statements - India

 Basic Framework

 Generally Accepted Accounting Practices

(Accounting Standards & Guidelines) - Indian GAAP

 Selected Accounting Policies

 Regulatory Requirements

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 Preparation and Presentation of Financial
Statements

INDIA US
 Basic Framework  Basic Framework
 Regulatory Requirements Vs  Regulatory Requirements
 Indian GAAP  US GAAP
 Accounting Policies  Accounting Policies
Differences

Impact in Financial Statements

 Accounting Treatment difference

 Disclosure requirements
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 Need for understanding the differences

 Business going global

 Consolidation of financial statements

 Enhance confidence of global stakeholders

 Facilitate international acquisitions

 Provide Standardized Quality of MIS across global

businesses

Requirement of Global Financial Reporting Language

International Accounting Standard Committee formed in 1973

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(IASC)
 Functions of IASC
 Issue of International Accounting Standards (IAS)
Some of these IAS
 IAS 1 to IAS 41 from 1973 to 2001 considered
While framing
 Issue of Standing Interpretations Committee (SIC) local Standards
 SIC 1 to SIC 32 till 1973 to 2001

IASC replaced by International Accounting Standard Board (IASB)

in 2001

 Issue of International Financial Reporting Standards (IFRS)

 IFRS 1 to IFRS 8

 Issue of International Financial Reporting Interpretation Committee

(IFRIC)
 IFRIC 1 to IFRIC 16
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 From IAS to IFRS
1973 2001
International Accounting International Accounting
Standards Committee (IASC) Standards Board (IASB)
2000 Future

International Accounting
Standards (IAS) IFRS

IAS SIC IFRS IFRIC

International Financial Reporting Standards (IFRSs) 6

 List of IAS/IFRS
CORRESPONDING
IAS NO TITLE AS
1 Presentation of Financial Statements 1
2 Inventories 2
7 Cash Flow Statements 3
8 Net Profit or Loss for the period, Fundamental Errors and Change
in Accounting Policies 5
10 Events after the Balance Sheet date 4
11 Construction Contracts 7
12 Income taxes 22
14 Segmental Reporting 17
15 Information reflecting the effect of changing prices -
16 Property, Plant and Equipment 6 & 10
17 Leases 19
18 Revenue 9
19 Employees Benefits 15
20 Accounting for Govt Grants and Disclosure of Government
Assistance 12
21 The effects of changes in the foreign exchange rates 11 7
22 Business Combination 14
IAS NO TITLE CORRESPONDING
AS

23 Borrowing Costs 16
24 Related Party Disclosures 18
26 Accounting and Reporting by Retirement Benefits Plan -
27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries 21
28 Accounting for Investments in Associates 23
29 Financial Report in Hyper Inflationary Economics -
30 Disclosure in the financial statements of the Banks and similar Financial Institutions -
31 Financial Reporting of Interest in Joint Ventures 27
33 Earning per Share 20
35 Discontinuing Operations 25
36 Impairment Assets 28
37 Provisions, Contingent liabilities and Contingent assets 29
38 Intangible Assets 26

39 Financial Instruments : Recognition and Measurement 30 & 31

40 Investment Property -

41 Agriculture -
IFRS 1 First Time Adoption of IFRS -
IFRS 2 Share Based Payment -
IFRS 3 Business Combinations 14
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 31
IFRS 8 Opening Segments - 8
 IFRS Today and Tomorrow
– Today IFRS is used Accounting Standards Used by Global Fortune 500

in over 100 250

countries: 196
• Required across all EU countries, 200 187
starting in 2005
• Argentina, Brazil, Canada and
India have announced mandated 150
use 117

100
– By 2014, it is
expected that: 50
• All major countries will have
adopted IFRS to some extent
0
• China and Japan will be
substantially converged to IFRS 2006

• U.S. public companies will begin to U.S GAAP IFRS Other

be required to use IFRS
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 IFRS and India

 Formulation and issue of Accounting Standard (AS)

by Accounting Standard Board of the ICAI

 Convergence with IFRS required

 Formation of IFRS Task Force

 Achieving convergence with IFRS
 Laying down a road map for the above

 Adoption of IFRS effectively from 1st April 2011.

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 Compliance with IFRS

 Compliance with IFRS includes:

– All active standards (IASs and IFRSs)
– All active interpretations (SICs and IFRICs)
– IFRS requires presentation of comparative period

 Must make explicit and unreserved statement of compliance

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 First Time Implementation (IFRS 1)

 Applicable when an entity makes its first explicit and unreserved

reference to IFRS
 Generally apply retrospectively all IFRS effective at reporting date
 Certain exemptions can be elected
 Some exceptions that must be followed

 Requires one year of comparative financial information

 Transition adjustments recognized in retained earnings

 Must explain effect of transition to IFRS

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 Key Dates

Comparative period under IFRS First IFRS reporting period

Last reporting under Indian GAAP

01/04/2010 01/04/2011
31/03/2012
Date of Date of First IFRS
Transition Applicability Reporting Date

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 Key Differences
IFRS Vs Indian GAAP

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Key Differences between IFRS and Indian GAAP

 Inventory

 Events occurring after Balance Sheet Date

 Prior Period Items and changes in Accounting policies

 Fixed Assets

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 INVENTORY

Valuation of Inventories (AS 2)

Vs
Inventories (IAS 2)

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 Key Differences - Inventory

Particulars IFRS Indian GAAP US GAAP

Scope IAS 2 includes provisions AS 2 excludes work in Similar to Indain GAAP

relating to the work in progress arising in the
progress of a service normal course of business
provider of service provider. Hence
there is no guidance for the
same.

IAS 2 does not apply to There is no scope exemption Similar to Indain GAAP
inventories held by in AS 2 for any inventory
commodity traders held by commodity traders

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 Key Differences - Inventory

Particulars IFRS Indian GAAP US GAAP

Inventory Valuation Inventories are carried at the Inventories are carried at the Lower of cost or market
lower of cost or net lower of cost or net subject to upper/lower limit
realizable value realizable value of NRV

Frequency of A new assessment of Net No specific guidance in

Assessment of NRV Realizable Value is required AS 2.
to be made in each
Reporting period

Write Down Reversal is required for a Reversal is required for a Reversal of write down of
subsequent increase in subsequent increase in inventory is not permitted
value of inventory previously value of inventory previously
write down write down

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 Key Differences - Inventory

Particulars IFRS Indian GAAP US GAAP

Cost Formula The following cost formula The following cost formula The following cost formula
Application allowed : allowed : allowed :

a) FIFO Method a) FIFO Method a) FIFO Method

b) Weighted Average Cost b) Weighted Average Cost b) Weighted Average Cost
c) LIFO Method

LIFO method is not allowed LIFO method is not allowed

Consistency in cost The same cost formula is Not specified. However The same cost formula is
formula application used for all inventories that consistency is a used for all inventories that
have a similar nature and fundamental principle have a similar nature and
use to the entity use to the entity

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 Key Differences - Inventory

Particulars IFRS Indian GAAP US GAAP

Cost of Inventory Cost of inventory excludes Cost of inventory does not Similar to AS 2
only Selling Cost, include
Not Distribution Cost Selling & Distribution Cost
as per AS 2

Purchase under Difference between the Inventories purchased on

Deferred Settlement purchase price of inventory
Terms for normal credit terms and
the amount paid for deferred
settlement terms is
recognized as interest
Expense
deferred settlement terms
are not explicitly dealt with
in the accounting standard
on inventories

Disclosure Disclosure requirements are No specific requirements

Requirements same except the following : for disclosure

a) Any write down and

reversal of any write down
b) Circumstances they led to
reversal of a write down
c) Carrying amount of
inventory that are pledged
as securities

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EVENTS AFTER THE BALANCE SHEET DATE

Contingencies and Events occurring after the

balance sheet date (AS 4)
Vs
Events after Reporting Period (IAS 10)

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Key Differences – Events after Balance Sheet Date
Particulars IFRS
Proposed Dividend An Entity should not recognize
the proposed dividends as a
liability at the balance sheet
date.
Date of authorization Date of authorization for issue of
financial statements and the
authorizing authority should be
specifically mentioned in
financial statements itself
Disclosure of Material Non Adjusting Events
Non Adjusting events are required to be disclosed in
the financial statements
Indian GAAP US GAAP
Companies are required Similar to IFRS
to make provision for
proposed dividend, even
though they are proposed
after the balance sheet
date
No such requirements in Similar to IFRS
AS 4
Non adjusting events are
required to be disclosed
in the report of approving
authority
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 PRIOR YEAR ITEMS

Net P & L for the period, Prior Period items and change in
Accounting Policies (AS 5)
Vs
Accounting policies, Changes in Accounting Estimates
and Errors (IAS 8)

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 Key Differences – Prior Period Items, Change in
Accounting Policies
Particulars IFRS
Definition Broad definition of Prior Period
Prior Period Errors items. It includes all the items in
the financial statements
Prior Period Errors Prior Period errors are to be
corrected retrospectively and
restate the opening balances of
assets, liability and equity
Extraordinary Item It prohibits disclosure of any
items as Extraordinary Items
Impending Changes It requires disclosure of any
impending change in
accounting policy
Indian GAAP US GAAP
AS 5 covers only Income
and Expenses in the
definition of prior period
items
Reported as a prior Similar to IFRS
period adjustment in
current year results.
Comparatives are not
required to restate.
Separate disclosure is
required as per AS 5
It does not require such Similar to IFRS
disclosure
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 Key Differences – Prior Period Items, Change in
Accounting Policies
Particulars IFRS Indian GAAP US GAAP

Absence of standard It provides specific guidance on No specific guidance

or interpretation the selection of accounting under AS 5
policies where there is no IFRS
or interpretation that specifically
applies to a transaction.

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 FIXED ASSETS

Accounting for Fixed Assets (AS 10)

Vs
Properly, Plant and Equipment (IAS 16)

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 Key Differences – Fixed Assets

Particulars IFRS Indian GAAP US GAAP

Definition Tangible Items that Fixed Asset is an Asset held

a) Are held for use in the with the intention of being
production or supply of used for the purpose of
goods or service, for producing or providing goods
rentals to others, or for or services and is not held for
administrative
purposes; and sale in the ordinary course of
b) Are expected to be used business
during more than one
period

Initial Measurement Initial measurement of cost No specific guideline on the Similar to IFRS except
of cost also includes measurement of gains/losses hedge gains or losses on
on qualifying cash flow qualifying cash flow
a) Fair value gains or hedges and capitalization of hedges are not included
losses on qualifying dismantling and site
cash flow hedges restoration cost
relating to the purchase
of PPE in a foreign
currency
b) Cost of dismantling and
removing the item or
restoring the site on
which PPE is located 27
 Key Differences – Fixed Assets
Particulars IFRS
Capitalization It mandates component
Accounting. Each major part
of the plant to be
depreciated separately
Determination of The depreciation amount of
Depreciation an item of PPE is allocated
on a systematic basis over
its useful life.
Indian GAAP US GAAP
AS 10 does not require full Does not require a
adoption of component component approach for
accounting. It is stated that depreciation
accounting of asset may be
improved through allocation of
cost to various parts of the
asset
Higher of the following : Similar to IFRS
a) Depreciation calculated as
per the rate specified in
the Schedule XIV of the
Companies Act.
b) Depreciation as
determined based on
estimated useful life of
the assets
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 Key Differences – Fixed Assets

Particulars IFRS Indian GAAP US GAAP

Depreciation Method A variety of depreciation Can be followed Similar to IFRS

methods can be used to
allocate the depreciable
amount on systematic basis
over its useful life
Change in Changes in the depreciation
Depreciation Method method are considered as
change in accounting
Estimate
either SLM or WDV
Changes in the depreciation Similar to IFRS
method are considered as
change in accounting
Policies and effects to be
quantified and disclosed

Prospective effect in current Retrospective effect in

period computation of depreciation

Review of Useful Life Re assessment of AS 10 does not specify any Similar to IFRS
and Residual Value useful life and residual value is such requirement
required at least at each
financial year end

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 Key Differences – Fixed Assets

Particulars IFRS Indian GAAP US GAAP

Subsequent Costs Cost of replacement is to be Replacement cost is Similar to IFRS

capitalized
The carrying amounts of those
parts that are replaced is to be
derecognized
Major inspection The cost of major inspection
cost and overhaul and overhaul expenses are to
expenditure be capitalized
Purchase under The cost of an item of PPE is
Deferred Settlement the cash price equivalent at the
Terms recognition date. If payment is
deferred beyond normal credit
terms, the difference between the
cash price equivalent and the
total payment is recognized as
interest over the period of credit.
Expensed
No requirement for
decapitalizing the
carrying
amount of replaced items
The expenditure that Similar to IFRS
increases the benefit over
previously assessed
capacity is capitalized.
The inspection cost and
overhaul expenses are
expensed
No specific guideline
under AS 2 with respect
to fixed asset acquisition
under deferred
settlement scheme
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 Key Differences – Fixed Assets

Particulars IFRS Indian GAAP US GAAP

Revaluation If an entity adopts the revaluation No specific requirement Similar to IFRS

model, re valuation is required on frequency of
to be made with regular period to revaluation
ensure that the carrying amount
does not differ materially from
that which would be determined
using fair value at the end of the
reporting period
Group If an item of PPE is revalued, Revaluation Approach is Similar to IFRS
Revaluation then the entire class of PPE to ad hoc in nature.
which that asset belongs to be
revalued.

Depreciation on Depreciation on revalued portion Depreciation on revalued

revaluation cannot be recouped out of portion can be recouped
revaluation reserve out of revaluation reserve

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 Key Differences – Fixed Assets

Particulars IFRS Indian GAAP US GAAP

Compensation Compensation received from No specific requirement.

third parties against loss of items
of PPE are to be included in Profit
& Loss when the compensation
becomes receivable

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 Way Forward

 Minutes of the meeting to be documented

 Drafting the Action Plan to be taken

 Mapping the differences for other areas

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THANK YOU

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