Personal Details

Name: Purvesh Jobanputra

MFM : Sem 5, Div: B
Roll No : 220
Project :On IFRS
Submitted to : Professor Hemant Junarkar

WHAT IS IFRS?
International Financial Reporting Standards (IFRS), together with International
Accounting Standards (IAS), are a "principles-based" set of standards that establish
broad rules rather than dictating specific accounting treatments. 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.

Structure of IFRS
IFRS are considered a "principles based" set of standards in that they establish broad
rules as well as dictating specific treatments.
International Financial Reporting Standards comprise:

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

There is also a Framework for the Preparation and Presentation of Financial

Statements which describes of the principles underlying IFRS.

Framework
The Framework for the Preparation and Presentation of Financial Statements states
basic principles for IFRS.

Objective of financial statements

The framework states that the objective of financial statements is to provide
information about the financial position, performance and changes in the financial
position of an entity that is useful to a wide range of users in making economic
decisions,and to provide the current financial status of the entity to its shareholders
and public in general.

Underlying assumptions
The underlying assumptions used in IFRS are:

Accrual basis - the effect of transactions and other events are recognised
when they occur, not as cash is received or paid

Going concern - the financial statements are prepared on the basis that an
entity will continue in operation for the foreseeable future

Qualitative characteristics of financial statements

The Framework describes the qualitative characteristics of financial statements as
being

Understandability

Relevance

Reliability and

Comparability.

Elements of Financial Statements

The Framework sets out the statement of financial position (balance sheet) as
comprising:

Assets - resources controlled by the entity as a result of past events and

from which future economic benefits are expected to flow to the entity

Liabilities - a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits

Equity - the residual interest in the assets of the entity after deducting all its
liabilities

and the statement of comprehensive income (income statement) as comprising:

Income is increases in economic benefits during the accounting period in the

form of inflows or enhancements of assets or reductions in liabilities.

Expenses are decreases in such economic benefits.

Content of financial statements:IFRS financial statements consist of (IAS1.8)

a balance sheet

income statement

either a statement of changes in equity(SOCE) or a statement of recognised

income or expense ("SORIE")

a cash flow statement

notes, including a summary of the significant accounting policies

Comparative information is provided for the previous reporting period (IAS 1.36). An
entity preparing IFRS accounts for the first time must apply IFRS in full for the
current and comparative period although there are transitional exemptions
(IFRS1.7).
On 6 September 2007, the IASB issued a revised IAS 1 Presentation of Financial
Statements. The main changes from the previous version are to require that an
entity must:

present all non-owner changes in equity (that is, 'comprehensive income' )

either in one statement of comprehensive income or in two statements (a
separate income statement and a statement of comprehensive income).
Components of comprehensive income may not be presented in the statement
of changes in equity.

present a statement of financial position (balance sheet) as at the beginning

of the earliest comparative period in a complete set of financial statements
when the entity applies an accounting policy retrospectively or makes a
retrospective restatement.

disclose income tax relating to each component of other comprehensive

income.

disclose reclassification adjustments relating to components of other

comprehensive income.

IAS 1 changes the titles of financial statements as they will be used in IFRSs:

'balance sheet' will become 'statement of financial position'

'income statement' will become 'statement of comprehensive income'

'cash flow statement' will become 'statement of cash flows'.

The revised IAS 1 is effective for annual periods beginning on or after 1 January
2009. Early adoption is permitted.

Necessity of IFRS:By adopting IFRS, a business can present its financial statements on the same basis
as its foreign competitors,making comparisons easier.Furthermore,companies with
subsidiaries in countries that require or permit IFRS may be able to use one
accounting langauge company wide.Companies also may need to convert to IFRS if
they are a subsidiary of a foreign company that must use IFRS,or if they have a
foreign investor that must use IFRS.Companies may also benefit by using IFRS if
they wish to raise capital abroad.

How widespread is the adoption of IFRS around the

world?
More than 12000 companies in approximately 113 nations have adopted
IFRS,including listed companies in the European Union. Other countries,
including Canada and India, are expected to transition to IFRS by 2011.
Mexico plans to adopt IFRS for all listed companies starting in 2012. Some
estimate that the number of countries requiring or accepting IFRS could grow
to 150 in the next few years. Japan has introduced a roadmap for adoption
that it will decide on in 2012 (with adoption planned for 2016). Still other
countries have plans to converge (eliminate significant differences) their
national standards with IFRS

IFRS & INDIA:The issue of convergence with IFRS has gained significant momentum in India. At
present, the ASB of the ICAI formulates Accounting Standards based on IFRS,
however, these standards remain sensitive to local conditions, including the legal &
economic environment. Accordingly, the Accounting Standards issued by the ICAI
depart from the corresponding IFRS in order to ensure consistency with the legal,
regulatory and economic environments of India.

At a meeting held in May 2006, the council of ICAI expressed the view that IFRS may
be adopted in full at a future date, at least for listed and large entries.The ASB, at a
meeting held in August 2006,considered the matter and supported the councils view
that there would be several advantages of converging with IFRS.Keeping in mind the
extent of differences between IFRS and Indian Accounting Standards, as well as the
fact, that convergence with IFRS would be important policy decision, the ASB decided
to form an IFRS Task Force .The objectives of the Task Force were to explore:

The approach for achieving convergence with IFRS , and

Laying down a road map for achieving convergence with IFRS with a view to
make India IFRS compliant.

Based on the recommendation of the IFRS Task Force, the council of ICAI, at its
269th meeting decided to converge with IFRS, for accounting periods commencing
on or after 1 April 2011.IFRS will be adopted for listed and other public interest
entities such as banks , insurance, companies and large sized organizations.
With an objective to ensure smooth transition to IFRS from 1 April 2011,ICAI is
taking up the matter of convergence with IFRS with NACAS and other regulators
including RBI, IRDA and SEBI.The NACAS has been established by the Ministry of
Corporate Affairs, Government of India.ICAI is taking various other steps as well
as to ensure that IFRS is effectively adopted from 1 April 2011.
These include:

Formulations of work plan, and

Conducting training programmes for members of ICAI and others
concerned to prepare them to implement IFRS.
ICAI will also discuss, with the IASB those areas, where changes in certain
IFRS may be required, to reflect conditions specific to India and areas of
conceptual differences.

In May 2008, the MCA issued a press release in which it committed to IFRS
convergence by 1 April 2011.
Recognizing the convergence efforts of ICAI & MCA, the European Union has recently
allowed entries to use Indian GAAP for listing on a European securities market
without reconciliation through to 2011, and if the convergence plan is achieved, to
continue to do so after 2011.

BENEFITS OF ADOPTING IFRS FOR INDIAN

COMPANIES:The decision to converage with IFRS is a milestone decision and is likely to provide
significant benefits to Indian corporates.Some of them are listed below:

Improved access to international capital markets :

Many Indian entries are expanding or making significant acquisitions in the global
arena, for which large amounts of capital is required.The majority of stock exchanges
require financial information prepared under IFRS.Migration to IFRS will enable
Indian entities to have international capital markets, removing the risk premium that
is added to those reporting under Indian GAAP.
Lower Cost of Capital :
Migration to IFRS will lower the cost of raising funds, as it will eliminate the need
for preparing a dual set of financial statements.It will also reduce accountants fees,
abolish risk premiums and will enable access to all major capital markets as IFRS is
globally acceptable.
Enable benchmarking with global peers and improve brand value:
Adoption of IFRS will enable companies to gain a broader and deeper understanding
of the entitys relative standing by looking beyond country and regional milestones.
Further,
adoption of IFRS will facilitate companies to set targets and milestones based on
global business environment, rather than merely local ones.
Escape multiple reporting :
Convergence to IFRS, by all groups entities, will enable company managements to
view all components of the groups on one financial reporting platform. This will
eliminate the need for multiple reports and significant adjustment for preparing
consolidated financial statements in different stock exchanges.
Reflects true value of acquisitions :
In Indian GAAP, business combinations, with few exceptions, are recorded at carrying
values rather than fair values of net assets acquired. Purchase consideration paid for
intangible assets not recorded in the acquirers books is usually not recorded in the
financial statements, instead the amount gets added to goodwill.Hence,the true
value of the business combination is not reflected in the financial statements.IFRS
will overcome this flaw, as it mandates accounting for net assets taken over in a

business combination at fair value.It also requires recognition of intangible assets,

even if they have not been recorded in the acquirees financial statements.

New opportunities :
Benefits from the adoption of IFRS will not be restricted to Indian corporates.In fact;
it will open up a host of opportunities in the service sector.With a wide pool of
accounting professionals, India can emerge as an accounting services hub for the
global community.As IFRS is fair value focused it will provide significant opportunities
to professionals including, accountants, valuers and actuaries, which in turn, will
boost the growth prospects for the BPO/KPO segment in India.

IFRS CHALLENGES:Some of the challenges are listed below:

Shortage of resources :
With the convergence to IFRS, implementation of SOX, strengthening of corporate
governance norms, increasing financial regulations and global economic growth,
accountants are most sought after globally. Accounting resources is a major
challenge.India; with a population of more than 1 billion has only approximately
145000 Chartered Accountants, which is far below its requirement.
Training :
If IFRS has to be uniformly understood and consistently applied, training needs of all
stakeholders, including CFOs, auditors, audit committees, teachers, students,
analysts, regulators and tax authorities need to be addressed. It is imperative that
IFRS is introduced as a full subject in universities and in the Chartered Accountancy
syllabus.
Information systems:
Financial accounting and reporting systems must be able to produce robust and
consistent data for reporting financial information.The systems must also be capable
of capturing new information for required disclosures, such as segment information,
fair values of financial instruments and related party transactions.As financial
accounting and reporting systems are modified and strengthened to deliver
information in accordance with IFRS, entries need to enhance their IT security in
order to minimize the risk of business interruption ,in particular to address the risk of
fraud, cyber terrorism and data corruption.
Taxes:

IFRS convergence will have significant impact on financial statements and

consequently tax liabilities.Tax authorities should ensure that there is clarity on the
tax treatment of items arising from convergence to IFRS.For example, will
government authorities tax unrealized gains arising out of the accounting required by
the standards on financial instruments? From an entity point of view, a thorough
review of existing tax planning strategies is essential to test their alignment with
changes created by IFRS.Tax,other
regulatory issues and the risks involved will have to be considered by the entities.
Communication:
IFRS may significantly change reported earnings and various performance indicators.
Managing market expectations and educating analysts will therefore be critical.A
companys management must understand the differences in the way the entitys
performance will be reviewed, both internally and in the market place and agree on
key messages to be delivered to investors and other stake holders.Reported profits
may be different from perceived commercial performance due to the increased use of
fair values, and the restriction on existing practices such as hedge accounting.
Consequently, the indicators for assessing both business and executive performance
will need to be revisited.
Management compensation and debt covenants:
The amount of compensation calculated and paid under performance based
executive, and employee compensation plans may be materially different under
IFRS, as the entitys financial results may be considered different. Significant
changes to the plan may be required to reward an activity that contributes to an
entitys success, within the new regime.Re negotiating contracts that referenced
reported accounting amounts,such as ,bank covenants or FCCB conversation trigger,
may be required on convergence to IFRS.

Difference between IFRS and Indian GAAP

Some of them are listed below :-

Subject

IFRS

Indian GAAP

Historical cost

Generally uses historical cost, but

intangible assets, property plant
and equipment (PPE) and
investment property may be
revalued to fair value. Derivatives,
biological assets and certain
securities are revalued to fair
value.

Uses historical cost, but property,

plant and equipment may be
revalued to fair value. Certain
derivatives are carried at fair value.
No comprehensive guidance on
derivatives and biological assets.

Balance sheet

Does not prescribe a particular

format. Certain minimum items
are presented on the face of the
balance sheet. A liquidity
presentation of assets and
liabilities is used instead of a
current/non-current presentation,
only when a liquidity presentation
provides more relevant and
reliable information.

Accounting standards do not

prescribe a particular format but
certain items must be presented on
the face of the balance sheet.
Formats are prescribed by the
Companies Act and other industry
regulations like banking, insurance,
etc.

Income statement

Does not prescribe a standard

format, although expenditure is
presented in one of two formats
(function or nature). Certain
minimum items are presented on
the face of the income statement.

Does not prescribe a standard

format; but certain income and
expenditure items are disclosed in
accordance with accounting
standards and the Companies Act.
Industry-specific formats are
prescribed by industry regulations.

Extraordinary items

Prohibited.

Defined as events or transactions

clearly distinct from the ordinary
activities of the entity and are not
expected to recur frequently and
regularly. Disclosed separately.

Changes in
accounting policy

Comparatives are restated, unless

specifically exempted; where the
effect of period(s) not presented
is adjusted against opening
retained earnings.

The effect and impact of change is

included in current-year income
statement. The impact of change is
disclosed separately.

Correction of errors

Comparatives are restated and, if

the error occurred before the
earliest prior period presented,
the opening balances of assets,
liabilities and equity for the
earliest prior period presented are
restated.

Restatement is not required. The

effect of correction is included in
current-year income statement with
separate disclosure.

Special purposes
entity (SPE)

Consolidated where the substance No specific guidance.

of the relationship indicates
control.

Definition of joint
venture

Contractual arrangement whereby

two or more parties undertake an
economic activity, which is subject
to joint control. Exclusion if
investment is held-for-sale.

Similar to IFRS.
Exclusion if it meets the definition of
a subsidiary or exemptions similar
to non-consolidation of subsidiaries.

Uniting of interests
method

Prohibited.

Required for certain amalgamations

when all the specified conditions are
met.

Business
combinations
involving entities
under common
control

Not specifically addressed. Entities No specific guidance. Normal

elect and consistently apply either business combination accounting
purchase or pooling-of-interest
would apply.
accounting for all such
transactions.

Depreciation

Allocated on a systematic basis to Similar to IFRS, except where the

each accounting period over the
useful life is shorter as envisaged
useful life of the asset.
under the Companies Act or the
relevant statute, the depreciation is
computed by applying a higher rate.

Interest expense

Recognised on an accrual basis

using the effective interest
method.

Recognised on an accrual basis;

practice varies with respect to
recognition of discounts and
premiums.

Termination benefits

Termination benefits arising from

redundancies are accounted for
similarly to restructuring
provisions. Termination indemnity
schemes are accounted for based
on actuarial present value of
benefits.

With the adoption of AS 15

(revised), similar to IFRS, however,
timing of recognising liability could
differ.
Prior to AS 15 (revised), no specific
guidance. Generally, voluntary
retirement expenses are recognised
on acceptable of the plan by
employees and amortised over 3 to
5 years.

Acquired intangible
assets

Capitalised if recognition criteria

are met; amortised over useful
life. Intangibles assigned an
indefinite useful life are not
amortised but reviewed at least
annually for impairment.
Revaluations are permitted in rare
circumstances.

Capitalised if recognition criteria are

met; all intangibles are amortised
over useful life with a rebuttable
presumption of not exceeding 10
years.
Revaluations are not permitted.

Property, plant and

equipment

Historical cost or revalued

amounts are used. Regular
valuations of entire classes of
assets are required when
revaluation option is chosen.

Historical cost is used. Revaluations

are permitted, however, no
requirement on frequency of
revaluation.
On revaluation, an entire class of
assets is revalued, or selection of
assets is made on a systematic
basis.

Investment property Measured at depreciated cost or

fair value, with changes in fair
value recognised in the income
statement.

Treated the same as a long-term

investment and is carried at cost
less impairment.

Contingencies

Similar to IFRS, except that

Disclose unrecognised possible

losses and probable gains.

contingent gains are neither

recognised nor disclosed.

Government grants

Recognised as deferred income

and amortised when there is
reasonable assurance that the
entity will comply with the
conditions attached to them and
the grants will be received.
Entities may offset capital grants
against asset values.

Similar to IFRS conceptually,

although several differences in
detail. For e.g., in certain cases,
grants received are directly credited
to capital reserve (in equity).

Convertible debt

Convertible debt (fixed number of Convertible debt is recognised as a

shares for a fixed amount of cash) liability based on its legal form
is accounted for on split basis,
without any split.
with proceeds allocated between
equity and debt.

Derecognition of
financial liabilities

Liabilities are derecognised when

extinguished. Difference between
carrying amount and amount paid
is recognised in income
statement.

No specific guidance; in practice,

treatment would be similar to IFRS
based on substance of the
transaction.

Post-balance-sheet
events

Financial statements are adjusted

for subsequent events, providing
evidence of conditions that
existed at the balance sheet date
and materially affecting amounts
in financial statements (adjusting
events). Non-adjusting events are
disclosed.

Similar to IFRS, except nonadjusting events are not required to

be disclosed in financial statements
but are disclosed in report of
approving authority e.g. Directors
Report.

Interim financial
reporting

Contents are prescribed and basis

should be consistent with full-year
statements. Frequency of
reporting (eg, quarterly, half-year)
is imposed by local regulator or is
at discretion of entity.

Similar to IFRS.
However, pursuant to the listing
agreement, all listed entities in India
are required to furnish their
quarterly results in the prescribed
format. Quarterly results include
financial results relating to the
working of the Company and certain
notes thereon.