Ifrs - An Overview: International Financial Reporting Standards

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At a glance
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The key takeaways are that IFRS adoption is important for Indian companies raising capital globally and its convergence will change financial reporting landscape in India. IFRS is a principle-based framework adopted by over 100 countries.

The main objectives of IFRS are to develop a single set of high-quality global accounting standards, promote their use and rigorous application, take into account needs of SMEs and emerging economies, and bring about convergence of national standards with IFRS.

Some key differences between Indian GAAP and IFRS are around basis of preparation, presentation of financial statements, classification of assets and liabilities, first time adoption, and balance sheet format.

IFRS – AN OVERVIEW

INTERNATIONAL FINANCIAL REPORTING


STANDARDS
Introduction :
With the growth of Indian economy & increasing
integration with the global economies, Indian
corporates are raising capital globally. Under the
circumstances it would be imperative for Indian
corporates to adopt IFRS for their financial
reporting. The convergence with IFRS is set to
change the landscape for financial reporting in
India. IFRS represents the most commonly
accepted global accounting framework as it has
been adopted by more than 100 countries.
 One of the basic feature of the IFRS is that it is
principle based standard rather than rule based.
 A separate set of IFRS for Small & Medium–Sized
Enterprises has been issued by the IASB in July
2009
What is IFRS?
 IFRS stands for International Financial Reporting
Standards & includes International Accounting
Standards (IASs) until they are replaced by any
IFRS & interpretation originated by the IFRIC
(International Financial Reporting Interpretation
Committee) or its predecessor, the former Standing
Interpretation Committee.
 IFRS are developed and approved by IASB
(International Accounting Standard Board)
Objectives :
According to the Preface to IFRS issued by the IASB
the main objectives of IFRS are
 To develop in public interest, a single set of high

quality, understandable & enforceable global


accounting standards that require high quality,
transparent & comparable information in financial
statements & other financial reporting to help
participants in the various capital markets of the
world & other users of the information to make
economic decisions
 To promote the use & rigorous application of those
standards
 In fulfilling the objectives associated above to take
account of, as appropriate, the special needs of
small & medium-sized entities & emerging
economies
 To bring about convergence of national accounting
standards & IFRSs to high quality solutions.
IFRS in India
 At its 269th meeting the council of ICAI has decided
that public interest entities such as listed companies,
banks insurance companies & large sized
organisations to converge with IFRS for accounting
period commencing on or after 1st April, 2011.
 For small & medium sized entities ICAI had
proposed that a separate standard may be formulated
based on the IFRS for SMEs issued by the IASB
after modifications, if necessary.
TIME LINE FOR CONVERGENCE

Phase II Phase III


Phase I 1st April 2013*
1st April 2011* 1st April 2014*
The companies whether Listed companies which
a)Companies which are part of listed or not, having a have a networth of Rs.
NSE – Nifty50 networth exceeding Rs. 500 crores or less.
b)Companies which are part of 500 crores but not
BSE – Sensex30 exceeding Rs. 1000
c)Companies whose shares or crores
other securities are listed on
stock exchanges outside India.
d)Companies, whether listed or
not which have a networth in
excess of Rs. 1000 crores.

*Companies to prepare opening B/S as on the respective date. When the accounting
year ends on a date other than 31st March, conversion opening B/S will be made in
relation to the first B/S which is made on a date after 31 st March.
IFRS in not mandatory for the following Companies.
 Non-Listed Companies which have a networth of

Rs. 500 crores or less and whose shares or other


securities are not listed on stock exchanges outside
India.
 Small & Medium Companies (SMCs)
Benefits :
 Encourage international investing & thereby
increase in foreign capital inflow.
 Benefit the economy by increased international
business.
 More relevant, reliable, timely & comparable
information to investors.
 Better understanding of financial statements would
benefit investors who wish to invest outside the
country.
Benefits :
 Capital at lesser cost from foreign market.
 Reduced accounting requirements prevailing in
various countries & hence reduced cost of
compliance.
 Professional opportunity to serve international
clients.
 Increased mobility to work in different parts of the
world either in industry or practice.
Challenges :
 Increase in cost due to dual reporting requirement
till full convergence is achieved.
 Changes may be required to various regulatory
requirements such as Companies Act, Income Tax
Act, SEBI, RBI, etc..
 If IFRS is to be uniformly understood training may
be reuired to all stakeholders such as employees,
auditors, etc.
Challenges :
 Additional cost towards modification in IT systems
& Proceedures.
 Difference between Indian GAAP & IFRS may
impact business decision & financial performance.
 Limited pool of trained resource & persons having
expert knowledge on IFRSs.
Qualitative Characteristics
 Understandability

 Relevance

 Reliability

 Comparability
Contents :
1. A statement of financial position as at the end of the period
(Balance Sheet)
2. A statement of comprehensive income for the period (Income
Statement)
3. A statement of changes in equity for the period
4. A statement of cash flows for the period
5. Notes comprising of significant accounting policies & other
explanatory information
6. A statement of financial position as at the beginning of the earliest
comparative period when an entity applies an accounting policy
retrospectively or makes a retrospective restatement of items in its
financial statements, or when it classifies items in its financial
statements.
Differences between Indian GAAP & IFRS in general

Basis of Indian GAAP IFRS/IAS


Difference
GAAP There is a presumption that Entities should make an explicit & unreserved
financial statements should be statement in the note that the financial statement
prepared in compliance with AS to comply with IFRS
give true & fair view
Departure Non compliance with any of the An entity cannot describe financial statements as
from GAAP applicable AS needs to be complying with IFRSs unless they comply with all
disclosed in the financial the requirements of each applicable standard &
statements interpretation
True & Fair True & fair override is generally In extremely rare circumstances in which
View not permitted management concludes that compliance with a
requirement in an IFRS would be so misleading that
it would conflict with the objective of financial
statements, the entity shall depart from that
requirement if the relevant regulatory framework
requires or otherwise doesn’t prohibit, such a
departure & disclosure is required.
Conflict The Accounting Standards by their The override doesn’t apply where there is conflict
between very nature cannot & do not between local company law & IFRS. In such a
GAAP & override the local regulations situation IFRS must be applied.
Local Law which govern the preparation &
presentation of financial statements
in the country
Differences between Indian GAAP & IFRS in general

Basis of Indian GAAP IFRS/IAS


Difference
Preparation & An entity has to present financial An entity has to present financial statements on a
Presentation statements on a stand alone basis. consolidated basis unless it meets exemption criteria
Consolidations is mandatory as per prescribed under IAS 27. Stand alone statements may
listing agreement only for public be prepared voluntarily.
listed companies.
First time Does not give specific guidance on IFRS 1 specifically deals with first time adoption
adoption first time adoption of the standards
by an entity
Components B/S, P&L A/c, Cash flow Balance sheet, Income Statement, Statement of
statement(Not mandatory for changes in equity, Cash flow statement, notes
SMCs), Accounting Policies & comprising of significant accounting policies & other
Notes to accounts. explanatory information.
Balance sheet AS doesn’t prescribe specific No specific format prescribed
format format.
Companies Act & other industry
regulations prescribe industry
specific format of Balance sheet
Classification No strict classification in Current An entity shall present separate classification of
of Asset & & Non-current assets & Liabilities Current & non current assets & liabilities in its
Liabilities required under Schedule VI of statement of financial position except when a
Companies Act presentation based on liquidity provided more
reliable information
Steps in conversion
 Recognise all the assets & liabilities whose
recognition is required by IFRSs.
 De-recognise items of assets & liabilities if IFRS
does not permit such recognition.
 Reclassify assets, liabilities & items of equity as
per the requirements of IFRS.
 Apply IFRS measurement principles for all
recognised assets & liabilities retrospectively.
(Unless exemption available under IFRS).

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