Beruflich Dokumente
Kultur Dokumente
Reporting Standards
Financial Accounting - 2010
Submitted
Submitted To
By
Prof. Madhu Vij Ankit
Agarwal (F-095)
Chan
dni Khundia (F-)
Inderj
eet (F- )
Sanc
hita Gupta (F-144)
Shini
e Dutta (F-149)
Shrut
i Jain (F-150)
Vivek
Kumar (F-159)
Table of Contents
Table of Contents....................................................................................................... 2
Basic Differences.................................................................................................... 3
Applicability.............................................................................................................4
Convergence........................................................................................................... 5
Characteristics of IFRS............................................................................................... 8
Gap in Training......................................................................................................10
Taxation................................................................................................................ 11
Fair value.............................................................................................................. 11
Transition to IFRS..................................................................................................... 12
Basic Differences
ACCOUNTING STANDARDS IFRS
Cost Fair Value
Reliability Relevance
Accounting driven by value Accounting driven by principles
Standards Board (IASB) based in London. India is one among the 100 countries that
bring uniformity in reporting globally and making ways for its business, finances
and funds for larger opportunities. The basic idea behind convergence of IFRS in
India was to give a wider route for FDIs, FIIs as they are more comfortable and
India i.e. ICAI and Ministry of Corporate Affairs have announced for implementation
Applicability
• ICAI is of the view that IFRS to be adopted for public interest entities such
listed Co, Banking Companies, Insurance entities and large size entities from
the Accounting period beginning on or after April 2011. The view is further
Corporate Affairs.
• For this purpose, public interest entities are the entities falling under the
• Even if listed company does not fulfill the above criteria for level 1 enterprise,
• Early adoption of IFRS is encouraged but it should be the adoption of all IFRS
Convergence
can be considered “to design and maintain national accounting standards in a way
doesn’t mean that IFRS should be adopted word by word, e.g., replacing the term
‘true & fair’ for ‘present fairly’, ‘Presentation of Financial Statements’. Such changes
Switching to IFRS will offer many advantages to a company. Companies that are
would be possible.
Acquisitions and joint ventures between countries will be possible due to adoption
of IFRS. It will also help provide access to foreign capital. This is because majority of
Some companies can gain advantage over their competitors by adopting IFRS
relatively earlier. Thus, the company will improve and strengthen the brand value of
the company. To trade their shares and securities on stock exchanges world-wide,
most of the stock exchanges require companies to make financial statements under
IFRS.
view all the companies in a group on a common platform. This will reduce the time
and efforts involved to adjust the accounts in order to comply with the
value in IFRS rather than the carrying values. This would ensure greater
accountants, auditors and actuaries. This will boost job growth in the service sector
and India can emerge as an accounting services hub. Moreover, a single set of
accounting standards worldwide would ensure that auditing firms standardize their
India is an emerging market and globalization is at its peak. Indian companies are in
seeking of fund raising and also the flow of FII and FDI is increasing at a galloping
rate. Hence in order to make the investments easier and to make easy for the
one of the branches use accounting standard pertaining to that particular country
then it is difficult for the parent/other subsidiaries to assess the financial position of
it. Till now crores of many are spent in changing the representation of one national
GAAP to another GAAP. In order to remove this extra cost, an international standard
countries
exchanges
easier
• Administrative costs of accessing the capital markets around the world reduced.
internationally.
• Having company wide one accounting language that has subsidiaries in different
companies.
Characteristics of IFRS
• Reliability
• Understandability
• Relevance
• Comparability
• Materiality
• Consistency
• Completeness
Almost all over the globe, IFRS has been adopted. Some parts of the world have
accepted IFRS as their National GAAP such as some parts of Africa and Caribbean.
Europe was the first ones to adopt it. But EU, for listed companies it is mandatory to
follow IFRS and for others it is permitted. In UK and Ireland, national GAAP is
converging to IFRS. Currently more than 100 countries are following IFRS, but by
massive task in India. Challenges faced during adoption of IFRS in India are listed
below:
to undergo a drastic change. There are a number of differences between IFRS and
Indian GAAP. This may cause the users of financial statements to look at them from
a new perspective. It would be a challenge to bring about awareness of IFRS and its
Gap in Training
Professional accountants are looked upon to ensure successful implementation of
IFRS. The biggest hurdle for the professionals in implementing IFRS is the lack of
date draws closer (2011), it is observed that there is acute shortage of trained IFRS
staff. The solution to this problem is that all stakeholders in the organization should
be trained and IFRS should be introduced as a full time subject in the universities.
with the existing laws which include the Companies Act 1956, SEBI regulations,
banking laws and regulations and the insurance laws and regulations. Currently, the
provisions override other laws. IFRS does not recognise such overriding laws.
Although steps to amend these laws have been initiated, the authorities need to
Taxation
IFRS convergence would affect most of the items in the financial statements and
consequently the tax liabilities would also undergo a change. Thus the taxation laws
should address the treatment of tax liabilities arising on convergence from Indian
GAAP to IFRS. It is extremely important that the taxation laws recognize IFRS-
the organizations.
Fair value
IFRS uses fair value as a measurement base for valuing most of the items of
financial statements. The use of fair value accounting can bring a lot of volatility
and subjectivity to the financial statements. It also involves a lot of hard work in
arriving at the fair value and valuation experts have to be used. Moreover,
adjustments to fair value result in gains or losses which are reflected in the income
debated.
have to be changed. This is because the financial results under IFRS are likely to be
very different from those under the Indian GAAP. The contracts would have to be re-
the Indian reporting requirements. Companies would have to ensure that the
existing business reporting model is amended to suit the reporting requirements of
Existence of proper internal control and minimizing the risk of business disruption
Transition to IFRS
The Institute of Chartered Accountants of India has proposed two options for
convergence:
• All at once
• Stage-wise approach
It has been observed that there are certain implementation dangers and
compliance problems with IFRS in adopting the all at once approach. Therefore,
Reporting date- It is the end of the latest period covered by the financial
statements.
Transition date- It is the beginning of the earliest period for which an entity
be 31-03-2012 and transition date will be 01-04-2010. Therefore, the first set of
financials will be for the period 01-04-2011 to 31-03-2012 with IFRS comparables
for entities to include at least one comparative period in IFRS compliant financial
statements. After considering the current economic environment, ICAI has decided
that IFRS should be adopted for public interest entities such as listed companies,
banking companies, insurance companies and other large size identities from the
The major focus of IFRS is on getting the balance sheet right. This can bring
significant volatility in the income statement. There are quite a lot of differences
between the Indian GAAP and IFRS with respect to the presentation of financial
statements, disclosure requirements, and accounting policies: it is difficult to
summarize all the differences here. However a few of the major differences are
presented here.
How would you rate the advantage of IFRS to the following? - To Tax
authorities
Excellent 8 38%
Good 9 43%
Average 3 14%
Bad 1 5%
Excelle 4 19%
nt
Good 1 67%
4
Averag 3 14%
e
Bad 0 0%
Good 10 48%
Average 5 24%
Bad 0 0%
Excellent 9 43%
Good 7 33%
Average 5 24%
Bad 0 0%
Analysis:
As can be seen from the graph, we find that majority of the respondents are
positive on the implementation of IFRS. There is recognition of the fact
among the people surveyed about the impact of IFRS wrt to tax authorities,
management, accountants and stakeholders. This is a welcome sign as India
goes for IFRS convergence April 2011
Major Challenge 7 33
%
Significant 1 62
Challenge 3%
Not a huge 0 0%
concern
Irrelevant 0 0%
Analysis:
issues as more than one government body is involved namely RBI (banking
regulation act), SEBI, IRDA rules and regulations and Ministry of Corporate
Affairs( Companies Act). This requires a concerted effort from the above
Major Challenge 1 62
3%
Significant 3 14
Challenge %
Not a huge 4 19
concern %
Irrelevant 1 5%
Analysis:
Most of the current accounting firms are finding it tough to cope up with the
demand pressure on IFRS implementation for all their clients due to lack of
converge with IFRS whereas IFRS itself keeps evolving with participants from
Significant 838
Challenge %
Irrelevant 15%
Analysis:
the changeover cost. However in the long run, when the companies go in
for single reporting standards as per IFRS norm, the cost will come down.
Major Challenge 2 10
%
Significant 6 29
Challenge %
Not a huge 1 57
concern 2%
Irrelevant 0 0%
Analysis:
People resistance will be there to a new change being brought about as the
concept is new to India and will take time for the organizations to develop
competency.
Major Challenge 0 0%
Significant 8 38
Challenge %
Not a huge 1 57
concern 2%
Irrelevant 0 0%
Analysis:
Significant 838
Challenge %
Irrelevant 314
%
Analysis:
Overall the difficulty level remains high for most of the companies. It poses
already IFRS compliant in case they are currently reporting back to their
How would you rate the difficulty level for implementing IFRS on a
scale of 1-5?
1 - Lowest 0 0%
2 1 5%
3 8 38%
4 9 43%
5 - Highest 3 14%
Lowes Highest
t
Analysis:
High 13 62
%
Average 3 14
%
Low 0 0%
Analysis:
based on Indian GAAP and IFRS. The cost covers the IT systems changeover
manpower.
1-Lowest 15%
Difference
2 419
%
3 629
%
4 314
%
5- Highest 524
Difference %
1- Lowest 00%
Difference
2 314%
3 733%
4 419%
5- Highest 524%
Difference
1-Lowest 15%
Difference
2 419
%
3 838
%
4 419
%
5-Highest 210
Difference %
2 419
%
3 629
%
4 838
%
5-Highest 00%
Difference
1-Lowest 314
Difference %
2 524
%
3 838
%
4 15%
5-Highest 210
Difference %
Yes 17 81%
No 3 14%
Analysis:
• Loan provisioning
• Derivatives accounting
same.
Ye 1 76
s 6%
No 4 19
%
Analysis:
Majority of the respondents feel that it is the right time for India to
Does India have the necessary trainers who can conduct IFRS
training?
Ye 5 24
s %
No 1 76
6%
Analysis:
Lack of skilled manpower remains a concern. Only big MNCs which had
Ye 7 33
s %
No 1 67
4%
Analysis:
Ye 9 43
s %
No 1 52
1%
Analysis:
As per the response and our analysis, it is better not to implement IFRS
companies can learn and adopt IFRS. This is because costs involved are
huge and small companies might be able to absorb the same right
Ye 1 90
s 9%
No 1 5%
Ye 1 48
s 0%
No 1 48
0%
Yes 19 90%
No 2 10%
Yes 7 33%
No 14 67%
Analysis:
No 943
%
Ye 2 95
s 0 %
No 1 5%
Analysis:
Yes. The FDI and FII are expected to increase due to IFRS
companies have to deal with in India vis a vis their home country. This