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IFRS - A Comparison with Indian Generally Accepted Accounting Principles

Agenda
Discuss the similarity between Indian GAAP and IFRS Discuss areas where different accounting principles are applied in Indian GAAP and IFRS reporting Discuss areas where different Accounting Options available

GENERAL APPROACH
IFRS Principle-Based Accounting with limited application guidance IGAAP
also

Principle-Based Accounting with limited application guidance influenced by legal/tax perspectives

IFRS in India Significant conceptual matters to be considered


Substance over form Time value of money Fair value option Other comprehensive Income Restatement

IFRS in India Significant conceptual matters to be considered


Significance of Consolidated Financial Statements Control Uniform accounting policies Deferred Tax adjustment during Consolidation

Detailed differences

Accounting Policy Changes


Area
Primary literature

IFRS
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Indian GAAP
AS- 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies Prospective application unless the transitional provisions of a standard require adjustments in opening retained earnings.

Changes in accounting policy

Restated.

Prior period items adjusted in the opening retained earnings of earliest period reported.

Accounting Policy Changes


Area
Change in depreciation method

IFRS
Treated as change in estimate Accounted for prospectively.

Indian GAAP
Change in depreciation method depreciation is recalculated retrospectively and adjusted in the year of change Change in Useful life - written down value depreciated over the residual useful life

Accounted retrospectively in cases, where rates and methods vary from those acceptable under IFRS.

Correction of errors

Restated unless exempted.


Prior period items adjusted in the opening retained earnings of earliest period presented.

Reported as prior period adjustment separately.

Consolidation Policy
Area
Primary literature

IFRS

Indian GAAP

IAS 27 AS-21 Consolidated Consolidated and Financial Statements Separate Financial Statements Elimination of unrealized profits and losses under AS 21, AS 23 and AS 27

Consolidation Policy
Area
Definition of Control

IFRS
Power to govern financial and operating policies to obtain benefits. Control exists even when the parent owns less than half of the voting power but has legal or contractual rights to control or de facto control. Currently exercisable potential voting rights considered for the purpose of determining control. Special Purpose Entities (SPE) are consolidated wherever control exists.

Indian GAAP
Control exists only when parent owns directly or indirectly onehalf or more of the voting rights or parent controls composition of an entitys Board of directors so as to obtain economic benefits.

Currently exercisable potential voting rights not considered for the purpose of determining control.
No Specific guidance.

Consolidation Policy
Area
Employee share (stock) trusts

IFRS
Consolidated where substance of relationship indicated control. Differences between reporting dates of parent and subsidiary cannot be more than three months. Prepared using uniform accounting policies for all the entities in a group.

Indian GAAP
Employee share trusts are not consolidated.

Reporting periods

Differences between reporting dates of parent and subsidiary cannot be more than six months. Policies may differ due to impracticability. However the fact should be disclosed together with the proportion of items to which different policies have been applied .

Uniform accounting policies

Provisions and Contingencies


Area
Primary literature

IFRS
IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Indian GAAP
AS 4 Contingents and events occurring after Balance Sheet AS 29 Provisions, contingent liabilities and contingent assets.

Discounting

Provisions are discounted to present value where the effect of the time value of money is material.

Discounting is not permitted.

Provisions and Contingencies


Area IFRS Indian GAAP
Recognised when general recognition criteria are met.

Restructuring Recognised if detailed formal plan announced or implementation effectively begun.


Contingent Assets Disclosed in the financial statements where the economic benefits are probable.

Are not disclosed in the financial statements but in the report of the approving authority.

Provisions and Contingencies


Area
Constructive obligation

IFRS
Constructive obligation considered for provisioning.

Indian GAAP
Present obligation and not constructive obligation considered for provisioning.

Measurement of liabilities

Best estimate to settle Best estimate basis. the obligation, generally the expected value. Must adjust the discount rate at each reporting date. Not applicable as provisions are not discounted.

Measurement of decommissioning provisions

Property, plant and equipment


Area
Primary literature

IFRS
IAS 16 Property, plant and equipment

Indian GAAP
AS 6 Depreciation accounting AS 10 Accounting for Fixed Assets

Componentisation

Property plant and equipment to be componentised and depreciated separately.

Componentisation is not required.

Property, plant and equipment


Area IFRS Indian GAAP
Assets held for disposal are shown separately in the financial statements. The Companies Act 1956 prescribes minimum rates of depreciation. No requirement for reviewing at each balance sheet date. Non current Should be classified and presented assets held for separately in the statement of sale financial position as Held for sale. Depreciation Depreciable amount allocated based on the useful life on a systematic basis. Depreciation Methods, Residual values and Useful lives are reviewed at the end of each reporting period.

Frequency of revaluations

Revaluation to be made with sufficient regularity.

No such requirement.

Property, plant and equipment


Area
Capitalization of Preoperative incidental expenses and trial run expenses, net revenue earned during the trial period.
Major inspection and overhaul changes

IFRS
Not permitted.

Indian GAAP
Required.

Expenditure incurred to replace a separately recognised component of asset should be capitalised.

Expenditure which increases the future benefits from the existing asset should only be capitalised.

Leases
Area
Primary Literature

IFRS

Indian GAAP

IAS 17 Leases AS 19 Lease Accounting IFRIC 4 Determining whether an arrangement contains a lease. SIC 15 Operating leasesincentives SIC 27 Evaluating the substance of transactions involving the legal form of a lease. Normally treated as Lease agreements for use of operating lease. land are excluded from the Recognised as prepaid lease scope of AS 19. rent and amortised over the lease period.

Leasehold land

Leases
Area
Separate disclosure of leased assets Upward revision of unguaranteed Residual Value Initial direct cost

IFRS
No such requirement.

Indian GAAP
Assets should be disclosed separately.

No such prohibition.

Upward revision of un guaranteed residual value is prohibited.

To be included as part of lease receivable in case of finance leases.

Option available to charge off expenses at the time of incurrence.

Financial instruments
Area
Primary literature

IFRS
IAS 32 Financial Instruments: Presentation. IAS 39 Financial Instruments: Recognition and Measurement IFRS 7 Financial Instruments: Disclosure.

Indian GAAP
AS 13 Investments AS 30:Financial Instruments: Recognition and Measurement AS 31: Financial Instruments: Presentation AS 32:Financial Instruments: Disclosure. (mandatory for certain entities for accounting periods commencing on or after 1 April 2011) Long term investments valued at cost Short term investments Valued at lower of cost and fair value. Any change in value is recognised in the statement of profit and loss.

Measurement

Held to maturity, loans and receivables - carried at amortised cost. Available for sale investments carried at fair value. Any change is recognised in other comprehensive income

Financial instruments
Area Financial liability classification IFRS Capital instruments classified based on the substance of issuers contractual obligation either as equity or liability. Mandatory redeemable preference shares classified as liability.
Treasury Shares - purchase of own shares. Shown as deduction from equity.

Indian GAAP No specific guidance. Classification is based on legal form rather than substance.

Preference shares are classified as equity separately under shareholders funds.


provisions of Companies Act.

Taxes
Area
Primary Literature

IFRS
IAS 12 Income Taxes

Indian GAAP
AS 22 Accounting for taxes on Income. Guidance note on Fringe Benefit tax

Deferred income tax

Balance Sheet approach Based on difference between carrying value and tax base of assets and liabilities

Profit and Loss approach Based on difference between accounting income and taxable income

Taxes
Area
Fringe Benefit tax

IFRS
Included in related expense which gives rise to the tax. Deferred tax recognised at buyers tax rate.

Indian GAAP
Shown separately after profit before tax.

Un realised intra-group profits

Deferred tax not recognised. Simple aggregation from standalone financial statements. No adjustment is made on consolidation. Deferred tax is not recognised as considered as a permanent difference.

Revaluation of PPE and intangible assets

Deferred tax recognised in other comprehensive income.

Taxes
Area
Deferred tax on Undistributed profits of subsidiaries, associates and joint ventures.

IFRS
Recognised except when the parent is able to control the distribution of profit and if it is probable that the temporary difference will not reverse in the foreseeable future. Recognised if it is probable (more likely than not) that sufficient taxable profit will be available in future.

Indian GAAP
Not recognised

Recognition of Deferred tax Assets.

Recognised if a) there is virtually certainty supported by convincing evidence incase of entities with carry forward tax losses b) realization is reasonably certain in case of entities with no carry forward tax losses.

Taxes
Area
Minimum alternate tax (MAT) credit carry forward.

IFRS
Recognised as a deferred tax asset if it is probable (more likely than not) that MAT credit can be used in future years to reduce the regular tax liability.

Indian GAAP
Considered as prepaid tax (presented under Loans and advances) and recognised as an asset, when and to the extent there is convincing evidence that MAT credit will be used in future years to reduce the regular tax liability.

Business Combinations
Area
Primary literature

IFRS
IFRS 3 Business Combinations

Indian GAAP
No specific standards to covering all aspects. AS 14 Accounting for amalgamations covering limited aspects. No specific guidance. Date of investment.

Date on which consideration in a business combination is measured Accounting method

Acquisition date (date on which control passes)

All business combinations accounted under Purchase method.

Pooling of interests method in case combination satisfy the conditions of merger. Others under Purchase method.

Business Combinations
Area
Business combination of entities under common control. Allocation of the cost of the business combination.

IFRS
Specifically excluded from the scope of the Standard.

Indian GAAP
No specific guideline.

At fair value.

At carrying value in case of pooling of interests method At carrying value or fair value in case of Purchase method. Measured at carrying value of minoritys share in net assets.

Measurement of noncontrolling interests (minority Interests)

Option to measure, on a transaction by transaction basis, the non-controlling interest at (a) fair value (b) the non-controlling interests proportionate share of the fair value of the identifiable net assets of the acquiree.

Business Combinations
Area
Excess of fair value of net assets acquired over acquisition costs Goodwill

IFRS
Recognised as a gain from bargain purchase in profit or loss Goodwill on business combination is not amortised but tested for impairment.

Indian GAAP
Recognised as capital reserve as part shareholders equity. Goodwill on amalgamation amortised over five years. Goodwill on acquisitions is tested for impairment whenever indication of impairment exists. No specific guidance.

Deferred tax assets after initial purchase accounting.

Goodwill is reduced to record pre-acquisition deferred tax assets which are recognised with twelve months of the acquisition date as result of new information on facts and circumstances that existed on the acquisition date.

Areas Involving Choices


Area
Borrowing costs

IFRS
Expense or capitalize (the option to expense will not be available after 1 January 2009)

Indian GAAP
Capitalize

Joint ventures

Equity method or Proportionate Consolidation Proportionate Consolidation (ED does not permit proportionate consolidation) In standalone financials, shown at cost or at fair value. In standalone financials, shown at cost less impairment (there will be no difference after limited revision to AS 23 ) Intrinsic or Fair value

Investment in Associates.

Share-based payment

Fair value

Areas Involving Choices


Area
Employee Benefits recognition of Actuarial gains or losses

IFRS
Option to recognise in profit or loss or other comprehensive income. Corridor approach also permitted.

Indian GAAP
To be recognised fully in the statement of profit and loss in the period of occurrence.

Cash Flow Statements

Can be prepared using either direct or indirect method.

The standard permits both options. However indirect method prescribed for listed entities and the direct method prescribed for Insurance Companies

Presentation / Disclosure differences


Financial Statements Statement of Cash Flows Events after the reporting date Operating Segments Related party disclosures Discontinued operations

Financial Statements
Area
Primary literature

IFRS
IAS 1 Presentation of Financial Statements Fair Presentation

Indian GAAP
AS 1 Disclosure of Accounting Policies True and fair presentation

Presentation

Statement of financial position (Balance Sheet)

No specific format prescribed Separate classification for Current/Non Current in the statement of financial position. Specific items to be included in the statement of financial position.

Formats are prescribed by the Companies Act and other industry regulations

Financial Statements
Area
Statement of Comprehensive Income

IFRS
No specific format. Specific items to be included. Expenses to be presented either by function/nature.

Indian GAAP
Specific items of income and expenditure to be disclosed. Formats for specific industry specified by the respective regulations.

Statement of Changes in Equity

A statement of changes in equity is presented showing (a) the total comprehensive income for the period (b) effects of retrospective application or restatement on each component of equity (c) transactions with owners and (d) for each component of equity, a reconciliation between opening and closing balances, separately disclosing each change.

A statement of changes in equity is not required. Movements in share capital, retained earnings and other reserves are presented in schedules to financial statements.

Financial Statements
Area
Extraordinary items Prohibited

IFRS

Indian GAAP
Events or transactions clearly distinct from ordinary activities of the entity and or expected to recur frequently or regularly Detailed information is not required.

Disclosures of significant associates

Detailed information on significant associates assets, liabilities and results is required. Assets and Liabilities cannot be set off unless permitted under the standards. Financial assets and liabilities can be set off if the entity has legally enforceable right to set off and intends to settle on a net basis.

Offsetting of Assets and Liabilities

No specific guidance.

Cash Flow Statements


Area
Literature

IFRS
IAS 7 Statement of Cash Flows May be classified as an operating or financing activity.

Indian GAAP
AS 3 Cash Flow Statements Classified as an operating activity for financial enterprises. Classified as financing activity for other enterprises. Classified as an operating activity for financial enterprises. Classified as Investing activity for other enterprises.

Interest paid

Interest received

May be classified as an operating or investing activity.

Cash Flow Statements


Area
Dividends received

IFRS
May be classified as an operating or investing

Indian GAAP
Classified as an operating activity for financial enterprises. Classified as Investing activity for other enterprises Must be classified as an Financing activity Cash excludes bank overdrafts Overdrafts classified as financing activities

Dividends paid

Presentation of bank overdrafts

May be classified as an operating or financing activity Based on cash management policies which might differ from general accounting classifications For example, bank overdrafts can be classified as cash and cash equivalents

Events After the Balance Sheet


Area
Literature

IFRS
IAS 1/10 Events After the Reporting Date

Indian GAAP
AS 4 Contingencies and Event occurring after the Balance Sheet
Proposed dividend adjusted in the financial statements even though it is subject to approval of share holders.

Proposed Dividend

Non-Adjusting Event

Disclosure of Non Adjusting Events

Nature and financial effect of such events disclosed.

No requirement to disclose in the financial statement. Such events are reported in the report of approving authority

Segment Reporting
Area
Literature Determination of segments

IFRS
IFRS 8 Operating Segments (effective from 1 January 2009) Operating segments are identified based on the financial information that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Segment profit or loss is reported on the same measurement basis as that used by the chief operating decision maker. There is no definition of segment revenue, segment expense, segment result, and segment asset or segment liability..

Indian GAAP
AS 17 Segment Reporting AS 17 requires an enterprise to identify two sets of segments (business and geographical), using a risks and rewards approach, with the enterprises system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments Segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the enterprise as a whole. Segment revenue, segment expense, segment result, segment asset and segment liability have been defined.

Measurement

Related Party Transactions


Area IFRS Indian GAAP

Literature

IAS 24 Related Party AS 18 Related Party Disclosures Disclosures Includes NonExecutive Directors. Non-Executive Directors are excluded. Spouse, son, daughter, brother, sister, mother, father.

Key management personnel

Relative

Family member who may be expected to influence or to be influenced by.

Discontinued Operations
Area
Literature

IFRS
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Indian GAAP
AS 24 Discontinued Operations AS 10 Accounting for Fixed Assets An operation is classified as discontinuing at the earlier of (a) binding sale agreement for sale of the operation and (b) on approval by the board of directors of a detailed formal plan and announcement of the plan.

Classification as discontinued operation

An operation is classified as discontinued when it has either been disposed of or is classified as held for sale.

Discontinued Operations
Area IFRS Indian GAAP

Presentation

Post tax profit or loss as a single figure in the statement of comprehensive income/ Income Statement. Analysis of the above figured either in the statement of comprehensive income/ income statement or in the notes. Net assets disclosed as a single figure in the statement of financial position.

Pre tax profit or loss with related taxes. Line items disclosed in the Notes to accounts Pre tax gain or loss on disposal.

Questions?

Thank you
Deloitte Haskins & Sells
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