Presented By:

Nayan Shah
Ranjit Shetty
Apurva Sheth
Vishal Kothari
Pritesh maniar
Surbhi Mondkar
 International Financial Reporting Standards
 IFRS was developed in the year 2001 by the
International Accounting Standards Board
(IASB)
 IFRS requirement includes IASs
 IFRS Comprises: 8 IFRSs and 31 IASs.
 It started of with EU making IFRS mandatory
from 2005 onwards.
 By 2011 more than 150 countries would
have adopted IFRS.
 IASB (International Accounting Standards Board) /
IASC (Committee) was formed in the early 1970‘s,
about the same time as the FASB
 Early IAS standards allowed many options
 Efforts were made to harmonize standards in the
early 1990s
 Some early adopters came from countries with
multinational companies but few local accounting
rules (e.g., Switzerland, Australia)
 IASB was restructured in 2001 and began issuing in
2003
 Standards Advisory Committee (SAC)
 International Financial Reporting

Interpretations Committee (IFRIC)

 IASB-FASB Convergence Agenda
 Objective of Financial Reporting
 Qualitative characteristics
 Globally Accepted
 Simplified
 Cost Effectiveness
 Cross-border capital raising and trade
 Create comparable, reliable, and

transparent financial statements

 Company-wide one accounting language
 to develop global accounting
standards
 to promote the use and rigorous
application of those standards
 to take account of small and medium-
sized entities and emerging
economies.
 to bring about convergence for high
quality solutions.
 Pakistan –Already Reporting as
per IFRS
 Canada – to Converge in 2011
 US – Sooner or Later – To be

Complete by 2014
 India – 2011
 Adoption or convergence with IFRS is now a global
phenomenon

 EU, Australia, Russia and several other countries in the

Middle East and Africa have decided on a wholesale,
mandatory change to IFRS.

 US, South Africa, Singapore, Turkey and Malaysia are

committed to convergence with the international
benchmark.

 New information technologies have dramatically changed

the financial reporting environment
 The use of IFRS as a universal financial reporting language
is gaining momentum across the globe, especially as
compared to a few years ago when a number of different
national accounting standards existed.

 More than 100 countries now require or allow use of IFRS

and by 2011 the number is expected to increase to 150.
Some of the major countries that are seeking to converge /
adopt IFRS by 2011 include Canada, Korea, India and
Brazil.
 IFRS 1 First-time Adoption of International Financial
Reporting Standards
 IFRS 2 Share-based Payment
 IFRS 3 Business Combinations
 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
 IFRS 8 Operating Segments
1. Objective

2. Underlying assumptions

3. Qualitative characteristics
 OBJECTIVE OF THE STANDARD:

To ensure that an entity’s first IFRS financial

statements, and its interim financial reports contain
high quality information
1. Transparent and comparable

2. Prepare and present an opening IFRS statement

3. Cost doesn’t exceed Benefit

 OBJECTIVE OF THIS STANDARD:

 The objective of this ifrs is to specify the financial

reporting by an entity when it undertakes a share-
based payment transaction.

 Entity receives or acquires goods or services either as

consideration for its equity instruments or by
incurring liabilities for amounts based on the price of
the entity’s shares or other equity instruments of the
entity.
 Fair value measurement basis.
 Objective of this standard:
The objective of this IFRS is to enhance the
Relevance, Reliability and Comparability of the
information that an entity provides in its financial
statements about a Business Combination and
its effects.
 Acquisition-date fair values
 Joint Ventures not included
 Impotant Terms : Acquirer, Acquiree, Acquisition
date, Goodwill
 Disclosure
 Objective of standard:
To prescribe the financial reporting for
Insurance
Contracts by any entity that issues such
contracts
 Not only for Insurance Companies
 Local GAAP accounting policies
 Liability adequacy test
 insurance liabilities
 Objective of standard:
To specify the accounting for non-current assets
held for sale, and the presentation and disclosure of
discontinued operations.
 Non-current assets (or disposal groups)
 Discontinued Operation
 Assets (or disposal groups) classified as held
for sale are:
1. Carried at the lower of the carrying amount and fair
value less costs to sell.
2. Not depreciated or amortized.
3. Presented separately on the face of the balance
sheet.
 Search for mineral resources
 Exploration and evaluation expenditures

 Exploration and evaluation assets are

exploration and evaluation expenditures
recognized as assets in accordance with the
entity’s accounting policy.
 Exploration and evaluation assets shall be
assessed for impairment when facts and
circumstances suggest that the carrying
amount of an exploration and evaluation
asset may exceed its recoverable amount.

 Disclosure
 Objective of standard

To enable the users of the Fin Statements to

evaluate :
1) the significance of financial instruments for
the entity’s financial position and performance

2) thenature and extent of risks arising from

financial instruments to which the entity is
exposed during the period and at the reporting
date, and how the entity manages those risks.
 This IFRS applies to all entities, including entities that
have few financial instruments (e.g. a manufacturer
whose only financial instruments are accounts receivable
and accounts payable) and those that have many
financial instruments (eg a financial institution most of
whose assets and liabilities are financial instruments).

 Requires disclosure of information about the nature and

extent of risks arising from financial instruments: –
1. qualitative disclosures about exposures to each class of
risk and how those risks are managed; and
2. quantitative disclosures about exposures to each class
of risk, separately for credit risk, liquidity risk and market
risk (including sensitivity analyses).
An entity shall disclose information to enable
users of its financial statements to evaluate the
nature and financial effects of the business
activities in which it engages and the economic
environments in which it operates.
 IFRS 8 Applies to the consolidated financial
statements of a group with a parent (and to the
separate or individual financial statements of an
entity):
– whose debt or equity instruments are traded in a public
market; or
– that files, or is in the process of filing, its (consolidated)
financial statements with a securities commission or other
regulatory organisation for the purpose of issuing any class
of instruments in a public market.
o ICAI, constituted the Accounting Standards
Board (ASB) on 21st April, 1977

o At a meeting held in May 2006, the Council

of ICAI expressed the view to adopt IFRS.

o Based on the recommendation of the IFRS

Task Force, ICAI decided to converge with
IFRS, for accounting periods commencing
on or after 1 April 2011.

Friday, March 5, 2010

KEY DIFFERENCE BETWEEN IFRS,
INDIAN ACCOUNTING STANDARD
& US GAAP
IFRS & US GAAP AS 1
 Deals with overall  Does not specifically
prescribe components
consideration, of Financial
minimum structure statements
& components of
Financial  Companies Act 1956
statements & Companies
(Accounting
Standards) Rules,
2006
IFRS/IAS 7 & US GAAP
AS 3

AS 3

 It does not allow

 It allows int. &
div. paid or recd.
as operating cash
flow
 Itrequires
disclosure of
 It does not extraordinary
require disclosure items
of extraordinary
items
 AS6 & IAS 16 allows depreciation
on revalued value of assets.

 US GAAP prohibits revaluation of

assets
 AS 7 & IFRS/IAS 11 prescribes only %age
completion method.

 US GAAP prescribes completed contract

method.
 AS-10 & IFRS/IAS-16 allows revaluation of
Fixed assets

 US GAAP does not allow revaluation of

Fixed assets
 AS-13 covers investment in property,
subsidiary, associates, fin. Instruments.

 IFRS/ IAS-40 deals in property.

 IFRS/ IAS-32 &39 deals in financial

instruments.

 ICAI is planning to revise AS-13

 AS-14 allows pooling of interest method &
Purchase method.

 IFRS-3 & US GAAP allows only Purchase

method.
 IFRS-3 requires recognition of negative
goodwill to P&L a/c.

 AS-14 requires recognition of negative

goodwill to be credited to Capital Reserve.
 AS-20 requires disclosure in parent separate
financial statement as well as consolidated
statement.

 IAS-33 & US GAAP require disclosure in

consolidated financial statement.
AS-23 & IAS-28 US GAAP
 It permits  Itrequires use of
investments in equity method
associates to be
measured using
irrespective
equity method if it whether an
prepares entity has
consolidate subsidiaries
financial
statements.
 AS-26 & US GAAP do not permit revaluation
of intangibles.

 IFRS/IAS-38 permits revaluation of

intangibles.
 “reach an economic equal level playing field
within the Community”
 “common political vision”

 Large risks of being drawn to US-GAAP

Why Did Australia adopt IFRS?

Why Did New Zealand adopt IFRS?

 McKinsey Global Investor Opinion on
Corporate Governance in 2002

Surveyed 201 professional investors from institutions

with an estimated $9 trillion under
management.

Covered 31 countries.

45
 Single Accounting Standard

5% - Not sure 5% - Undesirable

90% - desirable

46
What standard to chose as a global standard ?

Western Europe 78 22
IFRS
Eastern Europe/Africa 76 24
GAAP
Asia 65 35

Latin America 41 41 59

North America 24 76

47
Issues that impact the investment decisions

Accounting disclosure 71
Shareholder equality 47
Market regulation and infrastructure 43
International Accounting Standards 42

Market liquidity 37
Property rights 46

Pressure on corruption 32
Insolvency and bankruptcy regulation 32
Fiscal environment 31

Banking system 30

48
What are the top reform priorities for policymakers

Strengthen shareholder rights 33

Improve accounting standards 32

More effective disclosure 31

Stronger enforcement 27

Percentage of investors selecting this option;

multiple responses possible

49
1. For Companies
 Lower Cost of capital
 Consistent reporting format for subsidiaries in
different countries
 Facilitating multiple listing in different markets
 Efficient allocation of resources.
 Improved access to international capital markets
 Enable benchmarking with global peers
 Escape multiple reporting
 Reflects true value of acquisitions
 New opportunities
2. For Small Investors
 Global Investment opportunities
 Better information for decision making
 Reduced Information Costs
 improve average analyst forecast accuracy.
 Reduced cost of Debt
 Removing barriers to cross-border acquisitions

and divestitures rewarding investors with

increased takeover premiums
3. For National Economy
 Smoothing the FDI Process
 Higher global economic growth

4. For Students
 Highly Remunerative
 IFRS is the Future
 Shortage of resources Tax planning

Ma repo ste
 Training

nag r m
rt g

em tin
po in
o l
an acc ancia

ing
re u nt

e g
sy
Fin
 Information systems

nt
d
 Tax Planning

ce
c tured
 Communication

ts
IFRS

s to
r
rate fin
a
business

Inve
stru

d
u
 Management compensation

pro
c
issues

re
nla
io
s
in
a

t
c
lf
d
n
a
rp
Co
o
and debt covenants

P e indi
 Impact on financial statements

en uti and
r f ca

sa ve
mp c ee
orm to

n
co xe oy

tio
an rs
 Distributable profits

pl
Em
ce

e
Empl oyee
 Alignment with other statutory bodies
benefit plans

 Managing market, investors and analysts

 Running out of Time
 Increased Volatility of Results
 SME Concerns
IFRS Conversion
is not just an
An Illustrative
accounting Example
exercise

Huma

ting
Tra

t
en
ns

Resou

rke

m
ac

op
IT

/ Ma
tio

el
ev
rc
ns

D
s
es

Sale

ct
Tax

u
od
g
din

Pr
Tra

w
Ne
Risk Manag
ement/
Complianc
e Support Business Value
Accounting
ce a n
Finan nting
d
Functions impact
Differences chain He
dg
Customer Relationships

u
of IFRS
Acc o ing
/R

Asse
e is k
nc Ma
ma ent

Se
or na
rf m

t / Lia

cu
ge
Pe nage me

rit
Ma nt

iz
s

at
ion

bil

io
n
ity M
l at
l

Ac
ga

re

t
Le

iv
anag

ity
or

Treasury
est

e
Inv

men
t
Minimal Moderate Significant
1. IASB Standards are known as International Financial
Reporting Standards (IFRSs).

2. All IASs and Interpretations issued by the former IASC and

SIC continue to be applicable unless and until they are
amended or withdrawn.

3. IFRSs apply to the general purpose financial statements

and other financial reporting by profit-oriented entities

4. Entities other than profit-oriented business entities

may also find IFRSs appropriate.
5. General purpose financial statements are
intended to meet the common needs of all entities for
information about an company’s financial position,
performance, and cash flows.

6. Other financial reporting includes information

which improves users' ability to make efficient
economic decisions.

7. IFRS apply to individual company and consolidated

financial statements.

8. IFRS includes complete set of financial statements

9. IFRS allows both a 'benchmark' and an
'allowed alternative' treatment

10. IASB intends not to permit choices in

accounting treatment.

11. IFRS will present fundamental principles in

bold face type and other guidance in non-bold
type

12. The provision of IAS 1 that conformity with IAS

requires compliance with every applicable IAS
and Interpretation requires compliance with all
IFRSs as well.
 Implemented by a broad network of experienced conversion
specialists
 Considers the broader impact on the business - accounting
policies, people, financial reporting, tax and other business
processes and systems, stakeholder management, statutory
reporting and communications
 Used by more than 1,300 companies
 Scalable and responsive to the unique complexities of each
client’s business
 Establishes clear objectives with the client in the planning stage
 Applies a phased approach to IFRS conversions
 Is a framework that is supplemented by deep business process
and technical accounting and systems skills
 How to Valuate ?

 Some IFRSs require Fair Value Approach-

Examples :
IFRS-3, Business Combinations
 Fair value - for which the assets could be
exchanged by willing parties in arm’s length
transaction.
 US GAAP provides a hierarchy of 3 levels of

input data -
i. Level 1 - Quoted prices for identical items.
ii. Level 2 - Observable information for similar
items.
iii.Level 3 - Unobservable inputs to be used.
 During Fair Valuation – effect flow through
profit and loss account.
 Both unrealized gains and losses may

appear in profit and loss account.

 As per Indian Income Tax Act, 1961 – this

gain would be chargeable.

 Therefore, Income Tax Act needs to be

changed accordingly so that unrealized gain

may not be taxed.
 Suspension of AS 11 up to the period ending 31st
march 2011
 Companies need not debit the forex loss to the
income statement – it should be adjusted to the
respective assets in the B/S by the process of
capitalization of such forex loss
 The main objective of setting AS standards and
preparing financial statements is to provide true
and fair (reliable and relevant only when
unbiased) financial information to the intended
stakeholder of the company.
 Islamic finance already plays a significant
part in the global economy
 Basic difference in INTEREST concept
 the Islamic finance industry is set to grow

from $700bn to $4trn by 2013

 despite the crisis Islamic banking is still

projected to grow by 15-20 % p.a.

 in April 2009 asked accounting standard
setters to work urgently with supervisors
and regulators to achieve a single set of
high-quality, global accounting standards
and meet deadlines outlined in the Action
Plan
 SEC is likely to consider responses to its

proposed roadmap for the potential use of

(IFRS) in the U.S. before the year’s end
IFRS and capital market
 Not merely be a technical accounting conversion
 structuring of contracts with customers and
vendors, performance appraisal parameters
and reward plans, and managing external
investor relations and communication
 prior years’ errors and omissions will have to be
effected through restatement account (1538 us)
 investors and regulators look at any restatement
negatively
 explaining variations and volatility in earnings on a
quarterly basis to stake holders
 to defer implementation of AS-11 till 2011.
 decision is not yet notified by the

government
 NACAS has favoured suspending for two

years, the AS11 (ICAI has not favoured)

 Example (imported 1000 kl edible oil)
Companies MTM provisions (crores)
Tata steel 775
Tata motor 632
JSW steel 815
suzlon 741
 material impact on the financial statements

 requires a high level of judgment for loan

losses and investments

 Derivative and hedge accounting

(separate a/c )

 De-recognition of financial assets

(securitization)

 Consolidation of entities (not driven purely

by ownership structure )
 changes in the systems of the existing to the
newer version of IFRS enabled accounting software
 Technology companies enter into bundled contracts
and multiple offerings.
 Outsourcing contracts (IT platform, hardware on
lease)
 Share based payments (intrinsic value, fair
value)
 Discounting of receivables & payables
 Acquisitions (financial included when control is
obtained)
 Derivatives and hedge accounting (strict
documentation)
 Public-private partnership
(construction phase, subsequent
operations phase)
 Leases

(financial lease or operational lease)

 Financial instrument

(embedded derivatives-consumer price or

labour index)
 discounting of long-term payables and

receivables
(interest rates)
 Co. Takes revenue from under-
construction projects

 Under the IFRS, only when an apartment is

constructed and ownership rights are
transferred, the transaction is recorded as
revenue

 IFRS will erode profits of real estate

companies
 Minimum depreciation rate

 Mould, pattern, development cost, tooling

cost, new technology etc.

 IFRS will result into Higher profits

 Telecom companies provide package
offers comprising handset, prepaid
minutes, messages, discounts, special
offers and other incentives
 Media firms often bundle products,

programmes or channels and

publications
 In IFRS, bundled contracts and multiple

offerings under a package will require

accounting of different components
and revenues
 Exploration and evaluation (E&E) expenditure
(flexibility)
 Development expenditure (lack of

guidelines)
 Mine closure and rehabilitation provisions

(provisions for DCF varied significantly )

 Resources and reserves reporting (not

addressed)
 Revenue (information went beyond strict

disclosure)
 commodity price risk

 Segment reporting (operating segments )

 US is set to converge to IFRS by 2015
 About 6,000 US companies transit 2014-2016.
Assuming that 3,000 small companies may implement
IFRS internally, the remaining 3,000 would need an
external agency’s help
 Each company may need a 5-10 member team for
implementation. Even if 20-30 per cent of the work is
outsourced its big opportunity for India
 $1 billion opportunity
 listed companies and public interest
entities in the country are required to transit
from the Indian accounting standards to IFRS by
April 1, 2011 and for that companies will have
to start preparing their accounts in that format
from 2010 onwards

 Infosys Technologies, NIIT, Wipro, Mahindra &

Mahindra, Tata Motors, Bombay Dyeing, Dr
Reddy's Laboratories
Thank you