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Dear professionals LET US DISCUSS

IFRS

February 5, 2011

1

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WELCOME TO HUGE GATHERING

SO WE ARE KEEPING ALL ON MUTE MODE

SO THAT YOU CAN HEAR SPEAKERS

QUESTIONS BE EMAILED TO

mohanbhave@gmail.com

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IFRS OVERVIEW

ICSI WITH RELIANCE

February 5, 2011

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IFRS

February 5, 2011

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Where are we moving

Global vs Indian approach

Fair value vs historical cost

Reporting vs Accounting

Substance over Form

Group vs Standalones

Principles over rules

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IFRS 8 Standards what is most critical?

1 first time adoption

2

3 Business combination

4

5 6

7 financial instruments

8

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An Overview of IFRS

(what we are moving towards)Proposed Current

Global Approach vs Indian Approach

Fair Value A/cing vs Historical Value A/cingGroup vs Standalones

Substance over Form

Principles over Rules

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An Overview of IFRS

(Boards/Committees Involved) IFRS are standards and interpretations adopted by

the International Accounting Standards Board

(IASB)

International Accounting Standards (IAS) wereissued by the International Accounting Standard

Committee (IASC) between 1973 and 2000.

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An Overview of IFRS

(Boards/Committees Involved) The IASB replaced the IASC in 2001 and made a

couple of changes -

Amended some IASs

Replaced some IASs with new IFRSs Issued certain new IFRSs on topics for which

there was no previous IAS.

Through committees, both the IASC and the

IASB have also issued interpretation of

standards.

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An Overview of IFRS

(Boards/Committees Involved) IFRS Comprises:

8 IFRSs and 30 IASs

18 IFRIC (International Financial Reporting

Interpretations Committee) and 12 SICs(Standard Interpretations Committee)

There is also a framework for the Preparation &

Presentation of Financial

Statements which describes some of the

principles underlying IFRS.

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IFRS in India - Why One language

Comparability enhanced

Understanding enhanced

One set of books

Access to Global capital markets

Low cost of capital

Attract foreign investment

Elimination of multiple reports

Reflect true value of acquisitions

Schedule VI in todays environment

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IFRS in India - Who All public interest entities are required to adopt IFRS -

Listed companies

Banks, insurance companies, and financial institutions

Turnover > Rs 100 crores

Borrowing > Rs 25 crores

Holding or subsidiary of any of the above

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IFRS in India - When ICAI has set up a Task Force on Convergence with IFRS

The task force has decided on date of adoption of IFRS

as April 1, 2011

This means that date of transition is April 1, 2010

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Calendar for IFRS Conversions The timetable below shows the illustrative transition timetable

Opening IFRS balance sheet*

01/04/2011 31/03/20121/4/2010

Reporting

date for FS

IFRS adoption date

IFRS

Comparatives

1st IFRSFinancial Statements

31 March 2012 seems a long way off, but there is a lot of workrequired to convert, as we have seen in countries which have alreadyadopted IFRS

*For a March year -end, adopting IFRS in 2011 with one yearcomparative

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IFRS in India How

(Practical implications for companies)

Converting to IFRS is more than a technical

exercise; it presents many business challenges

and opportunities.

Major conversions can take 12 - 18 months to

complete.

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IFRS in India How

(Practical implications for companies) Senior management will need the time to

understand the full impact of IFRS on the company

and to develop the right messages for the

marketplace.

Companies that fail to appropriately implement

IFRS may lose competitive advantage or maypresent an inconsistent picture compared with

competitors. They may face regulatory actions too.

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International Financial

Reporting StandardsIFRS 1 First time adoption of IFRS

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

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Overview of differences Though Indian AS are based on IFRS, there are significant

differences between the two in many areas for eg.:

Legal differences

Schedule VI

Depreciation rates under schedule XIV

Court schemes

Shift from Historical cost basis to Fair Value

Derivative Financial Instruments

Tangible and intangibles acquired in business combinations

Loans and advances e.g. Interest free deposits

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Key accounting concepts

affected by IFRS Presentation of Financials governed by IAS 1 instead

of Schedule VI

Prior period items coverage of Balance Sheet items

and restatement

IFRS 1 on First Time Adoption

Business combination no pooling

Consolidation of Financial Statements

Control definition

Uniform accounting policies

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Key accounting concepts

affected by IFRS Tangible assets

Component accounting

Repairs, maintenance and overhauling major expenses

Revaluation

Change in method of depreciation prospective

Deferred payment liability recognition of interest

Intangible assets- revaluation permitted if active market

Provision, contingent liability and contingent asset

Discounting

Disclosure of contingent asset

Discounting of deferred revenue

Events after balance sheet date proposed dividend

Deferred tax asset recognition - no virtual certainty

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Consolidated Financial

Statements (CFS)Indian GAAP IFRS

Preparation of CFS Not mandatory, exceptfor listed entities as perSEBI rules

Mandatory (Exceptions:Intermediate company, whereultimate holding presenting CFS

under IFRS.Potential votingrights

AS 21 is silent. Per ASI18 potential votingrights not considered fordetermining significantinfluence in case ofassociate

Potential voting rights currentlyexercisable should beconsidered control.

However such rights at a futuredate are not considered control.

Control - definition Ownership of more thanone half of the votingpower or control of thecomposition of board ofdirectors

Control is based on substance.Control may exist evenpursuant to agreement withother shareholders.

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Consolidated Financial

Statements (CFS)Indian GAAP IFRS

Uniform accountingpolicies

Required but ifimpracticable, disclosureof items where different

policies followed

Mandatorily required

Preparation of FSon the date ofacquisition forcomputing parentportion of equity in

a subsidiary

Required. Ifimpracticable, the FS ofimmediately precedingperiod can be used

Required (no alternative)

Goodwilldetermination

Based on carrying value Based on fair value due to

IFRS 3

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IAS 16 Property, Plant and

Equipment Component accounting: Key impact on Capital intensive

industries

In-depth analysis required to identify significant components

that make up a plant.

Each significant component to be depreciated over its own

useful life

Application would require technical knowledge usually

cannot be provided by the accounting department on its own

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IAS 32 / 39 Financial

Instruments

Indian GAAP IFRS

Financial Instruments& Equity

AS-13 deals with investment in a

limited manner. Foreign

exchange hedging is covered by

AS-11.

IAS 32 and 39 deal with financial instruments

and entitys own equity in detail including

matters relating to hedging.

Classification No specific standard on financial

instrument. Classification based

on form rather than substance.

Preference shares are treated as

capital, even though in many

case in substance it may be a

liability

The Issuer of a financial instrument shall

classify the instrument, or its component

parts, on initial recognition as a financial

liability, a financial asset or an equity

instrument in accordance with the substance

of the contractual arrangement and the

definitions of a financial liability, a financial

asset and an equity instrument.

Loans & Receivables Loans and receivables are stated

at cost. Interest income on loans

is recognised based on time-

proportion basis as per the rates

mentioned in the loan

agreement.

Initial measurement of loans and receivables is

at fair value plus transaction cost. Subsequent

measurement is at amortised cost using

effective interest method.

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Indian GAAP IFRS

Measurement

(deferred -payment)

Measured by charges made to

customers, discounting not

normally required for deferred

inflow

Measured at fair value,

discounting required where inflow

is deferred

Interestincome

Recognised at applicable rate. Effective interest method is

followed.

Dividend In case of dividends from

subsidiaries, schedule VI

requires dividend to recognized

in the period to which it

pertains even if declared after

the balance sheet date.

Recognition when the

shareholders right to receive

payment is established.

IAS- 18

Revenue Recognition

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Indian GAAP IFRS

ActuarialGains/losses

All actuarial gains andlosses are recognizedimmediately in P&L

- Actuarial Gain / loss below10% corridor need not berecognized

- Actuarial Gain / loss above10% corridor can be deferredover remaining service periodor on accelerated basis

Terminationbenefit/VRS deferral

Permitted upto April 1,2010 as part oftransitional provisions

Not permitted

IAS 19

Employee Benefits

Corridor Approach: A range of plus or minus 10% around theCompany's best estimate of post-employment benefit obligations.Outside that range, it is not reasonable to assume that actuarialgains or losses will be offset in future years.

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IAS 12

Income TaxesIndian GAAP IFRS

Approach Incomestatement ortimingdifferencesapproach

Balance sheet liabilityapproach or thetemporary differencesapproach.

Deferred tax In case of

tax losses

Virtual certainty Reasonable certainty

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IAS 1

Presentation IAS 1 does not lay down any format of financial statements

Minimum items to be presented on face and in notes are

laid down Presentation more governed by substance; rather than form

Preference shares to be classified as liability vs. equity

based on substance

Portion of long-term loans payable with in twelve

months to be presented as current

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Disclosures IFRS prescribes extensive disclosures as compared to Indian GAAP

Few examples of additional disclosures required which may require

substantial additional work

Critical judgements made by the management

Key sources of estimation uncertainty

Capital management policy and data

Standards/ interpretations issued but not yet effective and their impact

Determination of fair values and key assumptions used about the same

Sensitivity analysis of fair values

Various risks to which an entity is exposed, policies for management of

such risks and quantitative date relating thereto

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Some interesting facts !On 6 September 2007, the IASB issued a revised IAS 1 Presentation ofFinancial Statements. The main changes from the previous version areto require that an entity must:

present all non-owner changes in equity (that is, 'comprehensiveincome' ) either in one statement of comprehensive income or in twostatements (a separate income statement and a statement ofcomprehensive income). Components of comprehensive income maynot be presented in the statement of changes in equity.

present a statement of financial position (balance sheet) as at thebeginning of the earliest comparative period in a complete set of

financial statements when the entity applies an accounting 'balance sheet' will become 'statement of financial position'

'income statement' will become 'statement of comprehensiveincome'

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

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Books on IFRS that one may

referThe list of reference books for IFRS are as follows:

1. International Financial Reporting Standards (IFRSs) - published by

Taxmann Publications P Ltd.

2. A Guide through International Financial Reporting Standards July 2008-

Published by IASB.

3. IFRS : A Quick Reference Guide by Robert Kirk

4. Wiley IFRS: Practical implementation guide and workbook by Abbas Ali

Mirza, Graham J. Holt and Magnus Orrell

5. Wiley IFRS 2008: Interpretation and application of International

Accounting and Financial Reporting Standards 2008 by Eva K. Jermakowicz

In addition to the above, the following books can also be used for reference.

1. The IFRS Manual of Accounting authored by the UK Accounting

Consulting Services team of PricewaterhouseCoopers LLP and published by

CCH.

2. International GAAP 2009 by Ernst and Young, published by Wiley.

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Rammohan N Bhave

9322249833 and 9004043365

mohanbhave@gmail.com