A new era of financial reporting icai agra branch - 30th april

A New Era of Financial ReportingThe Agra Branch of CIRC of ICAI30th April’2016

FCA Aditya SinghalM.Com, DISA(ICAI), DipIFRS (ACCA)+91 [email protected]

*A New Era of Financial Reporting* 2

Current Global Reporting Requirements

IFRSFIN REP

GSIB

IFRS 9

HKMA

BoE

Schedule VI

Stress Testing

By CA Aditya Singhal


What is IFRS• IFRS

• IFRS• IAS• IFRIC• SIC

• Order of authoritativeness• IFRS including any appendices• Interpretations• Appendices to IFRS that do not form part of the

standards• Implementation guidance issued by IASB



Why IFRS ?

• Globalization • Better transparency • Cost effectiveness• Scope of professional judgment• Fair valuations• Comparability



IFRS Vs Indian Accounting Standards

• Substance over form• Fair value• Current and Non-Current

Classification• Discounting (Time value of money)• Standards prevail over law


*A New Era of Financial Reporting*

IFRS across the world

Europe2005

Australia 2005

Canada2009/11

South Africa2005

United States (2019?)

Current or anticipated requirement or option to use IFRS (or equivalent)

Brazil2010

China 2007

India 2017/18

Chile 2009

Japan(2016)

7By CA Aditya Singhal


Revised Road-map

Above limits not applicable to banks, insurance companies and NBFC’s

Listed companies, to-be listed companies, companies with net worth> Rs 250 crore and their subsidiaries and joint

ventures31st March 2018 with one year

comparatives

Listed companies, to-be listed companies, companies with net worth> Rs 500 crore and their subsidiaries and joint

ventures31st March 2017 with one year comparatives



• Mandatory for accounting period ending on 31st March 2019

• Full Comparatives for 31st March 2018 need to be provided in Ind AS

• As per Ind AS 101, an Ind AS Opening Balance Sheet would need to be prepared as on 1st April 2017. (effectively year ending 31st March 2017)

• RBI has mandated proforma Ind AS financial statements for the half-year ended 30th September 2016 (clarity awaited on the contents of the proforma)

Banks, Insurance companies, NBFC’s> 500 crores



The IFRS ArchitectureFramework for preparation and

presentation of Financial Statements

IAS 1: Presentation of Financial Statements

IAS 7 Statement of

Cash flow

IFRS 10: Cosl FSIAS 34: Interim financials reporting

IFRS 1: First time

Adoption of IFRS

Other standards



Framework for preparation and presentation of Financial

Statements



Framework for preparation and presentation of Financial Statements

Underlying assumptions>Accrual Basis>Going Concern

Quantitative Characteristics > Presentation - Understand ability- Comparability > Content- Relevance- Reliability

ElementsRecognitionMeasurement



IAS 1: Presentation of Financial Statements



Objective and Scope of IAS-1

Provide information about the financial position, financial

performance, and cash flow of an entity

that is useful a wide range

of users

Sets the overall

requirement for the

preparation and

presentation of financial statements

Provide guidance for the format

and structure of financial statements

Set out the minimum content

requirement for financial statements



Assets - Liability - Equity - Income - Expenses

-Resource-Controlled by an entity-As a result of past event-From which economic benefits are expected to flow to the entity

-Present obligation-Arising from past events-The settlement of which is expected to result in an outflow from the entity of economic benefits

-Residual interest in the entity’s assets after deducting all of its liabilities-It is sub-divided in the statement of financial position

-Increase in economic benefit - During the accounting period - In the form of inflows, enhancement in assets or decrease in liability-Other than those relating to contribution from equity participants

- Decrease in economic benefits- During the period- In the form of outflows, depletion of assets or incurrence of liability - Other than that which relates t o distributions to equity participants

Financial Statements - Elements



General Feature of Financial Statement Presentation

Fair Presentation Compliance with IFRS

Going Concern Accrual

Materiality &Aggregation Offsetting

ComparativeInformation Consistency



Fair Presentation and Compliance with IFRS

• Requires faithful representation of effects of transactions, other events and conditions

• Required to make an explicit and unreserved statement of compliance with IFRS in the notes (Not applicable in case of Ind- AS)

• An entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs

• Absence of an IFRS –management judgment : relevant and reliable

• IFRS hierarchy



Going Concern & Accrual

• Ability to continue operations for the foreseeable future

• Management required to make an assessment of the entity’s ability to continue as a going concern – should cover a period of 12 months from the end of the reporting period



Materiality and Aggregation

Materiality

• Present separately each material class of similar items

• An entity shall present separately items of a dissimilar nature or function unless they are immaterial

Offsetting

• An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an IFRS



Comparative Information & Consistency

• Disclose comparative information in respect of the previous period for all amounts reported in the current periods financial statements

• Shall include comparative information for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements

• Retain the presentation and classification of items in financial statements from one period to another unless IFRS requires a change in presentation or another presentation or classification would be more appropriate



Identification of Financial Statements• Clearly identify the financial statements and distinguish them

from other information in the same published document • Prominently display following information

• Name of reporting entity and any change in that information from the end of the reporting period

• Whether the financial statements are of an individual entity or a group of entities

• Date of the end of the reporting period covered by the set of financial statements

• Presentation currency• Level of rounding used in presenting amounts in the financial

statements• Domicile and legal form of the entity including country of incorporation

and address of its registered office• A description of the nature of the entity’s operations and its principal

activities



Components of Financial Statements

Statement of Financial Position

Statement of Comprehensive Income

Statement of changes in Equity Statement of Cash Flows

Notes, comprising a summary of significant accounting policies and other explanatory notes

A SOFP as the beginning of the earliest comparative period under certain circumstances



The Standard does not specify the order of presentation or format to be used prescribes only certain minimum lines items , with a provision that additional line items may also be presented if so warranted by the nature or function of the item.

For Example, under the head Property, Plant and Equipment an entity may present if so warranted by the assets that are measured using “Revaluation Model”.


Statement of Comprehensive Income


Current Vs Non-Current Classification

• Criteria for Classification as Current Assets:

An entity expects to realize the asset, or intends to sell or consume it, in its normal operating cycle,

holds it primarily for trading purposes, expects to realize the asset within 12 months after the reporting period, the asset is a cash or cash equivalent

• Criteria for Classification as Current Liabilities

it expects to settle the liability in the course its normal operating cycle holds the liability primarily for trading purposes or the liability is due to be settled within a year after the reporting period it does not have an unconditional right to defer settlement of the liability

for at least a year after the reporting period


*A New Era of Financial Reporting* 27By CA Aditya Singhal


Statement of Comprehensive Income• An entity shall present all items of income and

expenses recognized in a period:• in a single statement of comprehensive income, or• in two statements: a statement displaying components of

profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income)



Component of SOCI

Profit or Loss Account

Other Comprehensiv

e Income

Total Comprehensiv

e Income



Minimum Information in SOCI• Revenue• Finance costs• Share of the profit or loss of associates and joint

ventures accounted for using the equity method• Tax expense• Post-tax profit or loss of discontinued operations• Profit or loss• Each component of other comprehensive income

classified by nature• Total comprehensive income



SOCI-Others• An entity shall present additional line items,

heading and sub-totals in the statement of comprehensive income when such presentation is relevant to an understanding of the entity’s financial performance

• No item of income or expense shall be presented as extraordinary items in the statement of comprehensive income



SOCI – Layout cont…..



SOCI - Layout



Statement of Changes in Equity (SOCIE)

• Statement of Changes in Equity (SOCIE) requirements• Total comprehensive income for the period, showing separately the

total amounts attributable to owners of the parent and to non-controlling interests

• For each component of equity, the effects of retrospective application or retrospective restatement recognized in accordance with IAS 8-Accounting Policies, Changes in Accounting Estimates and Errors

• For each component of equity, a reconciliation between the carrying amount at the beginning and end of the period, separately disclosing changes resulting from:• Profit or Loss,• Each item of other comprehensive income, and

• Transactions with owners in their capacity as owners showing separately contributions by and distribution to owners



SOCIE- Layout



Cash Flow- IAS 7• An entity shall prepare a statement of cash

flows in accordance with IAS -7

• Special Attention• Foreign Currency transactions• Tax on Income• Non-Cash transactions • Transactions resulting in changes in ownership

interest• Dividends



Cash flow- IAS 7• Disclosure requirement:

• Management commentary on special areas• Reconciliation of opening and closing cash items

• Optional disclosure:• Restricted cash• Cash belongs to Joint ventures• Cash flow relating to each reporting segments reported• Minimum cash required to maintain the operating capacity



Notes

• Present information about the basis of the preparation of the financial statements and the specific accounting policies

• Disclose information required by IFRS that is not presented elsewhere in the financial statements

• Provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them



Notes- Sequence• Statement of compliance with IFRS• Summary of significant accounting policies• Supporting information for items presented in the

statements of financial position• Other disclosures including contingent liabilities,

non-financial disclosures



IFRS 1: First time Adoption of IFRS



First time Adoption - 5 step process

1. Identification of date of transition2. Selection of accounting policies that comply with

IFRSs3. Preparation of an opening IFRS balance sheet4. Preparation of the first IFRS financial statements5. Reconciliations and disclosures



Identification of date of transition

• Transition Date - 1st April’ 2010• Adoption Date - 1st April’2011• Reporting Date - 31st

March’2012

If entity presents comparative statements

• Transition/Adoption Date – 1st April’ 2011

• Reporting Date- 31st March’2012

If entity does not present comparative statements



Selection of accounting policies that comply with IFRSs

a) Need to apply IFRS effective at the Reporting Date.

b) May apply a new IFRS that is not yet mandatory, if it permits early application.

c) Determine which exceptions to used) Take into account the exceptions to

retrospective application



Preparation of an opening IFRS Balance Sheet

• Does not recognize items as assets or liabilities if IFRS does not permit such recognition

• Recognize all assets and liabilities whose recognition is required by IFRS

• Reclassify assets, liabilities and items of equity as per the requirements of IFRS

• Measure all assets and liabilities in accordance with IFRS




Assets/ Liability

as per IFRS?

Recognised under Indian

GAAPWhether Measurement

in line with IFRS?

Re-classify, if required by IFRS

Include as per IFRS

prescription

Recognised under Indian

GAAP?

Exclude and do not recognise

No Change required

Adjust carrying amount as per

IFRS

YES YES

YES

YES

NoNo No



ABC Corp presented its financial statements under the national GAAP of “Strangeland” (country) until 2004. It adopted IFRS from 2005 and is required to prepare an opening IFRS balance sheet as at January 1, 2004. In preparing the IFRS opening balance sheet Exuberance Corp. noted

• Under its previous GAAP, ABC Corp. had deferred advertising costs of $1,000,000 and had classified proposed dividends of $500,000 as a current liability.

• It had not made a provision for warranty of $200,000 in the financial statements presented under previous GAAP since the concept of “constructive obligation” was not recognised under its previous GAAP.

• In arriving at the amount to be capitalized as part of costs necessary to bring an asset to its working condition, Exuberance Corp. had not included professional fees of $300,000 paid to architects at the time when the building it currently occupies as its head office was being constructed.




Preparation of the first IFRS financial statements - Mandatory Exceptions

Assets held for sale and discontinued operations

(IFRS 5)Non- Controlling interests

(IFRS 3)

Hedge accounting & Embedded derivatives

(IAS 39 & IFRS 9)

Derecognition of financial assets and financial

liabilities(IAS 39 & IFRS 9)

Estimates(IAS 8 & 10)



Preparation of the first IFRS financial statements - Optional Exemptions

Fixed Assets

• Use of fair value as deemed cost

• Decommissioning liabilities included in the cost of property, plant and equipment.

• Leases• Service concession arrangements

• Borrowing costs

Business Combinatio

n • Business combinations

• Assets and liabilities of subsidiaries, associates and joint ventures

• Investments in subsidiaries, jointly controlled entities and associates in separate financial statements

• Cumulative translation differences

Financial Instruments

• Compound financial instruments

• Designation of previously recognized financials instruments

• Fair value measurement of financial assets or financials liability at initial recognition

Others• Employees benefits

• Share- based payment transactions

• Insurance contracts



Reconciliations and Disclosures

• Equity from previous GAAP to IFRS at the transition date and the end of the last period presented in the entity‘s most recent financial statements under previous GAAP

• Net profit from previous GAAP to IFRS for the last period in the entity's most recent financial statements under previous GAAP.

• Other disclosures in the first IFRS financial statements



Challenges involved in First Time Adoptions

1. Fair value override permitted under IFRS2. Retrospective application3. Barred – extraordinary items 4. Impact of change in accounting policy5. The use of revaluation for fixed assets,

intangibles and investment property….

cont



Challenges involved in First Time Adoptions

6. Consolidation of financials – Special purpose entities

7. Goodwill/negative goodwill treatment 8. Revenue recognition of long term construction

contract9. Impairment of non-current assets10.Classification of financial instrument



Ind- ASCarve OutIFRS

Carve Outs



• Ind AS 101, First-time Adoption of Indian Accounting Standards:Allowing the use of carrying cost of Property, Plant and Equipment (PPE), Intangible Assets, Investment Property, on the date of transition of First-time Adoption of Indian Accounting Standards.

• Carve Out Ind AS 101 provides an entity an option to use carrying values of all items of PPE as on the date of transition in accordance with previous GAAP.

Carve Outs



• Ind AS 103 requires the bargain purchase gain to be recognised in other comprehensive income and accumulated in equity as capital reserve, unless there is no clear evidence for the underlying reason for classification of the business combination as a bargain purchase, in which case, it shall be recognised directly in equity as capital reserve.

Carve Outs



• Ind AS 32, Financial Instruments: Presentation An exception has been included to the definition of ‘financial liability’ in paragraph 11(b)(ii), Ind AS 32 to consider the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of entity’s own equity instruments as an equity instrument if the exercise price is fixed in any currency. This exception is not provided in AS 32

Carve Outs



• Ind AS 40, Investment property Fair Value Model for valuation of investment property is not permitted under Ind AS 40.

Carve Outs



• Ind AS 28, Investment in Associates and Joint ventures The phrase, ‘unless impracticable to do so’ has been added in paragraph 26 of Ind AS 28. Thus, uniform accounting policies may not be used by investor of an associate in case it is impracticable

Carve Outs



• Definition of previous GAAP under Ind- AS Ind AS 1 defines the previous GAAP as basis of accounting that a first-time adopter used immediately before the adopting Ind AS. Ind AS 101 notified in 2015 defines previous GAAP as the basis of accounting that a first- time adopter used for its statutory reporting requirement in India immediately before adopting Ind AS.

Carve Outs



• Ind AS 101, First-time Adoption of Indian Accounting Standards: Foreign currency gains/losses on translation of long-term monetary items

• Permission to continue the accounting policy adopted for accounting for exchange differences arising from translation of long- term foreign currency monetary items has been given in Ind AS 101 notified in 2015.

Carve Outs



• Ind AS 101, First-time Adoption of Indian Accounting Standards: Amortisation of intangible assets arising from service concession arrangements related to toll roads

• Permission to continue the accounting policy adopted for amortisation of intangible assets arising from service concession arrangements related to toll roads has been given in Ind AS notified in 2015.

Carve Outs



• Ind AS 17, Leases

Where the escalation of lease rentals is in line with the expected general inflation so as to compensate the lessor for expected inflationary cost, the increases in the rentals should not be straight lined.

Carve Outs



• Ind AS 115, ‘Revenue from contracts with customers’ Treatment of penalties should be as per the substance of the contract.

Carve Outs



Reporting: Opportunity and Career



Role of CAs in Industry • Change Agents• Preparing internal processes to meet the information

compilation to meet the requirements of the IFRSs• Developing Human Resources for Adaptation• First time adoption• The Board has to approve first time adoption choices (IFRS1)• Detailed communication plan is necessary to educate

stakeholders and actively manage perceptions.• Communication of key policy choices, interpretations and

accounting decisions to explain the financial results. • Need for additional resources to replace those allocated to

the IFRS convergence programme. • Budgets, forecasts, management accounts and KPIs need to

be on IFRS basis



Role of CAs in Practice

• Handholding• Consultation• Advise on internal processes on adoptation• Training HRs on IFRSs’ processes• Guidance



Questions ?



Key Learning Points

1. First time adoption is more of a business decision than accounting

2. Doing it right at the first time is very critical3. Judiciously applying the optional exemptions will

help reduce the GAAP difference4. Practice with options will guide to refine

decisions5. Significant disclosure and reconciliation

requirements



Thanks !FCA Aditya SinghalM.Com, DISA(ICAI) ,Dip IFRS (ACCA)+91 [email protected]


A new era of financial reporting icai agra branch - 30th april

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