Dear professionals LET US DISCUSS IFRS September 7, 2015 1.
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Transcript of Dear professionals LET US DISCUSS IFRS September 7, 2015 1.
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Dear professionals
LET US DISCUSS
IFRS
April 19, 2023
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
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IFRS OVERVIEW
ICSI WITH RELIANCEApril 19, 2023
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IFRS
April 19, 2023
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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 CurrentGlobal Approach vs Indian ApproachFair Value A/cing vs Historical Value A/cingGroup vs Standalones
Substance over FormPrinciples 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) were issued 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 today’s 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 IFRS Financial Statements
31 March 2012 seems a long way off, but there is a lot of work required to convert, as we have seen in countries which have already adopted IFRS
*For a March year -end, adopting IFRS in 2011 with one year comparative
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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 may present an
inconsistent picture compared with competitors.
They may face regulatory actions too.
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International Financial Reporting Standards
IFRS 1 – First time adoption of IFRSIFRS 2 – Share Based PaymentIFRS 3 – Business CombinationsIFRS 4 – Insurance ContractsIFRS 5 – Non-current assets held for sale and discontinued operationsIFRS 6 – Exploration for and evaluation of mineral resourcesIFRS 7 – Financial Instruments-DisclosuresIFRS 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, except for listed entities as per SEBI rules
Mandatory (Exceptions: Intermediate company, where ultimate holding presenting CFS under IFRS.
Potential voting rights
AS 21 is silent. Per ASI 18 potential voting rights not considered for determining significant influence in case of associate
Potential voting rights currently exercisable should be considered control.However such rights at a future date are not considered control.
Control - definition Ownership of more than one half of the voting power or control of the composition of board of directors’
Control is based on substance. Control may exist even pursuant to agreement with other shareholders.
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Consolidated Financial Statements (CFS)
Indian GAAP IFRS
Uniform accounting policies
Required but if impracticable, disclosure of items where different policies followed
Mandatorily required
Preparation of FS on the date of acquisition for computing parent portion of equity in a subsidiary
Required. If impracticable, the FS of immediately preceding period can be used
Required (no alternative)
Goodwill determination
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 entity’s 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
Interest income
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 shareholder’s
right to receive payment is
established.
IAS- 18 – Revenue Recognition
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Indian GAAP IFRS
Actuarial Gains/losses All actuarial gains and losses are recognized immediately in P&L
- Actuarial Gain / loss below 10% corridor need not be recognized- Actuarial Gain / loss above 10% corridor can be deferred over remaining service period or on accelerated basis
Termination benefit/VRS deferral
Permitted upto April 1, 2010 as part of transitional provisions
Not permitted
IAS 19 – Employee Benefits
Corridor Approach: A range of plus or minus 10% around the Company's best estimate of post-employment benefit obligations. Outside that range, it is not reasonable to assume that actuarial gains or losses will be offset in future years.
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IAS 12 – Income Taxes
Indian GAAP IFRS
Approach Income statement or timing differences approach
Balance sheet liability approach or the temporary differences approach.
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 of
Financial Statements. The main changes from the previous version are to require that an entity must:
present all non-owner changes in equity (that is, 'comprehensive income' ) either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income may not be presented in the statement of changes in equity.
present a statement of financial position (balance sheet) as at the beginning 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 comprehensive
income' 'cash flow statement' will become 'statement of cash flows'.
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Books on IFRS that one may refer The 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.