IFRS:

ISSUES AND CHALLENGES

IFRS: HISTORICAL PERSPECTIVE

THE 1960S—CALLS FOR INTERNATIONAL STANDARDS AND SOME EARLY STEPS

1962—8th INTERNATIONAL CONGRESS OF ACCOUNTANTS IS HELD—MANY SEE A NEED FOR INTERNATIONAL ACCOUNTING AND AUDITING STANDARDS1962—THE AIPCA REACTIVATES ITS COMMITTEE ON INTERNATIONAL RELATIONS1964---ACCOUNTING STANDARDS INTERNATIONALLY PUBLISHED AS PROFESSIONAL ACCOUNTING IN 25 COUNTRIES1966—ACCOUNTANTS INTERNATIONAL STUDY GROUP IS FORMED1967—THE FIRST TEXTBOOK ON INTERNATIONAL ACCOUNTING IS PUBLISHED

CONT…THE 1970S AND 1980S—AN INTERNATIONAL STANDARDSETTING BODY TAKES ROOT, AND THE FASB BEGINS TO COLLABORATE

1973—THE INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE (IASC) IS ESTABLISHED1979—FASB FORMS FIRST TASK FORCE THAT INCLUDES REPRESENTATIVES FROM INTERNATIONAL STANDARD SETTERS1987—THE IASC EMBARKS ON ITS COMPARABILITY AND IMPROVEMENTS PROJECT1988—THE FASB BECOMES A MEMBER OF THE IASC CONSULTATIVE GROUP AND A NON-VOTING OBSERVER AT IASB MEETINGS1988—THE FASB EXPRESSES SUPPORT FOR INTERNATIONALIZATION OF STANDARDS

CONT…THE 1990S—THE FASB FORMALIZES AND EXPANDS ITS INTERNATIONAL ACTIVITIES

1991—THE FASB ISSUES ITS FIRST STRATEGIC PLAN FOR INTERNATIONAL ACTIVITIES1993—THE FASB AND THE ASB OF CANADA UNDERTAKE JOINT PROJECT ON SEGMENT REPORTING1993—THE FASB AND OTHER STANDARD SETTERS FORM THE G41994—THE FASB AND IASC UNDERTAKE THEIR FIRST COLLABORATIVE STANDARD SETTING EFFORT1995—THE FASB UPDATES ITS STRATEGIC PLAN AND UNDERTAKES A PROJECT TO COMPARE U.S. GAAP AND IASC STANDARDS1995—THE IASC UNDERTAKES A CORE STANDARD PROGRAM; THE INTERNATIONAL ORGANIZATION OF SECURITIESCOMMISSIONS AGREES TO REVIEW THOSE STANDARDS1996—THE U.S. CONGRESS EXPRESSES SUPPORT FOR HIGHQUALITY INTERNATIONAL STANDARDS1996—THE SEC ANNOUNCES ITS INTENT TO CONSIDER THE ACCEPTABILITY OF USE OF IASC STANDARDS BY FOREIGN PRIVATE ISSUERS1998—THE ASIAN FINANCIAL CRISIS PROMPTS MORE CALLS FOR INTERNATIONAL STANDARDS1999—THE FASB PUBLISHES ITS VISION FOR THE FUTURE OF INTERNATIONAL ACCOUNTING STANDARD SETTING

CONT…THE 2000S—THE PACE OF CONVERGENCE ACCELERATES: USE OF INTERNATIONAL STANDARDS GROWS RAPIDLY, THE FASB AND IASB AGREE TO WORK COLLABORATIVELY, AND THE U.S. EXPLORES ADOPTING INTERNATIONAL STANDARDS2000—THE SEC ISSUES A CONCEPT RELEASE ON INTERNATIONAL ACCOUNTING STANDARDS2001—THE IASC IS RECONSTITUTED INTO THE IASB2002—THE EU DECIDES TO USE IFRS & THE NORWALK AGREEMENT: THE FASB AND IASB AGREE TO COLLABORATE2005—SEC STAFF SPEECH PROVIDES A PROPOSED ROADMAP TO THE ELIMINATION OF THE RECONCILIATION REQUIREMENT2006—THE FASB AND IASB ISSUE A MEMORANDUM OF UNDERSTANDING2007—THE SEC PROPOSES AND SUBSEQUENTLY ELIMINATES THE RECONCILIATION REQUIREMENT2007—THE SEC ISSUES A CONCEPT RELEASE ON POSSIBLE OPTIONAL USE OF IFRS BY U.S. ISSUERS AND FASB RESPONDS2007—THE FASB AND IASB ISSUE CONVERGED STANDARDS ON BUSINESS COMBINATIONS2008—THE FASB AND IASB UPDATE THEIR MEMORANDUM OF UNDERSTANDING2008—THE SEC ISSUES A PROPOSED ROADMAP TO ADOPTION OF IFRS IN THE U.S. AND A PROPOSED RULE ON OPTIONAL EARLY USE OF IFRS2009: FAF AND FASB ISSUE THEIR COMMENT LETTER ON THE SEC’S PROPOSED ROADMAP2010: SEC ISSUES A STATEMENT IN SUPPORT OF CONVERGENCE AND GLOBAL ACCOUNTING STANDARDS2010: FASB REPORTS PERIODICALLY ON THE STATUS OF THEIR PROJECT TO IMPROVE AND CONVERGE U.S. GAAP AND IFRS2011: THE FAF AND FASB PROVIDE FEEDBACK TO THE IFRS FOUNDATION ON ITS STRATEGY REVIEW2011: REPORT OF THE MEETING OF NATIONAL STANDARDSETTERS (NSS) & PROGRESS REPORT ON IASB-FASB CONVERGENCE WORK2011: 2012: SEC STAFF “FINAL REPORT” ON WORK PLAN2013: IFRS FOUNDATION ESTABLISHES ACCOUNTING STANDARDS ADVISORY FORUM

ATTRIBUTES OF A GOOD FS UNDER IFRS

Financial Statements:• Simplicity• Consistency• Understandability• Relevance• Reliability• Comparability• Timeliness

CONCEPT OF IFRS:

IFRSs consists of:• International Financial Reporting Standards• International Accounting Standards and• Interpretations originated by the International Financial

Reporting Interpretations Committee (IFRIC) and• Interpretation issued by the former Standing Interpretation

Committee (SIC).

LIST OF IFRS STATEMENTSIFRS 1: First Time Adoption of International Financial Reporting StandardsIFRS 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 SegmentsIFRS 9: Financial InstrumentsIFRS 10: Consolidated financial statementsIFRS 11: Joint arrangementsIFRS 12: Disclosure of interest in other entitiesIFRS 13: Fair value measurementIFRS 14: Regulatory deferral accountsIFRS 15: Revenue from Contracts with CustomersIFRS 16 : Leases

OPPORTUNITIES OF IFRS• Ensures greater comparability• Helps in availing huge capital• Cost saving• Producing better quality financial statements• Better decision making• Helpful for foreign investors• Categorically reports the exact reality of the company and its financial and

economic position• Increase numerous opportunities for accounting professionals• Reduces the cost for investors• Accelerates Economic growth• Helps auditors to investigate

ISSUES WITH IFRS• Loss of quality• Monopoly status to London-based IASB• No incentive to adopt• No stable funding source• No incentive for early adoption• Two years of financial information prior to conversion• Costs related to application• Use of Fair Value

CHALLENGES IN ADOPTION OF IFRS

• Variation between individual countries standards and IFRS• Huge investment in training programme• Amendments to existing laws• Requires changes in taxation system• Bringing awareness of international practices• Management compensation plan• Fair value basis• Complexity in adoption• Risk in adoption• Need Expertise• Time

STATUS OF IFRS ADOPTION

SOURCE : Analysis conducted by IASB, visited 10th September 2015.

IFRS STATUS NO. OF COUNTRIES

Require 116

Permit but not require 12

Miscellaneous 4

Retain national standards 8

Total analyzed by IASB 140

IND AS: ITS APPLICABILITYFINANCIAL YEAR

MANDATORILY APPLICABLE FOR

2016-17 Companies (listed and unlisted) whose net worth is equal to or greater than 500 crore INR

2017-18 Unlisted companies whose net worth is equal to or greater than 250 crore INR and all listed companies

2018-19 onwards When a company’s net worth becomes greater than 250 crore INR

2015-16 or later Entities, not under the mandatory roadmap, may later voluntarily adopt Ind AS

COMPARISON- IFRS & IND AS

IFRS-8/IND AS-108 OPERATING SEGMENTSAPPLICABILTY OF STANDARD Paragraph 2 of IFRS 8 specified

the situation when the standard is applicable

The same has been deleted in the Ind AS as the applicability or exemptions to the Ind AS is governed by the Companies Act and the rules made thereunder

IFRS-13/IND AS-113 FAIR VALUE MEASUREMENTMEASUREMENT OF RETIREMENT BENEFITS PLAN INVESTMENTS

IFRS specifies that the disclosure requirements specified in the standard are not required for retirement benefit plans measured at fair value in accordance with IAS 26

The said paragraph is deleted as it is not relevant to companies

CONT…IFRS-3/IND AS-103 BUSINESS COMBINATION

BUSINESS COMBINATION UNDER COMMON CONTROL

Paragraph 2(c) of IFRS excludes from its scope- business combinations of entities under common control

Ind AS-103 requires

BARGAIN PURCHASE GAIN ARISING IN BUSINESS COMBINATION

IFRS 3 requires bargain purchase gain arising on business combination to be recognized in profit or loss

Ind AS 103 requires the bargain purchase gain to be recognized 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 recognized directly in equity as capital reserve

THE POOLING OF INTERESTS AND PURCHASE METHOD

Pooling of interests method to record business combinations within the scope of IFRS 3 is prohibited

Pooling of interests method to record business combinations should be accounted.

CONCLUSION• Many difficulties with advantages• Share responsibility• Principle based approach• Subsequent revisions• Finance priority• Tough time for shifting• Build global financial reporting infrastructure

THE BEGINNING OF THE END