SCD GOVT COLLEGE, LDH

ASSIGNMENT ONMODERN ACCOUNTING

THEORY ANDREPORTING PRACTICES

2014-15SUBMITTED TO: SUBMITTED BY:Dr.ASHWANI BHALLA MUSKAN KUNDRA ROLL NO: 6204 M.COM 1(1ST SEM)

TOPIC

IFRS-1

FIRST TIMEADOPTION OF

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IFRSCONTENTS INDEX

SR. NO

PARTICULARS PAGE NO.

1. GENSIS 4-6

2. INTRODUCTION 6-7

3. OBJECTIVES 8

4. Reseach Article 9-20

5. IFRS-1 21

6. Main Features of IFRS-1 22-26

7. Exceptions to basic principle 27-29

8. Scope of IFRS-1 30-31

9. Steps in IFRS-1 31-34

10. Explanation of transition to IFRSs 35

11. Additional Disclosure 36-38

12. Use of fair value as deemed cost 39

13. Interim financial reports 40

14. Effective Date & Degined Terms 41-42

15. Discussion and Analysis 43-46

16. Summary 46-49

17 Bibliography 50-5318 Abbreviations 54

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Genesis

International Accounting Standard Board (IASB) in its drive to develop a singleset of high quality, globally acceptable accounting and reporting standards hasmade a series of efforts to achieve excellence. In regard to this InternationalAccounting Standard Board(IASB) adopted all IAS and began developing newstandards known as International Financial Reporting Standards (IFRS).

International Financial Reporting Standards (IFRS) is the collection of financialreporting standards developed by the International Accounting Standards Board

(IASB). The aim of IFRS is to provide “a single set of high quality,global accounting standards that require transparent and comparableinformation in general purpose financial statements.”

IFRS is becoming a global language. IFRS are standards, interpretations andframework for the preparation and presentation of financial statements. The IFRS Foundation is an independent, not-for-profit private sectororganisation working in the public interest. Its principal objectives are:

to take account of the financial reporting needs of emerging economies

and small and medium-sized entities (SMEs); and

to bring about convergence of national accounting standards and IFRSs to

high quality solutions.

IFRS are as principles based set of standards that establish broad rules and also dictate specific treatments.

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IFRS Structure

International Financial Reporting Standards comprises of :

International Financial Reporting Standards (IFRS) - standards issued

after 2001

International Accounting Standards (IAS) - standards issued before

2001

Interpretations originated from the International Financial Reporting

Interpretations Committee (IFRIC) - issued after 2001

Standing Interpretations Committee (SIC) - issued before 2001

IFRS assist preparers of financial statements produce and present: high quality, transparent and, Comparable financial information.

IFRS1- First Time Adoption of IFRS

The International Accounting Standards Board (IASB) published IFRS 1 First-time Adoption of International Financial Reporting Standards in 2003. Sincethen, significant amendments have been made to the Standard (primarily as a

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result of changes to other IFRSs). In November 2008, IFRS 1 was substantiallyrewritten (without altering the technical content) to make it a more user-friendlydocument. Most recently, the Standard was revised in July 2009 to introduceadditional exemptions.

The purpose of IFRS 1 is to establish the rules for an entity’s first financialstatements prepared in accordance with IFRSs, particularly regarding thetransition from the accounting principles previously applied by the entity(previous GAAP).

Introduction IFRS-1 deals the first time adoption of international financial reportingstandards. If an entity is preparing it's financial reports under an accountingframework other than international financial reporting standards i.e.(Accountingstandards of their own countries) and decides to change to IFRS then it has tocomply with requirements prescribed by IASB on conversion to IFRS. Theserequirements are stated in IFRS-1 (The first time adoption of internationalfinancial reporting standards).

It specifies the procedures any entity applying IFRS for the first time mustfollow. IFRS-1 is essentially a road map for prepares of first year financialstatements under IFRS. IFRS-1 also ensures that all first time adopters haveconsistent starting point. The process of developing the IFRS-1 was started inApril 2001 when the international Accounting Standard Board (IASB) adoptedSIC-8 first time application of IAS as primary basis of accounting which hasbeen issued by SIC of IASC in July 1998. SIC was replaced with IFRS1 in theJune 2003.

Since the introduction of IFRS 1 in 2003, amendments have been made to otherIFRSs and IASs. As the latter change, the unique needs of first-time adopters areconsidered, and IFRS 1 is updated where and when appropriate.

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The previous “first-time adoption” guidance (SIC 8) required companies toprepare their statements as if they had always followed International AccountingStandards (that is, including the impact of previous standards). By contrast,IFRS 1 requires presentation in accordance with the standards andinterpretations in effect at the reporting date (that is, excluding the impact ofprevious standards).

The general principle of IFRS 1 is that the IFRSs effective at the reporting date(that is, the balance sheet date) should be applied retrospectively to the openingIFRS balance sheet, the comparative period, and the reporting period covered,but with certain exceptions and exemptions. For example, if a companytransitions in 2010, they would need to comply with all IFRSs effectiveDecember 31, 2010, subject to the exemptions and exceptions.

There are two categories of exceptions to the principle that an entity’s opening IFRS statement of financial position needs to comply with each IFRS:

i) Optional exemptions from some requirements of other IFRSs.

ii) Mandatory exceptions, which prohibit retrospective application of someaspects of other IFRSs.

“First-time adopter”

A first-time adopter is an entity that, for the first time, makes an explicit andunreserved statement that its general purpose financial statements complywith IFRSs.

An entity may be a first-time adopter if, in the preceding year, it prepared IFRSfinancial statements for internal management use, as long as those IFRSfinancial statements were not and given to owners or external parties such asinvestors or creditors. If a set of IFRS financial statements was, for any reason,given to an external party in the preceding year, then the entity will already beconsidered to be on IFRSs, and IFRS 1 does not apply.

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An entity can also be a first-time adopter if, in the preceding year, its financialstatements asserted compliance with some but not all IFRSs, or included only areconciliation of selected figures from previous GAAP to IFRSs.

IFRS 1 focuses on requirements for:

presentation of the opening statement of financial position (opening balance

sheet) at the date of transition,

• comparative information as required,

• reconciliations between previous GAAP and IFRS, for example with respect tofinancial position, financial performance, and cash flows,

• other requirements and disclosures.

Objective

The Objectives of IFRS 1 is to ensure that an organization’s first

IFRS financial statements (and any interim financial reports for

part of the period covered by those financial statements)

contain high-quality information that :

• is transparent for users and comparable over all periods

presented

•provides a suitable starting point for accounting under

International Financial Reporting Standards (IFRS)

•can be generated at a cost that does not exceed the benefits

to users.

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To standardize accounting methods and procedures. To lay down principles for preparation and presentation. To establish benchmark for evaluating the quality of financial

statements prepared by the enterprise. To ensure the users of financial statements get creditable

financial information. To attain international levels in the related areas.

Research

ArticlesPatro.Archana, Gupta.V.K., “ Adoption of International FinancialReporting Standards (IFRS) in Accounting Curriculum in India”, ProcediaEconomics &Finance, 2012,Vol.2,PP-9

Review

Archana Patro (2012) outlines that ICAI announced its decision to adopt IFRSin India w.e.f. April 2011 with the objective that this standard will have ansignificant impact on capital markets as many European countries have shiftedto IFRS and are ahead of India in including IFRS in the curriculum for studentsand concludes that understanding of Indian Generally Accepted AccountingPrinciples (GAAP) and IFRS standards is an urgent need for today's students.

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Therefore, the adoption of IFRS mainly depends on the need and interest amongstudents to understand the subject. If students are knowledgeable about thepositive impact of the course, they are more likely to take these courses whenmanagement colleges or universities offer them.

Teller, R., “First-Time Adoption of IFRS, Managerial Incentives, and Value-Relevance”: Some French Evidence, Journal of International AccountingResearch,2009, Vol. 8.2,PP- 2

Review

R.Teller (2008) outlines that whether and how managerial incentives influencethe decision to elect optional exemptions when first adopting InternationalFinancial Reporting Standards (IFRS). It also outlines the value-relevance of themandatory and optional equity adjustments that must be recognized as a result ofthe first-time adoption of IFRS and finally concludes that first, managerialincentives influence the decision to strategically elect one or more optionalexemptions at the transition date. Second, mandatory equity adjustments aremore valued than French GAAP equity, suggesting that the first-time adoption ofIFRS by French firms is perceived as a signal of an increase in the quality oftheir financial statements. Third, the value-relevance of optional IFRS equityadjustments depends on whether they result in the disclosure of newinformation.

Pascan. Doina.Irina, “Measuring the impact of first time adoption of IFRSon the performance of Romania Listed Entities”, Procedia Economics andFinance,2012,Vol.3,PP-5

Review

Irina Doina Pascan (2012),outlines that beginning with 2005 all the entitieslisted on the European Union regulated markets must prepare consolidatedfinancial statements in accordance with International Financial Standards(IFRS)with the main objective is to identify and measure the impact of first timeadoption on the performance of Romania Listed Companies, performance beingexpressed by means of net income. Romanian listed entities compulsorily apply

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the IFRSs starting with the consolidated financial statements prepared for thefinancial year 2007. and concludes that no clear tendency can be identifiedregarding changes in net income of listed entities generated by the transitionfrom Romanian accounting regulations to IFRS.

Tucker.Jon, Yukselturk. Osman, “Does mandatory adoption of IFRSGuarantee Compliance”,International Journal of Accounting,2013,Vol48.3,PP-36

Review

Jon Tucker,Osman Yukselturk (2013) examine whether the mandatory adoptionof IFRS by Turkish listed companies in 2005 was successful in practice andwhat role firm and country level factors played in the adoption with theobjective to determine firm-specific factors that affect the degree of change inboth measurement and disclosures and conclude that while the standards clearlyimpact certain accounts, adoption is not uniform across accounts. With regard todisclosures, it concludes that although there are some improvements, the vastmajority of the disclosure items required by IFRS were not disclosed. It alsoreveals that the dominance of tax laws, the lack of enforcement, corporategovernance issues, and inadequate management information systems were allsignificant constraints to the successful adoption of IFRS.

Gorden .Lawrence A, “The impact of IFRS adoption on Foreign DirectInvestment” Journal of accounting and Public Policy”,2012, Vol31.4, PP-24

Review

Lawrence A Gorden (2012) outlines the impact of IFRS adoption on ForeignDirect Investment (FDI) on companies and concludes that adoption of IFRS bya country results in increased FDI inflows. A key potential driver for IFRSadoption by countries with developing economies is the desire to receivefinancial aid from the World Bank. It also indicates that overall increase in FDIinflows from IFRS adoption is due to the increase in FDI inflows by countries

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with developing, as opposed to developed, economies. This factor is explicitlytaken into account using a two-stage instrumental variable (IV) model. Theresults using the IV model provide strong confirmation of the OLS results.

Callao, Susana,“Adoption of IFRS in Spain”, Journal of internationalaccounting ,Auditing and Taxation , 2007, Vol 16.2 ,PP-30

Review

Susana Callao (2007) outlines that in Spain, listed groups are obliged toprepare consolidated financial information under IFRS, and legislative changeswith the objective to bring local rules into line with international standards havebeen tabled. In this context, the potential impact of IFRS is fraught withuncertainty and concludes that that local comparability has worsened. Itreveals that local comparability is adversely affected if both IFRS and localaccounting standards are applied in the same country at the same time. Reformsto bring local rules into line with international standards are therefore urgent. Italso finds that there has been no improvement in the relevance of financialreporting to local stock market operators because the gap between book andmarket values is wider when IFRS are applied. While there has been no gain interms of the usefulness of financial reporting in the short-term, improvedusefulness may be achieved in the medium to long-term.

Hasan.A.Enas , “Development Of accounting regulation in Iraq and theIFRS adoption decision”,International Journal of Accounting,2012

Review

Enas A Hasan(2012) outlines that the decision to adopt International FinancialReporting Standards (IFRS), and the factors likely to impact the expansion ofIFRS application beyond listed companies . The most significant force in thedecision to adopt IFRS is coercive pressure, from western forces following thefall of the Ba'ath regime, and from international aid organizations. It was

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concluded that the accounting system in Iraq is likely to be further advanceddue to mimetic and normative pressures from Iraq's trade partners, multinationalcorporations, and the accounting profession and concludes that it is importantthat IFRS adoption is accompanied by reform to governance and investorprotection regimes, together with investment in education and training to supportongoing implementation. Otherwise, IFRS adoption may be perceived as merelysymbolic.

Houqe.Nurul.Muhammad, Zijl.Van.Tony , “The Effect of IFRS adoptionand investor protection on earning quality around the world” InternationalJournal Of Accounting,2012,Vol 47.3,PP-22

Review

Muhammad Nurul , Tony Van outlines the effects of mandatory IFRS adoptionand investor protection on the quality of accounting earnings in forty-sixcountries around the globe and concludes that earnings quality increases formandatory IFRS adoption when a country's investor protection regime providesstronger protection. This study extends the current literature that shows thataccounting practices are influenced by country-level macro settings. The resultshighlight the importance of investor protection for financial reporting qualityand the need for regulators to design mechanisms that limit managers' earningsmanagement practices.

Holt.Graham, “The Road to IFRS”, Accounting and business magazine,

June 2009,v-2

Review

Graham Holt (2007) outlines that in 2007, the UK Government made acommitment that the UK public sector would move towards adopting the IFRSwith the objective to bring about greater consistency and comparability across

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the global economy and to follow private sector best practice in the UK publicsector. However, experience has shown that the transition is both lengthy andcomplex. IFRS 1 has great practical significance for sectors and countries thatare expected to adopt the standards in the near future. The introduction of theIFRS will be a significant challenge to a council, as seen in the implementationwithin the private sector where accounts have, on average, increased by 60% incontent and concludes that many types of entity have not yet made the move toIFRS and, similarly, many countries have yet to fully adopt IFRS. A detailedknowledge of IFRS 1 is critical, as it gives entities the opportunity to clean uptheir balance sheets before being caught by IFRS.

Ahmed.Kamran,Chalmers.Keryn , “A Meta analysis of IFRS adoption”,The International Journal Of Accounting, 2013, Vol48.2 ,PP-44

Review

Kamran Ahmed, Keryn Chalmers(2013) outlines the adoption of IFRS aroundthe globe that investigates the financial reporting and capital market effectsassociated with an accounting regime change. We conduct a meta-analysis ofIFRS adoption studies investigating financial reporting effects, namely valuerelevance and earnings transparency in the form of discretionary accruals, aswell as capital market effects, specifically the quality of analysts' earningsforecasts. Findings concludes that the value relevance of book value of equityhas not increased post-IFRS adoption, whereas the value relevance of earningshas generally increased when assessed using price models. Results also suggestthat discretionary accruals have not reduced, but analysts' forecast accuracy hasincreased significantly post-IFRS adoption. Findings are not affected materiallyafter controlling for moderating factors including jurisdictional differences suchas legal origin, the accounting and auditing enforcement regime, and differencesbetween domestic GAAP and IFRS. However, these associations are moderatedby the model used for empirical investigation of value relevance anddiscretionary accrual effects; they are also moderated by the adoption beingvoluntary or mandatory. The findings provide evidence to inform policy

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assessments and deliberations of the financial reporting and capital marketeffects of adopting IFRS.

Schleicher.Thomas , Tahoun.Ahmed , “ IFRS adoption in Europe andinvestment cash flow sensitivity”, The International Journal ofAccounting,2010, Volume 45. 2, PP 143-168

Review

Thomas Schleicher, Ahmed Tahoun (2010) outlines the economic consequencesof the mandatory adoption of IFRS in EU countries by showing which types ofeconomies have the largest reduction in investment-cash flow sensitivity post-IFRS and also examine whether the reduction in investment-cash flowsensitivity depends on firm size as well as economy type and conclude thatinvestment-cash flow sensitivity of insider economies is higher than that ofoutsider economies pre-IFRS and that IFRS reduces the investment-cash flowsensitivity of insider economies more than that of outsider economies. Also, findthat small firms in insider economies have the highest sensitivity of investmentto lagged cash flow pre-IFRS, and that they are no longer sensitive to laggedcash flow post-IFRS. Overall, our results suggest that IFRS adoption might haveimproved the functioning of capital markets in relation to small firms in insidereconomies.

Landsman.R.Wayne,Maydew.L.Edward, “The information Content ofannual earnings announcements and mandatory adoption of IFRS”,Journal of Accounting and Economics, Volume 53.2, 2012, Pages 34-54

Review

Wayne R. Landsman, Edward L. Maydew outlines whether the informationcontent of earnings announcements – abnormal return volatility and abnormaltrading volume – increases in countries following mandatory IFRS adoption, andconditions and mechanisms through which increases occur. Findings concludethat information content increased in 16 countries that mandated adoption ofIFRS relative to 11 that maintained domestic accounting standards, although the

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effect of mandatory IFRS adoption depends on the strength of legal enforcementin the adopting country. Utilizing a path analysis methodology there are threemechanisms through which IFRS adoption increases information content:reducing reporting lag, increasing analyst following, and increasing foreigninvestment.

DeFond.Mark ,Hu.Xuesong , ”Impact of mandatory IFRS adoption onforeign mutual fund ownership”, Journal of Accounting and Economics,2011,Volume 51.3, PP 240-258

Review

Mark DeFond, Xuesong Hu outline(2011) that mandating a uniform set ofaccounting standards improves financial statement comparability that in turnattracts greater cross-border investment. and concludes that there is improvedcomparability as a credible increase in uniformity, defined as a large increase inthe number of industry peers using the same accounting standards in countrieswith credible implementation. Consistent with this assertion, we find that foreignmutual fund ownership increases when mandatory IFRS adoption leads toimproved comparability. Following are the highlights of the analysis ► Foreignmutual fund ownership increases in the EU after mandatory adoption of IFRS.► The increase in mutual fund ownership is larger when IFRS adoptionimproves comparability

.► The effects of improved comparability on foreign fund ownership areprimarily driven by foreign global funds, as opposed to foreign regional,country, and other funds.

Hou.Qingchuan, Jin.Qinglu , “Mandatory IFRS adoption and executivecompensation:Evidence from China”, China Journal of AccountingResearch, March 2014 Volume 7.1 , PP 9-29

Review

Qingchuan Hou, Qinglu Jin(2014) outlines how the mandatory adoption ofInternational Financial Reporting Standards (IFRS) affects the contractualbenefits of using accounting information to determine executive compensation

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in China. After controlling for firm and corporate governance characteristics, itconcluded that there was positive impact of mandatory IFRS adoption on theaccounting-based performance sensitivity of executive compensation.Subsample analysis suggests that improvements in accounting-basedperformance sensitivity after IFRS adoption differ across regions with variouslevels of institutional quality and across firms that are affected to a differentextent by the adoption. Additional analysis supports the argument that thepositive effects of IFRS adoption on the use of accounting performance inexecutive compensation are driven by the reduction in accounting conservatismassociated with IFRS adoption.

Müller.Victor-Octavian .” The impact of IFRS adoption on the Quality ofConsolidated Financial Reporting”, Procedia - Social and BehavioralSciences, 2014Vol 109, PP 976-982

Review

Victor-Octavian Müller outlines(2014) that in the majority of cases (at least onthe large European stock markets) listed companies own one or moresubsidiaries and therefore are obligated to a dual reporting, being required toproduce two sets of financial statements – one at individual level, the other atgroup level. Furthermore, as of 2005, companies listed on the European stockmarkets had to adopt IFRS for the preparation of their group accounts, thusneeding also to apply different accounting regulations: IFRS for the groupaccounts and European directives for individual accounts. The study investigatesthrough an empirical association study the impact of the mandatory adoption ofIFRS starting with 2005 on the absolute and relative quality (measured throughvalue relevance) of financial information supplied by the consolidated accountsfor companies listed on the largest European stock markets (London, Paris, andFrankfurt stock exchanges). The results show an increase of consolidatedstatements quality (value relevance) once IFRS were adopted, thus suggestingalso that the IFRS adoption in Europe led to better complying with the OECDCorporate Governance Principle of high quality disclosure and transparency.Moreover, we ascertained an increase in the quality surplus supplied by group

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accounts compared to parent company individual accounts once the IFRSadoption became mandatory for preparing consolidated financial statements

Alon.Anna , Dwyer.D.Peggy, “Early adoption of IFRS as a Strategicresponse to transnational and local influences”, The International Journalof Accounting,2014

Review

Anna Alon, Peggy D. Dwyer(2014) outlines that International FinancialReporting Standards (IFRS) have been adopted by nations throughout the world.Proponents and standard setters assert that IFRS will produce a number ofbenefits including improved transparency, international comparability, marketefficiency, and cross-national investment flow. This study examine factors thatcontributed to the early national-level adoption that occurred prior to broadglobal acceptance of IFRS. Using a conceptual framework of institutional theoryand resource dependence,it proposes that the interplay of transnational pressuresand local factors influenced the level of adoption. It predicts differentialadoption as a strategic response at three levels of either require IFRS, permitIFRS, or do not allow IFRS, using a sample of 71 countries. As predicted,countries with greater resource dependency, as evidenced by weak governancestructures and weak economies, were the early adopters who were more likely torequire the use of IFRS. Further, resource dependence also trumps nationalisticpressures against transnational conformity.Findings raise concerns that requiredadoption may not always be accompanied by an appropriately supportiveinfrastructure; thus, there are implications not only for adoption of IFRS, butalso for the diffusion of other transnational regulation that influences globalbusiness environment.

Courtenay.Stephen , “The Effect of IFRS adoption conditional upon thelevel of pre-adoption divergence”, The International Journal of Accounting,June 2014, Volume 49.2, Pages 147-178

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Review

Stephen Courtenay (2014) outlines that some of the countries that haveadopted IFRS had national accounting standards similar to IFRS prior toadopting IFRS, while others had national accounting standards divergent fromIFRS. Prior studies on whether or not International Financial ReportingStandards (IFRS) adoption improves earnings quality have found mixed results.The study examine the effects of IFRS adoption by taking into account the levelof divergence prior to the adoption of IFRS. We find that countries experience agreater drop in earnings management when they have a higher level ofdivergence from IFRS prior to IFRS adoption. More specifically, highdivergence countries with higher levels of enforcement benefit the mostfollowed by high divergence countries with lower levels of enforcement. Lowerdivergence countries with higher levels of enforcement do not significantlybenefit from IFRS adoption. Lower divergence countries with lower levels ofenforcement do not benefit from IFRS adoption at all. Results support thecontention that countries with lower quality local accounting standards prior toIFRS adoption benefit more from IFRS adoption.

Kousenidis.Dimitrios ,Leventis .Stergios , “The impact of IFRS onaccounting quality evidence from Greece”,2013, Advances in Accounting

Review

Dimitrios .Kousenidis, Stergios. Leventis(2013) outlines thatThe presentpaper examines the impact of IFRS adoption on the quality of accountinginformation within the Greek accounting setting. Using a balanced sample offirms listed in the Athens Stock Exchange (ASE) for a period of eight years(2001–2008) we find convincing evidence that the implementation of IFRScontributed to less earnings management, more timely loss recognition andgreater value relevance of accounting amounts, compared to the local accountingstandards. Also, our findings document that audit quality further complementsthe beneficial impact of IFRS since those companies that are audited by the big-

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5 audit firms exhibit higher levels of accounting quality. Our findings are robustin regard to different model specifications and after controlling for firm-specificeffects like size, risk, profitability and growth opportunities.

Clarkson. Peter, Hanna.J.Douglas. "The impact of ifrs adoption on thevalue relevance of book value and earnings, Journal of contemporaryAccounting and Economics, June 20th, Vol, 7.1, PP.1-17

Review

PeterClarkson, Douglas.J.Hanna(2011) investigate the impact of IFRSadoption in Europe and Australia on the relevance of book value and earningsfor equity valuation. Using a sample of 3488 firms that initially adoptedInternational Financial Reporting Standards (IFRS) in 2005, they are able tocompare the figures originally reported for the 2004 fiscal years to the IFRSfigures that were provided in 2005 as the 2004 IFRS comparative figures. Aspart of the inquiry, we introduce a cross-product term, equal to the productof EPS and BVPS, into the traditional linear pricing models. The estimatedcoefficient on the cross-product term is statistically significant and negative, astheory suggests in the presence of important nonlinearities. Further, there isincreased non-linearity in the data subsequent to IFRS adoption, with theincrease being most pronounced for firms in Common Law countries. With non-linear effects controlled for, there is no observed change in price relevance forfirms in either Code Law or Common Law countries, contradicting the resultsfrom the linear pricing models. The results also suggest that the distribution ofmeasurement errors becomes more similar across Code Law and Common Lawcountries after the adoption of IFRS, removing one difference between thesegroups. Thus, IFRS enhances comparability, an inference that would not bepossible had we confined the analysis only to linear pricing models.

Doukakis.LeonidasC. ."Effect of mandatory IFRS adoption on real andaccrual based earning management activities", Journal of Accounting andpublic policy, 5 September, 2014

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LeonidasC. Doukakis (2014) study examines the effect of mandatory adoptionof International Financial Reporting Standards (IFRS) on both accrual-based andreal earnings management. While prior literature has mainly examined theeffects of IFRS adoption on accrual-based earnings management, no study todate has focused on the impact of IFRS adoption on real earnings management.Using a sample of 15,206 observations from 22 European countries between2000 and 2010, this study employs a control sample of voluntary adopters andapplies a differences-in-differences design to control for confounding concurrentevents. The results suggest that mandatory IFRS adoption had no significantimpact on either real or accrual-based earnings management practices.Additional analysis on a sub-sample of firms with relatively strong earningsmanagement incentives supports a dominant role for firm-level reportingincentives over accounting standards in shaping financial reporting quality.

IFRS-1On 19 June 2003, the International Accounting Standards Board issued IFRS 1, First-Time Adoption of International Financial Reporting Standards. IFRS 1 sets out the procedures that an entity must follow when it adopts IFRS for the first time as the basis for preparing its general purpose financial statements.IFRSs are increasingly becoming a truly global accounting framework withmany countries committed to adopting them in the next few years. Forcompanies, the process of converting to IFRS and preparing their first IFRSfinancial statements will be challenging.IFRS-1 deals the first time adoption ofinternational financial reporting standards. IFRS 1 First-time Adoption ofInternational Financial Reporting Standards sets out the procedures that an

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entity must follow when it adopts IFRSs for the first time as the basis forpreparing its general purpose financial statements The objective of this Standard is to ensure that first-time IFRS financialstatements contain high quality information that can be prepared at a cost notexceeding the benefits. IFRS 1 also specifies a number of additional disclosuresfor first-time adopters that must be addressed in addition to the normal IFRSpresentation and disclosure requirements.If an entity is preparing it's financial reports under an accounting frameworkother than international financial reporting standards i.e.(Accounting standardsof their own countries) and decides to change to IFRS then it has to comply withrequirements prescribed by IASB on conversion to IFRS. These requirementsare stated in IFRS-1 (The first time adoption of international financial reportingstandards).

Main Features Of IFRS-1

I. The IFRS-1 applies when an entity adopts IFRS for the first time by anexplicit and unreserved statement of compliance with IFRSs.

II. In general,the IFRS requires an entity to comply with each IFRS effectiveat the end of its first IFRS reporting period.

a. In particular,IFRS requires an entity to do the following :

Derecognise all assets and liabilities whose recognition is NOT requiredby IFRSs;

Recognise items as assets or liabilities if IFRSs permit such recognition; Reclassify items that it recognised under previous GAAP as one type of

asset, liability or component of equity, but are a different type of asset,liability or component of equity under IFRSs; and

Apply IFRSs in measuring all recognised assets and liabilities.

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1. Derecognition of some old assets and liabilities.

The entity should eliminate previous-GAAP assets and liabilities from the opening balance sheet if they do not qualify for recognition under IFRSs. For example:

a. IAS 38 does not permit recognition of expenditure on any of the following as an intangible asset:

research

start-up, pre-operating, and pre-opening costs

training

advertising and promotion

moving and relocation

If the entity's previous GAAP had recognised these as assets, they are eliminatedin the opening IFRS balance sheet.

b. If the entity's previous GAAP had allowed accrual of liabilities for "generalreserves", restructurings, future operating losses, or major overhauls that do notmeet the conditions for recognition as a provision under IAS 37, these areeliminated in the opening IFRS balance sheet.

c. If the entity's previous GAAP had allowed recognition of reimbursements andcontingent assets that are not virtually certain, these are eliminated in theopening IFRS balance sheet.

2. Recognition of some new assets and liabilities. Conversely, the entity shouldrecognise all assets and liabilities that are required to be recognised by IFRS even if they were never recognised under previous GAAP. For example:

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a. IAS 39 requires recognition of all derivative financial assets and liabilities, including embedded derivatives. These were not recognised under many local GAAPs.

b. IAS 19 requires an employer to recognise its liabilities under defined benefit plans. These are not just pension liabilities but also obligations for medical and life insurance, vacations, termination benefits, and deferred compensation. In thecase of "over-funded" plans, this would be a defined benefit asset.

c. IAS 37 requires recognition of provisions as liabilities. Examples could include an entity's obligations for restructurings, onerous contracts, decommissioning, remediation, site restoration, warranties, guarantees, and litigation.

d. Deferred tax assets and liabilities would be recognised in conformity with IAS12.

3. Reclassification. The entity should reclassify previous-GAAP opening balance sheet items into the appropriate IFRS classification. Examples:

a. IAS 10 does not permit classifying dividends declared or proposed after the balance sheet date as a liability at the balance sheet date. In the opening IFRS balance sheet these would be reclassified as a component of retained earnings.

b. If the entity's previous GAAP had allowed treasury stock (an entity's own shares that it had purchased) to be reported as an asset, it would be reclassified as a component of equity under IFRS.

c. Items classified as identifiable intangible assets in a business combination accounted for under the previous GAAP may be required to be classified as goodwill under IAS 22 because they do not meet the definition of an intangible asset under IAS 38. The converse may also be true in some cases. These items must be reclassified.

d. IAS 32 has principles for classifying items as financial liabilities or equity. Thus mandatorily redeemable preferred shares and put shares that may have

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been classified as equity under previous GAAP would be reclassified as liabilities in the opening IFRS balance sheet.

e. The reclassification principle would apply for the purpose of defining reportable segments under IAS 14.

f. The scope of consolidation might change depending on the consistency of the previous-GAAP requirements to those in IAS 27. In some cases, IFRS will require consolidated financial statements where they were not required before.

g. Some offsetting (netting) of assets and liabilities or of income and expense items that had been acceptable under previous GAAP may no longer be acceptable under IFRS.

4. Measurement. The general measurement principle – there are several significant exceptions noted below – is to apply IFRS in measuring all recognised assets and liabilities. Therefore, if an entity adopts IFRS for the first time in its annual financial statements for the year ended 31 December 2005, in general it would use the measurement principles in IFRSs in force at 31 December 2005.

5. Adjustments required to move from previous GAAP to IFRS at the time of first-time adoption. These should be recognised directly in retained earnings or other appropriate category of equity at the date of the transition to IFRSs.

III. The IFRS grants limited exemptions from these requirement on specified areas where the cost of complying with them exceeds the benefits to users of financial statements.

IV. The IFRS required disclosures that explain how transition from previous GAAP to IFRS affected the entities Reported financial position,financial performance & cash flows.

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V. An entity is required to apply IFRS if its Ist financial statements are of a period beginning on or after 1July2009. Earlier application is encouraged.

Example:- XYZ ltd. Decides to adopt IFRS from the Financial year 2011-12i.e April 2011-12.

Solution:- In this regard financial statements should be appliedretrospectively in the opening IFRS statement of financial position, thecomparative period and the first IFRS reporting period. Practically,it mustapply all IFRSs effective at the date retrospectively to 2011 -12 and 2010-11 reporting periods and to the opening statement of financial position ason 1April 2010(assuming one year of comparative information).

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In the above example

TRANSITION DATE- It is the beginning of the earliest period for whichcomparative information is required to be presented in the financialstatements i.e 1 April 2010.

REPORTING DATE- It is the date upto which the set of IFRS financialstatements is being prepared i.e 31 March 2012 .

First IFRS Reporting period –The latest reporting period covered by anentity’s first IFRS financial statements i.e commencing on or after 1 April2011.

Comparitive Year- Immediately preceeding year of the first year ofreporting year i.e 2010-11.

IFRS-1 adapts this general principle of retrospective application by addinglimited number of very important ‘exceptions’ and ‘exemptions’. The‘exceptions’ are mandatory whereas exemptions are optional – a first timeadopter may choose whether and which exemptions to apply.

Exceptions To the basic measurement principle in IFRS 1

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1. Optional exceptions.

There are some important exceptions to the general restatement and measurement principles set out above. The following exceptions are individually optional, not mandatory:

Business combinations that occurred before opening balance sheet date

a. An entity may keep the original previous-GAAP accounting, that is, not restate:

previous mergers or goodwill written-off from reserves; the carrying amounts of assets and liabilities recognised at the date of

acquisition or merger; how goodwill was initially determined (do not adjust the purchase price

allocation on acquisition).

b. However, should it wish to do so, an entity can elect to restate all business combinations starting from a date it selects prior to the opening balance sheet date.

c. In all cases, the entity must make an initial IAS 36 impairment test of any remaining goodwill in the opening IFRS balance sheet, after reclassifying, as appropriate, previous GAAP intangibles to goodwill.

d. IFRS 1 includes an appendix explaining how a first-time adopter should account for business combinations that occurred prior to transition to IFRS.

Property, plant, and equipment, intangible assets, and investment property carried under the cost model

a. These assets may be measured at their fair value at the opening IFRS balance sheet date (this option applies to intangible assets only if an active market exists). Fair value becomes the "deemed cost" going forward under the IFRS cost model. (Deemed cost is an amount used as a surrogate for cost or depreciated cost at a given date.)

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b. If, before the date of its first IFRS balance sheet, the entity had revalued any of these assets under its previous GAAP either to fair value or to a price-index-adjusted cost, that previous-GAAP revalued amount at the date of the revaluation can become the deemed cost of the asset under IFRS.

c. If, before the date of its first IFRS balance sheet, the entity had made a one-time revaluation of assets or liabilities to fair value because of a privatisation or initial public offering, and the revalued amount became deemed cost under the previous GAAP, that amount (adjusted for any subsequent depreciation, amortisation, and impairment) would continue to be deemed cost after the initial adoption of IFRS.

IAS 19 - Employee benefits: actuarial gains and losses

An entity may elect to recognise all cumulative actuarial gains and losses for all defined benefit plans at the opening IFRS balance sheet date (that is, reset any corridor recognised under previous GAAP to zero), even if it elects to use the IAS 19 corridor approach for actuarial gains and losses that arise after first-time adoption of IFRS. If an entity does not elect to apply this exemption, it must restate all defined benefit plans under IAS 19 since the inception of those plans (which may differ from the effective date of IAS 19).

IAS 21 - Accumulated translation reserves

An entity may elect to recognise all translation adjustments arising on the translation of the financial statements of foreign entities in accumulated profits or losses at the opening IFRS balance sheet date (that is, reset the translation reserve included in equity under previous GAAP to zero). If the entity elects thisexemption, the gain or loss on subsequent disposal of the foreign entity will be adjusted only by those accumulated translation adjustments arising after the opening IFRS balance sheet date. If the entity does not elect to apply this exemption, it must restate the translation reserve for all foreign entities since they were acquired or created.

2. Mandatory exceptions .

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There are also three important exceptions to the general restatement and measurement principles set out above that are mandatory, not optional. These are:

IAS 39 - Derecognition of financial instruments

A first-time adopter is not permitted to recognise financial assets or financial liabilities that had been derecognised under its previous GAAP in a financial year beginning before 1 January 2001 (the effective date of IAS 39). This is consistent with the transition provision in IAS 39.172(a). However, if an SPE was used to effect the derecognition of financial instruments and the SPE is controlled at the opening IFRS balance sheet date, the SPE must be consolidated.

IAS 39 - Hedge accounting

The conditions in IAS 39.122-152 for a hedging relationship that qualifies for hedge accounting are applied as of the opening IFRS balance sheet date. The hedge accounting practices, if any, that were used in periods prior to the openingIFRS balance sheet may not be retrospectively changed. This is consistent with the transition provision in IAS 39.172(b). Some adjustments may be needed to take account of the existing hedging relationships under previous GAAP at the opening balance sheet date.

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SCOPE OF IFRS 1

1.IFRS 1 is applicable to the entity's first set of IFRS financial statements andeach interim financial report for part of the period covered by its first IFRSfinancial statements.

2. An entity's first IFRS statements is defined as the first annual financialstatements in which the entity adopts IFRSs, by an “explicit and unreservedstatement” of compliance with IFRS.

3. Following are some of the examples of situations where an entity'sfinancial statements under IFRS would be considered as first IFRSfinancial statements and therefore would be subject to IFRS 1requirements:

(a) An entity presented its most recent previous financial statements:- in accordance with national requirements which are notconsistent with IFRSs in all respects;- in conformity with IFRSs in all respect, except that the financialstatements did not contain an explicit and unreserved statementof compliance with IFRS;- containing explicit compliance with some but not all IFRSs;- under national requirements inconsistent with IFRS, using someIFRSs to account for items for which national requirements did not exists;- in accordance with national requirements, with a reconciliation ofsome amounts to the amounts determined under IFRSs;(b) an entity prepared financial statements in accordance with IFRSs for internaluse only, without making them available to the entity's owners or any otherexternal users;(c) an entity prepared reporting package in accordance with IFRSs forconsolidation purposes without preparing a complete set of financial statementsas defined in IAS 1;(d) did not present financial statements for previous period.

4. If the most recent financial statements of an entity contained an explicit andunreserved statement of compliance with IFRS then it will not be considered asa first-time adopter. For example IFRS 1 does not apply when an entity:

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(a) stops presenting financial statements in accordance with nationalrequirements, having previously presented them as well as anotherset of financial statements that contained an explicit and unreservedstatement of compliance with IFRSs(b) presented financial statements in the previous year in accordance withnational requirements and those financial statements contained an explicit andunreserved statement of compliance with IFRSs;or(c) presented financial statements in the previous year that contained an explicitand unreserved statement of compliance with IFRSs, even if the auditorsqualified their audit report on those financial statements.

5. IFRS 1 does not apply to changes in accounting policy made by an entitythatalready applies IFRSs.

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RECOGNITION AND MEASUREMENT

Opening IFRS statement of financial position An entity shall prepare and present an opening IFRS statement of financial position at the date of transition to IFRSs. This is the starting point for its accounting in accordance with IFRSs.

Accounting policiesAn entity shall use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. An entity shall not apply different versions of IFRSs that were effective atearlier dates. An entity may apply a new IFRS that is not yet mandatory if thatIFRS permits early application.

Exceptions to the retrospective application of other IFRSs

PARAGRAPH 13 : This IFRS prohibits retrospective application of some aspects of other IFRSs. These exceptions are set out in paragraphs 14–17 .

PARAGRAPH 14 : An entity’s estimates in accordance with IFRSs at the date of transition to IFRSs shall be consistent with estimates made for the same date in accordance with

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previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

PARAGRAPH 15 : An entity may receive information after the date of transition to IFRSs aboutestimates that it had made under previous GAAP. In accordance with paragraph14, an entity shall treat the receipt of that information in the same way as non-adjusting events after the reporting period in accordance with IAS 10 Eventsafter the Reporting Period. For example, assume that an entity’s date of transition to IFRSs is 1 January20X4 and new information on 15 July 20X4 requires the revision of an estimatemade in accordance with previous GAAP at 31 December 20X3. The entity shallnot reflect that new information in its opening IFRS statement . Instead, theentity shall reflect that new information in profit or loss (or, if appropriate, othercomprehensive income) for the year ended 31 December 20X4.

PARAGRAPH 16 : An entity may need to make estimates in accordance with IFRSs at the date of transition to IFRSs that were not required at that date under previous GAAP. To achieve consistency with IAS 10, those estimates in accordance with IFRSs shallreflect conditions that existed at the date of transition to IFRSs. In particular, estimates at the date of transition to IFRSs of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date.

PARAGRAPH 17 : Paragraphs 14–16 apply to the opening IFRS statement of financial position. They also apply to a comparative period presented in an entity’s first IFRS financial statements, in which case the references to the date of transition to IFRSs are replaced by references to the end of that comparative period.

PARAGRAPH 18 : An entity may elect to use one or more of the exemptions contained in. An entity shall not apply these exemptions by analogy to other items.

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PRESENTATION AND DISCLOSURE

Comparative information

With respect to comparative information required, an entity’s first IFRS financialstatements must include at least • three statements of financial position• two statements of comprehensive income• two separate income statements (if presented)• two statements of cash flows• two statements of changes in equity• related notes, including comparative informationThese requirements were mandated with the 2007 changes to IAS 1, and applyfor fiscal periods beginning on or after January 1, 2009. The previousrequirement was for a minimum of one year of comparative information.

Non-IFRS comparative information and historical summaries

IFRS 1 does not provide exemptions from the presentation and disclosurerequirements in other IFRSs, except that if an entity chooses to include• historical summaries of selected data for periods before the first period forwhich they present full comparative information under IFRS, or• comparative information under previous GAAP that is in addition to therequired comparatives under IFRS,International Financial Reporting Standard 1(IFRS 1), First-Time Adoption of IFRS• 7these summaries and additional comparatives do not need to comply with IFRS.For example, 10-year trend graphs or tables wouldn’t need to be converted toIFRS. However, where financial statements contain these types of historicalsummaries or additional comparative information under previous GAAP, theentity is required to • label the previous GAAP information prominently as notbeing prepared under IFRS, and

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• disclose the nature of the main adjustments that would make it comply withIFRS. The entity is not required to quantify those adjustments .

Explanation of transition to IFRSs

Entities are required to explain how the transition from previous GAAP to IFRSaffected its reported financial position, financial performance, and cash flows .These explanations help users understand• the impact and implications of the organization’s transition to IFRS• how users need to change their analytical models to make the best use of theorganization’s information that is now being presented using IFRSThe required explanations are to be done using a series of reconciliations, withsufficient detail to enable users to understand material adjustments to the balancesheet and statement of comprehensive income. The required reconciliations include the following :a) Reconciliations of its equity reported under previous GAAP to its equityunder IFRS for both of the following dates:• the date of transition to IFRS• the end of the latest period presented in the entity’s most recent annualfinancial statements under previous GAAPb) A reconciliation to its total comprehensive income under IFRS for the latestperiod in the entity’s most recent annual financial statements, starting with totalcomprehensive income under previous GAAP for the same period or (if totalcomprehensive income wasn’t reported) profit or loss under previous GAAP.c) If the entity recognized or reversed any impairment losses for the first time inpreparing its opening IFRS balance sheet, it is required to include the disclosuresthat IAS 36 Impairment of Assets would have required if the entity hadrecognized those impairment losses or reversals in the period beginning with thedate of transition to IFRS. This disclosure highlights impairment losses recordedon transition to IFRS. Without such disclosures, these losses might receive lessattention than impairment losses recorded in earlier or later periods.

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Additional disclosures

A few final disclosure requirements are as follows:

• If an entity presented a statement of cash flows under its previous GAAP, itmust also explain the material adjustments to the statement of cash flows.• If an entity becomes aware of errors made under previous GAAP, thereconciliations must distinguish the correction of those errors from changes inaccounting policies • If an entity did not present financial statements for previous periods, its firstIFRS financial statements must disclose that fact International Financial Reporting Standard 1 (IFRS 1), First-Time Adoption ofIFRSA September 2009 survey of accounting standards used by Global Fortune 500companies revealed that just less than half of them use IFRS or their homecountries have committed to adopt IFRSs within the next few years. Perhapsmost significant, the percentage of worldwide market capitalization on stockexchanges has shown a dramatic shift: from just under 50% in 2002, USexchanges now account for approximately 35% of market capitalization. Theworldwide adoption of IFRSs can only help in this regard.Conversion to IFRSs also provides an opportunity to assess and realign systemsand improve internal controls. The increased information needs can result ingreater links between financeand operations, thereby increasing knowledge sharing. We need to view thischange as an opportunity to improve and realign internal systems and improveteamwork, rather than just as a compliance exercise.

PARAGRAPH 23 An entity shall explain how the transition from previous GAAP to IFRSs affected its reported financial position, financial performance and cash flows.

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PARAGRAPH 24 To comply with paragraph 23, an entity’s first IFRS financial statements shall include:

(a) reconciliations of its equity reported in accordance with previous GAAP to its equity inaccordance with IFRSs for both of the following dates:(i) the date of transition to IFRSs; and(ii) the end of the latest period presented in the entity’s most recent annual financial statements in accordance with previous GAAP.(b) a reconciliation to its total comprehensive income in accordance with IFRSs for the latest period in the entity’s most recent annual financial statements. The starting point for that reconciliation shall be total comprehensive income in accordance with previous GAAP for the same period or, if an entity did not report such a total, profit or loss under previous GAAP.(c) if the entity recognised or reversed any impairment losses for the first-time inpreparing its opening IFRS statement of financial position, the disclosures that IAS 36 Impairment of Assets would have required if the entity had recognised those impairment losses or reversals in the period beginning with the date of transition to IFRSs.

PARAGRAPH 25 The reconciliations required by paragraph 24(a) and (b) shall give sufficient detail to enable users to understand the material adjustments to the statement of financial position and statement of comprehensive income. If an entity presenteda statement of cash flows under its previous GAAP, it shall also explain the material adjustments to the statement of cash flows.

PARAGRAPH 26 If an entity becomes aware of errors made under previous GAAP, the reconciliations required by paragraph 24(a) and (b) shall distinguish the correction of those errors from changes in accounting policies.

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PARAGRAPH 27 IAS 8 does not deal with changes in accounting policies that occur when an entity first adopts IFRSs. Therefore, IAS 8’s requirements for disclosures about changes in accounting policies do not apply in an entity’s first IFRS financial statements.

PARAGRAPH 28 If an entity did not present financial statements for previous periods, its first IFRS financial statements shall disclose that fact.

Designation of Financial assets or financial liablities

PARAGRAPH 29 An entity is permitted to designate a previously recognized financial asset orfinancial liability as a financial asset or financial liability at fair value throughprofit or loss. The entity shall disclose the fair value of financial assets orfinancial liabilities designated into each category at the date of designation andtheir classification and carrying amount in the previous financial statements.

Use of fair value as Deemed Cost

PARAGRAPH 30 If an entity uses fair value in its opening IFRS statement of financial position as deemed cost for an item of property, plant and equipment, an investment property or an intangible asset the entity’s first IFRS financial statements shall disclose, for each line item in the opening IFRS statement of financial position:(a) the aggregate of those fair values; and(b) the aggregate adjustment to the carrying amounts reported under previousGAAP.

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Use of Deemed cost for investment in Subsidiaries, Joint Ventures and Associates

PARAGRAPH 31 Similarly, if an entity uses a deemed cost in its opening IFRS statement of financial position for an investment in a subsidiary, jointly controlled entity or associate in its separate financial statements, the entity’s first IFRS separate financial statements shall disclose:(a) the aggregate deemed cost of those investments for which deemed cost is their previous GAAP carrying amount;

(b) the aggregate deemed cost of those investments for which deemed cost is fairvalue; and(c) the aggregate adjustment to the carrying amounts reported under previous GAAP.

U se of deemed cost for oil and gas assetsParagraph31A If an entity uses the exemption in paragraph D8A(b) for oil and gas assets, it shall disclose that fact and the basis on which carrying amounts determined under previous GAAP were allocated.

Use of deemed cost for operations subject to rate regulationParagraph31B If an entity uses the exemption in paragraph D8B for operations subject to rate regulation, it shall disclose that fact and the basis on which carrying amounts were determined under previous GAAP.

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Interim financial reports

To comply with paragraph 23, if an entity presents an interim financial report inaccordance with IAS 34 for part of the period covered by its first IFRS financialstatements, the entity shall satisfy the following requirements in addition to therequirements of IAS 34:(a) Each such interim financial report shall, if the entity presented an interimfinancial report for the comparable interim period of the immediately precedingfinancial year, include:(i) a reconciliation of its equity in accordance with previous GAAP at the end ofthat comparable interim period to its equity under IFRSs at that date; and(ii) a reconciliation to its total comprehensive income in accordance with IFRSsfor that comparable interim period (current and year to date). The starting pointfor that reconciliation shall be total comprehensive income in accordance withprevious GAAP for that period or, if an entity did not report such a total, profitor loss in accordancewith previous GAAP.(b) In addition to the reconciliations required by (a), an entity’s first interimfinancial report in accordance with IAS 34 for part of the period covered by itsfirst IFRS financial statements shall include the reconciliations described inparagraph 24(a) and (b) (supplemented by the details required by paragraphs 25and 26) or a cross reference to another published document that includes thesereconciliations.(c) If an entity changes its accounting policies or its use of the exemptionscontained in this IFRS, it shall explain the changes in each such interim financialreport in accordance with paragraph 23 and update the reconciliations requiredby (a) and (b).33 IAS 34 requires minimum disclosures, which are based on the assumptionthat users of the interim financial report also have access to the most recentannual financial statements. However, IAS 34 also requires an entity to disclose‘any events or transactions that are material to an understanding of the currentinterim period’. Therefore, if a first-time adopter did not, in its most recentannual financial statements in accordance with previous GAAP, discloseinformation material to an understanding of the current interim period, itsinterim financial report shall disclose that information or include a cross-reference to another published document that includes it.

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Effective date

Paragraph 34An entity shall apply this IFRS if its first IFRS financial statements are for aperiod beginning on or after 1July 2009. Earlier application is permitted.

Paragraph35An entity shall apply the amendments in paragraphs D1(n) and D23 for annualperiods beginning on or after1 July 2009. If an entity applies IAS 23 BorrowingCosts (as revised in 2007) for an earlier period, thoseamendments shall beapplied for that earlier period.36 IFRS 3 Business Combinations (as revised in 2008) amended paragraphs 19,C1 and C4(f) and (g). If anentity applies IFRS 3 (revised 2008) for an earlier period, the amendments shallalso be applied for that earlier period.

Defined Terms

Date of transition to IFRSs

The beginning of the earliest period for which an entity presents fullcomparative information under IFRSs in its first IFRS financial statements.

Deemed cost

An amount used as a surrogate for cost or depreciated cost at a given date.Subsequent depreciation or amortisation assumes that the entity had initiallyrecognised the asset or liability at the given date and that its cost was equal tothe deemed cost.

Fair value

The amount for which an asset could be exchanged, or a liability settled,between knowledgeable, willing parties in an arm’s length transaction.

First IFRS financial statements

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The first annual financial statements in which an entity adopts InternationalFinancial Reporting Standards (IFRSs), by an explicit and unreservedstatement of compliance with IFRSs.

First IFRS reporting period

The latest reporting period covered by an entity’s first IFRS financialstatements.

first-time adopter

An entity that presents its first IFRS financial statements.

International Financial Reporting Standards (IFRSs)

Standards and Interpretations adopted by the International Accounting StandardsBoard (IASB).Previous GAAP

The basis of accounting that a first-time adopter used immediately beforeadopting IFRSs.

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Discussion and Analysis

Impact of IFRS

The IFRS adoption and convergence efforts impact much more than just theaccounting function. Additional functions that are impacted include thefollowing:

• Information systems

• Tax

• Treasury

• Investor relations

• Sales

• Human resources

Present scenario

• India is one of the over 100 countries that have or are moving towardsIFRS (International Financial Reporting Standards) convergence with aview to bringing about a uniformity in reporting systems globally,enabling businesses, finances and funds to access more opportunities.

• Indian companies are listed on overseas stock exchanges and have torecast their accounts to be compliant with GAAP requirements of thosecountries.

• Foreign companies having subsidiaries in India are having to recast theiraccounts to meet Indian & overseas reporting requirements which aredifferent.

• Foreign Direct Investors (FDI), overseas financial institutional investors(FII) are more comfortable with compatible accounting standards andcompanies accessing overseas funds feel the need for recast of accounts inkeeping with globally accepted standards.

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• ICAI has decided to implement IFRS in India. The Ministry of CorporateAffairs has also announced its commitment to convergence to IFRS by2011.

Is IFRS different than US GAAP?

• There are differences between IFRS and US GAAP but they are morealike than different for most commonly encountered transactions.

• IFRS is largely grounded in the same principles as US GAAP.

• The US and international standard setters are currently working onconvergence projects to better align the standards and reduce thesedifferences.

IFRS is applicable to WHOM?

Compliance with IFRS in India is restricted to ‘Public Entities’ whichinclude those companies & entities listed on any stock exchange or haveraised money from the public, or have a substantial public interest, orpublic sector companies.

IFRS in India would cover the following public interest entities in the firstphase.

Listed companies Banks, insurance companies, mutual funds, andfinancial institutions

Turnover in preceding year > INR 1 billion

Borrowing in preceding year > INR 250 million

Holding or subsidiary of the above

IFRS is not applicable to SME’s as of now.

When IFRS?

IFRS for public entities in India is applicable from 01/04/2011.

The opening IFRS balance sheet at the date of transition to IFRS –01/04/2010, which is the start date for full comparative informationpresentation in IFRS

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Analysis

Can an entity be a first-time adopter if, in the preceding year, it has prepared IFRS financialstatements for internal management use?Yes, as long as those IFRS financial statements were not given to owners or external parties such as investors or creditors. If a set of IFRS statements was, for any reason, given to an external party in the preceding year, then theentity will already be considered to be on IFRS and IFRS 1 does not apply.What if, last year, an entity said it complied with selected, but not all, IFRS, or it included in its previous -GAAP financial statements a reconciliation of selected figures to IFRS figures?It can still qualify as a first-time adopter.

When does IFRS 1 take effect?IFRS 1 applies if an entity’s first IFRS financial statements are for a period beginning on or after 1 January 2004.Earlier application is encouraged.

If an entity adopts IFRS for the first time in its annual financial statements for the year ended 31December 2005, what is it required to do?

1. Accounting policies. The entity should select its accounting policies based on IFRS in force at 31 December 2005. (The exposure draft that preceded IFRS 1 had proposed that an entity could use the IFRS that were in forceduring prior periods, as if the entity had always used IFRS. That option is not included in the final standard.)2. IFRS reporting periods. The entity should prepare at least 2005 and 2004 financial statements and restateretrospectively the opening balance sheet (beginning of the first period for which full comparative financialstatements are presented) by applying the IFRS in force at 31 December 2005.a. Since IAS 1 requires that at least one year of comparative prior period financial information be presented, the opening balance sheet will be 1 January 2004 if not earlier.

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b. If a 31 December 2005 adopter reports selected financial data (but not full financial statements) on an IFRS basis for periods prior to 2004, in addition to full financial statements for 2004 and 2005, that does notchange the fact that its opening IFRS balance sheet is as of 1 January 2004.If an entity is going to adopt IFRS for the first time in its annual financialstatements for the year ended31 December 2005, is any disclosure requiredin its financial statements prior to the 31 December 2005statements?Yes, but only if the entity presents an interim financial report that complies withIAS 34. Explanatory information anda reconciliation are required in the interim report that immediately precedes thefirst set of IFRS annual financialstatements. The information includes changes in accounting policies comparedto those under previous local GAAP.

A parent or investor may become a first-time adopter earlier than or laterthan its subsidiary,associate, or joint venture investee. In these cases, how is IFRS 1 applied?1. If the subsidiary has adopted IFRS in its entity-only financial statementsbefore the group to which it belongs adopts IFRS for the consolidated financialstatements, then the subsidiary’s first-time adoption date is still the date at whichit adopted IFRS for the first-time, not that of the group. However, the groupmust use the IFRS measurements of the subsidiary’s assets and liabilities for itsfirst IFRS financial statements except for adjustments relating to the businesscombinations exemption and to conform group accounting policies.3. If the group adopts IFRS before the subsidiary adopts IFRS in its entity-only

financial statements, then the subsidiary has an option either (a) to elect thatthe group date of IFRS adoption is its transition date or (b) to first time adoptin its entity-only financial statements.

3. If the group adopts IFRS before the parent adopts IFRS in its entity-onlyfinancial statements, then the parent’s first-time adoption date is the date atwhich the group adopted IFRS for the first time.4. If the group adopts IFRS before its associate or joint venture adopts IFRS inits entity-only financial statements,then the associate or joint venture shouldhave the option to elect that either the group date of IFRS adoption is itstransition date or to first-time adopt in its entity-only financial statements

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Summary

The Current Scenario Of IFRS in different countries is as follows: Over 12,000 companies in over 100 countries have already adopted IFRS. In the European Union, member states whose securities are listed on EU

regulated stock exchanges prepare Consolidated Financial Statements as per IFRS.

In Israel, Australia and New Zealand, IFRS has been adopted as national

accounting standards. China has formulated local GAAP which are IFRS based, although some

differences still exist. Other countries like Canada, India and South Korea are attempting to

complete the transition to IFRS by 2011 while Mexico and Japan are working towards convergence by 2012, which would eliminate major differences between their current standards and IFRS.

IFRS should be adopted in INDIA due to following reasons: 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

But there are certain Issues in transitioning :To get a sense of the types of issues likely to arise during an organization’stransition to IFRS, it is useful to look beyond our own borders. Here are someissues experienced by first-time IFRS adopters:

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• During the transition to IFRS, companies face intense pressure on resources,particularly if there is a period where two reporting systems are required, and theincreased disclosure requirements and information needs often overwhelm theexisting accounting information system. Moreover, the extent of the impact onsystems was often underestimated.• Increased disclosures needed to meet requirements may be just ascumbersome (or more so) than the necessary changes to the statementsthemselves and the underlying transaction recording.

To conclude our look at IFRS 1, here are some actions that can be prioritized, inorder to take advantage of opportunities:International Financial Reporting Standard 1 (IFRS 1), First-Time Adoption ofIFRS• 9• assess training needs and determine plans• analyze IFRSs and their impact on reporting requirements• evaluate and budget for the costs and benefits of transition• plan the change-management strategy• analyze the required changes to accounting information systems• look for opportunities to incorporate IFRS into operations and existingsystems, andcentralize accounting systems to streamline• review key performance measures and assess required changes• redevelop a communication strategy to address expanded information• begin educating investors and other stakeholders on how IFRS will impactyour financial reporting

But there are also significant benefits that result from IFRS conversion,including the potential for:• streamlined reporting and the creation of cost efficiencies for global companies• improved communication between international subsidiaries• increased staff mobility across international borders• improved acquisition opportunities• improved access to capital markets

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Conclusion

Looking at the present scenario of the world economy and the position of Indiaconvergence with IFRS can be strongly recommended. But at the same time itcan also be said that this transition to IFRS will not be a swift and painlessprocess.. Implementing IFRS would rather require change in formats ofaccounts, change in different accounting policies and more extensive disclosurerequirements.

Therefore all parties concerned with financial reporting also need to share theresponsibility of international harmonization and convergence. Keeping in mindthe fact that IFRS is more a principle based approach with limitedimplementation and application guidance and moves away from prescribingspecific accounting treatment all accountants whether practicing or non-practicing have to participate and contribute effectively to the convergenceprocess. This would lead to subsequent revisions from time to time arising fromits global implementation and would help in formulation of future internationalaccounting standards. A continuous research is in fact needed to harmonize and converge with theinternational standards and this in fact can be achieved only through mutualinternational understanding both of corporate objectives and rankings attached toit.

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Abbreviations

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EU-European Union

FDI-Foreign Direct Investment

GAAP- globally acceptable accounting principles.

IAS- International Accounting Standards

IASB- International Accounting Standard Board

IFRIC- Interpretations originated from the International Financial Reporting Interpretations Committee

IFRS- international financial reporting standards

IFRS-1- first time adoption of international financial reporting standards

SIC- Standing Interpretations Committee

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