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Drifting on the IFRS highway
International Financial Reporting Standard(s)
Kishor Parikh - B.Com, F.C.A, DipIFR (U.K.)
Study Circle Meeting – Landmark Hotel – 6th September, 2009
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Existing Financial Reporting scenario in Existing Financial Reporting scenario in IndiaIndia
Institute of Chartered Accountants of India- Accounting Standards Board- Central Council of ICAI
National Advisory Committee of Accounting Standards.
Companies Act section 211.
Listing Agreement.
Schedule VI.
Other regulations for Banks, Insurance Companies, Electricity companies, etc.
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
The need for an International StandardThe need for an International Standard
Global Accounting Language.
Global Passport for Indian Companies to raise funds.
International benchmarking and best-practices.
Uniformity in accounting policies across the Globe.
Greater reliance and comfort for International interested parties.
Stimulus to International transactions, viz. acquisitions, mergers, amalgamations, etc.
Requirement under the WTO, of which India is a member.
Transparency and integrating India with practices followed world-over.
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
OOrganizations involved in drafting rganizations involved in drafting of IFRSof IFRS
International Accounting Standards Committee Foundation (IASCF)
International Accounting Standards Committee (IASC)
International Accounting Standards Board (IASB)
Monitoring Board of Trustees (Trustees)
Standards Advisory Council (SAC)
Standing Interpretation Committee (SIC)
International Financial Reporting Interpretations Committee (IFRIC)
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Organizational Responsibility of Standard Organizational Responsibility of Standard PreparationPreparation
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
ActualActual Process of Standard Preparation (IASB)Process of Standard Preparation (IASB)
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Global scenario of IFRS Global scenario of IFRS adoptionadoption
Applicable to Listed Companies in 117 countries
Status of IFRS applicability No. of Countries
Countries in which IFRSs not permitted
35
Countries in which IFRSs permitted
23
Countries in which IFRSs required for some companies
5
Countries in which IFRSs required for all
89
Countries in which there’s no stock exchange
19
India is currently in this class
India will be in this class by year 2011
Ultimately India has to be in this class
Argentina, Canada, Chile, Israel, South Korea, Brazil
Bermuda, El Salvador,
Myanmar, Sri Lanka
China, Kazakhstan
U.K., France, Germany, Oman, Mauritius, South
Africa
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Contents of Financial Statements under Contents of Financial Statements under IFRSIFRS
IFRS financial statements consist of (as per IAS 1.8):
- A Statement of Financial Position
- Comprehensive income statement and Other comprehensive Income
- A statement of changes in equity(SOCIE)
- A cash flow statement or statement of cash flows
- Notes, including a summary of the significant accounting policies and other disclosure requirements.
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
IFRS structure – Statement of Financial IFRS structure – Statement of Financial PositionPosition ASSETSNon-current Assets
Property , Plant & EquipmentGoodwillOther Intangible AssetsInvestments in AssociatesAvailable for Sale Investments
Current Assets
InventoriesTrade ReceivablesOther Current AssetsCash & Cash Equivalents
Total Assets
2009 2008
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
IFRS structure – Statement of Financial IFRS structure – Statement of Financial PositionPositionEQUITY AND LIABILITIES
Equity attributable to the owners of the parent
Share CapitalRetained EarningsOther components of EquityNon-controlling Interest
Total Equity
Non-current LiabilitiesLong-term borrowingsDeferred taxLong term provisionsTotal non-current liabilities
Current LiabilitiesTrade and other payablesShort-term borrowingsCurrent portion of long- term borrowings Current tax payableShort-term provisionsTotal current liabilities
Total liabilities
2009 2008
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
List of Standards currently List of Standards currently applicableapplicableIFRS-1 – First-time adoption of International Financial
Reporting StandardsIFRS-2 – Share-based PaymentIFRS-3 – Business Combinations IFRS-4 – Insurance ContractsIFRS-5 – Non-current assets held for sale and discontinued
operationsIFRS-6 – Exploration for and evaluation of mineral resourcesIFRS-7 – Financial Instruments and DisclosuresIFRS-8 – Operating SegmentsIAS-1 – Presentation of Financial Statements IAS-2 – InventoriesIAS-7 – Cash Flow StatementsIAS-8 – Net Profits or Loss for the period, fundamentals
errors and changes in accounting policiesIAS-10 – Events after the Balance Sheet DateIAS-11 – Construction ContractsIAS-12 – (Revised) Income TaxesIAS-14 – Segment Reporting IAS-16 – Property, Plant and EquipmentIAS-17 – LeasesIAS-18 – Revenue
IAS-19 – (Revised) Employee BenefitsIAS-20 – Accounting for Government Grants and Disclosure of
Government Assistance IAS-21 – The Effects of Changes in Foreign Exchange Rates IAS-23 – Borrowing Costs IAS-24 – Related Party Disclosures IAS-26 – Accounting and reporting by retirement benefit plans IAS-27 – Consolidated Financial statements and accounting for
investment in subsidiariesIAS-28 – Investments in associatesIAS-29 – Financial Reporting in hyperinflationary economiesIAS-30 – Disclosures in the Financial Statements of Banks and
similar financial InstitutionsIAS-31 – Financial Reporting of Interests in Joint VenturesIAS-32 – Financial Instruments: PresentationIAS-33 – Earnings per ShareIAS-34 – Interim financial reporting IAS-36 – Impairment of AssetsIAS-37 – Provisions, Contingent liabilities and Contingent AssetsIAS-38 – Intangible AssetsIAS-39 – Financial instruments: Recognition and measurementsIAS-40 – Investment PropertyIAS-41 – Agriculture
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
List of Interpretations currently List of Interpretations currently applicableapplicable
•IFRIC - 1 - Changes in Existing Decommissioning, Restoration and Similar Liabilities
•IFRIC - 2 - Members' Shares in Co-operative Entities and Similar Instruments
•IFRIC - 4 - Determining Whether an Arrangement Contains a Lease
•IFRIC - 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
•IFRIC - 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment
•IFRIC - 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
•IFRIC - 8 Scope of IFRS 2 Withdrawn effective 1 January 2010 •IFRIC - 9 Reassessment of Embedded Derivatives •IFRIC - 10 Interim Financial Reporting and Impairment •IFRIC - 11 IFRS 2: Group and Treasury Share Transactions Withdrawn effective 1 January 2010
•IFRIC - 12 Service Concession Arrangements •IFRIC - 13 Customer Loyalty Programmes •IFRIC - 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
•IFRIC - 15 Agreements for the Construction of Real Estate •IFRIC - 16 Hedges of a Net Investment in a Foreign Operation •IFRIC - 17 Distributions of Non-cash Assets to Owners •IFRIC - 18 Transfers of Assets from Customers
Final Interpretations Issued by the Standing Interpretations Committee SIC 7 - Introduction of the Euro SIC 10 - Government Assistance – No Specific Relation to Operating Activities SIC 12 - Consolidation – Special Purpose Entities SIC 13 - Jointly Controlled Entities – Non-Monetary
Contributions by Venturers SIC 15 - Operating Leases – Incentives SIC 21 - Income Taxes – Recovery of Revalued Non-
Depreciable Assets SIC 25 - Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders SIC 27 - Evaluating the Substance of Transactions in the Legal Form of a Lease SIC 29 - Disclosure – Service Concession Arrangements SIC 31 - Revenue – Barter Transactions Involving Advertising Services SIC 32 - Intangible Assets – Web Site Costs
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Classification of IFRSClassification of IFRS
Table showing broad categories under which the IFRSs can be segregated
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Important Terminology for Important Terminology for discussiondiscussion
Fair Value Approach
Present Value
Estimates and Judgments
Going Concern Assumption
Explicit and Unreserved Condition
Materiality and Aggregation
Principle based vs. Rule Based
Substance over Form
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Target date for adoption in Target date for adoption in IndiaIndia
IFRS in India would cover the following public interest entities in its first wave:
- All Listed companies - Banks, insurance companies, mutual funds, and
financial institutions - Turnover in preceding year > INR 1 billion - Borrowing in preceding year > INR 250 million - Holding and subsidiary of the above
SEBI mandates ‘Companies to be Listed’ are also covered by IFRS. All of the above companies would have to mandatorily adopt International Financial Reporting Standards by 1st April, 2011.
Separate reporting requirements for Small and Medium Enterprises (SME).
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Role of CS in the IFRS regimeRole of CS in the IFRS regime
Imperative and unavoidable for a CS to have basic understanding of IFRS.
CS attests Balance Sheet prepared as per Schedule VI.
CS certifies Compliance Certificate.
Principal Officer of the Company. Onerous responsibility of ensuring compliance with laws and regulations.
IFRS would soon be a part of Section 211 of the Companies Act.
Investor relations and understanding of financial statements.
Secretary to the Audit Committee and the Board.
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Role of CS in the IFRS regimeRole of CS in the IFRS regime Management Representation to be signed by the CS in certain
notes to accounts. Reliance on CS for disclosure requirements and notes to accounts
Proactive involvement in the financial affairs of the company.
Entry in to the registers to be maintained under the Companies Act.
Calculation of Managerial Remuneration.
Classification of Loan and Equity and subsequent change in ratios of PE\EPS, etc.
MCA has initiated action by forming a core group to converge with IFRS.
Annual Report to be filed with ROC will be as per IFRS.
SOX has huge binding requirements for secretaries and administrators relating to accounting standards and financial reporting.
© 2009 - All rights reserved. – Kishor Parikh – [email protected]
Thank YouThank You
Questions Invited or can be subsequently mailed at