Drifting on the IFRS highway International Financial Reporting Standard(s) Kishor Parikh - B.Com, F.C.A, DipIFR (U.K.) [email protected] Study Circle Meeting.

Drifting on the IFRS highway

International Financial Reporting Standard(s)

Kishor Parikh - B.Com, F.C.A, DipIFR (U.K.)

[email protected]

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.


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.


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)


Organizational Responsibility of Standard Organizational Responsibility of Standard PreparationPreparation


ActualActual Process of Standard Preparation (IASB)Process of Standard Preparation (IASB)


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


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.


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


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


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


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


Classification of IFRSClassification of IFRS

Table showing broad categories under which the IFRSs can be segregated


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


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).


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.


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.


Thank YouThank You

Questions Invited or can be subsequently mailed at

[email protected]

Drifting on the IFRS highway International Financial Reporting Standard(s) Kishor Parikh - B.Com, F.C.A, DipIFR (U.K.) [email protected] Study Circle Meeting.

Documents

ifrs ifrs financial

countries india

international transactions

international benchmarking

statement of changes

interpretation committee

cash flow statement

listed companies