Ifrs Gapp Infosys

MGT 515ACCOUNTING FOR MANAGERS

TERM PAPER

Neetu Singh Ashish SumanRS1904A09 RS1904A10

INTERNATIONAL FINANCIAL REPORTING STANDARD

(IFRS)

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

(GAAP)

Infosys technologies LTD- It was founded on July 2,1981 in Pune by NR Narayana Murthy and 6 other people .The company was incorporated as private company and went public in 1993.In its recent annual reports , Infosys technologies limited also provides its balance sheet as per the inter national financial reporting standards.

INTERNATIONAL FINANCIAL RE-PORTING STANDARD (IFRS)

IFRS are standards ,interpretations and framework adopted by the International Accounting Standards Board [IASB] which was issued between 1973 and 2001 by IASC .In India The Institute of chartered accountants of India has announced that IFRS will be mandatory in India for financial statements for the periods beginning on or after 1 April 2011.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

Generally accepted accounting principles is the term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction

GAAP includes the standards conventions and rules accountants follow In recording and summarizing transactions and in the preparation of financial statements

Features of IFRS IFRS standards are principle based whereas

GAAP standard are rule based. Indian standards are basically modeled on the basis of IFRS

Convergence- In the Accounting Standard parlance ,convergence means alignment of national requirements with the international norms

102countries have either adopted or are converging to IFRS.

Benefits of IFRS Immediate benefits of convergence are

comparability of financial statement, portability of professional skills across countries. Easy merger & acquisition process and doing with the need to translate to different accounting norms

This will greatly bolster the ability of Indian companies to raise and attract foreign capital at low cost.

Contd. Once Indian companies adopt IFRS, the global

acceptability of them will be enhanced. The adaptation of IFRS is expected to increase

transparency of financial statements. The risk of being exposed to errors in reporting

under different accounting frameworks for Indian multinational companies will be eliminated.

Indian professionals trained under IFRS could be benefited immensely as they can scout for new client around the globe.

Differences Between Indian GAAP & IFRS Significant difference between the Indian GAAP &

IFRS. An example is accounting for amalgamations and mergers. Indian GAAP is very liberal, in this respect where as IFRS is rather stringent.

As per Indian GAAP, while accounting for amalga-mations, goodwill on acquisition has to be amortized over fives years or so. That, is whether or not the goodwill is impaired, the company will have to charge it as expenditure in the financial statement affecting its profitability. However IFRS provides for retaking the fair value of intangible asset in the balance sheet.

Cont. According to Indian GAAP current investment are

required to be valued at lower cost and fair values. Thus, if the fair value of an investment is lower than the cost, the loss is recognized but the gain is ignored. However IFRS requires firms to reckon both gains and losses for arriving at the profit. It means for investment held for trading, both the losses and gains as the case may be ,would have to reflect in the profit and loss.

Cont.

In India, fixed assets are valued at the price they were bought (historical cost) after allowing for depreciation. But this historical cost does not reflect the current fair market value of assets. Once IFRS is implemented, such anomalies will be removed.

Cont.

In India, fixed assets are valued at the price they were bought (historical cost) after allowing for depreciation. But this historical cost does not reflect the current fair market value of assets. Once IFRS is implemented, such anomalies will be removed.

Some other areas of major differences are preparation of consolidated financial statements and exposures of firms to forward contracts on foreign currency transaction

Infosys Balance Sheet as per Indian GAAP in crores Rs

31.03.05 31.03.06 Absolute inc./dec.

% change

Sources of fund:

Sh.holder’s fund

Capital 135 138 3 +2.22

Res. & surplus 5090 6828 1738 +34.14

Total Sh.holder fund 5225 6966 1741 +33.32

Other L.T.Liability 94 68 -26 -27.65

C.Liabilities & Prov.

Liabilities 656 934 278 +42.37

Provisions 777 1412 635 +81.72

Total C.L. & Prov. 1433 2346 913 +63.71

Total sources of fund 6752 9380 2628 +38.92

Application of fund:

Fixed Assets

Net Gross Block 1256 1655 399 +31.76

Capital work in progress 318 571 253 +79.55

Investments 1211 755 -456 -28.97

Deferred Tax Assets 45 65 20 +44.44

C.A.,loans & Adv.

S. Debtors 1322 1608 286 +21.63

Cash & Bank balance 1576 3429 1853 +117.57

Loans & Advances 1024 1297 273 +26.66

Total C.Assets 2488 3988 1500 +60.28

Total Application of fund 5319 7034 1715 +32.24

Interpretations In current Assets total increase amounts to 1500 cores

(60.28%). The increase in cash was the most i.e. Rs.1853 cores(117.57%)

Current Liabilities increases up to Rs 913 cores(63.71%).This increase is greater than increase in current asset that means in 05-06 the liquidity of Infosys has decreased.

During the yr. 05-06 reserves & surplus have increased by Rs 1738 cores(34.14%). The Sh. Holder fund have increased by Rs 1741 cores (33.32%) which represent the financial soundness of the business.

During the year the investment has been decreased & is used to pay off its other long term liability.

Infosys Balance sheet Based On IFRSin million dollars

31.03.05 31.03.06 Absolute change %change

Assets: Current Assets

Cash & cash equivalents 410 889 479 116.8%

Investment in liquid mutual fund unit

278 170 -108 -38.8%

Trade account receivable 303 361 58 19.14%

Unbilled revenue 32 48 16 50%

Other C.A. &prepaid exp. 35 40 5 14.2%

Total C.A. 1058 1508 450 42.5%Property, Plant & equipments 352 491 139 39.4%

Goodwill 8 8 0 0%

Deferred tax asset 10 14 4 40%

Advance Income Tax _ 18 18 _

Other assets 26 27 1 3.8%

Total Assets 1454 2066 612 42%

Liabilities & Sh. Holder’s equity Current LiabilityAccount Payable 1 3 2 200%Income tax payable 23 _ -23 -100%Client deposits 7 2 -5 -71.4%Unearned revenue 20 44 24 120%Other accrued liabilities 124 160 36 29%Total current liabilities 175 209 34 19.4%Non-current liabilityPreferred stock of subsidiary 21 _ -21 -100%Other non-current liability 5 5 0 0%

Stock holder’s equity

Equity shares 31 31 0 0%

Additional paid in capital 279 428 149 53.4%

Accumulated other compare income 33 9 -24 -72.7%

Retained earning 910 1369 459 50.4%

Minority interest _ 15 15 _

Total Liability 1454 2066 612 42%

Currency rate

A/c to Indian GAAP Deferred tax asset= Rs 65 cores

A/c to IFRS Deferred tax asset= 14 million $

Comparing both, we get 1$=650000000/14000000 =Rs 46.42

Thus currency rate is 1 US $ = Rs 46.42

Comparison between both B/S

Indian GAAP has followed the Accounting standard of India (AS1) while IFRS has followed International Accounting Standards (IAS1).

A/c to IFRS total CA has increased up to 42.5 % while a/c to Indian GAAP the increase in CA is up to 61.49%.

IFRS has made differentiation regarding CA, non CA, liabilities & non liabilities however its not in Indian GAAP.

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Thanks