Why IFRS?
Ø Numero-uno accounting framework with global acceptance.
Ø Business going global, more cross border transaction
Ø Access to international capital
Ø Single global financial reporting language
Ø Enhance confidence of global stakeholders
Ø Facilitate International acquisition
Ø Standardized quality of management information system across global businesses
Ø Peer to Peer Comparison
IFRS – Convergence
n The convergence of global accounting standards to IFRS gained momentum, when in August 2007; the SEC permitted foreign companies that access capital market in US Capital markets and are listed on US Stock exchanges to file financial statement using IFRS without reconciliation to US GAAP.
n On Nov 15, 2007 the Securities and Exchange Commission (SEC) unanimously approved the amendment to its rules and forms which allows using IFRS as issued by the IASB, to reconcile their financial statements with USGAAP. This represents that the world is moving towards convergence to one unified standard
IFRS in India
As of now more than 100 countries require or permit use of IFRS. China, Japan, South Korea and Canada have announced to converge between 2008 to 2011 respectively.
ICAI has also setout a roadmap to converge with IFRS by 2011.
1) For Public interest entities (i.e. listed entities, banks and insurance entities and certain other large sized entities)
2) For other than public interest entities ( termed as small and medium sized entities (SME), a separate standard for SMEs may be formulated based on the IFRS for small and medium sized enterprises when finally issued by the IASB, after modification, if necessary
Financial statement – IFRS
A complete set of financial statements includes a:
& Balance sheet
& Income statement
& Statement showing changes in equity
& Cash Flow Statement
& List of Accounting policies
& Notes to financial statements
Balance sheet
n The following items, as a minimum are presented on the face of the balance sheet:
n Assets - PPE, Investment Property, Intangible assets, financial assets, and investment accounted for using the equity method, biological assets, deferred tax assets, Current tax assets, inventories, trade and other receivables and cash and cash equivalents.
n Equity – issued capital and reserves attributable to equity holders of the parent, and minority interest.
n Liabilities – deferred tax liabilities, current tax liabilities, financial liabilities, provisions, and trade and other payables.
n Assets and liabilities held for sale – If held for disposal.
Current and non current assets and liabilities to be presented as separate classification on the face of the balance sheet based on liquidity.
Income statement
n No prescribed format, IFRS permits the income statement to be presented in either of the two methods:
n Nature of Expenses
n Functional cost
F Material items by their nature and amounts are to be disclosed separately. Items such as restructuring cost, write down of inventories or PPE, Litigation settlement and gains or losses from disposals of non current assets etc.
F All items of income and expenses are deemed to arise from an entity’s ordinary activities. There is no category of extraordinary items in IFRS.
Statement of Changes in shareholders’ equity (SOCE)
n The statement shows :
n Capital transaction with the owners
n Movement in accumulated profit and a reconciliation of all other components of equity
n The total of income and expenses for the period, showing separately the amounts attributable to equity holders of the parent and to minority interest and the effect of changes in the accounting policies, prior period items, fair value gain /losses on land and building, Mark to market gain/(losses) on investment and certain financial instruments etc. (SORIE)
n An enterprise cannot present both SORIE and SOCE as primary statement
Cash Flow Statement
n The cash flow statement may be prepared either using:
n Direct method (aggregate cash receipt / payment associated with operating activities) or
n Indirect method (cash flows derived from adjusting net income for transactions of a non cash nature such as depreciation)
Q IFRS is similar to Indian GAAP except that all listed companies in India as per SEBI is permitted only Indirect method.
Q Cash and cash equivalent in IFRS also includes bank borrowings that are repayable on demand.
Q No separate disclosure for extraordinary items
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