IFRS Vs IGAAP (AS)
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
02 January 2011
As per AS 13, the Long term investment has to be recorded at cost unless there is a permanent reduction in value.
USGAAP/ IFRS require HTM (Held to Maturity) / AFS (Available for Sale) investments to be checked for impairment on every balance sheet date. (fair value principle).
There is an investment in stock market, which crashed on the balance sheet date. The management believes the fundamentals of the company are sound, and that there is no provision required as per AS 13.
1. Would this be ok to record the investment at cost as per AS13.
2. Would impairment be required as per USGAAP/ IFRS.
USGAAP/ IFRS require HTM (Held to Maturity) / AFS (Available for Sale) investments to be checked for impairment on every balance sheet date. (fair value principle).
There is an investment in stock market, which crashed on the balance sheet date. The management believes the fundamentals of the company are sound, and that there is no provision required as per AS 13.
1. Would this be ok to record the investment at cost as per AS13.
2. Would impairment be required as per USGAAP/ IFRS.
03 January 2011
Investment covered under AS 13, is excluded under IFRS.
1. you can record the investment as per AS13.
1. you can record the investment as per AS13.
03 January 2011
As per AS 13, the carrying amount of a long term investment is to be adjusted if there an other than temporary reduction in the value of the investment. Fluctuations in stock market should not effect the value of long term investments as they are not marked to market at every balance sheet date. Hence as per AS 13, the investment may still be carried at cost.
Need to check on IFRS
Need to check on IFRS
Querist : Anonymous
Querist :
Anonymous
(Querist)
04 January 2011
Thanks for the responses.
Can anyone please confirm on the IFRS part as well.
Can anyone please confirm on the IFRS part as well.
28 July 2024
The accounting treatment for investments and their impairment is subject to different standards under IFRS, US GAAP, and Indian GAAP (IGAAP). Here’s a detailed comparison and response to your specific questions regarding impairment and valuation of investments:
### **1. Accounting under Indian GAAP (IGAAP) - AS 13**
#### **1.1 **Investment Valuation:**
- **AS 13 (Accounting for Investments):** Under AS 13, investments are classified into **"Long-term Investments"** and **"Current Investments."**
- **Long-term Investments:** These are carried at cost unless there is a permanent diminution in value. For long-term investments, if the management believes that the fundamental value is still sound, the investment may be recorded at cost if no permanent diminution is identified.
- **Current Investments:** These are generally carried at the lower of cost or market value.
#### **1.2 **Permanent Reduction in Value:**
- **Permanent Diminution:** AS 13 requires a provision for permanent diminution in the value of investments. If the value has permanently declined and not just temporarily, it needs to be recognized.
- **Temporary Decline:** If the decline in value is temporary, the investment can be carried at cost.
### **2. Accounting under IFRS**
#### **2.1 **Impairment Testing:**
- **IFRS 9 (Financial Instruments):** Under IFRS 9, investments are classified into three categories:
- **Amortized Cost**
- **Fair Value Through Other Comprehensive Income (FVOCI)**
- **Fair Value Through Profit or Loss (FVTPL)**
- **Equity Investments:** These are typically classified as FVOCI or FVTPL.
- **Debt Investments:** These can be classified as Amortized Cost or FVOCI, depending on the business model and cash flow characteristics.
#### **2.2 **Impairment Requirements:**
- **Impairment Assessment:** Under IFRS 9, there is a requirement for regular impairment assessment of financial assets. Investments classified as FVOCI or FVTPL must be measured at fair value, with changes in fair value recognized in profit or loss or other comprehensive income, respectively.
- **Impairment of Equity Instruments:** Under IFRS 9, if an equity instrument is classified as FVOCI, impairment is generally not required. However, if classified as FVTPL, changes in fair value are recognized in profit or loss.
### **3. Accounting under US GAAP**
#### **3.1 **Impairment Testing:**
- **US GAAP (ASC 320 - Investments - Debt and Equity Securities):**
- **Held-to-Maturity (HTM):** Investments are recorded at amortized cost. An impairment loss must be recognized if the fair value of the HTM investment is less than its amortized cost and the decline is considered to be other-than-temporary.
- **Available-for-Sale (AFS):** Investments are recorded at fair value with unrealized gains and losses reported in other comprehensive income. An impairment loss must be recognized in the income statement if the decline in fair value is deemed other-than-temporary.
#### **3.2 **Impairment Requirements:**
- **Impairment Assessment:** US GAAP requires that AFS investments be tested for impairment on every balance sheet date. If the decline in fair value is deemed other-than-temporary, the loss must be recognized in the income statement.
### **4. Specific Answers to Your Questions:**
#### **4.1 **IGAAP (AS 13):**
- **Investment at Cost:** If the decline in the stock market value is deemed temporary and the management believes that the fundamentals of the investment are sound, it may be appropriate to continue recording the investment at cost under AS 13. Permanent diminution would require a provision.
#### **4.2 **IFRS and US GAAP:**
- **IFRS:**
- **Impairment Requirement:** For investments classified as FVOCI, impairment is generally not required, but fair value must be assessed. For those classified as FVTPL, impairment is not a separate consideration as changes in fair value are directly recognized in profit or loss.
- **US GAAP:**
- **Impairment Requirement:** If the investment is classified as AFS or HTM, an impairment test is required, and if the decline is deemed other-than-temporary, an impairment loss must be recognized.
### **Summary:**
- **Under AS 13 (IGAAP):** You can record the investment at cost if the decline in value is considered temporary and no permanent diminution is observed.
- **Under IFRS:** Impairment is generally not required for FVOCI investments, but fair value must be evaluated. For FVTPL investments, changes in fair value are recognized in profit or loss.
- **Under US GAAP:** Impairment must be recognized if the decline is other-than-temporary for AFS and HTM investments.
Each standard has specific requirements, so it’s important to ensure that you follow the relevant accounting standards for accurate financial reporting.
### **1. Accounting under Indian GAAP (IGAAP) - AS 13**
#### **1.1 **Investment Valuation:**
- **AS 13 (Accounting for Investments):** Under AS 13, investments are classified into **"Long-term Investments"** and **"Current Investments."**
- **Long-term Investments:** These are carried at cost unless there is a permanent diminution in value. For long-term investments, if the management believes that the fundamental value is still sound, the investment may be recorded at cost if no permanent diminution is identified.
- **Current Investments:** These are generally carried at the lower of cost or market value.
#### **1.2 **Permanent Reduction in Value:**
- **Permanent Diminution:** AS 13 requires a provision for permanent diminution in the value of investments. If the value has permanently declined and not just temporarily, it needs to be recognized.
- **Temporary Decline:** If the decline in value is temporary, the investment can be carried at cost.
### **2. Accounting under IFRS**
#### **2.1 **Impairment Testing:**
- **IFRS 9 (Financial Instruments):** Under IFRS 9, investments are classified into three categories:
- **Amortized Cost**
- **Fair Value Through Other Comprehensive Income (FVOCI)**
- **Fair Value Through Profit or Loss (FVTPL)**
- **Equity Investments:** These are typically classified as FVOCI or FVTPL.
- **Debt Investments:** These can be classified as Amortized Cost or FVOCI, depending on the business model and cash flow characteristics.
#### **2.2 **Impairment Requirements:**
- **Impairment Assessment:** Under IFRS 9, there is a requirement for regular impairment assessment of financial assets. Investments classified as FVOCI or FVTPL must be measured at fair value, with changes in fair value recognized in profit or loss or other comprehensive income, respectively.
- **Impairment of Equity Instruments:** Under IFRS 9, if an equity instrument is classified as FVOCI, impairment is generally not required. However, if classified as FVTPL, changes in fair value are recognized in profit or loss.
### **3. Accounting under US GAAP**
#### **3.1 **Impairment Testing:**
- **US GAAP (ASC 320 - Investments - Debt and Equity Securities):**
- **Held-to-Maturity (HTM):** Investments are recorded at amortized cost. An impairment loss must be recognized if the fair value of the HTM investment is less than its amortized cost and the decline is considered to be other-than-temporary.
- **Available-for-Sale (AFS):** Investments are recorded at fair value with unrealized gains and losses reported in other comprehensive income. An impairment loss must be recognized in the income statement if the decline in fair value is deemed other-than-temporary.
#### **3.2 **Impairment Requirements:**
- **Impairment Assessment:** US GAAP requires that AFS investments be tested for impairment on every balance sheet date. If the decline in fair value is deemed other-than-temporary, the loss must be recognized in the income statement.
### **4. Specific Answers to Your Questions:**
#### **4.1 **IGAAP (AS 13):**
- **Investment at Cost:** If the decline in the stock market value is deemed temporary and the management believes that the fundamentals of the investment are sound, it may be appropriate to continue recording the investment at cost under AS 13. Permanent diminution would require a provision.
#### **4.2 **IFRS and US GAAP:**
- **IFRS:**
- **Impairment Requirement:** For investments classified as FVOCI, impairment is generally not required, but fair value must be assessed. For those classified as FVTPL, impairment is not a separate consideration as changes in fair value are directly recognized in profit or loss.
- **US GAAP:**
- **Impairment Requirement:** If the investment is classified as AFS or HTM, an impairment test is required, and if the decline is deemed other-than-temporary, an impairment loss must be recognized.
### **Summary:**
- **Under AS 13 (IGAAP):** You can record the investment at cost if the decline in value is considered temporary and no permanent diminution is observed.
- **Under IFRS:** Impairment is generally not required for FVOCI investments, but fair value must be evaluated. For FVTPL investments, changes in fair value are recognized in profit or loss.
- **Under US GAAP:** Impairment must be recognized if the decline is other-than-temporary for AFS and HTM investments.
Each standard has specific requirements, so it’s important to ensure that you follow the relevant accounting standards for accurate financial reporting.
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