IFRS - An Introduction

IFRS refers to International Financial Reporting Standards. These standards are issued by International Accounting Standard Board (IASB). IASB has issued so far 41 IAS and 8 IFRS. There are some differences between AS and IFRS, these standards (IFRS) are issued to sort out the differences and agreed to one way of accounting treatment and also enhance the comparability of Financial Statements. The Institute of Charatered Accountants of India has published the roadmap of convergence of IFRS with Accounting Standards in India and has also announced that it will converge with AS by April, 2011. However, the local business enviornment should be considered while convergence with IFRS.

 Time Schedule for IFRS Implementation

• Converged AS (i.e. Ind-AS) would be the future;

• MCA has notified a “Three Phase Ind-AS” implementation in India;

• Phases Timeliness (Other than Insurance Companies, Banking Companies and NBFCs):

1. Phase I w.e.f. April 1st, 2011;

2. Phase II w.e.f April 1st, 2013;

3. Phase III w.e.f. April 1st, 2014

Phase I: Coverage Parameters

• NSE - Nifty 50 Companies;

• BSE - Sens*x 30 Companies;

• Shares or securities listed outside India;

• Net Worth > Rs. 1000 crores

Holding Subsidiary Case Study

• Case Study: How shall the Consolidated and Stand-alone Financial Statements be prepared ??

1. ABC Limited holds 70% in PQR Limited. While PQR Limited is covered in Phase III, ABC Limited is covered in Phase I;

2. ABC Limited holds 70% in PQR Limited. While PQR Limited is covered in Phase I, ABC Limited is covered in Phase III

Net Worth

Share Capital

(+) Reserves (excluding Revaluation Reserves)

(-) Miscellaneous Expenditure

(-) P & L A/c (Dr.)

Cut off Date

• Cut off Date means “on which date the Phases’ Parameters” have to be tested and fulfilled;

• As per MCA Notification, it would be the following:

1. Last date of the year preceding the year preceding to the previous comparative year

Cut off Date: Case Study

• ABC Limited has a net worth of Rs. 1,100 crore as at 31.3.2010 and a net worth of Rs. 1,000 crores as at 31.3.2009. Examine whether ABC Limited is covered in Phase I or not??

Recommendation:

1. Current Financial Year (IFRS) = 2011-12;

2. Previous Comparative Year (AS) = 2010-2011;

3. Year preceding to (2) above = 2009-2010;

4. Cut off Date = 31-03-2009 (Last date of 2008-2009)

5. Since as at 31.3.2009, N.W. = Rs. 1,000 crores, ABC Limited not covered in Phase I

Comparatives

• Two Options:

1. Option 1: Give Ind-AS Comparatives;

2. Option 2: Do not give Ind-AS Comparatives

• Additional Option for Option 2 Companies = they may add an additional column to indicate what the figures could have been if Ind-AS had been applied in that previous year

Regulatory Issues and Challenges

• Company Law:

1. Schedule XIV Rates;

2. What if conflict between Law and Ind-AS;

3. Managerial Remuneration payment on the basis of Effective Capital, considering that it keeps on changing w.r.t. fair value changes

• Direct and Indirect Taxation:

1. Revenue recognition principles changes, specially about finance income;

2. Whether TDS would be applicable over it;

3. FOREX Transactions;

4. Changes in Fair Value w.r.t. MAT

• Other Regulations (like SEBI, RBI, IRDA, FEMA, etc.):

1. Capital Employed;

2. Ratio Calculation;

3. Turnover;

4. EPS;

5. Consolidation;

6. Cap for Automatic/ Approval Routes under FEMA;

7. Treasury Stock

Chartered Accountants vis-à-vis Ind-AS

• Impact Analysis;

• Valuations;

• Reconciliations;

• Implementation;

• Periodic Reviews;

• Ind-AS Audits and much more