ind- as “a step towards ifrs convergence in india” · ind as 2 inventories s r no. ind as...

IND- AS “A Step towards

IFRS Convergence In India”

Contents

1

3 Regulatory Update

2 IND-AS comparison with IFRS

IFRS in India : Background and overview

2

IFRS - now a truly global standard

• IFRS is adopted in more than 100 countries

• The IFRS movement started in India in the year 2001

• ICAI presented Position paper in the year 2007 and issued concept paper

in 2009

• Due to the announcement in government policy as to adopt IFRS from

1April 2007, all regulatory procedures were fastened to implement IFRS in

India

•By 2011,more than 150 countries would have adopted IFRS including

India, China, Brazil and Korea

•IFRS includes

IAS: International Accounting standards

SIC: Standard of interpretation committee

IFRS: International financial reporting standards

IFRIC: International Financial reporting Interpretation committee

IFRS convergence in India – Announcement by the Ministry of

Corporate Affairs (MCA)

Convergence with IFRS in a phased manner starting April 1, 2011

Criteria for companies covered in each phase defined

Two separate sets of Accounting Standards under Section 211(3C) of the

Companies Act, 1956 – IFRS converged standards (Ind-AS) and existing

accounting standards

Companies not covered will follow existing accounting standards; but may

voluntarily converge

Carve – out’s (First-time transition / Ongoing accounting policies)

IFRS convergence in India – phased approach

NIFTY 50

SENSEX 30

Companies whose shares or other securities listed on stock exchanges outside India

Companies (listed or unlisted) with net worth in excess of INR.1,000 crores

Companies (listed or unlisted) with net worth in excess of INR. 500 crores but less thanINR.1,000 crores

Listed companies with net worth less than INR. 500 crores

Separate convergence plan for banks (April 1, 2013), NBFC (April 1, 2013 or

April 1, 2014) and insurance companies (April 1, 2012)

Phase 1 – Transition date April 1, 2011



MCA clarifications on IFRS adoption (1/3)

A company may, however, voluntarily choose to report comparative period figures (i.e. for the

year ending March 31, 2011 in case of Phase 1 entities) as per the converged accounting

standards by inserting an additional column in the financial statements. The opening balance

sheet (and therefore transition adjustments) for companies in such a case shall be as at April 1,

2010.

Presentation of comparatives

Option to present comparatives voluntarily (2010 –2011)

Option to choose the IFRS vs. Indian converged accounting standards

Opening balance sheet shall be prepared as at April 1, 2011 (i.e. Phase 1 entities) and the

financial statements for the year ending March 31, 2012 shall be in accordance with the

converged accounting standards; but comparative period figures (i.e. for the year ending

March 31, 2011) shall those reported as per the non-converged accounting standards.

Companies shall need to follow the converged accounting standards and not IFRS as issued by

IASB.

The date for the determination of applicability criteria of the converged standards would be

March 31, 2011 for banks and NBFCs and March 31, 2009 for other companies (other than

insurance companies)

Date for determination of eligibility

MCA clarifications on IFRS adoption

Once a company follows the converged accounting standards it shall continue preparing

financial statements in accordance with the converged accounting standards. It shall not

revert to the non-converged accounting standards even though the applicability criteria no

longer apply to it.

Voluntary adoption for Phase 2 and 3 companies

Matters subsequent to adoption

What is included in the ‘Net worth’?

Phase 2 and 3 companies will have an option to early adopt the converged accounting

standards commencing on or after April 1, 2011.

All other companies can also early adopt IFRS

Share capital + reserves – revaluation reserve – debit balance in P&L account

Net worth shall be determined based on the standalone audited balance sheet – for

companies as on March 31, 2009 and for financial institutions (banks and NBFCs) on March

31, 2011.

Summary of comparison Ind AS vis-à-vis IFRS

S R

No. Indian Accounting Standard Key IFRS differences

1. Ind AS 1 - Presentation of Financial Statements a

2. Ind AS 2 - Inventories r

3. Ind AS 7 - Statement of Cash Flows a

4. Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and

Errors

r

5. Ind AS 10 - Events after the Reporting Period r

6. Ind AS 11 - Construction Contracts a

7. Ind AS 12 - Income Taxes r

8. Ind AS 16 - Property, Plant and Equipment r

9. Ind AS 17 – Leases a

10. Ind AS 18 – Revenue a

11. Ind AS 19 - Employee Benefits a

12. Ind AS 20 - Accounting for Government Grants and Disclosure of

Government Assistance

a

Summary of comparison Ind AS vis-à-vis IFRS contd.

S R


13. Ind AS 21 - The Effects of Changes in Foreign Exchange Rates a

14. Ind AS 23 - Borrowing Costs a

15. Ind AS 24 - Related Party Disclosures a

16. Ind AS 27 - Consolidated and Separate Financial Statements a

17. Ind AS 28 - Investments in Associates a

18. Ind AS 29 - Financial Reporting in Hyperinflationary Economies a

19. Ind AS 31 - Interests in Joint Ventures a

20. Ind AS 32 - Financial Instruments: Presentation a

21. Ind AS 33 – Earnings per Share a

22. Ind AS 34 – Interim Financial Reporting a

23. Ind AS 36 - Impairment of Assets a

24. Ind AS 37 - Provisions, Contingent Liabilities and Contingent Assets r

25. Ind AS 38 - Intangible Assets a

26. Ind AS 39 - Financial Instruments: Recognition and Measurement a

Summary of comparison Ind AS vis-à-vis IFRS contd.S R


27. Ind AS 40 - Investment Property a

28. Ind AS 101 - First-time Adoption of Indian Accounting Standards a

29. Ind AS 102 - Share-based Payment r

30. Ind AS 103 - Business Combinations a

31. Ind AS 104 - Insurance Contracts r

32. Ind AS 105 - Non-current Assets Held for Sale and Discontinued Operations r

33. Ind AS 106 – Exploration for and Evaluation of Mineral Resources r

34. Ind AS 107 – Financial Instruments: Disclosures r

35. Ind AS 108 - Operating Segments r

11

Ind AS 1 Presentation of Financial Statements

S R

No. Ind AS requirement IFRS requirement

1. Ind AS 1 allows only the single statement

approach. So entities can not follow two

statements approach

With regard to preparation of Statement of profit

and loss, IAS 1 provides an option either to follow

the single statement approach or to follow the two

statement approach.

2. Ind AS 1 requires the statement of changes in

equity to be shown as a part of the balance

sheet.

IAS 1 requires preparation of a Statement of

changes in equity as a separate statement.

3. Ind AS 1 requires only nature-wise classification

of expenses.

Paragraph 99 of IAS 1 requires an entity to present

an analysis of expenses recognised in profit or

loss using a classification based on either their

nature or their function within the entity.

4. Ind AS 1 does not include implementation

guidance because various enactments have

prescribed formats, e.g., Schedule VI to the

Companies Act, 1956.

IAS 1 contains implémentation guidance.

12

Ind AS 2 Inventories

S R


1. Paragraph 38 of IAS 2 dealing with recognition

of inventories as an expense based on function-

wise classification, has been deleted keeping in

view the fact that

option provided in IAS 1 to present an analysis

of expenses recognised in profit or loss using a

classification based on their function within the

equity has been

removed and Ind AS 1 requires only nature -

wise classification of expenses.

IAS 2 allows recognition of inventories as an

expense based on function-wise classification.

13

Ind AS 7 Statement of Cash Flows

S R


1. Ind AS 7 does not provide

such an option and requires these item to be

classified as item of financing activity and

investing activity, respectively.

In case of other than financial entities, IAS 7

gives an option to classify the interest paid and

interest and dividends received as item of

operating cash flows.

2. Ind AS 7 requires it to be classified as a part of

financing activity only.

IAS 7 gives an option to classify the dividend

paid as an item of operating activity.

14

Ind AS 11 Construction Contracts

S R


1. This has been dealt with under Ind AS 11, since

it has been kept out of the scope tof Ind AS 18,

Revenue.

IAS 11 does not deal with accounting for

construction contracts in respect of real estate

developers.

1515

IND AS 17 – Leases

S R

No.

Ind AS requirement

IFRS Requirement

1. Relevant paragraphs of IAS 17 dealing with

measurement of the land and buildings

elements when the lessee’s interest in both land

and buildings is classified as an investment

property in accordance with Ind AS 40

Investment Property if the fair value model is

adopted and paragraph 19 of IAS 17 dealing

with property interest held under an operating

Lease as an investment property, if the

definition of investment property is otherwise

met and fair value model is applied, have been

deleted, since Ind AS 40, Investment Property,

prohibits the use of fair value model.

Both cost and fair value option are prescribed

for investment property under Ind AS 40, for

which corresponding guidance is given under

IAS 17.

1616

IND AS 18 – Revenue

S R

No. IND AS Requirement IFRS Requirement

1. IFRIC 15 has not been included in Ind AS 18 to

scope out agreements in relation to construction

of real estate and to include the same in Ind AS

11, Construction Contracts.

The same requirement forms part of IFRIC 15

based on principles of IAS 18.

Ind-AS as compared to IFRS

The first category of carve-out's include:

Mandatory deviations from IFRS

Percentage of completion basis – Real estate

Recognition of biological/plantation assets at cost

Recognition of 'embedded' foreign currency conversion options in

convertible bonds, as 'equity’

Recognition of 'bargain purchase gains' as 'capital reserves’

Use of government securities yields for determining actuarial liabilities

.

Ind-AS as compared to IFRS

The second category of carve-out's include:

Voluntary deviations from IFRS

Choice to defer exchange differences on long-term foreign currency assets

and liabilities

Choice to follow non-uniform accounting policies/periods for associates

Choice to consider Indian GAAP carrying values as 'deemed cost' for fixed

assets acquired prior to April 1, 2007

The third category of carve-out's include:

Elimination of options

Single statement presentation of income statement

Classification of expenses in the profit and loss account by their nature

Classification of interest and dividend as financing/investing cash flows

No choice to carry investment property at fair value

Recognition of actuarial gains and losses directly in reserves

Requirement to present consolidated financial statements by intermediate

holding companies

Re computation of borrowing costs capitalizable

Regulatory updates (1/3)

Representations for deferral of April 1, 2011 timeline:

Delay in issuance of the final standards and final regulatory

amendments

Need for preparatory time (12 months – 24 months) after issuance

Expected changes in IFRS

Lack of clarity on taxation

U.S. and Japan have more extended timelines

Regulatory updates (2/3)

Ministry of Corporate Affairs (MCA) comment process:

300 companies invited to comment

Approximately 30 companies responded

Deferral unlikely

Transition year (2011-12) – quarterly reporting under Indian GAAP?

Some additional carve-outs possible

Regulatory updates

Converged Indian accounting standards (Ind AS) yet to be issued in final form –

expected in February 2011

Several proposed ‘carve-outs’ (deviations) from IFRS issued internationally

Fixed assets

Concessional government loans

Embedded leases

Amendments to the Companies Act

Separate records for tax purposes - Position paper by Institute of Chartered

Accountants of India (ICAI); Committee formed by Ministry of Finance

Thank You

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