presentation on ifrs vs ind as- by mohit jain

8/2/2019 Presentation on IFRS vs IND as- By Mohit Jain

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IFRS vs. Indian Accounting

Standard (Ind AS)

Mohit Jain

December 19, 2011

For discussion purposes only



Preface

India has chosen to converge with IFRS as opposed to adopting IFRS as this gives the

standard setters the latitude to modify accounting standards to better reflect the local

economic environment.

On 25th February, 2011, the Ministry of Corporate Affairs notified 35 Accounting

Standard that have been synced with IFRS. Although in the longer run, India intends to

converge all its Ind-AS with IFRS, in the short run there are some significant differences

between the two, few important one are highlighted in this presentation.

2



Contents

• Section I- Carve outs from IFRS in the relevant Ind AS.

• Section II- Other major changes in Ind AS vis-à-vis IFRS not

resulting in carve outs.

• Section III - IFRSs deferred by the MCA

• Section IV - List of IFRSs, IFRICs & SICs in respect of which no

corresponding Ind AS has been formulated or issued.

3



Carve outs from IFRS in

the relevant IND AS



Revenue Recognition-Construction of Real Estate(Unavoidable Difference)

IAS 18 Ind AS 18

On the basis of principles of the IAS 18,

IFRIC 15 on Agreement for Construction of

Real Estate, prescribes that construction of

real estate should be generally treated as

sale of goods and revenue should be

recognised only when the entity has

transferred significant risks and rewards of ownership and has retained neither

continuing managerial involvement nor

effective control.

IFRIC 15 has not been included in Ind AS 18 ,

Revenue. Such agreements have been

scoped out from Ind AS 18 and have been

included in Ind AS 11, Construction

Contracts (Para 3 of Ind AS 11).

Reason behind Carve out:

IFRIC 15, would have required the real estate developers to recognize the revenue in theirfinancial statements based on the completion method i.e., only in the last year of the

completion of the project. In that case, the profit and loss account of the developers will not

truly reflect the performance of the business, as during the years the real estate project

continues, no revenue will be recognised and this would create a lot of volatility in profit or

loss. Consequently a few countries, including India, characterised by a tremendous amount of

construction activity have chosen not to adopt or to defer the implementation of IFRIC 15.



The Effects of Changes in Foreign Exchange Rates(Avoidable Difference)

IAS 21 Ind AS 21

IAS 21 requires recognition of exchange

differences arising on translation of monetary items from foreign currency to

functional currency directly in statement of

comprehensive income (P/L Account).

Ind AS 21 permits an option to recognise

exchange differences arising on translationof certain long-term monetary items from

foreign currency to functional currency

directly in equity. In this situation, Ind AS 21

requires the accumulated exchange

differences to be amortised to profit or loss

in an appropriate manner. (Para 29A)

Ind AS 101 provides that on date of

transition, such option can be exercised

either prospectively or retrospectively.


The overseas borrowings of the Indian Companies are denominated in foreign currencies

unlike developed countries where borrowings are denominated in local currencies. There has

been a significant fluctuation in the value of US dollar vis-à-vis rupee. Also hedging is not

possible in India for the full period for which the loan is taken. Hence in Indian Context, it is

not appropriate to recognise the exchange differences immediately which arise as a result of

items which are to be paid/realized in foreign currency, after a long term nature.



Investment in Associates(Avoidable Difference)

IAS 28 Ind AS 28

IAS 28 requires that for the purpose of

applying equity method of accounting in the

preparation of investor’s financial

statements, uniform accounting policies

should be used. In other words, if the

associate’s accounting policies are different

from those of the investor, the investorshould change the financial statements of

the associate by using same accounting

policies.

The phrase, ‘unless impracticable to do so’

has been added in the relevant

requirements. (Para 26)

AS 28 requires that difference between the

reporting period of an associate and that of

the investor should not be more than threemonths, in any case.

The phrase ‘unless it is impracticable’ has

been added in the relevant requirement.

(Para 25)


Since the investor has significant influence and not control over the associate, it may not be

able to influence the associate to change its accounting policies or reporting period date.



Financial Instruments: Presentation(Unavoidable Difference)

IAS 32 Ind AS 32

Under IFRS, a Foreign Currency Convertible

Bond (FCCB) is treated as a hybrid financialinstrument with liability and derivative

(conversion option) components. While

companies measure liability at amortized

cost, the derivative component is measured

as fair value through profit or loss at each

reporting date.

The definition of a financial liability has

been modified in Ind AS 32 so that theconversion option, embedded in a FCCB, to

acquire fixed number of equity shares for

fixed amount of cash in any currency

(functional currency or any foreign

currency) is treated as equity and

accordingly, is not required to be

remeasured at fair value at every reporting

date (Para 11).


This carve out will help to prevent volatility for Indian Entities. Further this carve out is absed

on the same principles for carve out made in Ind AS 21 from IFRS 21.



Financial Instruments: Recognition and Measurement(Unavoidable Difference)

IAS 39 Ind AS 39

IAS 39 requires all changes in fair values incase of financial liabilities designated at fair

value through profit or loss upon initial

recognition shall be recognised in profit or

loss. IFRS 9 which will replace IAS 39

requiries these to be recognised in ‘other

comprehensive income’

A proviso has been added to para 48 of IndAS 39 that in determining the fair value of

the financial liabilities, which upon initial

recognition are designated at fair value

through profit or loss, any change in fair

value consequent to changes in the entity’s

own credit risk shall be ignored.


It is felt that recognition of gain on deterioration of own credit risk is not proper because such

deterioration ordinarily occurs when an entity is incurring losses. Thus, if an entity is allowed

to recognise gain on deterioration of its own credit risk, it will book gains when itsperformance is not upto the mark. In the recent financial crisis in USA, it was noted that some

banks booked gains while they were incurring losses due to the crisis.



Business Combination(Unavoidable Difference)

IFRS 3 Ind AS 103

IFRS 3 requires bargain purchase gain arising

on business combination to be recognisedin profit or loss.

Bargain purchase gain is the excess of fair

value of identifiable net assets acquired

over the purchase consideration.

Ind AS 103 requires that the acquirer should

first establish whether there was indeed abargain purchase i.e. assess whether there

are any circumstances which indicate that the

acquirer made a bargain purchase for

example, a distress sale such as acquisition of

a BIFR Company, in which the seller is acting

under compulsion. If such evidence exists theacquirer recognises the resulting gain in other

comprehensive income and accumulates the

same in equity as capital reserve. However, if

no circumstances exist to classify the business

combination as a bargain purchase, the

excess is recognised directly in equity as

capital reserve (Para 34 & 36A).

Reason behind Carve out: It is felt that recognition of such gains in profit or loss would result

into recognition of unrealised gains as the value of net assets is determined on the basis of

fair value of net assets acquired. However, in practice, since such transactions are rare, this

carve out is unlikely to have impact for most companies.



Revenue Recognition-Rate Regulated Entities(Will be unavoidable difference)

IAS 18 Ind AS 18

Revenue Recognistion for rate regulated

entities will be governed as per theprinciples stated in IAS 18 only and there is

no specific guidance on same.

For rate regulated entities, this standard

shall stand modified, where and to theextent the recognition and measurement of

revenue of such entities is affected by

recognition and measurement of regulatory

assets/liabilities as per the Guidance Note

on the subject being issued by the ICAI(Para 1 of Ind AS 18).


Rate regulated entities such as electricity companies are subject to tariff fixation by the

relevant authorities. Tariff is fixed on the basis of certain costs which are different from the

expenses recognised in financial statements. Such differences may result into certainregulatory assets and regulatory liabilities which are presently not recognised as per the IFRS.

Such entities feel that such assets and liabilities exist and, therefore, should be recognised in

financial statements. Hence ICAI is developing a Guidance Note on the subject.



First-time Adoption of Indian Accounting Standards

IFRS 1 Ind AS 101

Presentation of comparatives

IFRS 1 defines transitional date as beginning

of the earliest period for which an entity

presents full comparative information under

IFRS. Accordingly, the comparatives, i.e., the

previous year figures are also presented in

the first financial statements preparedunder IFRS on the basis of IFRS.

Ind AS 101, requires an entity to provide

comparatives as per the existing notified

accounting standards. In addition to

aforesaid comparatives, an entity may also

provide comparatives as per Ind AS on a

memorandum basis to facilitate smoothconvergence with IFRS (Para 21).

Presentation of reconciliation

IFRS 1 requires reconciliations for opening

equity, total comprehensive income, cash

flow statement and closing equity for the

comparative period to explain the transition

to IFRS from previous GAAP.

Under Ind AS 101, entities that provide IFRS

comparatives would have to provide

reconciliations which are similar to IFRS.

In other cases, they need not provide

reconciliation for total comprehensive

income, cash flow statement and closing

equity in the first year of transition but are

expected to disclose significant differences

pertaining to total comprehensive income.



First-time Adoption of Indian Accounting Standards

IFRS 1 Ind AS 101

Cost of PPE, Intangible Assets and Investment Property on transition date

There is no exemption permitting previous

GAAP carrying value of PPE as deemed

cost under IFRS (except for certain specific

oil and gas assets, and rate regulated

assets).

Ind AS 101 provides an entity an option to use

carrying values of all assets as on the date of

transition in accordance with previous GAAP as

an acceptable starting point under Ind AS to

minimise the cost of convergence (Para D7A).

Financial instruments existing on date of transitionThere is no exemption from retrospective

application of effective interest method or

the impairment requirements for financial

instruments carried at ammortised cost.

If it is impracticable to retrospectively apply the

effective interest method or the impairment

requirements for financial instruments, the fair

value of the financial asset at the date of

transition shall be the new amortised cost of

that financial asset at the date of transition

(Para D19A).

Terminology

Different terminology is used in Ind AS 101, e.g., the term ‘balance sheet’ is used instead of

‘Statement of financial position’ and ‘Statement of profit and loss’ is used instead of

‘Statement of comprehensive income’.



Other major changes in

IAS vis-à-vis IFRSs not

resulting in carve-outs



Presentation of Financial Statements

IAS 1 Ind AS 1

With regard to preparation of Statement of

profit and loss, IAS-1 provides an optioneither to follow the single statement

approach or to follow the two statement

approach. In the two statements approach,

two statements are prepared, one

displaying components of profit or loss

(separate income statement) and the other

beginning with profit or loss and displaying

components of other comprehensive

income (Para 81).

Ind AS 1 allows only the single statement

approach wherein all items of income &expenses shall be recognised in Statement

of Comprehensive Income (Para 10).

IAS 1 requires preparation of a Statement of

Changes in Equity as a separate statement.

Ind AS 1 requires the Statement of Changes

in Equity to be shown as a part of thebalance sheet (Para 10).

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

equity (Para 99).

Ind AS 1 requires only nature-wise

classification of expenses (Para 99).



Statement of Cash Flows

IAS 7 Ind AS 7

For entities other than financial entities, IAS

7 gives an option to classify the interest anddividend paid as items of operating cash

flows (Para 33 & 34).

Ind AS 7 does not provide such an option

and requires interest and dividend paid tobe classified as items of financing activity

only (Para 31).

For entities other than financial entities,

interest and dividends received can be

classified as items of operating cash flowsunder IAS 7 (Para 33).

Ind AS 7 does not provide such an option

and requires interest and dividends

received to be classified as item of investingactivity (Para 31).



Employee Benefits

IAS 19 Ind AS 19

The rate to be used to discount post-

employment benefit obligation shall be

determined by reference to the market yields

on high quality corporate bonds. Only where

there is no deep market in such bonds, yields

on government bonds may be used.

According to Ind AS 19 the rate to be

used to discount post-employment

benefit obligation shall be determined by

reference to the market yields on

government bonds, in all cases (Para 78).

IAS 19 provides three options for recognition

of actuarial gains and losses on defined benefitplans:

a) Recognise in the other comprehensive

income.

b) Recognise immediately in the income

statement (profit or loss).

c) No need to recognise actuarial gains andlosses below the 10% corridor and those

above the 10% can be deferred over the

remaining service period of employee.Note: This international standard is under review and

the exposure draft of IAS 19 eliminates the corridor

method.

Ind AS 19 requires recognition of the

same in other comprehensive income,both for post-employment defined

benefit plans and other long-term

employment benefit plans. The actuarial

gains recognised in other comprehensive

income should be recognised

immediately in retained earnings andshould not be reclassified to profit or loss

in a subsequent period (Para 92).



Accounting for Government Grants and Disclosure of Government Assistance

IAS 20 Ind AS 20

IAS 20 gives an option to measure non-monetary government grants either at their

fair value or at nominal value.

Ind AS 20 requires measurement of suchgrants only at their fair value.

IAS 20 gives an option to present the grants

related to assets in the balance sheet either

by setting up the grant as deferred income

or by deducting the grant in arriving at the

carrying amount of the asset.

Ind AS 20 requires presentation of such

grants in balance sheet only by setting up

the grant as deferred income.



The Effects of Changes in Foreign Exchange Rates

IAS 21 Ind AS 21

When there is a change in functional

currency of either the reporting entity or a

significant foreign operation, IAS 21 requires

disclosure of that fact and the reason for

the change in functional currency.

Ind AS 21 requires an additional disclosure

of the date of change in functional currency

(Para 54).



Related party disclosures

IAS 24 Ind AS 24

There is no exemption from complying withthe disclosure requirement of IAS 24 under

any circumstances

Ind-AS 24 exempts companies from makingdisclosures required in the standard if

making such disclosures will conflict with

the company’s duties of confidentiality

prescribed in a law. This exemption may

particularly help banking companies whose

governing law prohibits certain disclosures(Para 4B).

IAS 24 contains a substance-based

definition of the term “close members of

the family”. According to the standard,

“close members of the family” of an

individual are those family members who

may be expected to influence, or be

influenced by, that individual in their

dealings with the entity.

However, Ind-AS 24 restricts the definition

of the term “close members of the family”

to the persons specified within the meaning

of “relative” under the Companies Act 1956

and that person’s domestic partner, children

of that person’s domestic partner and

dependants of that person’s domestic

partner (Para 9).



Earnings per Share

IAS 33 Ind AS 33

IAS 33 provides that when an entitypresents both consolidated financial

statements and separate financial

statements, it may give EPS related

information in consolidated financial

statements only.

Ind AS 33 requires EPS related informationto be disclosed both in consolidated

financial statements and separate financial

statements (Para 4).

IAS 33 does not speak about the situation inwhen due to legal override any item of

income and expense has been charged

directly to equity.

Ind-AS 33 recognizes that due to legaloverride, certain items of income and

expense may be charged directly to equity,

which, as per the requirements of Ind-AS,

should have been recognized in profit or

loss for the period. It requires that for the

purpose of calculation of basic and diluted

EPS, these amounts should be included in

profit or loss for the period, irrespective of

whether these amounts are debited or

credited to equity (Para 12).



Interim financial Reporting

In Ind-AS 34 Interim Financial Reporting, a footnote has been inserted, which states that

unaudited financial results required to be prepared and presented under clause 41 of the

listing agreement are not an interim financial report according to this standard. This

suggests that preparation of quarterly financial information will continue to be governed

by the requirements prescribed in the listing agreement.



Investment Property

IAS 40 Ind AS 40

IAS 40 permits both cost model and fair

value model (except in some situations) for

measurement of investment properties

after initial recognition.

Ind AS 40 permits only the cost model for

measurement of investment properties but

mandates the fair value disclosures for

investment property (Para 30 & 32).

As per IAS 40, a property interest that is

held by a lessee under an operating leasemay be classified and accounted for as

investment property if, and only if, the

property would otherwise meet the

definition of an investment property and

the lessee uses the fair value model for the

asset recognized. This classificationalternative is available on a property-by-

property basis.

Since Ind-AS 40 prohibits the use of the fair

value model, this option has also beendeleted from Ind-AS 40.



Business Combination(Unavoidable Difference)

IFRS 3 Ind AS 103

IFRS 3 Business Combinations excludes

common control business combinations

from its scope.

However, Ind-AS 103 requires such

combinations to be accounted using the

pooling of interest method. The excess of

the consideration given over the amount of

share capital is recorded as goodwill.

Ind-AS 103 also requires that financial

information for prior periods should be

restated as if the business combination had

occurred from the beginning of the earliest

period presented in the financial

statements, irrespective of the actual date

of the combination.(Para 9-13)



IFRSs deferred by the

MCA



Exploration for and Evaluation of Mineral Resources

Ind AS 106 corresponding to IFRS 6, Exploration for and Evaluation of Mineral

Resources, would not be notified immediately as it is under consideration of theGovernment.

Reasons:

MCA is of view that the standard is open-ended offering freedom to companies to

follow virtually any policy they like. The standard does not prescribe any

standardization. In such circumstances, the standard does not serve any usefulpurpose and may create a wrong impression in the mind of the stakeholders that the

entity concerned has complied with a strict standard when in fact, the company is

free to apply any accounting treatment it wants. This may even be counter

productive from a regulatory point of view by giving a false sense of correctness.

Hence, this Ind AS may not be notified immediately.



IFRIC 4, IFRIC 12 & SIC 29

MCA has deferred the application of the followings:

IFRIC 4 (“Determining Whether an Arrangement contains a Lease”) which is

included as Appendices C to Ind AS 17 (“Leases”)

IFRIC 12 (“Service Concession Arrangements”) which is included as Appendices A

to Ind AS 11 (“Construction Contracts”)

SIC 29 (“Service Concession Arrangements: Disclosures”), which is included asAppendices A to Ind AS 11 (“Construction Contracts”)

Reasons:

MCA received feedback regarding the adverse consequences which may ensue to

the Indian companies in the event of immediate adoption of the above appendices

to Ind AS. Hence, MCA decided that Appendix A & B to Ind AS 11 and Appendix C toInd AS 19 should be deferred and the same may be examined and applied with or

without modification later.



IFRSs, IFRICs & SICs inrespect of which no

corresponding Ind AS &Appendix has been

formulated/issued



IFRSs, IFRICs & SICs in respect of which no corresponding Ind AS &

Appendix has been formulated/issued

Ind AS corresponding to IAS 26 Accounting and Reporting by Retirement Benefit Plans; as

this standard is not applicable to companies

Ind AS corresponding to IAS 41, Agriculture, in view of difficulties in assessing the fair value

in the agricultural sector.

Ind AS corresponding to IFRS 9, Financial Instruments, ( which is effective from 1 January

2013 with early adoption permitted) , since it was felt that the standard is incomplete,entities that choose to early adopt IFRS 9 would have to fall back on IAS 39 Financial

Instruments: Recognition and Measurement for matters not covered by IFRS 9; a situation

that could lead to some inconsistencies in accounting for financial instruments. The Indian

standard setters have therefore chosen to not permit the early adoption of IFRS 9.

Appendix corresponding to IFRIC 2 “Members’ Shares in Co-operative Entities and Similar

Instruments” is not issued as it is not relevant for the companies

Appendix corresponding to SIC 7 “Introduction of Euro” is not issued as it is not relevant in

the Indian context.



Questions ?



Thank You



Deloitte

Haskins & Sells.

presentation on ifrs vs ind as- by mohit jain

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