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PowerPoint Presentation:

IFRS in India Shivani Nischal JRF/CBM GNDU

Agenda:

Agenda Global Convergence of Accounting Standards IFRS Standards Convergence of Indian Accounting Standards with IFRS IFRS Resources IFRS Vs Indian GAAP major items (separate presentation). 2

Objective of Convergence As Per the Concept Paper:

Objective of Convergence As Per the Concept Paper To design and maintain national accounting standards in a way that financial statements prepared in accordance with national accounting standards draw unreserved statement of compliance with IFRSs

How This Objective Can Be Achieved:

How This Objective Can Be Achieved By issuing IFRS-equivalent Indian ASs with only following changes permitted: Removal of alternatives Additional disclosures, where required

GLOBAL CONVERGENCE:

GLOBAL CONVERGENCE of ACCOUNTING STANDARDS 5

Convergence Drivers:

Convergence Drivers Capital Markets Regulatory requirements Internal controls Performance evaluation 6

IFRS Objective:

IFRS Objective Principles based high quality global standards Emphasis on relevance and disclosures 7

IFRS Adoption:

I FRS Adoption Approximately 100 countries have adopted or are in the process of adoption Status of adoption by some countries which compete with India for capital allocation: 8

Use of IFRSs in Europe:

Europe moved to IFRSs from 1/1/2005 with about 8000 EU listed companies mandated Non-EU listed companies allowed to use GAAPs of US, Japan, China, S Korea, and India, other countries to use IFRS – Review in 2011 Use of IFRSs in Europe

Use of IFRSs in Canada:

Use of IFRSs in Canada From 1 January 2011, all Canadian public entities must use IFRSs

IFRS Adoption:

IFRS Adoption BIGGEST STAMP OF APPROVAL Securities and Exchange Commission (SEC), United States of America have permitted Foreign Private Issuers to file IFRS compliant financial statements (as promulgated by the IASB) 11

The Global Move Towards IFRS:

The Global Move Towards IFRS Europe 2005 Australia 2005 Canada 2009/11 South Africa 2005 United States (2014/15/16?) Current or anticipated requirement or option to use IFRS (or equivalent) Brazil 2010 China 2007 India 2011 Chile 2009 Japan (2016)

PowerPoint Presentation:

In October 2007, ICAI issued concept paper giving the approach and roadmap for convergence Various study groups have been formed The convergence exercise will be taken up in phases - listed and bigger companies initially, smaller public companies thereafter, and eventually all private companies. Convergence Project in India

PowerPoint Presentation:

The ministry of Company affairs has appointed two working groups, headed by Mr. Y.H. Malegam and Mr. Mohandas Pai to finalise the roadmap to IFRS convergence. SEBI Committee on Disclosures and Accounting Standards (SCODA) is the standing Committee - Voluntary adoption of International Financial Reporting Standards (IFRS) by listed entities having overseas subsidiaries or by all listed entities. Convergence Project in India

IFRS in India:

IFRS in India On April 5, 2010 Amendment to listing Agreement provides the option of adoption of International Financial Reporting Standards (IFRS) by listed entities having subsidiaries while declaring Consolidated results/financial statements Standalone results will be as per the existing Indian GAAP

IFRS in India:

IFRS in India On January 22, 2010 MCA has released Road Map for convergence with IFRS – For large Companies

IFRS in India – Phase I:

IFRS in India – Phase I The following categories of companies will convert their opening balance sheets as at 1 st April, 2011, if the financial year commences on or after 1 st April, 2011 in compliance with the notified accounting standards which are convergent with IFRS. These companies are:- a.   Companies which are part of NSE – Nifty 50 b.   Companies which are part of BSE - Sensex 30 c.   Companies whose shares or other securities are listed on stock exchanges outside India d.   Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores.

IFRS in India – Phase II:

IFRS in India – Phase II The companies, whether listed or not, having a net worth exceeding Rs. 500 crores but not exceeding Rs. 1,000 crores will convert their opening balance sheet as at 1 st April, 2013, if the financial year commences on or after 1 st April, 2013 in compliance with the notified accounting standards which are convergent with IFRS.

IFRS in India – Phase III:

IFRS in India – Phase III Listed companies which have a net worth of Rs. 500 crores or less will convert their opening balance sheet as at 1 st April, 2014, if the financial year commences on or after 1 st April, 2014, whichever is later, in compliance with the notified accounting standards which are convergent with IFRS.

IFRS in India – Road map:

IFRS in India – Road map In respect of the converged Accounting Standards, the Chairman of the Accounting Standards Board of ICAI will submit the converged version of Accounting Standards to NACAS from time to time for recommendations and onward submission to Ministry. However, convergence of all the accounting standards will be completed by ICAI and NACAS will submit its recommendations to the Ministry.

IFRS in India – Road map:

IFRS in India – Road map Roadmap recommended by Core Group of MCA in respect of insurance companies, banking companies and non-banking finance companies. Insurance companies:- All insurance companies will convert their opening balance sheet as at 1stApril, 2012 in compliance with the converged Indian Accounting Standards.

IFRS in India – Road map:

IFRS in India – Road map Banking companies:- (a) All scheduled commercial banks and those urban co-operative banks(UCBs) which have a net worth in excess of Rs. 300 crores will convert theiropening balance sheet as at 1st April, 2013 in compliance with the first set ofAccounting Standards (i.e. the converged Indian Accounting Standards).

IFRS in India – Road map:

IFRS in India – Road map Banking companies:- (b) Urban co-operative banks which have a net worth in excess of Rs. 200crores but not exceeding Rs. 300 crores will convert their opening balance sheets as at 1st April, 2014 in compliance with the first set of Accounting Standards (i.e. the converged Indian Accounting Standards).

IFRS in India – Road map:

IFRS in India – Road map Banking companies:- (c) Urban co-operative banks which have a net worth not exceeding Rs. 200crores and Regional Rural banks (RRBs) will not be required to apply the first set of Accounting Standards i.e. the converged Indian Accounting Standards(though they may voluntarily opt to do so) and need to follow only the existing notified Indian Accounting Standards which are not converged with IFRSs.

IFRS in India – Road map:

IFRS in India – Road map NON-BANKING FINANCE COMPANIES Type of institution Opening B/s conversion date Companieswhich are part of NSE Nifty 50Companies & which are part of BSE - Sensex 30 Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores. April 1, 2013 All listed NBFCs and unlisted NBFCs which do not fall in the above categories and which have a net worth in excess of Rs. 500 crores April 1, 2014

IFRS in India – Road map:

IFRS in India – Road map NON-BANKING FINANCE COMPANIES Unlisted NBFCs which have a net worth of Rs. 500 crores or less will not be required to apply the converged Indian Accounting Standards.

Regulatory updates:

Regulatory updates

Steps to reduce inconsistencies between regulations:

The ICAI has taken the following steps for Identification of inconsistencies between various Laws and Regulations: Constitution of a Group on Liaison with Governmental and Regulatory Authorities Group has constituted separate Core Groups to identify inconsistencies between IFRSs and the following statutes: Companies Act SEBI Regulations Banking Laws & Regulations Insurance Laws & Regulations (Source: Announcement by the Technical Directorate, The Institute of Chartered Accountants of India ) Steps to reduce inconsistencies between regulations

Convergence Status:

Convergence Status Exposure drafts on most of the converged standards have been released for public comments by ICAI 29

Progress of Convergence:

Progress of Convergence

Current Status:

Current Status Progress so far Number of Standards Standards Cleared by Council 12 Exposure Drafts Issued and Comments Considered by ASB 8 Exposure Drafts Issued and Comments To Be Considered by ASB 18 TOTAL 38

Standards Cleared by Council:

Standards Cleared by Council Standard # Standard Description AS 1 Corresponding to IAS 1, Presentation of Financial Statements AS 2 Corresponding to IAS 2, Inventories AS 3 Corresponding to IAS 7, Statement of Cash Flows AS 4 Corresponding to IAS 10, Events after the Reporting period AS 5 Corresponding to IAS 8, Accounting Policies and Changes in Accounting Estimates and Errors AS 7 Corresponding to IAS 11, Construction Contracts AS 12 Corresponding to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance AS 16 Corresponding to IAS 23, Borrowing Costs AS 19 Corresponding to IAS 17, Leases AS 25 Corresponding to IAS 34, Interim Financial Reporting AS 34 Corresponding to IAS 29, Financial Reporting in Hyperinflationary Economies AS 35 Corresponding to IFRS 6, Exploration for and Evaluation of Mineral Resources

Exposure Drafts issued and comments considered by ASB:

Exposure Drafts issued and comments considered by ASB Standard # Standard Description AS 10 Corresponding to IAS 16, Property, Plant and Equipment AS 11 Corresponding to IAS 21, The Effects of changes in Foreign Exchange rates AS 18 Corresponding to IAS 24, Related Party Disclosures AS 20 Corresponding to IAS 33, Earnings Per Share AS 21 Corresponding to IAS 27, Consolidation and Separate Financial Statements AS 23 Corresponding to IAS 28, Investments in Associates AS 29 Corresponding to IAS 37, Provisions and Contingent Liabilities and Contingent Assets AS 37 Corresponding to IAS 40, Investment Property

Exposure Drafts issued and comments to be considered by ASB:

Exposure Drafts issued and comments to be considered by ASB Standard # Standard Description AS 9 Corresponding to IAS 18, Revenue AS 14 Corresponding to IFRS 3, Business Combinations AS 15 Corresponding to IAS 19, Employee Benefits AS 17 Corresponding to IFRS 8, Operating Segments AS 22 Corresponding to IAS 12, Income Taxes AS 24 Corresponding to IFRS 5, Non-current Assets Held for Sale and Discontinued Operations AS 26 Corresponding to IAS 38, Intangible Assets AS 27 Corresponding to IAS 31, Interest in Joint Ventures AS 28 Corresponding to IAS 36, Impairment of Assets

Exposure Drafts issued and comments to be considered by ASB:

Exposure Drafts issued and comments to be considered by ASB Standard # Standard Description AS 30 Corresponding to IAS 39, Financial Instruments: Recognition and Measurement AS 31 Corresponding to IAS 32, Financial Instruments: Presentation AS 32 Corresponding to IFRS 7, Financial Instruments : Disclosures AS 33 Corresponding to 2, Share-based payment AS 36 Corresponding to IAS 26, Accounting and Reporting by Retirement Benefit Plans AS 38 Corresponding to IAS 41, Agriculture AS 39 Corresponding to IFRS 4, Insurance Contracts AS 40 Corresponding to IFRS 9, Financial Instruments AS 41 Corresponding to IFRS 1, First time Adoption of International Financial Reporting Standards

IFRS CONVERSION ISSUES:

IFRS CONVERSION ISSUES 36

Business and organisational considerations IFRS impact beyond financial statements:

Business and organisational considerations IFRS impact beyond financial statements Most aspects of the business can be affected: Processes and systems Operations Tax Treasury Examples include impact on: Debt covenants Compensation plans Revenue contracts Joint ventures and alliances Investor communication The adoption of IFRS affects more than a company’s accounting policies, processes, and people. Ultimately, most aspects of a company’s business and operations are affected potentially.

IFRS Implementation Issues :

Treasury Management Hedge Accounting Investments Valuation Fair valuation approach Fair valuation methodologies Distribution 2010-11 profit will change Dividend policy Debt Covenants IAS 1 requirements Mergers & Acquisitions Control Goodwill Capital reserve IFRS 1 option Management Compensation ESOP fair value Targets not achievable Director remuneration Investors Tax Implication Fair value adjustment Most item will flow through P & L MIS Increased volatility Fluctuations outside control Fair value adjustment HR Training Revised CTC IT Systems Disclosures (IFRS 7) Hedge accounting Data collection Investor relations Changes in EPS EU experience ORGANISATION IFRS Implementation Issues

PowerPoint Presentation:

Planning for IFRS Technical Accounting Tax Internal Processes and Statutory Reporting Technology Infrastructure Organizational Issues Implementation strategy and timeline 39

PowerPoint Presentation:

IFRS Conversion Approach 40 Determine business case & future state vision for IFRS adoption Perform comprehensive IFRS conversion Enable continued IFRS reporting and perform knowledge transfer

IFRS Resources:

IFRS Resources IASB website http://www.iasb.org/Home.htm ICAI’s website http://www.icai.org/ 41

Thank you:

Thank you

Financial Statements – Qualititative Characteristics:

43 Financial Statements – Qualititative Characteristics Relevance Reliability Comparability (including consistency) Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for. A product is not quality because it is hard to make and costs lot of money, as manufacturers typically believe. This is incompetence. Customers pay only for what is of use to them and gives them value. Nothing else constitute quality – Peter Drucker

Relevance:

44 Relevance IASB : Information is “ relevant ” when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting their past evaluations FASB: ….. accounting information must be capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct expectations

Relevance:

45 Relevance Predictive value Confirmatory value Timeliness

Transparency in financial reporting:

46 Transparency in financial reporting “If you can’t convince them, confuse them”- Harry Truman “Put it before them briefly so they will read it, clearly so they will appreciate it, picturesquely so they will remember it and, above all accurately so they will be guided by its light” – Joseph Pulitzer

Transparency in Financial Reporting – Key Elements:

47 Transparency in Financial Reporting – Key Elements Basis of reporting Assumptions Unusual/non-recurring/extra-ordinary items Key events Changes to business structure, etc Measurement metrices Risks and their impact Plain English No fine print

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