Convergence of Accounting Standards with IFRS- A Way Ahead

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Convergence of Accounting Standards with IFRS- A
Way Ahead

• Dr. Sanjeev Singhal
• Vice President-Finance
• Jubilant Life Sciences

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SYNOPSIS

• What are IFRS
• Introduction Overview
• The Indian agenda for Convergence with IFRS
• Key Issues

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(No Transcript)
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Introduction Overview
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IFRS comprises
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Overview of IFRS

• International Accounting Standards
• International Financial Reporting Standards
• Standing Interpretations Committee
• International Financial Reporting Interpretations
  Committee

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The Indian Agenda for Convergence
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Indian approach to IFRS

• Convergence not adoption
• Two sets of accounting standards
• Public Interest Entities
• Phased approach

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IFRS Convergence

• India Opted for convergence not adoption of
  IFRS
• Two sets of Accounting Standards
• IFRS Converged Indian Accounting Standards
  Ind-AS
• Existing Accounting Standards AS
• PRESESNT STATUS
• 35 Ind AS have been notified on 25-2-2011
• Applicability date yet to be notified
• IND AS
• Scheme of Ind AS
• Numbering pattern

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IAS/IFRS converged
Ind AS No. Title IAS/IFRS
01 Presentation of Financial Statements IAS 1
02 Inventories IAS 2
07 Statement of Cash Flows IAS 7
08 Accounting Policies, Changes in Accounting Estimates and Errors IAS 8
10 Events after the Reporting Period IAS 10
11 Construction Contracts IAS 11
12 Income taxes IAS 12
16 Property, Plant and Equipment IAS 16
17 Leases IAS 17
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IAS/IFRS converged
18 Revenue IAS 18
19 Employees Benefits IAS 19
20 Accounting for Government Grants and Disclosure of Government Assistance IAS 20
21 The Effects of Changes in Foreign Exchange Rates IAS 21
23 Borrowing Costs IAS 23
24 Related party disclosures IAS 24
27 Consolidated and Separate Financial Statements IAS 27
18 Revenue IAS 18
19 Employees Benefits IAS 19
28 Investments in Associates IAS 28
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IAS/IFRS converged
29 Financial Reporting in Hyperinflationary Economies IAS 29
31 Interest in Joint Ventures IAS 31
32 Financial Instruments Presentation IAS 32
33 Earnings per share IAS 33
34 Interim Financial Reporting IAS 34
36 Impairment of assets IAS 36
37 Provisions, Contingent Liabilities and Contingent Assets IAS 37
29 Financial Reporting in Hyperinflationary Economies IAS 29
31 Interest in Joint Ventures IAS 31
32 Financial Instruments Presentation IAS 32
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IAS/IFRS converged
38 Intangible Assets IAS 38
39 Financial Instruments Recognition and Measurement IAS 39
40 Investment Property IAS 40
101 First time adoption of Indian Accounting Standards IFRS 1
102 Share-based payment IFRS 2
103 Business Combinations IFRS 3
104 Insurance Contracts IFRS 4
105 Non-current Assets Held for and Discontinued Operations IFRS 5
106 Exploration for and Evaluation of Mineral Resources IFRS 6
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IAS/IFRS converged
107 Financial Instruments Disclosures IFRS 7
108 Operating Segments IFRS 8
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IFRIC/SIC Converged
IndAS No. Annexure No. Annexure to Ind AS and Title IFRIC/SIC
10 A Distributions of Non-cash Assets to Owners IFRIC 17
11 A Service Concession Arrangements IFRIC 12
11 B Service Concession Arrangements Disclosures SIC 29
12 A Income TaxesRecovery of Revalued Non-Depreciable Assets SIC 21
12 B Income Tax Changes in the tax status Income Taxes Changes SIC 25
16 A Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 1
17 A Operating leases-Incentives SIC 15
17 B Evaluating the Substance of Transactions Involving the Legal Form of a Lease SIC 27
17 C Determining whether an Arrangement contains a Lease IFRIC 4
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IFRIC/SIC Converged
18 A RevenueBarter Transactions Involving Advertising Services SIC 31
18 B Customer Loyalty Programmes IFRIC 13
18 C Transfers of Assets from Customers IFRIC 18
19 A Ind AS 19-The limit on a Defined Benefit Asset, Minimum Funding requirements and their interaction IFRIC 14
20 A Government Assistance No Specific Relation to Operating Activities SIC 10
27 A ConsolidationSpecial Purpose Entities SIC 12
29 A Applying the Restatement Approach under Ind AS 29 Financial Reporting in Hyperinflationary Economies IFRIC 7
31 A Jointly Controlled Entities Non-Monetary Contributions by Venturers SIC 13
34 A Interim Financial Reporting and Impairment IFRIC 10
37 A Rights to Interests arising from decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 5
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IFRIC/SIC Converged
37 B Liabilities arising from Participating in a Specific Market Waste Electrical and Electronic Equipment IFRIC 6
38 A Intangible AssetsWeb Site Costs SIC 32
39 C Reassessment of Embedded Derivatives IFRIC 9
39 D Hedges of a Net Investment in a Foreign Operation IFRIC 16
39 E Extinguishing Financial Liabilities with Equity Instruments IFRIC 19
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Key Carve Outs in Ind AS

• 1. IAS/IFRS not converged with
• While converging with IFRS, the following
  IAS/IFRS have not been converged with
• IAS 26 Accounting and Reporting by Retirement
  Benefit Plans (not applicable for Companies)
• IAS 41 Agriculture (carve out)
• IFRS 9 Financial Instruments (not mandatory at
  present)

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Key Carve Outs in Ind AS

• 2. SIC/IFRIC not converged with
• SIC 7 Introduction of the Euro (not required for
  India)
• SIC 29 Service Concession Arrangements
  Disclosures (applicability deferred, carve out)
• IFRIC 2 Member's Shares in Co-operative Entities
  and Similar Instruments (not applicable for
  Companies)
• IFRIC 4 Determining Whether an Arrangement
  Contains a Lease (applicability deferred, carve
  out)
• IFRIC 12 Service Concession Arrangements
  (applicability deferred, carve out)
• IFRIC 15 Agreements for the Construction of Real
  Estate (carve out)

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Key Carve Outs in Ind AS

• 3. Removal of options not amounting to carve out
  or departure from IFRS
• Single statement presentation of the statement of
  profit and loss
• Classification of expenses in the statement of
  profit and loss by nature of expense method
• No option of carrying investment property at fair
  value
• Recognition of actuarial gains and losses in
  Other Comprehensive Income

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Key Carve Outs in Ind AS

• 4. Additional options provided which if exercised
  will lead to carve out/departure from IFRS
• Option to use Indian GAAP carrying values on the
  date of transition as the deemed cost for
  property, plant and equipment, intangible assets
  and investment property
• Option to defer exchange differences on long term
  foreign currency monetary assets and liabilities
  and recognizing the same over the period of such
  asset or liability

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Key Carve Outs in Ind AS

• 5. Mandatory carve outs as no option is provided
  in Ind AS
• Revenue recognition for real estate sector on the
  basis of percentage completion method
• Accounting for the equity conversion option of a
  FCCB as an equity component
• Bargain purchase in case of business combination
  to be treated as capital reserve except in
  certain cases where it can be credited to Other
  Comprehensive Income

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Key Issues
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Taxation

• Direct Taxes
• Adjustments required for computing book profits
  for MAT purposes from Ind-AS based book profits
• Applicability of MAT on Other Comprehensive
  Income
• Treatment of transitional adjustments at the time
  of first time adoption of Ind-AS
• Treatment of expenses relating to business
  combination
• Treatment of unwinding of discount in case of
  long term provisions

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Taxation

• Allowability of notional personnel cost in case
  of concessional staff loans and subsequent tax
  treatment of notional finance income
• Implications on TDS related provisions
• Treatment of interest free security deposit in
  case of lease
• Treatment of notional adjustment to revenue on
  account of extended credit terms, customer
  loyalty program, etc.
• .

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Taxation

• Treatment of premium on redemption of financial
  instruments
• Changes pertaining to implications on transfer
  pricing
• Determination of its net worth for the purpose
  of computing capital gains arising on slump sale
• Deemed dividend implications arise to the extent
  the company has accumulated profits. Any
  adjustment to retained earnings would
  correspondingly impact the deemed dividend
  applicability.

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Taxation

• Indirect Taxes
• Treatment of notional adjustment to revenue on
  account of extended credit terms, customer
  loyalty program, etc.

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Companies Act

• Computation of profits available for dividend
  distribution
• Computation of managerial remuneration
• Availability of retained earnings (positive or
  negative) arising on first time adoption of
  Ind-AS
• Impact of retrospective adjustment arising out of
  prior period errors and changes in accounting
  policies on returns filed with ROC, data
  submitted to banks and other authorities

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Other Acts

• Payment of Bonus Act
• Computation of allocable surplus
• Banking/NBFCs
• Impact on Capital Adequacy Ratio (CRAR)
• Impact of Maximum Permissible Bank Finance (MPBF)
• Impact on Prudential norms

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