1478-8225-Aftermaths of IFRS Ccc

8/8/2019 1478-8225-Aftermaths of IFRS Ccc

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AFTERMATHS OF IFRS

ON INDIAN CORPORATES


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INTRODUCTION

IFRS is an accounting framework that

establishes recognition, measurement,

presentation and disclosure requirements

relating to transactions and events that arereflected in the financial statements. IFRS was

developed in the year 2001 by the International

Accounting Standards Board (IASB) in the public

interest to provide a single set of high quality,

understandable and uniform accountingstandards.


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NEED OF IFRS

To make a common platform for betterunderstanding of accounting, internationally.

Synchronization of accounting standards acrossthe globe.

To create comparable, reliable, and transparentfinancial statements.

To facilitate greater cross-border capital raisingand trade.

To having company-wide one accountinglanguage which have subsidiaries in differentcountries.


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SUGGESTIVE GUIDELINES

Understanding and analyzing the impact of IFRS

on financial performance

Obtaining the new data required and adapting

systems to provide it Finding the resources and expertise needed to

make the changes

Meeting employee training and knowledge

sharing needsAligning systems for reporting for statutory,

regulatory and internal purposes

Gaining shareholder and analyst understanding

of the impact of changing to IFRS.


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IFRS AND INDIAN CORPORATES

The use of international financial reporting standards

(IFRS) as a universal financial reporting language is

gaining momentum across the globe.

The Institute of Chartered Accountants of India (ICAI) has

recently released a concept paper on Convergence withIFRS in India, detailing the strategy for adoption of IFRS

in India with effect from April 1, 2011. This has been

strengthened by a recent announcement from the Ministry

Of Corporate Affairs (MCA) confirming the agenda for

convergence with IFRS in India by 2011.

Adopting IFRS by Indian corporates is going to be very

challenging but at the same time could also be rewarding.

Indian corporates are likely to reap significant benefits

from adopting IFRS.


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BENEFITS OF IFRS ON

INDIAN CORPORATES

There are likely to be several benefits to corporates in the

Indian context as well. These are:

Improvement in comparability of financial information and

financial performance with global peers and industry

standards . Adoption of IFRS is expected to result in better quality of

financial reporting due to consistent application of

accounting principles and improvement in reliability of

financial statements.

Better access to and reduction in the cost of capital raisedfrom global capital market since IFRS are now accepted as

a financial reporting framework for companies seeking to

raise funds from most capital markets across the globe.


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IMPACT OF IFRS ON OIL & GAS

INDUSTRYAreas of Potential Change

Decommissioning estimates

Asset exchanges

Derivatives and long term contracts

Take or pay arrangements

Production imbalances between joint ventures


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EFFECTS OF IFRS ON IT

INDUSTRY

The main effect on the IT industry is that the

changes in the systems and in the updation of the

existing to the newer version of IFRS enabled

accounting software


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FIVE CONSIDERATION UNDER

IFRS

IFRS is an accounting-driven but it can drive majorchanges to IT systems as well as business processesand personnel.

Experience indicates that IT costs generallyconstitute more than 50 percent of IFRS conversioncosts.

Organizations benefit when they identify andintegrate the efforts of the IT team early in the IFRSconversion process.

IT efforts will comprise a mix of short- and long-term

projects within the organizations overall IFRSinitiative.

The IFRS conversion effort provides opportunities forachieving synergies with other IT projects andstrategic initiatives.


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IFRS:IMPACT ON INDIAN BANK

The financial impact of convergence with IFRS

(International Finance Reporting System) will be

significant for banks in India, particularly in areas relating

to loan loss provisioning, financial instruments and

derivative accounting according to auditing andconsultancy firm KPMG.

IFRS: Developing a roadmap to convergence for the Indian

banking industry, mentions how this is likely to impact

financial performance, directly affecting capital adequacy

ratios and the outcomes of valuation metrics that analysts

use to measure and evaluate performance.

In banking companies, financial reporting policies for

provision for loan losses and investments are specified by

the RBI.


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REPERCUSSIONS OF IFRS ON BANKING

FINANCIAL PERFORMANCE

Adoption of IFRS requires a significant change to such

existing policies and could have a material impact on the

financial statements of financial companies

In addition to the financial accounting impact, the

convergence process is likely to entail several changes tothe financial reporting systems (including IT systems) and

processes adopted by banks.

By virtue of operating in a regulated industry, Banking

companies are subject to regulatory reviews and

inspections and are also subject to minimum capitalrequirements.

Application of IFRS may result in higher loan losses and

impairment charges, thereby impacting available capital

and capital adequacy ratios.


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WHO BEARS THE IMPACT OF

IFRS

Over 700 members are now more aware of the impact the move to IFRSwill have on their business. Members realize that there is a lot to be donefor business in all sectors (big, small, profit, non-profit) and it needs tostart happening well before the January 2005 deadline. Members are

now also aware of the importance of creating a business strategy tosupport a smooth transition to IFRS.

The pilot study results based on the first 100 listed entities (excludingfinancial institutions) did not make us stand back and gasp for air, but itdid make us consider the impact these standards will have on business.

Members would be aware that this has a further impact on business,

including:(a) the effect on performance-based bonus plans;

(b) the impact on the ability to pay a dividend;

( c) the ability to meet existing debt covenants.

(d) further emphasizes the need for business to consider the impact onits operations.


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TYPES OF IFRS

IFRS 1 First-time Adoption of IFRS

IFRS 2 Share-based Payment

IFRS 3 Business CombinationsIFRS 4 Insurance Contracts

IFRS 5 Non-current Assets Held for Saleand Discontinued Operations

IFRS 6 Exploration for and evaluation ofMineral Resources

IFRS 7 Financial Instruments: Disclosures

IFRS 8 Operating Segments


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GENERAL DIFFERENCES

IFRS provides much less overall detail than

GAAP

IFRS contains relatively little industry-specific

instructions as compared to GAAP. IFRS use a single-step method for impairment

write-downs rather than the two-step method

used in U.S. GAAP

IFRS does not permit Last In First Out (LIFO).


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DISADVANTAGES

U.S. issuers without significant customers or

operations outside the United States may resist

IFRS because they may not have a market

incentive to prepare IFRS financial statements.

Many people also believe that U.S. GAAP is the

gold standard, and that something will be lost

with full acceptance of IFRS.


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THANK YOU


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IFRS1 FIRST TIME ADOPTION

OF IFRS

This report helps first-time adopters address the

challenges of IFRS (International Financial

Reporting Standards) 1. It puts the theory of

IFRS 1 into practice by illustrating the steps

involved in preparing the first IFRS financial

statements


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IMPLICATION OF IFRS 1

When to apply.

The opening balance sheet.

The selection of accounting policies.

The optional exemptions and mandatoryexceptions.

Disclosures

The interim financial statements


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IFRS 2 SHARE-BASED PAYMENTGoods or services received in a share-based payment transactionare measured at fair value. Goods are recognized when they areobtained and services are recognized over the period that they arereceived. Equity-settled share-based payments are within thescope of the share-based payment standard even if settled by

another group entity or by a shareholder. Cash-settled share-based payments are within the scope of the share-based Paymentstandard. However, there is no explicit guidance when theliability is settled by a shareholder or another group entity.Equity-settled grants to employees generally are measured basedon the grant date fair value of the equity instruments issued.Grant date is the date on which the entity and the employee have

a shared understanding of the terms and conditions of thearrangement. The service period may commence prior to the grantdate. Awards with graded vesting are accounted for as a separateshare-based payment arrangements. A share-based paymenttransaction settled in redeemable shares is classified as cash-settled.


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SPECIFIC REQUIREMENTS OF IFRS 2

Equity-settled share-based payment transactions, in which

the entity receives goods or services as consideration for

equity instruments of the entity (including shares or share

options);

cash-settled share-based payment transactions, in whichthe entity acquires goods or services by incurring liabilities

to the supplier of those goods or services for amounts that

are based on the price (or value) of the entitys shares or

other equity instruments of the entity;

Transactions in which the entity receives or acquires goodsor services and the terms of the arrangement provide either

the entity or the supplier of those goods or services with a

choice of whether the entity settles the transaction in cash

or by issuing equity instruments.


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IFRS 3 BUSINESS

COMBINATIONThis states that all business combinations are accounted for using

purchase accounting, with limited exceptions. A business

combination is to bringing together of separate entities or

business into one reporting entity. A business can be operated

managed for the purpose of providing return to investors or lower

costs. An entity in its development stage can meet the definitionof a business. In some cases the legal subsidiary is identified as

the acquirer for accounting purposes (reverse acquisition).The

date of acquisition is the date on which effective control is

transferred to the acquirer. The cost of acquisition is the amount

of cash equivalents paid, plus the fair value of other purchase

considerations given, plus any cost directly attributable to theacquisition. The fair values of securities issued by the acquirer

are determined at the date of exchange. Costs directly

attributable to the acquisition may be internal costs but cannot be

general administrative costs. There is no requirement for directly

attributable cost to be incremental.


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REQUIREMENTS

Recognizes and measure in its financial

statements the identifiable assets acquired, the

liabilities assumed and any non-controlling

interest in the acquire;

Recognizes and measures the goodwill acquired

in the business combination or a gain from a

bargain purchase; and

Determines what information to disclose to

enable users of the financial statements toevaluate the nature and financial effects of the

business combination.


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IFRS 4 INSURANCE CONTRACT

An insurance contract is a contract under which one party

(the insurer) accepts significant insurance risk from

another party (the policyholder) by agreeing to

compensate the policyholder if a specified uncertain future

event (the insured event) adversely affects thepolicyholder.The objective of this IFRS is to specify the

financial reporting for insurance contracts by any entity

that issues such contracts (described in this IFRS as an

insurer) until the Board completes the second phase of its

project on insurance contracts.


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REQUIREMENTS

In particular, this IFRS requires:

(a) Limited improvements to accounting by

insurers for insurance contracts.

(b) Disclosure that identifies and explains

the amounts in an insurers financial

statements arising from insurance

contracts and helps users of those

financial statements understand the

amount, timing and uncertainty of future

cash flows from insurance contracts.


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IFRS 5 NONCURRENTASSETS HELD FOR SALE

AND DISCONTINUED OPERATIONS

Non-current assets, and some groups of assets and

liabilities known as disposal groups, are classified as held

for sale when specific criteria related to their sale are met.

Non-current assets (disposal groups) held for sale are

measured at the lower of carrying amount and fair valueless costs to sell, and are presented separately on the face

of the balance sheet. Assets classified as held for sale are

not amortized or depreciated. The comparative balance

sheet is not re-presented when a non-current asset

(disposal group) is classified as held for sale

Documents

1478-8225-Aftermaths of IFRS Ccc