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Presentation in Bangalore Branch of SIRC of ICAI
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An overview of IFRS & Challenges involved in first time adoptionThe Institute of Chartered Accountants of India, Bangalore1st December’2010
CA Aditya SinghalM.Com, FCA, DISA(ICAI)+91 99728 [email protected]
Join IFRS professional group for regular IFRS update:http://finance.groups.yahoo.com/group/IFRS-Professional/
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Authoritative literature• IFRS
• IFRS• IAS• IFRIC• SIC
• Order of authoritativeness• IFRS including any appendices• Interpretations• Appendices to IFRS that do not form part of the
standards• Implementation guidance issued by IASB
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IASC & its Objectives• IASC was founded in 1973
• 2001 -IASC was set up as part of a restructuring
• Objectives of the IASC Foundation are• To develop a single set of high
quality global accounting standards to help participants in the worlds capital markets and other users make economic decisions
• To promote use and rigorous application of those standards
• To take into account the special needs of small and medium sized entities
• To bring about convergence of national accounting standards and IFRS
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Framework for preparation and presentation of Financial Statements
• Framework provides a conceptual framework as a foundation for the preparation and appraisal of accounting standards• FRAMEWORK is the FOUNDATION of many IFRS but
is not an IFRS• It does not have the same authority as an IFRS• In some circumstances there may be conflict between the
Framework and an IFRS. In such cases the requirements of the specific IFRS always prevail over the Framework
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The Framework
Underlying assumptionsAccrual BasisGoing Concern
Qualitative Characteristics – Presentation Understandability Comparability - Content Relevance Reliability
ElementsRecognitionMeasurement
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Assets - Liability - Equity - Income - Expenses
-Resource-Controlled by an entity-As a result of past event-From which economic benefits are expected to flow to the entity
-Present obligation-Arising from past events-The settlement of which is expected to result in an outflow from the entity of economic benefits
-Residual interest in the entity’s assets after deducting all of its liabilities-It is sub-divided in the statement of financial position
-Increase in economic benefit - During the accounting period - In the form of inflows, enhancement in assets or decrease in liability-Other than those relating to contribution from equity participants
- Decrease in economic benefits- During the period- In the form of outflows, depletion of assets or incurrence of liability - Other than that which relates t o distributions to equity participants
T h e - E l e m e n t s
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Recognition criteria• Recognition is the process of incorporating an item that
meets the definition of an element and satisfies the recognition criteria into the SOFP or SCI
• An item that meets the definition of an element (asset, liability, income or expense) should be recognized if :• It is probable that any economic benefit associated with
the item will flow to or from the entity• The item has a cost or value that can be measured reliably
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Measurements of ElementsHistorical cost
Present value
Realizable cost
Fair Value
Current Cost
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IFRS – From India perspectiveIn phase I it would be applicable w.e.f. 1st April’2011 to: •Companies which are part of
NSE- Nifty 50 & BSE- SENEX 30,
•Companies whose shares or other securities are listed on stock exchanges outside India and
•Companies, whether listed or not, which have a net worth in excess of Rs. 1000 Crore.
In Phase II it would be applicable w.e.f. 1st April’2013 to•The companies whether listed
or not, having a net worth exceeding Rs. 500 Crore but not exceeding Rs. 1000 Crore.
In Phase III it would be applicable w.e.f. 1st April 2014 to,•All the remaining listed
companies having net worth less than Rs. 500 Crore.
IFRS would be applicable into three phases:
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Conceptual Differences• Substance over form
• Fair value
• Current and Non-Current Classification
• Discounting (Time value of money)
• Standards prevail over law
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Challenges involved in first time adoptions1. Fair value override permitted under IFRS
2. Retrospective application
3. Barred – extraordinary items
4. Impact of change in accounting policy
5. The use of revaluation for fixed assets, intangibles and investment property
…. cont
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Challenges involved in first time adoptions
6. Consolidation of financials – Special purpose entities
7. Goodwill/negative goodwill treatment
8. Revenue recognition of long term construction contract
9. Impairment of non-current assets
10. Classification of financial instrument
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IFRS 1 – the 5 step process1. Identification of date of transition
2. Selection of accounting policies that comply with IFRSs
3. Preparation of an opening IFRS balance sheet
4. Preparation of the first IFRS financial statements
5. Reconciliations and disclosures.
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Identification of date of transition
• Transition Date - 1st April’ 2010
• Adoption Date - 1st April’2011
• Reporting Date - 31st March’2012
If entity presents comparative statements
• Transition/Adoption Date – 1st April’ 2011
• Reporting Date- 31st March’2012
If entity does not present comparative statements
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Selection of accounting policies that comply with IFRSsa) Need to apply IFRS effective at the Reporting Date.
b) May apply a new IFRS that is not yet mandatory, if it permits early application.
c) Determine which exceptions to use
d) Take into account the exceptions to retrospective application
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Preparation of an opening IFRS Balance Sheet
• Does not recognize items as assets or liabilities if IFRS does not permit such recognition
• Recognize all assets and liabilities whose recognition is required by IFRS
• Reclassify assets, liabilities and items of equity as per the requirements of IFRS
• Measure all assets and liabilities in accordance with IFRS
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Preparation of an opening IFRS Balance Sheet
Assets/ Liability
as per IFRS?
Recognised under Indian
GAAP
Whether Measurement in line with IFRS?
Re-classify, if required by IFRS
Include as per IFRS
prescription
Recognised under Indian
GAAP?
Exclude and do not recognise
No Change required
Adjust carrying amount as per
IFRS
YES YES
YES
YES
NoNo No
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Preparation of the first IFRS financial statements - Optional ExemptionsFixed Assets
• Use of fair value as deemed cost
• Decommissioning liabilities included in the cost of property, plant and equipment.
• Leases• Service
concession arrangements
• Borrowing costs
Business Combinatio
n • Business
combinations• Assets and
liabilities of subsidiaries, associates and joint ventures
• Investments in subsidiaries, jointly controlled entities and associates in separate financial statements
• Cumulative translation differences
Financial Instrument
s• Compound
financial instruments
• Designation of previously recognized financials instruments
• Fair value measurement of financial assets or financials liability at initial recognition
Others
• Employees benefits
• Share- based payment transactions
• Insurance contracts
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Preparation of the first IFRS financial statements - Mandatory Exceptions
Assets held for sale and discontin
ued operatio
ns
Non- Controlling interests
Hedge accounting
Derecognition of
financial assets and
financial liabilities
Estimates
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Reconciliations and disclosures• Equity from previous GAAP to IFRS at the transition
date and the end of the last period presented in the entity ‘s most recent financials statements under previous GAAP
• Net profit from previous GAAP to IFRS for the last period in the entity's most recent financial statements under previous GAAP.
• Other disclosures in the first IFRS financials statements
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Questions ?
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Key Learning Points
1. First time adoption is more of a business decision than accounting
2. Doing it right at the first time is very critical
3. Judiciously applying the optional exemptions will help reduce the GAAP difference
4. Practice with options will guide to refine decisions
5. Significant disclosure and reconciliation requirements
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Thanks !
CA Aditya SinghalM.com, FCA, DISA(ICAI)+91 99728 [email protected]
Join IFRS professional group for regular IFRS update:http://finance.groups.yahoo.com/group/IFRS-Professional/