AS and IFRS

8/8/2019 AS and IFRS

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Overview of Significant Differences between International Financial

Reporting Standards (IFRS) and Indian GAAP


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TOPICS COVERED IN OUR SESSION

Differences with respect to:

Conceptual Accounting Framework

Content of Financial Statements

Accounting Differences


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ACCOUNTING FRAMEWORK

Historical cost

IFRS:

Historical cost, but intangible assets, property plant and equipment (PPE) andinvestment property may be revalued. Derivatives, biological assets and mostsecurities must be revalued.

Indian GAAP:

Historical cost, but fixed assets, other than intangibles, may be revalued.


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ACCOUNTING FRAMEWORK

First-time adoption of accounting frameworks

IFRS:

Full retrospective application of all IFRSs effective at the reporting date foran entitys first IFRS financial statements, with some optional exemptions andlimited mandatory exceptions.

Indian GAAP:

The accounting standard on Disclosure of Accounting Policies addresses theissue of adoption of accounting policies. Also, particular standards specify the

transitional treatment upon the first-time application of those standards


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FINANCIAL STATEMENTS

Contents of financial statements

IFRS:

Two years balance sheets, income statements, cash-flow statements,changes in equity, accounting policies and notes.

Indian GAAP:

Two years balance sheets, profit and loss accounts, accounting policies andnotes. Listed entities are required to give their consolidated financialstatements and the related notes along with the standalone financial

statements. (Financial Statements should also include cash flow statementsin certain cases)


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FINANCIAL STATEMENTS- Balance Sheet

IFRS:Does not prescribe a particular format; an entity uses a liquidity presentationof assets and liabilities, instead of a current/non-current presentation, onlywhen a liquidity presentation provides more relevant and reliable information.Certain items must be presented on the face of the balance sheet

Indian GAAP:

The Indian Companies Act and other industry-specific laws like banking,insurance, etc. specify respective formats


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Income Statements

IFRS

Does not prescribe a particular format. However, expenditure must be presented inone of two formats (function or nature). Certain items must be presented on the faceof the income statement.

Indian GAAP

The Indian Companies Act does not prescribe a particular format. The Company lawand accounting standards however, prescribes certain disclosure norms for incomeand expenditures. For certain industries, industry specific laws specify formats.

Reporting currency

IFRS:

Requires the measurement of profit using the functional currency. Entities may,however, present financial statements in a different currency.

Indian GAAP:

Schedule VI to the Companies Act, 1956 specifies Indian Rupees as the reportingcurrency.


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Statement of changes in shareholders equity

IFRS:

Statement showing capital transactions with owners, the movement inaccumulated profit and a reconciliation of all other components of equity. Thestatement must be presented as a primary statement.

Indian GAAP:

Changes in shareholders equity are disclosed by way of a schedule.

Statement of recognised gains and losses / Other comprehensive income

IFRS:

Give a statement of recognised gains and losses either as a separate primarystatement or highlight it separately in the primary statement of changes inshareholders equity

Indian GAAP:

Not prescribed


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No comprehensive accountingstandard on businesscombinations. All businesscombinations are acquisition;however, required use of poolingof interests method in certainamalgamations [when all thespecified conditions are met]. To

summarize: On consolidation, foran entity acquired and held as aninvestment: treated as acquisition.On amalgamation of an entity,either uniting of interests oracquisition. On businessacquisition (i.e. assets andliabilities only) treated as

acquisition.

All business combinations areacquisitions.

Business combinations

Only if acquired and held forresale or there are severe long-term restrictions to transfer fundsto the parent.

Dissimilar activities or temporarycontrol are not a justification fornon-consolidation.

Non-consolidation ofsubsidiaries

No specific guidance.Consolidate where thesubstance of the relationshipindicates control.

Special purposes entities(SPEs)

Indian GAAPIFRSSubject


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Similar to IFRS, except where theuseful life is shorter than thatenvisaged under the CompaniesAct or the relevant statute, the

depreciation is computed byapplying a higher rate.

Allocated on a systematic basisto each accounting period overthe useful life of the asset.

Depreciation

Use historical cost. Revaluationsare permitted, however, norequirement on frequency of

revaluation. On revaluation, anentire class of assets is revalued,or selection of assets is made ona systematic basis.

Use historical cost or revaluedamounts. Regular valuations ofentire classes of assets are

required when revaluation optionis chosen.

Property, plant andequipment

Capitalise if recognition criteriaare met; intangible assets must beamortised over useful life with a

rebuttable presumption of notexceeding 10 years.

Revaluations not permitted.

Capitalise if recognition criteriaare met; intangible assets mustbe amortised over useful life.

Intangibles assigned anindefinite useful life must not beamortised but reviewed annuallyfor impairment. Revaluations arepermitted in rare circumstances.

Acquired intangibleassets

Required for certainamalgamations when all thespecified conditions are met, elseaccounted under the purchasemethod.

Prohibited.Uniting of interestsmethod



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Does not define functionalcurrency.

Currency of primary economicenvironment in which entityoperates.

Functional currency

Convertible debt is recognised asa liability based on legal form

without any split.

Account for convertible debt onsplit basis, allocating proceeds

between equity and debt

Convertible debt

Disclosed as a separate item afterprofit before tax on the face of theincome statement.

Included as part of relatedexpense (fringe benefit) whichgives rise to incurrence of thetax.

Fringe benefits tax

Recognise tax effect of timingdifference as deferred tax asset orliability. Recognise deferred taxassets (a) for entities with taxlosses carry forward, if realisationis virtually certain, whereas (b) forentities with no tax losses carryforward, if realisation isreasonably certain. A number of

other specific differences.

Use full provision method (someexceptions) driven by balancesheet temporary differences.Recognise deferred tax assets ifrecovery is probable.

Deferred income taxes



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Provision in the accounts isnormally made on the basis ofactuarial valuation no specificmethod is prescribed

Must use the projected unitcredit method to determinebenefit obligation

Employee benefits -Pension costs definedbenefit plans

All preference shares areclassified as shareholders funds.

Mandatory redeemablepreference shares are classifiedas liabilities.

Financial liabilities -classification

Charged to Profit and lossaccount

Origination cost is amortizedloans Origination Cost

Deferred and written off over theperiod of 5 years.

Charged to income statement.Preliminary expenses

Provision based on actuarialvaluation

Provision on actual cost to thecompany basis

Compensated absences



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Accounting Differences Contd

Disclosed as a part of fixed assets.Disclosed as prepaid assets andaccounting treatment is similarto operating leases.

Leasehold Land

Indian GAAP also has adopted the provisionsof IFRS with effect from 1.4 2004 for listedcompanies and commercial enterprise with aturnover > 50 crores

IAS require that assets bereviewed for impairment andimpairment losses recognized inthe accounts

Impairment oflong lived assets

Indian GAAP requires that any profit/lossarising on the restatement of foreignexchange liabilities incurred for the acquisitionof imported fixed assets as a result of changein exchange rates is capitalized as part of theoriginal cost of the assets.

Under IAS such gains or lossesare required to be expensed

Foreign exchangefluctuation

Compulsory when relates to the constructionof certain assets.

Permitted, but not required forqualifying assets.

Capitalisation ofborrowing costs

Depreciation is provided based on the useful

lives of assets or the minimum ratesprescribed by the Indian Companies Act,whichever is higher. Asset lives are notprescribed by the Companies Act, but can bederived from the depreciation rates.

Allocated on a systematic basis

to each accounting period overthe useful life of the asset.

Depreciation



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Accounting Differences Contd.

Include effect in the income statement

of the period in which the change ismade except as specified in certainstandards where the change resultingfrom adoption of the standard has to beadjusted against opening retainedearnings.

Restate comparatives and prior-

year opening retained earnings.

Changes in

accountingpolicies

Include effect in the current yearincome statement with appropriate

disclosure

Restatement of comparatives ismandatory.

Correction offundamentalerrors

No such guidance available.Obligations that are legallyenforceable and unavoidable, andare associated with the retirementof tangible long-lived assets, berecorded as liabilities when thoseobligations are incurred andrecorded at fair value.

Asset RetirementObligation (ARO)

Applicable since 2001Has been in place for a muchlonger time.

Lease Accounting

Deferred tax assets and liabilitiesshould be recognised for all timingdifferences subject to consideration ofprudence in respect of deferred taxassets.

Use full provision method (someexceptions), driven by balancesheet temporary differences .Recognise deferred tax assets ifrecovery is probable.

Deferred Taxes



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Accounting Differences - Investments

Investments:

IFRS:

Depends on the classification of investment if held to maturity or loan orreceivable, then carry at amortised cost, otherwise at fair value. Unrealisedgains/losses on fair value through profit or loss classification (including tradingsecurities) recognised in the income statement and on available-for-saleinvestments recognised in equity.**

Indian GAAP:Carry long-term investments at cost (with provision for other than temporarydiminution in value). Current investments carried at lower of cost or fair valuedetermined on individual basis or by category of investment but not on overall(or global) basis. Specific guidance exists for banking industry.

**There is an option in IFRS to classify any financial asset at fair value through

profit or loss . Changes in fair values in respect of such securities arerecognized in the income statement. It must be noted that it is an irrevocableoption to classify a financial asset at fair value through profit or loss.


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derivative instruments and hedging activities

IFRS:Measure derivatives and hedge instrument at fair value. Recognise thechanges in fair value in the income statement, except for effective cash flowhedges, where the changes are deferred in equity until effect of theunderlying transaction is recognised in the income statement.

Gains / losses on hedge instrument used to hedge forecast transaction,included in the cost of asset/liability (basis adjustment).

Indian GAAP:

No comprehensive guidelines currently. Accounting treatment for forwardcontracts and equity index and equity stock futures and option is prescribed.Guidance prescribed for banking companies.

Documents

AS and IFRS