Documentos de Académico
Documentos de Profesional
Documentos de Cultura
PRESENTED BY
1
IFRS
OF THE
TO
BY
PGDM –FINANCE
2008-10
KANDIVALI (MUMBAI)
CERTIFICATE
The project is in the nature of original work. Reference work and relative
sources of information have been given at the end of the project.
3
IFRS
TABLE OF CONTENTS
Background of IFRS..................................................................................................11
Scope of IFRS........................................................................................................................................12
Benefits of IFRS....................................................................................................................................19
Adoption of IFRS..................................................................................................................................21
Challenges of IFRS................................................................................................................................24
There are several impediments and practical challenges to adoption of and full compliance with IFRS in
India. These are:.....................................................................................................................................24
The need for a change in several laws and regulations governing financial accounting and reporting in
India. In addition to accounting standards, there are legal and regulatory requirements that determine
the manner in which financial information is reported or presented in financial statements. For example,
the Companies Act, 1956 determines the classification and accounting treatment for redeemable
preference shares as equity instruments of a company, whereas these may be considered to be a
financial liability under IFRS. The Companies Act (Schedule VI) also prescribes the format for
presentation of financial statements for Indian companies, whereas the presentation requirements are
significantly different under IFRS. Similarly, the Reserve Bank of India regulates the financial reporting
for banks and other financial institutions, including the presentation format and accounting treatment
for certain types of transactions..............................................................................................................24
The recent announcement by the MCA is encouraging as it indicates government support for the
timetable for convergence with IFRS in India. However, the announcement stops short of endorsing the
roadmap for convergence and the full adoption of IFRS that is discussed in ICAI's concept paper. In the
absence of adequate clarity and assurance that Indian laws and regulations will be amended to conform
to IFRS, the conversion process may not gain momentum.....................................................................24
There is a lack of adequate professionals with practical IFRS conversion experience and therefore many
companies will have to rely on external advisers and their auditors. This is magnified by a lack of
preparedness amongst Indian corporate as this project may be viewed simply as a project management
or an accounting issue which can be left to the finance function and auditors. However, it should be
noted that IFRS conversion would involve a fundamental change to an entity's financial reporting
systems and processes. It will require a detailed knowledge of the standards and the ability to consider
their impact on business transactions and performance measures. Further, the conversion process will
4
IFRS
need to disseminate and embed IFRS knowledge throughout the organization to ensure its application
on an ongoing basis................................................................................................................................25
Another potential pitfall is viewing IFRS accounting rules as "similar" to Generally Accepted
Accounting Principles in India (Indian GAAP), since Indian accounting standards have been formulated
on the basis of principles in IFRS. However, this view disregards significant differences between Indian
GAAP and IFRS as well as differences in practical implementation and interpretation of similar
standards. Further, certain Indian standards offer accounting policy choices, which are not available
under IFRS, for example, use of pooling of interest method in accounting for business combinations.. 25
There is an urgent need to address these challenges and work towards full adoption of IFRS in India.
The most significant need is to build adequate IFRS skills and an expansive knowledge base amongst
Indian accounting professionals to manage the conversion projects for Indian corporates. Leveraging
the knowledge and experience gained from IFRS conversion in other countries and incorporating IFRS
into the curriculum for professional accounting courses can do this.......................................................25
Ultimately, it is imperative for Indian corporates to improve their preparedness for IFRS adoption and
get the conversion process right. Given the current market conditions, any restatement of results due to
errors in the conversion process would be detrimental to the company involved and would severely
damage investor confidence in the financial system. .............................................................................26
Cost Formulae........................................................................................................................................51
Standard..................................................................................................................................................52
Particulars................................................................................................................. 53
Particulars................................................................................................................. 53
Standard..................................................................................................................................................54
Standard..................................................................................................................................................55
5
IFRS
Revenue Definition.................................................................................................................................55
(*)Termination Benefits..........................................................................................................................61
Basic EPS...............................................................................................................................................67
Scope......................................................................................................................................................73
Useful life...............................................................................................................................................75
(*)Contingent assets...............................................................................................................................79
(*)Restructuring cost..............................................................................................................................79
Optional exemptions.................................................................................................94
6
IFRS
ACKNOWLEDGEMENT
It gives me great pleasure to present before you, my final project report for
the year 2008-2010.
I express my gratitude towards our director Mrs. Mrinalini Kohojkar, for giving
us an opportunity to work on this report.
I take this opportunity to thank our respected project guide Prof. Jyoti Nair,
for giving us an opportunity to undertake this project. Her guidance has been
invaluable to me to while preparing this report. She provided us with valuable
suggestions and excellence guidance about this industry, which proved very
helpful to me and helped me to gain theoretical knowledge as well as
experience in the practical field.
Last but not the least, I am also thankful to CA Nikhil Joganputra for his
valuable insights and sharing his experience on these topic, and to my
friends, to all known and unknown individuals who have given me their
constructive advise, suggestions, encouragement, co-operation and
motivation to prepare this report.
- Noman Agashiwala
EXECUTIVE SUMMARY
The International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board (IASB) are increasingly being
recognized as Global Reporting Standards. More than 100 countries such as
countries of European Union, Australia, New Zealand, and Russia currently
require or permit the use of IFRSs in their countries. Countries such as China
and Canada have announced their intention to adopt IFRSs from 2008 and
2011 respectively. United States of America has also taken-up convergence
projects with the IASB with a view to permit filing of IFRS-Compliant Financial
Statements in the US Stock Exchanges without requiring the presentation of
reconciliation statement. In view of the benefits of convergence with IFRSs to
the Indian economy, its investors, industry and the accounting professionals,
the Concept Paper has been developed with the objective of exploring:
The approach for achieving convergence with IFRS.
Laying down a roadmap for achieving convergence with the IFRSs with
a view to make India IFRS-compliant.
And also to study impact and challenges India will face to converge
with IFRS.
Keeping in view the complex nature of IFRSs and the extent of differences
between the existing ASs and the corresponding IFRSs and the reasons
therefore, the ICAI is of the view that IFRSs should be adopted for the public
interest entities such as listed entities, banks and insurance entities and
large-sized entities from the accounting periods beginning on or after 1st
April, 2011.
In order to get more clarity on these issues, we have taken example of NACIL
(National Aviation Company India Ltd.).Project studied the present accounting
procedure in NACIL and steps taken by them for converging with IFRS.
8
IFRS
ACCOUNTING STANDARDS----OVERVIEW
A financial reporting system supported by strong governance, high quality
standards, and firm regulatory framework is the key to economic
development. Indeed, sound financial reporting standards underline the trust
that investors place in financial reporting information and thus play an
important role in contributing to the economic development of a country. The
Institute of Chartered Accountants of India (ICAI) as the accounting
standards-formulating body in the country has always made efforts to
formulate high quality Accounting Standards and has been successful in
doing so. Indian Accounting Standards have withstood the test of time. As the
world continues to globalize, discussion on convergence of national
accounting standards with International Financial Reporting Standards
(IFRSs)1 has increased significantly.
The forces of globalization prompt more and more countries to open their
doors to foreign investment and as businesses expand across borders the
need arises to recognize the benefits of having commonly accepted and
understood financial reporting standards. In this scenario of globalization,
India cannot insulate itself from the developments taking place worldwide. In
India, so far as the ICAI and the Governmental authorities such as the
National Advisory Committee on Accounting Standards established under the
Companies Act, 1956, and various regulators such as Securities and
Exchange Board of India and Reserve Bank of India are concerned, the aim
has always been to comply with the IFRSs to the extent possible with the
objective to formulate sound financial reporting standards. The ICAI, being a
member of the International Federation of Accountants (IFAC), considers the
9
IFRS
IFRSs and tries to integrate them, to the extent possible, in the light of the
laws, customs, practices and
10
IFRS
INTRODUCTION TO IFRS
Background of IFRS
Users of financial statements have always demanded transparency in
financial reporting and disclosures. However, the willingness and need for
better disclosure practices have intensified only in recent times.
Globalization has helped Indian Companies raise funds from offshore capital
markets. This has required Indian companies, desirous of raising funds, to
follow the Generally Accepted Accounting Principles (GAAP) of the investing
country. The different disclosure requirements for listing purposes have
hindered the free flow of capital. This has also made comparison of financial
statements across the globe impossible. An International body called
International Organization of Securities Commissions (IOSCO), to harmonize
diverse disclosure practices followed in different countries initiated a
movement. The capital market regulators have now agreed to accept IFRS
(International Financial Reporting Standards) compliant financial statements
as admissible for raising capital. This would ease free flow of capital and
reduce costs of raising capital in foreign currencies.
Most jurisdictions that report under IFRS, including the EU, mandate
the use of IFRS only for the listed companies. However, in INDIA, IFRS would
apply to a wider group of entities than their international counterparts. This
is primarily because of a large number of private enterprises getting
covered under the size criteria based on their turnover and/or their
borrowing. Companies also may need to convert to IFRS if they are a
subsidiary of a foreign company that must use IFRS, or if they have a
foreign investor that must use IFRS.
The policy makers in India have also realized the need to follow IFRS
and it is expected that a large number of Indian companies would be
required to follow IFRS from 2011. This poses a great challenge to the
makers of financial statements and also to the auditors.
11
IFRS
Meaning of IFRS
International Financial Reporting Standards (IFRS) is a set of
accounting standards, developed by the International Accounting Standards
Board (IASB) that is becoming the global standard for the preparation of
public company financial statements. IFRS is a principles-based accounting
system, meaning it is objective-oriented allowing for more presentation
freedom.
Objectives of IFRS
to develop, in the public interest, a single set of high quality,
understandable and enforceable global accounting standards that
require high quality, transparent and comparable information in
financial statements and other financial reporting to help
participants in the world's capital markets and other users make
economic decisions;
to promote the use and rigorous application of those standards;
in fulfilling the objectives associated with (1) and (2),
to take account of, as appropriate, the special needs of small and
medium-sized entities and emerging economies.
to bring about convergence of national accounting standards and
International Accounting standards and IFRS to high quality
solutions.
Scope of IFRS
1. IASB Standards are known as International Financial Reporting
Standards (IFRS’s).
2. All International Accounting Standards (IAS’s) and Interpretations
issued by the former IASC and SIC continue to be applicable unless and
until they are amended or withdrawn.
3. IFRS’s apply to the general-purpose financial statements and
other financial reporting by profit-oriented entities -- those engaged in
12
IFRS
13
IFRS
Pronouncements of IFRS
14
IFRS
15
IFRS
Shareholders
Evaluating the Substance of transactions Involving the Legal
SIC 27
Form of a Lease
SIC 29 Disclosure - Service Concession Arrangements
SIC 31 Revenue - Barter Transactions Involving Advertising Services
SIC 32 Intangible Assets - Web Site Costs
16
IFRS
countries of the European Union, Australia, New Zealand and Russia have
already adopted IFRSs for listed enterprises. China has decided to adopt IFRS
from 2008 and Canada from 2011. Insofar as US is concerned, Financial
Accounting Standards Board (FASB) of USA and IASB are also working
towards convergence of the US GAAPs and the IFRSs. The Securities &
Exchange Commission (SEC) has mooted a proposal to permit filing of IFRS-
compliant financial statements without requiring presentation of a
reconciliation statement between US GAAPs and IFRS in near future.
Appendix II contains list of countries which require or permit the use of IFRSs
for various types of the entities such as listed entities, banks etc.
The Economy
As the markets expand globally the need for convergence increases. The
convergence benefits the economy by increasing growth of its international
business. It facilitates maintenance of orderly and efficient capital markets
and also helps to increase the capital formation and thereby economic
growth. It encourages international investing and thereby leads to more
foreign capital flows to the country.
Investors
A strong case for convergence can be made from the viewpoint of the
investors who wish to invest outside their own country. Investors want the
information that is more relevant, reliable, timely and comparable across the
jurisdictions. Financial statements prepared using a common set of
accounting standards help investors better understand investment
opportunities as opposed to financial statements prepared using a different
set of national accounting standards. For better understanding of financial
17
IFRS
statements, global investors have to incur more cost in terms of the time and
efforts to convert the financial statements so that they can confidently
compare opportunities. Investors’ confidence would be strong if accounting
standards used are globally accepted. Convergence with IFRSs contributes to
investors’ understanding and confidence in high quality financial statements.
The industry
A major force in the movement towards convergence has been the interest
of the industry. The industry is able to raise capital from foreign markets at
lower cost if it can create confidence in the minds of foreign investors that
their financial statements comply with globally accepted accounting
standards. With the diversity in accounting standards from country to
country, enterprises which operate in different countries face a multitude of
accounting requirements prevailing in the countries. The burden of financial
reporting is lessened with convergence of accounting standards because it
simplifies the process of preparing the individual and group financial
statements and thereby reduces the costs of preparing the financial
statements using different sets of accounting standards.
18
IFRS
Benefits of IFRS
By adopting IFRS, you would be adopting a "global financial reporting"
basis that will enable your company to be understood in a global
marketplace. This helps in accessing world capital markets and
promoting new business. It allows your company to be perceived as
an international player.
A consistent financial reporting basis would allow a multinational
company to apply common accounting standards with its subsidiaries
worldwide, which would improve internal communications, quality of
reporting and group decision-making.
In increasingly competitive markets, IFRS allows a company to
benchmark itself against its peers throughout the world, and allows
investors and others to compare the company's performance with
competitors globally.
In addition, companies would get access to number of capital markets
across the globe.
Disadvantages of IFRS
Despite a general consensus of the inevitability of the global
acceptance of IFRS, many people also believe something will be lost
with full acceptance of IFRS.
Further certain issuers without significant customers or may resist IFRS
because they may not have a market incentive to prepare IFRS
financial statements.
Some other issuers may have to stick with existing GAAP because it is
required for filings with other regulators and authorities, thus resulting
in extra costs than currently incurred by following only existing GAAP.
Another concern is that many countries that claim to be converting to
international standards may never get to 100 percent compliance.
19
IFRS
20
IFRS
Adoption of IFRS
More than 12,000 companies in almost 100 nations have adopted
IFRS, including listed companies in the European Union. Other countries,
including Canada and India, are expected to transition to IFRS by 2011.
Some estimate that the number of countries requiring or accepting IFRS
could grow to 150 in the next few years. Other countries, such as Japan and
Mexico, have plans to converge (eliminate significant differences) their
national standards.
In India, the ICAI has issued a document titled "Concept paper of
convergence with IFRS in India" to evaluate the need for Indian GAAP to
change to IFRS. In the paper, the ICAI notes that as the world globalizes, it
has become imperative for India to make a formal strategy for convergence
with IFRS with the objective of harmonize with globally accepted accounting
standards. In respect of many advantages to various stakeholders viz. the
economy, industry, investors, and accounting professionals, it does caution
that the convergence would require some fundamental changes to the
corporate laws and regulations currently guiding the accounting and
reporting space in India. In view of the difficulties, which may be perceived
during adopting IFRS, the ICAI has decided that IFRS should be adopted for
public interest entities from the accounting periods commencing on or after
1 April 2011.
Adopting IFRS will likely impact key performance metrics, requiring
thoughtful communications plans for the Board of Directors, shareholders
and other key stakeholders. Internally, IFRS could have a broad impact on a
company's infrastructure, including underlying processes, systems, controls,
and even customer or lender contracts and interactions.
Adopting IFRS by Indian corporate is going to be very challenging but
at the same time could also be rewarding. Indian corporate are likely to reap
21
IFRS
22
IFRS
23
IFRS
Challenges of IFRS
There are several impediments and practical challenges to adoption of
and full compliance with IFRS in India. These are:
The need for a change in several laws and regulations governing financial
accounting and reporting in India. In addition to accounting standards,
there are legal and regulatory requirements that determine the manner
in which financial information is reported or presented in financial
statements. For example, the Companies Act, 1956 determines the
classification and accounting treatment for redeemable preference
shares as equity instruments of a company, whereas these may be
considered to be a financial liability under IFRS. The Companies Act
(Schedule VI) also prescribes the format for presentation of financial
statements for Indian companies, whereas the presentation
requirements are significantly different under IFRS. Similarly, the
Reserve Bank of India regulates the financial reporting for banks and
other financial institutions, including the presentation format and
accounting treatment for certain types of transactions.
The recent announcement by the MCA is encouraging as it indicates
government support for the timetable for convergence with IFRS in India.
However, the announcement stops short of endorsing the roadmap for
convergence and the full adoption of IFRS that is discussed in ICAI's
concept paper. In the absence of adequate clarity and assurance that
Indian laws and regulations will be amended to conform to IFRS, the
conversion process may not gain momentum.
24
IFRS
There is an urgent need to address these challenges and work towards full
adoption of IFRS in India. The most significant need is to build adequate
IFRS skills and an expansive knowledge base amongst Indian accounting
professionals to manage the conversion projects for Indian corporates.
Leveraging the knowledge and experience gained from IFRS conversion in
other countries and incorporating IFRS into the curriculum for professional
accounting courses can do this.
25
IFRS
30
IFRS
Gazette dated December 7, 2006, were considered. The ICAI is of the view
that in view of the complexity of recognition and measurement principles and
the extent of disclosures required in various IFRSs, and the fact that about
four years have elapsed since the ICAI laid down the criteria for Level I
enterprises, as far as the size is concerned, it needs a revision. Accordingly,
the ICAI is of the view that a public interest entity should be an entity:
whose equity or debt securities are listed or are in the process of listing on
any stock exchange, whether in India or outside India; or
(ii) which is a bank (including a cooperative bank), financial institution, a
mutual fund, or an insurance entity; or
(iii) whose turnover (excluding other income) exceeds rupees one
hundred crore in the immediately preceding accounting year; or
(iv) which has public deposits and/or borrowings from banks and financial
institutions in excess of rupees twenty five crore at any time during
the immediately preceding accounting year; or
(v) which is a holding or a subsidiary of an entity which is covered in (i) to (iv)
above.
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IFRS
IAS 2 Inventories
IAS 7,Cash Flow Statements
IAS 20, Accounting for Government Grants and Disclosure of
Government Assistance
IAS 33, Earnings Per Share
IAS 36, Impairment of Assets
IAS 38, Intangible Assets
34
IFRS
36
IFRS
37
IFRS
the IFRS numbers, should be adopted from the specified date of 1st April,
2011. The IFRSs should be issued as Indian ASs, which would be considered
IFRS-equivalent. In order to facilitate reference to the existing Indian
Accounting Standards, along with the IFRS number, in the brackets, the
existing Accounting Standard number may also be given.
Role of various stakeholders to ensure convergence with IFRSs from
the specified date, i.e., accounting periods commencing on or after
1st April, 2011
The following sections deal with the role of various stakeholders in the
standard setting process to ensure smooth transition to the IFRSs from 1st
April, 2011, in respect of the listed and other public interest entities.
39
IFRS
formulation even if they fall within Category IV. This would also make the
transition to IFRSs from 1st April, 2011 smoother.
The ASB may consider revising Accounting Standards corresponding to IFRSs
indicated in Category IB and Category II on priority basis. For this purpose,
ASB may consider issuing a composite exposure draft of modifications in the
Accounting Standards corresponding to the IFRSs listed in Category IB and
issue exposure drafts of Accounting Standards corresponding to IFRSs falling
in Category II so that by the time the convergence date arrives, in respect of
these standards the country is already in convergence with IFRSs. While this
is a broad suggestion, the ASB may consider in-depth its work plan as to
which of these accounting standards are capable of being revised/issued
keeping in view various factors such as extent of changes required. Another
advantage of this process could be that certain International stock
exchanges, say, London Stock Exchange, may decide to allow listing on their
stock exchanges without requiring preparation of reconciliation statement
even prior to 1st April, 2011. For instance, the London Stock Exchange may
allow Indian companies to get listed without reconciliation statement from 1st
April, 2009 in case the convergence in respect of Categories IB and II and the
new accounting standards which are in the process of formulation are issued
by that time.
The ASB of ICAI should take up the conceptual differences with the IASB in
respect of IFRSs falling in Category III and it should resolve these differences
as soon as possible by either convincing the IASB to modify IFRSs or to satisfy
itself that the requirements in the concerned IFRSs are appropriate even in
the Indian conditions.
In respect of IFRSs falling in Category IV, i.e., IFRSs the adoption of which
would require changes in laws/regulations, the ICAI should initiate a dialogue
with the relevant departments of the Government or the authorities set up by
the Government such as the National Advisory Committee on Accounting
Standards which formulate laws and with the relevant regulatory authorities
40
IFRS
The IASB has declared a stable platform for IFRSs up to January 1, 2009, i.e.,
the IASB will not make any IFRS effective before that date, which is issued
prior to that date. Thus, after 1st January, 2009, the IASB may issue new
IFRSs or revise the existing ones on frequent basis. The ASB of the ICAI
should play a more effective role by sending comments on the discussion
papers/Exposure Drafts of the proposed IFRSs. The ASB should also
participate in the Round-tables organized by the IASB on various drafts of
proposed new IFRSs/revised IFRSs. In other words, the ASB should play a
greater role in influencing the future IFRSs. The ASB should also play a similar
role in respect of the drafts of the Interpretations issued by the International
Financial Reporting Committee (IFRIC). In this context, the section related to
the ‘Role of ASB of ICAI in Post-convergence Scenario’ may also be referred
to.
The ASB can also play a greater role in influencing future IFRSs in the
following ways:
By identifying experts on IFRSs in India, who can be appointed on the
IASB through the selection process followed by the IASB so that the
Indian concerns are expressed at the Board level.
By nominating ASB staff on the IASB projects, on secondment basis or
otherwise. The ICAI notes that IASB welcomes such participation as is
evident from the fact that the staff of certain national standard-setters
is presently involved in various IASB projects. Also, IASB’s Statement
of Best Practices: Working Relationships between the IASB and other
Standard-Setters encourages the national standard setters to do so .
41
IFRS
42
IFRS
any carving out of the IFRS requirements in the existing local conditions is
warranted in the public interest
.
3. In some cases, as at present, the ASB may continue the policy of removing
optional treatments and adding disclosure requirements to IFRSs when it
believes that doing so provides more comparable and useful information in
the country. When ASB makes any change to an IFRS, for example, adding a
disclosure that is considered necessary in the local environment, or removing
an optional treatment, this should be made clear so that users of the IFRS are
aware of the changes. In some cases, certain changes in terminology in IFRS
may be required keeping in view legal requirements, e.g., replacing the term
‘true & fair’ for ‘present fairly’, in IAS 1, ‘Presentation of Financial
Statements’. Such changes do not lead to non-convergence with IFRS.
4. ASB can assist the IASB in identifying constituents who can be involved in
round-table discussions and other forums and the issues of particular
relevance to the stakeholders.
5. Without limiting the direct communication of ideas to the IASB, ASB has a
role in communicating the views and ideas of the stakeholders to the IASB
through the consultation process—providing a forum for views. Other
organizations, such as representative bodies with an interest in financial
reporting, may also contribute to this process. ASB should make its own
46
IFRS
6. ASB should make the IASB aware of any major conceptual differences of
opinion it may have with a project as early as possible in the life of a project.
This would require ASB to monitor closely the development of the project.
8. Direct involvement of ASB in the IASB’s projects would help to ensure that
a wide range of views and ideas are considered in the early stages of the
development of a project. The IASB may provide opportunities to ASB to be
directly involved with IASB projects in the following ways:
Involvement in a ‘research project’ alone, or, in partnership with a team
of other standard-setters (either as a leader of the team or as team
member), under the guidance of IASB staff and selected Board
advisers.
Involvement of the ASB staff in a ‘project team’ on an active IASB
project under the direction of the IASB directors.
9. ASB may conduct research or develop thinking on a topic that has not
been identified by the IASB as a current priority, and then present the results
of that work for consideration by the IASB and/or other national accounting
standard setters. For there to be an expectation that those materials would
be considered there would need to be some advance agreement both that
47
IFRS
the topic is worthy of consideration and that the IASB and/or other standard-
setters have a common interest in the topic.
10. The IASB would welcome offers of staff assistance from the ASB. To be
effective, from both the IASB’s perspective and that of the ASB, this
involvement needs to be undertaken with a clear understanding of the staff
member’s role and responsibilities.
11. The IASB establishes working groups for some projects, and invites
constituents to nominate candidates for membership of these groups. The
working groups are a source of expert advice and ideas for the staff in
progressing a particular project. ASB may be able to assist in the process of
making nominations to, and in facilitating the operations of, working groups
by identifying and encouraging suitable individuals to nominate themselves
and, if appointed, to liaise actively with those individuals and assist them
when needed.
12. The views of ASB can be a valuable source of independent thought in the
development of IASB documents. ASB should provide comments to the IASB
on consultative documents such as Exposure Drafts and Discussion Papers. If
time does not permit ASB-level input, comment from staff of the ASB can be
provided. If ASB is unable to comment on each consultative document it
should focus on those projects that are of particular importance to the
country, or those on which the ASB believes it can best contribute. It may
also be helpful for ASB to comment on other IASB documents, such as issues
papers and draft Discussion Papers when it believes that the IASB would
benefit from their input at an early stage.
Expectations from the IASB
To ensure smooth convergence with IFRSs, upto 2011 and thereafter also,
IASB is also expected to play an important role as follows:
48
IFRS
49
IFRS
Inventories –
51
IFRS
52
IFRS
54
IFRS
depreciation
method
Revenue Recognition –
Fixed Assets –
Foreign Exchange –
57
IFRS
provided to key
management personnel.
Held-to-maturity
investments are non-
derivative financial assets
with fixed or determinable
payments and fixed
maturity that an entity has
positive intent and ability
to hold to maturity. Held to
maturity investments is
measured at amortized
cost using effective
interest method.
Investment in The entire instrument is The holder may:
convertible accounted for as debt ♦ designate the hybrid
bonds investment. instrument as at fair
value through profit or
loss subject to certain
conditions, or
♦ designate the debt
element as available for
sale with changes in fair
value recognized in
equity and the
conversion option as a
derivative with changes
in fair value recognized
in profit or loss, or
♦ recognize the debt
element as loans and
receivables and
measure at amortized
cost and the conversion
option as a derivative
with changes in fair
value recognized in
profit or loss.
Employee Benefits –
59
IFRS
- Deferred up to a
maximum with any
excess of 10% of the
greater of the defined
benefit obligation or the
fair value of the plan
assets at the end of the
previous reporting
period being recognized
over the expected
average remaining
working lives of the
participating employees
60
IFRS
or other accelerated
basis.
-
(*)IFRIC 14, The No specific guidance. Addresses when refunds or
Limit on a reductions are regarded as
Defined Benefit available for recognition of
Asset, Minimum an asset; how funding
Funding requirements in future
Requirements may effect the availability
and their of reductions in future
Interaction contributions and when
minimum funding
requirement may give rise
to a liability.
61
IFRS
Borrowing Costs –
Segment Reporting –
62
IFRS
Leases –
IFRIC 4 - Determining
Whether an Arrangement
Contains a Lease
IFRIC 12 - Service
Concession Arrangements
Interest in Leasehold land is recorded Recognized as operating
leasehold land as fixed assets. lease (i.e. prepayment)
unless the leasehold
interest is accounted for as
investment property and
the fair value model is
adopted. (IAS 17)
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IFRS
(IFRIC 4)
(*)Evaluating the No specific guidance. If a series of transactions
Substance of involves the legal form of a
Transactions lease and can only be
Involving the understood with reference
Legal Form of a to the series as a whole,
Lease then the series is
accounted for as a single
transaction. (SIC 27)
(*)Service No specific guidance. Depending on the terms of
Concession the arrangement, a
Arrangements – financial asset is
recognition recognized where an
operator has the
unconditional right to
receive cash or other
financial asset from the
grantor over the life of the
arrangement. (IFRIC 12)
Basic EPS Basic earnings per share are An entity shall calculate
calculated by dividing the basic earnings per share
net profit or loss for the amounts for profit or loss
period attributable to equity attributable to ordinary
shareholders by the equity holders of the
weighted average number parent entity and, if
of equity shares outstanding presented, profit or loss
during the period. from continuing operations
attributable to those equity
holders.
IAS 33, Earnings The control number for The control number for
Per Share - determining dilution is net determining dilution is net
Extraordinary profit or loss from profit or loss from
items continuing ordinary continuing activities since
activities. EPS with and no item can be presented
without extraordinary items as extraordinary item.
is to be presented.
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IFRS
consolidated financial
statements only if all the
following conditions are
met:
♦ the entity's debt or
equity instruments are
not traded in a public
market;
♦ the entity is not in a
process of filing its
financial statements for
the purposes of issuing
any class of instruments
in a public market; and
♦ any intermediate parent
of the entity produces
consolidated financial
statements available for
public use that comply
with IFRS’s.
Control Control is: Control is the power to
(a) the ownership, directly govern the financial and
or indirectly through operating policies of an
subsidiaries, of more than entity so as to obtain
one-half of the voting power benefits from its activities.
of an enterprise; or
(b) control of the
composition of the board of
directors in the case of a
company or of the
composition of the
corresponding governing
body so as to obtain
economic benefits from its
activities.
Potential voting Potential voting rights are The effect of potential
rights not considered in assessing voting rights that are
control. currently exercisable or
convertible, including
potential voting rights held
by another entity, are
considered when assessing
control.
Exclusion of Excluded from If on acquisition a
subsidiaries, consolidation, equity subsidiary meets the
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IFRS
Investments in Associates –
Discontinuing Operations –
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IFRS
Intangible Assets –
Impairment of Assets –
IFRIC 10 – Interim
Reporting and Impairment
Goodwill Uses "bottom-up/ top-down" Allocated to cash
approach under which the generating units that are
goodwill is, in effect, tested expected to benefit from
for impairment by allocating the synergies of business
its carrying amount to each combination.
cash-generating unit to Allocated to the lowest
which portion of that level at which goodwill is
carrying amount can be internally monitored by
allocated on reasonable management, which
and consistent basis. should be larger than an
operating segment.
(*)IFRIC 10, No corresponding Where an entity has
Interim pronouncement to IFRIC 10. recognized an impairment
Reporting and loss in an interim period in
Impairment respect of goodwill or an
investment in either an
equity instrument or a
financial asset carried at
cost, that impairment is
not reversed in subsequent
interim financial
statements nor in annual
financial statements.
IFRIC 1 – Changes in
Existing Decommissioning,
Restoration and Similar
Liabilities
decommissioning assets or
to undertake
environmental
rehabilitation.
IFRIC 9 - Reassessment of
Embedded Derivatives
General There is no definition of All financial assets,
Recognition financial instrument. financial liabilities and
Principle Currently, derivatives are derivatives are recognized
not required to be in the statement of
recognized in the balance financial position when
sheet except for certain these meet the definition
forward exchange contracts and recognition criteria of a
within the scope of AS 11. financial instrument.
A financial instrument is a
contract that gives rise to a
financial asset in one entity
and a financial liability or
equity in another entity.
Derivatives and No equivalent standard on Measured at fair value.
embedded derivatives.
derivatives
Derivatives and No equivalent standard on Hedge accounting
hedge derivatives. (recognizing the offsetting
accounting effects of fair value
changes of both the
hedging instrument and the
hedged item in the same
period's profit or loss) is
permitted in certain
circumstances, provided
that the hedging
relationship is clearly
defined, measurable, and
actually effective.
• hedge of a net
investment in a foreign
entity: this is treated as
a cash flow hedge.
A hedge of foreign currency
risk in a firm commitment
may be accounted for as a
fair value hedge or as a
cash flow hedge.
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IFRS
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IFRS
Introduction of NACIL –
National Aviation Company of India Limited (NACIL) is a Government
Company within the meaning of Section 617 of the Companies Act, 1956 and
is under the administrative control of the Ministry of Civil Aviation. National
Aviation Company of India Limited has been established as a Government
Company to be engaged in the business as an airline for providing air
transport and allied services. This Scheme proposes the amalgamation of AI
and IA in the Transferee Company, which would result in consolidation of the
business of all in one entity (i.e. National Aviation Company of India Limited,
the Transferee Company).
AIR INDIA Limited (“AI” or the “Transferor No 1 Company”) is a Company
incorporated under the Companies Act, 1956, having its registered office at
Air India Ltd, 3rd Floor, Tower-II, Jeevan Bharati, 124, Connaught Circus, New
Delhi - 110 001. AI is a Government Company, within the meaning of Section
617 of the Companies Act, 1956 and is under the administrative control of
the Ministry of Civil Aviation, Government of India. AI is an unlisted Company.
AI is primarily engaged in the business as an airline for providing air transport
and allied services.
Indian Airlines Limited (“IA” or the “Transferor No 2 Company”) is a public
company registered under the Companies Act, 1956 and having its registered
office at 113, Gurudwara Rakabganj Road, New Delhi 110 001. IA is a
Government Company within the meaning of Section 617 of the Companies
Act, 1956 and is under the administrative control of the Ministry of Civil
Aviation. IA is an unlisted company. IA is primarily engaged in the business as
an airline for providing air transport and allied services.
National Aviation Company of India Limited (the Transferee Company) is a
Company incorporated under the Companies Act1956, having its registered
office at Airlines House, 113 Gurudwara Rakabganj Road, New Delhi 110 001.
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IFRS
84
IFRS
85
IFRS
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IFRS
Miscellaneous:
Besides, finance nominees are in various tender committees constitutes a
part of regular committees for Stores tender & Civil tenders. Finance also
deals with various mandatory agencies & authorities like Income tax, Sales
tax, Service tax, Government auditors, statutory auditors, Tax auditors, PF
auditors etc.
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IFRS
At present, the following stations in Gulf with NACIL (I) are managed through
GSA (General Sales Agency):
Sr. Station GSA
No.
1 UAE (SHJ, DXB, FUJ, RAS) M/s. Arabian Travel Agency Ltd.
2 Muscat – Oman M/s. National Travel & Tourism
3 Bahrain M/s. Dadabhai Travel
4 Kuwait M/s. House of Travel
5 Riyadh – Kingdom of Saudi M/s. Naba Tourism & Transport Co.
Arabia Ltd.
PAYMENTS:
a. GSA makes all payments in the Station on the approval of Country
Manager/Accounts Manager out of Revenue collection at the station.
b. The Statement for Payments along with supporting Bills/vouchers is
forwarded by GSA to the Regional Office on monthly basis except Kuwait
where the Reports are prepared on fortnightly basis.
c. On scrutiny of the payments accounting action is taken at the Regional
Finance Dept. and entries are booked in INR.
d. Debit Notes are raised in respect of the following payments-
i. Fuel- Debit Note is forwarded to headquarters on monthly basis.
ii. Advance to Cabin crew/ Engineers, technician- amount paid to
staff from other Region is debited to concerned Region through
Debit Notes.
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IFRS
The above mentioned accounts are reflected in Regional Trial Balance, Profit
and Loss Statement & Balance-Sheet. In case it is proposed to have Regional
Trial Balance for Gulf including NACIL (A), the above accounting procedure
needs to be followed in respect of accounts maintained by NACIL (A) at
respective stations.
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IFRS
Station Accounts
Bills Receivables
Agency Section
Cargo Agency
1. Outstation Screening
• Screening, cross-checking and verifying all revenue documents
reported at Outstations
• Maintenance of CVD control statement at outstations &
reconciliation.
• Dispatch of documents to EDP/CRA.
• Raising debit notes for short collection/billing.
2. Station Accounts
• Independent accounting unit set up at all stations in the NACIL
network to service the agents and direct sales.
• Reports the sales in appropriate forms and deposits the collection
in banks.
• Meeting the petty cash expenditure.
• Station Debit Recovery.
• Various activities :
- Issuing CVDs, receiving F/N sales reports.
- Realization of dues and verifying stock statement.
- Dispatch of reports to ARD/CRA.
3. Bills Receivables
• Screening & cross-checking of bills & invoices through EDP
• Controlling & Accounting of Credit Sales
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IFRS
• Dispatch of bills
• Billing & Accounting of charter revenue
• Controlling & Accounting of to-pay transactions
• Compilation of various reports.
4. Agency
Agency is a retailer of travel and related products. Whilst this refers to the
sales person employed to sell travel products, the term is often applied in
reference to the business that is established to sell travel products (the travel
agency).
Agency means a person / group of persons / body who is an interface
between the customer and the airlines by selling the airlines product i.e.
Space. In airlines the space sold is in form of passenger seats or cargo space.
Today almost 85% of the sales of passenger tickets of NACIL (I) are through
agents. As such agency accounting forms a very important function.
5. Cargo Revenue
Cargo sales are generated from different Airports and through Agents.
Cargo sales of Airport are being accounted at CRA. ARD reports for sales
generated through agents and their realization to CRA. The cargo system
has been automated through which automated Airway Bills are generated
through system developed by M/s. Kale Consultancy. It provides airlines
with full financial control and automation of their revenue accounting
process. It delivers business value by helping to maximize revenue,
minimize costs, and shorten the time span to billing, thereby enabling
increased cash flow.
Time
01.04.2010 31.03.2011 31.03.2012
01.04.2010
two separate income statements (if presented), two statements of cash flows
and two statements of changes in equity and related notes, including
comparative information.
A first time adopter of IFRS is required to comply with all IFRS standards
effective at the reporting date with preparation of opening balance sheet in
accordance with the provisions of IFRS 1. A first-time adopter is required to:
Recognize all assets and liabilities whose recognition is required by
IFRS;
Not recognize items as assets and liabilities if IFRS does not permit
such recognition;
Reclassify items recognized under previous GAAP as one type of asset,
liability or component of equity, but are a different type of asset,
liability or component of equity under IFRS; and
Apply IFRS in measuring all recognized assets and liabilities.
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IFRS
Optional exemptions
In a number of areas, retrospective application of IFRS will require
significant resources and may in certain situations be impracticable. IFRS 1
therefore provides ten optional exemptions to the general principle of
retrospective application. As these exemptions are optional, entities may
change their accounting policies retrospectively in these areas if they
desire, provided that they are able to calculate the effects reliably.
An entity that elects to apply one of the below exemptions is not required to
apply any or all of the other exemptions. Analogous application of the above
exemptions to other areas is not permitted.
Business combinations
An entity may apply IFRS 3 to business combinations prior to the date of
transition provided that it obtained the information necessary to apply IFRS
3 at the date of the business combination. Business combinations before the
date from which IFRS 3 are applied are accounted for in accordance with
IFRS 1, Appendix B2. Assets and liabilities acquired in a business
combination shall be recognized and measured in the opening balance
sheet in accordance with IFRS. Goodwill written off against equity under
Indian GAAP shall neither be recognized as an asset in the opening IFRS
balance sheet nor included in the gain or loss on subsequent disposal or
impairment of the subsidiary that gave rise to it.
Employee benefits
Under IAS 19 Employee Benefits, pension plans are classified as either
defined contribution plans or defined benefit plans. Accounting for defined
benefit plans is significantly more complex than for defined contribution
plans. Provisions for defined benefit plans are calculated on the basis of a
number of actuarial assumptions, and cumulative actuarial gains and losses
are recognized in accordance with IAS 19. IFRS 1 requires that the entity
identify all defined benefit plans and compares Indian GAAP with IAS 19. Any
changes in applied accounting policies are made retrospectively except for
an optional exemption concerning actuarial gains and losses and the
accumulated effect of the changes is taken to equity in the opening balance
sheet.
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IFRS
not have been able to take advantage of the election, which was available
to entities already reporting under IFRS. If an entity uses this exemption it
shall disclose certain information.
Share-based payments
A first-time adopter has an option not to apply IFRS 2 Share-based Payment
retrospectively to equity instruments (equity-settled transactions) granted
on or before 7 November 2002. IFRS 1 provides an additional exemption
from retrospective application of IFRS 2 for equity instruments that were
granted after 7 November 2002 and that vested before the later of (a) the
date of transition and (b) 1 January 2005. If a first-time adopter elects to
apply the exemption it is nevertheless required to disclose information that
enables users of the financial statements to understand the nature and
extent of share-based payment arrangements that existed during the
reporting and comparative periods.
Insurance contracts
In contrast to the general principle of IFRS 1, an entity issuing insurance
contracts (insurer) may elect on first-time adoption to apply the transitional
provisions of IFRS 4 Insurance Contracts. These transitional provisions
require an insurer to apply IFRS 4 prospectively for reporting periods
beginning on or after 1 January 2005 with optional earlier application.
Mandatory exceptions
IFRS 1 contains four mandatory exceptions to the general principle of
retrospective application.
Hedge accounting
A first-time adopter is required in its opening IFRS balance sheet, to:
Measure all derivatives at fair value; and
Eliminate all deferred gains and losses arising on derivatives that were
reported under previous GAAP as assets and liabilities.
In terms of IAS 39 a hedging relationship only qualifies for hedge accounting
if a number of restrictive criteria are satisfied, including appropriate
designation and documentation of effectiveness at inception of the hedge
and subsequently. As a result, in order for a hedging relationship to qualify
for hedge accounting at the date of transition, the hedging relationship must
have been fully designated and documented as effective in accordance with
IAS 39 at the date of the transaction
A first-time adopter may under previous GAAP have deferred or not
recognized gains and losses on a designated fair value hedge of a hedged
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IFRS
item that is not measured at fair value. In that case the hedged item is
adjusted in accordance with the implementation guidance to IFRS 1. If the
forecast transaction is not highly probable, but is still expected to occur, the
entire deferred gain or loss is recognized in equity.
Accounting estimates
Accounting estimates required under IFRS that were made under previous
GAAP are not adjusted except for differences in accounting policies or
unless there is objective evidence that they were in error. When restating
the opening IFRS balance sheet, the entity may have information available
that was not available at the time the estimate was made. The primary
objective of this exception is to prevent entities from adjusting estimates
that were made, based on the circumstances and information available at a
particular date, with the benefit of hindsight. An estimate required under
IFRS that was not required under previous GAAP should reflect conditions
that exist at the date of transition. In particular, estimates of market prices,
interest rates or foreign exchange rates shall reflect market conditions at
the date of transition.
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IFRS
Interim reporting
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IFRS
IFRS does not require an entity to publish interim reports. If, during the
reporting period, the entity elects to prepare interim reports under IAS 34,
IFRS 1 requires a range of further information in the interim report, including
reconciliation between previous GAAP and IFRS as well as presentation of
restated comparative information in accordance with IAS 34.
Comparative information
To comply with IAS 1 an entity's first IFRS financial statements shall include
at least one year of comparative information under IFRS. If an entity elects
or is required to present more than one year of full comparative information
prepared in accordance with IFRS, the date of transition is the beginning of
the earliest period presented.
All comparative information subsequent to the date of transition is restated
and presented in accordance with IFRS. If an entity presents more than one
year of comparative information not in accordance with IFRS, the entity shall
a) label the previous GAAP information clearly and b) provide qualitative
disclosure of the nature of the main adjustments that would make the
information IFRS compliant.
Indian GAAP-
Accounting principles should be consistent for financial information
presented in comparative financial statements. US GAAP does not give
specific guidance on first-time adoption of its accounting principles.
However, first-time adoption of Indian GAAP requires full retrospective
application. Some standards specify the transitional treatment upon first-
time application of a standard and specific rule for carve-out entities and
first-time preparation of financial statements for the public. There is no
requirement to present reconciliation of equity or income statement on
first-time adoption of Indian GAAP.
CONCLUSION
Though convergence with IFRS will improve the overall financial reporting
and transparency of companies and safeguard the interests of
stakeholders, there are various challenges which Indian Inc will have to
face while converging with IFRS. The major challenge is to train the staff
according to new accounting standards and to make sure that there is
proper mechanism for implementing such strategy. ICAI, ASB and
government have taken various steps and have drafted proper
implementation strategy to ensure effective and efficient convergence of
I-GAAP to IFRS.
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IFRS
REFERENCES
BOOKS –
1. Taxmann’s “Student’s Guide to Accounting Standards” By D. S. Rawat
2. Paper on “Concept Paper on convergence with IFRSs in India” by Institute of Chartered
Accountants of India (ICAI)
3. Research report on IFRS by Delloitt
4. Research report on IFRS by KPMG
WEBSITES –
1. www.iasplus.com
2. www.caclubindia.com
3. www.wikipedia.com
4. www.feeismind.com
5. www.icai.org
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