Documentos de Académico
Documentos de Profesional
Documentos de Cultura
ASSIGNMENT ON MODERN
ACCOUNTING THEORY
AND REPORTING
PRACTICES
2014-15
SUBMITTED TO: SUBMITTED BY:
Dr.ASHWANI BHALLA MUSKAN KUNDRA
ROLL NO: 6204
M.COM 1(1ST SEM)
TOPIC
IFRS-1
FIRST TIME
ADOPTION OF
IFRS
2
CONTENTS
INDEX
SR. PARTICULARS PAGE NO.
NO
1. GENSIS 4-6
2. INTRODUCTION 6-7
3. OBJECTIVES 8
4. Reseach Article 9-20
5. IFRS-1 21
6. Main Features of IFRS-1 22-26
7. Exceptions to basic principle 27-29
8. Scope of IFRS-1 30-31
9. Steps in IFRS-1 31-34
10. Explanation of transition to IFRSs 35
11. Additional Disclosure 36-38
12. Use of fair value as deemed cost 39
13. Interim financial reports 40
14. Effective Date & Degined Terms 41-42
15. Discussion and Analysis 43-46
16. Summary 46-49
17 Bibliography 50-53
18 Abbreviations 54
3
Genesis
International Accounting Standard Board (IASB) in its drive to develop a single
set of high quality, globally acceptable accounting and reporting standards has
made a series of efforts to achieve excellence. In regard to this International
Accounting Standard Board(IASB) adopted all IAS and began developing new
standards known as International Financial Reporting Standards (IFRS).
IFRS are as principles based set of standards that establish broad rules and also
dictate specific treatments.
4
IFRS Structure
The purpose of IFRS 1 is to establish the rules for an entitys first financial
statements prepared in accordance with IFRSs, particularly regarding the
transition from the accounting principles previously applied by the entity
(previous GAAP).
5
Introduction
IFRS-1 deals the first time adoption of international financial reporting
standards. If an entity is preparing it's financial reports under an accounting
framework other than international financial reporting standards i.e.(Accounting
standards of their own countries) and decides to change to IFRS then it has to
comply with requirements prescribed by IASB on conversion to IFRS. These
requirements are stated in IFRS-1 (The first time adoption of international
financial reporting standards).
It specifies the procedures any entity applying IFRS for the first time must
follow. IFRS-1 is essentially a road map for prepares of first year financial
statements under IFRS. IFRS-1 also ensures that all first time adopters have
consistent starting point. The process of developing the IFRS-1 was started in
April 2001 when the international Accounting Standard Board (IASB) adopted
SIC-8 first time application of IAS as primary basis of accounting which has
been issued by SIC of IASC in July 1998. SIC was replaced with IFRS1 in the
June 2003.
Since the introduction of IFRS 1 in 2003, amendments have been made to other
IFRSs and IASs. As the latter change, the unique needs of first-time adopters are
considered, and IFRS 1 is updated where and when appropriate.
The general principle of IFRS 1 is that the IFRSs effective at the reporting date
(that is, the balance sheet date) should be applied retrospectively to the opening
IFRS balance sheet, the comparative period, and the reporting period covered,
but with certain exceptions and exemptions. For example, if a company
6
transitions in 2010, they would need to comply with all IFRSs effective
December 31, 2010, subject to the exemptions and exceptions.
There are two categories of exceptions to the principle that an entitys opening
IFRS statement of financial position needs to comply with each IFRS:
First-time adopter
A first-time adopter is an entity that, for the first time, makes an explicit and
unreserved statement that its general purpose financial statements comply
with IFRSs.
An entity may be a first-time adopter if, in the preceding year, it prepared IFRS
financial statements for internal management use, as long as those IFRS
financial statements were not and given to owners or external parties such as
investors or creditors. If a set of IFRS financial statements was, for any reason,
given to an external party in the preceding year, then the entity will already be
considered to be on IFRSs, and IFRS 1 does not apply.
An entity can also be a first-time adopter if, in the preceding year, its financial
statements asserted compliance with some but not all IFRSs, or included only a
reconciliation of selected figures from previous GAAP to IFRSs.
reconciliations between previous GAAP and IFRS, for example with respect to
financial position, financial performance, and cash flows,
7
Objective
can be generated at a cost that does not exceed the benefits to users.
8
Research Articles
Patro.Archana, Gupta.V.K., Adoption of International Financial
Reporting Standards (IFRS) in Accounting Curriculum in India, Procedia
Economics &Finance, 2012,Vol.2,PP-9
Review
Archana Patro (2012) outlines that ICAI announced its decision to adopt IFRS
in India w.e.f. April 2011 with the objective that this standard will have an
significant impact on capital markets as many European countries have shifted to
IFRS and are ahead of India in including IFRS in the curriculum for students and
concludes that understanding of Indian Generally Accepted Accounting
Principles (GAAP) and IFRS standards is an urgent need for today's students.
Therefore, the adoption of IFRS mainly depends on the need and interest among
students to understand the subject. If students are knowledgeable about the
positive impact of the course, they are more likely to take these courses when
management colleges or universities offer them.
Review
R.Teller (2008) outlines that whether and how managerial incentives influence
the decision to elect optional exemptions when first adopting International
Financial Reporting Standards (IFRS). It also outlines the value-relevance of the
mandatory and optional equity adjustments that must be recognized as a result of
the first-time adoption of IFRS and finally concludes that first, managerial
incentives influence the decision to strategically elect one or more optional
exemptions at the transition date. Second, mandatory equity adjustments are
more valued than French GAAP equity, suggesting that the first-time adoption
9
of IFRS by French firms is perceived as a signal of an increase in the quality of
their financial statements. Third, the value-relevance of optional IFRS equity
adjustments depends on whether they result in the disclosure of new
information.
Review
Irina Doina Pascan (2012),outlines that beginning with 2005 all the entities
listed on the European Union regulated markets must prepare consolidated
financial statements in accordance with International Financial Standards(IFRS)
with the main objective is to identify and measure the impact of first time
adoption on the performance of Romania Listed Companies, performance being
expressed by means of net income. Romanian listed entities compulsorily apply
the IFRSs starting with the consolidated financial statements prepared for the
financial year 2007. and concludes that no clear tendency can be identified
regarding changes in net income of listed entities generated by the transition
from Romanian accounting regulations to IFRS.
Review
10
disclosures, it concludes that although there are some improvements, the vast
majority of the disclosure items required by IFRS were not disclosed. It also
reveals that the dominance of tax laws, the lack of enforcement, corporate
governance issues, and inadequate management information systems were all
significant constraints to the successful adoption of IFRS.
Review
Review
Susana Callao (2007) outlines that in Spain, listed groups are obliged to
prepare consolidated financial information under IFRS, and legislative changes
with the objective to bring local rules into line with international standards have
been tabled. In this context, the potential impact of IFRS is fraught with
uncertainty and concludes that that local comparability has worsened. It
reveals that local comparability is adversely affected if both IFRS and local
accounting standards are applied in the same country at the same time. Reforms
to bring local rules into line with international standards are therefore urgent. It
11
also finds that there has been no improvement in the relevance of financial
reporting to local stock market operators because the gap between book and
market values is wider when IFRS are applied. While there has been no gain in
terms of the usefulness of financial reporting in the short-term, improved
usefulness may be achieved in the medium to long-term.
Review
Review
Muhammad Nurul , Tony Van outlines the effects of mandatory IFRS adoption
and investor protection on the quality of accounting earnings in forty-six
countries around the globe and concludes that earnings quality increases for
mandatory IFRS adoption when a country's investor protection regime provides
12
stronger protection. This study extends the current literature that shows that
accounting practices are influenced by country-level macro settings. The results
highlight the importance of investor protection for financial reporting quality
and the need for regulators to design mechanisms that limit managers' earnings
management practices.
Review
Review
13
associated with an accounting regime change. We conduct a meta-analysis of
IFRS adoption studies investigating financial reporting effects, namely value
relevance and earnings transparency in the form of discretionary accruals, as
well as capital market effects, specifically the quality of analysts' earnings
forecasts. Findings concludes that the value relevance of book value of equity
has not increased post-IFRS adoption, whereas the value relevance of earnings
has generally increased when assessed using price models. Results also suggest
that discretionary accruals have not reduced, but analysts' forecast accuracy has
increased significantly post-IFRS adoption. Findings are not affected materially
after controlling for moderating factors including jurisdictional differences such
as legal origin, the accounting and auditing enforcement regime, and differences
between domestic GAAP and IFRS. However, these associations are moderated
by the model used for empirical investigation of value relevance and
discretionary accrual effects; they are also moderated by the adoption being
voluntary or mandatory. The findings provide evidence to inform policy
assessments and deliberations of the financial reporting and capital market
effects of adopting IFRS.
Review
14
improved the functioning of capital markets in relation to small firms in insider
economies.
Review
Review
15
. The effects of improved comparability on foreign fund ownership are
primarily driven by foreign global funds, as opposed to foreign regional,
country, and other funds.
Review
Review
16
markets had to adopt IFRS for the preparation of their group accounts, thus
needing also to apply different accounting regulations: IFRS for the group
accounts and European directives for individual accounts. The study investigates
through an empirical association study the impact of the mandatory adoption of
IFRS starting with 2005 on the absolute and relative quality (measured through
value relevance) of financial information supplied by the consolidated accounts
for companies listed on the largest European stock markets (London, Paris, and
Frankfurt stock exchanges). The results show an increase of consolidated
statements quality (value relevance) once IFRS were adopted, thus suggesting
also that the IFRS adoption in Europe led to better complying with the OECD
Corporate Governance Principle of high quality disclosure and transparency.
Moreover, we ascertained an increase in the quality surplus supplied by group
accounts compared to parent company individual accounts once the IFRS
adoption became mandatory for preparing consolidated financial statements
Review
17
require the use of IFRS. Further, resource dependence also trumps nationalistic
pressures against transnational conformity.Findings raise concerns that required
adoption may not always be accompanied by an appropriately supportive
infrastructure; thus, there are implications not only for adoption of IFRS, but
also for the diffusion of other transnational regulation that influences global
business environment.
Review
Stephen Courtenay (2014) outlines that some of the countries that have
adopted IFRS had national accounting standards similar to IFRS prior to
adopting IFRS, while others had national accounting standards divergent from
IFRS. Prior studies on whether or not International Financial Reporting
Standards (IFRS) adoption improves earnings quality have found mixed results.
The study examine the effects of IFRS adoption by taking into account the level
of divergence prior to the adoption of IFRS. We find that countries experience a
greater drop in earnings management when they have a higher level of
divergence from IFRS prior to IFRS adoption. More specifically, high
divergence countries with higher levels of enforcement benefit the most
followed by high divergence countries with lower levels of enforcement. Lower
divergence countries with higher levels of enforcement do not significantly
benefit from IFRS adoption. Lower divergence countries with lower levels of
enforcement do not benefit from IFRS adoption at all. Results support the
contention that countries with lower quality local accounting standards prior to
IFRS adoption benefit more from IFRS adoption.
18
Kousenidis.Dimitrios ,Leventis .Stergios , The impact of IFRS on
accounting quality evidence from Greece,2013, Advances in Accounting
Review
Review
19
linear effects controlled for, there is no observed change in price relevance for
firms in either Code Law or Common Law countries, contradicting the results
from the linear pricing models. The results also suggest that the distribution of
measurement errors becomes more similar across Code Law and Common Law
countries after the adoption of IFRS, removing one difference between these
groups. Thus, IFRS enhances comparability, an inference that would not be
possible had we confined the analysis only to linear pricing models.
20
IFRS-1
On 19 June 2003, the International Accounting Standards Board issued
IFRS 1, First-Time Adoption of International Financial Reporting
Standards. IFRS 1 sets out the procedures that an entity must follow when
it adopts IFRS for the first time as the basis for preparing its general
purpose financial statements.
IFRSs are increasingly becoming a truly global accounting framework with
many countries committed to adopting them in the next few years. For
companies, the process of converting to IFRS and preparing their first IFRS
financial statements will be challenging.IFRS-1 deals the first time adoption of
international financial reporting standards. IFRS 1 First-time Adoption of
International Financial Reporting Standards sets out the procedures that
an entity must follow when it adopts IFRSs for the first time as the basis for
preparing its general purpose financial statements
The objective of this Standard is to ensure that first-time IFRS financial
statements contain high quality information that can be prepared at a cost not
exceeding the benefits. IFRS 1 also specifies a number of additional disclosures
for first-time adopters that must be addressed in addition to the normal IFRS
presentation and disclosure requirements.
If an entity is preparing it's financial reports under an accounting framework
other than international financial reporting standards i.e.(Accounting standards
of their own countries) and decides to change to IFRS then it has to comply with
requirements prescribed by IASB on conversion to IFRS. These requirements
are stated in IFRS-1 (The first time adoption of international financial reporting
standards).
21
Main Features Of IFRS-1
I. The IFRS-1 applies when an entity adopts IFRS for the first time by an
explicit and unreserved statement of compliance with IFRSs.
II. In general,the IFRS requires an entity to comply with each IFRS effective
at the end of its first IFRS reporting period.
a. In particular,IFRS requires an entity to do the following :
The entity should eliminate previous-GAAP assets and liabilities from the
opening balance sheet if they do not qualify for recognition under IFRSs.
For example:
research
start-up, pre-operating, and pre-opening costs
training
advertising and promotion
moving and relocation
If the entity's previous GAAP had recognised these as assets, they are eliminated
in the opening IFRS balance sheet.
22
b. If the entity's previous GAAP had allowed accrual of liabilities for "general
reserves", restructurings, future operating losses, or major overhauls that do not
meet the conditions for recognition as a provision under IAS 37, these are
eliminated in the opening IFRS balance sheet.
d. Deferred tax assets and liabilities would be recognised in conformity with IAS
12.
a. IAS 10 does not permit classifying dividends declared or proposed after the
balance sheet date as a liability at the balance sheet date. In the opening IFRS
balance sheet these would be reclassified as a component of retained earnings.
23
b. If the entity's previous GAAP had allowed treasury stock (an entity's own
shares that it had purchased) to be reported as an asset, it would be reclassified
as a component of equity under IFRS.
24
5. Adjustments required to move from previous GAAP to IFRS at the time
of first-time adoption. These should be recognised directly in retained earnings
or other appropriate category of equity at the date of the transition to IFRSs.
III. The IFRS grants limited exemptions from these requirement on specified
areas where the cost of complying with them exceeds the benefits to users
of financial statements.
IV. The IFRS required disclosures that explain how transition from previous
GAAP to IFRS affected the entities Reported financial position,financial
performance & cash flows.
V. An entity is required to apply IFRS if its Ist financial statements are of a
period beginning on or after 1July2009. Earlier application is encouraged.
25
Example:- XYZ ltd. Decides to adopt IFRS from the Financial year 2011-
12i.e April 2011-12.
REPORTING DATE- It is the date upto which the set of IFRS financial
statements is being prepared i.e 31 March 2012 .
26
IFRS-1 adapts this general principle of retrospective application by adding
limited number of very important exceptions and exemptions. The
exceptions are mandatory whereas exemptions are optional a first time
adopter may choose whether and which exemptions to apply.
1. Optional exceptions.
There are some important exceptions to the general restatement and
measurement principles set out above. The following exceptions are
individually optional, not mandatory:
a. An entity may keep the original previous-GAAP accounting, that is, not
restate:
b. However, should it wish to do so, an entity can elect to restate all business
combinations starting from a date it selects prior to the opening balance sheet
date.
c. In all cases, the entity must make an initial IAS 36 impairment test of any
remaining goodwill in the opening IFRS balance sheet, after reclassifying, as
appropriate, previous GAAP intangibles to goodwill.
27
a. These assets may be measured at their fair value at the opening IFRS balance
sheet date (this option applies to intangible assets only if an active market
exists). Fair value becomes the "deemed cost" going forward under the IFRS
cost model. (Deemed cost is an amount used as a surrogate for cost or
depreciated cost at a given date.)
b. If, before the date of its first IFRS balance sheet, the entity had revalued any
of these assets under its previous GAAP either to fair value or to a price-index-
adjusted cost, that previous-GAAP revalued amount at the date of the
revaluation can become the deemed cost of the asset under IFRS.
c. If, before the date of its first IFRS balance sheet, the entity had made a one-
time revaluation of assets or liabilities to fair value because of a privatisation or
initial public offering, and the revalued amount became deemed cost under the
previous GAAP, that amount (adjusted for any subsequent depreciation,
amortisation, and impairment) would continue to be deemed cost after the initial
adoption of IFRS.
An entity may elect to recognise all cumulative actuarial gains and losses for all
defined benefit plans at the opening IFRS balance sheet date (that is, reset any
corridor recognised under previous GAAP to zero), even if it elects to use the
IAS 19 corridor approach for actuarial gains and losses that arise after first-time
adoption of IFRS. If an entity does not elect to apply this exemption, it must
restate all defined benefit plans under IAS 19 since the inception of those plans
(which may differ from the effective date of IAS 19).
28
2. Mandatory exceptions.
There are also three important exceptions to the general restatement and
measurement principles set out above that are mandatory, not optional. These
are:
The conditions in IAS 39.122-152 for a hedging relationship that qualifies for
hedge accounting are applied as of the opening IFRS balance sheet date. The
hedge accounting practices, if any, that were used in periods prior to the opening
IFRS balance sheet may not be retrospectively changed. This is consistent with
the transition provision in IAS 39.172(b). Some adjustments may be needed to
take account of the existing hedging relationships under previous GAAP at the
opening balance sheet date.
29
SCOPE OF IFRS 1
1.IFRS 1 is applicable to the entity's first set of IFRS financial statements and
each interim financial report for part of the period covered by its first IFRS
financial statements.
30
requirements, having previously presented them as well as another
set of financial statements that contained an explicit and unreserved
statement of compliance with IFRSs
(b) presented financial statements in the previous year in accordance with
national requirements and those financial statements contained an explicit and
unreserved statement of compliance with IFRSs;
or
(c) presented financial statements in the previous year that contained an explicit
and unreserved statement of compliance with IFRSs, even if the auditors
qualified their audit report on those financial statements.
31
RECOGNITON AND PRESENTATION AND
MEASUREMENT DISCLOSURE
Accounting policies
An entity shall use the same accounting policies in its opening IFRS statement
of financial position and throughout all periods presented in its first IFRS
financial statements.
An entity shall not apply different versions of IFRSs that were effective at
earlier dates. An entity may apply a new IFRS that is not yet mandatory if that
IFRS permits early application.
PARAGRAPH 13 :
This IFRS prohibits retrospective application of some aspects of other IFRSs.
These exceptions are set out in paragraphs 1417 .
PARAGRAPH 14 :
An entitys estimates in accordance with IFRSs at the date of transition to IFRSs
shall be consistent with estimates made for the same date in accordance with
previous GAAP (after adjustments to reflect any difference in accounting
policies), unless there is objective evidence that those estimates were in error.
32
PARAGRAPH 15 :
An entity may receive information after the date of transition to IFRSs about
estimates that it had made under previous GAAP. In accordance with paragraph
14, an entity shall treat the receipt of that information in the same way as non-
adjusting events after the reporting period in accordance with IAS 10 Events
after the Reporting Period.
For example, assume that an entitys date of transition to IFRSs is 1 January
20X4 and new information on 15 July 20X4 requires the revision of an estimate
made in accordance with previous GAAP at 31 December 20X3. The entity shall
not reflect that new information in its opening IFRS statement . Instead, the
entity shall reflect that new information in profit or loss (or, if appropriate, other
comprehensive income) for the year ended 31 December 20X4.
PARAGRAPH 16 :
An entity may need to make estimates in accordance with IFRSs at the date of
transition to IFRSs that were not required at that date under previous GAAP. To
achieve consistency with IAS 10, those estimates in accordance with IFRSs shall
reflect conditions that existed at the date of transition to IFRSs. In particular,
estimates at the date of transition to IFRSs of market prices, interest rates or
foreign exchange rates shall reflect market conditions at that date.
PARAGRAPH 17 :
Paragraphs 1416 apply to the opening IFRS statement of financial position.
They also apply to a comparative period presented in an entitys first IFRS
financial statements, in which case the references to the date of transition to
IFRSs are replaced by references to the end of that comparative period.
PARAGRAPH 18 :
An entity may elect to use one or more of the exemptions contained in. An
entity shall not apply these exemptions by analogy to other items.
33
PRESENTATION AND DISCLOSURE
Comparative information
IFRS 1 does not provide exemptions from the presentation and disclosure
requirements in other IFRSs, except that if an entity chooses to include
historical summaries of selected data for periods before the first period for
which they present full comparative information under IFRS, or
comparative information under previous GAAP that is in addition to the
required comparatives under IFRS,International Financial Reporting Standard 1
(IFRS 1), First-Time Adoption of IFRS 7
these summaries and additional comparatives do not need to comply with IFRS.
For example, 10-year trend graphs or tables wouldnt need to be converted to
IFRS. However, where financial statements contain these types of historical
summaries or additional comparative information under previous GAAP, the
entity is required to label the previous GAAP information prominently as not
being prepared under IFRS, and
disclose the nature of the main adjustments that would make it comply with
IFRS. The entity is not required to quantify those adjustments .
34
Explanation of transition to IFRSs
Entities are required to explain how the transition from previous GAAP to IFRS
affected its reported financial position, financial performance, and cash flows .
These explanations help users understand
the impact and implications of the organizations transition to IFRS
how users need to change their analytical models to make the best use of the
organizations information that is now being presented using IFRS
The required explanations are to be done using a series of reconciliations, with
sufficient detail to enable users to understand material adjustments to the balance
sheet and statement of comprehensive income.
The required reconciliations include the following :
a) Reconciliations of its equity reported under previous GAAP to its equity
under IFRS for both of the following dates:
the date of transition to IFRS
the end of the latest period presented in the entitys most recent annual
financial statements under previous GAAP
b) A reconciliation to its total comprehensive income under IFRS for the latest
period in the entitys most recent annual financial statements, starting with total
comprehensive income under previous GAAP for the same period or (if total
comprehensive income wasnt reported) profit or loss under previous GAAP.
c) If the entity recognized or reversed any impairment losses for the first time in
preparing its opening IFRS balance sheet, it is required to include the disclosures
that IAS 36 Impairment of Assets would have required if the entity had
recognized those impairment losses or reversals in the period beginning with the
date of transition to IFRS. This disclosure highlights impairment losses recorded
on transition to IFRS. Without such disclosures, these losses might receive less
attention than impairment losses recorded in earlier or later periods.
35
Additional disclosures
A few final disclosure requirements are as follows:
If an entity presented a statement of cash flows under its previous GAAP, it
must also explain the material adjustments to the statement of cash flows.
If an entity becomes aware of errors made under previous GAAP, the
reconciliations must distinguish the correction of those errors from changes in
accounting policies
If an entity did not present financial statements for previous periods, its first
IFRS financial statements must disclose that fact
International Financial Reporting Standard 1 (IFRS 1), First-Time Adoption of
IFRS
A September 2009 survey of accounting standards used by Global Fortune 500
companies revealed that just less than half of them use IFRS or their home
countries have committed to adopt IFRSs within the next few years. Perhaps
most significant, the percentage of worldwide market capitalization on stock
exchanges has shown a dramatic shift: from just under 50% in 2002, US
exchanges now account for approximately 35% of market capitalization. The
worldwide adoption of IFRSs can only help in this regard.
Conversion to IFRSs also provides an opportunity to assess and realign systems
and improve internal controls. The increased information needs can result in
greater links between finance
and operations, thereby increasing knowledge sharing. We need to view this
change as an opportunity to improve and realign internal systems and improve
teamwork, rather than just as a compliance exercise.
PARAGRAPH 23
An entity shall explain how the transition from previous GAAP to IFRSs
affected its reported financial position, financial performance and cash flows.
36
PARAGRAPH 24
To comply with paragraph 23, an entitys first IFRS financial statements shall
include:
PARAGRAPH 25
The reconciliations required by paragraph 24(a) and (b) shall give sufficient
detail to enable users to understand the material adjustments to the statement of
financial position and statement of comprehensive income. If an entity presented
a statement of cash flows under its previous GAAP, it shall also explain the
material adjustments to the statement of cash flows.
PARAGRAPH 26
If an entity becomes aware of errors made under previous GAAP, the
reconciliations required by paragraph 24(a) and (b) shall distinguish the
correction of those errors from changes in accounting policies
.
37
PARAGRAPH 27
IAS 8 does not deal with changes in accounting policies that occur when an
entity first adopts IFRSs. Therefore, IAS 8s requirements for disclosures about
changes in accounting policies do not apply in an entitys first IFRS financial
statements.
PARAGRAPH 28
If an entity did not present financial statements for previous periods, its first
IFRS financial statements shall disclose that fact.
PARAGRAPH 29
An entity is permitted to designate a previously recognized financial asset or
financial liability as a financial asset or financial liability at fair value through
profit or loss. The entity shall disclose the fair value of financial assets or
financial liabilities designated into each category at the date of designation and
their classification and carrying amount in the previous financial statements.
38
Use of Deemed cost for investment in Subsidiaries, Joint
Ventures and Associates
PARAGRAPH 31
Similarly, if an entity uses a deemed cost in its opening IFRS statement of
financial position for an investment in a subsidiary, jointly controlled entity or
associate in its separate financial statements, the entitys first IFRS separate
financial statements shall disclose:
(a) the aggregate deemed cost of those investments for which deemed cost is
their previous GAAP carrying amount;
(b) the aggregate deemed cost of those investments for which deemed cost is fair
value; and
(c) the aggregate adjustment to the carrying amounts reported under previous
GAAP.
39
Interim financial reports
40
Effective date
Paragraph 34
An entity shall apply this IFRS if its first IFRS financial statements are for a
period beginning on or after 1July 2009. Earlier application is permitted.
Paragraph35
An entity shall apply the amendments in paragraphs D1(n) and D23 for annual
periods beginning on or after1 July 2009. If an entity applies IAS 23 Borrowing
Costs (as revised in 2007) for an earlier period, thoseamendments shall be
applied for that earlier period.
36 IFRS 3 Business Combinations (as revised in 2008) amended paragraphs 19,
C1 and C4(f) and (g). If an
entity applies IFRS 3 (revised 2008) for an earlier period, the amendments shall
also be applied for that earlier period.
Defined Terms
Date of transition to IFRSs
The beginning of the earliest period for which an entity presents full
comparative information under IFRSs in its first IFRS financial statements.
Deemed cost
An amount used as a surrogate for cost or depreciated cost at a given date.
Subsequent depreciation or amortisation assumes that the entity had initially
recognised the asset or liability at the given date and that its cost was equal to
the deemed cost.
Fair value
The amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arms length transaction.
First IFRS financial statements
41
The first annual financial statements in which an entity adopts International
Financial Reporting Standards (IFRSs), by an explicit and unreserved
statement of compliance with IFRSs.
First IFRS reporting period
The latest reporting period covered by an entitys first IFRS financial
statements.
first-time adopter
An entity that presents its first IFRS financial statements.
International Financial Reporting Standards (IFRSs)
Standards and Interpretations adopted by the International Accounting Standards
Board (IASB).
Previous GAAP
42
Discussion and Analysis
Impact of IFRS
The IFRS adoption and convergence efforts impact much more than just the
accounting function. Additional functions that are impacted include the
following:
Information systems
Tax
Treasury
Investor relations
Sales
Human resources
Present scenario
India is one of the over 100 countries that have or are moving towards
IFRS (International Financial Reporting Standards) convergence with a
view to bringing about a uniformity in reporting systems globally,
enabling businesses, finances and funds to access more opportunities.
Indian companies are listed on overseas stock exchanges and have to
recast their accounts to be compliant with GAAP requirements of those
countries.
Foreign companies having subsidiaries in India are having to recast their
accounts to meet Indian & overseas reporting requirements which are
different.
Foreign Direct Investors (FDI), overseas financial institutional investors
(FII) are more comfortable with compatible accounting standards and
companies accessing overseas funds feel the need for recast of accounts in
keeping with globally accepted standards.
43
ICAI has decided to implement IFRS in India. The Ministry of Corporate
Affairs has also announced its commitment to convergence to IFRS by
2011.
When IFRS?
IFRS for public entities in India is applicable from 01/04/2011.
The opening IFRS balance sheet at the date of transition to IFRS
01/04/2010, which is the start date for full comparative information
presentation in IFRS
44
Analysis
If an entity adopts IFRS for the first time in its annual financial statements
for the year ended 31December 2005, what is it required to do?
1. Accounting policies. The entity should select its accounting policies based on
IFRS in force at 31 December 2005. (The exposure draft that preceded IFRS 1
had proposed that an entity could use the IFRS that were in forceduring prior
periods, as if the entity had always used IFRS. That option is not included in the
final standard.)
2. IFRS reporting periods. The entity should prepare at least 2005 and 2004
financial statements and restateretrospectively the opening balance sheet
(beginning of the first period for which full comparative financial
statements are presented) by applying the IFRS in force at 31 December 2005.
a. Since IAS 1 requires that at least one year of comparative prior period
financial information be presented, the opening balance sheet will be 1 January
2004 if not earlier.
b. If a 31 December 2005 adopter reports selected financial data (but not full
financial statements) on an IFRS basis for periods prior to 2004, in addition to
full financial statements for 2004 and 2005, that does not
change the fact that its opening IFRS balance sheet is as of 1 January 2004.
45
If an entity is going to adopt IFRS for the first time in its annual financial
statements for the year ended31 December 2005, is any disclosure required
in its financial statements prior to the 31 December 2005statements?
Yes, but only if the entity presents an interim financial report that complies with
IAS 34. Explanatory information and
a reconciliation are required in the interim report that immediately precedes the
first set of IFRS annual financial
statements. The information includes changes in accounting policies compared
to those under previous local GAAP.
46
Summary
47
existing accounting information system. Moreover, the extent of the impact on
systems was often underestimated.
Increased disclosures needed to meet requirements may be just as
cumbersome (or more so) than the necessary changes to the statements
themselves and the underlying transaction recording.
To conclude our look at IFRS 1, here are some actions that can be prioritized, in
order to take advantage of opportunities:
International Financial Reporting Standard 1 (IFRS 1), First-Time Adoption of
IFRS 9
assess training needs and determine plans
analyze IFRSs and their impact on reporting requirements
evaluate and budget for the costs and benefits of transition
plan the change-management strategy
analyze the required changes to accounting information systems
look for opportunities to incorporate IFRS into operations and existing
systems, and
centralize accounting systems to streamline
review key performance measures and assess required changes
redevelop a communication strategy to address expanded information
begin educating investors and other stakeholders on how IFRS will impact
your financial reporting
But there are also significant benefits that result from IFRS conversion,
including the potential for:
streamlined reporting and the creation of cost efficiencies for global companies
improved communication between international subsidiaries
increased staff mobility across international borders
improved acquisition opportunities
improved access to capital markets
48
Conclusion
Looking at the present scenario of the world economy and the position of India
convergence with IFRS can be strongly recommended. But at the same time it
can also be said that this transition to IFRS will not be a swift and painless
process.. Implementing IFRS would rather require change in formats of
accounts, change in different accounting policies and more extensive disclosure
requirements.
Therefore all parties concerned with financial reporting also need to share the
responsibility of international harmonization and convergence. Keeping in mind
the fact that IFRS is more a principle based approach with limited
implementation and application guidance and moves away from prescribing
specific accounting treatment all accountants whether practicing or non-
practicing have to participate and contribute effectively to the convergence
process. This would lead to subsequent revisions from time to time arising from
its global implementation and would help in formulation of future international
accounting standards.
A continuous research is in fact needed to harmonize and converge with the
international standards and this in fact can be achieved only through mutual
international understanding both of corporate objectives and rankings attached to
it.
49
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Websites
www.iasplus.com
www.ifrs.org
www.ey.com
www.pwc.com
www.webcrawler.com
www.icai.org
www.icwai.org
http://www.questia.com/favicon.png
53
Abbreviations
EU-European Union
FDI-Foreign Direct Investment
GAAP- globally acceptable accounting principles.
IAS- International Accounting Standards
IASB- International Accounting Standard Board
IFRIC- Interpretations originated from the International
Financial Reporting Interpretations Committee
IFRS- international financial reporting standards
IFRS-1- first time adoption of international financial
reporting standards
SIC- Standing Interpretations Committee
54