COMPARISON OF INDIAN ACCOUNTING STANDARDS AND IFRS

PRESENTED BY:MANISHA DHEER M.COM(H) SEM 2 13

COMPLIANCE WITH THE ACCOUNTING STANDARDS

WHEN? The Accounting Standard will be mandatory from the respective date(s) mentioned in the Accounting Standards(s). In the event of any deviation from the AS, it will be their duty to make adequate disclosures in their audit reports so that the users of Financial Statements may be aware of such deviation. WHO? Ensuring compliance with the AS while preparing the Financial Statements is the responsibility of the management of the enterprise. Financial Statements cannot be described as complying with the AS unless they comply with all the requirements of each applicable standard.

COMPARISON OF INDIAN ACCOUNTING STANDARDS AND IFRS

GENERAL COMPARISON

BASIS

INDIAN ACCOUNTING STANDARDS

IFRS

1. ISSUING Accounting standards in International Financial India are issued by the Reporting Standards BODY
Institute of chartered (IFRS) are issued by accountants of India International (ICAI). Accounting Standards Board (IASB), London. The ICAI, recognizing the need to harmonize the diverse accounting policies and practices, constituted an Accounting Standards Board (ASB) on 21st April, 1977.

2. CONSTITU TION

The International Accounting Standards Board (IASB), based in London, began operations in 2001.

BASIS 3. REPRESENTA TION

INDIAN ACCOUNTING STANDARDS

IFRS

Indian Accounting Standards International Financial are represented as AS-( ) or are Reporting Standards are even referred to as Indian represented as IFRS/IAS-( ). GAAP.

COMPARISON REGARDING BALANCE SHEET PRESENTATION

COMPONENTS OF FINANCIAL STATEMENTS

INDIAN ACCOUNTING STANDARDS
The framework for the Preparation and Presentation of Financial Statements issued by the ICAI stipulates that a complete set of Financial Statements consists of the following: 1. BALANCE SHEET, 2. PROFIT & LOSS ACCOUNT (Income Statement), 3. CASH FLOW STATEMENT, 4. ACCOUNTING POLICIES AND EXPLANATORY NOTES.

IFRS
As per IAS-1, a complete set of Financial statements includes the following components:1. BALANCE SHEET, 2. PROFIT & LOSS ACCOUNT, 3. A STATEMENT OF CHANGES IN EQUITY, 4. CASH FLOW STATEMENT, 5. ACCOUNTING POLICIES AND EXPLANATORY NOTES,

BASIS

INDIAN ACCOUNTING STANDARDS

IFRS

CLASSIFICATION a) Fixed Assets; b) Investments; OF ASSETS

a) Current Assets; and b) Non-Current Assets

c) Current Assets; d) Loans & Advances. a) Current Liabilities; and c) Current Liabilities and b) Non-Current Provisions. Liabilities. Indian Companies are not There is no specific allowed to hold their mention of treasury own shares as stock. investment.

CLASSIFICATION a) Secured Loans; OF LIABILITIES b) Unsecured Loans;

TREASURY STOCK

BASIS SHARE ISSUE EXPENSES

INDIAN ACCOUNTING STANDARDS

Share issue expenses to the extent not written off are presented in the Balance Sheet as Miscellaneous expenses to the extent not written off

IFRS
Share issue expenses are shown as a deduction in the shareholders equity section in the Balance Sheet.

COMPARISON REGARDING P & L ACCOUNT PRESENTATION

BASIS

INDIAN ACCOUNTING STANDARDS

IFRS

APPROACH

Indian GAAP has adopted The approach is same all inclusive approach. as that adopted by the Indian GAAP.

COMPREHENSIVE Indian firms are not IAS requires firms to required to present a present a statement of INCOME
Statement Comprehensive Income. of Comprehensive Income.

EXTRAORDINARY Indian firms are required to IAS prohibits present extraordinary items presentation of ITEMS

the any separately from ordinary item as extraordinary items in the P & L Account. item in the P & L Account.

DISCLOSURE OF ACCOUNTING POLICIES (AS-1 vs IAS-1)

ACCOUNTING POLICIES
Accounting policies refer to specific accounting principles and the method of applying those principles adopted by the enterprise in preparation and presentation of the financial statements.

BASIS ACCOUNTING POLICY

INDIAN ACCOUNTING STANDARDS

Accounting policy refers to specific accounting principles and the methods of applying these principles adopted by an entity in the preparation and presentation of Financial Statements. AS-1 stipulates that disclosure of significant accounting policies should form a part of Financial Statements.

IFRS

Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

DISCLOSURE

IAS-1, Presentation of Financial Statements, requires an entity to disclose the summary of significant accounting policies in a separate component of the Explanatory Notes.

VALUATION OF INVENTORIES (AS-2 vs IAS-2)

DEFINITION
Inventories consist of the following: Held for sale in the ordinary course of business (Finished Goods) In the process of production of such sale (Raw material and WorkIn-Progress) In the form of materials or supplies to be consumed in production process or in the rendering of services (stores, spares, raw material, consumables).

The OBJECTIVE of this standard is to formulate the method of computation of cost of inventories/stock, determine the value of closing stock/inventory at which, the inventory is to be shown in balance sheet till it is not sold and recognized as revenue.

BASIS NATURE OF INVENTORIES

INDIAN ACCOUNTING STANDARD

IFRS

Inventories are assets Accounting principles held for sale or in the are the same as those process of production for stipulated in AS-2 sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

principles MEASUREMENT Inventories of Finished Accounting goods and Work-In- are the same as those OF FINISHED GOODS AND W-I-P Progress should be stipulated in AS-2 measured at cost or net realizable value, whichever is lower.

CASH FLOW STATEMENT (AS-3 vs IAS-7)

INTRODUCTION
Cash Flow Statement is additional information to user of Financial Statement. Cash Flow Statement is a statement showing the inflows and outflows of cash and cash equivalents for a business over a financial period. This statement is one of the tools for assessing the liquidity and solvency of the enterprise. The inflows and outflows are classified under the headings of: CASH FLOW FROM OPERATING ACTIVITIES; CASH FLOW FROM INVESTING ACTIVITIES; and CASH FLOW FROM FINANCING ACTIVITIES.

BASIS INTEREST AND DIVIDEND RECEIVED DISCLOSURE OF EXTRAORDINARY ITEMS CASH CREDIT AND BANK OVERDRAFT

INDIAN ACCOUNTING STANDARDS

Interest and dividend received are cash flows from investing activities. AS-3 requires the separate disclosure of extraordinary items. AS-3 does not make explicit distinction between bank borrowings and bank overdraft.

IFRS

IFRS/IAS-7 allows interest and dividend paid or received as operating cash flows. IFRS/IAS-7 does not require disclosure of extraordinary items. Under IFRS/IAS-7, bank borrowings are considered financing activities and bank overdrafts are considered part of cash equivalents.

CASH FLOW PRESENTATION

AS-3 allows use of either the direct or indirect method for presentation of cash flow statement.

Accounting principle is same as that stipulated in the Indian GAAP.

CLASSIFICATION Cash flows are OF CASH FLOWS classified as cash flow from operating, investing and financing activities.

Accounting principle is same as that stipulated in the Indian GAAP.

CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE (AS-4 vs IAS-10)

INTRODUCTION
Objective of this Standard is to prescribe the accounting of contingencies and the event, which takes place after the balance sheet date but before approval of balance sheet by board of directors. CONTINGENCY Contingency refers to Existing conditions or situation; Result of which is not known on the balance sheet date; Result of which would be known only on happening or non-happening of certain events in future; Result may be either a gain or loss. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE are those which occur between the balance sheet date and on which financial statements are approved by competent authority.

BASIS
PROPOSED DIVIDEND

INDIAN ACCOUNTING STANDARDS

Under AS-4, proposed dividend is shown in balance sheet as liability and thus treated as adjusting event.

IFRS

Proposed dividend after balance sheet date but before the date of the financial statements is nonadjusting event under IFRS/IAS-10

CLASSIFICATION OF EVENTS

Events are classified as Accounting principle adjusting and non- is the same as that adjusting events. stipulated in the Indian GAAP.

NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGE IN ACCOUNTING POLICIES (AS-5 vs IAS-8)

INTRODUCTION
The OBJECTIVE of this Accounting Standard is prescribing the criteria for certain items in the Profit & Loss Account so that comparability of the Financial Statements can be enhanced. This accounting standard also deals with change in accounting policy, accounting estimates and extraordinary items.

BASIS
PRIOR PERIOD ITEMS

INDIAN ACCOUNTING STANDARDS

AS-5 requires prior period items to be included in the determination of net profit or loss for the current period. As per AS-5, any change in accounting policy should be shown in the financial statements of the period in which such change is made. Adjustments should be made prospectively.

IFRS

IAS 8 requires retrospective restatement of prior period figures by restatement of opening balances of assets, liabilities and equity for the earliest period practicable. In case of change in accounting policy IAS 8 requires retrospective effect to be given by adjusting opening retained earnings. Same as AS-5.

CHANGE IN ACCOUNTING POLICIES

CHANGE IN ACCOUNTING ESTIMATES

DEPRECIATION ACCOUNTING (AS-6 vs IAS-16)

INTRODUCTION
Depreciation is loss in the value of an asset. It is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use and passage of time. It is distribution of total cost of assets over its useful life.

BASIS CHANGE IN METHOD OF DEPRECIATION

INDIAN ACCOUNTING STANDARDS

Under AS-6, any change in depreciation method is treated as a change in accounting policy.

IFRS

Under IAS-16, it is treated as change in estimate.

CHARGE
METHOD OF DEPRECIATION COMMENCEMENT OF DEPRECIATION

AS-6 allows the depreciation on revalued value of the assets.

GAAP does not prescribe any specific method of depreciation. An entity should charge depreciation from the date the asset is ready for use.

IAS-16 allows fair value accounting for fixed assets.

Same as AS-6.

Same as AS-6.

CONSTRUCTION CONTRACTS (AS-7 vs IAS-11)

INTRODUCTION
Construction Contract is a contract specifically negotiated for the construction of an asset or combination of assets closely interrelated or interdependent and includes: Contracts for rendering of services which are directly related to the construction of assets; Contract for destruction of restoration of asset and the restoration of the environment following the demolition of asset. The primary OBJECTIVE of this accounting standard is the allocation of Contract Revenue and Contract Cost to the accounting period in which construction work is performed.

BASIS
VALUATION

INDIAN ACCOUNTING STANDARDS

IFRS

AS 7 does not refer to Contract Revenue fair value and states under IAS 11 is that Contract revenue is measured at the fair measured at the value of the consideration consideration received received or receivable or receivable. Indian GAAP has taken the as earned approach to revenue recognition. The accounting principle is same as stipulated in Indian GAAP.

ACCOUNTING APPROACH

REVENUE RECOGNITION (AS-9 vs IAS-18)

INTRODUCTION
Revenue means gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of an enterprise such as: The sale of goods; Rendering of services; Use of the enterprise resources by others yielding interest, dividend and royalties.

The standard explains when the revenue should be recognized in P & L Account and also states the circumstances in which revenue recognition can be postponed.

BASIS METHOD

INDIAN ACCOUNTING STANDARDS

Revenue from rendering of services can be recognized on proportionate completion method or completed service method. AS-9 does not contain any provision for Revenue Swaps. An enterprise recognizes revenue from sale or service transactions when the performance requirements are satisfied.

IFRS

The revenue recognition from rendering of services is done on the basis of percentage of completion method.

REVENUE SWAPS

IAS-18 contains the provisions for Revenue Swaps. Same as AS-9.

RECOGNITION OF REVENUE FROM SALE OF GOODS OR SERVICES

ACCOUNTING FOR FIXED ASSETS (AS-10 vs IAS-16)

INTRODUCTION
Fixed Asset is an asset, which is: Held with intention of being used for the purpose of producing or providing goods and services; Not held for sale in the normal course of business; Expected to be used for more than one accounting period.

BASIS

INDIAN ACCOUNTING STANDARDS

IFRS

REVALUATION OF AS-10 allows revaluation. FIXED ASSETS MEASUREMENT AT INITIAL RECOGNITION

An enterprise initially recognizes an item of fixed asset at the cost of acquisition plus incidental charges incurred to make the asset ready for use. All costs directly attributable to the acquisition of the asset should be included in the acquisition costs

IAS-16 also allows revaluation but with detailed guidelines. Same as AS-10

ACQUISITION COSTS

Same as AS-10.

EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (AS-11 (Revised 2003) vs IAS-21)

INTRODUCTION
Transactions denominated in a foreign currency or that require settlement in a foreign currency are called Foreign Currency Transactions. NEED: In India, Rupee is the reporting currency, so all the transactions are recorded in Rupee, even the Foreign Currency Transactions. The need of accounting standard arises which will prescribe the procedures and principles for translation of financial statements which are in foreign currency into Indian currency.

BASIS COVERAGE OPERATIONS

INDIAN ACCOUNTING STANDARDS

AS-11 (Revised) covers the Forward Contract /Hedging AS-11 (Revised) provides separate treatment for integral and non-integral operations.

IFRS

IAS-21 does not cover Forward Contracts /Hedging The revised IAS 21 makes no distinction between an integral foreign operation and non-integral foreign operation.

CURRENCY

There is no concept of functional currency under AS 11.

Revised IAS 21 requires an entity to determine functional currency and measure results and financial position in that currency.

RECORDING OF FOREIGN CURRENCY TRANSACTION S

Foreign currency Same as AS-11 transactions should be recorded in the reporting currency using the exchange rate at the date of transaction.

ACCOUNTING FOR GOVERNMENT GRANTS (AS-12 vs IAS-20)

INTRODUCTION
Government Grants are assistance by the Govt. in the form of cash or kind to an enterprise in return for past or future compliance with certain conditions. Sometimes called as Subsidies, cash incentive, etc.

BASIS MEASUREMENT

INDIAN ACCOUNTING STANDARDS

IFRS

AS-12 does not state IAS-20 talks about about fair value measurement of nonmeasurement of non- monetary grants either at monetary grants. fair value or at acquisition cost. Refund of grant is treated Refund of grant is treated as extraordinary item as as change in estimate as per AS-12 per IAS-20. An enterprise recognizes Same as AS-12. a govt. grant only when there is a reasonable assurance that it will comply with the conditions attached and the enterprise has earned the benefit and there is certainty that it will be collected.

REFUND

RECOGNITION PRINCIPLE

ACCOUNTING FOR INVESTMENTS (AS-13 vs IAS-32,39,40)

BASIS

INDIAN ACCOUNTING STANDARDS AS-13 covers all the investments like investment in property, investment in subsidiary, investment in associates and investment in financial instruments.

IFRS There are 3 IFRS corresponding to AS-13, i.e. IAS-32, IAS-39 and IAS-40 which are more comprehensive. IAS-40 deals in investment in property; IAS-32 and IAS39 deals in financial instruments. IAS-39 classifies financial instruments into 4 categories.

SCOPE

CLASSIFICATION

AS-13 classifies investments into 2 categories Current investments and Long term investments.

An enterprise has the MEASUREMENT OF An investment property (e.g. Building) is measured option to carry investment INVESTMENT IN at cost less accumulated property either at cost or PROPERTY depreciation. fair value.

ACCOUNTING FOR AMALGAMATION (AS-14 vs IFRS-3) {IFRS-3 supersedes IAS-22}

INTRODUCTION
AMALGAMATION means as amalgamation as per the provision of Companies Act, 1956 or any other law applicable to Companies. Amalgamation is a restructuring phenomenon in which two or more companies are liquidated and a new company is formed to acquire business. As the Transferee Company (purchasing company) is purchasing the business of Transferor Company, the transferee company shall pay purchase consideration to the transferor company.

BASIS ACCOUNTING METHOD VALUATION OF ASSETS & LIABILITIES GOODWILL

INDIAN ACCOUNTING STANDARDS

AS-14 allows both pooling of Interest Method and Purchase Method. AS-14 requires valuation at carrying value. AS-14 requires negative goodwill to be credited to Capital Reserve. AS 14 contains no such similar provision.

IFRS

IFRS-3 allows only Purchase Method.

IFRS-3 requires valuation of assets & liabilities at fair value. IFRS-3 requires recognition of negative goodwill immediately in P & L Account. IFRS 3 requires valuation of Financial Assets to be dealt with as per IAS 39.

VALUATION

EMPLOYEE BENEFITS (AS-15 {Revised 2005} vs IAS-19)

INTRODUCTION
Employee Benefits are all forms of consideration given by an enterprise directly to the employee or their spouses, children or other dependents, to others such as trust, insurance companies in exchange of service rendered by employee.

BASIS TERMINATION BENEFITS

INDIAN ACCOUNTING STANDARDS

AS-15 recognizes termination benefits as a liability and an expense only when (a) The employer accepts the offer; and (b) The amount can be reasonably estimated.

IFRS

IAS-19 provides that an enterprise should recognize termination benefits as a liability and an expense when, and only when, the enterprise is demonstrably committed to either (a) Terminate the employment of an employee or group of employees before the normal retirement date; or (b) Provide termination benefits as a result of a offer made in order to encourage voluntary redundancy.

SEGMENT REPORTING (AS-17 vs IFRS-8)

INTRODUCTION
Segment reporting helps users of financial statements To better understand the performance of the enterprise. To better assess the risks and returns of the enterprise. To make more informed judgments about the enterprises as whole. Business segments in Indian Companies
Soap & Detergents; Personal products; Foods; Beverages; and others Banking operations; treasury operations; and Non-banking operations

Hindustan Lever Limited SBI Limited

BASIS

INDIAN ACCOUNTING STANDARDS

AS-17 applies to listed as well as unlisted enterprises with an annual turnover exceeding Rs. 50 Crores.

IFRS

SCOPE

IFRS-8 applies to enterprises whose equity or debt securities are publicly traded, including those in the process of issuing equity or debt securities in a public securities market. IFRS-8 does not prescribe the accounting policies to be used.

PREPARATION

Under AS-17, segment information should be prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the enterprise as a whole.

SEGMENTATION

Business segments and geographical segments.

Accounting Principles are substantially same as those stipulated in AS-17.

Accounting Principles are substantially same as those stipulated in AS-17.

REPORTING FORMAT

Information is provided using 2 formats-Primary Reporting Format and Secondary Reporting Format.

RELATED PARTY DISCLOSURE (AS-18 vs IAS-24)

INTRODUCTION
A Related Party is any party that controls or can significantly influence the management or operating policies of the company during the reporting period. NEED:- Related party relationships affects the volume and decision of business of one enterprise for the benefit of other enterprise. So, disclosure of related transaction is essential for proper understanding of financial performance and financial position of enterprise.

BASIS

INDIAN ACCOUNTING STANDARDS

Parties are considered to be related if at any time during the reporting period one party has ability to control or influence the other party in making financial or operating decisions.

IFRS

RELATED PARTY

The list of related parties is broader in IAS-24 as it also includes Post employment benefit plans of the enterprise or of any other entity, which is a related party of the enterprise.

SCOPE

AS-18 excludes state- Under IAS-24, statecontrolled enterprise controlled entities are from related party. within the scope of related party disclosure. The reporting enterprise should disclose the transactions with the related parties in a specified format. Accounting Principles are substantially same as those stipulated in AS18.

DISCLOSURE OF RELATED PARTY TRANSACTION

ACCOUNTING FOR LEASES (AS-19 vs IAS-17)

BASIS

INDIAN ACCOUNTING STANDARDS

AS-19 is not applicable to lease agreement to use land. AS 19 requires assets given on operating lease to be presented in Balance Sheet under Fixed Assets. AS 19 mandates such separate disclosure.

IFRS

SCOPE PRESENTATION

IAS-17 is applicable to lease agreement to use land. IAS 17 requires assets given on operating leases to be presented in the Balance Sheet according to the nature of the asset. IAS 17 does not require any separate disclosure for assets acquired under finance lease segregated from assets owned. Classification of leases is same as the classification in AS-19

DISCLOSURE

CLASSIFICATION OF LEASE

Leases are classified as Finance lease and Operating lease

EARNING PER SHARE (AS-20 vs IAS-33)

BASIS

INDIAN ACCOUNTING STANDARDS

Share application money pending allotment on the balance sheet date being utilized in the business of the enterprise is treated as potential equity shares as per AS-20 AS-20 requires disclosure of basic and diluted EPS both in parent separate financial statement and consolidates financial statement. AS-20 provides guidance on the basis of apportionment of profits over different classes of equity shares.

IFRS

APPLICATION MONEY PENDING ALLOTMENT

IAS 33 does not deal with the treatment of application money held pending allotment.

DISCLOSURE

IAS-33 requires disclosure only in consolidated financial statements.

APPORTIONMENT OF PROFITS

IAS-33 is silent about this.

CONSOLIDATED FINANCIAL STATEMENTS (AS-21 vs IAS-27)

BASIS

INDIAN ACCOUNTING STANDARDS

As per AS-21, Control includes indirect control which may exist without majority holding.
Under AS 21, it is not mandatory to prepare CFS. CFS are required in addition to, not in lieu of, separate financial statements.

IFRS

CONTROL

IAS-27 defines control as the power to govern the financial and operating policies of an enterprise.
Under IAS 27, it is mandatory to prepare CFS and an entity should prepare separate financial statements in addition to CFS only if local regulations so require. Accounting principles are same as those stipulated in AS-21.

REQUIREMENTS

UNIFORM ACCOUNTING POLICY

CFS should be prepared using uniform accounting policies for like transactions and other events in similar circumstances.

REFERENCES
Rawat, D.S. (2010). Students Guide To Accounting Standards. New Delhi: Taxmann. Bhattacharyya, Asish K. (2006). Indian Accounting Standards. New Delhi: Tata McGraw Hill. www.pwc.com www.icai.org.in