Overview of IFRS Ind-AS – the new Indian GAAP
Overview of Ind-AS
IFRS, the Global Revolution More than 100 countries require, permit, or are converging to IFRS All major capital markets are changing…. even the US? India
Converging to IFRS
US
Converging to IFRS
UK
IFRS for listed
France
IFRS for listed
Canada
Converging to IFRS
Germany
IFRS for listed
Japan
Converging to IFRS
Spain
IFRS for listed
Switzerland IFRS or US GAAP Australia
IFRS (adapted)
Countries converging to IFRS with the goal of adoption Countries that require or permit IFRS Countries with no current plan to adopt Slide 2
Overview of Ind-AS
Current International Financial Reporting Structure STANDARDS
International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS)
International Financial Reporting Interpretations Committee (IFRIC) And Standing Interpretation committee (SIC)
Exposure Drafts and Draft Interpretation
Almost 3,000 pages and increasing !!!
Type
Number
IFRS
9 (9)
IAS
41 (29)
IFRIC
19 (16)
SIC
32 (11)
Slide 3
Overview of Ind-AS
Preface to IFRS 1. Objectives • A single set of high quality, enforceable global accounting standards • Work with various national standard Setters for convergence 2. Scope and Authority of IFRS • Designed for profit oriented enterprises • General purpose financial statements • Bold and plain type, have equal authority 3. Due Process 4. English Language
Slide 4
Overview of Ind-AS
IASC Constitution – the current International Financial Reporting Structure Trustee Appointments Advisory Group
National Standard Setters and other interested parties
SAC
IASC - International Accounting Standards Committee.
IFRIC
Slide 5
Overview of Ind-AS
Journey from Indian GAAP ….. to IFRS... future Indian GAAP*
Slide 6
Overview of Ind-AS
IFRS Proposed Roadmap for India Opening balance sheet as at April 1* using IFRS-converged accounting standards
2011 • NSE - Nifty 50 companies,
2012 • All insurance companies
2013
2014
• BSE - Sensex 30 companies,
• Companies listed or not, having a net worth between Rs.500 crores and Rs.1000 crores [Note 1]
• Listed companies having a net worth of less than Rs.500 crores [Note 1]
• Companies whose shares or other securities listed outside India;
• All scheduled commercial banks
• Companies listed or not, having a net worth in excess of Rs. 1,000 crores [Note 1]
• Urban co-operative banks having net worth between Rs. 200 to Rs. 300 crores
• Urban co-operative banks having a net worth in excess of Rs. 300 crores
• NBFCs (all other Listed) • NBFCs (other Unlisted) having net worth between Rs. 500 to Rs. 1000 crores
• NBFCs - Nifty 50 or Sensex 30 • NBFCs listed or not, having a net worth > Rs.1,000 crores
Note 1: Companies not covered in the above chart will apply ‘existing Indian accounting standards’ OR voluntarily opt to apply the ‘IFRS-converged accounting standards’.
Slide 7
Overview of Ind-AS
Converged Indian Accounting Standards Ind-AS
Name of Ind-AS
Corresponding to standards issued by IASB Difference between Ind AS & IFRS
IAS / IFRS
Ind-AS 102
First-time Adoption of Indian Accounting Standards Share based Payment
Ind-AS 103 Ind-AS 104
Ind-AS 101
IFRIC
SIC
IFRS 1
Yes
IFRS 2
No
Business Combinations
IFRS 3
Yes
IFRS 4
No
Ind-AS 107
Insurance Contracts Non Current Assets Held for Sale and Discontinued Operations Exploration for and Evaluation of Mineral Resources Financial Instruments: Disclosures
IFRS 7
No
Ind-AS 108
Operating Segments
IFRS 8
No
Ind-AS 1
Presentation of Financial Statements
IAS 1
Yes
Ind-AS 2
Inventories
IAS 2
No
Ind-AS 7
IAS 7
Yes
Ind-AS 10
Statement of Cash Flows Accounting Policies, Changes in Accounting Estimates and Errors Events after the Reporting Period
IAS 10
IFRIC 17
Ind-AS 11
Construction Contracts
IAS 11
IFRIC 12
Ind-AS 105 Ind-AS 106
Ind-AS 8
IFRS 5
No
IFRS 6
No
IAS 8
No No SIC 9
No Slide 8
Overview of Ind-AS
Converged Indian Accounting Standards Corresponding to standards issued by IASB
Ind-AS
Name of Ind-AS
IAS / IFRS
IFRIC
Ind-AS 12
Income Taxes
IAS 12
Ind-AS 16
Property, Plant and Equipment
IAS 16
IFRIC 1
Ind-AS 17
Leases
IAS 17
Ind-AS 18
Revenue
IAS 18
IFRIC 4 IFRIC 13,15*,18
Ind-AS 19
Employee Benefits
IAS 19
Ind-AS 20 Ind-AS 21
Accounting for Government Grants and Disclosure of Government Assistance The Effects of Changes in Foreign Exchange Rates
SIC SIC 21,25
No No
SIC 15,27
No
SIC 31
No
IFRIC 14
IAS 20
Major Difference between converged Indian GAAP & IFRS
Yes SIC 10
IAS 21
Yes Yes
Ind-AS 23
Borrowing Costs
IAS 23
No
Ind-AS 24
Related Party Disclosures
IAS 24
Yes
Ind-AS 27
Consolidated and Separate Financial Statements
IAS 27
Ind-AS 28 Ind-AS 29 Ind-AS 31
Investments in Associates Financial Reporting in Hyperinflationary Economies Interests in Joint Ventures
*IFRIC 15 has not been issued under Ind AS.
SIC 12
IAS 28 IAS 29 IAS 31
No No
IFRIC 7
No SIC 13
No Slide 9
Overview of Ind-AS
Converged Indian Accounting Standards Ind-AS
Name of Ind-AS
Corresponding to standards issued by IASB Difference between converged Indian GAAP & IFRS
IAS / IFRS
IFRIC
IFRIC 2*
Ind-AS 32
Financial Instruments: Presentation
IAS 32
Ind-AS 33
Earnings per Share
IAS 33
Ind-AS 34
Interim Financial Reporting
IAS 34
Ind-AS 36
Impairment of Assets
IAS 36
Ind-AS 37
Provisions, Contingent Liabilities and Contingent Assets
IAS 37
Ind-AS 38
Intangible Assets
IAS 38
Ind-AS 39
Financial Instruments: Recognition and Measurement
IAS 39
Ind-AS 40
Investment Property
IAS 40
SIC
Yes No
IFRIC 10
No No
IFRIC 5,6
No SIC 32
IFRIC 9,16,19
No No Yes
*IFRIC 2 has not been issued under Ind AS.
Slide 10
Overview of Ind-AS
IASB Projects - New Wave of Change 2009 • IFRS 9 Financial
Instruments: Classification and measurement • Business combinations (amendment)
2010 • Joint Ventures • Consolidation • Credit Risk in liability Measurement • Liabilities (IAS 37) • Financial Instruments: − Impairment − Classification − Derecognition Disclosures • Fair value measurement • Financial Statements - Discontinued Operations - Presentation of OCI • PEB-Termination Benefits. • Investment Companies
2011 • FI with characteristics of Equity • Hedging • PEB-Defined Benefit Plans • Emissions trading schemes • Rate regulated activities • Financial Statement Presentation • Revenue Recognition • Income Tax • Insurance • Liabilities (IAS 37 Amendments) • Leases • Replacement of IAS 1 & IAS 7
2012 and after
New standards effective
Of the above some of the standards has already been issued by IASB, to be effective in future period. Slide 11
Overview of Ind-AS
IASB Current projects Accounting Topic
Expected Date of issuance 2010
2011
Consolidation - Replacement of IAS 27
IFRS
- Disclosures about unconsolidated SPEs/structured entities
IFRS
Credit Risk in Liability Measurement (DP has been issued) Derecognition Fair value measurement guidance (ED has been issued in May 2009)
IFRS ED
IFRS
IFRS
Financial instruments (IAS 39 replacement) - Classification and measurement – (ED July 2009) (Phase 1) - Impairment (Phase II) – (ED November 2009) - Hedging (Phase III)
ED and IFRS IFRS ED
IFRS
Financial Statements : Presentation - Discontinued Operation
ED and IFRS
- Presentation of items of other comprehensive income
ED and IFRS
- Replacement of IAS 1 and IAS 7
ED
IFRS
ED
IFRS
- Defined Benefit Plans
ED
IFRS
- Termination Benefits
IFRS
Financial Instruments with characteristics of equity Post Employments Benefits (including pensions)
Slide 12
Overview of Ind-AS
IASB Current projects Accounting Topic Joint Ventures
Expected Date of issuance 2010
2011
IFRS
Revenue Recognition
ED
IFRS
Insurance Contracts (Phase II)
ED
IFRS
Liabilities (IAS 37 Amendments) (ED issued in January 2010)
IFRS
Income Taxes
ED
IFRS
Emissions trading schemes
ED
IFRS
Rate Regulated Activities
IFRS
Slide 13
Overview of Ind-AS
Fundamental Changes •
Full compliance (no qualification)
•
More guidance and all are mandatory
•
Focus on risks and rewards
•
Focus on substance rather than form
•
Investor focused with more disclosures
•
Accounting more closer to business
•
Comparability and transparency
IFRS may not be a solution for the current situation but can provide significant transparency!
Slide 14
Presentation of financial statement Ind AS 1- Presentation of Financial Statements
Presentation of financial statements
Objective The objective of this Standard is to prescribe the basis for presentation of general purpose financial statements, to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. To achieve this objective, this Standard sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.
Slide 16
Presentation of financial statements
Fair presentation and compliance • An entity whose financial statements comply with IFRSs shall make an explicit and
unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs. • An entity cannot rectify inappropriate accounting policies either by disclosure of the
accounting policies used or by notes or explanatory material. • In the extremely rare circumstances in which management concludes that
compliance with a requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity shall depart from that requirement. However the entity is required to make specific disclosures prescribed under Ind AS 1.
Slide 17
Presentation of financial statements
Comparative information • Comparatives required for all numerical information • Comparatives required for narrative and descriptive information when it is
relevant to an understanding of the current period’s financial statement • Additional statement of financial position
When an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements, the entity is required to disclose a statement of financial position as at the beginning of the earliest comparative period.
Slide 18
Presentation of financial statements
Components of financial statements A complete set of financial statements comprises •
The primary statements -
•
Statement of financial position for the period end Statement of comprehensive income for the period Statement of cash flows for the period
Notes, including summary of accounting policies and other explanatory information Note: Ind AS 1 requires the statement of changes in equity to be shown as a part of the balance sheet. An entity may use titles for the statements other than those prescribed in Ind AS 1, however the titles used shall not be misleading. All primary statements of equal prominence Slide 19
Presentation of financial statements
Statement of Financial Position Basis of presentation Classified Balance sheet An entity shall present current and non-current asset, and current and noncurrent liability as separate classification on the face of the statement of financial position Exception to above rule • When a presentation based on liquidity provides information that is reliable and more relevant. • All assets and liabilities are required to be presented in the order of liquidity. Choice driven by type of business • Manufacturers and retailers → current/non-current basis • Financial institutions, banks and real estate companies → liquidity basis Slide 20
Presentation of financial statements
Statement of Financial Position Current vs. Non-current Classification Current asset
Current liability
Expected to be realised, sold or consumed within entity’s normal operating cycle
Expected to be settled within entity’s normal operating cycle
Held primarily for trading purposes
Held primarily for trading purposes
Expected to be realised within 12 months after balance sheet date
Expected to be settled within 12 months after balance sheet date
Unrestricted cash or cash equivalent
No unconditional right to defer settlement for at least 12 months after balance sheet date
An entity shall classify all other assets as non-current.
An entity shall classify all other liabilities as non-current. Slide 21
Presentation of financial statements
Statement of Financial Position Operating cycle Definition “the operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents” • •
Items realised, sold or consumed within operating cycle are current items Operating cycle may be more than 12 months
Slide 22
Presentation of financial statements
Statement of Financial Position Minimum line items • Property, plant and equipment • Investment property
• Held for sale assets and assets
included in disposal groups
• Intangible assets
• Trade and other payables
• Financial assets (other than those
• Provisions
shown on other line items) • Investments accounted for using the
equity method
• Financial liabilities (other than those
shown on other line items) • Current tax assets and liabilities
• Biological assets
• Deferred tax assets and liabilities
• Inventories
• Liabilities included in disposal groups
• Trade and other receivables
• Minority interest
• Cash and cash equivalents
• Issued capital and reserves
attributable to owners of the parent An entity shall present additional line items, headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entity's financial position. Slide 23
Presentation of financial statements
Statement of Financial Position
Slide 24
Presentation of financial statements
Statement of Comprehensive Income Basis of presentation Ind AS 1 allows only the single statement approach.
Application of the requirement to analyse expenses Ind AS 1 requires an entity to present an analysis of expenses recognised in profit or loss using a classification based on their nature and not based on their function within the equity.
Slide 25
Presentation of financial statements
Statement of Comprehensive Income Minimum line items • Revenue • Finance costs • Share of profit or loss of associates
and joint ventures • Tax expense • Discontinued operations • Profit or loss • Profit or loss attributable to:
• Each component of other
comprehensive income by nature • Share of other comprehensive
income of associates and joint ventures • Total comprehensive income
attributable to: - Minority interest - Owners of the parent
- Minority interest - Owners of the parent An entity shall not present any items of income or expense as extraordinary items Slide 26
Presentation of financial statements
Statement of Comprehensive Income Additional line items, headings and sub-totals • • •
•
Required when relevant to an understanding of performance Description and order of line items amended where necessary to explain elements of performance Framework qualitative characteristics of financial statements - Understandability - Relevance - Reliability - Comparability Undefined terms may be used where relevant to an understanding (subject to meeting qualitative characteristics)
Slide 27
Presentation of financial statements
Other Comprehensive Income (‘OCI’) Components of Other Comprehensive Income • • • • •
Changes in revaluation surplus (on account of PPE and intangibles) Actuarial gains and losses on defined benefit plans recognised in full in equity under Ind AS 19 Gains and losses arising from translation of a foreign operation Gains and losses on re-measuring available-for-sale financial assets Effective portion of gains and losses on hedging instruments in a cash flow hedge. All non-owners change in equity are recognised in OCI Components of OCI shall be presented either net of related taxes or at gross of related tax with one amount representing aggregate amount of income tax relating to those components. Items of income and expense are recognised in profit or loss unless standards prescribe or permit otherwise. Slide 28
Presentation of financial statements
Other Comprehensive Income (‘OCI’) ‘Recycling’ of other comprehensive income Reclassifications (‘recycling’) - as required by standards items previously recognised in OCI shall be transferred to Statement of Comprehensive Income Items
Recycled under IFRS?
Remarks
Revaluation of PPE and intangible assets
No
Decrease can only be recognised in OCI if they reverse previous increments for the same asset
FX gains/losses from the translation of foreign operations
Yes
Transfer to P&L required
Gain/losses on revaluation of available-for-sale financial assets
Yes
Transfer to P&L required
Effective portion of gains/losses from cash flow hedges
Yes
Transfer to P&L or include in cost/carrying amount of non-financial asset or liability (basis adjustment)
Slide 29
Presentation of financial statements
Statement of comprehensive income General income statement (by function of expense) • Revenue • Cost of sales Gross Profit • Distribution costs • Administrative expenses • Other income • Other losses/gains (net) Operating Profit • Finance costs (net) Profit before income taxes • Income tax expense Net Profit for the year Attributable to: • Equity holders of the Company • Minority interest
General income statement (by nature of expense) • Revenue • Other income • Changes in inventories • Employee benefits expense • Depreciation and amortization • Transportation expense • Advertising cost • Other losses/gains (net) Operating profit • Finance costs (net) Profit before income taxes • Income tax expense Net Profit for the year Attributable to: • Equity holders of the Company • Minority interest
Presentation of financial statements
Statement of changes in shareholders’ equity • This statement shows movements/ transactions during the reporting period that have
affected the shareholders’ equity. • It is generally tabular in approach with the various categories of equity across the top
common shares, additional paid-in capital, retained earnings, other reserves. • The transactions are listed line by line and include amongst others – net income for
the year, cumulative translation adjustments (if applicable), issue of shares, dividends paid, other movements in shares. • The outcome is a reconciliation in the movement of each category of shareholder’s
equity from one period to the next.
Slide 31
Presentation of financial statements
Statement of changes in shareholders’ equity
Slide 32
Presentation of financial statements
Statement of changes in shareholders’ equity Other disclosures
Slide 33
Presentation of financial statements
Statement of cash flows Cash and cash equivalents •
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
•
Generally, only investments with original maturities of three months or less qualify as cash equivalents. They may also include bank overdrafts. Under Indian GAAP bank overdrafts are excluded from cash and cash equivalents
•
Examples: fixed deposits, Treasury bills, commercial paper etc.
•
Requires disclosure of policy used for determining items treated as ‘cash equivalents’ Slide 34
Presentation of financial statements
Statement of cash flows Direct versus Indirect Method •
Enterprise may choose to report the cash flow from operating activity by using either the direct or the indirect method
•
Reconciliation of net income and net cash flow from operating activity is required to be provided if the direct method is used
Net Cash provided by or used in: •
Operating activities
•
Investing activities
•
Financing activities
•
Net increase (decrease) in cash and cash equivalent
Slide 35
Presentation of financial statements
Notes to financial statements Notes to financial statements comprise of: •
Background of the Company
•
Significant accounting policies
•
Accounting estimates
•
Changes in accounting policies
•
Concentration of risks
•
Schedule of individual material items on B/s, I/s, CF and Sh Equity
•
Explanation of material transaction e.g., acquisition, disposal.
•
Recently issued pronouncements and their implications
Slide 36
Presentation of financial statements
Difference between Ind AS 1 and IAS 1 R Nature of Difference
Ind AS
IFRS
Preparation of profit and loss account
AS 1 allows only the single statement approach.
Two Statement approach.
Preparation of change in equity statement
Ind AS 1 requires the statement of changes in equity to be shown as a part of the balance sheet.
IAS 1 requires preparation of a Statement of Changes in Equity as a separate statement.
Classification of expenses
Ind AS 1 requires only nature-wise classification.
IAS 1 requires an entity to present an analysis of expenses recognised in profit or loss using a classification based on either their nature or their function within the equity.
Classification in Cash flow statement (Other than financial entities) Interest and dividends received Interest paid
Investing Activities
Option - Operating or Investing
Financing Activities
Option - Operating or Financing
Dividends paid
Financing Activities
Option - Operating or Financing
Slide 37
• Accounting Policies,
Changes in Accounting Estimates & Errors
Accounting Policies, Changes in Accounting Estimates & Errors
Selection of Accounting Policy - Hierarchy •
Prescribed Standard or Interpretation – IFRS, IAS, IFRIC, SIC
•
Any relevant Implementation Guidance issued by the IASB for the Standard or Interpretation – (technically not a part of the standards)
•
Guidance for similar or related issue
•
Framework of IFRS
•
Most recent pronouncements of other standard-setting bodies
•
Other accounting literature and accepted industry practices
•
Onus on management - select policy to make financials relevant & reliable
Slide 39
Accounting Policies, Changes in Accounting Estimates & Errors
What’s the big change? Accounting policies change: retrospective application Accounting estimate change: Prospective application •
Change in depreciation method = prospective
Correction of errors: retrospective application Management cannot assert compliance with IFRS if financial statements does not comply with all prescribed accounting standards
Slide 40
Accounting Policies, Changes in Accounting Estimates & Errors
GAAP Differences Nature of Difference
IFRS
Current Indian GAAP
Ind AS
Changes in accounting policy
Changes in accounting policy are accounted for retrospectively. Comparative information is restated, and the amount of the adjustment relating to prior periods is adjusted against the opening balance of retained earnings of the earliest year presented.
The cumulative amount of the change is recognised and disclosed in the income statement in the period of the change. Transition provisions of certain new standards require adjustment of the cumulative amount of the change to opening retained earnings (reserves).
Similar to IFRS
Changes in accounting estimates
Changes in accounting estimates are accounted for in the income statement when identified.
Similar to IFRS. However, the impact of change in depreciation method is determined by retrospectively computing depreciation under the new method, and is recorded in the period of change whereas on revision of asset life, the unamortised depreciable amount is charged over the revised remaining asset life.
Similar to IFRS
Noncompliance with standard
IAS 8 specifically provides that financial statements do not comply with IFRSs if they contain either material errors or immaterial errors made intentionally to achieve a particular presentation of an entity’s financial position, financial performance or cash flows.
No such specific requirement under AS 5.
Similar to IFRS
Accounting Policies, Changes in Accounting Estimates & Errors
GAAP Differences Nature of Difference
IFRS
Indian GAAP
Ind AS
Treatment of Prior period items
IAS 8 requires that except when it is impractical to do so, an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by (i) restating the comparative amounts for the prior period(s) presented in which the error occurred; or (ii) if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.
AS 5 requires prior period items to be included in the determination of net profit or loss for the current period.
Similar to IFRS.
• Events after the balance
sheet date
Events after the Balance Sheet date
Types of Events Adjusting Events Provide evidence about conditions that existed at the Balance Sheet date
Non-adjusting Events Arise after the Balance Sheet date and are indicative of conditions not existing at Balance Sheet date
Examples • Settlement of a court case which confirms that the entity had a present obligation at the Balance Sheet date • Receipt of information indicating that an asset was impaired at the Balance Sheet date • Sale consideration determined after the Balance Sheet date • Discovery of a fraud or an error Examples • Business Combination • Announcement of plan to discontinue • Major purchase of Assets • Destruction • Restructuring • Share transactions • Changes in foreign exchange rates or asset prices Slide 44
Events after the Balance Sheet date
GAAP Differences Nature of Difference
IFRS
Indian GAAP
Ind AS
Adjusting events after the balance sheet date
Adjusting events that occurred after the balance sheet date are events that provide additional evidence of conditions that existed at the balance sheet date and that materially affect the amounts included. The amounts recognised in the financial statements are adjusted to reflect adjusting events after the balance sheet date.
Similar to IFRS.
Similar to IFRS.
Nonadjusting events after the balance sheet date
Non-adjusting events that occur after the balance sheet date are defined as events that are indicative of conditions that arose after the balance sheet date. Where material, the nature and estimated financial effects of such events are disclosed to prevent the financial statements from being misleading.
Non-adjusting events are not required to be disclosed in financial statements but are disclosed in report of approving authority e.g. Directors’ Report.
Similar to IFRS.
Declaration of a dividend relating to the financial year just ended
This is a non-adjusting event. Dividend declared after the balance sheet date but before the financial statements are authorised for issue is not recognised as liability at the balance sheet date.
Dividend proposed relating to the financial year just ended is adjusted in the financial statements even though it is subject to shareholders’ approval at the balance sheet date.
Similar to IFRS.
Slide 45
Overview of IFRS
Indian GAAP v/s IFRS Refer Section - Financial Statements - Page 29 •
Balance Sheet Format
•
Comprehensive Income Statement Format
•
Additional Statements required (OCI / Statement of changes in equity)
•
More Comparatives required
•
Offsetting assets and liabilities
•
Preparation and Presentation (Consolidation)
•
Disclosure of early adoption of new standard
•
Disclosure of Reclassification of Comparative Amounts
•
Exceptional (significant) items
•
Extraordinary items
Slide 46
Thank You
