IFRS Definition

 IFRS (International Financial Reporting Standards) is a set of

accounting standards developed by an independent, not-for-
profit organization called the International Accounting
Standards Board (IASB). The goal of IFRS is to provide a
global framework for how public companies prepare and
disclose their financial statements.
Timelines for Convergence:
Phase 1- Companies covered in this phase will prepare an opening balance
sheet in accordance with IFRS converged standards as of 1 April 2011 and
will follow the IFRS converged standards from this date. Companies
(whether listed or not) which have a net worth of Rs 1000 crores

Phase 2- Companies covered in this phase will prepare an opening balance

sheet in accordance with IFRS converged standards as of 1 April 2013 and
will follow the IFRS converged standards from this date. All companies
(whether listed or not) with net worth in excess of Rs 500 crores but less
than Rs 1000 crores, will be covered in phase 2.

Phase 3- Companies covered in this phase will prepare an opening balance

sheet in accordance with IFRS converged standards as of 1 April 2014 and
will follow the IFRS converged standards from this date. All listed
companies with net worth less than Rs 500 crores, will be covered in phase
3.
Objective & Scope
The Objective of this IFRS is to ensure that an entity’s first IFRS financial
statements, and its interim financial reports for part of the period covered
by those financial statements, contain high information that:

is transparent for users and comparable over all periods presented

provides a suitable starting point for accounting under International
Financial Reporting Standards (IFRS)
can be generated at a cost that does not exceed the benefits to users.
A common financial reporting language is a big step for companies with
businesses across geographic boundaries.
Recognized as “best practice” giving an opportunity to access capital
markets at global level
Companies listed on foreign stock exchanges & reporting financials in
IFRS have distinct advantage.
Cost & Benefits
 Benefits :
 Better resource allocation decisions, more efficient capital markets, lower
cost of capital.
 Enhance level of communication of financial results to analysts, investors
and stakeholders
 A benefit of having one world wide use of financial reporting is that it
makes it easier to compare the financial position of different companies in
different countries. Also, it makes it easier for multi-national companies
who have to report two different statements: one for GAAP and one for
IFRS.
 The most obvious and beneficial aspect of adopting IFRS is consistency.

 Costs :
 Collecting, processing, verifying, and disseminating information, litigation
 Educating preparers, managers, analysts, and revising analytical tools
Challenges in the Convergence with
IFRS faced by India
involves an overall change in not only the perspective but also the very
objective of accounting in the country
financial reporting issues and extend to various significant business and
regulatory matters like, structuring of ESOP schemes, training of
employees, tax planning, modification of IT system, compliance with debt
covenants and so on
investors understand the shift from Indian GAAP to IFRS
reluctance in India to adopt FAIR  VALUE approach in measurement of
various assets and liabilities where as IFRS is based on the fair value
approach.
complexities of the recognition and measurement requirements and the
extent of disclosures required by IFRS on different types of entities that are
public interest and other than public interest entities
Risks involved in Introducing IFRS
in India
 complexity with the introduction of concepts such as present value and fair
value

 the IFRS do not recognize the adjustments that are prescribed through
court schemes and consequently all such items will be recorded through
income statement

 In IFRS framework, treatment of expenses like premium payable on

redemption of debentures, discount allowed on issue of debentures,
underwriting commission paid on issue of debentures etc is different than
the present method used.

 difficult for the small firms and the accounting companies to keep pace
with the process of convergence with IFRS
Difference between IGAAP & IFRS
In IGAAP, The Indian Companies Act does not prescribe a particular
format

IFRS does not prescribe a particular format. However, expenditure must

be presented in one of two formats (function or nature). Certain items must
be presented on the face of the income statement

IFRS doesn't use historical cost

In IGAAP, Schedule VI to the Companies Act, 1956 specifies Indian

Rupees as the reporting currency.

IFRS Requires the measurement of profit using the functional currency.

Entities may, however, present financial statements in a different currency
 Subject IFRS IGAAP
Property, plant Valuation: At Fair value / Valuation: At historical cost
and equipment historical cost less accumulated less accumulated depreciation
depreciation
Depreciation Rate of depreciation: As per Rate of depreciation: As per
economic useful life of Schedule XIV of the
respective component of PPE. Companies Act. The residual
The residual value to be value considered is 5% of gross
considered 5% of gross value value.
Method of depreciation: Method of depreciation:
Straight line method over the Building and plant &
useful life of the assets machinery - straight line
method ; other assets - written
down value method. The
residual value considered is 5%
of gross value.
Financial liabilities/ Borrowings are to be Borrowings are
Borrowings classified between classified between
current and non- secured loan and
current . Also liabilities unsecured loan.
for long term borrowings
which are payable
within 12 months from
balance sheet date need
to be grouped in current
asset
Preparation of IFRS Financial
Statement
Reclassification of financial statement items as per Indian GAAP into
classification requires as per IFRS.

Reclassification of balance sheet items as current and non-current based on

their realization
Regrouping of balance sheet items as per IFRS requirements.
- Regrouped short term liquid mutual fund investments to cash and cash
equivalent in IFRS financial statement
- Loans and advance as per IFRS reclassed to (1) Loans/Advance
receivable (2) Other financial assets (3) other assets (4) Receivable from
associates.
- Current liabilities as per IFRS reclassed to (1) trade payable (2) other
financial liabilities (3) other liabilities (4) payable to associates
Regrouped expenses as per their function from current practice of
disclosing them by their nature (depreciation, salary etc) In IFRS All the
expenses has to be shown separately in COGS, S&D, Admin etc
IFRS adjustment

Fair valuation of Land & Buildings

Discounting of Long term Provisions
Deferred tax assets/ deferred tax liability as per balance sheet approach
instead of P&L approach as practice currently as per IGAAP

Conversion of IGAAP Consolidated Account into IFRS

IGAAP is converted into IFRS by passing adjustment entries in PPE,

Retained earnings, Investment, Provisions etc.
Conversion of financial statements of CG and its Indian subsidiaries to
IFRS.
Conversion of financial statements of foreign subsidiaries from their
respective local GAAP to IFRS
 Translation to INR
Consolidation of financial statements of foreign subsidiaries.
Total consolidation for CGL group
Each subsidiary to prepare financial statements in their
respective local GAAP, wherever mandatory in their
respective countries
Discussion with local auditors on conversion policies as per
CGL group policies.
Conversion from local GAAP to IGAAP (till FY 2010-11)
Annual conversion from local GAAP to IFRS (till FY 2010-
11)
CONCLUSION
 Looking at the present scenario of the world economy and the position of
India convergence with IFRS can be strongly recommended

 Implementing IFRS would rather require change in formats of accounts,

change in different accounting policies and more extensive disclosure
requirements

 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

 IFRS is more a principle based approach with limited implementation and

application guidance