AFTERMATHS OF IFRS

ON INDIAN
CORPORATES
INTRODUCTION
IFRS is an accounting framework that establishes
recognition, measurement, presentation and disclosure
requirements relating to transactions and events that are
reflected in the financial statements. IFRS was
developed in the year 2001 by the International
Accounting Standards Board (IASB) in the public
interest to provide a single set of high quality,
understandable and uniform accounting standards.
NEED OF IFRS
 To make a common platform for better understanding of
accounting, internationally.
 Synchronization of accounting standards across the
globe. 
 To create comparable, reliable, and transparent financial
statements.
 To facilitate greater cross-border capital raising and
trade.
 To having company-wide one accounting language
which have subsidiaries in different countries.
SUGGESTIVE GUIDELINES
 Understanding and analyzing the impact of IFRS on
financial performance
 Obtaining the new data required and adapting systems to
provide it
 Finding the resources and expertise needed to make the
changes
 Meeting employee training and knowledge sharing needs

 Aligning systems for reporting for statutory, regulatory

and internal purposes
 Gaining shareholder and analyst understanding of the
impact of changing to IFRS.
IFRS AND INDIAN
CORPORATES
 The use of international financial reporting standards (IFRS) as a
universal financial reporting language is gaining momentum across
the globe.
 The Institute of Chartered Accountants of India (ICAI) has recently
released a concept paper on Convergence with IFRS in India,
detailing the strategy for adoption of IFRS in India with effect from
April 1, 2011. This has been strengthened by a recent announcement
from the Ministry Of Corporate Affairs (MCA) confirming the
agenda for convergence with IFRS in India by 2011.
 Adopting IFRS by Indian corporates is going to be very challenging
but at the same time could also be rewarding. Indian corporates are
likely to reap significant benefits from adopting IFRS.
BENEFITS OF IFRS ON
INDIAN CORPORATES
There are likely to be several benefits to corporates in the Indian
context as well. These are:
 Improvement in comparability of financial information and financial
performance with global peers and industry standards .
 Adoption of IFRS is expected to result in better quality of financial
reporting due to consistent application of accounting principles and
improvement in reliability of financial statements.
 Better access to and reduction in the cost of capital raised from
global capital market since IFRS are now accepted as a financial
reporting framework for companies seeking to raise funds from
most capital markets across the globe.
IMPACT OF IFRS ON OIL & GAS
INDUSTRY
Areas of Potential Change
 Decommissioning estimates

 Asset exchanges

 Derivatives and long term contracts

 Take or pay arrangements

 Production imbalances between joint ventures

EFFECTS OF IFRS ON IT
INDUSTRY
 The main effect on the IT industry is that the changes in
the systems and in the updation of the existing to the
newer version of IFRS enabled accounting software
FIVE CONSIDERATION
UNDER IFRS
 IFRS is an accounting-driven but it can drive major changes
to IT systems as well as business processes and personnel.
 Experience indicates that IT costs generally constitute more
than 50 percent of IFRS conversion costs.
 Organizations benefit when they identify and integrate the
efforts of the IT team early in the IFRS conversion process.
 IT efforts will comprise a mix of short- and long-term projects
within the organization’s overall IFRS initiative.
 The IFRS conversion effort provides opportunities for
achieving synergies with other IT projects and strategic
initiatives.
IFRS:IMPACT ON INDIAN BANK
 The financial impact of convergence with IFRS (International
Finance Reporting System) will be significant for banks in India,
particularly in areas relating to loan loss provisioning, financial
instruments and derivative accounting according to auditing and
consultancy firm KPMG.
 IFRS: Developing a roadmap to convergence for the Indian banking
industry’, mentions how this is likely to impact financial
performance, directly affecting capital adequacy ratios and the
outcomes of valuation metrics that analysts use to measure and
evaluate performance.
 In banking companies, financial reporting policies for provision for
loan losses and investments are specified by the RBI.
REPERCUSSIONS OF IFRS ON
BANKING’ FINANCIAL PERFORMANCE
 Adoption of IFRS requires a significant change to such existing
policies and could have a material impact on the financial
statements of financial companies
 In addition to the financial accounting impact, the convergence
process is likely to entail several changes to the financial reporting
systems (including IT systems) and processes adopted by banks.
 By virtue of operating in a regulated industry, Banking companies
are subject to regulatory reviews and inspections and are also
subject to minimum capital requirements.
 Application of IFRS may result in higher loan losses and
impairment charges, thereby impacting available capital and capital
adequacy ratios.
WHO BEARS THE IMPACT OF
IFRS
 Over 700 members are now more aware of the impact the move to IFRS will have
on their business. Members realize that there is a lot to be done for business in all
sectors (big, small, profit, non-profit) and it needs to start happening well before the
January 2005 deadline. Members are now also aware of the importance of creating a
business strategy to support a smooth transition to IFRS.
 The pilot study results based on the first 100 listed entities (excluding financial
institutions) did not make us stand back and gasp for air, but it did make us consider
the impact these standards will have on business.
 Members would be aware that this has a further impact on business, including:
(a) the effect on performance-based bonus plans;
(b) the impact on the ability to pay a dividend;
( c) the ability to meet existing debt covenants.
(d) further emphasizes the need for business to consider the impact on its
operations.
TYPES OF IFRS
IFRS 1 First-time Adoption of IFRS
IFRS 2 Share-based Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
IFRS 6 Exploration for and evaluation of Mineral
Resources
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments
GENERAL DIFFERENCES
 IFRS provides much less overall detail than GAAP
 IFRS contains relatively little industry-specific
instructions as compared to GAAP.
 IFRS use a single-step method for impairment write-
downs rather than the two-step method used in U.S.
GAAP
 IFRS does not permit Last In First Out (LIFO).
DISADVANTAGES
 U.S. issuers without significant customers or operations
outside the United States may resist IFRS because they
may not have a market incentive to prepare IFRS
financial statements.
 Many people also believe that U.S. GAAP is the gold
standard, and that something will be lost with full
acceptance of IFRS.
THANK YOU
IFRS1 FIRST TIME
ADOPTION OF IFRS
This report helps first-time adopters address the
challenges of IFRS (International Financial Reporting
Standards) 1. It puts the theory of IFRS 1 into practice
by illustrating the steps involved in preparing the first
IFRS financial statements
IMPLICATION OF IFRS 1
 When to apply.
 The opening balance sheet.

 The selection of accounting policies.

 The optional exemptions and mandatory exceptions.

 Disclosures

 The interim financial statements

IFRS 2 SHARE-BASED
PAYMENT
Goods or services received in a share-based payment transaction are
measured at fair value. Goods are recognized when they are obtained and
services are recognized over the period that they are received. Equity-
settled share-based payments are within the scope of the share-based
payment standard even if settled by another group entity or by a
shareholder. Cash-settled share-based payments are within the scope of the
share-based Payment standard. However, there is no explicit guidance when
the liability is settled by a shareholder or another group entity. Equity-
settled grants to employees generally are measured based on the grant date
fair value of the equity instruments issued. Grant date is the date on which
the entity and the employee have a shared understanding of the terms and
conditions of the arrangement. The service period may commence prior to
the grant date. Awards with graded vesting are accounted for as a separate
share-based payment arrangements. A share-based payment transaction
settled in redeemable shares is classified as cash-settled.
SPECIFIC REQUIREMENTS OF IFRS 2
 Equity-settled share-based payment transactions, in which the entity
receives goods or services as consideration for equity instruments of
the entity (including shares or share options);
 cash-settled share-based payment transactions, in which the entity
acquires goods or services by incurring liabilities to the supplier of
those goods or services for amounts that are based on the price (or
value) of the entity’s shares or other equity instruments of the entity;
 Transactions in which the entity receives or acquires goods or
services and the terms of the arrangement provide either the entity
or the supplier of those goods or services with a choice of whether
the entity settles the transaction in cash or by issuing equity
instruments.
IFRS 3 BUSINESS
COMBINATION
This states that all business combinations are accounted for using purchase
accounting, with limited exceptions. A business combination is to bringing
together of separate entities or business into one reporting entity. A business
can be operated managed for the purpose of providing return to investors or
lower costs. An entity in its development stage can meet the definition of a
business. In some cases the legal subsidiary is identified as the acquirer for
accounting purposes (reverse acquisition).The date of acquisition is the date
on which effective control is transferred to the acquirer. The cost of
acquisition is the amount of cash equivalents paid, plus the fair value of
other purchase considerations given, plus any cost directly attributable to
the acquisition. The fair values of securities issued by the acquirer are
determined at the date of exchange. Costs directly attributable to the
acquisition may be internal costs but cannot be general administrative costs.
There is no requirement for directly attributable cost to be incremental.
REQUIREMENTS
 Recognizes and measure in its financial statements the
identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquire;
 Recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase;
and
 Determines what information to disclose to enable users
of the financial statements to evaluate the nature and
financial effects of the business combination.
IFRS 4 INSURANCE CONTRACT
An insurance contract is a contract under which one party (the
insurer) accepts significant insurance risk from another party (the
policyholder) by agreeing to compensate the policyholder if a
specified uncertain future event (the insured event) adversely affects
the policyholder.The objective of this IFRS is to specify the
financial reporting for insurance contracts by any entity that issues
such contracts (described in this IFRS as an insurer) until the Board
completes the second phase of its project on insurance contracts.
REQUIREMENTS
In particular, this IFRS requires:
(a) Limited improvements to accounting by
insurers for insurance contracts.
(b) Disclosure that identifies and explains the
amounts in an insurer’s financial statements
arising from insurance contracts and helps users
of those financial statements understand the
amount, timing and uncertainty of future cash
flows from insurance contracts.
IFRS 5 NONCURRENT ASSETS HELD FOR
SALE AND DISCONTINUED OPERATIONS
Non-current assets, and some groups of assets and liabilities known
as disposal groups, are classified as held for sale when specific
criteria related to their sale are met. Non-current assets (disposal
groups) held for sale are measured at the lower of carrying amount
and fair value less costs to sell, and are presented separately on the
face of the balance sheet. Assets classified as held for sale are not
amortized or depreciated. The comparative balance sheet is not re-
presented when a non-current asset (disposal group) is classified as
held for sale