ifrs-igaap

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IFRS - A Comparison with

Indian Generally AcceptedAccounting Principles



Agenda

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•Discuss the similarity between IndianGAAP and IFRS

•Discuss areas where different

accounting principles are applied inIndian GAAP and IFRS reporting

•Discuss areas where different

Accounting Options available



GENERAL APPROACH

IFRS “Principle-Based Accounting” with limitedapplication guidance

IGAAP□ also “Principle-Based Accounting” with limited

application guidance

□ influenced by legal/tax perspectives



•IFRS in India – Significant conceptual matters to

be considered

Substance over form Time value of money Fair value option Other comprehensive Income Restatement



•IFRS in India – Significant conceptual matters to

be considered Significance of Consolidated Financial

Statements Control

Uniform accounting policies Deferred Tax adjustment during

Consolidation



•Detailed differences

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Accounting Policy Changes

Area IFRS Indian GAAP

Primary literature IAS 8 Accounting Policies, Changes in Accounting Estimates

and Errors

AS- 5 Net Profit or Loss for the Period,Prior Period Items

and Changes in Accounting Policies

Changes in

accounting policy Restated.

Prior period items adjusted in the opening retained earnings of earliest

period reported.

Prospective

application unless the

transitional provisions of a standard require adjustments in opening retained earnings.



Consolidation Policy


Primary literature

IAS 27 Consolidated and Separate Financial Statements

AS-21 Consolidated Financial Statements

Elimination of unrealized profits and losses under AS 21,

AS 23 and AS 27



Consolidation Policy


Employee share (stock)trusts

Consolidated where substance of relationship indicated control.

Employee share trusts are not consolidated.

Reporting periods Differences between reporting dates of parent

and subsidiary cannot be more than three months.

Differences between reporting dates of parent

and subsidiary cannot be more than six months.

Uniform accounting policies Prepared using uniform accounting policies for all the entities in a group.

Policies may differ due to impracticability. However the fact should be

disclosed together with the proportion of items to which different policies have been applied .



Provisions and Contingencies


Primary literature IAS 37 Provisions, Contingent Liabilities and Contingent Assets

AS 4 Contingents and events occurring after Balance Sheet

AS 29 Provisions, contingent liabilities and contingent assets.

Discounting Provisions are discounted to present value where the effect of the time value of money is material.

Discounting is not permitted.



Provisions and Contingencies


Restructuring Recognised if detailed formal plan announced or implementation effectively begun.

Recognised when general recognition criteria are met.

Contingent

Assets

Disclosed in the

financial statements where the economic benefits are probable.

Are not disclosed

in the financial statements but in the report of the approving

authority.



Provisions and ContingenciesArea IFRS Indian GAAP

Constructive obligation

Constructive obligation considered for provisioning.

Present obligation and not constructive obligation considered for

provisioning.

Measurement of liabilities

Best estimate to settle the obligation,generally the expected value.

Best estimate basis.

Measurement of decommissioning provisions

Must adjust the discount rate at each reporting date.

Not applicable as provisions are not discounted.



Property, plant and equipment


Primary literature IAS 16 Property, plant and equipment

AS 6 Depreciation accounting

AS 10 Accounting for Fixed Assets

Componentisation Property plant and

equipment to be componentised and depreciated separately.

Componentisation is not

required.





Non current assets held for sale

Should be classified and presented separately in the statement of financial position as Held for sale.

Assets held for disposal are shown separately in the financial statements.

Depreciation Depreciable amount allocated

based on the useful life on a systematic basis.

Depreciation Methods, Residual values and Useful lives are reviewed at the end of each

reporting period.

The Companies Act 1956

prescribes minimum rates of depreciation.

No requirement for reviewing at each balance sheet date.

Frequency of revaluations

Revaluation to be made with sufficient regularity.

No such requirement.





Capitalization of Pre- operative incidental expenses and trial run expenses, net

revenue earned during the trial period.

Not permitted. Required.

Major inspection and

overhaul changes

Expenditure incurred

to replace a separately recognised component of asset should be

capitalised.

Expenditure which

increases the future benefits from the existing asset should only be capitalised.



Leases


Separatedisclosure ofleased assets

No such requirement. Assets should bedisclosed separately.

Upwardrevision of un-guaranteedResidual Value

No such prohibition. Upward revision of unguaranteed residual valueis prohibited.

Initial directcost

To be included as partof lease receivable incase of financeleases.

Option available tocharge off expenses atthe time of incurrence.

Fi i l i t t



Financial instruments

Area IFRS Indian GAAPPrimary literature IAS 32 Financial Instruments:

Presentation.

IAS 39 Financial Instruments: Recognition and Measurement

IFRS 7 Financial Instruments: Disclosure.

AS 13 Investments

AS 30:Financial Instruments: Recognition and Measurement

AS 31: Financial Instruments: Presentation

AS 32:Financial Instruments:

Disclosure.(mandatory for certain entities for accounting periods commencing on or after 1 April 2011)

Measurement Held to maturity, loans and receivables - carried at

amortised cost.

Available for sale investments – carried at fair value. Any change is recognised in other comprehensive income

Long term investments - valued at cost

Short term investments – Valued at lower of cost and fair value. Any change in value is recognised in the statement of profit and loss.



Financial instrumentsArea IFRS Indian GAAP

Financial liability – classification

Capital instruments classified based on

the substance of issuer’s contractual

obligation either as equity or liability.

Mandatory redeemable preference shares classified as liability.

No specific guidance.Classification is based

on legal form rather than substance.

Preference shares are classified as equity separately under shareholder’s funds.

Treasury Shares - purchase of own shares.

Shown as deduction from equity.

provisions of Companies Act.



Taxes


Primary Literature IAS 12 Income Taxes

AS 22 Accounting for taxes on Income.

Guidance note on Fringe Benefit tax

Deferred income tax Balance Sheet approach

Based on difference between

carrying value and tax base of assets and liabilities

Profit and Loss approach

Based on difference between accounting income and taxable income




Fringe Benefit tax

Included in related expense which gives rise to the tax.

Shown separately after profit before tax.

Un realised

intra-group profits

Deferred tax

recognised at buyer’stax rate.

Deferred tax not

recognised.Simple aggregation from standalone financial statements.

No adjustment is made on

consolidation.

Revaluation of PPE and intangible

assets

Deferred tax recognised in other comprehensive

income.

Deferred tax is not recognised as considered as a permanent difference.

Taxes




Deferred tax on Undistributed profits of subsidiaries,associates and joint ventures.

Recognised except when the parent is able to control the distribution of profit and if it is probable that the temporary difference will not reverse in the

foreseeable future.

Not recognised

Recognition of Deferred tax Assets.

Recognised if it is probable (more likely than not) that sufficient taxable profit will be available in future.

Recognised if

a) there is virtually certainty supported by convincing evidence incase of entities with carry forward tax

losses

b) realization is “reasonably

certain” in case of entities

with no carry forward tax losses.

Taxes




Minimum alternate tax (MAT)credit carry forward.

Recognised as a deferred tax asset if it is probable (more likely than not) that MAT credit can be used in future years to reduce the regular

tax liability.

Considered as prepaid tax (presented under Loans and advances)and recognised as an asset, when and to the extent there is convincing evidence

that MAT credit will be used in future years to reduce the regular tax liability.

Taxes



Business CombinationsArea IFRS Indian GAAP

Primary literature IFRS 3 Business Combinations

No specific standards to covering all aspects.

AS 14 Accounting for amalgamations covering limited aspects.

Date on which consideration in a business combination is measured

Acquisition date (date on which control passes)

No specific guidance.

Date of investment.

Accounting method All business combinations accounted under Purchase method.

Pooling of interests method in case combination satisfy the conditions of merger.

Others under

Purchase method.



Business Combinations


Business combination of entities under common control.

Specifically excluded from the scope of the Standard.

No specific guideline.

Allocation of the cost of the business combination.

At fair value. At carrying value in case of pooling of interests method

At carrying value or fair value in case of Purchase method.

Measurement of non-controlling interests(minority Interests)

Option to measure, on atransaction by transactionbasis, the non-controllinginterest at (a) fair value (b)

the non-controlling interest’sproportionate share of thefair value of the identifiablenet assets of the acquiree.

Measured at carrying valueof minority’s share in net

assets.



Areas Involving “Choices” Area IFRS Indian GAAP

Borrowing costs

Expense or capitalize (the option to expense will not be available after 1 January 2009)

Capitalize

Joint ventures

Equity method or Proportionate Consolidation

(ED does not permit proportionate consolidation)

Proportionate Consolidation

Investment in Associates.

In standalone financials,shown at cost or at fair value.

In standalone financials,shown at cost less impairment (there will

be no difference after limited revision to AS 23 )

Share-based payment Fair value Intrinsic or Fair value




Employee Benefits – recognition of Actuarial gains or losses

Option to recognise in profit or loss or other comprehensive income. Corridor approach also permitted.

To be recognised fully in the statement of profit and loss in the period of occurrence.

Cash Flow Statements Can be prepared using either direct or indirect method. The standard permits both options.

However indirect method prescribed for listed entities and the direct method prescribed for Insurance Companies

Areas Involving “Choices”



Presentation / Disclosure differences

Financial StatementsStatement of Cash FlowsEvents after the reporting date

Operating SegmentsRelated party disclosuresDiscontinued operations



Financial Statements


Primary literature IAS 1 Presentation ofFinancial Statements

AS 1 Disclosure ofAccounting Policies

Presentation Fair Presentation True and fair presentation

Statement offinancial position(Balance Sheet)

No specific formatprescribed

Separate classification forCurrent/Non Current in thestatement of financialposition. Specific items to beincluded in the statement offinancial position.

Formats are prescribedby the Companies Actand other industry

regulations



Financial StatementsArea IFRS Indian GAAP

Statement of Comprehensive Income

No specific format.

Specific items to be included.

Expenses to be presented either by function/nature.

Specific items of income and expenditure to be disclosed.

Formats for specific industry specified by the respective regulations.

Statement of Changes in Equity

A statement of changes in equity is presented showing (a) the total comprehensive income for the period (b) effects of retrospective application or restatement on each component of equity (c) transactions with owners and (d) for each component of equity, a reconciliation between opening and closing balances, separately disclosing each change.

A statement of changes in equity is not required.

Movements in share capital,retained earnings and other reserves are presented in

schedules to financial statements.




Extraordinary items Prohibited Events or transactions clearly distinct from ordinary activities of the entity and or expected to recur frequently or regularly

Disclosures of significant associates

Detailed information on significant associates’ assets,

liabilities and results is required.

Detailed information is not required.

Offsetting of Assets and Liabilities Assets and Liabilities cannot be set off unless permitted under the standards.

Financial assets and liabilities can be set off if the entity has legally enforceable right to set off and intends to settle

on a net basis.

No specific guidance.

Financial Statements



Cash Flow Statements


Literature IAS 7 Statement of Cash Flows

AS 3 Cash Flow Statements

Interest paid May be classified as an operating or financing

activity.

Classified as an operating activity for financial

enterprises.Classified as financing activity for other enterprises.

Interest received May be classified as an operating or investing activity.

Classified as an operating activity for financial enterprises.

Classified as Investing activity for other enterprises.

Cash Flow Statements



Cash Flow StatementsArea IFRS Indian GAAP

Dividends

received May be classified as an

operating or investing Classified as an

operating activity for financial enterprises.

Classified as Investing activity for other enterprises

Dividends paid May be classified as an

operating or financing activity

Must be classified as an

Financing activity

Presentation of bank overdrafts

Based on cash management policies which might differ from

general accounting classifications

For example, bank overdrafts can be classified as cash and

cash equivalents

Cash excludes bank overdrafts

Overdrafts classified as

financing activities



Segment Reporting


Literature IFRS 8 Operating Segments (effective from 1 January 2009)

AS 17 Segment Reporting

Determination ofsegments

Operating segments areidentified based on the financialinformation that is evaluatedregularly by the chief operatingdecision maker in deciding how

to allocate resourcesand in assessing performance.

AS 17 requires an enterprise toidentify two sets of segments(business and geographical), usinga risks and rewards approach, withthe enterprise’s system of internal

financial reporting to keymanagement personnel servingonly as the starting point for theidentification of such segments

Measurement Segment profit or loss isreported on the samemeasurement basis as thatused by the chief operatingdecision maker. There is nodefinition of segment revenue,segment expense, segmentresult, and segment asset orsegment liability..

Segment information is prepared inconformity with the accountingpolicies adopted for preparing andpresenting the financial statementsof the enterprise as a whole.Segment revenue, segmentexpense, segment result, segmentasset and segment liability havebeen defined.



Related Party Transactions


Literature IAS 24 Related Party Disclosures

AS 18 Related PartyDisclosures

Key managementpersonnel

Includes Non-Executive Directors.

Non-ExecutiveDirectors areexcluded.

Relative Family member who

may be expected toinfluence or to beinfluenced by.

Spouse, son,

daughter, brother,sister, mother, father.



Discontinued Operations


Literature IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

AS 24 – DiscontinuedOperations

AS 10 Accounting forFixed Assets

Classification asdiscontinuedoperation

An operation is classified

as discontinued when it has either been disposed of or is classified as held for sale.

An operation is

classified asdiscontinuing at theearlier of (a) bindingsale agreement forsale of the operationand (b) on approval by

the board of directorsof a detailed formalplan andannouncement of theplan.




Presentation Post tax profit or loss as asingle figure in the statement ofcomprehensive income/ IncomeStatement.

Analysis of the above figuredeither in the statement ofcomprehensive income/ incomestatement or in the notes.

Net assets disclosed as a

single figure in the statement offinancial position.

Pre tax profit or loss withrelated taxes.

Line items disclosed in theNotes to accounts

Pre tax gain or loss ondisposal.

Discontinued Operations



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