Professional Documents
Culture Documents
WHAT IS IFRS?
International Financial Reporting Standards (IFRS), together with International
Accounting Standards (IAS), are a "principles-based" set of standards that establish
broad rules rather than dictating specific accounting treatments. From 1973 to 2001,
IAS were issued by the International Accounting Standards Committee (IASC). In
April 2001 the International Accounting Standards Board (IASB) adopted all IAS and
began developing new standards called IFRS.
Structure of IFRS
IFRS are considered a "principles based" set of standards in that they establish broad
rules as well as dictating specific treatments.
International Financial Reporting Standards comprise:
Framework
The Framework for the Preparation and Presentation of Financial Statements states
basic principles for IFRS.
Underlying assumptions
The underlying assumptions used in IFRS are:
Accrual basis - the effect of transactions and other events are recognised
when they occur, not as cash is received or paid
Going concern - the financial statements are prepared on the basis that an
entity will continue in operation for the foreseeable future
Understandability
Relevance
Reliability and
Comparability.
Liabilities - a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits
Equity - the residual interest in the assets of the entity after deducting all its
liabilities
a balance sheet
income statement
Comparative information is provided for the previous reporting period (IAS 1.36). An
entity preparing IFRS accounts for the first time must apply IFRS in full for the
current and comparative period although there are transitional exemptions
(IFRS1.7).
On 6 September 2007, the IASB issued a revised IAS 1 Presentation of Financial
Statements. The main changes from the previous version are to require that an
entity must:
IAS 1 changes the titles of financial statements as they will be used in IFRSs:
The revised IAS 1 is effective for annual periods beginning on or after 1 January
2009. Early adoption is permitted.
Necessity of IFRS:By adopting IFRS, a business can present its financial statements on the same basis
as its foreign competitors,making comparisons easier.Furthermore,companies with
subsidiaries in countries that require or permit IFRS may be able to use one
accounting langauge company wide.Companies also may need to convert to IFRS if
they are a subsidiary of a foreign company that must use IFRS,or if they have a
foreign investor that must use IFRS.Companies may also benefit by using IFRS if
they wish to raise capital abroad.
IFRS & INDIA:The issue of convergence with IFRS has gained significant momentum in India. At
present, the ASB of the ICAI formulates Accounting Standards based on IFRS,
however, these standards remain sensitive to local conditions, including the legal &
economic environment. Accordingly, the Accounting Standards issued by the ICAI
depart from the corresponding IFRS in order to ensure consistency with the legal,
regulatory and economic environments of India.
At a meeting held in May 2006, the council of ICAI expressed the view that IFRS may
be adopted in full at a future date, at least for listed and large entries.The ASB, at a
meeting held in August 2006,considered the matter and supported the councils view
that there would be several advantages of converging with IFRS.Keeping in mind the
extent of differences between IFRS and Indian Accounting Standards, as well as the
fact, that convergence with IFRS would be important policy decision, the ASB decided
to form an IFRS Task Force .The objectives of the Task Force were to explore:
Based on the recommendation of the IFRS Task Force, the council of ICAI, at its
269th meeting decided to converge with IFRS, for accounting periods commencing
on or after 1 April 2011.IFRS will be adopted for listed and other public interest
entities such as banks , insurance, companies and large sized organizations.
With an objective to ensure smooth transition to IFRS from 1 April 2011,ICAI is
taking up the matter of convergence with IFRS with NACAS and other regulators
including RBI, IRDA and SEBI.The NACAS has been established by the Ministry of
Corporate Affairs, Government of India.ICAI is taking various other steps as well
as to ensure that IFRS is effectively adopted from 1 April 2011.
These include:
In May 2008, the MCA issued a press release in which it committed to IFRS
convergence by 1 April 2011.
Recognizing the convergence efforts of ICAI & MCA, the European Union has recently
allowed entries to use Indian GAAP for listing on a European securities market
without reconciliation through to 2011, and if the convergence plan is achieved, to
continue to do so after 2011.
New opportunities :
Benefits from the adoption of IFRS will not be restricted to Indian corporates.In fact;
it will open up a host of opportunities in the service sector.With a wide pool of
accounting professionals, India can emerge as an accounting services hub for the
global community.As IFRS is fair value focused it will provide significant opportunities
to professionals including, accountants, valuers and actuaries, which in turn, will
boost the growth prospects for the BPO/KPO segment in India.
Subject
IFRS
Indian GAAP
Historical cost
Balance sheet
Income statement
Extraordinary items
Prohibited.
Changes in
accounting policy
Correction of errors
Special purposes
entity (SPE)
Definition of joint
venture
Similar to IFRS.
Exclusion if it meets the definition of
a subsidiary or exemptions similar
to non-consolidation of subsidiaries.
Uniting of interests
method
Prohibited.
Business
combinations
involving entities
under common
control
Depreciation
Interest expense
Termination benefits
Acquired intangible
assets
Contingencies
Government grants
Convertible debt
Derecognition of
financial liabilities
Post-balance-sheet
events
Interim financial
reporting
Similar to IFRS.
However, pursuant to the listing
agreement, all listed entities in India
are required to furnish their
quarterly results in the prescribed
format. Quarterly results include
financial results relating to the
working of the Company and certain
notes thereon.