IFRS Compliance

Our services relating to IFRS

IFRS advisory services
  • Frame accounting policies
  • Convergence and first time adoption of IFRS
  • Transaction accounting
  • IFRS impact analysis/study
  • Training on IFRS concepts
  • Preparation of IFRS Accounting manual

IFRS – Frequently asked questions(FAQ)

What is IFRS?

International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB). These are becoming the global standard for the preparation of public company financial statements.

What is IASB ?

IASB is an independent accounting standard-setting body, which consists of 14 members from nine countries and is based in London. This organization took over from the International Accounting Standards Committee in 2001. It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, and other international and professional organizations throughout the world.

What are the advantages of converting to IFRS?

Convergence with IFRS

  • As foreign individuals and institutions are investing more and more in Indian companies, convergence with IFRS will Improve investor confidence across the world with transparency and comparability
  • One standard across the industry will Improve inter-unit/ inter-firm/inter-industry comparison
  • With foreign subsidiaries in India and Indian Subsidiaries outside India, group consolidation is made easy with same standard by all companies in group wherever located
  • Acceptability of financial statements across all stock exchanges, which facilitates entry of any Indian company to any stock exchange across the globe

How difficult is it to converge Indian Accounting Standards with IFRS?

It will not be difficult as most of the Indian accounting standards are in line with IFRS. However, every corporate has to take the necessary step in understanding the new standards, training its staff and paving a smooth transition. The management at the top level should take interest in this regard. With the notification of Ind AS by Ministry of Corporate Affairs (MCA) Indian accounting standards are almost compliant with IFRS.

What is Ind AS ?

Ind AS are a set of accounting standards notified by the Ministry of Corporate Affairs which are converged with International Financial Reporting Standards (IFRS). The Ind As have been prepared by NACAS and submitted its recommendation to MCA. The Ind AS are named and numbered in the same way as the corresponding IFRS

What is NACAS and what is its role ?

NACAS (National Advisory Committee on Accounting Standards) is a body set up under section 210A of the Companies Act, 1956 by the Government of India. It advises the Central Government on the formulation and laying down of accounting policies and accounting standards for adoption by companies.

What are examples of specific differences between Accounting Standards (AS), IFRS and Ind AS?

 

AS

IFRS

Ind AS

Presentation of Financial Statements

AS 1- Disclosure of Accounting Policies

Components of Financial Statements:
a) balance sheet;
 b) statement of profit & loss;
 c) cash flow statement; d) explanatory notes including summary of accounting policies

IAS 1- Presentation of Financial Statements

Components of Financial Statements:
 a) a statement of financial position;
b) a statement displaying components of  profit or loss
c) statement of cash flows;
d) a statement of changes in equity &
e)  notes including summary of accounting policies & explanatory notes

Ind AS 1 – Presentation of Financial Statements

Components of Financial Statements:
 a) balance sheet as at the end of the period(including statement of changes in equity);
 b) statement of profit & loss;
c) cash flow statement; d) explanatory notes including summary of accounting policies

 

Schedule VI prescribes mandatory format

Only illustrative formats

Ind AS 1 doesnot include any illustrative format though Ind AS 27 does set out the form in which consolidated financial statements are to be presented

 

A statement of changes in equity is not required

A statement of changes in equity is presented showing total comprehensive income for the period, reconciliation between opening & closing balances

A statement of changes in equity is shown as part of balance sheet.

Extraordinary Items

Extraordinary items are disclosed separately in the statement of profit or loss & are included in determination of net profit or loss for the period

Presentation of any items of income or expense as extraordinary is prohibited

Presentation of any items of income or expense as extraordinary is prohibited

Critical judgement

AS 1 does not specifically require disclosure of judgements that management has made in the summary of significant accounting policies or other notes

Requires disclosure of critical judgements made by management in applying accounting policies

Requires disclosure of critical judgements made by management in applying accounting policies

Inventories classification

As per AS 2 – Valuation of Inventories, inventories should be classified as raw materials, Work-in-progress, Finished goods, Stock-in-trade, stores & spares, loose tools & others

No specific classification requirements- classification should be appropriate to the entity

No specific classification requirements- classification should be appropriate to the entity

Cash Flows- Change in ownership interest

No specific guidance

Changes in ownership interest in a subsidiary without loss of control are treated as financing activities

Changes in ownership interest in a subsidiary without loss of control are treated as financing activities

Accounting Policies, Changes in Accounting Estimates & Errors

Changes in accounting policies should be made only if it is required by statue, for compliance with an Accounting Standard or for a more appropriate presentation of the financial statements on a prospective basis

Requires retrospective application of changes in accounting policies by adjusting the opening balance of each affected component  of equity for the earliest prior period presented and the other comparative amounts for each period presented as if the new accounting policy had always been applied, unless transitional provisions of an accounting standard require otherwise

Requires retrospective application of changes in accounting policies by adjusting the opening balance of each affected component  of equity for the earliest prior period presented and the other comparative amounts for each period presented as if the new accounting policy had always been applied, unless transitional provisions of an accounting standard require otherwise

Income Taxes – deferred income taxes

AS 22- Accounting for Taxes on Income

Deferred taxes are computed for timing differences in respect of recognition of items of profit or loss for the purposes of financial reporting and for income taxes

IAS 12 – Income Taxes

Deferred taxes are computed for temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax base

Ind AS 12 – Income Taxes

Deferred taxes are computed for temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax base

Fixed Assets

AS 10 – Accounting for Fixed Assets

Replacement cost of an item of property, plant and equipment is generally expensed when incurred. Only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is capitalized

IAS 16- Property, Plant & Equipment

Replacement cost of an item of property, plant and equipment is capitalized if replacement meets the recognition criteria. Carrying amount of items replaced is derecognized

Ind AS 16- Property, Plant & Equipment

Replacement cost of an item of property, plant and equipment is capitalized if replacement meets the recognition criteria. Carrying amount of items replaced is derecognized

 

Costs of major inspections are generally expensed when incurred

Costs of major inspections and overhauls are recognized in the carrying amount of property, plant & equipment

Costs of major inspections and overhauls are recognized in the carrying amount of property, plant & equipment

Compensation for impairment

No specific requirement. In practice, compensation is offset against replaced items of property, plant & equipment.

Compensation from third parties for impairment or loss of items of property, plant and equipment are included in profit or loss when the compensation becomes receivable.

Compensation from third parties for impairment or loss of items of property, plant and equipment are included in profit or loss when the compensation becomes receivable.

Revenue Recognition

AS 9 – Revenue Recognition

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities from the sale of goods, from the rendering of services, and from use by others of enterprise resources yielding interest, royalties and dividends. Revenue is measured by the charges made to customers for goods supplied and services rendered to them and by the charges and rewards arising from the use of resource by them.

 

IAS 18 – Revenue

Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increase relating to contributions from equity participants.
Amounts collected on behalf of third parties such as sales and service taxes and value added taxes are excluded from revenues

 

Ind AS 18 – Revenue

Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increase relating to contributions from equity participants.
Amounts collected on behalf of third parties such as sales and service taxes and value added taxes are excluded from revenues

 

Interest is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable

Interest income is recognized using effective interest method

Interest income is recognized using effective interest method

 

Dividend income declared out of post-acquisition profits should be recognized in the statement of profit and loss. Dividends declared out of pre-acquisition profits will go to reduce the cost of the investment.

Entire dividend income should be recognized in the profit or loss irrespective of whether it is declared out of pre-acquisition or post-acquisition profits, though it may, in some situations, be necessary to test the investment for impairment.

Entire dividend income should be recognized in the profit or loss irrespective of whether it is declared out of pre-acquisition or post-acquisition profits, though it may, in some situations, be necessary to test the investment for impairment

 

Completed service contract method or proportionate completion method

Requires recognition using percentage of completion method

Requires recognition using percentage of completion method

Effects of Change in Foreign Exchange Rates

AS 11- Effects of Change in Foreign Exchange Rates

Foreign currency is a currency is a currency other than the reporting currency which is the currency in which financial statements are presented. There is no concept of functional currency.

IAS 21 - Effects of Change in Foreign Exchange Rates

Functional currency is the currency of the primary economic environment in which the entity operates. Foreign currency is the currency other than the functional currency.
Presentation currency is the currency in which the financial statements are presented

Ind 21 - Effects of Change in Foreign Exchange Rates

Functional currency is the currency of the primary economic environment in which the entity operates. Foreign currency is the currency other than the functional currency.
Presentation currency is the currency in which the financial statements are presented

What is the cost involved for an organization to converge with IFRS?

The cost of convergence or first time adoption of IFRS is dependent on

  • Time and Efforts involved
  • Risks
  • Type of Industry