What is IFRS Why IFRS Benefits and challenges IAS v/s IFRS GAAP v/s IFRS Case study

study on Infosys

Meaning: Accounting Standards are the statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements.

Objectives of Accounting Standard

To standardize the financial statement presentation To harmonize the diverse accounting policies followed To facilitate intra-firm and inter-firm comparison.

Globalization is the primary force behind the spread of IFRS To bring about convergence of national accounting standards and International Accounting standards and IFRS to high quality standards.

IFRSs are high quality, understandable and enforceable global accounting standards Applicable to all financial statements reporting of all profit- oriented entities. IFRS are principle based accounting standards A separate set of IFRS for Small and Medium-sized Enterprises has been issued by the IASB in July 2009.

International Financial Reporting Standards comprise of:

International Financial Reporting Standards (IFRS) - standards issued after 2001 International Accounting Standards (IAS) - standards issued before 2001 Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) issued after 2001 Standing Interpretations Committee (SIC) - issued before 2001

A statement of financial position as at the end of the period A statement of comprehensive income for the period A statement of changes in equity for the period; A statement of cash flows for the period; A notes, comprising a summary of significant accounting policies, and other explanatory information; and A comparative statement of financial position

There are two approaches for transition to IFRSConvergence and Adoption Adoption Abandoning the existing national GAAP and embracing IFRS Two years of dual reporting (IFRS) After reporting date, accounting and financial reporting as per national GAAP is abandoned

Applicability Impact study

Accounting treatment as per IGAAP and that as per IFRS Measurement differences of the carrying values Assets and liabilities not recognised in IGAAP but required to be recognised in IFRS Reclassification of assets and liabilities as required under IFRS De recognition of assets and liabilities under IGAAP which need not be recognised under IFRS

Estimated time for different stages Other Issues

Increasing growth of international business International investing and thereby lead to more foreign capital inflows into the country Comparability between financial statements of various companies across the globe Level of confidence to investors Reduce cost of compliances Professional opportunities to serve international clients Risk Evaluation

Consolidation of group financial statements made easier Accounting and audit functions made easier and cheaper Compliance with regulatory requirements of bodies such as stock exchanges Mergers and acquisitions made easier Access to multinational funds

Awareness about international practices Training Increase in initial cost and IT systems Comply with the Companies Act, 1956,Income Tax Act, 1961, SEBI, RBI, etc Training to stakeholders, employees, auditors, regulators, tax authorities, etc needed Differences between Indian GAAP and IFRS may impact business decision financial performance of an entity Limited pool of trained resource and persons having expert knowledge on IFRS Management compensation plan Taxation Fair Value

IFRSs are principle-based standards instead of rule based. IFRSs lay down treatments based on the economic substance over legal form.

Components of Financial statements Format of SOFP Format of Income statement Statement of cash flows Presentation of extraordinary items Dividends proposed after the end of the reporting period Depreciation rates Change in the depreciation method

Entire class of assets to be revalued Component accounting Functional and foreign currency Goodwill Measurement of intangible assets Actuarial gain or loss Contingent asset- disclosure Entities operating in hyper-inflationary economies

IFRS 1: First time Adoption of International Financial Reporting Standards 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

Permanent Differences

Timing Differences
Fair Value Converging Balance sheet gain/loss

Presentation

Recognition/ Measurement

Disclosure

IAS 32

IAS 39

IFRS 7

IAS 32, following items are not financial instruments Physical Assets Assets such as pre-paid expenses Deferred revenue expenses Recognition of financial instruments Carrying amount of the liability component is determined first Carrying amount of the equity instruments, with the option to convert the instrument into ordinary shares

Proceeds of - Carrying amount = Carrying amount Issue of liability of equity component instrument

IAS 39, financial assets to be classified in one of the below 4 categories Financial assets at fair value through profit and loss Loans and receivables Held to maturity investments Available for sale financial assets

IAS 16- Accounting Treatment of Fixed Assets Componentization Inspection Cost Depreciation
IAS 2- Inventory Cash discount on Inventory LIFO v/s FIFO