WEBCAST ON IFRS
INTRODUCTION TO IFRS
CA MAYUR CHOKSHIMumbai, India
WHY IFRS - PROCESS
Globally accepted language
Most widely spread , accepted and trusted financial reporting language
Based on Economic reality of transaction
Major economies moving towards IFRS
PROCESS OF ISSUE OF STANDARDS
IASB ,
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IAS STANDARDS DEVELOPMENT
IAS 1 Disclosure of Accounting Policy 1974
INDIA AS 1 1979
IAS 2 Val. & Presentation on Inventory 1975
INDIA AS 2 1981
IAS 7 SOFP 1977
INDIA Chgs in Fin Position 1981
. . . . . . . . & SO ON . . .
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WHY IFRS – WORLD WIDE RECOGNISED
Australia, Canada, France, Germany, Japan, Mexico, Netherlands, USA, UK and Ireland agreed to form IASC in June 1973 Total 130 countries joined.
India joined in 1974
Nigeria, South Africa, Pakistan, Sri Lanka, Italy, China, Japan, Singapore, Hong Kong, Malaysia, New Zealand, …….. More than 130 countries across globe signed the agreement
AS OF NOW :-
41 IAS of which 13 are withdrawn or superseded. Thus effective IAS 28
15 IFRS . . . . . . . . . . . . . . . . . . . .THUS, Total 43 standards.
IFRIC 21 ( 3 Withdrawn / superseded)
SIC 33 ( 25 Withdrawn / superseded)
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IFRS BOARD, ETC.
Process to issue standards by IASB
Constitution of IASB
Subsequent evolution of IFRS
IFRIC
SIC
Revision to Standards
Projects
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GLOSSARY
IFRS – International Financial Reporting Standards
IAS – International Accounting Standards
IFRIC – International Financial Reporting Interpretation Committee
SIC – Standing Interpretation Committee
IND AS : INDIAN VERSION OF IFRS
AS - Accounting Standards ( Present - IGAAP)
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DUE PROCESS
Overview
Background to IFRSs
Requests for information
Discussion papers
Exposure drafts
Finalised pronouncements
Post-implementation reviews
Annual improvements process
Editorial corrections
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APPROACH IN INDIA
Convergence and not adoption
Phased Manner to Implement
Two separate AS U/S 211(3C)
Early adoption possible
Clarifications required on various matters
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IFRS ISSUED
# Name Issued
IFRS 1 First-time Adoption of International Financial Standards 2008*
IFRS 2 Share-based Payment 2004
IFRS 3 Business Combinations 2008*
IFRS 4 Insurance Contracts 2004
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 2004
IFRS 6 Exploration for and Evaluation of Mineral Assets 2004
IFRS 7 Financial Instruments: Disclosures 2005
IFRS 8 Operating Segments 2006
IFRS 9 Financial Instruments 2013*
IFRS 10 Consolidated Financial Statements 2011
IFRS 11 Joint Arrangements 2011
IFRS 12 Disclosure of Interests in Other Entities 2011
IFRS 13 Fair Value Measurement 2011
IFRS 14 Regulatory Deferral Accounts 2014
IFRS 15 Revenue from Contracts with Customers 2014
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IFRS ISSUED
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# Name Issued
IAS 1 Presentation of Financial Statements 2007*
IAS 2 Inventories 2005*
IAS 3Consolidated Financial Statements
1976Superseded in 1989 by IAS 27 and IAS 28
IAS 4Depreciation Accounting
Withdrawn in 1999
IAS 5Information to Be Disclosed in Financial Statements
1976Superseded by IAS 1 effective 1 July 1998
IAS 6Accounting Responses to Changing Prices
Superseded by IAS 15, which was withdrawn December 2003
IAS 7 Statement of Cash Flows 1992
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 2003
IAS 9Accounting for Research and Development Activities
Superseded by IAS 38 effective 1 July 1999
IAS 10 Events After the Reporting Period 2003
IFRS ISSUED
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IAS 11Construction Contracts
1993Will be superseded by IFRS 15 as of 1 January 2017
IAS 12 Income Taxes 1996*
IAS 13Presentation of Current Assets and Current Liabilities
Superseded by IAS 39 effective 1 July 1998
IAS 14
Segment Reporting1997
Superseded by IFRS 8 effective 1 January 2009
IAS 15
Information Reflecting the Effects of Changing Prices2003
Withdrawn December 2003
IAS 16 Property, Plant and Equipment 2003*
IAS 17 Leases 2003*
IAS 18Revenue
1993*Will be superseded by IFRS 15 as of 1 January 2017
IAS 19
Employee Benefits (1998)1998
Superseded by IAS 19 (2011) effective 1 January 2013
IAS 19 Employee Benefits (2011) 2011*
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance 1983
IFRS ISSUED
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IAS 21 The Effects of Changes in Foreign Exchange Rates 2003*
IAS 22
Business Combinations1998*
Superseded by IFRS 3 effective 31 March 2004
IAS 23 Borrowing Costs 2007*
IAS 24 Related Party Disclosures 2009*
IAS 25Accounting for Investments
Superseded by IAS 39 and IAS 40 effective 2001
IAS 26 Accounting and Reporting by Retirement Benefit Plans 1987
IAS 27 Separate Financial Statements (2011) 2011
IAS 27
Consolidated and Separate Financial Statements2003
Superseded by IFRS 10, IFRS 12 and IAS 27 (2011) effective 1 January 2013
IAS 28 Investments in Associates and Joint Ventures (2011) 2011
IAS 28
Investments in Associates2003
Superseded by IAS 28 (2011) and IFRS 12 effective 1 January 2013
IAS 29 Financial Reporting in Hyperinflationary Economies 1989
IAS 30
Disclosures in the Financial Statements of Banks and Similar Financial Institutions1990
Superseded by IFRS 7 effective 1 January 2007
IAS 31
Interests In Joint Ventures2003*
Superseded by IFRS 11 and IFRS 12 effective 1 January 2013
IAS 32 Financial Instruments: Presentation 2003*
IAS 33 Earnings Per Share 2003*
IAS 34 Interim Financial Reporting 1998
IAS 35
Discontinuing Operations 1998
Superseded by IFRS 5 effective 1 January 2005
IAS 36 Impairment of Assets 2004*
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1998
IAS 38 Intangible Assets 2004*
IAS 39Financial Instruments: Recognition and Measurement
2003*Superseded by IFRS 9 where IFRS 9 is applied
IAS 40 Investment Property 2003*
IAS 41 Agriculture 2001
IFRS ISSUED
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# Name Issued
IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities 2004
IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments 2004
IFRIC 3Emission Rights
2004Withdrawn June 2005
IFRIC 4 Determining Whether an Arrangement Contains a Lease 2004
IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds 2004
IFRIC 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment 2005
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies 2005
IFRIC 8Scope of IFRS 2
2006Withdrawn effective 1 January 2010
IFRIC 9 Reassessment of Embedded Derivatives 2006
IFRIC 10 Interim Financial Reporting and Impairment 2006
IFRIC 11IFRS 2: Group and Treasury Share Transactions
2006Withdrawn effective 1 January 2010
IFRIC 12 Service Concession Arrangements 2006
IFRIC 13Customer Loyalty Programmes
2007Will be superseded by IFRS 15 as of 1 January 2017
IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction 2007
IFRIC 15Agreements for the Construction of Real Estate
2008Will be superseded by IFRS 15 as of 1 January 2017
IFRIC 16 Hedges of a Net Investment in a Foreign Operation 2008
IFRIC 17 Distributions of Non-cash Assets to Owners 2008
IFRIC 18Transfers of Assets from Customers
2009Will be superseded by IFRS 15 as of 1 January 2017
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments 2009
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 2011
IFRIC 21 Levies 2013
IFRS ISSUED
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# Name Issued
SIC-1Consistency – Different Cost Formulas for Inventories
1997Superseded
SIC-2Consistency – Capitalisation of Borrowing Costs
1997Superseded
SIC-3Elimination of Unrealised Profits and Losses on Transactions with Associates
1997Superseded
SIC-5Classification of Financial Instruments - Contingent Settlement Provisions
1998Superseded
SIC-6Costs of Modifying Existing Software
1998Superseded
SIC-7 Introduction of the Euro 1998
SIC-8First-Time Application of IASs as the Primary Basis of Accounting
1998Superseded
SIC-9Business Combinations – Classification either as Acquisitions or Unitings of Interests
1998
Superseded
SIC-10 Government Assistance – No Specific Relation to Operating Activities 1998
SIC-11Foreign Exchange – Capitalisation of Losses Resulting from Severe Currency Devaluations
1998
Superseded
SIC-12Consolidation – Special Purpose Entities
1998Superseded by IFRS 10 and IFRS 12 effective 1 January 2013
SIC-13Jointly Controlled Entities – Non-Monetary Contributions by Venturers
1998Superseded by IFRS 11 and IFRS 12, effective for annual periods beginning on or after 1 January 2013
SIC-14Property, Plant and Equipment – Compensation for the Impairment or Loss of Items
1998
Superseded
SIC-15 Operating Leases – Incentives 1999
IFRS ISSUED
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SIC-16Share Capital – Reacquired Own Equity Instruments (Treasury Shares)
1999Superseded
SIC-17Equity – Costs of an Equity Transaction
2000Superseded
SIC-18Consistency – Alternative Methods
2000Superseded
SIC-19Reporting Currency – Measurement and Presentation of Financial Statements under IAS 21 and IAS 29
2000
Superseded
SIC-20Equity Accounting Method – Recognition of Losses
2000Superseded
SIC-21
Income Taxes – Recovery of Revalued Non-Depreciable Assets
2000Superseded by, and incorporated into, IAS 12 by amendments made by Deferred Tax: Recovery of Underlying Assets, effective for annual periods beginning on or after 1 January 2012
SIC-22Business Combinations – Subsequent Adjustment of Fair Values and Goodwill Initially Reported
2000
Superseded
SIC-23Property, Plant and Equipment – Major Inspection or Overhaul Costs
2000Superseded
SIC-24Earnings Per Share – Financial Instruments and Other Contracts that May Be Settled in Shares
2000
Superseded
SIC-25 Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders 2000
SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease 2000
SIC-28Business Combinations – 'Date of Exchange' and Fair Value of Equity Instruments
2001
Superseded
SIC-29 Disclosure – Service Concession Arrangements 2001
SIC-30Reporting Currency – Translation from Measurement Currency to Presentation Currency
2001
Superseded
SIC-31Revenue – Barter Transactions Involving Advertising Services
2001Will be superseded by IFRS 15 as of 1 January 2017
SIC-32 Intangible Assets – Web Site Costs 2001
SIC-33Consolidation and Equity Method – Potential Voting Rights and Allocation of Ownership Interests
2001
Superseded
NO AS IN IGAAP
IAS 26 Accounting and Reporting by Reporting by Retirement Benefits Plans
IAS 29 Financial Reporting in Hyperinflationary Economies
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 40 Investment Property
IAS 41 Agriculture
NO AS IN IGAAP
IFRS 1 First Time Adoption of International Financial Reporting Standards
IFRS 2 Share Based Payment
IFRS 3 Business Combination
IFRS 4 Insurance Contracts
IFRS 5 Non-Current Assets Held for Sale and Discontinuing operations
IFRS 6 Exploration for and Evaluation of Mineral Resources
NO AS IN IGAAP
IFRS 7 Financial Instruments : Disclosures
IFRS 8 Operating Segments
IFRS 9 Financial Instruments
IFRIC 2 Members’ Share in Co-operative Entities and Similar Instruments
IFRIC 15 Agreements for the Construction of Real Estate
SIC 32 Intangible Assets – Website Costs
IFRS FRAMEWORK
Principles & objective based; less voluminous “Framework” setting out principles – discusses 5 elements
– assets, liabilities, equity, income, expenses. Conceptual Framework applied when no specific guidance
in any standards Substance over form
Sets out the concepts that underlie the preparation & presentation of financial statements
A platform from which standards are developed
The Framework is not an accounting standard and it does not contain detailed requirements
PARADIGM SHIFT IN THE WAY BUSINESS IS CARRIED OUT
New types of transactions
Novel agreements
Competitive world
Truly global practices
Thus, required additional standards to make them more understandable and apply it consistently by all entities
BASICS OF IFRS
Substance over Form
Fair Value Oriented
Principle based not rule based
Predominance of Statement of Financial Position
IFRS FRAMEWORK
Principles & objective based; less voluminous
“Framework” setting out principles – discusses 5 elements – assets, liabilities, equity, income, expenses.
Conceptual Framework applied when no specific guidance in any standards
Substance over form
Sets out the concepts that underlie the preparation & presentation of financial statements
A platform from which standards are developed
The Framework is not an accounting standard and it does not contain detailed requirements
OBJECTIVE OF FINANCIAL REPORTS
Providing information about the financial position, performance and changes in financial position
Providing information enabling user to take economic decisions
Providing results of stewardship of management and accountability of management for resources entrusted.
Components of financial statements - SOFP ( BS), SOCI(PLA) , OCI, Cash Flows,
Notes,Disclosures, Explanatory statemets etc. BUT NOT Directors Report, MDA
Various USERS OF FINANCIAL STATEMENTS
FRAMEWORK - QUALITATIVE
CHARACTERISTICS OF IFRS
SUBSTANCE OVER FORM
Economic Reality rather than its legal form
NEUTRALITY
PRUDENCE ( Conservatism)
COMPLETENESS
CONSTRAINTS
Timeliness, Balance between Cost and Benefit, Balance Qualitative characteristics, True and Fair
FRAMEWORK – DEFINITIONS
Asset : A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Liability ; A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of the entity’s resources
Equity ; The residual interest in an entity’s assets after deducting all its liabilities
Income : Increases in economic benefits not resulting from contributions made by equity holders.
Expenses : Decreases in economic benefits not resulting from distributions to equity holders.
FRAMEWORK – RECOGNITION
An item is classed as 'recognised' when it is included in the financial statements.
An item should be recognised if it is probable that there will be an inflow or outflow of economic benefits associated with the asset or liability and the asset or liability can be measured reliably.
Revenue should be earned before it is recognised in the income statement.
Expenses are recognised when there is a decrease in an asset or an increase in a liability.
FRAMEWORK – MEASUREMENT
The measurement bases referred to in the IASB Framework and commonly used are:
Historical cost. Assets are recorded at their original cost. Liabilities are recorded at their original amount received or the cash expected to be paid out to settle them;
Current cost. Assets are recorded at the amount that would have to be paid out at the balance sheet date for an equivalent asset. Liabilities are recorded at the value that they could be settled for at the balance sheet date;
Realisable or settlement value. Assets are recorded at the amount that they could be sold for now and similarly liabilities are recorded at the amount expected to be paid out; and
Present value. This measurement basis involves discounting future cash flows to take account of the time value of money.
Although the IASB Framework includes an explanation of the different measurement options, IFRS are primarily based on historical cost and present value (though later standards move towards fair value approach)
BASIC TECHNIQUES EMBEDDED IN IFRS
Substance over the Form Fair Value, and Present Value Cash and Cash Equivalent Policy V/S Estimates Depreciation is Estimates Investment Property Combining and Segmenting Transactions
OVERALL PRINCIPLE BASED AND NOT RULE BASED UNDERSTAND THE ECONOMIC REALITY OF THE
TRANSACTIONS LOGICAL CONCLUSION APPLYING FRAMEWORK
PRINCIPLES
CONCEPTS – FAIR VALUE
The PRICE that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date i.e. Exit Price
Price : At the Principle mkt ( or most advantageous market under current market conditions)
Asset or Liability : stand alone or group (CGU); Highest and best use
Transaction : in a principal or most advantageous mkt
Mkt Participants : Buyers and sellers in principal mkt, are Independent of each other , knowledge abt asset or liability, willing to enter into transaction
THUS MAKT BASED AND NOT ENTITY SPECIFIC MEASUREMENT
FEW TRANSACTIONS – CLARITY REQUIRES
Preference Share Capital – Is it Capital ?
Zero % Debentures / Loans – Is it a reality ?
Proposed Dividend – Liability arises when ?
Convertible Debenture – Value of Option ?
Decommissioning Cost -When to Account? Reversal of Impairment Loss / NRV of
Inventory in subsequent period
NEW WAY
Vehicle with Additional Warranty – Segmenting Goods sold and repurchase at a later date -
Combining SIC 15 – Operating Lease - Incentives IFRIC 4 : Determining whether an arrangement
contains lease IFRIC 13 – Customer Loyalty Program IFRIC18 – Transfer of Assets from Customers IFRIC 15 ; Agreements for the Construction of
Real Estate
PPE – Definition of Cost , Replacement of Major Part, Decommissioning Cost
Depreciation to reflect the pattern in which asset’s economic benefits are consumed
Life of the Assets is a entity specific and not be confused with the economic life of the PPE
IFRIC 12 : Service Concession Arrangement