ifrs adoption- the way ahead

8/8/2019 ifrs adoption- the way ahead

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AgendaSECTION 1 Indian GAAP -Current Framework

SECTION 2 International Framework (IFRS)-Background & New Era

SECTION 3 IFRS Convergence Approach

SECTION 4 The Task Ahead- How well are we prepared?

Overall objective of this session is to summarize the background

of Indian accounting standards and financial reporting

frameworkcurrent one and the proposed one


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Current Framework for banks Who

are the key authorities here ?

Professional & Technical Expert Bodies Legal and Regulatory Authorities

ICAI (Council and Accounting Standard Board)

jASB was formed in 1977 and has been issuing

accounting standards (ASs) since then

jASs received Legal recognition in 1999 when

section 211(3C) of Companies Act 1956 was

amended to this effect

MCA (Ministry of Corporate Affairs)

j Notifies or prescribes accounting

standards/practices to be followed by the

companies the standards notified are basically

ASs recommended by ICAI and NACAS

RBI (Reserve Bank of India)

j Being a Banking sector Regulator, RBI issues

Circulars, Guidelines on specific

topics/accounting matters affecting banks

SEBI (Securities & Exchange Board of India)

j Being regulator of securities market, SEBI canissue circulars/notification on accounting matters

for listed entities

NACAS

(National Advisory Committee on Accounting

Standards)

jConstituted in 1999 u/s 210A of Co. Act 1956

jIts Role is to Advise Central Govt. on

formulation of and laying down of ASs forcompanies or a class of companies

jEffectively, it reviews and clears ASs of ICAIfor notification by MCA under Co. Act 1956

RBI and SEBIhave a representation onboth the above bodies

jOverall there is a well balanced framework to take care of all stakeholders.

jIndian ASs have generally been in line with IFRS principles or concepts, definitely so in case of recent

standards.


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International Framework

Background and New EraWho issues the international standards ?

International standards are issued by the International Accounting Standards Board (IASB) of IASC Foundation.

IASC Foundation refers to International Accounting Standards Committee Foundation which is a not-for-profitcorporation incorporated in USA but primarily operates from London, UK.

What is the genesis of the international standards?

Recognizing the need for international harmonization of accounting standards, way back in 1973, professional

accountancy bodies of leading economies such as UK, USA, Japan, Germany, Canada, Australia etc. establishedan international body called International Accounting Standards Committee (IASC).

Accounting standards were issued by Board of IASC and were titled as International Accounting Standards(IAS).

Dawn of New Era Year 2001 However, there was emergence of country level accounting standards called National GAAPs (generally accepted

accounting principles) e.g. UK GAAP, US GAAP, Indian GAAP and so on. Over a period of time, there were many

gaps between these country level GAAPs. As a result, around the year 2000, the international fraternity of Accountants did a thorough introspection and

decided to revise the whole international framework as follows:

IASC Foundation was established.

Standards setting body was renamed as International Accounting Standards Board (IASB).

Title of new standards issued was changed to International Financial Reporting Standards (IFRS). Note :thereare certain standards with title IAS still valid, of course there are revisions/refinements in those.


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International Framework Background

and New EraWhat does the term IFRS denote ?Strictly speaking, the term IFRS denotes the following pronouncements under International GAAP:

International Financial Reporting Standards (IFRS)

International Accounting Standards (IAS) those which are still valid

Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the Standing Interpretation Committee (SIC).

However, in practice IFRS is interchangeably used to denote individual accounting standards as well as International GAAP collectively.

21st century has ushered in a Golden Era for IFRS.The notable events are:

A) Adoption of IFRS by EU for listed companies from 1st January 2005

B) China adopting accounting standards substantially in line with IFRS in 2006

C) US SEC removing reconciliation requirement for non-US companies in 2007

D) Brazil, Canada, India, Japan establishing IFRS convergence timelines in 2007


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International Framework

Governance overview ?

MonitoringBoard

Trustees

IASB(International

Accounting Standards

Board)

j Its membership comprises EU, IOSCOs Technical Committee & Emerging

Markets Committee, US SEC, Japanese Financial Services Agency and as

an observer Chairman of Basel Committee on BankingSupervision (BCBS)

j A formal link ( via MOU) b/w Trustees and the above PublicAuthorities

j Responsible for giving strategic direction to and raising funds for IASCF.

Also, responsible for appointing members of the IASB, IFRIC and SAC

j Total 22 Trustees representing various regions of the world, current mandate

is to have SIX members each from Asia/Oceanic, Europe, North Americaregions and balance FOUR from any area. (Mr. Mohandas Pai,

Director, Infosys Technologies Ltd is a Trustee member)

j IASB is solely responsible for setting accounting standards and developing

and pursuing the Technical agenda

j Again, to have good international representation, there are mandatory

numberof members required from various regions of the world

IFRIC(International Financial Reporting

StandardsInterpretationCommittee)

j Its role is to interpret application of IASs/IFRSs and provide timely guidance

on financial reporting issues

SAC(Standards Advisory

Council)

j Advise IASB on technical agenda and priorities; communicate views of

various organizations/individuals.(Mr. Shailesh Haribhakti,

Managing Partner & CEO of M/s Haribhakti & co. is a

member)


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IFRS Convergence Timeline and its

Approach in India

1) In toto-adoption (Auto Mode) i.e. simply start using IFRSs from a selected date

and depend entirely on IASB for formulating standards

2) Carve out approach i.e. review IFRSs issued by IASB, carve out sections not

required and endorse rest of the IFRSs for local use (approach followed byEuropean Union)

3) Local equivalents approach i.e. develop & roll out IFRS equivalent LocalAccounting Standards (Approach followed some countries e.g. Australia)

Indias accounting standard setters and the Central Government have selected

IFRS as our new framework and announced the adoption date as 1st April 2011.

What are the

adoption

approaches

available?

Approach

chosen by us

?

Option (3) above. It is stated that local accounting standard setters will bear

in mind that the above approach ensures unreserved statement of

compliance with IFRSs.


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The task ahead how well are we

prepared? There are many Indian standards which have major differences with IFRSs. The key ones are: AS 1 (IAS 1) Disclosure of accounting policies, AS 10 (IAS 16 ) Accounting for f ixed assets AS 22 (IAS 12) Accounting for taxes on income, AS 17 (IFRS 8) Segment reporting

AS 9 (IAS 18)- Revenue recognition, AS 11 (IAS 21- The effects of changes in foreign exchange rates , AS 14 (IFRS 3) Accounting for amalgamations, AS 19 (IAS 17) Leases, AS 15 (IAS 19) Employee Benefits, AS 28 (IAS 36) Impairmentof assets

There are few IFRSs where either Indian standards are under preparation or have not yet come into force.These include a few critical ones relating to financial instruments AS 30 (IAS 39), AS 31 (IAS 32), AS 32 (IFRS7) & AS xx (IAS 40) Investment properties

Framework for the preparation and presentation of financial statements needs alignment with IFRS

We have a Marathon ahead

Accounting

Standards

Setters

ICAI, NACAS

Legal and

Regulatory

Framework

j Major alignments required in the legal and regulatory framework

BankingRegulations Act 1949 & RBI circulars

CompaniesAct 1956

Industry -

Preparers and

Users of F/S

j Need a focussed approach and sensitization at all levels of the organization

j However, in the corporate world, some signs ofEnthusiasm and Leadership

visible by early adoption of standards on financial instruments viz. AS 30/31 (e.g.

Infosys, )


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e tas a ea w at s requ re to

win the Marathon?

Teamwork & Partnershiprequired within each bank and among all external stakeholders

IFRS Convergence is not just a Finance/Accounting issue

but Entity wide issue and also it is a Country Wide issue.

ifrs adoption- the way ahead

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