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A PROJECT REPORT

ON

International Financial Reporting Standards

UNDER THE SUBJECT

Advanced Financial Accounting

SUBMITTED BY

HITESH M VEKHANDE

M.Com Part -1(Sem-2)

Batch 2013-2014

UNDER THE GUIDANCE OF

Dr.: J.K.KAVTEKAR

A report submitted in partial fulfilment of requirements of

Ssss ARTS,COMMERCE & SCIENCE COLLEGE, WADA

(UMROTHE ROAD, PARLI NAKA, WADA, THANE 421303

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DECLARATION

I hereby declare that the project title International Financial Reporting

Standards submitted as a part of the study of Master Of Commerce (SEM-2) is

my original work. has been done under the guidance of Dr. J.K.Kavtekar.

The project has not formed the basis for the award of any other degree,

diploma, associate ship, fellowship or any other similar titles.

Date:

Place: ` (Hitesh .M. Vekhande)

(M.Com Sem-2)

(Roll no:5036)

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ARTS,COMMERCE & SCIENCE COLLEGE WADA

AT ,Post, Taluka – Wada, District – Thane. Pin Code – 421 303

This is to certify that the undersigned have assessed and evaluated

the project on “Advanced Financial Accounting” submitted by Hitesh

Madhav Vekhande student of M.Com. – Part - I (Semester – II) for the

academic year 2013-14.

This project is original to the best of our knowledge and has been

accepted for Internal Assessment.

Signature Of The Guide Signature Of The Principle

(Dr. J.K.Kavtekar) (Prin.N.K.Phadke.)

_________________ __________________

Signature Of Examiner Signature Of Co-Ordinator

Acknowledgement

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I express my sincere thanks to my all M.COM faculty, for guiding me right

form the inception till the successful completion of the project. I sincerely

acknowledge them for extending their valuable guidance, support for literature

PROF: J.K.KAVTEKAR, critical reviews of project and the report and above all

the moral support she had provided to me with all stages of this project. This

project has helped us to learn the intricacies of restructuring and we are grateful to

them for making this learning possible.

Last but not the least we would like to thank each and every one who has

Helped us in our learning process.

(Hitesh .M. Vekhande)

T ABLE OF CONT ENT

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Sr. No.

Particulars

Page No.

01 Introduction 05

02 Objective Of IFRS 06

03 Elements Of Financial Statements 08

04 Recognition Of Elements Of Financial Statements 10

05 Structure Of The IFRS Regulatory System 11

06 List Of IFRS 13

07 IFRS In India 18

08 H How IFRS Responding To Business 19

09 Corporate Impacted By IFRS In India 20

10 Differences Between Indian GAAP And IFRS 21

11 Chart Of Basis Difference 33

12 Initiation Of Ifrs Implementation In India 34

13 Current Cenario 35

14 Transition IFRS Methodology 37

15 Recommendations And Measures For Ifrs Implementation In India 39

16 Conclusion 40

17 Bibliography 41

Introduction

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International Financial Reporting Standards (IFRS) are designed as a common global

language for business affairs so that company accounts are understandable and comparable

across international boundaries. They are a consequence of growing international shareholding

and trade and are particularly important for companies that have dealings in several countries.

They are progressively replacing the many different national accounting standards. The rules to

be followed by accountants to maintain books of accounts which is comparable, understandable,

reliable and relevant as per the users internal or external.

IFRS, with the exception of IAS 29 Financial Reporting in Hyperinflationary

Economies and IFRIC 7 Applying the Restatement Approach under IAS 29, are authorized in

terms of the historical cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the constant

purchasing power paradigm.

IFRS began as an attempt to harmonize accounting across the European Union but the

value of harmonization quickly made the concept attractive around the world. They are

sometimes still called by the original name of International Accounting Standards (IAS). IAS

were issued between 1973 and 2001 by the Board of the International Accounting Standards

Committee (IASC). On 1 April 2001, the new International Accounting Standards Board (IASB)

took over from the IASC the responsibility for setting International Accounting Standards.

During its first meeting the new Board adopted existing IAS and Standing Interpretations

Committee standards (SICs). The IASB has continued to develop standards calling the new

standards International Financial Reporting Standards.

Definition

A set of international accounting standards stating how particular types of transactions

and other events should be reported in financial statements. IFRS are issued by the International

Accounting Standards Board.

The goal with IFRS is to make international comparisons as easy as possible. This is difficult because, to a large extent, each country has its own set of rules. For example, U.S. GAAP are different from Canadian GAAP. Synchronizing accounting standards across the globe is an ongoing process in the international accounting community.

Object ive of ifr s Financial statements are a structured representation of the financial position and

financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that

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is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management's stewardship of the resources entrusted to it.

To meet this objective, financial statements provide information about an entity's: (a) assets; (b) liabilities; (c) equity; (d) income and expenses, including gains and losses; (e) contributions by and distributions to owners in their capacity as owners; (f) cash flows. This information, along with other information in the notes, assists users

of financial statements in predicting the entity's future cash flows and, in particular, their timing and certainty.

The following are the general features in IFRS:

Fair presentation and compliance with IFRS: Fair presentation requires the faithful representation of the effects of the transactions,

other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework of IFRS. Going concern:

Financial statements are present on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. Accrual basis of accounting:

An entity shall recognise items as assets, liabilities, equity, income and expenses when they satisfy the definition and recognition criteria for those elements in the Framework of IFRS. Materiality and aggregation:

Every material class of similar items has to be presented separately. Items that are of a dissimilar nature or function shall be presented separately unless they are immaterial. Offsetting

Offsetting is generally forbidden in IFRS.[6] However certain standards require offsetting when specific conditions are satisfied (such as in case of the accounting for defined benefit liabilities in IAS 19 [7] and the net presentation of deferred tax liabilities and deferred tax assets in IAS 12[8] ).

Frequency of reporting: IFRS requires that at least annually a complete set of financial statements is

presented.[9] However listed companies generally also publish interim financial statements (for which the accounting is fully IFRS compliant)for which the presentation is in accordance with

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IAS 34 Interim Financing Reporting.

Comparative information: IFRS requires entities to present comparative information in respect of the preceding

period for all amounts reported in the current period's financial statements. In addition comparative information shall also be provided for narrative and descriptive information if it is relevant to understanding the current period's financial statements.[10] The standard IAS 1 also requires an additional statement of financial position (also called a third balance sheet) when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. This for example occurred with the adoption of the revised standard IAS 19 (as of 1 January 2013) or when the new consolidation standards IFRS 10-11-12 were adopted (as of 1 January 2013 or 2014 for companies in the European Union).[11]

Consistency of presentation: IFRS requires that the presentation and classification of items in the financial statements

is retained from one period to the next unless: (a) it is apparent, following a significant change in the nature of the entity's operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in IAS 8; or (b) an IFRS standard requires a change in presentation

Elements of financial s tatements

The elements directly related to the measurement of the statement of financial position include:

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Asset: An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. Liability: A liability is a present obligation of the entity arising from the past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits, i.e. assets. Equity: Nominal equity is the nominal residual interest in the nominal assets of the entity after deducting all its liabilities in nominal value.

The financial performance of an entity is presented in the statement of comprehensive

income, which consists of the income statement and the statement of other comprehensive income (usually presented in two separate statements). Financial performance includes the following elements (which are recognised in the income statement or other comprehensive income as required by the applicable IFRS standard):

Revenues: increases in economic benefit during an accounting period in the form of inflows or enhancements of assets, or decrease of liabilities that result in increases in equity. However, it does not include the contributions made by the equity participants (for example owners, partners or shareholders). Expenses: decreases in economic benefits during an accounting period in the form of outflows, or depletions of assets or incurrences of liabilities that result in decreases in equity. However, these don't include the distributions made to the equity participants.

Results recognised in other comprehensive income are limited to the following specific circumstances:

Remeasurements of defined benefit assets or liabilities (as defined in the standard IAS

19) Increases or decreases in the fair value of financial assets classified as available for sale

(with the exception of impairment losses)(as defined in the standard IAS 39) Increases or decreases resulting from the application of a revaluation of property, plant

and equipment or intangible assets Exchange differences resulting from the translation of foreign operations (subsidiary,

associate, joint arrangement or branch of a reporting entity, the activities of which are conducted in a country or currency other than those of the reporting entity) according to the standard IAS 21

the portion of the gain or loss on the hedging instrument in a cash flow hedge (or a hedge of a net investment in a foreign operation, as this is accounted similarly ) that is determined to be an effective hedge

The statement of changes in equity consists of a reconciliation of the changes in equity in which the following information is provided:

total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests;

for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8; and

for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:

profit or loss; other comprehensive income; and

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transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

Statement of Cash Flows

Operating cash flows: the principal revenue-producing activities of the entity and are generally calculated by applying the indirect method, whereby profit or loss is adjusted for the effects of transaction of a non-cash nature, any deferrals or accruals of past or future cash receipts or payments, and items of income or expense associated with investing or financing cash flows

Investing cash flows: the acquisition and disposal of long-term assets and other investments not included in cash equivalents. These represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities.

Financing cash flows: activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. These are important because they are useful in predicting claims on future cash flows by providers of capital to the entity

Notes to the Financial Statements: These shall (a) present information about the basis of preparation of the financial statements and the specific accounting policies used; (b) disclose the information required by IFRSs that is not presented elsewhere in the financial statements; and (c) provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.

Recognit ion of e lements of financial s tatements An item is recognized in the financial statements when:

it is probable future economic benefit will flow to or from an entity. the resource can be reliably measured

In some cases specific standards add additional conditions before recognition is possible or

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prohibit recognition all together. An example is the recognition of internally generated brands, mastheads, publishing titles, customer lists and items similar in substance, for which recognition is prohibited by IAS 38. In addition research and development expenses can only be recognised as an intangible asset if they cross the threshold of being classified as 'development cost'. Whilst the standard on provisions, IAS 37,prohibits the recognition of a provision for contingent liabilities, this prohibition is not applicable to the accounting for contingent liabilities in a business combination. In that case the acquirer shall recognise a contingent liability even if it is not probable that an outflow of reseources benefits will be required.

Measurement of the elements of financial statements Par. 99. Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement. This involves the selection of the particular basis of measurement. Par. 100. A number of different measurement bases are employed to different degrees and in varying combinations in financial statements. They include the following: (a) Historical cost. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. (b) Current cost. Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently. (c) Realisable (settlement) value. Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. Assets are carried at the present discounted value of the future net cash inflows that the item is normal course of business. Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business. Par. 101. The measurement basis most commonly adopted by entities in preparing their financial statements is historical cost. This is usually combined with other measurement bases. For example, inventories are usually carried at the lower of cost and net realisable value, marketable securities may be carried at market value and pension liabilities are carried at their present value. Furthermore, some entities use the current cost basis as a response to the inability of the historical cost accounting model to deal with the effects of changing prices of non-monetary asset

Structure of the IFRS r egulatory system

The IFRS Foundation (formerly known as the International Accounting Standards Committee Foundation (IASC)) is the supervisory body for the IASB and is responsible for governance issues and ensuring each member body is properly funded.

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The principal objectives of the IFRS Foundation are to:

develop a set of high quality, understandable, enforceable and globally accepted financial reporting standards promote the use and rigorous application of those standards to take account of the financial reporting needs of emerging economies and small and medium sized entities bring about the convergence of national and international financial reporting standards. International Accounting Standards Board (IASB)

The IASB is the independent standard setting body of the IFRS foundation. Its members are responsible for the development and publication of IFRSs and interpretations developed by the IFRS IC. Upon its creation the IASB also adopted all existing International Accounting Standards. All of the most important national standard setters are represented on the IASB and their views are taken into account so that a consensus can be reached. All national standard setters can issue IASB discussion papers and exposure drafts for comment in their own countries, so that the views of all preparers and users of financial statements can be represented. Each major national standard setter 'leads' certain international standard-setting projects. The IFRS Interpretations Committee (IFRS IC)

The IFRS IC reviews widespread accounting issues (in the context of IFRS) on a timely basis and provides authoritative guidance on these issues (IFRICs). Their meetings are open to the public and, similar to the IASB, they work closely with national standard setters. The IFRS Advisory Council (IFRS AC)

The IFRS AC is the formal advisory body to the IASB and the IFRS Foundation. It is comprised of a wide range of members who are affected by the IASB's work. Their objectives include: Advising the IASB on agenda decisions and priorities in the their work, informing the IASB of the views of the Council with regard to major standard-setting projects, and giving other advice to the IASB or to the Trustees. Development of an IFRS The procedure for the development of an IFRS is as follows: The IASB identifies a subject and appoints an advisory committee to advise on the issues. The IASB publishes an exposure draft for public comment, being a draft version of the intended standard.

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Following the consideration of comments received on the draft, the IASB publishes the final text of the IFRS. At any stage the IASB may issue a discussion paper to encourage comment. The publication of an IFRS, exposure draft or IFRIC interpretation requires the votes of at least eight of the 15 IASB members

List of I FRS

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

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7 Financial Instruments: Disclosures 8 Operating Segments IFRS 1

Time Adoption of International Financial Reporting Standards A first-time adopter is an entity that, for the first time, makes an explicit and unreserved statement that its general purpose financial statements comply with IFRSs. An entity can also be a first-time adopter if, in the preceding year, its published financial statements asserted: §Compliance with some but not all IFRSs. §Included only a reconciliation of selected figures from previous GAAP to IFRSs. (Previous GAAP means the GAAP that an entity followed immediately before adopting to IFRSs.) However, an entity is not a first-time adopter if, in the preceding year, its published financial statements asserted: §Compliance with IFRSs even if the auditor's report contained a qualification with respect to conformity with IFRSs. §Compliance with both previous GAAP and IFRSs. Adjustments required to move from previous GAAP to IFRSs at the time of first-time adoption §Recognize all assets and liabilities whose recognition is required by IFRS §Not recognize items as assets or liabilities if IFRS does not permit such recognition §Reclassify items that do not match IFRS requirements §Apply IFRS in measuring all recognized assets and liabilities §Difference amount is adjusted with Retained Earning Recognition and measurement §Opening IFRS Balance Sheet §Date of transition to IFRS §Same accounting policies §Throughout all periods Optional exceptions §Business combinations that occurred before opening balance sheet date §Property, plant, and equipment, intangible assets, and investment property carried under the cost model §IAS 19 - Employee benefits: actuarial gains and losses §IAS 21 - Accumulated translation reserves §Compound financial instruments §Transition date for subsidiaries etc §FV measurement §Share-based payments §Comparatives for IAS39 §Comparatives for Insurance §Decommissioning Liabilities §Arrangements containing leases §Comparatives for exploration §Designation of financial assets and liabilities Mandatory exceptions §IAS 39 - Derecognition of financial instruments §IAS 39 - Hedge accounting §Estimates §Assets held-for-sale and discontinuing operations Different IFRS adoption dates of investor and investee A parent or investor may become a first-time adopter earlier than or later than its subsidiary, associate, or joint venture investee. IFRS 2 –

Share-based Payment A share-based payment is a transaction in which the entity

receives or acquires goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity. The accounting requirements for the share-based payment depend on how the transaction will be settled, that is, by the issuance of (a) equity, (b) cash, or (c) equity or cash. IFRS 2 applies to all entities. There is no exemption for private or smaller entities. Furthermore, subsidiaries using their parent's or fellow subsidiary's equity as consideration for goods or services are within the scope of the Standard. There are two exemptions to the general scope principle. First, the issuance of shares in a business combination should be accounted for under IFRS 3 Business Combinations. However, care should be taken to distinguish share-based payments related to the acquisition from those related to employee services. Second, IFRS 2 does not address share-based payments within the scope of paragraphs 8-10 of IAS 32 Financial Instruments: Disclosure and Presentation, or paragraphs 5-7 of IAS 39 Financial Instruments: Recognition and Measurement. Therefore, IAS 32 and 39 should be applied for commodity-based derivative contracts that may be settled in shares or rights to shares.

In principle, transactions in which goods or services are received as consideration for equity instruments of the entity should be measured at the fair value of the goods or services

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received. Only if the fair value of the goods or services cannot be measured reliably would the fair value of the equity instruments granted be used. §Measuring employee share options. However this is not simply measured at the date of grant. An entity would have to remeasure intrinsic value at each reporting date until final settlement. §Performance conditions. IFRS 2 makes a distinction between the handling of market based performance features from non-market features. Market conditions are those related to the market price of an entity's equity, such as achieving a specified share price or a specified target based on a comparison of the entity's share price with an index of share prices of other entities. Market based performance features should be included in the grant-date fair value measurement. However, the fair value of the equity instruments should not be reduced to take into consideration non-market based performance features or other vesting features IFRS 3 –

Business Combinations A business combination is a transaction or event in which an acquirer obtains control of one or more businesses.. A business is defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return directly to investors or other owners, members or participants Acquirer must be identified. Under IFRS 3, an acquirer must be identified for all business combinations Acquisition method. The acquisition method (called the 'purchase method' in the 2004 version of IFRS 3) is used for all business combinations. Steps in applying the acquisition method are: 1. Identification of the 'acquirer' - the combining entity that obtains control of the acquiree. 2. Determination of the 'acquisition date' - the date on which the acquirer obtains control of the acquiree. 3. Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest (NCI, formerly called minority interest) in the acquiree. 4. Recognition and measurement of goodwill or a gain from a bargain purchase option. Measurement of acquired assets and liabilities. Assets and liabilities are measured at their acquisition-date fair value (with a limited number of specified exceptions). Goodwill Goodwill is measured as the difference between: the aggregate of (i) the acquisition-date fair value of the consideration transferred, (ii) the amount of any NCI, and (iii) in a business combination achieved in stages , the acquisition-date fair value of the acquirer's previously-held equity interest in the acquiree; and the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed (measured in accordance with IFRS 3). If the difference above is negative, the resulting gain is recognised as a bargain purchase in profit or loss. IFRS 4 –

Insurance Contracts An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. The IFRS applies to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds, except for specified contracts covered by other IFRSs. It does not apply to other assets and liabilities of an insurer, such as financial assets and financial liabilities within the scope of IAS 39 Financial

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Instruments: Recognition and Measurement. Furthermore, it does not address accounting by policyholders. The IFRS exempts an insurer temporarily (ie during phase I of this project) from some requirements of other IFRSs, including the requirement to consider the Framework in selecting accounting policies for insurance cont.. However, The IFRS permits an insurer to change its accounting policies for insurance contracts only if, as a result, its financial statements present information that is more relevant and no less reliable, or more reliable and no less relevant. In particular, an insurer cannot introduce any of the following practices, although it may continue using accounting policies that involve them: a. measuring insurance liabilities on an undiscounted basis. b. measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current fees charged by other market participants for similar services. c. using non-uniform accounting policies for the insurance liabilities of subsidiaries. The IFRS permits the introduction of an accounting policy that involves re measuring designated insurance liabilities consistently in each period to reflect current market interest rates (and, if the insurer so elects, other current estimates and assumptions). Without this permission, an insurer would have been required to apply the change in accounting policies consistently to all similar liabilities IFRS 5 –

Non-current Assets Held for Sale and Discontinued Operations The IFRS: •adopts the classification ‘held for sale’. a)introduces the concept of a disposal group, being a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. b)classifies an operation as discontinued at the date the operation meets the criteria to be classified as held for sale or when the entity has disposed of the operation. §An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. §present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. §For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active program to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except as permitted by paragraph 9, and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

IFRS 6-

Exploration for and Evaluation of Mineral Resources §Exploration and evaluation expenditures are expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. §Exploration for and evaluation of mineral resources is the search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of

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extracting the mineral resource. §Exploration and evaluation assets are exploration and evaluation expenditures recognized as assets in accordance with the entity’s accounting policy.

The IFRS: a)permits an entity to develop an accounting policy for exploration and

evaluation assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8. Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies. b)requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. c)varies the recognition of impairment from that in IAS 36 but measures the impairment in accordance with that Standard once the impairment is identified. §An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment. IFRS 7:--

Financial Instruments: Disclosures Balance Sheet :--Disclose the significance of financial instruments for an entity's financial position and performance.This includes disclosures for each of the following categories: §Financial assets & Financial liabilities measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition. §Held-to-maturity investments. §Loans and receivables. §Available-for-sale assets. . §Financial liabilities measured at amortised cost. §The amount that was removed from equity and included in profit or loss for the period. §The amount that was removed from equity during the period and included in the initial measurement of the acquisition cost or other carrying amount of a non-financial asset or non- financial liability in a hedged highly probable forecast transaction. §For fair value hedges, information about the fair value changes of the hedging instrument and the hedged item.

§Hedge ineffectiveness recognised in profit and loss (separately for cash flow hedges

and hedges of a net investment in a foreign operation). §Information about the fair values of each class of financial asset and financial liability, §Comparable carrying amounts. §Descripttion of how fair value was determined. §Detailed information if fair value cannot be reliably measured. §Note that disclosure of fair values is not required when the carrying amount is a reasonable approximation of fair value, such as short-term trade receivables and payables, or for instruments whose fair value cannot be measured reliably. IFRS 8-

Applies to the separate or individual financial statements of an entity (and to the consolidated financial statements of a group with a parent): whose debt or equity instruments are traded in a public market; or that files, or is in the process of filing, its (consolidated) financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market. However, when both separate and consolidated financial statements for the parent are presented in a single financial report,

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segment information need be presented only on the basis of the consolidated financial statements. Operating Segments §IFRS 8 defines an operating segment as follows.

An operating segment is a component of an entity: §that engages in business activities

from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); §whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; §its reported revenue, from both external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments; or §the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of

(i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss; or §its

assets are 10 per cent or more of the combined assets of all operating segments. If the total external revenue reported by operating segments constitutes less than 75 per

cent of the entity's revenue, additional operating segments must be identified as reportable segments (even if they do not meet the quantitative thresholds set out above) until at least 75 per cent of the entity's revenue is included in reportable segments

I f r s in in d ia Why IFRS

International Financial Reporting Standards (IFRS) convergence, in recent years, has

gained momentum all over the world. As the capital markets become increasingly global in

nature, more and more investors see the need for a common set of accounting standards.

India being one of the key global players, migration to IFRS will enable Indian entities to

have access to international capital markets without having to go through the cumbersome

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conversion and filing process. It will lower the cost of raising funds, reduce accountants’ fees and

enable faster access to all major capital markets. Furthermore, it will facilitate companies to set

targets and milestones based on a global business environment rather than an inward

perspective.

Furthermore, convergence to IFRS, by various group entities, will enable management to bring all components of the group into a single financial reporting platform. This will eliminate the need for multiple reports and significant adjustment for preparing consolidated financial statements or filing financial statements in different stock exchanges

How the world is converging into IFRS IFRS is used in many parts of the world, including the European Union, Hong Kong, Australia,

Malaysia, Pakistan, GCC countries, Russia, South Africa, Singapore and Turkey. As in December

2011 more than 110 countries around the world, including all of Europe, currently require or

permit IFRS reporting. Approximately 85 of those countries require IFRS reporting for all domestic

listed companies.

India and IFRS In India, there will be two set of Accounting Standards – 1.The existing Indian Accounting Standards (IAS) – will be applicable to all companies which

are not required to adopt IFRS converged standards. 2. Indian Accounting Standards, as converged with IFRS (Ind-AS) – will be applicable to

companies operating in India in phased manner. The date of implementation of the Ind-AS is yet

to be notified.

There are conceptual differences between IAS and IFRS. Keeping in view the extent of gap

between IAS, Ind-AS and the corresponding IFRSs – conversion process would need careful

handling. By introducing a new company law, the Indian Government has initiated the process

to amend the legal and regulatory framework. The conversion would involve, Impact Assessment, Revisiting Accounting Policies and thereafter

changing the Accounting & Operational Systems (including ERP) in order to be fully compliant

with Ind - AS or IFRS

How ifrs r esponding to bus iness

The impact of IFRS

Possible threats to your business Possible threats to your business include the following:

The introduction of IFRS will change the reported results and financial position of your business and potentially introduce greater volatility into reporting

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The perception of stakeholders and the market is likely to be affected by these changes

Conversion to IFRS will have unique repercussions for each country, depending on

how each national GAAP differs. In the case of India, there are a number of differences and similarities that need to be carefully looked at.

IFRS conversion is likely to place additional burdens on existing resources

IFRS may be more complex to apply on an ongoing basis especially with rapid

changes in requirements

Many companies will be affected by the complexities of IAS 39 ‘Financial Instruments – Recognition and Measurement’

Opportunities for your business :-

for your business include the following:

A common set of accounting principles will help companies with operations in differen t countries and facilitate cross border transactions

IFRS will potentially better reflect the underlying economics of a transaction

The single reporting regulations will facilitate greater access to the financial

markets at a lower cost of capital

IFRS will provide a high quality, global set of standards upon which to monitor financial performance. This should facilitate improved communications with analysts, investors, financial markets and other users of the financial statements

The conversion process is an appropriate time to re-engineer

information systems, internal management reporting and internal performance measures

It is also an excellent opportunity to ensure that financial information is

obtained in the most effective and efficient way

C o r p o r a t e Im p a c t e d b y I F R S i n Ind i a

In the initial phase, the large entities are expected to adopt Ind-AS The large entities

might be: - Public Listed Companies forming part of Stock Exchange Index-All companies above a

particular level of net worth.

- Indian subsidiary of foreign companies, if so required by the parent company for consolidation

purpose

21

Some Key Challenges to Implementation a) Amendments in the Law- IFRS will have a bearing on the legal provisions as are presently set out in the Indian Income Tax Act, Companies Act, etc. b) Impact on financial results- Financial reports will experience a lot of changes. For example treatmentofdepreciation differs. Hence, the value of assets as well the profitability of the organization may swing, which, in turn, may impact the net worth. c) User awareness and training- Many people are yet not aware of IFRS, their complexities and impact. A change in the reporting format will require awareness of these new norms and

systems, training and education, both for the professional as well the user.

ASA - Your Partner in Change ASA has established a center of excellence for IFRS. The team includes chartered accountants

certified in IFRS. We are fully geared to provide the following services a) Training (3-5 days): We have both general and industry specific training modules on IFRS.

Our certified trainers would help your users to understand the IFRS and its key differences

with IAS. b) Impact Analysis (3-6 weeks): Our detailed checklist helps to determine the impact of

conversion on different stakeholders of the company viz. promoters, investors, shareholders,

regulators, etc. c) Conversion (3-4 months): We would take the company through the process of conversion

including changes to accounting/opera tionalsystems). We follow template based approach

in order to fast track the process of conversion, besides coordinating the conversion activities

with the concerned IT vendor. d) Accounting Support: The conversion process would lead to additional work in relation to

accounting or reconciliation. We could provide appropriate staff to close the gap.

ASA has contributed in many seminars and conferences, and has arranged client

specific workshops as regards the various aspects of IFRS conversion. Being a member of

NIS Global, an international association of independent accounting firms, we are able to

bring to bear experience of other member firms in Europe, Japan etc which assisted their

clients to undergo the process of IFRS conversion

differences between Indian GAAP and IFRS

The consolidated financial statements of the Group for the year ended 31 December 2012

with comparatives as at 31 December 2011 are prepared in accordance with International

Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC)

interpretations as adopted by the European Union.

22

IFRS differs in certain significant respects from Indian Generally Accepted Accounting

Principles (GAAP). Such differences involve methods for measuring the amounts shown in the

financial statements of the Group, as well as additional disclosures required by Indian GAAP.

Set out below are descriptions of certain accounting differences between IFRS and Indian

GAAP that could have a significant effect on profit attributable to parent company shareholders

for the year ended 31 December 2012 and 31 December 2011 and total parent company

shareholders’ equity as at the same date. This section does not provide a comprehensive analysis

of such differences. In particular, this description considers only those Indian GAAP

pronouncements for which adoption or application is required in financial statements for years

ended on or prior to 31 December 2012. The Group has not quantified the effect of differences

between IFRS and Indian GAAP, nor prepared consolidated financial statements under Indian

GAAP, nor undertaken a reconciliation of IFRS and Indian GAAP financial statements. Had the

Group undertaken any such quantification or preparation or reconciliation, other potentially

significant accounting and disclosure differences may have come to its attention that are not

identified below. Accordingly, the Group does not provide any assurance that the differences

identified below represent all the principal differences between IFRS and Indian GAAP relating

to the Group. Furthermore, no attempt has been made to identify future differences between

IFRS and Indian GAAP.

Finally, no attempt has been made to identify all differences between IFRS and Indian

GAAP that may affect the financial statements as a result of transactions or events that may

occur in the future.

In making an investment decision, potential investors should consult their own

professional advisers for an understanding of the differences between IFRS and Indian GAAP

and how those differences may have affected the financial results of the Group. The summary

does not purport to be complete and is subject and qualified in its entirety by reference to the

pronouncements of the International Accounting Standards Board (IASB), together with the

pronouncements of the Indian accounting profession.

Changes in accounting policy

IFRS

Changes in accounting policy are applied retrospectively. Comparatives are restated and

the effect of period(s) not presented is adjusted against opening retained earnings of the earliest

year presented. Policy changes made on the adoption of a new standard are made in accordance

with that standard’s transitional provisions.

23

Indian GAAP

The cumulative amount of the change is included in the income statement for the period

in which the change is made except as specified in certain standards where the change during the

transition period resulting from adoption of the standard has to be adjusted against opening

retained earnings and the impact disclosed.

Where a change in accounting policy has a material effect in the current period, the amount by

which any item in the financial statements is affected by such change should also be disclosed to

the extent ascertainable. Where such an amount is not ascertainable this fact should be indicated.

Functional and presentation currency

IFRS

Assets and liabilities are translated at the exchange rate at the balance sheet date when the

financial statements are presented in a currency other than the functional currency. Income

statement items are translated at the exchange rate at the date of transaction or at average rates.

The functional currency is the currency of the primary economic environment in which an entity

operates. The presentation currency of the Group is US dollars.

Indian GAAP

There is no concept of functional or presentation currency. Entities in India have to

prepare their financial statements in Indian rupees.

Consolidation

IFRS

Entities are consolidated when the Group has the power to govern the financial and

operating policies so as to obtain benefits. Control is presumed to exist when the Group owns

more than one half of an entity’s voting power. Currently exercisable voting rights should also be

taken into consideration when determining whether control exists.

Indian GAAP

Similar to IFRS, except that currently exercisable voting rights are not considered in

determining control.

Consolidation of Special Purpose Entities

IFRS

Under the IASB’s Standards Interpretations Committee (SIC) Interpretation 12 (SIC-12),

an SPV should be consolidated when the substance of the relationship between an enterprise and

the SPV indicates that the SPE is controlled by that entity. The definition of an SPV includes

employee share trusts.

24

Indian GAAP

No specific guidance. SPEs including employee share trusts are not consolidated.

Business combinations

IFRS

All business combinations are treated as acquisitions. Assets, liabilities and contingent

liabilities acquired are measured at their fair values. Pooling of interest method is prohibited.

For acquisitions occurring on or after 1 January 2004, IFRS 3 ‘Business Combinations’ (IFRS 3)

requires that, when assessing the value of the assets of an acquired entity, certain identifiable

intangible assets must be recognised and if considered to have a finite life, amortised through the

income statement over an appropriate period. As the Group has not applied IFRS 3, or its

predecessor IAS 22, to transactions that occurred before 1 January 2004, no intangible assets,

other than goodwill, were recognised on acquisitions prior to that date.

Adjustments to provisional fair values are permitted provided those adjustments are made

within 12 months from the date of acquisition, with a corresponding adjustment to goodwill.

After re-assessment of respective fair values of net assets acquired, any excess of acquirer’s

interest in the net fair values of acquirer’s identifiable assets is recognised immediately in the

income statement.

Where less than 100 per cent of an entity is acquired, non-controlling interests are stated at their

proportion of the fair value of the identifiable net assets and contingent liabilities acquired.

Indian GAAP

Treatment of a business combination depends on whether the acquired entity is held as a

subsidiary, whether it is an amalgamation or whether it is an acquisition of a business.

For an entity acquired and held as a subsidiary, the business combination is accounted for as an

acquisition. The assets and liabilities acquired are incorporated at their existing carrying

amounts.

For an amalgamation of an entity, either pooling of interests or acquisition accounting may be

used. The assets and liabilities amalgamated are incorporated at their existing carrying amounts

or, alternatively, if acquisition accounting is adopted, the consideration can be allocated to

individual identifiable assets (which may include intangible assets) and liabilities on the basis of

their fair values.

25

Adjustments to the value of acquired or amalgamated balances are not permitted after

initial recognition.

Any excess of acquirer’s interest in the net fair values of acquirer’s identifiable assets is

recognised as capital reserve, which is neither amortised nor available for distribution to

shareholders. However, in case of an amalgamation accounted under the purchase method, the

fair value of intangible assets with no active market is reduced to the extent of capital reserve, if

any, arising on the amalgamation.

Minority interests arising on the acquisition of a subsidiary are recognised at their share of the

historical book value.

Goodwill

IFRS

IFRS 3 requires that goodwill arising on all acquisitions by the Group and associated

undertakings is capitalised but not amortised and is subject to an annual review for impairment.

Under the transitional provisions of IFRS 1, the Group has not applied IFRS 3, or its predecessor

IAS 22, to transactions that occurred before 1 January 2004, the date of transition to IFRS.

Accordingly, goodwill previously written off to reserves, as permitted under UK GAAP until the

implementation of FRS 10 ‘Goodwill and intangible assets’ in 1998, has not been reinstated nor

will it be written back on disposal.

Amortisation of goodwill that has been charged up to 31 December 2003 has not been reversed

and the deemed carrying value of the goodwill on transition to IFRS is equal to the net book

value as at 31 December 2003.

Goodwill is tested annually for impairment. Any impairment losses recognised may not be

reversed in subsequent accounting periods.

Indian GAAP

Goodwill arising for amalgamations is capitalised and amortised over useful life not

exceeding five years, unless a longer period can be justified.

For goodwill arising on acquisition of a subsidiary or a business, there is no specific guidance –

in practice there is either no amortisation or amortisation not exceeding 10 years.

Goodwill is reviewed for impairment whenever an indicator of impairment exists. Impairment

losses recognised may be reversed under exceptional circumstances only in subsequent

accounting periods through the income statement.

26

Acquired and internally generated intangible assets

IFRS

Intangible assets are recognised if the specific criteria are met. Assets with a finite useful

life are amortised on a systematic basis over their useful life. An asset with an indefinite useful

life and which is not yet available for use should be tested for impairment annually.

Indian GAAP

Intangible assets are capitalised if specific criteria are met and are amortised over their

useful life, generally not exceeding 10 years. The recoverable amount of an intangible asset that

is not available for use or is being amortised over a period exceeding 10 years should be

reviewed at least at each financial year-end even if there is no indication that the asset is

impaired.

Property, plant and equipment

IFRS

Fixed assets are recorded at cost or revalued amounts. Under the transition rules of IFRS

1, the Group elected to freeze the value of all its properties held for its own use at their 1 January

2004 valuations, their ‘deemed cost’ under IFRS. They will not be revalued in the future.

Foreign exchange gains or losses relating to the procurement of property, plant and equipment,

under very restrictive conditions, can be capitalised as part of the asset.

Depreciation is recorded over the asset’s estimated useful life. The residual value and the useful

life of an asset and the depreciation method shall be reviewed at least at each financial year-end.

The Group has the option to capitalise borrowing costs incurred during the period that the asset is

getting ready for its intended use.

Indian GAAP

Fixed assets are recorded at historical costs or revalued amounts.

Relevant borrowing costs are capitalised if certain criteria in AS-16 are met.

Depreciation is recorded over the asset’s useful life. Schedule XIV of the Companies Act and

Banking Regulations prescribe minimum rates of depreciation and these are typically used as the

basis for determining useful life.

Recognition and measurement of financial instruments

27

IFRS

IAS 39 requires all financial instruments to be initially measured at their fair value, which

is usually to be the transaction price. In those cases where the initial fair value is based on a

valuation model that uses inputs that are not observable in the market, the difference between the

transaction price and the valuation model is not recognised immediately in the income statement

but is amortised to the income statement until the inputs become observable, the transaction

matures or is terminated.

At the time of initial recognition, IAS 39 requires all financial assets to be classified as either:

Held at fair value through profit or loss (as a trading instrument or as designated by

management), with realised and unrealised gains or losses reflected in profit or loss

Available-for-sale at fair value, with unrealised gains and losses reflected in shareholders’

equity, and recycled to the income statement when the asset is sold or is impaired

Held-to-maturity at amortised cost, where there is the intent and the ability to hold them to

maturity

As loans and receivables at amortised cost

At the time of initial recognition, IAS 39 requires all financial liabilities to be classified as either:

Held at fair value through profit or loss (as a trading instrument or as designated by

management), with realised and unrealised gains or losses reflected in profit or loss

At amortised cost

A financial asset or financial liability, other than one held for trading, can be designated as being

held at fair value through profit or loss if it meets the criteria set out below:

The designation eliminates or significantly reduces a measurement or recognition inconsistency

that would otherwise arise from measuring assets or liabilities on a different basis

A group of financial assets and/or liabilities is managed and its performance evaluated on a fair

value basis

Assets or liabilities include embedded derivatives and such derivatives are not recognised

separately

The designation of a financial instrument as held at fair value through profit or loss is irrevocable

in respect of the financial instruments to which it relates. Subsequent to initial recognition

instruments cannot be classified into or out of this category.

28

Changes in the fair value of available-for-sale financial assets resulting from movements in

foreign currency exchange rates are included in the income statement as exchange differences.

Foreign currency exchange movements for available-for-sale equity securities is recognised in

reserves.

Indian GAAP

AS 13 requires investments to be categorised as follows:

Current investments, which are those readily realisable and intended to be held for less than one

year, are carried at the lower of cost and fair value, with changes in fair value taken directly to

profit or loss;

Long-term investments, which are those investments not classified as current, are carried at cost

unless there is a permanent diminution in value, in which case a provision for diminution is

required to be made by the entity.

For investments, Reserve Banking India regulations require similar classifications to IFRS, but

the classification criteria and measurement requirements differ from those set out in IFRS.

Financial liabilities are usually carried at cost.

There is no ability to designate instruments at fair value.

Measurement of derivative instruments and hedging activities

IFRS

IAS 39 requires that all derivatives be recognised on balance sheet at fair value. Changes

in the fair value of derivatives that are not hedges are reported in the income statement. Changes

in the fair value of derivatives that are designated as hedges are either offset against the change

in fair value of the hedged asset or liability through earnings or recognised directly in equity until

the hedged item is recognised in earnings, depending on the nature of the hedge.. A derivative

may only be classified as a hedge if an entity meets stringent qualifying criteria in respect of

documentation and hedge effectiveness.

IAS 39 requires the separation of derivatives embedded in a financial instrument if it is not

deemed to be closely related to the economic characteristics of the underlying host instrument.

Indian GAAP

Foreign exchange contracts held for trading or speculative purposes are carried at fair

value, with gains and losses recognised in the income statement.

29

In the absence of specific guidance, equity options are carried at the lower of cost or market

value.

There is no specific guidance on hedge accounting since Accounting Standard 30 is not

mandatory. However, requirements of AS 30 with respect to hedge accounting are largely similar

to that of IAS 39.

Disclosure of Notional

IFRS

A structured trade is a combination of individual trades. For IFRS reporting, notional

value for structured trade is highest notional value amongst its individual trades as at Balance

Sheet date.

Indian GAAP

Notional value for structured trade is cumulative notional values of all trades that make a

structured trade.

Impairment of financial assets

IFRS

At each balance sheet date, an assessment is made as to whether there is any objective

evidence of impairment. A financial asset is impaired and impairment losses are incurred if, and

only if, there is objective evidence of impairment.

Assets held at amortised cost

If objective evidence of impairment exists, an assessment is made to determine what, if any,

impairment loss should be recognised. The impairment loss is the difference between the asset’s

carrying amount and its estimated recoverable amount.

The recoverable amount is determined based on the present value of expected future cash flows,

discounted at the instrument’s original effective interest rate, either individually or collectively.

Individually assessed assets for which there is no objective evidence of impairment are

collectively assessed for impairment.

Available-for-sale assets

If objective evidence of impairment exists, the cumulative loss (measured as the difference

between the acquisition cost and the current fair value, less any previously recognised

impairment) is removed from equity and recognised in the income statement.

30

Market recoveries leading to a reversal of an impairment provision for available-for-sale debt

securities are recognised in the income statement. Impairment losses for equity instruments

classified as available-for-sale are not permitted to be reversed through profit or loss.

Indian GAAP

Long-term investments are written down when there is a decline in fair value that is

deemed to be other than temporary. Impairments may be reversed through the income statement

in subsequent periods if the investment rises in value, or the reasons for the impairment no

longer exist.

Derecognition of financial assets

IFRS

A financial asset is derecognised if substantially all the risks and rewards of ownership

have been transferred. If substantially all the risks and rewards have not been transferred, the

asset will continue to be recognised to the extent of any continuing involvement.

Indian GAAP

There is limited guidance on derecognition of financial assets. Securitised financial assets

can only be derecognised if the originator has surrendered control over the assets. Control is not

surrendered where the securitised assets are not beyond the reach of the creditors of the

originator or where the transferee does not have the right to pledge, sell, transfer or exchange the

securitised asset for its own benefit, or where there is an option that entitles the originator to

repurchase the financial assets transferred under a securitisation transaction from the transferee.

Liabilities and equity

IFRS

A financial instrument is classified as a liability where there is a contractual obligation to

deliver either cash or another financial asset to the holder of that instrument, regardless of the

manner in which the contractual obligation will be settled.

Preference shares, which carry a mandatory coupon or are redeemable on a specific date or at the

option of the shareholder, are classified as financial liabilities and are presented in other

borrowed funds. The dividends on these preference shares are recognised in the income

statement as interest expense on an amortised cost basis using the effective interest method.

Indian GAAP

Classification is based on the legal form rather than substance.

Provisions for liabilities and charges

31

IFRS

The amount recognised as a provision is the best estimate at the balance sheet date of the

expenditure required to settle the obligation, discounted using a pre-tax market discount rate if

the effect is material.

Indian GAAP

Provisions are recognised and measured on a similar basis to IFRS, except that

discounting is not permitted.

Pension obligations

IFRS

IAS 19 ‘Employee Benefits’ (IAS 19) requires defined benefit pension liabilities to be

assessed on the basis of current actuarial valuations performed on each plan, and pension assets

to be measured at fair value. The net pension surplus or deficit, representing the difference

between plan assets and liabilities, is recognised on the balance sheet.

The discount rate to be used for determining defined benefit obligations is established by

reference to market yields at the balance sheet date on high quality corporate bonds of a currency

and term consistent with the currency and term of the post employment benefit obligations.

Under the transitional provisions of IFRS 1 ‘First time adoption of International Financial

Reporting Standards’ (IFRS 1) and in accordance with IAS 19, the Group elected to record all

actuarial gains and losses on the pension surplus or deficit in the year in which they occur within

the ‘Consolidated statement of comprehensive income’.

Indian GAAP

The liability for defined benefit plans is determined on a similar basis to IFRS.

The discount rate to be used for determining defined benefit obligations is established by

reference to market yields at the balance sheet date on government bonds.

Actuarial gains or losses are recognised immediately in the statement of income.

In respect of termination benefits, the revised AS 15 (2005) specifically contains a transitional

provision providing that where expenditure on termination benefits is incurred on or before

31 March 2009, the entities can choose to follow the accounting policy of deferring such

expenditure over its pay-back period. However, any expenditure deferred cannot be carried

forward to accounting periods commencing on or after 1 April, 2010. Therefore any expenditure

deferred should be written off over the shorter of (a) the pay-back period or (b) the period from

the date expenditure on termination benefits is incurred to 1 April, 2010.

32

Share-based compensation

IFRS

IFRS 2 ‘Share based payment’ requires that all share-based payments are accounted for

using a fair value method.

The fair value of the employee services received in exchange for the grant of the options is

recognised as an expense. For equity-settled awards, the total amount to be expensed over the

vesting period must be determined by reference to the fair value of the options granted

(determined using an option pricing model), excluding the impact of any non-market vesting

conditions (for example, profitability and growth targets). Non-market vesting conditions must

be included in assumptions about the number of options that are expected to become exercisable.

At each balance sheet date, the Group revises its estimates of the number of options that are

expected to become exercisable. It recognises the impact of the revision of original estimates, if

any, in the income statement, and a corresponding adjustment to equity over the remaining

vesting period. The proceeds received net of any directly attributable transaction costs are

credited to share capital (nominal value) and share premium when the options are exercised.

Deferred tax is recognised based on the intrinsic value of the award and is recorded in the

income statement if the tax deduction is less than or equal to the cumulative share-based

compensation expense or equity if the tax deduction exceeds the cumulative expense.

Indian GAAP

Entities may either follow the intrinsic value method or the fair value method for

determining the costs of benefits arising from share-based compensation plans. Although the fair

value approach is recommended, entities may use the intrinsic value method and provide fair

value disclosures.

Deferred tax is not recognised as it is not considered to represent a timing difference.

Entities are also permitted the option of recognising the related compensation cost over the

service period for the entire award provided that the amount of compensation cost recognised at

any date at least equals the fair value of the vested portion of the award at that date.

Deferred taxation

IFRS

Deferred tax is determined based on temporary differences, being the difference between

the carrying amount and tax base of assets and liabilities, subject to certain exceptions.

33

Deferred tax assets are recognised if it is probable (more likely than not) that sufficient future

taxable profits will be available to utilise to deferred tax assets.

Indian GAAP

Deferred tax is determined based on timing differences, being the difference between

accounting income and taxable income for a period that is capable of reversal in one or more

subsequent periods.

Deferred tax assets recognised only if virtually certain with entities with tax losses carried

forward or if reasonably certain with entities with no tax losses that the assets can be realised in

future.

Interest income and expense

IFRS

Interest income and expense is recognised in the income statement using the effective

interest method. The effective interest rate is the rate that discounts estimated future cash

payments or receipts through the expected life of the financial instrument. When calculating the

effective interest rate, the Group estimates cash flows considering all contractual terms of the

financial instrument but does not consider future credit losses.

Indian GAAP

In the absence of a specific effective interest rate requirement, premiums and discounts

are usually amortised on a straight line basis over the term of the instrument.

Dividends

IFRS

Dividends to holders of equity instruments, when proposed or declared after the balance

sheet date, should not be recognised as a liability on the balance sheet date. A company however

is required to disclose the amount of dividends that were proposed or declared after the balance

sheet date but before the financial statements were authorised for issue.

Indian GAAP

Dividends are reflected in the financial statements of the year to which they relate even if

proposed or approved after the year en

C H A R T O F B A S I S D I F F E R E N C E

34

Basis

IFRS

IAS

Princ iple vs Rule based

standards

Principle based. Economic sub-stance of the

trans ac tio n is the prime evaluat ion factor.

General ly rule based. Compa-n ies act and rules

domin ate and guide as to

how a transac t ion is recorded .

Stand ards vs Local laws

Accou nt ing standar ds take preceden ce over

local laws.

Local regulat ions usually take preced enc e while

prepar ing fi-nanc ial statem ent s. Whenever there

is between law standard, the law prevai ls.

Presen tat ion of financ ial

statem en ts

Primarily, no prescribed format. Assets and

liabili ties need to be divided into

current and non- curr ent.

Compan ies Act and other indust ry

regulat ions have defined presc rib ed format s.

Depr eci atio n on

fixed assets

Depr eci atio n is an annual charge on basis of

estim ated life of assets .

Minim um deprec iat ion rates have been

presc ribed

in Sched ule XIV of the Indian Company’s Act.

Cash flow statem ents

Mandator y. Any of the direct or indir ec t

method can be used.

Mandator y for some. Dire c t method for

insuran ce compa-nies and indir ec t method for

other listed compan ies.

Change in accou nting

polic y and estim ates

Compar atives are restated unless specifi ca lly

exempted where the effect of period (s) not

presented is adjusted against opening retained

earnin gs.

The effec t of change is in-cluded in curren t year

incom e statem ent. The impac t of the chang e is

disclosed.

Valuat ions

Provid es specific guidan ce and stand ards to deal

with mergers, acqui sitions, take over, amalga-

mations etc specific al ly as regar ds to valuat ion

Positions taken under IAS are debatable.

Adoption methodolog y`

IFRS 1 spells out the methodology and system s to

be adopted for first time adoptio n of IFRS. IFRS

specifies the financ ial repor ting in hyper

inflatio nar y econom ies. Also has a specifi c

standard

for retir em ent benefit plans, agricu lture,

insuran ce contr ac ts and disclosure of financia l

instr um ent s.

More tradit ional and insu-lated from changing

econom ic scenar io. A more historic al persp ec tive.

INITIATION OF IFRS IMPLEMENTATION IN IND IA

IFRS has not been made applicable to all companies till now; rather it is spreading its

35

wings in phased manner. In India the institute of charted accountant (ICAI) is taking key initiatives in IFRS implementation.

The implementation plan for implementing IFRS in India may be briefed as follows:

Year :2011 Year :2012 Year :2013 Year :2014 NSE-NIFTY 50 Companies Allinsurance

Companies listed or not having a

Listed Companies having a net

companies

net worth between 500-

1000

worth of less than 500

crores crores BSE- SENSEX 30 Companies

All scheduled commercial Banks

Urban cooperative Banks having

net worth 200 to 300 crores Companies whose shares are

Urban cooperative Banks having NBFCs: all Listed

listed outside India

net worth in excess of 300

crores Companies listed or not having

NBFCs-NIFTY 50 or SENSEX 30

NBFCs: Unlisted but having net

turnover more than 1000

crores

worth between 500 to

1000 crores

NBFCs listed or not having net

worth exceeding 1000 crores

CURRENT CENARIO

36

After the enactment of the Companies Act, 2013, the ministry of corporate affairs has

now shifted its focus on rolling out international reporting standards for Indian companies which

were to be implemented beginning April 1, 2011.

According to the draft plan, the ministry wants to implement the international financial reporting

standards (IFRS) beginning with companies that have a net worth of over Rs 1,000 crore from

April 1, 2015, an official told The Indian Express.

In the second phase, both listed and unlisted companies with a net worth of over Rs 500 crore but

less than Rs 1,000 crore will have to converge with the international accounting standards from

the financial year beginning April 1, 2016.

IFRS had been put on the back burner by the government given issues raised by

corporates, and unresolved taxation issues. Industry bodies had sought postponement arguing the

industry needed more time to prepare.

The IFRS-converged accounting standards deal with mark-to-market projections and

valuation of financial assets among other things.

The implementation is expected to cause some upheaval in companies' finances in the initial

stage as the standards call for projecting assets' real value. Various sectors, including banking

and real estate would be hit, experts have argued.

"The Institute of Chartered Accountants of India (ICAI) has been asked to conduct a

sector-wise study, elaborating on the impact the implementation will have on the sectors," the

official said. As such, all Indian companies listed overseas or doing business on foreign land

currently prepare financial statements as per the international standards.

However, banking companies would be exempt from complying with the IFRS. In the third and

fourth phase, beginning April 1, 2017, smaller companies would need to prepare their accounts

as per the international standards.

"Having put in so much of efforts into it, I think we should go ahead with it. The main sectors

which are likely to be impacted include oil and gas, finance, telecom and infrastructure

companies. However, on other industries, I don't see much impact," Amarjit Chopra, former

ICAI president, said.

Over 100 countries have accepted IFRS while India has converged its accounting standards

with the international reporting standards. Currently, the US, Japan and India are the three

37

main economies that have not adopted IFRS while Canada, Brazil and Russia switched to

IFRS last year.

Trans it ion IFRS methodo logy

38

Rapid-GAAP methodology

PwC has developed a flexible and time-efficient methodology called Rapid-GAAP

methodology. Rapid-GAAP enables an efficient and effective transition to IFRS with minimum required changes. This is relevant for all companies falling in Phase I timeline of IFRS implementation and other companies directly intending to have IFRS set of financial statements.

Transition IFRS methodology

Through 12 years of successful conversions across Europe, Asia and the US, PwC has developed and honed a leading practice methodology called TransitionIFRS. This can serve as a basis for you to consider in developing an approach to your own unique conversion process, positioning you to address your specific needs.

Features of the Transition IFRS methodology

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Implemented by a broad network of experienced conversion specialists

Considers the broader impact on the business, such as, accounting policies, people, financial reporting, tax and other business processes and systems, stakeholder management, statutory reporting and communications.

Used by more than 1,300 companies

Scalable and responsive to the unique complexities of each client’s business

Establishes clear objectives with the client in the planning stage

Applies a phased approach to IFRS conversions

Is a framework that is supplemented by deep business process and technical accounting

and systems skills

RECOMMENDATIONS AND MEASURES FOR IFRS IMPLEMENTATION IN

IND IA

• IFRS should be implementing in phased manner.

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• Government needs to take serious action regarding mandatory adaptation of IFRS.

• IFRS should be added in college system as a college syllabus so that the management student

could be a good IFRS expert in future. • IFRS system should be user friendly.

• Extensive survey and research need to carry out before implementation of IFRS system.

• Identifying the areas of GAAP differences and making a decision on selection of the exemptions to be applied.

• Analyzing complex topics like Financial Instruments and drawing up the necessary disclosures.

• Identifying changes required in the existing financial reporting system to confirm with IFRS requirements.

• Identifying of effects on the existing contracts and agreements before implementing IFRS

Conclusion

The mandatory adoption of the International Financial Reporting Standards (IFRS)

around the world by reviewing extant empirical evidence relating to four comprehensive accounting standard setting criteria: decision usefulness, reduction of information asymmetry, economic

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consequences of standards and political aspects of standard. The review reveals that mixed evidence exists regarding the decision usefulness of accounting numbers under the IFRS.

The majority of the extant studies reviewed find that the value relevance of accounting

numbers and financial reporting comparability is enhanced following the adoption of the IFRS. However, mixed evidence exists regarding the effect of IFRS adoption on earnings management, timely loss recognition and other properties of accounting quality.

The majority of the extant empirical studies reviewed find a reduction in information

asymmetry (enhanced analysts forecast accuracy, consensus and other properties). Generally, the extant studies reviewed provide evidence regarding favourable economic consequences (lower cost of equity and increasing foreign investment) under the IFRS regime. Certain studies provide

evidence regarding the role of political pressures and lobbying activities in the development of a number of standards by the International Accounting Standards Board.

A number of studies find that the favourable consequences following the adoption of the

IFRS regime dependent on the strength of reporting incentives for a firm and the strength of a

country’s enforcement system. In the absence of sufficient evidence regarding the consequences of IFRS adoption in developing countries and the significant differences in the institutional features of

such countries, the aforementioned conclusions are less likely to be generalizable to developing countries.

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