INTERNATIONAL FINANCIAL REPORTING STANDARDS. - Anand Bathiya B.Com., A.C.A., A.C.S., LL.B.

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1 INTERNATIONAL FINANCIAL REPORTING STANDARDS - Anand Bathiya B.Com., A.C.A., A.C.S., LL.B. anand@shbathiya.com

2 Agenda WIRC ICAI Initiation to IFRS 16 th October, 2010 Expected Time: 90 minutes Introduction Broad Points for Discussion Recognition Concept, Elements & Conditions Measurement Concept and Basis of Measurement Disclosure Requirement Some additional disclosures in IFRS General Discussion 2

3 INTRODUCTION Discussion Points QUICK POINTS Framework to IFRS is a base document that gives guidance on the fundamental accounting principles under IFRS. Recognition, Measurement, Presentation & Disclosure is all we do! Recognition, Measurement and Disclosure Requirements covered in this Session. Presentation is covered in next session. QUICK POINTS Recognition and Measurement are conceptually similar to current Indian GAAP. Disclosure Requirements under Exposure Drafts \ IND-AS \ IFRS ( IFRS ) much more and elaborative as compared to current Indian GAAP. Most of the standards deal with all the 4 attributes. 3

4 RECOGNITION 4 ON TARGET

5 Recognition Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the criteria for recognition. Elements of Financial Statements: 1. Assets 2. Liabilities 3. Equity 4. Income 5. Expenditure Criteria for Recognition: a. Future economic benefit associated with the item will flow to or from the entity b. Item has a cost or value that can be measured with reliability 5

6 Recognition The failure to recognize such items is not rectified by disclosure of the accounting policies used nor by notes or explanatory material. It involves the depiction of the item in words and by a monetary amount and the inclusion of that amount in the balance sheet or income statement totals. Almost all standards have recognition guidance and parameters built-in for recognition of different elements of Financial Statements ( FS ). Any element which does not fulfill the criteria for recognition shall be derecognized. Download Framework to IFRS from 6

7 Recognition Broad Rules for Recognition of different Elements: Assets: Probable that measurable future economic benefits will flow Probable that the future economic benefits will flow beyond the current period Liabilities: Probable that a measurable outflow of resources will result from the settlement of a present obligation Income: An increase in measurable future economic benefits related to an increase in an asset or a decrease of a liability Should have a sufficient degree of certainty Expenses: Decrease in a measurable future economic benefits related to a decrease in an asset or an increase of a liability Basis of systematic and rational allocation procedures with matching concept. 7

8 Recognition WIRC Newsletter August 2010 WIRC Newsletter September ON TARGET

9 MEASUREMENT 9 ON TARGET

10 Measurement Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement. Recognition is WHAT to record, Measurement is HOW MUCH to record. Recognition is at Inception, Measurement is at all subsequent periods also. Measurement involves selection of Basis of Measurement. Guidance available in framework for different Basis of Measurements as applicable to different elements of financial statements. A number of different Basis of Measurement bases are employed to different degrees and in varying combinations in financial statements. Accounting policies should include Basis of Measurement. 10

11 Measurement Four broad Basis of Measurement: Historical Cost: Recording at cost or fair value at the time of occurrence of the transaction. Current Cost: Recording at amount that would have to be paid if the same of equivalent element was transacted currently. Realizable Value: Recording at amount that could currently be obtained by settling\selling an element currently. Present Value: Recording at present discounted value of future cash inflows\outflows. 11

12 Measurement Aircraft purchased by an Tej Airways for ` 10 crores on 31 st March Similar aircraft available for ` 7 crores on 31 st March Fisher Airways makes offer to Tej Airways for purchase of the Aircraft on 31 st March, 2010 at ` 6.5 crores. Tej expects the present value of future cash flows from flying the aircraft at ` 9 crores. Record the book value of Aircraft under different Basis of Measurement as on (ignore depreciation). At Historical Cost: ` 10 crores At Current Cost: ` 7 crores At Realizable Value: ` 6.5 crores At Present Value: ` 9 crores 12

13 Measurement What basis of measurement are followed for the following items under the current Indian GAAP? A. Fixed Assets: B. Inventories: C. Gratuity: D. Discontinuing Operations: E. Goodwill: Indian GAAP is biased towards Historical Cost with few elements allowed to be recognized under other basis. IFRS is based on Historical Cost but mandates and encourages other basis more frequently. 13

14 DISCLOSURE REQUIRMENTS 14 ON TARGET

15 Disclosure Requirements Extensive and Elaborate Disclosure Requirements in IFRS as compared to current Indian GAAP. Lesser quantitative disclosure requirements as no Schedule VI. Every standard has specific disclosure requirements. Disclosure requirements in standards are divided into two: 1. Mandatory 2. Recommendatory IFRS for SME s has lesser disclosure requirements, however India s stand on IFRS for SME s is still unclear. On an average, size of F pages in an Annual Report increases by 2.0 times as compared to corresponding Indian GAAP. 15

16 Disclosure Requirements Some of the additional Disclosure Requirements in IFRS a. Corporate Information, Critical Accounting Estimates and Judgments b. Functional and Presentation Currencies \ Statement of Compliance with IFRS c. Standards early adopted by the Company and its impact d. Standards issued but not yet effective and not early adopted by the company and its impact e. Note on transition to IFRS and reconciliation statement providing explanation to major adjustments. f. Optional exemptions under IND-AS 41 First Time Adoptions as availed \ not-availed by the entity. g. Reclassification and regroupings made in the FS 16

17 Disclosure Requirements h. Note on Business Combination including acquisitions and sale made during the periods i. Assets and Liabilities acquired through business combination, their fair values and consideration paid by the entity j. Estimated useful life of Property Plant & Equipment k. Items considered as Investment property and fair value of the same l. Category-wise disclosure of Financial instruments along with their fair values m. Note on Foreign Exchange Risk Management n. Note on Liquidity \ Credit Risk Management 17

18 Disclosure Requirements o. Note on Interest rate risk management and its sensitivity p. Note on Commodity rate risk management and its sensitivity q. Elaborate disclosure note on Share-Based Payments and Hedge Accounting r. Effective Tax Reconciliation statement s. Details of major customers segment-wise t. Details of retrospective application of accounting policies into respective past years u. Explanation on various types of reserve and restrictions on use of these resources v. Key terms of loan facilities availed by the entity, e.g. Security, type of lender, average rate of interest, etc. 18

19 Disclosure Requirements w. Details of repayment schedule of loans year-wise x. Note on Capital Management and key ratios y. Name of the Ultimate Parent \ owner z. Contingent Assets Sunlight is the best disinfectant. Disclose! Many other Mandatory and Recommendatory disclosure requirements are required by individual standards. 19

20 Disclosure Requirements a. Specimen General Corporate Information 20 ON TARGET

21 Disclosure Requirements b. Critical Accounting Estimates and Judgments Dr. Reddy s Laboratories 21

22 Disclosure Requirements c. Currency and Statement of Compliance Infosys Technologies Essar Global Limited 22

23 Disclosure Requirements d. Standards early adopted by the Company Infosys Technologies Essar Global Limited 23

24 Disclosure Requirements e. Standards issued but not yet effective Essar Global Limited 24

25 Disclosure Requirements f. Reconciliation between current GAAP and IFRS Dr. Reddy s Laboratories 25

26 Disclosure Requirements g. Reclassifications in Current and Previous year Infosys Technologies 26

27 Disclosure Requirements h. Note on Business Combination Vedanta Resources 27 ON TARGET

28 Disclosure Requirements i. Note on Business Combination Vedanta Resources 28 ON TARGET

29 Disclosure Requirements j. Estimated Useful life of Plant, Property & Equipment Great Eastern Energy Corporation 29

30 Disclosure Requirements k. Category-wise disclosure of Financial instruments Infosys Technologies 30

31 Disclosure Requirements l. Foreign Exchange Risk-Management and sensitivity Vedanta Resources 31

32 Disclosure Requirements m. Interest Rate Risk-Management and sensitivity Essar Global 32

33 Disclosure Requirements n. Retrospective application of change in accounting policy Noida Toll Bridge Company 33

34 Disclosure Requirements o. Note on borrowings and key terms Noida Toll Bridge Company 34

35 Disclosure Requirements o. Note on borrowings and key terms Vedanta Resources 35 ON TARGET

36 Disclosure Requirements p. Note on repayment schedule Essar Global 36 ON TARGET

37 Disclosure Requirements q. Note on Contingent Asset Essar Global 37 ON TARGET

38 Disclosure Requirements r. Effective Tax Reconciliation Statement Infosys Technologies 38

39 Thank You -Anand Bathiya B. Com., A.C.A., A.C.S., LL.B. 39 ON TARGET

INTERNATIONAL FINANCIAL REPORTING STANDARDS. -Anand Bathiya B. Com., A.C.A., A.C.S., LL.B.

INTERNATIONAL FINANCIAL REPORTING STANDARDS -Anand Bathiya B. Com., A.C.A., A.C.S., LL.B. anand@shbathiya.com Agenda WIRC ICAI Initiation to IFRS 22 nd January, 2011 Expected Time: 90 minutes Introduction