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Ifrs presentation slides Ifrs presentation slides Presentation Transcript

  • IFRS : Conversion Challenges and 1 Implementation Approach for Banks in India Vinay Kaushik & Co. Chartered Accountants Second Floor, Meridian Tower-II Indira Gandhi Marg, Udhna Darwaja, Surat-395003, Gujarat-INDIA +91-261-2333527 +91-261-6534665 +91-9227907024 Email: ca@vinaykaushik.comCo. Vinay Kaushik &IFRS : Conversion Challenges and Implementation Approach Website: www.vinaykaushik.comfor Banks in India Chartered Accountants www.vinaykaushik.com
  • 2 Over View This presentation aims to provide increased awareness towards the Challenges of IFRS convergence and the need for developing a roadmap to facilitate implementation through advance planning.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 3 Introduction The International Accounting Standard Board (IASB) is ● a stand alone privately funded accounting standard setting body ● established to develop global standards of financial reporting. ● successor to the International Accounting Standard Committee (IASC) Since 2001, the standards that the IASB develops and approves have been known as International Financial Reporting Standards (IFRS)IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 4 4 Introduction The term IFRS comprises:- ● IFRS issued by IASB; ● IAS issued by IASC; ● the interpretations issued by the Standing Interpretations Committee (SIC); and ● the International Financial Reporting Interpretations Committee (IFRIC) of IASB.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 5 Introduction Authority to formulate Accounting Standars in India: ● The Accounting Standards Board of the Institute of Chartered Accountants of India (ICAI) was constituted on 21 April, 1977, to formulate Accounting Standards applicable to Indian enterprises. ● ICAI, being a full-fledged member of the International Federation of Accountants (IFAC), while formulating the Accounting Standards (ASs), the ASB gives due consideration to IASs issued by IASC and IFRSs issued by the IASB. ● ICAI try to integrate them, to the extent possible. However, where departure from IFRS is warranted keeping in view the Indian conditions, the ASs have been modified to that extent.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 6 Introduction Authorities requiring for compliance with the Accounting Standards issued by ICAI: ● Ministry of Corporate Affairs in case of companies; ● The Reserve Bank of India (RBI) in case of banks; ● The Insurance Regulatory and Development Authority (IRDA) in case of insurance companies; and ● The Securities and Exchange Board of India (SEBI) in case of all listed companies.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 7 Benefits of IFRS Convergence ● IFRS significantly improves the comparability of entities. ● IFRS gives better access to global capital markets and reduces the cost of capital. ● IFRS provides impetus to cross-border acquisition. ● Improvement in quality and consistency of information, avoid multiple reporting and reduce cost of the finance function. ● IFRS balance sheet is closer to economic valueIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 8 IFRS in India ICAI has decided to follow a convergence approach to IFRS implementation rather than adoption of IFRS as issued by the IASB due to various reasons as follows: ● The legal and the regulatory environment prevailing in the country. ● Alternative accounting choices that are permitted in IFRS may be incompatible with the local requirements and considerations within specified sectors and industries. ● The current level of preparedness within the country for implementation of IFRS.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 9 Timelines for Convergence Phase I - 1 April 2011* a) Companies which are Part of NSE - Nifty 50. b) Companies which are part of BSE - Sensex 30. c) Companies whose shares or other securities are listed on stock exchanges outside India. d) Companies, whether listed or not, which have a net worth in excess of `1,000 crores. Phase II - 1 April 2013* The companies, whether listed or not, having a net worth exceeding ` 500 crores but not exceeding `1,000 crores. Phase III - 1 April 2014* Listed companies which have a net worth of `500 crores or less.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 10 Deadline for UBC RBI has vide circular no.25/12.05.001/2011-12, dated 6th March, 2012, made it clear that all urban co-operative bank (UCB) having: ● Net worth in excess of `300 crore would, in the preparation of their accounts, converge with IFRS in tendem with the time schedule given for scheduled commercial banks and accordingly convert their opening balance sheet as on 1st April, 2013 in compliance with IFRS converged IAS. ● Net worth in excess of `200 crore but not exceeding `300 crore would convert their opening balance sheet as on 1st April, 2014 in compliance with IFRS converged IAS.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 11 Net worth compution The MCA press release dated May 5, 2010, clarifies in Issue 8 that net worth will be calculated as: Share Capital XXX Add : Add : Reserves XXX Total A XXX Less: Less: Revaluation Reserve XXX Miscellaneous Expenditure XXX Debit Balance of the P&L Account XXX Total B XXX Networth A-B XXXIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 12 Underlying Assumptions Accrual basis: It is assumed that the effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate Going concern: It is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • Qualitative characteristics 13 of IFRS financial statements The four principal qualitative characteristics are: ● Understandability ● Relevance ● Reliability ● ComparabilityIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 14 IFRS financial statements Complete set of IFRS Financial Statements comprises of: ● A statement of financial position as at the end of the period; ● A statement of comprehensive income for the period; ● A statement of changes in equity for the period; ● A statement of cash flows for the period; ● Notes, comprising a summary of significant accounting policies, and other explanatory information; and ● A statement of financial position as at the beginning of the earliest comparative period.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 15 Comparative Position IAS No. And Title Corresponding Indian GAAP IAS 1. Presentation of financial AS 1 Statements IAS 2. Inventories AS 2 (Revised) IAS 7. Statement of Cash Flow AS 3 (Revised) IAS 8. Accounting Policies change AS 5 (Revised) in Accounting Estimates and Errors IAS 10. Events after the Reporting AS 4 (Revised) Period IAS 11. Construction Contracts AS 7 (Revised) IAS 12. Income Taxes AS 22IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 16 Comparative Position IAS / IFRS No. And Title Corresponding Indian GAAP IAS 16. Property Plant and AS10 and AS 6 (Revised) Equipment IAS 17. Leases AS 19 IAS 18. Revenue AS 9 IAS 19. Emplyee Benefits AS 15 IAS 20. Accounting for Government AS 12 Grants and Disclosure of Governmant Assistance IAS 21. The effect of changes in AS 11 (Revised) Foreign Exchange RatesIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 17 Comparative Position IAS / IFRS No. And Title Corresponding Indian GAAP IAS 23. Borrowing Costs AS 16 IAS 24. Related Party Disclosures AS 18 IAS 26. Accounting and Reporting AS under preparation by ICAI by Retirement Benefit Plans IAS 27. Consolidated and Separate AS 21 Financial Statement IAS 28. Investments in Associates AS 23 IAS 29. Financial Reporting in Not Relevant for Indian Conditions Hyperinflationary Economics IAS 31. Interest in Joint Ventures AS 27IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 18 Comparative Position IAS / IFRS No. And Title Corresponding Indian GAAP IAS 32. Financial Instruments AS 31 (Not mandatory at present) Presentation IAS 33. Earning per share AS 20 IAS 34. Interim Financial Reporting AS 25 IAS 36. Imparement of Assets AS 28 IAS 37. Provisions, Contingent AS 29 Liabilities and Contingent assets IAS 38. Intangible Assets AS 26 IAS 39. Financial Instruments: AS 30 (Not Mandatory at present) Recognition and MeasurementsIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 19 Comparative Position IAS / IFRS No. And Title Corresponding Indian GAAP IAS 40. Investment Property Partly Covered by AS 13 IAS 41. Agriculture AS under preperation by ICAI IFRS 1. First Time Adoption of IFRS Not relevant to India at present IFRS2. Share based Capital AS under preperation by ICAI IFRS3. Business Combination AS 14 IFRS4. Insurance Contracts AS under preperation by ICAI IFRS 5. Non Current Assets held for AS 24 sale and discontinued operationsIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 20 Comparative Position IAS / IFRS No. And Title Corresponding Indian GAAP IFRS 6 Explanation for and Covered by Guidance Note on evaluation of Mineral Resources Accounting for Oil and Gas Producing Activities IFRS 7. Financial Instruments AS 32 (Not mandatory at present) Disclosure IFRS 8. Operating Segments As 17 IFRS 9. Financial Instruments AS 30 (Not Mandatory at present)IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 21 First Time Adoption of IFRS ● FRS 1 sets out the procedures that a first-time adopter must follow on first-time adoption of IFRS. ● IFRS- 1 requires an entity to follow all the accounting standards in the preparation and presentation of its financial statements which are effective at the reporting date.For eg. an entity which carries out the transition in 2009 has to comply with the standards effective 31st December 2009. ● IFRS 1 also permits an entity to apply a new IFRS that is not yet mandatory if that standard allows early application.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 22 First Time Adoption of IFRS ● The first-time adopter establishes its date of transition, which is defined as the beginning of the earliest period for which an entity presents full comparative information under IFRS in its first IFRS financial statements. ● At the date of transition the first-time adopter prepares an opening statement of financial position. This is the starting point for its accounting under IFRS. ● In the opening statement of financial position, the first-time adopter applies its IFRS accounting policies in recognising and measuring all assets and liabilities, and if appropriate reclassifies items recognised under previous generally accepted accounting principles (GAAP) as another type of asset, liability or component of equity.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 23 First Time Adoption of IFRS ● In preparing the opening statement of financial position, the first- time adopter may choose the optional exemptions from retrospective application. ● The first-time adopter applies the mandatory exemptions in all applicable cases. ● A first-time adopter prepares reconciliations between previous GAAP and IFRS, and discloses these reconciliations in its first IFRS financial statements (and interim report, if applicable). The entity complies with other note disclosures in IFRS 1 in addition to those required by other IFRSs.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • How Opening IFRS Balance 24 Sheet is Prepared ● Recognise all assets and liabilities whose recognition is required by IFRS ● Derecognise assets and liabilities where recognition is not permited by IFRS ● Classify all assets and liabilities inaccordance with IFRS ● Measure all recognised assets and liabilities in accordance with applicable IFRSIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 25 Impact of key differences ● Currently, only listed Indian companies and banks are required to prepare consolidated financial statements. Adoption of IFRS would require all defined entities (which include large-sized entities that are not listed on stock exchanges) to prepare and present consolidated financial statements. ● The accounting for acquisition is largely dependent on the form of the acquisition. Under IFRS, all acquisitions are generally accounted for using the purchase method whereby the purchase price is compared to the fair value of all identifiable tangible assets, liabilities, contingent liabilities and intangible assets of the acquired company, with the excess being recognised as goodwill. This goodwill is not amortised, but is assessed for impairment annually.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 26 Impact of key differences ● Under Indian GAAP intangible assets are generally recognised only if they are acquired separately. Under IFRS, intangible assets are recorded either while accounting for acquisitions using the purchase method, or when intangible assets are acquired separately. ● Under Indian GAAP all intangible assets are amortised over their useful lives (and tested for impairment) and there is a rebuttable presumption that the useful life cannot exceed 10 years. IFRS acknowledges that certain intangible assets may have indefinite useful lives (for example, brands that demonstrate certain characteristics) and accordingly, such intangible assets are not amortised, but tested for impairment annually.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 27 Impact of key differences ● Indian GAAP on share-based payment to employees (for example, employee stock options) provides entities with a choice to either adopt the intrinsic value method (under this employee stock options are granted with an exercise price equal to the market price on the grant date, no compensation cost is recognised) or the fair value method. IFRS mandates the use of the fair value method, whereby the fair value of the options is determined using an option pricing model. This would usuall result in recognition of compensation cost even if the options are in-the-money on the grant date.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 28 Impact of key differences ● IFRS require that a financial instrument should be classified in accordance with the substance of the contractual agreement rather than its legal form (substance over form). Thus, redeemable preference share would be a financial liability and dividends on redeemable preference shares are recognised as interest expense under IFRS and impact the profits and loss for the year. This is different from the Indian GAAP classification of redeemable preference shares as equity and the related presentation of dividends on such preference shares as appropriation of profits. This would impact financial structures and debtequity ratios.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 29 Impact of key differences Under Indian GAAP, long-term investments are generally carried at cost, less impairment; and current investments are carried at lower of cost or market value. IFRS requires that investments be categorised into three categories: ● Trading or investment carried at fair value, ● Held-to-maturity and ● Available-for-sale. Except for held-tomaturity investments, all investments are carried at fair value. Held-to-maturity investments are carried at amortised cost.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 30 Impact of key differences ● Unlike Indian standards, where prior period items that represent correction of errors; and cumulative impact of change in accounting policies, are recorded as an adjustment in the current period, IFRS generally require accounting policy changes and correction of prior period errors to be made by adjusting opening retained earnings and restating comparatives. This is a relatively new concept for preparers, auditors, users, regulators, investors and analysts in India (although such restatements are required in certain limited situations that involve initial public offerings) and would require companies to clearly communicate with and educate investors and other users to highlight the impact of this change.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • Presentation of Financial 31 Statements ● Financial statements presentation formats under Indian GAAP are primarily driven by regulatory requirements specified in the Indian Companies Act and other regulation for specific industries (for example, banking and insurance). ● Under IFRS, IAS 1 sets out detailed requirements for presentation of financial statements, including their structure and minimum requirements for content. ● Under IFRS, in addition to the balance sheet, income statement and cash flow statement, a Statement of Changes in Equity (SOCIE) with supplimentry notes are required.IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • Critical success factor for 32 IFRS convergence Following are the common critical success factors identified for Indian entities for successful IFRS conversion projects: ● Strategy ● Leadership ● Communication ● Resources ● Knowledge ● Project Management ● TimeIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 33 Project Management Complex tasks are easier when divided into manageable pieces. IFRS conversion projects can be broken down into key phases. Phase 1 Phase 2 Phase 3 Assess Impact and Learn and build the Roll out and Parallel Plan Conversion tools run Assets Design ImplementIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 34 Project Management Asset Impect and Plan Conversion: ● Mobile Core Team; ● Impact assessment; ● Resource Budget; ● IFRS Treaning needs assessment; ● Management decision; and ● Plan ConversionIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 35 Project Management Learn and build the Tools: ● Mobile finance function and informational Technology; ● IFRS training detailed plan; ● Make policies and financial statement reporting package; and ● Convert system and budgetsIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 36 Project Management Roll out parallel run: ● Mobile business and parallel run; ● April 1, 2012 balance sheet; ● 2012-2013 financial statements; and ● Manage business on IFRS BasisIFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com
  • 37 CA. Vinay Kaushik B.Com., F.C.A., D.E.M., DISA(ICAI), DIRM(ICAI), Cer. IFRS (CICA)IFRS : Conversion Challenges and Implementation Approach Vinay Kaushik & Co.for Banks in India Chartered Accountants www.vinaykaushik.com