Presentation in Bangalore Branch of SIRC of ICAI

1. 1 An overview of IFRS & Challenges involved in first time adoption The Institute of Chartered Accountants of India, Bangalore 1st December’2010 CA Aditya Singhal M.Com, FCA, DISA(ICAI) +91 99728 27300 Aditya.singhal@icai.org Join IFRS professional group for regular IFRS update: http://finance.groups.yahoo.com/group/IFRS-Professional/

2. Authoritative literature IFRS IFRS IAS IFRIC SIC Order of authoritativeness IFRS including any appendices Interpretations Appendices to IFRS that do not form part of the standards Implementation guidance issued by IASB 2

3. IASC & its Objectives IASC was founded in 1973 2001 -IASC was set up as part of a restructuring Objectives of the IASC Foundation are To develop a single set of high quality global accounting standards to help participants in the worlds capital markets and other users make economic decisions To promote use and rigorous application of those standards To take into account the special needs of small and medium sized entities To bring about convergence of national accounting standards and IFRS 3

4. Framework for preparation and presentation of Financial Statements Framework provides a conceptual framework as a foundation for the preparation and appraisal of accounting standards FRAMEWORK is the FOUNDATION of many IFRS but is not an IFRS It does not have the same authority as an IFRS In some circumstances there may be conflict between the Framework and an IFRS. In such cases the requirements of the specific IFRS always prevail over the Framework 4

5. The Framework 5

6. Assets - Liability - Equity - Income - Expenses 6 T h e - E l e m e n t s

7. Recognition criteria Recognition is the process of incorporating an item that meets the definition of an element and satisfies the recognition criteria into the SOFP or SCI An item that meets the definition of an element (asset, liability, income or expense) should be recognized if : It is probable that any economic benefit associated with the item will flow to or from the entity The item has a cost or value that can be measured reliably 7

8. Measurements of Elements 8

9. IFRS – From India perspective 9 IFRS would be applicable into three phases:

10. Conceptual Differences Substance over form Fair value Current and Non-Current Classification Discounting (Time value of money) Standards prevail over law 10

11. Challenges involved in first time adoptions Fair value override permitted under IFRS Retrospective application Barred – extraordinary items Impact of change in accounting policy The use of revaluation for fixed assets, intangibles and investment property …. cont 11

12. Challenges involved in first time adoptions Consolidation of financials – Special purpose entities Goodwill/negative goodwill treatment Revenue recognition of long term construction contract Impairment of non-current assets Classification of financial instrument 12

13. IFRS 1 – the 5 step process Identification of date of transition Selection of accounting policies that comply with IFRSs Preparation of an opening IFRS balance sheet Preparation of the first IFRS financial statements Reconciliations and disclosures. 13

14. Identification of date of transition 14

15. Selection of accounting policies that comply with IFRSs Need to apply IFRS effective at the Reporting Date. May apply a new IFRS that is not yet mandatory, if it permits early application. Determine which exceptions to use Take into account the exceptions to retrospective application 15

16. Preparation of an opening IFRS Balance Sheet Does not recognize items as assets or liabilities if IFRS does not permit such recognition Recognize all assets and liabilities whose recognition is required by IFRS Reclassify assets, liabilities and items of equity as per the requirements of IFRS Measure all assets and liabilities in accordance with IFRS 16

17. Preparation of an opening IFRS Balance Sheet 17 YES YES No YES No No YES

18. Preparation of the first IFRS financial statements - Optional Exemptions 18

19. Preparation of the first IFRS financial statements - Mandatory Exceptions 19

20. Reconciliations and disclosures Equity from previous GAAP to IFRS at the transition date and the end of the last period presented in the entity ‘s most recent financials statements under previous GAAP Net profit from previous GAAP to IFRS for the last period in the entity's most recent financial statements under previous GAAP. Other disclosures in the first IFRS financials statements 20

21. 21 Questions ?

22. Key Learning Points 22 First time adoption is more of a business decision than accounting Doing it right at the first time is very critical Judiciously applying the optional exemptions will help reduce the GAAP difference Practice with options will guide to refine decisions Significant disclosure and reconciliation requirements

23. Thanks ! CA Aditya Singhal M.com, FCA, DISA(ICAI) +91 99728 27300 Aditya.singhal@icai.org Join IFRS professional group for regular IFRS update: http://finance.groups.yahoo.com/group/IFRS-Professional/ 23