Highlighting common pitfalls of International Financial Reporting Standards (IFRS) in India. By: Mr. Rakesh K. Sharma CEO/...
Overview <ul><li>Birth of Accounting Standards in India </li></ul><ul><li>IFRS </li></ul><ul><li>Need for IFRS in India </...
Birth of Accounting Standards in India <ul><li>Accounting standards having recommendatory value. </li></ul><ul><li>Constit...
IFRS <ul><li>International Financial Reporting Standards are standards, interpretation and framework adopted by the Intern...
Need for IFRS in India <ul><li>Globalization of the business world. </li></ul><ul><li>Synchronization of accounting standa...
Applicability  <ul><li>IFRS in India would cover the following public interest entities in the first place: </li></ul><ul>...
Proposed Transition to IFRS <ul><li>As per announcement by Shri. Salman Khursheed, Minister of State for MCA: </li></ul><u...
Pitfalls in Transition to IFRS <ul><li>Resources </li></ul><ul><li>IFRS compliance would require changes right from the gr...
Pitfalls in Transition to IFRS <ul><li>Implementation </li></ul><ul><li>Changes in legislations like Companies Act and Inc...
Pitfalls in Transition to IFRS <ul><li>Affected Parties </li></ul><ul><li>Industry </li></ul><ul><li>Investors </li></ul><...
Challenges in Full Adoption of IFRS <ul><li>Judicial Role: AS 22 on deferred tax under interim stay. </li></ul><ul><li>Nee...
Thank You!! <ul><li>Mr. Rakesh K. Sharma </li></ul><ul><li>CEO/MD  </li></ul><ul><li>Draft and Craft Law Firm Pvt. Ltd </l...
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International Financial Reporting Standards

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International Financial Reporting Standards

  1. 1. Highlighting common pitfalls of International Financial Reporting Standards (IFRS) in India. By: Mr. Rakesh K. Sharma CEO/MD Draft and Craft Law Firm Pvt. Ltd. 5 th Annual Internal Auditors Conference
  2. 2. Overview <ul><li>Birth of Accounting Standards in India </li></ul><ul><li>IFRS </li></ul><ul><li>Need for IFRS in India </li></ul><ul><li>Applicability </li></ul><ul><li>Proposed Transition to IFRS </li></ul><ul><li>Pitfalls in Transition to IFRS </li></ul><ul><li>Challenges in Full Adoption of IFRS </li></ul>
  3. 3. Birth of Accounting Standards in India <ul><li>Accounting standards having recommendatory value. </li></ul><ul><li>Constitution of the Accounting standards Board on 21 April 1977 by ICAI. </li></ul><ul><li>Legal Recognitions accorded by Companies Act 1956. Sec. 210 (a) & Sec. 211 (3C) </li></ul><ul><li>Constitution of National Advisory Committee for Accounting Standards. </li></ul>
  4. 4. IFRS <ul><li>International Financial Reporting Standards are standards, interpretation and framework adopted by the International Accounting Standards Board. </li></ul><ul><li>International Financial Reporting Standards consists of: </li></ul><ul><li>* International Financial Reporting Standards (IFRS) issued after 2001. </li></ul><ul><li>* International Accounting Standards (IAS) - standards issued before 2001. </li></ul><ul><li>* Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) – issued after 2001. </li></ul><ul><li>It is an accounting framework that establishes recognition, measurement, presentation and disclosure requirements relating to the transaction and events that are reflected in the financial statements. </li></ul>
  5. 5. Need for IFRS in India <ul><li>Globalization of the business world. </li></ul><ul><li>Synchronization of accounting standards across the globe.  </li></ul><ul><li>One accounting language for companies having subsidiaries in different countries. </li></ul>
  6. 6. Applicability <ul><li>IFRS in India would cover the following public interest entities in the first place: </li></ul><ul><ul><li>Listed Companies </li></ul></ul><ul><ul><li>Banks, Insurance companies, mutual funds and financial institutions. </li></ul></ul><ul><ul><li>Turnover in the year preceding > INR 1 Billion. </li></ul></ul><ul><ul><li>Borrowing in the year preceding > INR 250 Million </li></ul></ul><ul><ul><li>Holding or subsidiary of all the above. </li></ul></ul>
  7. 7. Proposed Transition to IFRS <ul><li>As per announcement by Shri. Salman Khursheed, Minister of State for MCA: </li></ul><ul><li>In the first phase, listed companies, including those on overseas exchanges and with a net worth of Rs. 1000 crore will adopt IFRS in April 2011. </li></ul><ul><li>The second phase will comprise of companies with net worth of Rs. 500-1,000 crore, which will move to IFRS starting April 2013 </li></ul><ul><li>In the third phase , the listed companies with a net worth of Rs. 500 crore or less will converge to IFRS. </li></ul>
  8. 8. Pitfalls in Transition to IFRS <ul><li>Resources </li></ul><ul><li>IFRS compliance would require changes right from the grass root level, beginning with academic inputs and training. </li></ul><ul><li>Preparation of detailed plans for migrating to IFRS. </li></ul><ul><li>Industry Specialization. </li></ul><ul><li>Successful implementation of IFRS would require companies to fully use IFRS as their basis of daily primary financial reporting as well as for performance tracking in the form of budgets, forecast and management accounts . </li></ul><ul><li>There is a need to have a forum which may address the application issues in specific cases. </li></ul><ul><li>Pertinent to get conversant with the information technology used to support the new reporting architecture. </li></ul>
  9. 9. Pitfalls in Transition to IFRS <ul><li>Implementation </li></ul><ul><li>Changes in legislations like Companies Act and Income Tax. </li></ul><ul><li>The IFRS implementation requires a multi disciplinary approach and is the responsibility of the management. </li></ul><ul><li>Increased financial reporting risk due to technical complexities, manual workarounds and management time taken up with implementation.  </li></ul><ul><li>Tax authorities should consider IFRS implications on direct and indirect taxes and provide appropriate guidance from a tax perspective. </li></ul><ul><li>No clarity on when to calculate net worth. </li></ul>
  10. 10. Pitfalls in Transition to IFRS <ul><li>Affected Parties </li></ul><ul><li>Industry </li></ul><ul><li>Investors </li></ul><ul><li>Accounting Professionals </li></ul><ul><li>Economy </li></ul>
  11. 11. Challenges in Full Adoption of IFRS <ul><li>Judicial Role: AS 22 on deferred tax under interim stay. </li></ul><ul><li>Need for stringent investor protection laws and efficient court system. </li></ul><ul><li>Conflicts in regulators and IFRS. </li></ul><ul><li>Conceptual differences between IFRS and Indian GAAP viz. Fair Value </li></ul>
  12. 12. Thank You!! <ul><li>Mr. Rakesh K. Sharma </li></ul><ul><li>CEO/MD </li></ul><ul><li>Draft and Craft Law Firm Pvt. Ltd </li></ul><ul><li>E: [email_address] </li></ul><ul><li>W: www.draftncraft.com </li></ul>

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