Key Differences


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Key difference between IFRS & IGAAP

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Key Differences

  1. 1. Key Difference between IFRS & I GAAP A Presentation by Rachna Jaggi FCA, CPA(USA),DIPIFRS(ACCA)UK
  2. 2. Agenda Presentation of Financial Statement Business Combinations Income tax Property Plant & equipment, Investment Property & Lease Related parties Impairment Borrowing cost Provision contingent liabilities & contingent assets
  3. 3. IAS Presentation of Financial Statements IAS 1 & AS 1
  4. 4. I: Presentation Of Financial statements (IAS 1 & AS 1) Particulars IFRS Indian GAAP Overall Guidance IAS1 sets out overall Offers no standard guidance for presentation of outlining over all financial statements ,their requirement for presentation of financial structure & minimum content statements requirement Measurement basis The four measurement basis are In line with IFRS , though in historical cost, current cost , some situation it disregards realizable value & Present value. fair valuation for e.g. Exception to historical costs are investments are valued at fair valuation of financial lower of cost & market instrument, revaluation of value. tangible fixed assets & Intangibles etc.
  5. 5. I: Presentation Of Financial statements (IAS 1 & AS 1) Particulars IFRS Indian GAAP Component of Statement of Financial statements Balance sheet Financial Statement of Comprehensive Income Profit & Loss A/C Statements Statement of Changes in equity Cash flow statement Statement of cash flows Notes to accounts Notes to Accounts Statement of financial position as at AS5 requires the impact of the beginning of the earliest material changes in comparative period has to be accounting policies to be presented when an entity applies an shown in financial accounting policy retrospectively, or statements. There is no makes retrospective restatement of requirement to present an financial items or when it reclassifies additional balance sheet items in financial statements
  6. 6. I: Presentation Of Financial statements (IAS 1 & AS 1) Particulars IFRS Indian GAAP Disclosures of critical Required Disclosures of : No such specific disclosure critical judgments made by the requirement in AS 1 or judgment & capital management in applying schedule VI disclosures accounting policies Key sources of estimation uncertainty Information that enables users of its financial statement to evaluate the entity’s objectives, policies & processes of managing capital. Extraordinary Items Disclosure of items as Nature & amount of each extraordinary either on the face extraordinary items should be of the statement of separately disclosed in the comprehensive income or in statement of P&L in a manner the notes is prohibited that its impact on current profit & loss can be perceived.
  7. 7. I: Presentation Of Financial statements (IAS 1 & AS 1) Particulars IFRS Indian GAAP Dividend IFRS requires Dividends Under Indian GAAP , recognized as a proposed dividend is distribution to owners & shown as related amount per share appropriation of profits to be presented in the in the profit & loss statement of changes in equity or in the notes. account. The presentation of such disclosures in the statement of comprehensive income is not permitted.
  8. 8. Business Combinations
  9. 9. Business Combination Particular IFRS Indian GAAP Scope IFRS 3 applies to most No comprehensive combinations , including standard dealing with all amalgamation & acquisition business combinations. AS 14: Accounting for amalgamation AS 21: Consolidated Financial statements & AS 23: Investment in Associates AS 27: Joint ventures
  10. 10. Business Combination Particular IFRS Indian GAAP Method of accounting Use of the pooling of Permits both the purchase interest method is and the pooling of interest prohibited. All business method in case of Combination should be amalgamation. The pooling accounted under purchase of interest method is method. allowed only if the amalgamation satisfies certain specified conditions Acquisition date The date on which the The date of acquire effectively amalgamation as obtains control of the defined in the acquiree is acquisition amalgamation/acquisitio date n scheme is acquisition date.
  11. 11. Business Combination Particular IFRS Indian GAAP Net Asset Value IFRS 3 requires the net Indian GAAP requires asset taken over in case of subsidiaries including the contingent associates & joint liabilities and intangible ventures the recording assets to be recorded of net asset at carrying at fair value value. Contingent liabilities of acquiree are not recorded as liabilities Amortization of IFRS 3 prohibites Indian GAAP requires Goodwill amortization of amortizations of Goodwill arising on the goodwill in the case of acquisition of the amalgamation. business
  12. 12. Business Combination Particulars IFRS Indian GAAP Negative Goodwill IFRS requires Negative goodwill is negative goodwill to credited to Capital be credited to profit & reserve. loss a/c Acquisition accounting Acquisition accounting Acquisition accounting is based on substance is based on the form Reverse acquisition is Indian GAAP does not accounted assuming deal with reverse the legal acquirer is acquisition. the acquiree
  13. 13. Reverse Acquisition Legal Acquirer/ Accounting Acquiree Legal Acquirer issues shares Legal acquiree gains control Legal acquiree/ Accounting Acquirer
  14. 14. Business Combination Particulars IFRS Indian GAAP Reacquired Rights IFRS 3 specifically deals Indian GAAP does not with accounting of pre- provide guidance for existing relationships such situations between acquirer & acquiree & for reacquired rights by the acquirere in a business combination
  15. 15. Business Combination Particulars IFRS Indian GAAP Contingent IFRS 3-R requires that Under Indian GAAP, AS 14 Consideration contingent consideration requires that, where the in a business combination scheme of amalgamation be measured at fair value provides for an adjustment to at the date of acquisition the consideration contingent on one or more future events, the amount of the additional payment is included in the consideration if payment is probable and a reasonable estimate of the amount of additional can be made.
  16. 16. Business Combinations Particulars IFRS Indian GAAP Non IFRS 3-R provides an Under Indian GAAP, AS 21 Controlling option to measure any does not provide the first Interest non- controlling option and it requires (minority) interest in an minority interest in a acquiree its fair value or subsidiary to be measured at the non-controlling at the proportionate share of interest’s proportionate net assets at book value share of the acquirer's net identifiable assets.
  17. 17. Business Combinations Particulars IFRS Indian GAAP Business IFRS 3-R requires that, There is no such combinations in a business requirement under Indian achieved in combination achieved in GAAP. Under AS 21 if two or stages stages, the acquirer more investments are made remeasures its in subsidies over a period of previously held equity time, the equity of the interest in the acquire at subsidiary at the date of its acquisition date fair investment is generally value and that it determined on a step-by- recognizes the resulting step basis. gain or loss, if any, profit and loss
  18. 18. Income taxes
  19. 19. Income Tax Particulars IFRS Indian GAAP Approach IAS 12 Income Tax is based AS 22 Accounting for Taxes on on the balance sheet liability Income is based on the Income method which focuses on statement liability method, temporary differences which focuses on timing difference deferred IAS 12 requires the recognition Under Indian GAAP business taxes arising of deferred taxes in the case of combinations (other than of business business combination. Under amalgamation) will not give rise IFRS the cost of a business combination to a deferred tax adjustment. combination is allocated to the identifiable assets acquired and liabilities assumed by reference to their fair values. However, if no equivalent adjustment is allowed for tax purposes, it would give rise to a temporary difference.
  20. 20. Income tax Particulars IFRS Indian GAAP Recognition of under IFRS the entity Under Indian GAAP if the deferred taxes. recognizes a deferred tax entity has carried forward assets rising from unused tax tax losses or unabsorbed losses or tax credit only to the depreciation, all deferred extent that the entity has tax assets are recognize sufficient taxable temporary only to the extent that differences or there is there is virtual certainly convincing other evidence that supported by convincing sufficient taxable profit will be evidence that sufficient available . IAS 12 does not lay future taxable income will down any requirement for be available against consideration of virtual which such deferred tax certainty assets can be realized.
  21. 21. Property Plant & Equipment
  22. 22. Property plant & Equipment, Intangible assets, Investment property and leases Particulars IFRS Indian GAAP Component IAS 16 property, plant and whereas AS 10 recommends, Accounting equipment mandates but does not require, component accounting component accounting Depreciation IFRS requires depreciation In Indian GAAP, base to be based on the useful depreciation is based on economic life of n asset higher of useful life or schedule XIV rates.
  23. 23. Property plant & Equipment, Intangible assets, Investment property and leases Particulars IFRS Indian GAAP Major Major repairs and in most cases Indian GAAP repairs and overhaul expenditure are requires these to be charged overhaul capitalized under IFRS as off to the profit and loss replacement costs, if they account as incurred satisfy the recognition criteria Review of IFRS requires estimate of In India GAAP there is no useful lives useful lives and residual need for an annual values to be reviewed at review of estimates of least at each financial useful lives and residual year-end values
  24. 24. Property plant & Equipment, Intangible assets, Investment property and leases Particulars IFRS Indian GAAP Revaluation If an asset is revalued, IFRS In India GAAP revaluation is not of assets mandates revaluation to be required for all the asset of the given done for the entire class of class, property, plant and equipment the selection of the assets to be to which that asset belongs revalued is made on systematic and basis, the revaluation to be Also there is no need to update updated periodically revaluation regularly under Indian GAAP Investment IFRS provide detail rules for Indian GAAP requires Investment Property the classification of an asset property to be recognized at cost as an investment property and less other than temporary diminution allows subsequent in value measurement of investment property at cost or at fair value
  25. 25. Property plant & Equipment, Intangible assets, Investment property and leases Particulars IFRS Indian GAAP Intangible Assets- Under IFRS intangible Under Indian GAAP indefinite useful life assets can have there is no concept of indefinite useful life. indefinite useful life. Such assets are required to be tasted for impairment and are not amortized Revaluation model Under IFRS the whereas, India GAAP revaluation model is does not permit use of allowed for accounting of the revaluation model for an intangible asset intangible assets provided an active market exists
  26. 26. Related Party Disclosure
  27. 27. Related party Disclosure Particulars IFRS Indian GAAP Definition While defining related AS 18 Related Party party under IAS 24 Disclosures defines related Related Party party as “parties are Disclosures the considered to be related if at words used are any time during the reporting “financial and period and party has the operating decisions”. ability to control the other party or exercise significant influence over the other party in making financial and/ or operating decisions
  28. 28. Related party Disclosure Particulars IFRS Indian GAAP Related Parties IAS 24 includes post AS 18 do not include employment benefit post employment benefit plans as related parties plans as related parties IAS 24 includes close AS 18 includes only members of families of relatives of key key management management personnel as related personnel as a parties. It also includes related parties. close members of the families of persons who exercise control or significant influence
  29. 29. Related party Disclosure Particulars IFRS Indian GAAP Closed Relatives IAS 24 adopts AS 18 includes specific substance over form relations as relatives based approach in defining relatives as close members of the family. Significant Influence IAS 24 does not give AS 18 state that holding any percentage to 20% or more of the interpret significant voting power of the influence and is based entity is presumed to on the substance result in significant influence
  30. 30. Related party Disclosure Particulars IFRS Indian GAAP Control Control is principle As 18 defined control as: based. Under IAS 24 , Ownership directly or indirectly of control is the power to more than one half of the voting govern the financial & power of an entity. operating policies of an Control of composition of the board entity so as to obtain the of directors or the governing body benefits from its activities A substantial interest in voting power and the power to direct, by statute or agreement, the financial and/or operating policies of an entity
  31. 31. Related party Disclosure Particulars IFRS Indian GAAP Exemption from IAS 24 does not contain AS 18 provides Disclosure any exemption from exemption for transaction disclosure. with the related parties where reporting of such disclosures would conflict with the reporting entity’s duties of confidentiality as specially required in terms of a statue or buy any regulator or similar competent authority
  32. 32. Related party disclosure Particulars IFRS Indian GAAP Exemption from There is no exemption No disclosure is Disclosure….. for state controlled required in the enterprise as regards financial statements of related party state –controlled relationships with enterprises as regards other state controlled related party enterprises and relationships with transactions with such other state-controlled enterprises enterprises and transaction with such enterprises.
  33. 33. Impairment
  34. 34. Impairement Particulars IFRS Indian GAAP Impairment/ Under IFRS an annual Under Indian GAAP the Amortization impairment test is required recoverable amount of for intangible assets with intangible assets which are an indefinite useful life or not yet available for use, or an intangible asset not yet those that are amortized available for use. This test over a period exceeding ten can be performed at any years from the date when time during the year, the assets is available for provided it is performed at use need to be estimated at the same time every year. least at the end of each financial year.
  35. 35. Impairment Particulars IFRS Indian GAAP IAS 36 Impairment of Assets AS 28 Impairment of require goodwill to be Assets employs bottom- allocated to each of the up/ top-down approach acquirer’s CGU which are for goodwill allocation expected to benefit from the for impairment testing. synergies of the business This requires goodwill combination, irrespective of to be allocated to a whether other assets or CGU or smallest group liabilities of the acquiree are of CGU to which assigned to those units or goodwill (or portion groups of units thereof) can be allocated on a reasonable and consistent basis
  36. 36. Impairment Particulars IFRS Indian GAAP Reversal Of Once an impairment loss is In Indian GAPP, the Impairment Loss recognized for goodwill, it impairment loss on cannot be reversed goodwill is reversed in a subsequently under IFRS subsequent period when the impairment loss was caused by a specific external event of an exceptional nature, that is not expected to recur and subsequent external events have occurred that reverse the effect of that event.
  37. 37. Impact on Debt Covenant AMER group Ltd Year-ended 31/3/06 Previous IFRS GAAP Share capital $ 200 m $ 200 m ADJUST: Reclassified Redeemable Cumulative Pref. (20) Shares (cost 20m, FV 33.9m) (13.9) Total Equity and Reserves 200 166.1 Debt 20 20 ADJUST: Reclassified Pref. Shares 33.9 Total Debt 20 53.9 DEBT-EQUITY RATIO 0.1 0.32 ( D-E ratio impacted by 3.2 times)
  38. 38. Borrowing Costs
  39. 39. Borrowing Costs Particulars IFRS I GAAP Scope An entity is not required to There is no such scope apply IAS 23 to borrowing exclusion under AS 16 Costs directly attributable to the acquisition, construction or production of a qualifying assets, measured at fair value. Qualifying assets Qualifying assets are those Indian GAAP is similar to assets that require a IFRS. However the term substantial period of time to substential period of time get ready for their intended has been interpreted to use or sale or not routinely generally mean more than produced in large quantities 12 months. or on a repetitive basis over a short period of time and are not ready for their intended use or sale when
  40. 40. Borrowing Costs Particulars IFRS I GAAP Capitalization rate The disclose separately the There is no such separate capitalization rate used to disclosure required under determine the amount of AS 16. borrowing costs.
  41. 41. Provision, contingent Liabilities and Contingent assets
  42. 42. Provisions, Contingent liabilities and Contingent assets Particulars IFRS I GAAP Applicability to financial IAS 37 does not apply to AS 29 applies to financial instruments financial that are within the instruments that are not scope of IAS 39. carried at fair value. The ICAI has recently issued accounting standards on financial instruments and limited revision to AS 29. the limited revision brings the scope in line with IFRS. However this limited revision is recommended for accounting periods commencing on or after 1 april 2009, and mandatory for accounting periods commencing on or after 1 April 2011.
  43. 43. Provisions, Contingent liabilities and Contingent assets Particulars IFRS I GAAP Definitions IAS 37 defines the terms AS 29 contains definitions ‘legal obligation’ and of the terms ‘present ‘constructing obligation’ obligation’ and ‘possible which are not there in AS obligation’ which are not 29. define in IAS 37. Measurement The amount recognized as Provision are based on the a provision should be the best estimate. There is no best estimate of the detailed guidance available. expenditure required to settle the present obligation at the balance sheet date. Detailed guidance is available on measurement.
  44. 44. Provisions, Contingent liabilities and Contingent assets Particulars IFRS I GAAP Measurement IAS 37 employs a statical Provisions are based on the notion of expected value in best estimate. There is no estimating the settlement detailed guidance available. value of a provision. The provision is measured before tax as the tax consequences of the provision, and changes in it, are dealt with under IAS 12. Present value Where the effect of the time The amount of provision value of money is material, should not be discounted to the amount of a provision its present value. should be the present value of the expenditures expected to be required to settle the obligation . The discount rate(s) should not
  45. 45. Provisions, Contingent liabilities and Contingent assets Particulars IFRS I GAAP Restructuring provision Restructuring provision Restructuring provision should be made based on should be made based on constructive obligation. legal obligation. Onerous contracts If an entity has a contract The guidance is similar to that is onerous, the present IFRS, except that obligation under the discounting of the onerous contract should be provision is prohibited. recognized and measured as a provision.
  46. 46. Provisions, Contingent liabilities and Contingent assets Particulars IFRS I GAAP Contingent assets A contingent is disclosed in A contingent asset should financial statements where not be disclosed in financial an inflow of economic statements. However, it can benefits is probable. be disclosed in Director’s Report.
  47. 47. THANKS 011-47904751