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Introduction to ifrs and convergence

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Introduction to ifrs and convergence

  1. 1. INTRODUCTION TO IFRS AND CONVERGENCE N R GOVINDARAJAN FCA,AICWA,DISA,CISA
  2. 2. AS in India <ul><li>IAS formulated through IASC in 1973 </li></ul><ul><li>India decides to formulate Accounting Standards in 1977 </li></ul><ul><li>Base approach is IAS with local laws, customs and business environment considered </li></ul><ul><li>Initially recommendatory and later made mandatory </li></ul>
  3. 3. AS in India <ul><li>Legal recognition in 1999 </li></ul><ul><li>Other regulatory bodies also insist on AS </li></ul><ul><li>Recent notification - AS rules 2006 </li></ul><ul><li>Gap bridging exercise started in 2000 </li></ul><ul><li>Several new Accounting Standards introduced </li></ul><ul><li>Introduction of new accounting concepts </li></ul>
  4. 4. What is IFRS? <ul><li>It is an accounting frame work which has world wide acceptance </li></ul><ul><li>Developed by a body called IASB </li></ul><ul><li>Prior to that there was a body called IASC and in 2001 it was replaced by IASB </li></ul><ul><li>Hence all the IAS issued by the IASC and the new ones issued by IASB are collectively called IFRS </li></ul>
  5. 5. What is IFRS? <ul><li>Till date IASB has so far issued 30 IAS and 8 IFRS </li></ul><ul><li>In More than 100 countries either IFRS is required or permitted </li></ul><ul><li>India does not follow IFRS but has its own GAAP which is more in tune with IFRS and has now amended its GAAP to fine tune with IFRS </li></ul>
  6. 6. The Composition of IFRSs <ul><li>IFRSs comprise of : </li></ul><ul><li>International Financial Reporting Standards </li></ul><ul><li>International Accounting Standards and </li></ul><ul><li>Interpretations originated by the International Financial Reporting Interpretations Committee( IFRIC) </li></ul><ul><li>Standing Interpretations Committee ( SIC). </li></ul><ul><li>As of date, there are – </li></ul><ul><ul><li>8 International Financial Reporting Standards (IFRS) , </li></ul></ul><ul><ul><li>29 International Accounting Standards ( IAS) , </li></ul></ul><ul><ul><li>17 IFRIC interpretations and </li></ul></ul><ul><ul><li>11 SIC interpretations </li></ul></ul>
  7. 7. Consequences of convergence <ul><li>Not a mere technical exercise </li></ul><ul><li>Preparatory exercise is needed before the change happens </li></ul><ul><li>Big change is expected in the ratios of entities </li></ul><ul><li>Has an impact on investors, analysts and bankers </li></ul>
  8. 8. Transition to IFRS <ul><li>India to converge with IFRS from 01 04 2011 as announced by ICAI </li></ul><ul><li>Globally the momentum is towards convergence of AS and good quality of financial reporting </li></ul><ul><li>No need for translation </li></ul><ul><li>Better comparison and transparency </li></ul><ul><li>Eliminates multiple reporting and helps in understanding of foreign investors who do not have knowledge of Indian accounting standards </li></ul>
  9. 9. Need for convergence <ul><li>Cross border transactions facilitation </li></ul><ul><li>Improved foreign investments </li></ul><ul><li>Availability of relevant and comparable information </li></ul><ul><li>Professional scope widen and mobility improved </li></ul><ul><li>Increased industrial growth </li></ul>
  10. 10. Need for convergence <ul><li>Removal of information and capital flow barriers </li></ul><ul><li>Out of 40,000 companies listed in 51 stock exchanges worldwide, 2700 were cross border listings in Oct 2006 </li></ul><ul><li>New financial instruments , complexity and diversified accounting practices </li></ul><ul><li>Consolidation constraints </li></ul>
  11. 11. Constraints <ul><li>Resources </li></ul><ul><li>Equipping the industry and professionals </li></ul><ul><li>Information systems challenges </li></ul><ul><li>Tax implications </li></ul><ul><li>Impact on performance indicators </li></ul><ul><li>Effect on profits and its distribution </li></ul><ul><li>Managerial remuneration and impact </li></ul>
  12. 12. Convergence of AS with IFRS <ul><li>Questions before India </li></ul><ul><li>Is a convergence required? </li></ul><ul><li>Any other option or alternative available? </li></ul><ul><li>What is the cut off date? </li></ul><ul><li>Adoption or convergence? </li></ul><ul><li>Constitution of task force </li></ul><ul><li>Concept paper submitted </li></ul><ul><li>Road map laid </li></ul>
  13. 13. IFRS and Indian road map <ul><li>Regulators have decided to converge AS with IFRS from accounting period commencing from 01 04 2011 </li></ul><ul><li>Phased implementation of convergence </li></ul><ul><li>It would be for listed companies, banks, insurance and other large corporates </li></ul><ul><li>ICAI expects smooth transition to IFRS by training its members so that they would be fully equipped to meet the challenges that lie ahead </li></ul>
  14. 14. Date line IFRS CONVERGENCE <ul><li>......IFRS DATE LINE 2010DATE LINE IFRS FEB 10.pdf </li></ul><ul><li>BANKS AND INSURANCE </li></ul>
  15. 15. Key conceptual differences <ul><li>Proposed dividend </li></ul><ul><li>Historical cost vs Fair value </li></ul><ul><li>Depreciation rates </li></ul><ul><li>Concept of control </li></ul><ul><li>Preference shares </li></ul><ul><li>Decommissioning cost </li></ul><ul><li>Business combinations </li></ul>
  16. 16. Conclusion <ul><li>Speedy approval of converged standards AND notification </li></ul><ul><li>Saral Schedule VI </li></ul><ul><li>Amendments to Companies Act </li></ul><ul><li>Speed mismatch between IASB and Indian regulators </li></ul>
  17. 17. [email_address] thank you

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