IFRS Transition Our Current and New Framework

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IFRS Transition Our Current and New Framework
IBA Workshop IFRS The Way Ahead
Presented by CA Vidhyadhar Kulkarni UBS AG,
Mumbai Branch (This presentation was produced
solely by CA Vidhyadhar Kulkarni. The opinions
expressed herein do not necessarily reflect the
views and opinions of UBS. UBS accepts no
responsibility for the accuracy, reliability or
completeness of the information and will not be
liable either directly or indirectly for any loss
or damage arising out of the use of this
presentation or part thereof)
August 07, 2009
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Agenda

• SECTION 1 Indian GAAP -Current Framework
• SECTION 2 International Framework
  (IFRS)-Background New Era
• SECTION 3 IFRS Convergence Approach
• SECTION 4 The Task Ahead- How well are we
  prepared?
• Overall objective of this session is to summarize
  the background of Indian accounting standards and
  financial reporting frameworkcurrent one and the
  proposed one

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Current Framework for banks Who are the key
authorities here ?

• Overall there is a well balanced framework to
  take care of all stakeholders.
• Indian ASs have generally been in line with IFRS
  principles or concepts, definitely so in case of
  recent standards.

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International Framework Background and New Era

• Who issues the international standards ?
• International standards are issued by the
  International Accounting Standards Board (IASB)
  of IASC Foundation.
• IASC Foundation refers to International
  Accounting Standards Committee Foundation which
  is a not-for-profit corporation incorporated in
  USA but primarily operates from London, UK.
• What is the genesis of the international
  standards?
• Recognizing the need for international
  harmonization of accounting standards, way back
  in 1973, professional accountancy bodies of
  leading economies such as UK, USA, Japan,
  Germany, Canada, Australia etc. established an
  international body called International
  Accounting Standards Committee (IASC).
• Accounting standards were issued by Board of IASC
  and were titled as International Accounting
  Standards (IAS).
• Dawn of New Era Year 2001
• However, there was emergence of country level
  accounting standards called National GAAPs
  (generally accepted accounting principles) e.g.
  UK GAAP, US GAAP, Indian GAAP and so on. Over a
  period of time, there were many gaps between
  these country level GAAPs.
• As a result, around the year 2000, the
  international fraternity of Accountants did a
  thorough introspection and decided to revise the
  whole international framework as follows
• IASC Foundation was established.
• Standards setting body was renamed as
  International Accounting Standards Board
  (IASB).
• Title of new standards issued was changed to
  International Financial Reporting Standards
  (IFRS). Note there are certain standards with
  title IAS still valid, of course there are
  revisions/refinements in those.

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International Framework Background and New Era

• What does the term IFRS denote ?
• Strictly speaking, the term IFRS denotes the
  following pronouncements under International
  GAAP
• International Financial Reporting Standards
  (IFRS)
• International Accounting Standards (IAS) those
  which are still valid
• Interpretations issued by the International
  Financial Reporting Interpretations Committee
  (IFRIC) or the Standing Interpretation Committee
  (SIC).
• However, in practice IFRS is interchangeably
  used to denote individual accounting standards as
  well as International GAAP collectively.

21st century has ushered in a Golden Era for
IFRS. The notable events are A) Adoption of
IFRS by EU for listed companies from 1st January
2005 B) China adopting accounting standards
substantially in line with IFRS in 2006 C) US SEC
removing reconciliation requirement for non-US
companies in 2007 D) Brazil, Canada, India, Japan
establishing IFRS convergence timelines in 2007

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International Framework Governance overview ?
Monitoring Board
Trustees
IASB (International Accounting Standards Board)
IFRIC (International Financial Reporting
Standards Interpretation Committee)
SAC (Standards Advisory Council)
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IFRS Convergence Timeline and its Approach in
India
Indias accounting standard setters and the
Central Government have selected IFRS as our
new framework and announced the adoption date as
1st April 2011.

• In toto-adoption (Auto Mode) i.e. simply start
  using IFRSs from a selected date and depend
  entirely on IASB for formulating standards
• Carve out approach i.e. review IFRSs issued by
  IASB, carve out sections not required and endorse
  rest of the IFRSs for local use (approach
  followed by European Union)
• Local equivalents approach i.e. develop roll
  out IFRS equivalent Local Accounting Standards
  (Approach followed some countries e.g. Australia)

What are the adoption approaches available?
Approach chosen by us ?
Option (3) above. It is stated that local
accounting standard setters will bear in mind
that the above approach ensures unreserved
statement of compliance with IFRSs.
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The task ahead how well are we prepared?
We have a Marathon ahead

• There are many Indian standards which have major
  differences with IFRSs. The key ones are
• AS 1 (IAS 1) Disclosure of accounting policies,
  AS 10 (IAS 16 ) Accounting for fixed assets
• AS 22 (IAS 12) Accounting for taxes on income,
  AS 17 (IFRS 8) Segment reporting
• AS 9 (IAS 18)- Revenue recognition, AS 11 (IAS
  21- The effects of changes in foreign exchange
  rates , AS 14 (IFRS 3) Accounting for
  amalgamations, AS 19 (IAS 17) Leases, AS 15
  (IAS 19) Employee Benefits, AS 28 (IAS 36)
  Impairment of assets
• There are few IFRSs where either Indian standards
  are under preparation or have not yet come into
  force. These include a few critical ones relating
  to financial instruments AS 30 (IAS 39), AS 31
  (IAS 32), AS 32 (IFRS 7) AS xx (IAS 40)
  Investment properties
• Framework for the preparation and presentation of
  financial statements needs alignment with IFRS

Accounting Standards Setters ICAI, NACAS
Legal and Regulatory Framework

• Major alignments required in the legal and
  regulatory framework
• Banking Regulations Act 1949 RBI circulars
• Companies Act 1956

Industry -Preparers and Users of F/S

• Need a focussed approach and sensitization at all
  levels of the organization
• However, in the corporate world, some signs of
  Enthusiasm and Leadership visible by early
  adoption of standards on financial instruments
  viz. AS 30/31 (e.g. Infosys, )

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The task ahead what is required to win the
Marathon?
Teamwork Partnership required within each bank
and among all external stakeholders