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IFRS Overview August 2009
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Standard setting in India
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Standard setting in India and Current State

• Multiplicity of standard setters
• Paucity of industry specific standards
• Legislative conflict
• Judicial overrides
• Outlived Utility of Schedule VI
• Specific requirement under IRDA regulations

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Can we say Indian accounts are true and fair

• Derivatives are still off balance sheet
• Liability is classified as equity
• FCCB accounting
• Depreciation rates are regulatory based
• Business combinations are not accounted on fair
  value basis
• What is control??

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The economics of IFRS CFO.com

• Two new studies discuss the optimism about the
  future of a global standard. A survey by the
  International Federation of Accountants asked 143
  accounting leaders from 91 countries about the
  significance of converging standards, and 89
  said it was very important or important

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About Indian AS

• Accounting Standards in India are issued by the
  ICAI based on IFRS issued by the IASB
• NACAS reviews AS issued by the ICAI and
  recommends to the Govt. for notification under
  the Companies Act
• Till date, Govt. has notified AS 1 to 29 (except
  AS 8 which is withdrawn) under the Act
• ICAI has also issued AS 30, 31 and 32 on
  Financial Instruments which are yet to be
  notified
• Apart from AS, ICAI also issues Announcements,
  Guidance Notes and EAC opinions forming part of
  Indian GAAP

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Introduction to IFRS

• IFRS are standards and interpretations adopted by
  the International Accounting Standards Board
  (IASB),
• International Accounting Standards (IAS) were
  issued by the International Accounting Standard
  Committee (IASC) from 1973 to 2000.
• The IASB replaced the IASC in 2001.
• Amended some IASs
• Replaced some IASs with new IFRSs,
• Issued certain new IFRSs on topics for which
  there was no previous IAS.
• Through committees, both the IASC and the IASB
  also have issued interpretation of standards.

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IFRS Governing Body

• IFRS are issued by IASB
• A private sector organisation
• Chairman Sir David Tweedie (formally head of
  the UK standard setter)
• 14 members (12 full time)
• The organisation as a whole has wide expertise
  and geographical representation
• IASB are involved in several significant joint
  projects with FASB in the US

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What is IFRS?

• IASB Private sector organisation
• IFRS comprises
• 8 IFRSs and 31 IASs
• 12 IFRIC and 11 SICs
• IFRS - Economic model focusing on balance sheet
• IFRS moving towards
• Increased use of fair values and
• Getting the balance sheet right

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IFRS A truly global accounting standard
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IFRS Implementation Status
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Observations on implementation of IFRS

• More than 8,000 listed companies in EU
  implemented IFRS
• 2005 Implementation of IFRS in EU A resounding
  success
• IFRS financial statements retain a strong
  national identity
• IFRS financial statements are more complex than
  financial statements based on national standards,
  which threatens decision usefulness
• IFRS implementation has required extensive
  judgement to be applied in the selection and
  application of IFRS accounting treatments and
  this restricts consistency and comparability
• Companies do not seem confident that IFRS
  financial statements is sufficient and in a few
  cases entirely appropriate

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Why IFRS in India?

• One language
• Comparability enhanced
• Understanding enhanced
• One set of books
• Access to Global capital markets
• Low cost of capital
• Attract foreign investment
• Elimination of multiple reports

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IFRS task force - Key recommendations

• All at once approach
• Public interest entities 1 April, 2011
• Actually means 1 April, 2010
• Others IFRS SME standard
• Indian GAAP to continue till 1 April, 2011

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Public interest entities

• Listed companies
• Banks, insurance companies, and financial
  institutions
• Turnover in preceding year gt Rs 100 crores
• Borrowing in preceding year gt Rs 25 crores
• Holding or subsidiary of the above

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Benefits Of Adopting IFRS
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Implications Of Adopting IFRS Financial Impact
1
10
12
13
High
4
9
17
2
15
11
Medium
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Financial Statement Impact
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14
7
6
Low
5
3
High
Low
Medium
Business Impact
Initial assessment of priority
High conversion risk and effort.
Medium conversion risk and effort.
Low conversion risk and effort.
Anticipates change resulting from Phase II of
Insurance Contracts
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Challenges
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Key challenges

• Impact on financial statements
• Performance indicators
• Volatility
• IT/MIS systems
• Contractual obligations (debt covenant,
  compensation)
• Taxes
• Distributable profits
• Managing market, investors and analysts

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Regulatory and Other challenges

• Regulatory amendments
• High court
• Training and resources
• SME
• National interest

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First time adoption Key steps

• Preparation of Opening IFRS balance sheet

Last financial statements under previous GAAP
First IFRS
Comparative period
Reporting period
First IFRS financial statements
31/03/2012
31/03/2009
01/04/2010
31/03/2011
Date of transition to IFRSs opening IFRS balance
sheet
Beginning of the first IFRS reporting period
Reporting period
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Buy in needed throughout organisation

• Project sponsorship
• Understand business impacts

The board
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Critical Success Factors

• Take a structured approach to conversion
• Gap analysis identify the measurement and
  disclosure gaps between current GAAP reporting
  and IFRS requirements
• Strategic options define key options and
  evaluating them against strategic criteria to
  determine the preferred option set
• Solution development and implementation define
  the high-level IT and process impact, set and
  establish the project structure, timelines, tasks
  and dependencies
• Establish robust program management at the outset
• Create joint team that establishes an effective
  partnership with the business
• Right mix of technical v/s project management
  skills
• Mix finance resources with BU resources to ensure
  conversion is embedded in the business
• Make sure the communication links have been
  established with all key stakeholders
• Engage with external auditors at all key stages
  of the process and formally document agreements
  on significant accounting judgments
• Ensure the senior management fully understands
  the extent of the changes
• Make sure there are no surprises for the analysts

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Points To Be Kept In Mind

• Not just a corporate-level exercise
• Management buy-in one of the biggest initial
  challenges
• Do not underestimate the amount of work involved
• Need to limit as far as possible double reporting
• Definitely not just a technical exercise
• Changes the way performance is measured and basis
  of incentive schemes
• Interaction with internal controls and systems is
  key
• Increasing complexity of IFRS and speed of change
  is requiring more technical resources, training
• Has increased the volatility of results
• Important to align internal and external
  reporting
• Consider the impact on investor relations -
  timing and nature of communications