AWP

1
Oil Natural Gas Corporation
LimitedINTRODUCTION
International FinancialReporting Standards
2
Agenda

• IFRS-An Overview
• Key learnings Challenges
• High level differences between Indian GAAP IFRS
• First time adoption

3

• IFRS-An Overview

4
Brief about IFRS

• IFRS are standards and interpretations issued by
  the International Accounting Standards Board
  (IASB)
• IFRS Comprises IFRS/ IAS and IFRIC/ SIC
• Principles based standards
• IFRS focuses on
• increased use of fair values
• getting the balance sheet right
• Substance over form
• Fewer choice of accounting alternatives

5
IFRS around the world
6
IFRS in India

• The Core Group, constituted by the MCA for
  convergence with IFRS, recently held a meeting
  and agreed that in view of the roadmap for
  achieving convergence, there will be two separate
  sets of Accounting Standards u/s Section 211(3C)
  of the Companies Act, 1956
• First set would comprise of the Indian Accounting
  Standards which are converged with the IFRSs
  which shall be applicable to the specified class
  of companies.
• The second set would comprise of the existing
  Indian Accounting Standards and would be
  applicable to other companies, including Small
  and Medium Companies (SMCs).
• Companies which fall in the following categories
  may voluntarily opt but are not required to
  follow the notified accounting standards which
  are converged with the IFRS
• Non-listed companies which have a net worth of
  Rs. 500 crores or less and whose shares or other
  securities are not listed on Stock Exchanges
  outside India.
• Small and Medium Companies (SMCs).
• Separate roadmap for banking and insurance
  companies will be submitted by the Sub-Group I in
  consultation with the concerned regulators by
  28th February, 2010.

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IFRS in India

• The first set of Accounting Standards (i.e.
  converged accounting standards) will be applied
  to specified class of companies in phases as
  given in next slide.

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• Business Impacts

9
IFRS has the potential to impact many areas of
the business
Long term benefits
Performance reporting
Executive compensation
Employee long-term incentive plans

• SPEs
• Debt/equity classification and split accounting

Tax planning and structured products
Key performance indicators and investor relations
Systems, policies, procedures, and controls
Financial accounting and reporting

• Fixed assets
• Leases
• Intangibles
• Impairment
• Forex

Valuation models
Treasurymanagement

• Pensions
• Financial instruments
• Impairment

Hedge accounting
10
Key challenges Resources

• The skills and competencies of your team needs to
  be rebalanced in preparing financial statements
  under an IFRS environment

Core skills Core skills remain fundamental to
effective preparation of financial statements in
an IFRS environment. The recording of underlying
business transactions remains largely unchanged,
however greater emphasis on certain (new)
processes (eg designation and effectiveness
testing of hedging of financial instruments) is
required.
Technical accounting The greater technical
complexity and evolving accounting practice
associated with accounting under IFRS
necessitates greater involvement of technical
expertise in the financial statements
preparation process.
Valuation expertise An increased focus on fair
value accounting in an IFRS environment
necessitates greater participation of valuation
experts in the preparation of financial
statements eg tangible/intangible asset
impairment tests, investment properties,
financial instruments, share based payments,
actuarial assessments of defined benefit plans
etc.
Taxation expertise The requirements of the local
tax law necessitates close involvement of
taxation specialists in the identification and
quantification of temporary taxation differences
and taxable income.
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Key learnings Challenges
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IFRS Lessons learned
Below are some of the issues encountered and the
key lessons one can learn fromthe experiences of
others including Canada, Europe and Australia.
Issues identified Key lessons learned
Scale and complexity of the project and the time frame needed were underestimated. Start early! Conducting a thorough impact assessment followed by a detailed planning exercise up front is crucial to a successful transition. Conversions could entail functional changes as well as technical accounting changes.
Project lacked adequate buy-in from senior management early on in the project. The tone from the top is an important driver of change. Board sponsorship of the project is crucial.
Projects suffered from poor project management. The importance of having a proper project management office function capable of coordinating project activities and a well structured conversion methodology cannot be overemphasized.
Slight accounting differences can have a significant effect on financial results. A methodical approach to review accounting differences is essential to assess financial effects.
Unfamiliarity of numbers and principles arising from changes. Technical training will be a critical component of the IFRS conversion, especially for business unit heads that may not be familiar with the implications of the changes that IFRS will bring. Investor relations will also need a strong educational grounding to communicate the impact to investors.
13
Factors for a successful conversion

• Early planning
• Strong project leadership
• Buy-in throughout the entire organization
• Harmonization of internal and external reporting
• Identify bottlenecks and develop solution to
  alleviate
• Plan for the making first time exemption choices
  accounting disclosures early

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Indian GAAP and IFRS
High Level GAAP Differences
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Key differences include.

• Differences related to Basic Principles
• Acquisitions and Consolidation
• Assets Liabilities
• Revenue Expenses
• Presentation Disclosures

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IFRS Lessons learned
Issues identified Key lessons learned
Poor communication existed between project team and business units regarding effects of changes. Invest the time necessary to roll out business process changes such as accounting practices, updated control mechanisms and changes in reporting requirements to the wider organization.
IFRS changes were often not fully embedded in back offices and general ledger systems. As a result, standalone manual workarounds were created, including spreadsheet accounting. EU companies that used manual workarounds to meet short IFRS deadlines are now redesigning processes and augmenting their systems to eliminate the inefficiencies these workarounds created. US firms will benefit from longer lead times to proactively address these changes.
Top-side solutions did not work. Top-side solutions dont cause the organization to adjust, and the finance group feels all the pain. It is important to push down the IFRS conversion to the transaction level throughout the organization as early as possible.
Tax personnel were frequently underrepresented in the conversion process Tax implications of the conversion process may extend beyond accounting effects. Involving tax personnel early in the process may mitigate the potential for unexpected results. Companies will benefit from sufficient resources and adequate lead time to address tax issues and to make necessary changes to tax processes and technology.
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Differences related to Basic Principles
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Basic Differences Fair Value Focus

• Shift from Historical cost basis to Fair Value
• IMPLICATION Substantial portion of Assets and
  Liabilities stated at Fair Value
• Derivative Financial Instruments
• Tangible and intangibles acquired in business
  combinations
• Loans and advances e.g. Interest free deposits
• Deferred Tax on Fair value adjustments
• Fair valuation of investments classified as AFS
  or FVPL

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Basic Differences
Indian GAAP IFRS
Presentation of Financials Largely governed by Schedule VI Governed by IAS 1
First Time Adoption No specific standard. Full retrospective application would be required IFRS 1 grants 4 mandatory exceptions and limited voluntary exemptions from full retrospective applications
Disclosure of Impact on financials in respect of standards finalized but are mandatory in future dates. Not required Required
Differentiation between Current and Non Current Assets / Liabilities Unstructured Requires separate classification on face of Financials
Disclosures of critical Judgments, Key sources of estimation uncertainty that have risk of material adjustment in carrying amounts of assets and liabilities Not Required. Required in Detail
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Basic Differences
Indian GAAP IFRS
Information to understand entitys objective, policies and processes for managing capital Not Required Required in Detail
Change in accounting policy No detailed guidance. Effect of changes in accounting policy needs to be given in Income Statement. Retrospective effect to be given by adjusting opening retained earnings. Comparatives are restated.
Prior Period definition Covers only income and expenses. Elaborate. Covers all items including balance sheet misclassifications.
Prior Period adjustment To be included in the determination of net profit/ loss of current period with relevant disclosure Restatement required. Restatement of opening balances of assets, liabilities and equity
Proposed dividend Provision mandated by statute. Provision prohibited
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Acquisitions and Consolidation
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Business Combinations
Indian GAAP IFRS
Pronouncements No comprehensive standard. AS 14 deals with amalgamations where acquiree ceases to exist. AS 10 deals with acquisition of division. AS 21 with consolidation of subsidiary. IFRS 3 has comprehensive coverage.
Pooling Method Permitted under AS 14 if certain conditions are fulfilled Prohibited
Acquisition date The date of amalgamation as defined in the amalgamation/ acquisition scheme. The date on which the acquirer effectively obtains control of the acquiree.
Valuation of Acquiree Generally book value, though fair value is allowed under AS 14 as an alternative in the case of purchase method and AS 10 Only fair value
Valuation of Acquiree Intangible Assets Generally not valued if not in the books of the acquiree Valued even if not in the books of the acquiree provided fair value can be measured reliably
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Business Combinations
Indian GAAP IFRS
Valuation of Acquiree Contingent liabilities Not valued Valued and recognised as actual liabilities if probable.
Provisional allocations Not permitted except for contingent consideration under AS 14 Permitted over 12 months
Goodwill Different treatment under different AS. AS 14 requires amortisation. AS 10 suggests but does not mandate amortisation. AS 21 is silent. Amortisation prohibited. Annual impairment test mandatory
Negative goodwill Capital reserve PL account
Subsequent adjustment to Assets / liabilities No adjustment permitted 12 month window period allowed to get acquisition accounting right
Reverse acquisition Not dealt with Accounted considering the legal acquiree is in substance the acquirer
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Consolidated Financial Statements (CFS)
Indian GAAP IFRS
Preparation of CFS Not mandatory, except for listed entities as per SEBI rules Mandatory (Exceptions Non- public entities, Intermediate company, unanimous consent of all owners including minority owners, ultimate holding presenting CFS under IFRS.
Potential voting rights AS 21 is silent. Per ASI 18 potential voting rights not considered for determining significant influence in case of associate Potential voting rights currently exercisable should be considered control. However such rights at a future date are not considered control.
Control - definition Ownership of more than one half of the voting power or control of the composition of board of directors Control is based on substance. Control may exist even pursuant to agreement with other shareholders.
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Consolidated Financial Statements (CFS)
Indian GAAP IFRS
Uniform accounting policies Required but if impracticable, disclosure of items where different policies followed Mandatorily required
Disclosure of Minority Interest Disclosed separately from liability and equity of parent shareholder Within equity but separate from parent shareholders equity
Preparation of FS on the date of acquisition for computing parent portion of equity in a subsidiary Required. If impracticable, the FS of immediately preceding period can be used Required (no alternative)
Goodwill determination Based on carrying value Based on fair value due to IFRS 3
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Consolidated Financial Statements (CFS)
Indian GAAP IFRS
SPE No guidance Consolidate if it satisfies SIC 12 criteria. When the substance of the relationship between an entity and the SPE indicates that the SPE is controlled by that entity
Deferred tax impact on elimination of unrealised profit from intra-group transactions. Not recognized line by line totaling of parent and subsidiary deferred tax DT impact on such eliminations is recognized.
Consolidation based on Non- coterminous period Maximum gap 6 mths Maximum gap 3 mths
Change in ownership that do not result in a loss of control No guidance. Common practice- to account for gain/loss on such transactions as adjustment to goodwill or capital reserve on acquisition. Accounted as equity transactions.
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Example Change in Ownership without loss of
control

• Specific Company examples
• OVL - Subsidiary ONGC BV was earlier wholly owned
  which is now diluted without loss of control.
• ONGC - there has been step acquisitions earlier
  in case of MRPL
• IFRS Treatment
• Will be accounted as equity transaction .i.e.
  resultant gain/ loss will be taken directly to
  equity.
• Company will have to account for gain or loss in
  such cases directly in equity
• Will not impact goodwill.
• Will not give rise to gain or loss in the
  statement of comprehensive income.

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Joint Ventures - Additional differences
Indian GAAP IFRS
Methods for recognizing interest in joint venture Only proportionate consolidation method Proportionate consolidation method or Equity method (Exposure draft-proposes to eliminate proportionate consolidation)
51 ownership plus joint control through contractual agreement To be accounted as subsidiary full consolidation To be accounted as JV
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Assets and Liabilities Related
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IAS 16 - Property, Plant and Equipment
Indian GAAP IFRS
Component approach Not mandatory (in case of rigs ONGC follows component approach for different parts of the rig) Mandatory for all kind of PPE (See example in coming slides)
Recognition criteria for subsequent expenditure Increase in future benefits beyond its original standard of performance No requirement for de-capitalization Replacement are capitalized and replaced part de-capitalized.
Repairs, maintenance and overhauling Expense off (unless it increases the future economic benefits beyond the original standard of performance) Regular repairs are expensed off. Major repairs and overhaul expenditure is capitalized
Deferral of payment beyond normal credit terms No specific guidance Difference between cash price equivalent and total payment to be recognized as interest over period of credit
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IAS 16 - Property, Plant and Equipment
Indian GAAP IFRS
Depreciation Useful life or Schedule XIV rates whichever is higher Useful life
Depreciation methods SLM and WDV Various SLM, diminishing balances, units of production method
Review of useful life and residual value No need for annual review. Can be reviewed periodically To be reviewed atleast annually
Depreciation change in method Change in policy (retrospective effect) Change in estimate (prospective effect)
Provision for site restoration No guidance under AS 10 (However, covered in GN on Oil Gas and AS 29). The company does not discount the decommissioning liability in its books) Mandatory (IFRS requires discounting of provision liability of site restoration)
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IAS 16 - Property, Plant and Equipment
Indian GAAP IFRS
Revaluation of assets If revaluation does not cover all assets, selection of asset to be revalued to be made on a systematic basis Option of either cost or revaluation method and to be applied to an entire class of PPE
Revaluation frequency No need to update regularly Need to update regularly
Recoupment of depreciation from revaluation reserve To the extent of revalued portion, can be recouped Cannot be recouped, has to be charged to PL account.
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Component Accounting

• IAS 16 requires cost of each significant item
  of PPE to be recognized separately.
• Item of PPE means parts that have a cost that is
  significant in relation to the total cost of the
  asset.
• Not necessary that parts need to have different
  useful lives

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Component Accounting Example 1

• A new furnace was installed on 1 January 2009 in
  a heat treatment plant.
• Total expenditure on the furnace amounted to Rs.5
  million.
• The furnaces expected useful life, given the
  nature of the plants production, is estimated to
  be 20 years, which is in accordance with the
  useful lives normally recommended by technical
  experts for this type of asset.

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Component Accounting Example 1

• Various components identified at the time of
  capital expenditure are

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Key aspect of IAS 16 Reassessment of Residual
Value

• Residual value as envisaged in IAS 16 means
• residual value of an item of PPE today
• is calculated by taking the price such an asset
  would fetch today,
• but assuming that it is already in the condition
  it will be in at the end of its useful life.
• The useful life is the period over which entity
  expects to use the asset, not the assets economic
  useful life.
• Residual value is of no relevance if the entity
  intends to hold the asset until it is of no use
  to anyone else.
• If entity intends to use price fetched in the
  market for the asset it holds, it must also
  demonstrate an intention to dispose it of before
  the end of its economic useful life.

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IAS 38 - Intangible Assets
Indian GAAP IFRS
Revaluation Not permitted Permitted for intangibles with active markets. Other aspects similar to PPE.
Intangibles having indefinite life No such concept. All assets considered to have definite life. No amortisation only annual impairment testing is required.
Amortisation period 10 year rebuttable assumption No such presumption. In case of assets with definite life, amortization over useful life is required.
Annual impairment testing (irrespective of indicators) Required for intangible asset not yet available for use and intangible asset amortized over gt 10 years Required for goodwill, intangible asset having indefinite useful life and assets not available for use.
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IAS 37 - Provisions, Contingent Liabilities and
Contingent Assets
Indian GAAP IFRS
Measurement Best estimate. No detailed guidance. IAS 37 provides detailed guidance on measurement .It employs statistical notion of expected value in estimating settlement value of provision.
Restructuring provision Provision based on legal obligation Provision based on constructive obligation
Contingent asset Disclosure not permitted Disclosure required where inflow of economic benefit is probable.
Discounting Prohibited Required where effect of time value of money is material discounting is required.
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IAS 32 / 39 Financial Instruments
Indian GAAP IFRS
Financial Instruments Primary Literature AS 31 Financial Instruments Presentation AS 30 Financial Instruments Recognition Measurement AS 13 Accounting for Investments AS 11 The Effects of Changes in Foreign Exchange Rates AS 30 AS 31 are not mandatory as on date and the differences discussed below are based on existing Indian Standards generally accepted accounting practices. Once AS 30 AS 31 becomes effective, there will be no material differences between IGAAP IFRS IAS 32 Financial Instruments Presentation IAS 39 Financial Instruments Recognition Measurement IFRIC 9 Reassessment of Embedded Derivatives
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Financial Instruments
Indian GAAP IFRS
Initial recognition - classification No guidance To be classified as a liability or equity
Convertible instruments No guidance To be split into liability equity components each component recorded separately
Classification of financial assets No such requirement Classified as FVPL, AFS, HTM and LR. Valuation and De-recognition principals are different for all.
Derivatives No exhaustive guidance all derivatives, except those used for hedge purposes, are measured at fair value and any gains/losses are recognized in profit or loss
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Financial Instruments
Indian GAAP IFRS
Hedge accounting only AS 11 deals with forward exchange contracts for hedging foreign currency exposures 3 types of hedging relationship fair value hedge, cash flow hedge hedge of net investments in a foreign operation. Fulfillment of certain conditions to apply hedge accounting
Inter Corporate Guarantees or Loans given or taken No guidance Considered as equity contribution given / taken
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IAS 32 / 39 Financial Instruments
Indian GAAP IFRS
Financial Instruments Equity AS-13 deals with investment in a limited manner. Foreign exchange hedging is covered by AS-11. IAS 32 and 39 deal with financial instruments and entitys own equity in detail including matters relating to hedging. Fair Valuation of Secured Loans Deferred payment credits Fair valuation of Loans Advances Security deposits Fair valuation of Current Liabilities Trade deposits
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IAS 32 / 39 Financial Instruments
Indian GAAP IFRS
Classification Split Accounting No specific standard on financial instrument. Classification based on form rather than substance. Preference shares are treated as capital, even though in many case in substance it may be a liability No split accounting is done The Issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. Compound financial instruments are subjected to split accounting whereby liability and equity component is recorded separately.
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Revenue and expense related
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IAS 18 - Revenue Recognition
Indian GAAP IFRS
Measurement Measured by charges made to customers, discounting not normally required for deferred inflow ( Reqd ..Installment sale) Measured at fair value, discounting required where inflow is deferred
Service income AS 9 allows both, completed service contract method or proportionate completion method. IAS 18 requires percentage of completion method to be followed.
Interest income Recognised at applicable rate. Effective interest method is followed.
Barter Transactions SIC 31 Not much guidance. Revenue recorded on dissimilar exchange .Measurement at fair value of goods transferred out/in.
Multiple Element Contracts No guidance. There is an EAC opinion which requires treatment similar to IFRS. The standard broadly requires that each element is fair valued and recognized when the underlying service is performed.
46
IAS 20 - Government Grants
Indian GAAP IFRS
Assets in kind at concessional rate or free of cost. Recognition at cost only or at nominal value if granted free of cost. Option.. Recognition either at cost or fair value
Refund of grant related to specific fixed asset Cost of asset to be adjusted. Depreciation computed prospectively IAS 20 requires retrospective re-computation of depreciation and prescribes charging off of the deficit in the period in which such grant becomes refundable.
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IAS 19 - Employee Benefits
Indian GAAP IFRS
Actuarial Gains/losses All actuarial gains and losses are recognized immediately in PL Actuarial Gain / loss below 10 corridor need not be recognized Actuarial Gain / loss above 10 corridor can be deferred over remaining service period or on accelerated basis
Discount rate Government bonds High Quality Corporate bond or Government bond
Termination benefit Exp. Provision based on legal obligation Provision made based on constructive obligation
Termination benefit/VRS deferral Permitted upto April 1, 2010 as part of transitional provisions Not permitted
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IAS 12 - Income Taxes
Indian GAAP IFRS
Approach Income statement or timing differences approach Balance sheet liability approach or the temporary differences approach.
Temporary differences No deferred tax recognized for temporary differences which are not timing differences. Deferred tax recognised Revaluation of fixed assets Business combinations Difference between fair value of assets recorded and the tax base. Consolidation adjustments, say, elimination of unrealised profits and undistributed profits of subsidiaries, associates, JVs
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IAS 12 - Income Taxes
Indian GAAP IFRS
Recognition of DTA in case of tax losses Recognised only if virtual certainty supported by convincing evidence for availability of future taxable profits Recognised if it is probable (reasonable certain) that future taxable profit will be available. Entity should also have convincing evidence in such a case.
Fringe Benefit tax Disclosed as separate line item after PBT.. Included in related expense which gives rise to FBT
50
IAS 17 - Leases
Indian GAAP IFRS
Lease of Land AS -19 Accounting for Leases scopes out lease agreements to use lands Included In case of a combined lease, lease of land and buildings need to be considered separately. The land element is normally an operating lease unless title passes to the lessee at the end of the lease term. The buildings element is classified as an operating or finance lease by applying the classification criteria
Whether an arrangement is a lease (e.g. PPAs) Not leases Leases under IFRIC 4, based on Substance of the arrangement Whether the fulfillment is dependant on use of specific asset(s) Whether it conveys a right to use the asset
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IAS 17 - Leases
Indian GAAP IFRS
Initial direct costs AS 19 requires initial direct cost incurred by lessor with respect to a finance lease to be either charged off at the time of incurrence or to be amortized over the lease period. It requires disclosure of the accounting policy in the financial statements of the lessor. Initial direct costs incurred specifically to earn revenues from an operating lease are either deferred and allocated to income over the lease term in proportion to the recognition of rent income, or are recognized as an expense in the statement of pro t and loss in the period in which they are incurred. IAS 17 prescribes initial direct cost incurred by lessor to be included in lease receivable amount in case of finance lease, and in the carrying amount of the asset in case of operating lease. It does not mandate any accounting policy related disclosure.
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Lease implication

• OVL - Company has constructed a pipeline in Sudan
  on BOLT (Built, own, lease and transfer basis).
• The lease has been recognized in accordance with
  Finance leases as per AS 19.
• Policy related to Initial direct cost OVL -
  Initial direct costs incurred in respect of
  finance leases are recognized in the statement of
  profit and loss in the year in which such costs
  are incurred.
• Accounting in IFRS
• Accounting policy may need to amend in IFRS.
• In IFRS, IAS 17 prescribes initial direct cost
  incurred by lessor to be included in lease
  receivable account in case of finance lease.
  Therefore Company won't be able to charge off
  such expenses in IFRS.
• Implication as on transition date
• As on date of transition, Company will need to
  build up the remaining unamortized (.i.e. initial
  direct costs if they have been not charged off
  and would have been included in net receivable)
  initial direct costs in net receivable.
• This impact will be routed through retained
  earnings as on date of transition.

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Presentation and Disclosure related
54
Presentation

• IAS 1 does not lay down any format of financial
  statements
• Minimum items to be presented on face and in
  notes are laid down
• Presentation of SOCIE as separate statement is
  required
• Presentation more governed by substance rather
  than form
• Preference shares to be classified as liability
  vs. equity based on substance
• Classification of assets and liabilities as
  current or non-current based on time of recovery/
  settlement
• Portion of long-term loans payable with in twelve
  months to be presented as current
• No items to be presented as extra-ordinary in the
  financial statements

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Disclosures

• IFRS prescribes extensive disclosures as compared
  to Indian GAAP
• Additional disclosures are required throughout
  the financial statements
• Few examples of additional disclosures required
  which may require substantial additional work
• Critical judgements made by the management
• Key sources of estimation uncertainty
• Capital management policy and data
• Standards/ interpretations issued but not yet
  effective and their impact
• Determination of fair values and key assumptions
  used about the same
• Sensitivity analysis of fair values
• Various risks to which an entity is exposed,
  policies for management of such risks and
  quantitative date relating thereto

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Related Party Disclosures IFRS Impact

• Key Management Personnel (KMPs) under IAS 24
  includes any director whether executive or
  otherwise i.e. Non-executive directors are also
  related parties. Further, if any person has
  indirect authority and responsibility for
  planning, directing and controlling the
  activities of the entity, he will be treated as a
  KMP.
• IAS 24 includes close members of the families of
  KMPs as related party as well as of persons who
  exercise control or significant influence.
• Definition of control is restrictive as it
  requires power to govern the financial and
  operating policies of the management of the
  entity.
• IAS 24 does not prescribe a rebuttable
  presumption of significant influence if 20 or
  more of the voting power is held by any party.
• IAS 24 requires disclosure of terms and
  conditions of outstanding items pertaining to
  related parties.
• 10 materiality provision of giving aggregated
  disclosures rather than detailed disclosures
  would not apply.
• No exemption for non-disclosure of transactions
  between state controlled enterprises, So ONGC
  will need to disclose the transactions with
  Govt., which may include sharing of loss of Oil
  Companies with Govt.,, receipt of oil bonds
• In case of CFS, associate of ONGC (PHH) is a
  related party to ONGC's subsidiaries like OVL
  MRPL. Hence transactions between ONGC's
  subsidiaries and its associates are treated as
  related party transactions in consolidated final
  accounts.

57
First time adoption of IFRS
IFRS 1
58
First time adoption Key steps

• Decide First IFRS Reporting period
• Decide on number of comparative period to be
  presented along with first IFRS financial
  statement
• Determine date of transition to IFRS
• Prepare Opening IFRS balance Sheet
• Prepare first IFRS financial statements

59
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
Beginning of the first IFRS reporting period
Reporting period
Date of transition to IFRSs opening IFRS balance
sheet
60
IFRS 1 General Principle
With the exception of financial instruments and
insurance contracts (see 2.6.1 below), IFRS 1
requires a first-time adopter to use the same
accounting policies in its opening IFRS balance
sheet and all periods presented in its first IFRS
financial statements. However, this will not
happen quite so straightforwardly, since to
achieve this, the entity should comply with each
IFRS effective at the reporting date for its
first IFRS financial statements, and should take
into account a number of exemptions from other
IFRS and exceptions to retrospective application
of other IFRS allowed by IFRS 1 (see 2.3.3
below). 26 In other words, the fundamental
principle of IFRS 1 is to require full
retrospective application of the standards in
force at an entity's reporting date, but with
limited exceptions. The IASB initially
entertained a suggestion to restrict
retrospective application of IFRS to a limited
'look back' period of three to five years to
avoid the cost of investigating very old
transactions but concluded that this approach
could lead to the omission of material assets or
liabilities from an entity's opening IFRS balance
sheet. 27 The diagram shows how the process of
selecting IFRS accounting policies operates. The
requirement to apply the same accounting policies
to all periods also prohibits a first-time
adopter from applying previous versions of
standards that were effective at earlier dates.
28 The IASB believes that this
enhances comparability because the first IFRS financial statements are prepared on a consistent basis over time
gives users comparative information that is based on IFRS that are superior to superseded versions of those standards and
avoids unnecessary costs.
Step 2
Step 1
Step 3
Step 4
Recognise all assets and liabilities required to
be recognised by IFRS
De-recognise all assets and liabilities not
permitted by IFRS
Classify all items in accordance with IFRS
Measure all assets and liabilities in accordance
with IFRS
Increased
with European
comparatives
61
Optional exemptions under IFRS 1

• Business combinations
• Fair value or revaluation as deemed cost
• Employee benefits
• Cumulative translation differences
• Compound financial instruments
• Assets and liabilities of subsidiaries,
  associates and joint ventures
• Designation of previously recognised financial
  instruments
• Share based payment transactions

62
Optional exemptions under IFRS 1 Contd.

• Insurance contracts
• Decommissioning liabilities included in the cost
  of property, plant and equipment
• Leases
• Fair value measurement of financial assets or
  financial liabilities at initial recognition.
• A financial asset or an intangible asset
  accounted for in accordance with IFRIC 12
  Service Concession Arrangements

63
Mandatory exemptions under IFRS

• Derecognition of financial assets and financial
  liabilities
• Hedge accounting
• Estimates
• Assets classified as held for sale and
  discontinued operations
• All the Accounting Standards needs to be applied
  retrospectively
• (Other than exclusions by Mandatory or Optional
  Exemptions)

64
Thank you!