International Financial Reporting Standards, NEED , Objectives, IFRS in India PDF

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ASSIGNMENT ON INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

SEMINAR ON ACCOUNTING THEORY AND PRACTICE

Submitted to-

Submitted by-

Dr. MEENA SHARMA

Diksha Garg

Professor,

Roll no.-10

University Business School

M.com. (hons.)

WHAT IS IFRS?

IFRS is set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are generally principal based standards that establish broad rules rather than dictating specific accounting treatments. From 1973 to 2001, IAS were issued by the International Accounting Standards Committee (IASC). In April 2001 the International Accounting Standard Board (IASB) adopted all IAS and began developing new standards called IFRS.

NEED OF IFRS In the present era of globalization and liberalization, the world has become an economic village. The globalization of the business world and the attendant structures and the regulation, which support it, as well as the development of e-commerce make it imperative to have a single globally accepted financial reporting standards. A number of multi-national companies are establishing their business in various countries with emerging economies. The entities in emerging economies are increasingly accessing the global market to fulfill their capital needs by getting their securities listed on the stock exchange outside their country. The use of different accounting frameworks in different countries, which require inconsistent treatment and presentation of same underlying economic transactions, creates confusion for users of financial statements. This confusion leads to inefficiency in capital markets across the world. Therefore, increasing complexity of business transactions and globalization of capital market calls for a single set of high quality accounting standards. International Financial Reporting Standards are designed as a common global language for business affairs so that company accounts are understandable and comparable across

international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. By adopting IFRS, a business can present its financial statements on the same basis its foreign competitors, making comparisons easier. Furthermore companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide. Companies may need to convert to IFRS if they are subsidiary of foreign company that must use IFRS, or if they have foreign investor that use IFRS Companies may also benefit by using IFRS if they want to raise capital abroad. Thus the case for a single set of globally accepted accounting standards has promoted by many countries to pursue convergence of national accounting standards with IFRSs. Amongst others, countries of the European Union, Australia, New Zealand and Russia have already adopted IFRS for listed enterprises. China has decided to adopt IFRS from 2008 and Canada from 2011. Insofar as US is concerned, Financial Accounting Standard Board (FASB) of USA and IASB also working towards convergence of US GAAP and IFRS. Appendix II contains list of countries which require or permit the use of IFRS for various types of entities such as listed entities, banks etc.

HISTORICAL BACKGROUND The IFRS began as an attempt to harmonize accounting across the European Union, but the value of harmonization quickly made the concept attractive around the world. They are occasionally called by the original name of International Accounting Standards ( IAS). The IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On April 1, 2001, the new IASB took over the responsibility for setting International Accounting Standards from the IASC. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards the IFRS. Thus new standards developed by IASB are called International Financial Reporting Standards.

OBJECTIVES OF IFRS 

To bring transparency by enhancing the international comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions.



To strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money. Our Standards provide information needed to hold management to account. As a source of globally comparable information, IFRS Standards are also of vital importance to regulators around the world.



To contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. Use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs for businesses.

REQUIREMENTS OF IFRS •

A statement of financial position.

•

A statement of comprehensive income statements which reconciles profit or loss on the income statement to total comprehensive income.

•

A statement of changes in equity.

•

A cash flow statement or statement of cash flows.

•

Notes, including a summary of the significant accounting policies.

•

The financial statements would sometimes also include a statement of the financial position of an earlier period in the following scenarios:

•

When an entity applies an accounting policy retrospectively;

•

When an entity retrospectively restated an item in its financial statements; or

•

When an entity reclassifies an item in its financial statements.

IFRS FOUNDATIONThe International Financial Reporting Standards Foundation, or IFRS Foundation, is a nonprofit accounting organization. Its main objectives include the development and promotion of the International Financial Reporting Standards (IFRS Standards) through the International Accounting Standards Board (IASB), which it oversees. The IFRS Foundation states that its mission is to develop IFRS Standards that bring transparency, accountability an The foundation was formerly named the International Accounting Standards Committee (IASC) until a renaming on 1 July 2001. It is governed by a board of 22 trustees and the IFRS Foundation Monitoring Board.

ACTIVIES OF IFRS FOUNDATION Standard-settingThe IFRS Foundation sets out IFRS and their interpretations, which include the following:  the International Financial Reporting Standards (IFRS);  the International Accounting Standards (IAS);  interpretations provided by the International Financial Reporting Interpretations Committee (IFRIC);  interpretations provided by the Standing Interpretations Committee (SIC); and  Other pronouncements. Of these, the IAS and the SIC interpretations are previously-developed standards and interpretations that were developed by the IASC and have been adopted by the IASB and the IFRIC respectively when they were formed. The Standards are developed and published by the IASB, a 14-member standard-setting body of the IFRS Foundation, while the IFRIC interpretations are provided by the IFRIC.

Via the IASB, the IFRS Foundation also sets out the IFRS for small and medium-sized entities (SMEs) to better meet the needs of SMEs and relieve the burden imposed on them by the full IFRS Standards.

IFRS Taxonomy The IFRS Foundation also develops and maintains the IFRS Taxonomy. The IFRS Taxonomy consists of elements that can be used to tag disclosures in financial statements prepared using IFRS Standards. Tagging makes information computer-readable and, therefore, more accessible to investors and other users of electronic company financial reports.

THE

CURRENT

STRUCTURE

OF

IFRS

FOUNDATION

IFRS FOR SME The IFRS for SMEs Standard is a self-contained Standard designed to meet the needs and capabilities of small and medium-sized entities, which are estimated to account for more than 95 per cent of all companies around the world. Compared with full IFRS Standards, the IFRS for SMEs Standard is less complex in a number of ways: •

Topics not relevant for SMEs are omitted; for example earnings per share.

Many principles for recognizing and measuring assets, liabilities, income and expenses in full

•

IFRS Standards are simplified. •

Significantly fewer disclosures are required.

•

The Standard has been written in clear, easily translatable language.

•

Revisions are expected to be limited to once every three years. The SMEs Standard is available for any jurisdiction to adopt, whether or not it has adopted full IFRS Standards. The Board's only restriction is that entities that have public accountability should not use it.

IFRS INTERPRETATIONS COMMITTEE •

The IFRS Interpretations Committee is the interpretative body of the International Accounting Standards Board (Board). The Interpretations Committee works with the Board in supporting the application of IFRS.

•

The Interpretations Committee responds to questions about the application of the Standards and does other work at the request of the Board.

•

The Interpretations Committee comprises 14 voting members, appointed by the Trustees of the IFRS Foundation. The members provide the best available technical expertise and diversity of international business and market experience relating to the application of IFRS Standards.

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Interpretations Committee meetings are open to the public and are webcast.

LIST OF IFRS STANDARDS 1) IFRS 1- First time adoption of International Financial Reporting Standards It sets out the procedures that an entity must follow when it adopts IFRSs for the first time as the basis for preparing its general purpose financial statements. This IFRS grants limited exemptions

from the general requirement to comply with each IFRS effective at the end of its first IFRS reporting period.

2) IFRS 2- Share-based Payment-It requires an entity to recognize share-based payment transactions (example: granted shares, share options, or share appreciation rights) in its financial statements, also including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. Specific requirements are included for equity-settled and cash-settled share-based payment transactions, as well as those where the entity or supplier has a choice of cash or equity instruments. 3) IFRS 3- Business Combinations-It outlines the accounting when an acquirer obtains control of a business (example: an acquisition or merger). Such business combinations are accounted for using the ‘acquisition method’, which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. 4) IFRS 4- Insurance Contracts-It applies, with limited exceptions, to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds. In light of the International Accounting Standard Board’s comprehensive project on insurance contracts, the standard provides a temporary exemption from the requirements of some other IFRSs, including the requirement to consider International Accounting Standard- 8 Accounting Policies, Changes in Accounting Estimates and Errors when selecting accounting policies for insurance contracts. 5)

IFRS

5- Non-current

Assets

Held

for

Sale

and

Discontinued

Operations

It outlines how to account for non-current assets held for sale (or for distribution to owners). In general terms, assets held for sale are not depreciated, are measured at the lower of carrying amount and fair value less costs to sell, and are presented separately in the statement of financial position. Specific disclosures are also required for discontinued operations and disposals of noncurrent assets. 6) IFRS 6- Exploration for and Evaluation of Mineral Resources- It has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and

evaluation assets that were applied before adopting IFRSs. It also modifies impairment testing of exploration and evaluation assets by introducing different impairment indicators and allowing the carrying amount to be tested at an aggregate level (not greater than a segment). 7) IFRS 7 - Financial Instruments: Disclosures- It requires disclosure of information about the significance of financial instruments to an entity, and the nature and extent of risks arising from those financial instruments, both in qualitative and quantitative terms. Specific disclosures are required in relation to transferred financial assets and a number of other matters. 8) IFRS 8- Operating Segments-It requires particular classes of entities (essentially those with publicly traded securities) to disclose information about their operating segments, products and services, the geographical areas in which they operate, and their major customers. Information is based on internal management reports, both in the identification of operating segments and measurement of disclosed segment information. 9) IFRS 9-Financial Instruments- It is the International Accounting Standard Board’s replacement of International Accounting Standard 39 Financial Instruments: Recognition and Measurement. It includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. 10) IFRS 10– Consolidated Financial Statements- It outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee. 11) IFRS 11 – Joint Arrangements- It outlines the accounting by entities that jointly control an arrangement. Joint control involves the contractually agreed sharing of control and arrangements subject to joint control are classified as either a joint venture; representing a share of net assets and equity accounted or a joint operation; representing rights to assets and obligations for liabilities, accounted for accordingly. 12) IFRS 12 - Disclosure of Interests in Other Entities-It is a consolidated disclosure standard requiring a wide range of disclosures about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated ‘structured entities’. Disclosures are presented as a series of objectives, with detailed guidance on satisfying those objectives.

13) IFRS 13 -Fair Value Measurement-It applies to IFRSs that require or permit fair value measurements or disclosures and provides a single IFRS framework for measuring fair value and requires disclosures about fair value measurement. The Standard defines fair value on the basis of an exit price notion and uses a fair value hierarchy, which results in a market-based rather than entity-specific measurement. 14) IFRS 14-Regulatory Deferral Accounts- It permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for ‘regulatory deferral account balances’ in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements. Regulatory deferral account balances, and movements in them, are presented separately in the statement of financial position and statement of profit or loss and other comprehensive income, and specific disclosures are required. 15) IFRS 15- It specifies how and when an IFRS reporter will recognize revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. It applies to an annual reporting period beginning on or after 1 January 2018. 16) IFRS 16-It specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, International Accounting Standard- 17. It applies to annual reporting periods beginning on or after 1 January 2019.

IFRS CONVERGENCE IN SOME COUNTRIES COUNTRY European countries Canada Japan Nepal

YEAR OF IMPLEMENTATION 2005 2011 2016 2011

Brazil India

2010 2016

IFRS IN INDIA IND AS are INDIAN ACCOUNTING STANDARDS and are converged standards for IFRS (International Financial Reporting Standards). The Ind AS are allowed to depart from IFRS to account for the differences in cultural, legal, political and economic environment conditions. In pursuance of commitment given by India in G-20 Summit held in Pittsburgh in September 2009, 35 Ind AS converged with IFRS were notified by the Ministry of Corporate Affairs (MCA) and placed on the February 2011. The Ind AS were supposed to come into force on 1st April, 2011. However, the implementation of these standards got postponed for various reasons. Ministry of corporate affairs (MCA), February 2015, issued notification for adoption and implementation of Ind As in phased manner. Voluntary adoption: - Companies can voluntarily adopt Ind AS for accounting periods beginning on or after 1 April 2015 with comparatives for period ending 31 March 2015 or thereafter. Mandatory adoption: - IND AS will be mandatorily applicable for period beginning on or after 1 April 2016 with comparatives for period ending 31 March 2016 or thereafter.

Phases of adoption

Phase I Mandatory applicability of IND AS to all companies from 1st April 2016, provided: 

It is a listed or unlisted company



Its Net worth is greater than or equal to Rs. 500 crore.

*Net worth shall be checked for the previous three Financial Years (2013-14, 2014-15, and 201516). Phase II Mandatory applicability of IND AS to all companies from 1st April 2017, provided: 

It is a listed company or is in the process of being listed (as on 31.03.2016)



Its Net worth is greater than or equal to Rs. 250 crore but less than Rs. 500 crore (for any of the below mentioned periods).

Net worth shall be checked for the previous four Financial Years (2014-14, 2014-15, 2015-16, and 2016-17).

Phase III Mandatory applicability of IND AS to all Banks, NBFCs, and Insurance companies from 1st April 2018, whose: 

Net worth is more than or equal to INR 500 crore with effect from 1st April 2018.

IRDA (Insurance Regulatory and Development Authority) of India shall notify the separate set of IND AS for Banks & Insurance Companies with effect from 1st April 2018. NBFCs include core investment companies, stock brokers, venture capitalists, etc. Net Worth shall be checked for the past 3 financial years (2015-16, 2016-17, and 2017-18). The implementation date for Banks and Insurance Companies had been deferred by...