Ifrs presentation slides

IFRS : Conversion Challenges and
1 Implementation Approach for Banks in
India

Vinay Kaushik & Co.
Chartered Accountants

Second Floor, Meridian Tower-II
Indira Gandhi Marg, Udhna Darwaja,
Surat-395003, Gujarat-INDIA

+91-261-2333527
+91-261-6534665
+91-9227907024

Email: ca@vinaykaushik.comCo.
Vinay Kaushik &
IFRS : Conversion Challenges and Implementation Approach Website: www.vinaykaushik.com
for Banks in India Chartered Accountants
www.vinaykaushik.com

2 Over View

This presentation aims to provide increased awareness towards the
Challenges of IFRS convergence and the need for developing a roadmap
to facilitate implementation through advance planning.

IFRS : Conversion Challenges and Implementation Approach
Vinay Kaushik & Co.

3 Introduction
The International Accounting Standard Board (IASB) is
● a stand alone privately funded accounting standard setting body
● established to develop global standards of financial reporting.
● successor to the International Accounting Standard Committee (IASC)
Since 2001, the standards that the IASB develops and approves have
been known as International Financial Reporting Standards (IFRS)

Vinay Kaushik & Co.

4
4 Introduction
The term IFRS comprises:-
● IFRS issued by IASB;
● IAS issued by IASC;
● the interpretations issued by the Standing Interpretations Committee
(SIC); and
● the International Financial Reporting Interpretations Committee
(IFRIC) of IASB.

Vinay Kaushik & Co.

5 Introduction
Authority to formulate Accounting Standars in India:
● The Accounting Standards Board of the Institute of Chartered
Accountants of India ('ICAI') was constituted on 21 April, 1977, to
formulate Accounting Standards applicable to Indian enterprises.
● ICAI, being a full-fledged member of the International Federation of
Accountants (IFAC), while formulating the Accounting Standards
(ASs), the ASB gives due consideration to IASs issued by IASC and
IFRSs issued by the IASB.
● ICAI try to integrate them, to the extent possible. However, where
departure from IFRS is warranted keeping in view the Indian
conditions, the ASs have been modified to that extent.

Vinay Kaushik & Co.

6 Introduction
Authorities requiring for compliance with the Accounting Standards
issued by ICAI:
● Ministry of Corporate Affairs in case of companies;
● The Reserve Bank of India (RBI) in case of banks;
● The Insurance Regulatory and Development Authority (IRDA) in case
of insurance companies; and
● The Securities and Exchange Board of India (SEBI) in case of all listed
companies.

Vinay Kaushik & Co.

7 Benefits of IFRS Convergence
● IFRS significantly improves the comparability of entities.
● IFRS gives better access to global capital markets and reduces the
cost of capital.
● IFRS provides impetus to cross-border acquisition.
● Improvement in quality and consistency of information, avoid
multiple reporting and reduce cost of the finance function.
● IFRS balance sheet is closer to economic value

Vinay Kaushik & Co.

8 IFRS in India
ICAI has decided to follow a convergence approach to IFRS
implementation rather than adoption of IFRS as issued by the IASB due
to various reasons as follows:
● The legal and the regulatory environment prevailing in the country.
● Alternative accounting choices that are permitted in IFRS may be
incompatible with the local requirements and considerations within
specified sectors and industries.
● The current level of preparedness within the country for
implementation of IFRS.

Vinay Kaushik & Co.

9 Timelines for Convergence

Phase I - 1 April 2011*
a) Companies which are Part of NSE - Nifty 50.
b) Companies which are part of BSE - Sensex 30.
c) Companies whose shares or other securities are listed on stock
exchanges outside India.
d) Companies, whether listed or not, which have a net worth in excess
of `1,000 crores.
Phase II - 1 April 2013*
The companies, whether listed or not, having a net worth exceeding
` 500 crores but not exceeding `1,000 crores.
Phase III - 1 April 2014*
Listed companies which have a net worth of `500 crores or less.

Vinay Kaushik & Co.

10 Deadline for UBC
RBI has vide circular no.25/12.05.001/2011-12, dated 6th March, 2012,
made it clear that all urban co-operative bank (UCB) having:
● Net worth in excess of `300 crore would, in the preparation of their
accounts, converge with IFRS in tendem with the time schedule given
for scheduled commercial banks and accordingly convert their
opening balance sheet as on 1st April, 2013 in compliance with IFRS
converged IAS.
● Net worth in excess of `200 crore but not exceeding `300 crore
would convert their opening balance sheet as on 1st April, 2014 in
compliance with IFRS converged IAS.

Vinay Kaushik & Co.

11 Net worth compution
The MCA press release dated May 5, 2010, clarifies in Issue 8 that net
worth will be calculated as:
Share Capital XXX
Add : Add : Reserves XXX
Total A XXX
Less: Less: Revaluation Reserve XXX
Miscellaneous Expenditure XXX
Debit Balance of the P&L Account XXX
Total B XXX
Networth A-B XXX

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12 Underlying Assumptions
Accrual basis:
It is assumed that the effects of transactions and other events are
recognised when they occur (and not as cash or its equivalent is received
or paid) and they are recorded in the accounting records and reported in
the financial statements of the periods to which they relate
Going concern:
It is assumed that the entity has neither the intention nor the need to
liquidate or curtail materially the scale of its operations.

Vinay Kaushik & Co.

Qualitative characteristics
13
of IFRS financial statements
The four principal qualitative characteristics are:

● Understandability
● Relevance
● Reliability
● Comparability

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14 IFRS financial statements
Complete set of IFRS Financial Statements comprises of:
● A statement of financial position as at the end of the period;
● A statement of comprehensive income for the period;
● A statement of changes in equity for the period;
● A statement of cash flows for the period;
● Notes, comprising a summary of significant accounting policies,
and other explanatory information; and
● A statement of financial position as at the beginning of the earliest
comparative period.

Vinay Kaushik & Co.

15 Comparative Position
IAS No. And Title Corresponding Indian GAAP
IAS 1. Presentation of financial AS 1
Statements
IAS 2. Inventories AS 2 (Revised)
IAS 7. Statement of Cash Flow AS 3 (Revised)
IAS 8. Accounting Policies change AS 5 (Revised)
in Accounting Estimates and Errors
IAS 10. Events after the Reporting AS 4 (Revised)
Period
IAS 11. Construction Contracts AS 7 (Revised)
IAS 12. Income Taxes AS 22

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IAS / IFRS No. And Title Corresponding Indian GAAP
IAS 16. Property Plant and AS10 and AS 6 (Revised)
Equipment
IAS 17. Leases AS 19
IAS 18. Revenue AS 9
IAS 19. Emplyee Benefits AS 15
IAS 20. Accounting for Government AS 12
Grants and Disclosure of
Governmant Assistance
IAS 21. The effect of changes in AS 11 (Revised)
Foreign Exchange Rates

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IAS 23. Borrowing Costs AS 16
IAS 24. Related Party Disclosures AS 18
IAS 26. Accounting and Reporting AS under preparation by ICAI
by Retirement Benefit Plans
IAS 27. Consolidated and Separate AS 21
Financial Statement
IAS 28. Investments in Associates AS 23
IAS 29. Financial Reporting in Not Relevant for Indian Conditions
Hyperinflationary Economics
IAS 31. Interest in Joint Ventures AS 27

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IAS 32. Financial Instruments AS 31 (Not mandatory at present)
Presentation
IAS 33. Earning per share AS 20
IAS 34. Interim Financial Reporting AS 25
IAS 36. Imparement of Assets AS 28
IAS 37. Provisions, Contingent AS 29
Liabilities and Contingent assets
IAS 38. Intangible Assets AS 26
IAS 39. Financial Instruments: AS 30 (Not Mandatory at present)
Recognition and Measurements

Vinay Kaushik & Co.

IAS 40. Investment Property Partly Covered by AS 13
IAS 41. Agriculture AS under preperation by ICAI
IFRS 1. First Time Adoption of IFRS Not relevant to India at present
IFRS2. Share based Capital AS under preperation by ICAI
IFRS3. Business Combination AS 14
IFRS4. Insurance Contracts AS under preperation by ICAI
IFRS 5. Non Current Assets held for AS 24
sale and discontinued operations

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IFRS 6 Explanation for and Covered by Guidance Note on
evaluation of Mineral Resources Accounting for Oil and Gas
Producing Activities
IFRS 7. Financial Instruments AS 32 (Not mandatory at present)
Disclosure
IFRS 8. Operating Segments As 17
IFRS 9. Financial Instruments AS 30 (Not Mandatory at present)

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21 First Time Adoption of IFRS
● FRS 1 sets out the procedures that a first-time adopter must follow
on first-time adoption of IFRS.
● IFRS- 1 requires an entity to follow all the accounting standards in the
preparation and presentation of its financial statements which are
effective at the reporting date.For eg. an entity which carries out the
transition in 2009 has to comply with the standards effective 31st
December 2009.
● IFRS 1 also permits an entity to apply a new IFRS that is not yet
mandatory if that standard allows early application.

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● The first-time adopter establishes its date of transition, which is
defined as the beginning of the earliest period for which an entity
presents full comparative information under IFRS in its first IFRS
financial statements.
● At the date of transition the first-time adopter prepares an opening
statement of financial position. This is the starting point for its
accounting under IFRS.
● In the opening statement of financial position, the first-time adopter
applies its IFRS accounting policies in recognising and measuring all
assets and liabilities, and if appropriate reclassifies items recognised
under previous generally accepted accounting principles (GAAP) as
another type of asset, liability or component of equity.
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● In preparing the opening statement of financial position, the first-
time adopter may choose the optional exemptions from retrospective
application.
● The first-time adopter applies the mandatory exemptions in all
applicable cases.
● A first-time adopter prepares reconciliations between previous GAAP
and IFRS, and discloses these reconciliations in its first IFRS financial
statements (and interim report, if applicable). The entity complies
with other note disclosures in IFRS 1 in addition to those required by
other IFRSs.

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How Opening IFRS Balance
24
Sheet is Prepared
● Recognise all assets and liabilities whose recognition is required
by IFRS
● Derecognise assets and liabilities where recognition is not permited
by IFRS
● Classify all assets and liabilities inaccordance with IFRS
● Measure all recognised assets and liabilities in accordance with
applicable IFRS

Vinay Kaushik & Co.

25 Impact of key differences
● Currently, only listed Indian companies and banks are required to
prepare consolidated financial statements. Adoption of IFRS would
require all defined entities (which include large-sized entities that are
not listed on stock exchanges) to prepare and present consolidated
financial statements.
● The accounting for acquisition is largely dependent on the form of the
acquisition. Under IFRS, all acquisitions are generally accounted for
using the purchase method whereby the purchase price is compared
to the fair value of all identifiable tangible assets, liabilities, contingent
liabilities and intangible assets of the acquired company, with the
excess being recognised as goodwill. This goodwill is not amortised,
but is assessed for impairment annually.

Vinay Kaushik & Co.

● Under Indian GAAP intangible assets are generally recognised only if
they are acquired separately. Under IFRS, intangible assets are
recorded either while accounting for acquisitions using the purchase
method, or when intangible assets are acquired separately.
● Under Indian GAAP all intangible assets are amortised over their
useful lives (and tested for impairment) and there is a rebuttable
presumption that the useful life cannot exceed 10 years. IFRS
acknowledges that certain intangible assets may have indefinite
useful lives (for example, brands that demonstrate certain
characteristics) and accordingly, such intangible assets are not
amortised, but tested for impairment annually.

Vinay Kaushik & Co.

● Indian GAAP on share-based payment to employees (for example,
employee stock options) provides entities with a choice to either
adopt the intrinsic value method (under this employee stock options
are granted with an exercise price equal to the market price on the
grant date, no compensation cost is recognised) or the fair value
method. IFRS mandates the use of the fair value method, whereby
the fair value of the options is determined using an option pricing
model. This would usuall result in recognition of compensation cost
even if the options are in-the-money on the grant date.

Vinay Kaushik & Co.

● IFRS require that a financial instrument should be classified in
accordance with the substance of the contractual agreement rather
than its legal form (substance over form). Thus, redeemable
preference share would be a financial liability and dividends on
redeemable preference shares are recognised as interest expense
under IFRS and impact the profits and loss for the year. This is
different from the Indian GAAP classification of redeemable
preference shares as equity and the related presentation of dividends
on such preference shares as appropriation of profits. This would
impact financial structures and debtequity ratios.

Vinay Kaushik & Co.

Under Indian GAAP, long-term investments are generally carried at
cost, less impairment; and current investments are carried at lower of
cost or market value.
IFRS requires that investments be categorised into three categories:
● Trading or investment carried at fair value,
● Held-to-maturity and
● Available-for-sale.
Except for held-tomaturity investments, all investments are carried at fair
value. Held-to-maturity investments are carried at amortised cost.

Vinay Kaushik & Co.

● Unlike Indian standards, where prior period items that represent
correction of errors; and cumulative impact of change in accounting
policies, are recorded as an adjustment in the current period, IFRS
generally require accounting policy changes and correction of prior
period errors to be made by adjusting opening retained earnings and
restating comparatives. This is a relatively new concept for preparers,
auditors, users, regulators, investors and analysts in India (although
such restatements are required in certain limited situations that
involve initial public offerings) and would require companies to
clearly communicate with and educate investors and other users to
highlight the impact of this change.

Vinay Kaushik & Co.

Presentation of Financial
31
Statements
● Financial statements presentation formats under Indian GAAP are
primarily driven by regulatory requirements specified in the Indian
Companies Act and other regulation for specific industries (for
example, banking and insurance).
● Under IFRS, IAS 1 sets out detailed requirements for presentation of
financial statements, including their structure and minimum
requirements for content.
● Under IFRS, in addition to the balance sheet, income statement and
cash flow statement, a Statement of Changes in Equity (SOCIE) with
supplimentry notes are required.

Vinay Kaushik & Co.

Critical success factor for
32
IFRS convergence
Following are the common critical success factors identified for Indian
entities for successful IFRS conversion projects:
● Strategy
● Leadership
● Communication
● Resources
● Knowledge
● Project Management
● Time

Vinay Kaushik & Co.

33 Project Management
Complex tasks are easier when divided into manageable pieces. IFRS
conversion projects can be broken down into key phases.
Phase 1 Phase 2 Phase 3
Assess Impact and Learn and build the Roll out and Parallel
Plan Conversion tools run
Assets Design Implement

Vinay Kaushik & Co.

Asset Impect and Plan Conversion:
● Mobile Core Team;
● Impact assessment;
● Resource Budget;
● IFRS Treaning needs assessment;
● Management decision; and
● Plan Conversion

Vinay Kaushik & Co.

Learn and build the Tools:
● Mobile finance function and informational Technology;
● IFRS training detailed plan;
● Make policies and financial statement reporting package; and
● Convert system and budgets

Vinay Kaushik & Co.

Roll out parallel run:
● Mobile business and parallel run;
● April 1, 2012 balance sheet;
● 2012-2013 financial statements; and
● Manage business on IFRS Basis

Vinay Kaushik & Co.

37

CA. Vinay Kaushik
B.Com., F.C.A., D.E.M., DISA(ICAI),
DIRM(ICAI), Cer. IFRS (CICA)

Vinay Kaushik & Co.

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