WEBCAST on IFRS INTRODUCTION TO IFRS CA MAYUR CHOKSHI Mumbai, India

WHY IFRS - PROCESS Globally accepted language Most widely spread , accepted and trusted financial reporting language Based on Economic reality of transaction Major economies moving towards IFRS PROCESS OF ISSUE OF STANDARDS IASB , CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IAS Standards Development IAS 1 Disclosure of Accounting Policy 1974 INDIA AS 1 1979 IAS 2 Val. & Presentation on Inventory 1975 INDIA AS 2 1981 IAS 7 SOFP 1977 INDIA Chgs in Fin Position 1981 . . . . . . . . & SO ON . . . CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

WHY IFRS – World Wide Recognised Australia, Canada, France, Germany, Japan, Mexico, Netherlands, USA, UK and Ireland agreed to form IASC in June 1973 Total 130 countries joined. India joined in 1974 Nigeria, South Africa, Pakistan, Sri Lanka, Italy, China, Japan, Singapore, Hong Kong, Malaysia, New Zealand, …….. More than 130 countries across globe signed the agreement AS OF NOW :- 41 IAS of which 13 are withdrawn or superseded. Thus effective IAS 28 15 IFRS . . . . . . . . . . . . . . . . . . . .THUS, Total 43 standards. IFRIC 21 ( 3 Withdrawn / superseded) SIC 33 ( 25 Withdrawn / superseded) CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IFRS BOARD, ETC. Process to issue standards by IASB Constitution of IASB Subsequent evolution of IFRS IFRIC SIC Revision to Standards Projects CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

GLOSSARY IFRS – International Financial Reporting Standards IAS – International Accounting Standards IFRIC – International Financial Reporting Interpretation Committee SIC – Standing Interpretation Committee IND AS : INDIAN VERSION OF IFRS AS - Accounting Standards ( Present - IGAAP) CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

Due process Overview Background to IFRSs Requests for information Discussion papers Exposure drafts Finalised pronouncements Post-implementation reviews Annual improvements process Editorial corrections CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

APPROACH IN INDIA Convergence and not adoption Phased Manner to Implement Two separate AS U/S 211(3C) Early adoption possible Clarifications required on various matters CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IFRS ISSUED IFRS 1 IFRS 2 IFRS 3 IFRS 4 IFRS 5 IFRS 6 IFRS 7 IFRS 8 # Name Issued IFRS 1 First-time Adoption of International Financial Standards 2008* IFRS 2 Share-based Payment 2004 IFRS 3 Business Combinations IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral Assets IFRS 7 Financial Instruments: Disclosures 2005 IFRS 8 Operating Segments 2006 IFRS 9 Financial Instruments 2013* IFRS 10 Consolidated Financial Statements 2011 IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement IFRS 14 Regulatory Deferral Accounts 2014 IFRS 15 Revenue from Contracts with Customers CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IFRS ISSUED IAS 1 IAS 2 IAS 7 IAS 8 IAS 10 # Name Issued Presentation of Financial Statements 2007* IAS 2 Inventories 2005* IAS 3 Consolidated Financial Statements 1976 Superseded in 1989 by IAS 27 and IAS 28 IAS 4 Depreciation Accounting   Withdrawn in 1999 IAS 5 Information to Be Disclosed in Financial Statements Superseded by IAS 1 effective 1 July 1998 IAS 6 Accounting Responses to Changing Prices Superseded by IAS 15, which was withdrawn December 2003 IAS 7 Statement of Cash Flows 1992 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 2003 IAS 9 Accounting for Research and Development Activities Superseded by IAS 38 effective 1 July 1999 IAS 10 Events After the Reporting Period CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IFRS ISSUED IAS 11 IAS 12 IAS 14 IAS 15 IAS 16 IAS 17 IAS 18 IAS 19 Construction Contracts 1993 Will be superseded by IFRS 15 as of 1 January 2017 IAS 12 Income Taxes 1996* IAS 13 Presentation of Current Assets and Current Liabilities   Superseded by IAS 39 effective 1 July 1998 IAS 14 Segment Reporting 1997 Superseded by IFRS 8 effective 1 January 2009 IAS 15 Information Reflecting the Effects of Changing Prices 2003 Withdrawn December 2003 IAS 16 Property, Plant and Equipment 2003* IAS 17 Leases IAS 18 Revenue 1993* IAS 19 Employee Benefits (1998) 1998 Superseded by IAS 19 (2011) effective 1 January 2013 Employee Benefits (2011) 2011* IAS 20 Accounting for Government Grants and Disclosure of Government Assistance 1983 CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IFRS ISSUED CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in IAS 21 The Effects of Changes in Foreign Exchange Rates 2003* IAS 22 Business Combinations 1998* Superseded by IFRS 3 effective 31 March 2004 IAS 23 Borrowing Costs 2007* IAS 24 Related Party Disclosures 2009* IAS 25 Accounting for Investments   Superseded by IAS 39 and IAS 40 effective 2001 IAS 26 Accounting and Reporting by Retirement Benefit Plans 1987 IAS 27 Separate Financial Statements (2011) 2011 Consolidated and Separate Financial Statements 2003 Superseded by IFRS 10, IFRS 12 and IAS 27 (2011) effective 1 January 2013 IAS 28 Investments in Associates and Joint Ventures (2011) Investments in Associates Superseded by IAS 28 (2011) and IFRS 12 effective 1 January 2013 IAS 29 Financial Reporting in Hyperinflationary Economies 1989 IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions 1990 Superseded by IFRS 7 effective 1 January 2007 IAS 31 Interests In Joint Ventures Superseded by IFRS 11 and IFRS 12 effective 1 January 2013 IAS 32 Financial Instruments: Presentation IAS 33 Earnings Per Share IAS 34 Interim Financial Reporting 1998 IAS 35 Discontinuing Operations  Superseded by IFRS 5 effective 1 January 2005 IAS 36 Impairment of Assets 2004* IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement Superseded by IFRS 9 where IFRS 9 is applied IAS 40 Investment Property IAS 41 Agriculture 2001 CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IFRS ISSUED CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in IFRIC 1 # Name Issued IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities 2004 IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments IFRIC 3 Emission Rights Withdrawn June 2005 IFRIC 4 Determining Whether an Arrangement Contains a Lease IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment 2005 IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 8 Scope of IFRS 2 2006 Withdrawn effective 1 January 2010 IFRIC 9 Reassessment of Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment IFRIC 11 IFRS 2: Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements IFRIC 13 Customer Loyalty Programmes 2007 Will be superseded by IFRS 15 as of 1 January 2017 IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction IFRIC 15 Agreements for the Construction of Real Estate 2008 IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 18 Transfers of Assets from Customers 2009 IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 2011 IFRIC 21 Levies 2013 CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IFRS ISSUED CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in SIC-1 # Name Issued SIC-1 Consistency – Different Cost Formulas for Inventories 1997 Superseded SIC-2 Consistency – Capitalisation of Borrowing Costs SIC-3 Elimination of Unrealised Profits and Losses on Transactions with Associates SIC-5 Classification of Financial Instruments - Contingent Settlement Provisions 1998 SIC-6 Costs of Modifying Existing Software SIC-7 Introduction of the Euro SIC-8 First-Time Application of IASs as the Primary Basis of Accounting  SIC-9 Business Combinations – Classification either as Acquisitions or Unitings of Interests SIC-10 Government Assistance – No Specific Relation to Operating Activities SIC-11 Foreign Exchange – Capitalisation of Losses Resulting from Severe Currency Devaluations  SIC-12 Consolidation – Special Purpose Entities Superseded by IFRS 10 and IFRS 12 effective 1 January 2013 SIC-13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers Superseded by IFRS 11 and IFRS 12, effective for annual periods beginning on or after 1 January 2013 SIC-14 Property, Plant and Equipment – Compensation for the Impairment or Loss of Items SIC-15 Operating Leases – Incentives 1999 CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

IFRS ISSUED CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in SIC-16 Share Capital – Reacquired Own Equity Instruments (Treasury Shares) 1999 Superseded SIC-17 Equity – Costs of an Equity Transaction 2000 SIC-18 Consistency – Alternative Methods SIC-19 Reporting Currency – Measurement and Presentation of Financial Statements under IAS 21 and IAS 29 SIC-20 Equity Accounting Method – Recognition of Losses SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets Superseded by, and incorporated into, IAS 12 by amendments made by Deferred Tax: Recovery of Underlying Assets, effective for annual periods beginning on or after 1 January 2012 SIC-22 Business Combinations – Subsequent Adjustment of Fair Values and Goodwill Initially Reported SIC-23 Property, Plant and Equipment – Major Inspection or Overhaul Costs SIC-24 Earnings Per Share – Financial Instruments and Other Contracts that May Be Settled in Shares SIC-25 Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease SIC-28 Business Combinations – 'Date of Exchange' and Fair Value of Equity Instruments 2001 SIC-29 Disclosure – Service Concession Arrangements SIC-30 Reporting Currency – Translation from Measurement Currency to Presentation Currency SIC-31 Revenue – Barter Transactions Involving Advertising Services Will be superseded by IFRS 15 as of 1 January 2017 SIC-32 Intangible Assets – Web Site Costs SIC-33 Consolidation and Equity Method – Potential Voting Rights and Allocation of Ownership Interests CA Mayur Chokshi : mayur@mcnco.in : www.mcnco.in

NO AS IN igaap IAS 26 Accounting and Reporting by Reporting by Retirement Benefits Plans IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IAS 40 Investment Property IAS 41 Agriculture

NO AS IN igaap IFRS 1 First Time Adoption of International Financial Reporting Standards IFRS 2 Share Based Payment IFRS 3 Business Combination IFRS 4 Insurance Contracts IFRS 5 Non-Current Assets Held for Sale and Discontinuing operations IFRS 6 Exploration for and Evaluation of Mineral Resources

NO AS IN igaap SIC 32 Intangible Assets – Website Costs IFRS 7 Financial Instruments : Disclosures IFRS 8 Operating Segments IFRS 9 Financial Instruments IFRIC 2 Members’ Share in Co-operative Entities and Similar Instruments IFRIC 15 Agreements for the Construction of Real Estate SIC 32 Intangible Assets – Website Costs

IFRS Framework Principles & objective based; less voluminous “Framework” setting out principles – discusses 5 elements – assets, liabilities, equity, income, expenses. Conceptual Framework applied when no specific guidance in any standards Substance over form Sets out the concepts that underlie the preparation & presentation of financial statements A platform from which standards are developed The Framework is not an accounting standard and it does not contain detailed requirements

PARADIGM SHIFT in the way business is carried out New types of transactions Novel agreements Competitive world Truly global practices Thus, required additional standards to make them more understandable and apply it consistently by all entities

BASICS OF IFRS Substance over Form Fair Value Oriented Principle based not rule based Predominance of Statement of Financial Position

IFRS FRAMEWORK Principles & objective based; less voluminous “Framework” setting out principles – discusses 5 elements – assets, liabilities, equity, income, expenses. Conceptual Framework applied when no specific guidance in any standards Substance over form Sets out the concepts that underlie the preparation & presentation of financial statements A platform from which standards are developed The Framework is not an accounting standard and it does not contain detailed requirements

Objective of Financial Reports Providing information about the financial position, performance and changes in financial position Providing information enabling user to take economic decisions Providing results of stewardship of management and accountability of management for resources entrusted. Components of financial statements - SOFP ( BS), SOCI(PLA) , OCI, Cash Flows, Notes,Disclosures, Explanatory statemets etc. BUT NOT Directors Report, MDA Various USERS OF FINANCIAL STATEMENTS

Framework - qualitative characteristics of IFRS SUBSTANCE OVER FORM Economic Reality rather than its legal form NEUTRALITY PRUDENCE ( Conservatism) COMPLETENESS CONSTRAINTS Timeliness, Balance between Cost and Benefit, Balance Qualitative characteristics, True and Fair

Framework – Definitions Asset : A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. Liability ; A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of the entity’s resources Equity ; The residual interest in an entity’s assets after deducting all its liabilities Income : Increases in economic benefits not resulting from contributions made by equity holders. Expenses : Decreases in economic benefits not resulting from distributions to equity holders.

Framework – Recognition An item is classed as 'recognised' when it is included in the financial statements. An item should be recognised if it is probable that there will be an inflow or outflow of economic benefits associated with the asset or liability and the asset or liability can be measured reliably. Revenue should be earned before it is recognised in the income statement. Expenses are recognised when there is a decrease in an asset or an increase in a liability.

Framework – Measurement The measurement bases referred to in the IASB Framework and commonly used are: Historical cost. Assets are recorded at their original cost. Liabilities are recorded at their original amount received or the cash expected to be paid out to settle them; Current cost. Assets are recorded at the amount that would have to be paid out at the balance sheet date for an equivalent asset. Liabilities are recorded at the value that they could be settled for at the balance sheet date; Realisable or settlement value. Assets are recorded at the amount that they could be sold for now and similarly liabilities are recorded at the amount expected to be paid out; and Present value. This measurement basis involves discounting future cash flows to take account of the time value of money. Although the IASB Framework includes an explanation of the different measurement options, IFRS are primarily based on historical cost and present value (though later standards move towards fair value approach)

BASIC TECHNIQUES EMBEDDED IN IFRS Substance over the Form Fair Value, and Present Value Cash and Cash Equivalent Policy V/S Estimates Depreciation is Estimates Investment Property Combining and Segmenting Transactions OVERALL PRINCIPLE BASED AND NOT RULE BASED UNDERSTAND THE ECONOMIC REALITY OF THE TRANSACTIONS LOGICAL CONCLUSION APPLYING FRAMEWORK PRINCIPLES

CONCEPTS – FAIR VALUE The PRICE that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date i.e. Exit Price Price : At the Principle mkt ( or most advantageous market under current market conditions) Asset or Liability : stand alone or group (CGU); Highest and best use Transaction : in a principal or most advantageous mkt Mkt Participants : Buyers and sellers in principal mkt, are Independent of each other , knowledge abt asset or liability, willing to enter into transaction THUS MAKT BASED AND NOT ENTITY SPECIFIC MEASUREMENT

FEW TRANSACTIONS – Clarity Requires Preference Share Capital – Is it Capital ? Zero % Debentures / Loans – Is it a reality ? Proposed Dividend – Liability arises when ? Convertible Debenture – Value of Option ? Decommissioning Cost -When to Account? Reversal of Impairment Loss / NRV of Inventory in subsequent period

NEW WAY IFRIC 15 ; Agreements for the Construction of Real Estate Vehicle with Additional Warranty – Segmenting Goods sold and repurchase at a later date - Combining SIC 15 – Operating Lease - Incentives IFRIC 4 : Determining whether an arrangement contains lease IFRIC 13 – Customer Loyalty Program IFRIC18 – Transfer of Assets from Customers IFRIC 15 ; Agreements for the Construction of Real Estate

PPE – Definition of Cost , Replacement of Major Part, Decommissioning Cost Depreciation to reflect the pattern in which asset’s economic benefits are consumed Life of the Assets is a entity specific and not be confused with the economic life of the PPE IFRIC 12 : Service Concession Arrangement

Any questions?? CA MAYUR CHOKSHI Mumbai , India m_isa@rediffmail.com By: CA MAYUR CHOKSHI Mumbai , India m_isa@rediffmail.com