Drifting on the IFRS highway International Financial Reporting Standard(s) Kishor Parikh - B.Com, F.C.A, DipIFR (U.K.) Study Circle Meeting – Landmark Hotel – 6 th September, 2009

© All rights reserved. – Kishor Parikh – Existing Financial Reporting scenario in India Institute of Chartered Accountants of India - Accounting Standards Board - Central Council of ICAI National Advisory Committee of Accounting Standards. Companies Act section 211. Listing Agreement. Schedule VI. Other regulations for Banks, Insurance Companies, Electricity companies, etc.

© All rights reserved. – Kishor Parikh – The need for an International Standard Global Accounting Language. Global Passport for Indian Companies to raise funds. International benchmarking and best-practices. Uniformity in accounting policies across the Globe. Greater reliance and comfort for International interested parties. Stimulus to International transactions, viz. acquisitions, mergers, amalgamations, etc. Requirement under the WTO, of which India is a member. Transparency and integrating India with practices followed world-over.

© All rights reserved. – Kishor Parikh – O rganizations involved in drafting of IFRS International Accounting Standards Committee Foundation (IASCF) International Accounting Standards Committee (IASC) International Accounting Standards Board (IASB) Monitoring Board of Trustees (Trustees) Standards Advisory Council (SAC) Standing Interpretation Committee (SIC) International Financial Reporting Interpretations Committee (IFRIC)

© All rights reserved. – Kishor Parikh – Organizational Responsibility of Standard Preparation

© All rights reserved. – Kishor Parikh – Actual Process of Standard Preparation (IASB)

© All rights reserved. – Kishor Parikh – Global scenario of IFRS adoption Applicable to Listed Companies in 117 countries Status of IFRS applicabilityNo. of Countries Countries in which IFRSs not permitted 35 Countries in which IFRSs permitted 23 Countries in which IFRSs required for some companies 5 Countries in which IFRSs required for all 89 Countries in which there’s no stock exchange 19 India is currently in this class India will be in this class by year 2011 Ultimately India has to be in this class Argentina, Canada, Chile, Israel, South Korea, Brazil Bermuda, El Salvador, Myanmar, Sri Lanka China, Kazakhstan U.K., France, Germany, Oman, Mauritius, South Africa

© All rights reserved. – Kishor Parikh – Contents of Financial Statements under IFRS IFRS financial statements consist of (as per IAS 1.8): - A Statement of Financial Position - Comprehensive income statement and Other comprehensive Income - A statement of changes in equity(SOCIE) - A cash flow statement or statement of cash flows - Notes, including a summary of the significant accounting policies and other disclosure requirements.

© All rights reserved. – Kishor Parikh – IFRS structure – Statement of Financial Position ASSETS Non-current Assets Property, Plant & Equipment Goodwill Other Intangible Assets Investments in Associates Available for Sale Investments Current Assets Inventories Trade Receivables Other Current Assets Cash & Cash Equivalents Total Assets

© All rights reserved. – Kishor Parikh – IFRS structure – Statement of Financial Position EQUITY AND LIABILITIES Equity attributable to the owners of the parent Share Capital Retained Earnings Other components of Equity Non-controlling Interest Total Equity Non-current Liabilities Long-term borrowings Deferred tax Long term provisions Total non-current liabilities Current Liabilities Trade and other payables Short-term borrowings Current portion of long- term borrowings Current tax payable Short-term provisions Total current liabilities Total liabilities

© All rights reserved. – Kishor Parikh – List of Standards currently applicable IFRS-1 – First-time adoption of International Financial Reporting Standards IFRS-2 – Share-based Payment 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 resources IFRS-7 – Financial Instruments and Disclosures IFRS-8 – Operating Segments IAS-1 – Presentation of Financial Statements IAS-2 – Inventories IAS-7 – Cash Flow Statements IAS-8 – Net Profits or Loss for the period, fundamentals errors and changes in accounting policies IAS-10 – Events after the Balance Sheet Date IAS-11 – Construction Contracts IAS-12 – (Revised) Income Taxes IAS-14 – Segment Reporting IAS-16 – Property, Plant and Equipment IAS-17 – Leases IAS-18 – Revenue IAS-19 – (Revised) Employee Benefits IAS-20 – Accounting for Government Grants and Disclosure of Government Assistance IAS-21 – The Effects of Changes in Foreign Exchange Rates IAS-23 – Borrowing Costs IAS-24 – Related Party Disclosures IAS-26 – Accounting and reporting by retirement benefit plans IAS-27 – Consolidated Financial statements and accounting for investment in subsidiaries IAS-28 – Investments in associates IAS-29 – Financial Reporting in hyperinflationary economies IAS-30 – Disclosures in the Financial Statements of Banks and similar financial Institutions IAS-31 – Financial Reporting of Interests in Joint Ventures IAS-32 – Financial Instruments: Presentation IAS-33 – Earnings per Share IAS-34 – Interim financial reporting IAS-36 – Impairment of Assets IAS-37 – Provisions, Contingent liabilities and Contingent Assets IAS-38 – Intangible Assets IAS-39 – Financial instruments: Recognition and measurements IAS-40 – Investment Property IAS-41 – Agriculture

© All rights reserved. – Kishor Parikh – List of Interpretations currently applicable IFRIC Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC Members' Shares in Co-operative Entities and Similar Instruments IFRIC 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 IFRIC - 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC - 8 Scope of IFRS 2 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 Withdrawn effective 1 January 2010 IFRIC - 12 Service Concession Arrangements IFRIC - 13 Customer Loyalty Programmes 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 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 Final Interpretations Issued by the Standing Interpretations Committee SIC 7 - Introduction of the Euro SIC 10 - Government Assistance – No Specific Relation to Operating Activities SIC 12 - Consolidation – Special Purpose Entities SIC 13 - Jointly Controlled Entities – Non-Monetary Contributions by Venturers SIC 15 - Operating Leases – Incentives SIC 21 - Income Taxes – Recovery of Revalued Non- Depreciable Assets 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 29 - Disclosure – Service Concession Arrangements SIC 31 - Revenue – Barter Transactions Involving Advertising Services SIC 32 - Intangible Assets – Web Site Costs

© All rights reserved. – Kishor Parikh – Classification of IFRS Table showing broad categories under which the IFRSs can be segregated

© All rights reserved. – Kishor Parikh – Important Terminology for discussion Fair Value Approach Present Value Estimates and Judgments Going Concern Assumption Explicit and Unreserved Condition Materiality and Aggregation Principle based vs. Rule Based Substance over Form

© All rights reserved. – Kishor Parikh – Target date for adoption in India IFRS in India would cover the following public interest entities in its first wave: - All Listed companies - Banks, insurance companies, mutual funds, and financial institutions - Turnover in preceding year > INR 1 billion - Borrowing in preceding year > INR 250 million - Holding and subsidiary of the above SEBI mandates ‘Companies to be Listed’ are also covered by IFRS. All of the above companies would have to mandatorily adopt International Financial Reporting Standards by 1st April, Separate reporting requirements for Small and Medium Enterprises (SME).

© All rights reserved. – Kishor Parikh – Role of CS in the IFRS regime Imperative and unavoidable for a CS to have basic understanding of IFRS. CS attests Balance Sheet prepared as per Schedule VI. CS certifies Compliance Certificate. Principal Officer of the Company. Onerous responsibility of ensuring compliance with laws and regulations. IFRS would soon be a part of Section 211 of the Companies Act. Investor relations and understanding of financial statements. Secretary to the Audit Committee and the Board.

© All rights reserved. – Kishor Parikh – Role of CS in the IFRS regime Management Representation to be signed by the CS in certain notes to accounts. Reliance on CS for disclosure requirements and notes to accounts Proactive involvement in the financial affairs of the company. Entry in to the registers to be maintained under the Companies Act. Calculation of Managerial Remuneration. Classification of Loan and Equity and subsequent change in ratios of PE\EPS, etc. MCA has initiated action by forming a core group to converge with IFRS. Annual Report to be filed with ROC will be as per IFRS. SOX has huge binding requirements for secretaries and administrators relating to accounting standards and financial reporting.

© All rights reserved. – Kishor Parikh – Thank You Questions Invited or can be subsequently mailed at