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Introduction to IFRS IFRS stands for International Financial Reporting Standards. IFRS is A Set of International Accounting Standards stating how particular.

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Presentation on theme: "Introduction to IFRS IFRS stands for International Financial Reporting Standards. IFRS is A Set of International Accounting Standards stating how particular."— Presentation transcript:

1 Introduction to IFRS IFRS stands for International Financial Reporting Standards. IFRS is A Set of International Accounting Standards stating how particular types of transaction and other events should be reported in financial statement IFRS:-A set of Financial Reporting Standards issued by the International Accounting Standards Board (IASB) is recognized under the brand name IRRSs. IFRSs is a trade mark of the International Accounting Standards Committee Foundation. IFRSs comprise of: International Financial Reporting Standards International Accounting Standards and Interpretations originated by the International Financial Reporting Interpretations Committee( IFRIC) and Interpretations issued by the former Standing Interpretations Committee ( SIC).

2 Introduction to IFRS Presently there are 8 International Financial Reporting Standards, 29 International Accounting Standards, 15 IFRIC interpretations and 11 SIC interpretations. The IASB is an independent standard setting body of the International Accounting Standards Committee Foundation (IASC Foundation). International Accounting Standards Committee Foundation (IASC Foundation)International Accounting Standards Committee Foundation (IASC Foundation) Structure of IASC Foundation and IASB The International Accounting Standards Committee (IASC) was renamed as International Accounting Standards Board ( IASB). The principal responsibilities of the IASB are to: Develop and issue International Financial Reporting Standards and Exposure Drafts, and Approve Interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC).

3 Introduction to IFRS Objective OF IFRS To standardize accounting methods and procedures. To lay down principles for preparation and presentation. To establish benchmark for evaluating the quality of financial statements prepared by the enterprise. To ensure the users of financial statements get creditable financial information. To attain international levels in the related areas

4 Accounting Standards and the Companies Act, 1956 As per Section 211 sub sections (3 A), (3 B) and (3 C) inserted by the Companies Amendment Act, 1999 w.e.f. 31.10.1998: (3A) every P & L Account and Balance Sheet shall comply with accounting standards, (3 B) deviations, if any, to be disclosed with reasons and financial effect of deviation, (3 C) "accounting standards" means standards of accounting recommended by ICAI or as may be prescribed by Central Govt. in consultation with National Advisory Committee on Accounting Standards. Section 217 sub section (2AA) inserted by the Companies Amendment Act, 2000 w.e.f. 13.12.2000: (2AA) The Board's report shall also include a Directors' Responsibility Statement indicating therein (1) that in preparation of annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departure. Section 227 sub section (3)(d) inserted by the Finance Act, 1999 w.e.f. 31.10.1998: (3)(d) the auditor's report shall also state whether, in his opinion, the P & L Account and the Balance Sheet comply with accounting standards referred in section 211 (3C), (4) where answer to (3)(d) is negative or with qualification, it shall also state the reasons thereof. Introduction to IFRS

5 WHY IFRS ? India is one of the over 100 countries that have or are moving towards IFRS ( International Financial Reporting Standards) convergence with a view to bringing about a uniformity in reporting systems globally, enabling businesses, finances and funds to access more opportunities. Indian companies are listed on overseas stock exchanges and have to recast their accounts to be compliant with GAAP requirements of those countries. Foreign companies having subsidiaries in India are having to recast their accounts to meet Indian & overseas reporting requirements which are different. Foreign Direct Investors (FDI), overseas financial institutional investors (FII) are more comfortable with compatible accounting standards and companies accessing overseas funds feel the need for recast of accounts in keeping with globally accepted standards. ICAI has decided to implement IFRS in India. The Ministry of Corporate Affairs has also announced its commitment to convergence to IFRS by 2011.

6 Introduction to IFRS IFRS To WHOM APPLICABLE ? Compliance with IFRS in India is restricted to Public Entities which include those companies & entities listed on any stock exchange or have raised money from the public, or have a substantial public interest, or public sector companies. IFRS in India would cover the following public interest entities in the first phase. 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 or subsidiary of the above IFRS is not applicable to SMEs as of now

7 Introduction to IFRS WHEN IFRS ? IFRS for public entities in India is applicable from 01/04/2011. The opening IFRS balance sheet at the date of transition to IFRS – 01/04/2010, which is the start date for full comparative information presentation in IFRS IMPACT OF IFRS IFRS implementation affects several areas of the business entity, such as presentation of accounts, the accounting policies and procedures, the way legal documents are drafted, the way the entity looks at its assets and their usage, as well as the its communications with its stakeholders and also the way it conducts its business. This fundamental and pervasive nature of impact of IFRS, makes it imperative that sufficient planning and thought is given to this aspect and choices made at the transition stage itself, as they determine the effect on the company and its operations. A detailed analysis of all aspects of impact and change as well as all legal documentation and communication becomes necessary.

8 Introduction to IFRS LIST OF IFRS IFRS-1 First time Adoption of International Financial Reporting Standards IFRS-2Share-based payments IFRS-3Business Combinations IFRS-4Insurance Contracts IFRS-5Non Current Assets held for sale and Discontinued Operations IFRS-6Exploration for and evaluation of Mineral Resources. IFRS-7Financial Instruments-Disclosures IFRS-8Operating Segments

9 Introduction to IFRS LIST OF IASs 1.IAS 1Presentation of Financial Statements 2IAS 2Inventories 3.IAS 7Statement of Cash Flows 4.IAS 8Accounting Policies, Changes in Accounting Estimates and Errors 5. IAS 10Events after the Reporting Period 6.IAS11Construction Contracts 7.IAS12Income Taxes 8.IAS16Property, Plant and Equipment 9.IAS17Leases 10.IAS18Revenue 11.IAS19Employee Benefits 12.IAS20Accounting for Government Grants and Disclosure of Government Assistance Assistance 13.IAS21The Effects of Changes in Foreign Exchange Rates 14.IAS23 Borrowing Costs 15.IAS 24Related Party Disclosures

10 Introduction to IFRS LIST OF IASs 16.IAS 26Accounting and Reporting by Retirement Benefit Plans. 17.IAS 27Consolidated and Separate Financial Statements 18.IAS 28Investments in Associates 19.IAS 29Financial Reporting in Hyperinflationary Economies 20.IAS 31Interests in Joint Ventures 21IAS 32Financial Instruments : Presentation 22.IAS 33Earnings per Share 23.IAS 34Interim Financial Reporting 24.IAS 36Impairment of Assets 25.IAS 37Provisions, Contingent Liabilities and Contingent Assets 26.IAS 38Intangible Assets 27.IAS 39Financial Instruments : Recognition and Measurement 28.IAS 40Investment Property 29.IAS 41 Agriculture

11 Introduction to IFRS List of IFRIC Interpretations as on 30.11.2009 1. IFRIC 1Changes in Existing Decommissioning, Restoration and Similar Liabilities. 2. IFRIC 2Members' Shares in Co-operative Entities and Similar Instruments 3. IFRIC 4Determining Whether an Arrangement Contains a Lease 4. IFRIC 5Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds. 5. IFRIC 6Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment Electronic Equipment 6. IFRIC 7Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies 7. IFRIC 8 Scope of IFRS 2 * 8 IFRCI 9Reassessment of Embedded Derivatives 9. IFRIC 10Interim Financial Reporting and Impairment 10 IFRIC11*IFRS 2: Group and Treasury Share Transactions 11. IFRIC 12Service Concession Arrangements 12. IFRIC13 Customer Loyalty Programme 13. IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements an their Interaction 14. IFRIC 15Agreement for the Construction of Real Estate 15 IFRIC 16Hedges of Net investments in a Foreign Operation 16 IFRIC 17Distribution of Non Cash Assets to Owners 17. IFRIC 18 Transfer of Assets from Customers * Interpretations contained in IFRIC 8 and IFRIC 11 are now included in IFRS 2 ( as amended in June 2009).

12 Introduction to IFRS List of SIC Interpretations as on 30.11.2009 1.SIC 7Introduction of the Euro 2.SIC 10Government Assistance – No Specific Relation to Operating Activities 3.SIC 12Consolidation – Special Purpose Entities 4.SIC 13Jointly Controlled Entities – Non-Monetary Contributions by Ventures 5.SIC15Operating Leases – Incentives 6.SIC 21Income Taxes – Recovery of Revalued Non-Depreciable Assets 7.SIC 25Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders 8.SIC 27Evaluating the Substance of Transactions in the Legal Form of a Lease 9.SIC 29Disclosure – Service Concession Arrangements 10.SIC 31Revenue – Barter Transactions Involving Advertising Services 11.SIC 32Intangible Assets – Website Costs

13 Requirements of IFRS IFRS financial statements consist of (IAS1.8) A Statement of Financial Position A Comparative Income Statement Either a statement of changes in equity (SOCE) or a statement of recognized income or expense ("SORIE") Either a statement of changes in equity (SOCE) or a statement of recognized income or expense ("SORIE") A Cash Flow Statement or Statement of Cash Flows Notes, including a summary of the significant accounting policies Comparative information is provided for the previous reporting period (IAS 1.36). An entity preparing IFRS accounts for the first time must apply IFRS in full for the current and comparative period although there are transitional exemptions (IFRS1.7). Introduction to IFRS

14 On 6 September 2007, the IASB issued a revised IAS 1 Presentation of Financial Statements. The main changes from the previous version are to require that an entity must: present all non-owner changes in equity (that is, 'comprehensive income' ) either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income may not be presented in the statement of changes in equity. present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting 'balance sheet' will become 'statement of financial position' 'income statement' will become 'statement of comprehensive income' 'cash flow statement' will become 'statement of cash flows'. The revised IAS 1 is effective for annual periods beginning on or after 1 January 2009. Early adoption is permitted.

15 First Time Adoption of IFRS IFRS 1 requires an entity to comply with each IFRS effective at the reporting date for its first IFRS financial statements. In particular, the IFRS requires an entity to do the following in the opening IFRS balance sheet that it prepares as a starting point for its accounting under IFRSs: Recognize all assets and liabilities whose recognition is required by IFRSs; Do not recognize items as assets or liabilities if IFRSs do not permit such recognition; Reclassify items that it recognized under previous GAAP as one type of asset, liability or component of equity, which are different type of asset, liability or component of equity under IFRSs; and Apply IFRSs in measuring all recognized assets and liabilities. Introduction to IFRS


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