1. IFRS Convergence in India © Deloitte Haskins & Sells, Mumbai Deloitte Haskins & Sells Ananthi Amarnath Cochin December 20, 2010

2. Agenda Global Convergence of Accounting Standards Convergence of Indian Accounting Standards with IFRS Conceptual Differences between IFRS and Indian GAAP IFRS Conversion Issues – Business and Technical Accounting IFRS Resources 2

3. GLOBAL CONVERGENCE of ACCOUNTING STANDARDS 3

4. Convergence Drivers Capital Markets Regulatory requirements Internal controls Performance evaluation 4

5. IFRS Objective Principles based high quality global standards Emphasis on relevance and disclosures 5

6. The Global Move Towards IFRS Europe 2005 Australia 2005 Canada 2009/11 South Africa 2005 United States (2014/15/16?) Current or anticipated requirement or option to use IFRS (or equivalent) Brazil 2010 China 2007 India 2011 Chile 2009 Japan (2016)

7. Europe moved to IFRSs from 1/1/2005 with about 8000 EU listed companies mandated Non-EU listed companies allowed to use GAAPs of US, Japan, China, S Korea, and India, other countries to use IFRS – Review in 2011 EU member states may require IFRSs for non- listed companies and to separate company statements European Commission has so far endorsed all IASs, IFRSs and all interpretations (except some recent amendments) Use of IFRSs in Europe

8. Use of IFRSs in Canada Currently Canadian companies listed in US may use US GAAP for domestic reporting and foreign issuers are allowed to use IFRSs From 1 January 2011, all Canadian public entities must use IFRSs Early adoption is permitted on case-by- case basis by securities regulator Not-for-profit and pension plans are not required to transition to IFRSs

9. IFRS Adoption BIGGEST STAMP OF APPROVAL Securities and Exchange Commission (SEC), United States of America have permitted Foreign Private Issuers to file IFRS compliant financial statements (as promulgated by the IASB) without reconciliation to US GAAP SEC has issued a proposed roadmap to assess whether US domestic registrants should be permitted to use IFRS 9

10. SEC permits IFRS filings SEC now permits foreign private issuers to file their financial statements prepared under IFRS in stead of US GAAP – without the need for reconciliation In November 2008, SEC revised its “roadmap” to include milestones that could lead to mandatory transition to IFRSs starting fiscal years ending on or after 15 December 2014/15/16, with permission to certain entities to adopt early.

11. Convergence Vs Adoption In October 2007, ICAI issued concept paper giving the approach and roadmap for convergence Various study groups have been formed The convergence exercise will be taken up in phases - listed and bigger companies initially, smaller public companies thereafter, and eventually all private companies/SMEs Convergence Project in India

12. The Ministry of Company Affairs has appointed two working groups, headed by Mr. Y.H. Malegam and Mr. Mohandas Pai to finalise the roadmap to IFRS convergence. SEBI Committee on Disclosures and Accounting Standards (SCODA) is the standing Committee - Voluntary adoption of International Financial Reporting Standards (IFRS) by listed entities having overseas subsidiaries or by all listed entities. Convergence Project in India

13. IFRS in India On April 5, 2010 Amendment to listing Agreement provides the option of adoption of International Financial Reporting Standards (IFRS) by listed entities having subsidiaries while declaring Consolidated results/financial statements Standalone results will be as per the existing Indian GAAP

14. IFRS in India On January 22, 2010 MCA has released Road Map for convergence with IFRS – For large Companies

15. IFRS in India – Phase I The following categories of companies will convert their opening balance sheets as at 1 st April, 2011, if the financial year commences on or after 1 st April, 2011 in compliance with the notified accounting standards which are convergent with IFRS. These companies are:- 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 Rs.1,000 crores.

16. IFRS in India – Phase II The companies, whether listed or not, having a net worth exceeding Rs. 500 crores but not exceeding Rs. 1,000 crores will convert their opening balance sheet as at 1 st April, 2013, if the financial year commences on or after 1 st April, 2013 in compliance with the notified accounting standards which are convergent with IFRS.

17. IFRS in India – Phase III Listed companies which have a net worth of Rs. 500 crores or less will convert their opening balance sheet as at 1 st April, 2014, if the financial year commences on or after 1 st April, 2014, whichever is later, in compliance with the notified accounting standards which are convergent with IFRS.

18. IFRS in India – Road map When the accounting year ends on a date other than 31 st March, the conversion of the opening Balance Sheet will be made in relation to the first Balance Sheet which is made on a date after 31 st March.

19. IFRS in India – Road map Companies which fall in the following categories will not be required to follow the notified accounting standards which are converged with the IFRS (though they may voluntarily opt to do so) but need to follow only the notified accounting standards which are not converged with the IFRS. These companies are: - (a) Non-listed companies which have a net worth of Rs. 500 crores or less and whose shares or other securities are not listed on Stock Exchanges outside India. (b) Small and Medium Companies (SMCs).

20. IFRS in India – Road map The draft of the Companies (Amendment) Bill, proposing for changes to the Companies Act, 1956 will be prepared incorporating the recommendation of Sub-Group 1 Report.

21. IFRS in India – Road map Revised Schedule VI to the Companies Act, 1956 according to the converged Accounting Standards has been submitted by the ICAI to NACAS which, after review, will submit to the Ministry. Amendments to Schedule XIV will also be made in a time bound manner.

22. IFRS in India – Road map Roadmap recommended by Core Group of MCA in respect of insurance companies, banking companies and non-banking finance companies. Insurance companies:- All insurance companies will convert their opening balance sheet as at 1stApril, 2012 in compliance with the converged Indian Accounting Standards.

23. IFRS in India – Road map Banking companies:- (a) All scheduled commercial banks and those urban co-operative banks(UCBs) which have a net worth in excess of Rs. 300 crores will convert theiropening balance sheet as at 1st April, 2013 in compliance with the first set ofAccounting Standards (i.e. the converged Indian Accounting Standards).

24. IFRS in India – Road map Banking companies:- (b) Urban co-operative banks which have a net worth in excess of Rs. 200crores but not exceeding Rs. 300 crores will convert their opening balance sheets as at 1st April, 2014 in compliance with the first set of Accounting Standards (i.e. the converged Indian Accounting Standards).

25. IFRS in India – Road map Banking companies:- (c) Urban co-operative banks which have a net worth not exceeding Rs. 200crores and Regional Rural banks (RRBs) will not be required to apply the first set of Accounting Standards i.e. the converged Indian Accounting Standards(though they may voluntarily opt to do so) and need to follow only the existing notified Indian Accounting Standards which are not converged with IFRSs.

26. IFRS in India – Road map NON-BANKING FINANCE COMPANIES Type of institutionOpening B/s conversion date Companieswhich are part of NSE Nifty 50Companies & which are part of BSE - Sensex 30 Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores. April 1, 2013 All listed NBFCs and unlisted NBFCs which do not fall in the above categories and which have a net worth in excess of Rs. 500 crores April 1, 2014

27. IFRS in India – Road map NON-BANKING FINANCE COMPANIES Unlisted NBFCs which have a net worth of Rs. 500 crores or less will not be required to apply the converged Indian Accounting Standards.

28. Clarification issued MCA on the certain issues in the Roadmap 28

29. MCA Clarifications The Ministry of Corporate Affairs issued clarification on the following issues in the IFRS Roadmap on 4 th May 2010: −Determination of Applicability −Applicability for entities that are subsidiaries, joint ventures or associates of companies covered under the convergence roadmap. −Discontinuing use of the first set of Accounting Standards (Converged Accounting Standards) −Calculation of net worth −Removal of options 29

30. MCA clarifies on: Determination of Applicability Whether companies can voluntarily opt to provide comparative figures for 2010-11 in accordance with the converged Accounting Standards? 30

31. MCA clarifies on: Determination of Applicability Previous year figures - Clarification: – Companies should show previous years’ figures as per the F/s for 2010-11. – Option available to add an additional column to indicate what the figures could have been if the Converged Accounting Standards had been applied in the previous year – Companies which make this additional disclosure, for this purpose, convert their opening balance sheet as the date on which this pervious year commences and in that case, a further conversion of the opening balance sheet for the year for which the F/s are prepared will not be necessary. 31

32. MCA clarifies on: Determination of Applicability Whether companies covered in 2 nd / 3 rd phase for application of the converged Accounting Standards can voluntarily opt to apply the same w.e.f accounting year beginning 1 st April 2011? 32

33. MCA clarifies on: Determination of Applicability Clarification: Companies in the 2 nd / 3 rd phase will have an option for application of the Converged Accounting Standards only for the financial year commencing on 1 st April 2011 or thereafter 33

34. MCA clarifies on: Determination of Applicability What is the cut-off date on which the criterion set out in the roadmap shall be applied in order to determine the companies falling in each of the four categories which will convert their opening balance sheet as at 1 st April 2011 in compliance with the converged accounting standards 34

35. MCA clarifies on: Determination of Applicability Clarification: – The date of determination of the criteria is the Balance Sheet as at 31 st March 2009; OR – the first Balance Sheet prepared thereafter when the accounting year ends on another date. 35

36. MCA clarifies on: Determination of Applicability What is the cut-off date on which the criterion set out in the roadmap shall be applied in order to determine the scheduled commercial banks/urban co-operative banks/NBFCs falling in each of the categories (as set out in the roadmap for Banks and NBFCs) which will convert their opening balance sheet as at 1 st April 2013 in compliance with the converged Accounting Standards? 36

37. MCA clarifies on: Determination of Applicability Clarification: – The date of determination of the criteria is the Balance Sheet as at 31 st March 2011; OR – the first Balance Sheet prepared thereafter when the accounting year ends on another date. 37

38. MCA clarifies on: Status of subsidiaries, JVs and Associates of entities who are covered under roadmap Whether it would be permissible for the companies which are not individually covered under the phasing plan for application of the Converged Accounting Standards to voluntarily opt for application of the Converged standards even for their standalone F/s? 38

39. MCA clarifies on: Status of subsidiaries, JVs and Associates of entities who are covered under roadmap Clarification: – Criteria to be considered for each company’s standalone accounts – Companies covered in a particular phase having subsidiaries, JVs or associates not covered in those phases will prepare consolidate F/s according to Converged Accounting Standards – One of more companies in a group will continue to prepare F/s in accordance with the Accounting Standards applicable to the particular phase to which it belongs but parent will need to make amendments to these accounts in order to consolidate as per Converged Accounting Standards – Such subsidiaries, JVs or associates may have the option to early adopt the Converged Accounting Standards. 39

40. MCA clarifies on: Discontinuing use of Converged Accounting Standards Does a company have the option to go back to preparing F/s in accordance existing Indian Accounting Standards if it no longer satisfies the specified criteria in the future? Clarification: – No. – Once a company starts following the Converged Accounting Standards on the basis of the eligibility criteria, it will be required to follow such Accounting Standards for all the subsequent financial statements even if any of the eligibility criteria does not subsequently apply to it. 40

41. MCA clarifies on: Calculation of Net worth Rules for calculation of qualifying net worth Clarification: – Networth will be calculated as per audited balance sheet of the company as at 31 st March 2009 or first balance sheet for accounting periods which ends after that date – Networth = Share Capital + Reserves – Revaluation Reserves – Miscellaneous Expenditure – Debit Balance in Profit and Loss A/c – For companies which are not in existence on 31 st March 2009, networth will be calculated on the basis of the first balance sheet ending after that date. 41

42. MCA clarifies on: Calculation of Networth Rules for calculation of qualifying networth recommended to Scheduled Commercial Banks / Urban Cooperative Banks / NBFCs Clarification: – Networth will be calculated as per audited balance sheet of the Bank / NBFC as at 31 st March 2011 or first balance sheet for accounting periods which ends after that date – Networth = Share Capital + Reserves – Revaluation Reserves – Miscellaneous Expenditure – Debit Balance in Profit and Loss A/c – For Banks / NBFCs which are not in existence on 31 st March 2009, networth will be calculated on the basis of the first balance sheet ending after that date. 42

43. MCA clarifies on: Removal of Options Situation where Notified Converged Accounting Standards ARE NOT fully consistent with IAS / IFRS Clarification: – Companies will follow the first set of Accounting Standards i.e. the Converged Accounting Standards and NOT IFRS. 43

44. Regulatory updates

45. The ICAI has taken the following steps for Identification of inconsistencies between various Laws and Regulations: Constitution of a Group on Liaison with Governmental and Regulatory Authorities Group has constituted separate Core Groups to identify inconsistencies between IFRSs and the following statutes: – Companies Act – SEBI Regulations – Banking Laws & Regulations – Insurance Laws & Regulations – CBDT Steps to reduce inconsistencies between regulations

46. Convergence Status Exposure drafts on converged standards were released for public comments by ICAI The converged accounting standards along with revised Sch VI and Sch XIV have been finalized by NACAS and recommended to the Government for notification. 46

47. Progress of Convergence

48. Standards Cleared by Council Standard #Standard Description AS 1Corresponding to IAS 1, Presentation of Financial Statements AS 2Corresponding to IAS 2, Inventories AS 3Corresponding to IAS 7, Statement of Cash Flows AS 4Corresponding to IAS 10, Events after the Reporting period AS 5Corresponding to IAS 8, Accounting Policies and Changes in Accounting Estimates and Errors AS 7Corresponding to IAS 11, Construction Contracts AS 12Corresponding to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance AS 16Corresponding to IAS 23, Borrowing Costs AS 19Corresponding to IAS 17, Leases AS 25Corresponding to IAS 34, Interim Financial Reporting AS 34Corresponding to IAS 29, Financial Reporting in Hyperinflationary Economies AS 35Corresponding to IFRS 6, Exploration for and Evaluation of Mineral Resources

49. Exposure Drafts issued and comments considered by ASB Standard #Standard Description AS 10Corresponding to IAS 16, Property, Plant and Equipment AS 11Corresponding to IAS 21, The Effects of changes in Foreign Exchange rates AS 18Corresponding to IAS 24, Related Party Disclosures AS 20Corresponding to IAS 33, Earnings Per Share AS 21Corresponding to IAS 27, Consolidation and Separate Financial Statements AS 23Corresponding to IAS 28, Investments in Associates AS 29Corresponding to IAS 37, Provisions and Contingent Liabilities and Contingent Assets AS 37Corresponding to IAS 40, Investment Property

50. Exposure Drafts issued and comments to be considered by ASB Standard #Standard Description AS 9Corresponding to IAS 18, Revenue AS 14Corresponding to IFRS 3, Business Combinations AS 15Corresponding to IAS 19, Employee Benefits AS 17Corresponding to IFRS 8, Operating Segments AS 22Corresponding to IAS 12, Income Taxes AS 24Corresponding to IFRS 5, Non-current Assets Held for Sale and Discontinued Operations AS 26Corresponding to IAS 38, Intangible Assets AS 27Corresponding to IAS 31, Interest in Joint Ventures AS 28Corresponding to IAS 36, Impairment of Assets

51. Exposure Drafts issued and comments to be considered by ASB Standard #Standard Description AS 30Corresponding to IAS 39, Financial Instruments: Recognition and Measurement AS 31Corresponding to IAS 32, Financial Instruments: Presentation AS 32Corresponding to IFRS 7, Financial Instruments : Disclosures AS 33Corresponding to 2, Share-based payment AS 36Corresponding to IAS 26, Accounting and Reporting by Retirement Benefit Plans AS 38Corresponding to IAS 41, Agriculture AS 39Corresponding to IFRS 4, Insurance Contracts AS 40Corresponding to IFRS 9, Financial Instruments AS 41Corresponding to IFRS 1, First time Adoption of International Financial Reporting Standards

52. IFRS Vs Indian GAAP Conceptual Differences 52

53. Conceptual Differences IFRS 1 IFRS

54. Conceptual Differences IFRS 1 IFRS

55. IFRS CONVERSION ISSUES 55

56. Business and organisational considerations IFRS impact beyond financial statements Most aspects of the business can be affected:  Processes and systems  Operations  Tax  Treasury Examples include impact on:  Debt covenants  Compensation plans  Revenue contracts  Joint ventures and alliances  Investor communication The adoption of IFRS affects more than a company’s accounting policies, processes, and people. Ultimately, most aspects of a company’s business and operations are affected potentially.

57. Treasury Management Hedge Accounting Investments Valuation Fair valuation approach Fair valuation methodologies Distribution 2010-11 profit will change Dividend policy Debt Covenants IAS 1 requirements Mergers & Acquisitions Control Goodwill Capital reserve IFRS 1 option Management Compensation ESOP fair value Targets not achievable Director remuneration Investors Tax Implication Fair value adjustment Most item will flow through P & L MIS Increased volatility Fluctuations outside control Fair value adjustment HR Training Revised CTC IT Systems Disclosures (IFRS 7) Hedge accounting Data collection Investor relations Changes in EPS EU experience ORGANISATION IFRS Implementation Issues

58. Potential business issues  Treasury management  Certain financing and hedging policies will no longer achieve the desired accounting effect, will instead create volatility in reported profits Challenge have to find good economic strategies that will produce right accounting treatment  Distributions  Equity will change – current dividend policy may no longer be sustainable  Altered dividend patterns may directly impact the share price 58

59. Potential business Issues  Debt covenants & financing  Where debt covenants do not provide for changes in accounting standards, changes to financial position may cause these covenants to be breached  Impact company’s ability to ensure continuity of financing arrangements  When seeking to raise finance, comparative figures may need to apply IFRS as well  Mergers & acquisitions  Accounting for potential acquisitions will be altered by the adoption of IFRS  Goodwill => become non-amortised  Past mergers/acquisitions may contain clauses including price revisions based on accounting data 59

60. Potential business issues  Management compensation  Fair value of share options and other incentive plans shall be recognised  Additional cost to company  Any adjustment to a directors’ remunerations scheme is a sensitive issue  Careful management of investor relations is essential 60

61.  Potential tax implications  Definition of “taxable profits”, follow accounting rules?  Major accounting principles adopted:  Mark-to-market basis for valuation  Flow through P&L accounts for most items  Both unrealized gains and loss will appear in profit and loss account  Items may cause material impact:  Financial instruments  Share-based payments  Investment properties  Income taxes  Revenue recognition Potential business issues 61

62.  Management information  Forecasts and internal performance measurements may no longer be comparable with results reported in FS (eg fair value change)  Making forecast more difficult  Human resources & training  Training will be required throughout the organization, but not just for finance dept  Existing skills may not be adequate to tackle IFRS related issues  need to be supplemented externally or by recruitment Potential business issues 62

63.  IT systems  Systems that will be affected:  internal and external reporting systems, accounting systems and operating systems  E.g. new accounting treatments for financial instruments may require treasury systems to be integrated with financial reporting system Potential business issues 63

64. Potential business issues  Investor relations  May challenge the changes in profits and EPS  Investors will form their own expectation on new accounting policies and expect certain accounting outcomes  Nobody likes surprises 64

65. Planning for IFRS  Technical Accounting  Tax  Internal Processes and Statutory Reporting  Technology Infrastructure  Organizational Issues  Implementation strategy and timeline 65

66. IFRS Conversion Approach 66 Determine business case & future state vision for IFRS adoption Perform comprehensive IFRS conversion Enable continued IFRS reporting and perform knowledge transfer

67. IFRS Resources IASB website http://www.iasb.org/Home.htm ICAI’s website http://www.icai.org/ 67

68. Deloitte IFRS Resources 68

69. www. Iasplus.com 1,200 pages and files, 350 mb of IAS stuff. 69

70. www.iasplus.com Day by day past news back to December 2000 (a new page updated almost daily); Detailed summaries of all Standards and Interpretations; E-Learning modules; Model IFRS financial statements and disclosure checklists; Comparisons of IFRS and various national GAAPs; Deloitte IFRS publications; and much more…… 70

71. IFRS e-Learning 71

72. e-Learning – IAS 40 “Home page” Overview Four scenarios Assessment 72

73. IFRS in your pocket 2009 Free at www. iasplus.com 73

74. Model IFRS Financial Statements for 2009 Free at www. iasplus.com 74

75. THOUGHT LEADERSHIP 75

76. Experience Learned Be Strategic. Accounting choices and a principles based approach provides opportunity. The business will be impacted. Taxes. Systems. Debt Covenants. Dividends. Earnings. MIS. The reach of IFRS can be widespread. Execution counts. Understanding concepts is only the beginning. Striking the numbers and documenting your position requires a very large effort. Communication is critical. Internal communication across your business is needed. External communication with all stakeholders is important. Don’t forget the analysts! Disclosures require a lot of effort. Don’t leave this until it’s too late. The information requirements are extensive. 76

77. Summary Key considerations for Industries Impact on P&L and Net worth Market valuation Global image More business True picture IFRS is much more than an accounting matter.

78. Deloitte Haskins & Sells78 Questions?

79. Thank you 79 Deloitte Haskins & Sells