Lecture 8 IFRS, GAAP and Ind AS PDF

Lecture-5 IFRS, GAAP and Ind-AS Learning Outcomes: To Appraise the adoption process of IFRS in India. To Describe the requirements of IFRS convergence in India. To Compare the Indian GAAP, IFRS and Ind-AS. Let’s explore what is happening in the Accounting world? Harmonis...

Lecture-5 IFRS, GAAP and Ind-AS Learning Outcomes: To Appraise the adoption process of IFRS in India. To Describe the requirements of IFRS convergence in India. To Compare the Indian GAAP, IFRS and Ind-AS. Let’s explore what is happening in the Accounting world? Harmonisation of Accounting Harmonization tends to mean the process of increasing the compatibility of accounting practices by setting bounds to their degree of variation. Lets understand with an example Investors would like to direct their capital to the most efficient and productive companies globally provided they are in position to understand their accounting/financial reports. So, if all countries across globe would have adopted the standard accounting standards. It makes easier to use financial reports for taking prudent investment decisions by investors across their borders. Hence, It lays down the rationale behind the harmonization of Accounting standards across globe. What is IFRS? A set of accounting standards. Developed by --- International Accounting Standards Board (IASB). For the preparation of public company financial statements. A) IFRS Foundation In 1997, restructure IASC into two bodies – the Trustees and the International Accounting Standards Board (IASB). IFRS Foundation (March 2001) trustees are responsible for: appointing the members of the IASB, the International Financial Reporting Interpretations Committee and IFRS Advisory Council; reviewing annually the strategy of the IASB and its effectiveness; approving annually the budget and determining the funding of the IASB; promoting the IASB and its work and the rigorous application of IASs; establishing and amending operating procedures for the IASB, IFRS Interpretations Committee and IFRS Advisory Council. B) International Accounting Standards Board (IASB) Responsible for developing international accounting standards, now called International Financial Reporting Standards (IFRSs). C)IFRS Advisory Council (Objectives) to give advice to the IASB on agenda decisions and priorities in its work; to inform the IASB of the views of organizations and individuals on the Council on major standard setting projects; to give other advice to the Board or to the Trustees. D) IFRS Interpretations Committee (Responsibilities) Review, on a timely basis, new financial reporting issues not specifically addressed in IFRSs. Clarify issues where unsatisfactory or conflicting interpretations have developed, with a view to reaching a consensus on the most appropriate treatment. Poll 1: Under the current structure of regulatory bodies, which of the bodies listed below acts as the overall supervisory body in IFRS? A IFRS Interpretations Committee B International Accounting Standards Board C IFRS Advisory Council D IFRS Foundation D IFRS Foundation Poll 2: Which of the bodies listed below is responsible for reviewing International Accounting Standards and issuing guidance on their application? A IFRS Interpretations Committee B International Accounting Standards Board C IFRS Advisory Council D IFRS Foundation A IFRS Interpretations Committee Need of IFRS by Companies 1. Globalization To reduce the differences between accounting standards. 2. International Acquisitions 3. Standard quality of MIS 4. Enhance confidence among the global stakeholders What is the outlook for IFRS adoption? Global snapshot Currently, there are 150 countries that either adopted or signed to adopt IFRS: Brazil – 2010 Canada – 2011 Chile – 2009/2010/2011 India – 2011/2012 IFRS required or permitted Japan – 2010 (optional) Local GAAP based on legacy IAS Mexico – 2012 No action taken/date set for adoption In process of adopting or converting to IFRS The world of IFRS Mode of IFRS Compliance 1. IFRS adopt: countries are Two adopting IFRS as it is. Modes 2. IFRS converge: countries are preparing own standards but in line with IFRS. Converge Adoption nce Poll 3: A country’s Central Government is being suggested to follow International Accounting Standards by its Accounting Professional Body to facilitate the investment climate in country. However, Central Government’s representative raised an issue that country’s economic environment is different as compared to economic environment that is being presumed to be in existence by IFRS. Suggest, the given country should follow IFRS? a) Yes b) No If yes, How should that country follow IFRS? Through convergence Indian approach to move to IFRS Made commitment to G20 to follow IFRS from 2011. IFRS by convergence not by adoption as convergence gives a scope for making country specific changes. Converged accounting standards with IFRS be named as Indian Accounting Standards (Ind AS) Implemented Ind AS on voluntary basis for all companies (with comparatives) from April 1, 2015. However, IFRS was implemented from April 1, 2016 for specified companies on mandatory basis. GAAP-Introduction Accounting is the language of business. It communicates the results and state of affairs. This language follows some accounting principles. GAAP Accounting principles are accepted worldwide or by Accounti Concepts different countries, ng are known as GAAP principle s conventions What are IND AS? Are set of Accounting standards notified by the Ministry of Corporate Affairs, Government of India which are converged with IFRS. These standards are formulated by Accounting Standards Board (ASB) of Institute of Chartered Accountants of India (ICAI). MCA has notified 41 Ind ASs as amended by Companies (Indian Accounting Standards) Amendment Rules, 2015 with specific roadmap of implementation. Current Scenario Existing Accounting Standards under Companies (Accounting Standard) Rules, 2006 Indian Accounting IFRS converged Indian Accounting Standards (Ind AS) Standards Ind AS are named and numbered in the same way as the corresponding IFRS. Poll4: As being an active investor of Indian Capital Markets, if you will get confront with some Financial reporting issue in the annual reports of certain companies of same industry related to 1 certain Accounting standard, which body will you refer to raise that issue? A. Company Law Board B. Institute of Chartered Accountants of India C. Income Tax Department D. Reserve Bank of India B Institute of Chartered Accountants of India Roadmap of Implementing IND-AS Voluntary Mandatory Mandatory Phase Phase Phase II I 1 April, 2015 1 April, 2016 1 April, 2017 Mandatory Mandatory Phase Phase III IV 1 April, 2018 1 April, 2019 Phase I Phase I Applicable from 1st April 2016 Applicable to Net worth is > all listed and Rs. Rs. 500 unlisted crores companies Financial Performanace Annexure from HUL Annual Report 2019-2020 Poll 5: Once a company has started reporting as per the IND AS through Voluntary adoption, Can it further change to reporting its Financial information as per previous law/accounting standards? a) Yes b) No B Companies can voluntarily choose to incorporate IND AS in their reports for accounting periods beginning on or after April 01, 2015. While reporting, such companies must include a comparative report for the periods ending 31 March 2015 or thereafter, where IND AS have been incorporated to present a comparative view. However, once a company has started reporting as per the IND AS, it cannot change to reporting as per previous laws. Phase II Phase II Net worth shall be checked for the previous four Financial Years Applicable from 1st (2013-14, 2014-15, April 2017 2015-16, and 2016- 17) Applicable to all listed companies or Net worth is > Rs. 250 is in the process of being listed (as on crores but < Rs. 500 crores 31.03.2016) Phase III Phase III Applicable from 1st April 2018 Applicable to all banks, Net worth is > Rs. NBFCs & insurance 500 crores companies Phase IV Phase IV Applicable from 1st April 2019 Net worth is > Rs. Applicable 250 crores but < Rs. to NBFCs 500 crores Comparison Between Indian GAAP, IND AS and IFRS BASIS INDIAN GAAP IFRS IND AS Components (a) Balance sheet, (a) Statement of financial (a) balance sheet at the end of financial (b)Statement of Profit & position. of the period including statements loss (b)Statement of income with changes in equity (c) Cash flow statement profit / loss (b)statement of profit / loss (d)Explanatory notes (c) Statement of cash flows (c) Cash flow statement with significant (d)Statement of changes in (d)Explanatory notes with accounting policies equity significant accounting Comparative figures (e) Notes with summary of policies Comparative for one year are also significant accounting figures for one year are to be presented. policies Comparative also to be presented. figures for one year are also to be presented. Formats of Under Schedule VI of Only illustrative formats No format prescribed. financial companies Act 1956 have been given. statements have provided earlier Now, Under Schedule III of Companies Act, 2013 Comparison Between Indian GAAP, IND AS and IFRS BASIS INDIAN GAAP IFRS IND AS Bank Financing activities Cash &cash equivalents Same as IFRS overdraft Cash flows To be classified as operating, Cash flow statements do Same as IFRS from extra financing and investing not reflect any items as ordinary activities. extraordinary items Interest and For financial entities: Interests May be classified as Same as dividend paid/received or Dividend operating/investing/financ Indian GAAP received are to be received as ing activities in a manner operating activities. Dividend consistent from time to paid to be classified as financing time activities Dividends Dividends declared or proposed Declared dividend to be Same as IFRS after balance sheet date but recognized in the period before approval of financial when it is declared Comparison Between Indian GAAP, IND AS and IFRS BASIS INDIAN GAAP IFRS IND AS Convertible The entire instrument is Shareholders’ Fund Same as IFRS Debt treated as Debt based on its legal form PARENT  Any company holding  Any company having Same as IFRS COMPANY 51% or more share of control on decision making subsidiary or control on the ownership of other company Cash Flow Exempted if SMEs No such exemption Same as IFRS Statement Property , plant AS 6- DEPRICIATION IAS 16- Property, plant and IND AS 16- and equipment ACCOUNTING equipment Property, plant AS 10 - ACCOUNTING FOR IFRIC 1 – changes in and equipment FIXED ASSETS existing decommissioning, Restoration and Similar Poll 6: One Indian MNC which has 7 subsidiaries and 3 associates operating in India is required to follow Ind AS for preparing its financial statements as per the guidelines of MCA. The given MNC will be required to prepare which financial statements as per Ind AS? a) both consolidated as well as standalone financials of the company. b) Only consolidated financials c) Only standalone financials d) Optional A both consolidated as well as standalone financials of the company. How AI Can Be Applied To Accounting? Potential to transform the finance and accounting industries with advancements eliminate tedious tasks and free human finance professionals Organizations hesitate to employ AI due to uncertainties In several industries from stock trading to hospitals. Google has singled it out as the next big thing. Main challenges for the accountants is the huge amount of transactions (especially in the B2B space) Lot of time is being spent by having teams manually deal with massive transactions. Rest of the things (AI) will discuss in Tutorial CONFUSED! ANY OR ONLY QUESTIONS?