The Impact of IFRS on Financial Statements: A Study of Indian Listed

Companies

CHAPTER I

1. Introduction to the study

INTRODUCTION

In a globalised scenario, the significance of convergence with International Financial

Reporting Standards (IFRS) raises. India cannot afford to insulate itself from the
developments and modifications taking place worldwide. For the account, accounting
period on and after, Indian listed companies are required to prepare consolidated
accounts on the basis of IFRS. This decision was taken in an attempt to increase
comparability of accounting information throughout the world following the limited
success of harmonization process by means of company law approximately. Listed
companies in India would have to switch to IFRS at the same time. This development
has been described as the most significant event in the history of financial reporting.
Additionally this decision lead to countries outside India also implementing IFRS (at
the same time or soon after) based on the rationale that IFRS would be of higher
quality than the corresponding national standards. Thus comparability of financial
information would be enhanced resulting in the attraction of foreign investors.
Following are the concerns expressed and the research opportunities suggested by
this significant event. First it looks at the immediate effects of mandatory IFRS
adoption on financial statement because of significant pre-IFRS accounting
differences using the reconciliation statement provided in the first IFRS financial
statement as required by IFRS. Second it examined the companies' compliance with
 IFRS mandatory disclosure and the factors associated with these levels during the
first year of IFRS implementation. This, it examines effect of the switch to IFRS in the
value relevance of accounting figures in several fonts. The study intentionally focuses
on the first year of mandatory IFRS adoption as it not only explores these issues
independently but also explores the links between these dimensions
2. Objectives: -

1. To find out whether adoption of IFRS significantly impacts on Assets Turnover Ratio or
not.
2. To find out whether adoption of IFRS significantly impacts on Fixed Assets Turnover
Ratio or not.
3. To find out whether IFRS is more conservative compare to Indian GAAP or not
through comparability Index for all the activity-based ratios.

3. Data Collection:

Activity based ratios are often used in accounting practice, especially for decision
making processes. Apart from this these ratios also provide useful information about
financial position and performance of the company. In this paper ratio have been
calculated based on figure obtained from financial statement that are constituted
according to the two set of accounting standard Indian GAAP and IFRS for the same ICAI
and ministry of corporate affairs jointly announced for adopting IFRS

Variable: In this study the selected variables were collected from the company Balance
sheet and Income statement six financial ratios have been considered in this analysis

4. RESEARCH METHODOLOGY

Although the reconciliations varied considerably in format and level of details supplied,

1
 the study does not aim to determine the level of disclosure but to separate which
financial statement elements were impacted by IFRS and the amounts involved. The
purpose of this study is to identify the statistically significant differences between the
Indian GAAP-based and IFRS-based financial statements of companies in terms of
financial statement items through the calculated financial ratios. Hence, the following
null hypotheses have been formulated for analysis:

5. Selection of Sample:

As per the previous discussion, ICAI issued notification and prescribed a road map for
implementing IFRS in India but still it is not possible to implement IFRS in India
compulsorily. Some companies adopt IFRS for their own interest. For the present
research following six Indian Companies have been selected, who have adopted IFRS
voluntarily till 2014.

I. WIPRO

II. ROITA India

III. INFOSYS

IV. Great Eastern Energy Corporation

V. DABUR India Ltd. VI. Noida Toll Bridge Ltd.

1. Limitations of Study

⮚ Accurate financial information cannot be accessed sometimes hence lack of primary

data may also be a hindrance.

⮚ Doing research on particular sector in short span was also a limitation.

7.Scope of Study

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This study of IFRS Implementation will help to analyse the situations and overcome the
problems which can be faced by the company. This report will allow company to work
proactively on the implementation of IFRSs.

8.Hypotheses: The followings hypotheses have been formulated whether there is any
difference between IFRS and Indian GAAP for preparing the financial statement.

Hypothesis 1: There is no statistically significant difference of Assets turnover ratio

calculated on Indian GAAP and IFRS based financial statement
Hypothesis 2: There is no significant difference of Fixed assets turnover ratio
calculated on Indian GAAP and IFRS based financial statement
The analysis presented in this paper is based on the sample of 6 Indian companies viz., WIPRO,
ROITA India, INFOSYS, Great Eastern Energy Corporation, DABUR India Ltd, Noida Toll Bridge
Ltd. that have voluntarily adopted IFRS reporting. It requires financial statements prepared
under both sets, Indian GAAP and IFRS, for the same period of time.
CHAPTER II

LITERATURE REVIEW

1) Loyang et al., 2016 find in their study the various implementation errors. It also found that
cost of implementation has increased as learning cost as well as auditors cost due to lack of
availability of IFRS experts.
2) Marra , 2016 studied the pros and cons of Fair Value measurement in global accounting
and found that it has positive remarks on securities traded on highly liquid markets and
questionable remarks on illiquid or non-traded assets such as goodwill. Changes have been
evident so globally financial reports are ever increasing based upon fair value.
3) M. Muniraju and Ganesh S.R., 2016 The results of this study indicate that the adoption of
IFRS more beneficial to attract the world capital market and also indicate that the adoption of
rules regarding truthful worth accounting, lease accounting and tax accounting, as well as
rules regarding the accounting of economic instruments, explain the changes within the key
3
accounting ratios. Adoption of fair value accounting rules and stricter requirements of certain
accounting issues are the reasons for the changes observed in accounting figures and
financial ratios. The results also tell us that the respondents are not fully aware of IFRS, which
creates a barrier in
adoption of IFRS in India. The paper suggested that conferences, seminars and events should
be held to make it better understanding for smooth conversion.
4) Maliha Baig and Shuja Ali Khan, 2016 investigate in their study of impact of IFRS on
Earning Management pre and post IFRS on Cement industry in Pakistan and find decreasing
trend in earning management.
5) Virgil Nbellah Abedana & John Gayomey, 2016 discuss in their study the Tax challenges
that were encountered in the adoption of IFRS / IAS. Ghana has faced various problems in
IFRS adoption like, Fair value measurement, Costly, Lack of awareness and expertise among
accounting professionals/ Tax Staff, Auditors/experts.
6) Ehtesham Husain Abbasi, 2015 found in their study that after implementing IFRS some
Ratio has shown an increasing trend and some shows reverse impact. Cost of transition and
auditors cost increased. Treatment and sale of investment is different in IFRS and GAAP due
to fair value measurement.
7) Gokulnath M, 2015 Discuss various challenges in IFRS implementation in India like,
awareness of IFRS, lack of expertise, fair value measurement and existing law has not
supported IFRS and also encountered benefits of IFRS and conclude that by proper planning
IFRS implementation will be beneficial for Indian corporate and Investors etc.
8) Sumaiya Fathima, 2015 discuss in their study the prospective challenges like difference in
GAAP & IFRS, training and education, legal & Regulatory consideration etc.
9) Amit Kumar Chakrabarty, 2014 discuss in their study the conceptual framework of Ind AS
and found that IFRS is necessary for Indian corporate for high quality reporting and its
significance in Liberalization and globalization era
10) A. ViAmit Kumar Chakrabarty, 2014 discuss in their study the conceptual framework of
4
Ind AS and found that IFRS is necessary for Indian corporate for high quality reporting and its
significance in Liberalization and globalization era
11) A. Vinayagamoorthy, 2014 discusses various challenges in IFRS adoption in India. There
are various differences between GAAP & IFRS. Lack of training and education, complexity in
fair value measurement, various regulatory laws override other law and IFRS does not permit
that, re negotiation has required in IFRS for contract, Tax treatment. Paper concludes that
IFRS adoption challenges can be addressed by the suitable efforts of top management,
auditors/accounting professionals and regulators and help in efficient implementation.
12) Meenu Sambaru and N. V. Kavitha, 2014 discuss the various benefits and challenges.
There is an urgent need to deal with these challenges and Indian corporate & accounting
professionals improve their preparedness for effective implementation of IFRS in India
13) Mohamed Abulgasem Zakari , 2014 find in their study that Libya faces several challenges
like; lack of technical skills and inadequate knowledge of Libyan professional accountants, the
difficulty to develop its existing accounting systems, and a regulatory framework to cope with
economic and social development, recent evolution in accounting profession including
international financial reporting standards application, and inadequate education and
training of accountants
14) Aabida Akhter, 2013 conclude the result of the survey on awareness on IFRS among the
PG students of Kashmir. Majority of students was unaware about the IFRS full form, concepts,
Convergence and difference between GAAP and IFRS so it is clear that there is a great need of
awareness as well as education on IFRS among the accounting students for effective
implementation and understandability.
15) Andreas Jansson, 2013 conclude in their study conducted on five countries that when
evaluate from a decision utility viewpoint, IFRS has restricted impact on accounting quality in
the examined countries; however, this impact is connected more to the presentation of more
consistent pictures for predictions of firm performance than to the presentation of more
accurate pictures.
5
16) Rakesh H M, 2013 in their study to assess the relationship between IFRS and FDI and its
impact on Indian Economy found out that IFRS is a right step in this direction. With adoption,
Indian companies will produce more credible financial statements that will not only be
uniform but also provide a basis for better interpretation. They invariably boost investors’
confidence and attract cross border financial transactions which is the basis for economic
growth.
17) Archana Patro, 2012 summaries the result of research paper conducted in business
school where 137 respondents out of 900 filled the questionnaire and on the basis of these
result it has evident that most of the students are not aware about IFRS so there is a need to
introduce IFRS in their academic curriculum in effective manner that they will have sound
knowledge of IFRS and even academician should also gather the sound knowledge of IFRS.
18) Kishori J. Bhagat in his article(2012) There are so many aspects relating to IFRS
convergence which still need to be clarified, such as IFRS first time adoption standard,
compliance of comparative previous period figures with IFRS, changes required to the
Companies Act to comply with IFRS, changes to the Income-Tax Act, the Reserve Bank of
India’s requirements for banks, etc.
19) Jyoti H. Pohane (2012) in their study the real estate industry continues to be a good
example of the differences that can arise from the application and interpretation of
apparently straightforward accounting standards.
20) H. S. Patange (2012) discuss in their article that being a premier accounting body in the
country, ICAI took upon itself the prominent role by establishing Accounting Standard board,
more than twenty-five years back, to fall in line with the international and national
expectations. Today, accounting standards issued by the Institute have come a long way.
21) Shamanic Gopichand B (2012) in their article GAAP & IFRS, and It would be appreciated
to understand some of the qualitative as well as procedural differences between the two. An
analysis of differences between Indian GAAP and IFRS.
22) Pawan Jain (2011) in their paper concludes that a high quality corporate financial
6
reporting environment depends on effective Control & Enforcement Mechanism. Merely
adopting International Financial Reporting Standards is not enough. Each interested party,
namely Top Management and Directors of the Firms, Independent Auditors and Accountants
and Regulators and Lawmakers will have to come together and work as a team for a smooth
IFRS adoption procedure.
23) Shobana Swamynathan & Sindhu, 2011 in their research paper investigate the
implications of adopting IFRS by Wipro through their financial statement and it concludes
that IFRS is fair value oriented and Balance Sheet oriented accounting where there are more
transparent disclosures and Indian GAAP is conservative approach.
24) Ali & Ustundag (2009) in their paper on the development process of Financial Reporting
Standards around the World and its practical results in a developing country, Turkey. They
observe that Turkey has encountered several complications in adaptation of IFRS such as
complex structure of the International standards, potential knowledge shortfalls and other
difficulties in application and enforcement issues.
25) Armstrong et al (2010) found out a positive reaction to IFRS adoption events for firms
with high quality pre adoption information, consistent with investors expecting net
convergence benefits from IFRS adoption. In his study of 1084 European Union firms during
the period of (1995-2006)

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 Chapter III
Background information

● Why IFRS?
The following reasons try to put emphasis on the use of IFRS worldwide. They are
as follows: -

● Unification of business transactions: - The adoption of IFRS helps multinational

corporations with various subsidiaries in other parts of the world to consolidate and
prepare their financial statement in a common accounting language which is
accepted globally. Then adoption of uniform reporting standards will eliminate the
difference in results of financial statements.
● Improved transparency of financial statements: -Transparency regarding preparation
and presentation of financial statements would be possible due to the fact that IFRS
has allowed firms with subsidiaries in the regional market to harmonise their
training, auditing, operation and reporting standards. Thus, IFRS helps standardised
presentation of financial statement whether the subsidiary is located within the
country or abroad.
● International comparability: -While preparing financial statements by abiding by the
provisions of IFRS, it provides a platform for the organisations for enhanced
comparability. With the increase in transparency, IFRS also helps in cross border
investment not only with low cost of capital but also with greater liquidity. This helps
the foreign investors to assess and compare the performance of organisations and
thus make their investment decisions very effectively. This would not have been
possible if the organisations prepare their financial statement by abiding by the
country’s GAAP.
● Market efficiency: -Following a single set of accounting standard globally will lead to
savings in time as well as cost of preparation and presentation of financial statements.
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 Further this will lead to achievement of capital
savings in the long run. This in turn will provide accurate and timely information to
the investors, so that they can make effective investment decisions. Thus, accurate
and timely availability of information in the market will lead to enhancement of
market efficiency. Therefore, if the global accounting standard (IFRS) is not
implemented then it will not only increase the cost of reporting the financial
statement through auditing fees. Moreover, this will also lead to increased
probability of reporting errors. Hence, the efficiency of the market will be reduced
due to high probability of reporting errors and increased transaction cost.
● Performance of local firms can be compared with global organisations: - having a
global financial reporting standard enables the local firms to compare their
performance with other organisations in the same sector or business in foreign
markets. The ability of the firms operating in the same industry to compare their
financial statement and this will provide opportunity for merger and acquisition. If
the global preparation and presentation of accounting standard is not followed for
reporting the financial statement, this will discourage cross border merger and
acquisition. This is because use of different reporting standard will lead to increase
in cost of acquisition and merger.

FRS adoption procedure in India

For rationalisation of accounting practices in India, the government of India established
The Institute of Chartered Accountant of India by passing ICAI Act in 1949. To harmonize

9
the diversified accounting policies and practices, the accounting standard board was
constituted by ICAI in 1977.
The procedure is

● Impact assessment: - the adoption process starts with impact assessment. Here the
companies try to assess the impact of implementation of IFRS on accounting and
reporting issues and also on the business of the firm. They will then find the key
conversion dates and accordingly an IFRS plan will be laid down. After this they will
have to find out which IFRS provisions can be implemented and also assess the
difference between the current reporting standard followed by the firm and IFRS.
Finally, they will also have to find out the loopholes in the existing reporting
standard followed by them.

● Preparation for implementation of IFRS: - this process begins with the documentation
of IFRS Accounting Manual. The organisation then tries to prepare for
implementation by going through IFRS1 which deals with first time implementation
of IFRS will be followed. In order to simplify and smoothen the convergence
procedure, some exceptions are provided under IFRS1. The exemptions are
identified and applied and control systems are put in place to ensure its correct and
consistent implementation.

● Implementation: -this process starts with the preparation of opening balance sheet at
the date of transition from present accounting practices to IFRS. The impact of
transition from Indian Accounting Standard to IFRS should be understood properly.
For ensuring smooth and hustle free implementation of IFRS continuous training of
employees and addressing the difficulties are a must for the organisation

● Why should India adopt IFRS?

India is still a developing nation, and it requires financial as well as technical support
from various international organisations. The organisations such as IMF, OCED, and DFID
provide support to the developing nations by analysing their credibility. To measure the
credibility, they demand the financial statement to be globally standardised. Further by

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following the IFRS for preparation and presentation of its books of accounts, it would
lead to development of Indian economy by increasing its international business. Other
benefits of IFRS are as follows: -

● Better access to global capital markets: -presently Indian Economy is growing at a

faster pace. Indian firms are expanding their operations in foreign countries. These
firms are not only setting up new plants abroad but also acquiring other firms
worldwide. For this they require funds at a cheaper rate which are available in
foreign capital markets. In order to raise funds from these capital markets, they are
required to prepare their financial statement by complying with IFRS.

● Helps in cross border listing: -as the Indian firms are no more limited within the
political and economic boundaries of India and they are expanding their business by
acquisition of firms abroad, they get listed in the foreign stock markets. One of the
pre-requisites to get listed in the foreign stock exchange (say European market) is
that the financial statements should be prepared by complying with IFRS principles.

● Better quality of financial reporting: - adoption of IFRS for preparation of financial

statement will probably lead to better quality of financial statement because of
more reliability in the financial statement as the statements are prepared by
complying with latest trend-based concepts. Such as IFRS takes into account fair
value of the assets and not the historical cost. Thus, it provides a better quality of
financial reporting.

● Helps in elimination of multiple reporting: -a large number of Indian companies

are multinational. Thus, they have their registered firms both abroad and in India
as well. So, they had to prepare financial statement complying with the
respective country’s accounting policy. Using IFRS for preparing their financial
statement would put an end to this problem.

● Encourage more foreign investment: -foreign investors get interested for

investment as they can compare the performance of the firms operating in
India with the firms operating around the globe and hence make their decision
suitably. Thus, foreign currency flows into Indian economy and hence revive the
economic condition of India.

● Increase in opportunities for serving foreign clients: -the reliability of the

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 organisation also depends on the standards used for preparation of financial
statement. In order to attract more foreign clients, statements should be
standardised and prepared by complying with the global standard which is another
important reason for implementation IFRS in the preparation of financial statement
of Indian companies.

The main problem that lead to the hindrance of implementation of IFRS in India are listed
as follows: -
● Till full convergence of INDIAN GAAP to IFRS, it requires huge cost to maintain
books of accounts through dual reporting of financial statement. So, the
corporates are not ready to implement it as they can’t afford that huge cost of
dual reporting.
● Current accounting framework in India is affected by the prevalent laws and
regulations. Thus, implementation of IFRS in India requires some changes in the laws
and regulations. This led to the delay in implementation of IFRS in India.
● Most importantly the stakeholders, auditors, regulators, tax authorities and
concerned parties to whom the financial statements are a concern should be well
versed with the provisions of IFRS. This requires training which is time consuming. This
leads to delay in implementation of IFRS in India.

● Difference in preparation and presentation of financial statement through IFRS and

INDIAN GAAP will affect the business decision or the financial performance of the
organisation.
● Lack of awareness regarding implementation of IFRS among the organisations.
● Benefits of using IFRS for preparation and presentation of financial statement has not
been properly conveyed to the users.
● Training of accountants for maintaining books of accounts through IFRS requires a huge
cost and moreover training facilities and academic programmes on IFRS are lacking in India.
● For preparation of financial statements by abiding by the provisions of IFRS, requires fair
value as a base for measuring the value of most of the items of the financial statements. For
the purpose of fair value, it requires a lot of hard work as well as the use of valuation
expert.
● The terms and conditions relating to management compensation plan will have to be
changed by the organisation while implementing IFRS for preparation and presentation of
financial statement.

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● Reporting and disclosure pattern are different for both. So, adoption of new standard is
a challenge to the organisations operating in India.
● Indian companies follow historical cost-based accounting. Shifting from historical cost-
based accounting to fair value-based accounting is not only cumbersome but also requires
huge cost. The Indian companies are unwilling to bear that huge cost

Government initiative to implement IFRS

In order to enforce IFRS in India, the government of India has taken some positive steps
towards its implementation. The convergence plan was made to bridge the gap between
the requirements of INDIAN GAAP and IFRS. The Ministry of Corporate Affairs had
announced a multi phased plan for the convergence of INDIAN GAAP and IFRS. The
convergence plan that has been carved out that distinguishes it from IFRS has been termed
as “Ind AS”. The Ministry of Corporate Affairs (MCA) has accepted the recommendations
given by The National Advisory Committee on Accounting Standard sand has finalised that
the new the recommendations will be implemented initially on large companies who can
start adopting from the fiscal year starting from April 1, 2015. These recommendations will
soon be implemented for all the organisations registered under the Companies Act. The
government will issue a notification making the use of a new accounting standard, “Ind AS
''compulsory for preparation and presentation of financial statements. The issue of
notification for implementation of Ind AS for preparation and presentation of financial
statement will help to speed up the transition process. Further this will sensitise the
companies about the seriousness and urgency of the financial reform required for the
preparation and presentation of financial statements. The approach of Indian Government
is phase based. The phased approach would ensure that the large companies implement it
in the first phase so that the remaining companies would have the benefit of learning from
the adoption of new standard and can utilise those while they implement it in the
subsequent years. Further MCA has taken into account the recommendations made by The
Institute of Chartered Accountants of India (ICAI) regarding the financial instruments. Most
importantly, The Ministry of Corporate Affairs (MCA) which implements the Companies
Act in India, has constituted a committee to advise the central government for the
formulation of accounting policies and accounting standards. This committee will remain
in place until The National Financial Reporting Authority which was proposed under the
Companies Act, 2013 comes into force or is set up to function towards formulation of
accounting policies and standards in India. Further the union finance minister.
Mr.ArunJaitley has clearly declared in his budget 2014-15 speech that the converged
13
accounting standards will have to be mandatorily implemented by the business houses
from financial year 2016-17. He further added that the converged accounting standards
can be voluntarily adopted by the business houses from the financial year 2015-16. This
shows the positive intent of the government towards quick implementation of converged
accounting standards for preparation and presentation of financial statements by the
Indian companies so that they can avail the benefits of preparing their financial
statements through new accounting standards.

CONCEPTUAL FRAMEWORK

International Financial Accounting Standards (IFRS), formerly known as International

Accounting Standards (IAS) are the Standards, Interpretations and Framework for the
Preparation and Presentation of Financial statements adopted by the International
Accounting Standards Board (IASB). IAS was issued in 1973 and 2001 by the board of the
Internal Accounting Standards Committee (IASC). On April 1 2001 the new IASB took over
the responsibility of setting International Accounting Standards from IASC. It has since then
continued to develop standards called as the new standards IFRS.

How the world is converging into IFRS

IFRS is used in many parts of the world, including the European Union, Hong Kong,
Australia, Malaysia, Pakistan, GCC countries, Russia, South Africa, Singapore and Turkey. As
in December 2013 more than 110 countries around the world, including all of Europe,
currently require or permit IFRS reporting. Approximately 92 of those countries require
IFRS reporting for all domestic listed companies.
IFRS in India Conversion is much more than a technical accounting issue. IFRS in India may
significantly affect a company’s day-to-day operations and may even impact the reported
profitability of the business itself. Conversion brings a one-time opportunity to
comprehensively reassess financial reporting and take ‘a clean sheet of paper’ approach to
financial policies and processes. It is imperative for companies which have already
14
performed a diagnostic study for IFRS to revisit their diagnostic study, as IFRS itself is a
moving target and gets regularly updated. Companies also need to consider that some IFRS
may not be applicable when the diagnostic study in process, but their applicability in future
may result in material changes to the financials. Understanding IFRS and its implications is a
business imperative for Indian companies. In July 2014, the Finance Minister in his Budget
speech proposed the adoption of the new Indian Accounting Standards (Ind AS – the
converged IFRS standards) by Indian companies voluntarily from FY 2015- 16 and
mandatory from FY 2016-17. In March 2014, the Institute of Chartered Accountants of India
(ICAI) submitted to Ministry of Corporate Affairs (MCA) a proposed new IFRS roadmap and
convergence plan for India. In the proposed roadmap, the ICAI recommended
implementation of Ind AS by select companies only in preparation of their consolidated
financial statements. Plans for converging The Ministry of Corporate Affairs - a part of the
Government of India had in January 2010 announced a multi-phase plan for transition
beginning April 1, 2011 to the new Converged Indian Accounting Standards (India’s attempt
to converge to IFRS, which has carved outs that distinguish it from IFRS and is now known as
“Ind AS”). The MCA finalized thirty-five Ind AS in February 2011. While these standards are
similar to IFRS in many respects, some exemptions / changes have been made to some of
them which may result in significant differences between IFRS and Ind AS for some
companies. Keeping in view these conceptual differences between AS and IFRS, the extent
of gap between AS, Ind-AS and the corresponding IFRSs – conversion process would need
careful handling. By introducing a new company law, the Indian Government has initiated
the process to
amend the legal and regulatory framework. The conversion would involve, Impact
Assessment, Revisiting Accounting Policies and thereafter changing the Accounting &
Operational Systems (including ERP) in order to be fully compliant with Ind - AS or IFRS.

15
IFRS ADOPTION PROCEDURE IN INDIA

To rationalize accounting practices in the country, the Indian government in 1949,

established Institute of Chartered Accountants of India by passing ICAI Act, 1949.
Accounting Standard Board was constituted by ICAI in 1977 in order to create harmony
among the diversified accounting policies and practices in India.

Three steps process was laid down by the accounting professionals in India which are
summarized as follows:

● Step 1 – IFRS Impact Assessment This is the first step. In this step the firm will assess
the impact of IFRS adoption on Accounting and Reporting issues, on procedures and
systems, and on core business of the entities. Then the firm will find the key
conversion dates according to IFRS training plan has laid down. As and when the
training plan is in place, the firm will have to identify the important. Financial
Reporting Standards which will apply to the firm and also the variations among the
present financial reporting standards being followed by the firm and IFRS both.
● Step 2 – Preparations for IFRS Implementation This is the second step of the process,
which will carry out such activities required for IFRS implementation process. Then
the firm will reform the internal reporting systems and processes. IFRS first deals
with the adoption and implementation of first-time adoption process.
● Step 3 – Implementation This is the final step of the process which deals with the
actual implementation of IFRS. The initial phase of this step is to prepare an opening
Balance Sheet at the date of transition to IFRS. To understand the actual impact of
the transition from the Indian Accounting Standards to IFRS is to be developed. This
will follow the full application of IFRS as and when it is required. At the initial stage of
implementation of IFRS requires lot of training and various technical difficulties may
be experienced. The smooth implementation of the transition from Indian
Accounting Standards to IFRS, regular training to personals and identify the problems
16
 while carrying out the implementation.

History of International Accounting Standards (IAS)

In June 1973 the International Accounting Standards Committee (IASC) came into existence,
with the stated intent that the new International Standards t released must be “capable of
rapid acceptance and implementation world wide”. The IASC survived for 27 years, until
2001, when the organization was restructured and the International Accounting Standards
Board (IASB) came into existence.

Between 1973 and 2000 the International Accounting Standards Committee (IASC) released
a series of standards called ‘International Accounting Standards’ in a numerical sequence
that began with IAS 1 and ended with IAS 41 Agriculture which was published in December
2000.

The Standing International Committee (SIC) was established in 1997 to consider

contentious accounting issues that needed authority’s guidance to stop widespread
variation in practice

IASB stated that they would adopt the body of standards issued by the board of the
International Accounting Standards Committee (which would continue to be designated
‘International Accounting Standards’ but any new standards would be published in a series
called international Financial Accounting Standards (IFRSs).
The first IFRS was published in JUNE 2003 (IFRS 1: First time Adoption of International
Financial Reporting Standards)

Structure of IASC Foundation and IASB

The International Accounting Standards Board (IASB) was previously run as the
International Accounting Standard Committee (IASC), which operated in from 1973 until
2001. The IASC was founded in June 1973 as a result of an agreement by accountancy
bodies in Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the UK and
Ireland and the US. These countries formed the board of IASC initially. The purpose of the
17
Board was to work towards the improvement and harmonization of accounting standards
and reporting.

In March 2001, as part of restructuring the IASC foundation was set up in Delaware as a
not-for-entity. The IASC in turn gave approval for the IASB to assume standard setting
responsibilities. The objectives of the IASC Foundation and of the IASB are:

● To develop, a single set of high quality, understandable and enforceable global

accounting standards that require high quality, transparent and comparable
information in financial statements to help participants in the world’s capital markets

● To promote the use and rigorous application of those standards:

● In fulfilling the objectives associated with (i) and (ii), to consider, the special needs of
small and medium-sized entities and emerging economies

● To bring about convergence of national accounting standards and International

Accounting Standards and International Financial Reporting Standards to high quality
solutions.

IASC Foundation Constitution that were approved by the Trustees in June 2005, effective 1
July 2005 constitutes IASC Foundation with 22 Trustees. (Initially, the IASC
Foundation Board of Trustees had 19 Trustees) with geographical balance of trustees as
indicated below:

● 6 from North America.

● 6 from Europe.
● 6 from the Asia/Oceania region
● 4 from any area, subject to establishing overall geographical balance.

On restructuring, the International Accounting Standards Committee (IASC) was renamed

as International Accounting Standards Board (IASB). The principal responsibilities of the
18
IASB are to:

● Develop and issue International Financial Reporting Standards and Exposure Drafts

● Approve Interpretations developed by the International Financial Reporting

Interpretations Committee (IFRIC).

It has 14 members, of whom 12 serve full-time and two part-time.

IFRSs are developed following an international consultation process, involving interested

individuals and organizations from around the world. The standard setting process is
supported by an external advisory council, the Standards Advisory Committee (SAC).

Figure

4.1 The New Structure

Due Process of IFRS

● The due process explains the steps followed by the IASB in the standard setting
process. The due process is stated below:

● Identification and review the issues associated with the topic by the staff and
19
 evaluation of the application of the Framework to the issues.

● Carrying out a study of the national accounting requirements and practice and
exchanging views about the issues with national standard-setters.

● Consulting the Standards Advisory Council about the advisability of adding the topic to
the IASB's agenda

● Formation of Working Group to advise the IASB and its staff on the project; ●

Publishing a Discussion Paper for public comment

● Getting Exposure Draft approved by vote of at least nine IASB members, including any
dissenting opinions held by IASB members (in exposure drafts, dissenting opinions
are referred to as 'alternative views') and publishing for public comment an exposure
draft.

● Publishing within an exposure draft the basis for conclusions.

● Considering comments received within the comment period on Discussion Paper and
Exposure Drafts.

● Considering the desirability of holding a public hearing and the desirability of

conducting field tests and, if considered desirable, holding such hearings and
conducting such tests.

● Approving a standard by votes of at least nine IASB members and include in the
published standard any dissenting opinions.

● Publishing within a standard a basis for conclusions, explaining, among other things,
the steps in the IASB's due process and how the IASB dealt with public comments on
the exposure draft.

The IFRIC

20
The International Financial Reporting Interpretations Committee (until 2002 known as the
Standing Interpretations Committee) has 14 members appointed by the Trustees for terms
of three years.

The responsibilities of IFRIC are:

● To interpret the application of International Financial Reporting Standards (IFRSs) and

provide timely guidance on financial reporting issues not specifically addressed in
IFRSs or IASs, in the context of the IASB's framework, and undertake other tasks at
the request of the Board.
● To publish Draft Interpretations for public comment and consider comments made
within a reasonable period before finalizing an Interpretation.

● To report to the Board and obtain Board’s approval for final Interpretations.

Convergence with IFRS

The International Financial Reporting Standards (IFRSs) issued by the International

Accounting Standards Board (IASB) are increasingly being recognized as Global Reporting
Standards. More than 100 countries such as countries of European Union, Australia, New
Zealand and Russia currently require or permit the use of IFRSs in their countries.

Countries such as China and Canada have adopted IFRSs from 2008 and 2011 respectively.
United States of America has also taken-up convergence projects with the IASB with a view
to permit filing of IFRS-Compliant Financial Statements in the US Stock Exchanges without
requiring the presentation of reconciliation statement. And hence India also needs to
converge to IFRS with the view to be listed in US Stock exchange.

WHY THIS CONVERGENCE?

Converging with IFRS will have multiple benefits for Indian entities especially those who
aspire to go global. Some of the benefits of convergence with IFRS are explained below:

21
i. Accessibility to foreign capital markets

The force of globalization has enabled the concept of “open economy” and increasing
numbers of countries has opened doors for foreign investment and foreign capital. Many
Indian entities expanding and making their presence felt in international arena. Huge
amount of capital commitment is required in this process for which entities have to list
their shares in various stock exchanges around the world. Majority of stock exchanged
either require or permit IFRS complaint accounts. Adaptation of IFRS will enable Indian
entities to have access to international capital markets.

ii. Reduced Cost

At present when Indian entities list their securities abroad, they have to make another set
of accounts which are acceptable in that country. Convergence with IFRS will eliminate this
need for preparation of dual financial statements and thereby reduce the cost of raising
capital from foreign markets.

iii. Enhance Comparability

If the Financial statements of Indian entities are made in lines of IFRS, they will have greater
comparability and will enable foreign companies to have broader and deeper
understanding of the entities relative standing. This will also facilitate mergers,
amalgamation and acquisition decisions.

iv. Boon for multinational group entities

Entities in India may have a holding, subsidiary or associate company in some other nation.
Compliance with IFRS for all group entities will enable the company management to have all
the financial statements of the group in one reporting platform and hence will facilitate the
consolidation process.

v. New Opportunities for the professionals

Migration to IFRS will not only be beneficial for Indian corporate, it will also be a boon to
22
Indian accounting and other associated fields. India is a country with immense human
resource. With knowledge of IFRS Indian professional can emerge as a leading accounting
service provider around the globe. This convergence will also open the flood gate of
opportunities for valuers and actuaries as IFRS is fair value-based accounting standard.

vi. Valuation
Improve the key metrics that analysts use to measure and evaluate client performance and
price shares – Under IFRS instruments are fair valued.

vii. Transparency

Better chance to raise capital

Global Developments in IFRSs Adoption

IFRSs Adoption Timeline & Process

1. China Converged to IFRSs in 2007.

China adapted IFRS There are major differences between Chinese adopted
IFRSs and IASB issued IFRSs.
May be comparatively Indian GAAP differences with the
IASB issued IFRSs will be of little higher degree only. But
India is considered as IFRSs non-compliant.

2. Israel Israel is second only to Canada in the number of foreign

private issuers that register with the SEC and has adopted
Adapted IFRS with IFRS with effect from 1.5. 2008.
two differences

3. Chile Adopted IFRS in 2009 -2011 in a phased manner.

Banks and other financial institutions and major listed
(open) companies adopted IFRSs with effect from
1.1.2009.

5. Brazil Adopted IFRS in 2010, The accounting aspects of the

company law has been changed.

23
5. Canada Publicly accountable enterprises adopted IFRSs with effect
from 1.1.2011
May follow
adoption model

6. South Korea Korean Financial Supervisory Commission announced that

all listed companies will be required to prepare their
Pursuing annual financial statements under K-IFRSs beginning in
convergence 2011. All listed companies other than financial institutions
model are allowed make early application with effect from 2009.

7. Mexico To adopt IFRSs by 2012. Early adoption with effect from

2008 permitted.

8. Japan Adopted voluntarily by 2010

NEED FOR IFRS

A single set of accounting standards would have the following benefits: ● Ease to

standardize training and assure better quality of accounting profession ● It would

also permit international capital to flow more freely

● It would enable companies to develop consistent global practices on accounting

problems.

● It would be beneficial to regulators as a complexity associated with needing to

understand various reporting regimes would be reduced.

● It would enhance comparability between financial statements of various companies

across the globe
● It would reduce time and resources required to prepare different set of accounts for
companies listed in various exchanges of the world and for companies having global
group companies.

24
 ● To help in global harmonization

COMPARISON BETWEEN IFRS AND INDIAN GAAP COVERING

MAJOR AREAS OF DIFFERENCES
First-time Adoption Of IFRS

Date of transition is the beginning of the current period rather than first date of earliest
comparative i.e. all transition date impacts, exemptions and prohibitions to be applied on date
of transition and not retrospectively as permitted by IFRS 1 in certain cases.

Option to present comparative financial statements as memorandum accounts but not

mandatory.

Ind-AS 101 provides two option to present first Ind-AS financial statement

Option I (No Comparative) Option II (With Comparative)

Two Balance Sheet (including one SOCE) Four Balance Sheet (including two SOCE)

One Statement of Profit & Loss Two Statements of Profit & Loss.

One Statement of cash Flow Two Statements of cash Flow

Related notes. Related notes.

Latest previous GAAP financial statement Latest previous GAAP financial statement
reclassified to the extent practicable. reclassified to the extent practicable.

Date of transition Date of Transition

The beginning of the current period for The beginning of the current period for
which entity adopt Ind-ASs in accordance which entity adopt Ind-ASs in accordance
with Ind-Ass notified under companied with Ind-Ass notified under companied
Act, 1956 Act, 1956 
The beginning of the earliest comparative
period for which entity adopt Ind-ASs in

25
 accordance with Ind-Ass 
notified under companied Act, 1956.
Apply Consistency of accounting policy on
both date of transition.

Reconciliation

Reconciliation of equity as on the date of Reconciliation of equity as at beginning of

transition. the earliest comparative period.

Significant difference explaining the Reconciliation of its total comprehensive

impact of its total comprehensive income. income for comparative period

Reconciliation of equity as at the end of

the comparative period.

IFRS 101 provides only one option to present first IFRS financial statement includes at least

Three Statement of financial positions

Two Statement of comprehensive income

Two Statement of change in equity

Related notes including comparative information

Reconciliation

Reconciliation of equity as at beginning of the earliest comparative period.

Reconciliation of its total comprehensive income for comparative period

Reconciliation of equity as at the end of the comparative period.

First time adopter present latest corresponding previous periods’ financial statements
prepared as per the previous GAAP when presenting first Ind-AS financial statement.

Deletion of certain exceptions which are applicable at the date of transition.

Corridor approach for recording actuarial gain and losses arising from accounting for employee
obligations.

26
Option to expense out capitalise borrowing cost.

A first-time adopter may elect to continue with the carrying value of all property, plant and
equipment as at the date of transition to Ind-AS in accordance with previous GAAP. Provided
the fact and accounting policy are disclosed by the entity until that significant block of such
assets is fully depreciated or derecognised from the balance sheet.

IFRIC 4 (Determining whether an Arrangement contains a Lease) has been deferred.

If it is impracticable to apply retrospectively the effective interest method or the impairment

requirements for financial instruments, the fair value of the financial asset at the date of
transition shall be the new amortised cost of that financial asset at the date of transition.

Ind AS 101 provides an option to recognise exchange difference arising on translation of

certain long-term monetary item from foreign currency to functional currency, first in equity &
then transferred to profit & loss in an appropriate manner (as a consequence of paragraph
29A inserted in Ind AS 21).

Ind-AS 101 allows a company to measure non-current assets held for sale and discontinued
operations at the lower of carrying value and fair value less cost to sell.

Exploration for and Evaluation of Mineral Resources

Ind AS 106 has been deferred for implementation.

Presentation of Financial Statements

The term ‘balance sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of
Profit and Loss’ is used instead of ‘Statement of comprehensive income’.

Statement of change in equity to be shown as a part of the Balance Sheet.

All the items of income & expenses are presented only in a single statement.

Expenses are classified in the profit & loss by their nature whereas IFRS also permits
classification by function.

Revenue & Construction contract

Real Estate Developers contractors can recognise revenue on percentage of completion

method under ‘Construction contracts’ rather than under ‘revenue standard’ based on risks
and rewards etc. whereas Under IFRS, revenue is recognised only when the conditions of
revenue recognition for sale of goods or services are met.
27
Investment Property

After initial recognition, investment property is measured at cost only whereas IFRS permits
fair valuation model also.

Agriculture

No specific standard has been currently released for agriculture accounting whereas IAS 41
exists for this under IFRS.

Consequently, biological assets & agriculture produce at the point of harvest will be measured
at cost.

Construction Contract

IFRIC 12 & SIC 29 (Service Concession Arrangements) have been deferred for implementation

Leases

IFRIC 4 (Determining whether an Arrangement contains a Lease) has been deferred for
implementation.

Insurance Contracts

Ind-AS 104 has been deferred for implementation.

The Effect of Change in Foreign Exchange Rates Insurance Contracts

An option to recognise exchange difference arising on translation of certain long-term

monetary item from foreign currency to functional currency, first in equity & then transferred
to profit & loss in an appropriate manner whereas IAS 21, all such differences are charged
immediately in profit & loss.

Employee Benefits

Actuarial gain & losses for both post-employments defined benefit plans & other long-term
employment are recognised in other comprehensive income. The actuarial gain recognised in
other comprehensive income are recognised immediately in retained earnings and shall not be
reclassified to profit & loss in a subsequent year whereas IAS 19 permits various options for
the treatment of actuarial gain & losses.

28
The rate to be used to discount post-employment benefit obligation are determined by
reference to the market yields on government bonds whereas IAS 19 requires use of high
quality of corporate bonds.

Statement of Cash Flow

Interest & Dividend are classified as a financing/investing activity in cash flow statement
whereas IAS 3 also permits operating classification.

Government Grants

Non-monetary government grants are measured only at fair value whereas IFRS also permits
nominal value of such grants.

Grants related to assets, including non -monetary grants are presented only by setting up the
grants as deferred income whereas IFRS also permits to present such grants by deducting the
grant in arriving at the carrying amount of the asset.

Related Party Disclosure

Disclosures which conflict with confidentiality requirement of statue/regulations are not

required to be made since accounting standard cannot override legal/regulatory
requirements.

Earnings per share (EPS)

⮚ EPS is required to be presented in both, consolidated as well as separate financial

statement whereas under IFRS, EPS is required to be presented only in consolidated
financial statement if both consolidated & separate financial statements are presented.
EPS in separate financial statement is disclosed voluntarily.

⮚ Where any items of income and expense may be charged directly to equity as required
by law which is otherwise required to be recognized in profit or loss in accordance with
accounting standards. For the purpose of calculation of basic and diluted EPS, these
amounts are included in profit or loss irrespective of whether these amounts are
debited or credited to equity. Consolidated and separate financial statement

Ind AS 27 does not provide any exemption to parent from presenting consolidated financial
statement whereas IAS 27 provides exemption to parent in certain circumstances.

29
Ind AS 27 provides the format for the consolidated financial statement in Appendix C (similar
to schedule VI) whereas IAS 27 does not prescribe any format.

Ind AS 27 does not mandate the presentation of consolidated financial statement as

requirement to present consolidated or separate financial statement is regulated by governing
statutes whereas IAS 27 mandates the presentation of consolidated financial statement
subject to limited exception.

Investment in Associates

Ind AS 28 provides the difference between financial statement of associate and investor,
should not be more than 3 months unless impracticable whereas IAS 28 does not provide any
exception.

Ind AS 28 requires the use of uniform accounting policies in the financial statement unless
impracticable whereas IAS 28 does not provide any exception.

Gain on bargain purchase (Excess of the investor’s share of the net fair value of the associate’s
identifiable assets and liabilities over the cost of investment) on acquisition of investment in
associates is recognised in capital reserve whereas IAS 28, it is recognised in profit and loss.

The applicability or exemption to the Ind as is governed by the Companies act and the Rule
made thereunder.

Business combination

Gain on bargain purchase is recognised in other comprehensive income and accumulated in

equity as capital reserve.

Gain on bargain purchase is recognised directly in equity as capital reserve if there is no a clear
evidence of the underlying reason for classification of the business combination as a bargain
purchase

Whereas IFRS 3, it is recognised in profit and loss.

Business combination of entities under common control are included in the scope and are
accounted for using the ‘pooling of interest’ method (Appendix C provide the additional
guidance in this regard) whereas IFRS 3 excludes common control transaction from its scope

30
Comparison between IFRSs and Indian GAAP covering major areas of differences:

Table 1.4

AS 9(Revenue Recognition) IAS 18(Revenue)

Deals with the timing of the recognition Revenue shall be measured at the fair
of revenue. value of the consideration received or
receivable.
Revenue is the gross inflow of economic
benefits during the period arising in the Fair value is the amount for which an
course of ordinary activities of an entity asset could be exchanged, or a liability
when those inflows result in increase in settled, between knowledgeable, willing
equity, other than increases related to parties in an arm’s length transaction.
contributions from equity participants.
Amounts collected on behalf of third
parties such as sales and service taxes
and revenue added taxes are excluded
from revenues.

It is recognized on a time proportion Interest income is recognized using the

basis taking into account the amount effective interest method
outstanding and the rate applicable

AS9 (Net Profit or Loss for the Period, IAS 8(Accounting Policies, Changes in
Prior Period Items and Changes in Accounting Estimates and errors)
Accounting Policies)

Prior period errors are included in Prior period errors* are corrected by
determination of profit or loss of the
(i) restating the comparative amounts for
period in which the error is discovered
prior period presented in which the error
and are separately disclosed in the
occurred
statement of profit and loss in a manner
that the impact on current profit or loss (ii) if the error occurred before the
can be perceived earliest prior period presented, restating
the opening balances of assets, liabilities
Changes in accounting policies: Changes
and equity for the earliest prior period
in accounting policies require prospective
application under IGAAP.
31
 Accounting for errors (Prior period presented.
errors): Under GAAP errors would
Changes in accounting policies: Changes
require adjustment in the year of
in accounting policies would require
detection
retrospective application
Accounting for errors (Prior period
errors): Under IFRS, errors would require
a retrospective adjustment.

AS 21(Consolidated Financial IAS 27(Consolidated and Separate

Statements) Financial Statements)

It is not specifying that entities are A parent is required to prepare

required to present consolidated consolidated financial statements to
financial statement. consolidate all its subsidiaries.

A mare ownership more than 50% of Control is the power to govern the
equity share is sufficient to constitute financial and operating policies of an
control over the company. entity so as to obtain benefits from its
activities.

Difference between subsidiaries and Difference between subsidiaries and

parent should not be more than 6 parent should not be more than 3
months. months.

Accounted at cost less impairment loss. Accounted either at cost less

impairment loss or as available for sale
with changes in fair value recognized in
other comprehensive income.

GAIL (I) Ltd ’s existing accounting policy

Company is consolidating its financial statements on the basis of the Indian Accounting
Standards. Consolidated financial statements are prepared under historical cost convention on
accrual basis and in conformity with applicable Indian Accounting Standards.

32
In preparing consolidated financial statements, the financial statements of the parent and its
subsidiaries should be combined on a line by line basis by adding together like items of assets,
liabilities, income and expenses.

USE OF ESTIMATES

The preparation of the Consolidated Financial Statements requires management

to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities, expenses of the reporting period. The difference
between the actual results and estimates are recognized in the period in which the results are
known or materialized.

AS 27(Financial Reporting of Interests in IAS 31(Interests in Joint Ventures)

Joint Ventures)

At cost less impairment loss. Separate financial statements prepared

Either at cost or at fair value as available
for sale investment with changes in fair
value recognized as a component of
comprehensive income.

Equity account method is not permitted Investments in jointly controlled entities

can be proportionately consolidated or
equity accounted by venturers

At cost less impairment if consolidated If the reporting entity does not prepare
financial statements are not prepared. consolidated financial statements
because it has no subsidiaries, its jointly
controlled entities should be either
proportionately consolidated or equity
accounted.

No specific guidance Recognition of proportionate share of

gains or losses on contribution of non-
monetary assets in exchange for an
equity interest is generally appropriate
33
 AS 2(Valuation of Inventories) IAS 2(Inventories)

Work in progress for service providers is Work in progress is applicable for

scope out
service providers

No exclusion for inventories held by Inventory held by commodity brokers is

commodity brokers scope out.

AS 18(Related Party Disclosures) IAS 24(Related Party Disclosures)

Intra group transactions and outstanding Intra group transaction and

balances are eliminated on consolidation
outstanding balances are not eliminated
of financial statement
on consolidation of financial statements.

Post employee benefit plan is not Related party includes Post employee
including in related party. benefit plan for the benefit of employees
of an entity.

Compensation of key management is Compensation of key management

disclosed in total as an aggregate of all personnel is disclosed in total and
items of compensation separately for different employee
benefits.

GAIL (I) Ltd.’s existing accounting policy

Compensation of key management personnel is disclosed in total, not separately. Company is

having joint ventures and subsidiaries as a related party.

Accounting treatment:

(1) Identifying related party relationships and transactions

34
(2) Identifying outstanding balances between an entity and its related parties.

AS 18(Presentation of financial IAS 24(Presentation of financial

statements) statements)

The financial statements include The financial statements include

a statement of financial position a statement of financial position
a statement of comprehensive income a statement of comprehensive income
a statement of cash flows a statement of changes in equity
(SOCIE)
Notes comprising a summary of
significant accounting policies and a statement of cash flows
other explanatory notes.
Notes comprising a summary of
significant accounting policies and other
explanatory notes.
a statement of financial position as at
the beginning of the earliest
comparative period when an entity
applies an accounting policy
retrospectively or makes a retrospective
restatement of items in its financial
statements, or when it reclassifies items
in its financial statements.

AS 6 & AS 10 (Depreciation & Fixed IAS 16(Property, Plant & Equipment)

Assets)

Indian GAAP prescribes use of Initial Recognition:

historical cost basis.
As per IFRS, an item of property, plant
Revaluations are permitted, however, and equipment shall be measured at its
no requirement on frequency of cost.
revaluation.
Measurement After Recognition:
35
On revaluation, an entire class of As its accounting policy, an entity shall
assets is revalued, or selection of choose either:
assets is made on a systematic basis.
Cost Model or
Revaluation Model
The selected policy is to be applied to
an entire class of property, plant and
equipment.
Regular Revaluations shall be made so
that the carrying amount does not differ
materially from fair value. Recognised
as Revaluation Reserve.

Indian GAAP requires allocation of IFRS requires allocation of Depreciation

depreciation based on the useful lives on a systematic basis to each
of assets or the minimum rates accounting period over the useful life of
prescribed by the Indian Companies the asset.
Act, whichever is higher.

For impairment of assets Indian GAAP IFRS requires that assets be reviewed
also has adopted the provisions of for impairment and impairment losses
IFRS with effect from 1.4 2004 & recognized in the accounts.
1.4.2006 for certain enterprises. For
certain enterprises, the provision
applies w.e.f. 1.4.2008

AS 26 (Intangible assets) IAS 38(Intangible assets)

Indian GAAP requires capitalisation if IFRS requires capitalisation if recognition

recognition criteria are met. criteria are met. Intangible assets must
be amortised over useful life.
Intangible assets must be amortised
over useful life with a rebuttable Intangibles assigned an indefinite useful
presumption of not exceeding 10 life must not be amortised but reviewed
years. annually for impairment.
36
Revaluations not permitted. Revaluations are permitted.

Modifications in GAIL (I) LTD

Table 1.5

Components AS 9(Revenue Recognition) IAS 18(Revenue)

1. Revenue It is accounted for on the basis The company needs to

recognition of bills raised/due for the year. account the transmission
In GAIL (I) Ltd the revenue is revenue on a percentage of
recognized when the bill is completion basis.
raised and the bill is raised only
when the stage as defined in the
contract is complete and not the
percentage of work completed.
2. Accounting for DEPB income is recognized on DEPB income should be
export benefits receivable basis recognized on accrual basis
(DEPB License) and the same should be
netted off from COGS.
3. Consultancy Consultancy fee is accounted for Consultancy fee is accounted
Fee on the basis of bills raised/due for on the basis of fair value
for the year. It also includes in which an asset could be
supplies and expenses forming exchanged, or a liability
part of the contract which are settled, between
recoverable from the customers. knowledgeable, willing
In Construction parties in an arm’s length
Management/Supervision transaction.
Contracts, fee is calculated as a
percentage on the value of work
done/built-up cost of each
contract as determined by the
37
 Management, pending
customer's approval, if any.
4. Construction Where the outcome of a Where the outcome of a
Projects construction contract/project construction
can be estimated reliably, contract/project can be
revenue and costs associated estimated reliably, revenue
with the construction and costs associated with
contracts/projects are the construction
recognized when the bill is contracts/projects are
raised and the bill is raised only recognized on a percentage
when the stage as defined in the of completion basis.
contract is complete and not the
percentage of work completed.

Components AS 9(Inventories) IAS 18(Inventories)

1. Classification of Work in progress in services is Common classifications of

Inventories excluded in AS 2. inventories are
merchandise, production
supplies, materials, work in
. progress and finished goods.
The inventories of a service
provider may be described
as work in progress.
The suggested classification
of gas is as follows
1. Natural Gas (Includes all
gas in pipelines except for
those inside the plant
network
2.Work in progress (Gas
inside the plant network)
3.Finished Goods (Petro
Chemicals, Petroleum

38
 products and LPG)
2. Accounting for Construction Surplus is Construction Surplus should
Construction accounted as inventory. be accounted for as Capital
Surplus Work in progress as
compared to the current
practice of accounting the
same as inventory.

Components AS 6 & 10(Depreciation & IAS 16 (Plant, Property &

Fixed Assets) Equipment components)

1. Recognition Replacement expenses, Major Additional items will be

criteria (Capital) spares, Servicing required to be recognised as
equipment’s PPE by the Company like:
Major inspection and repair Replacement expenses
expenses are excluded from
Major (Capital) spares
AS 10
Servicing equipment’s
Major inspection and repair
expenses
Adjustment needs to be made
in carrying cost of PPE in the
opening balance sheet to
reflect the above adjustments.
2. Cost of Asset retirement obligation is There are certain differences in
acquisition not capitalized as part of PPE the valuation of PPE. They are
and administrative overheads
Asset retirement obligation
are capitalized as part of cost
which needs to be capitalised
of PPE
as part of PPE under IFRS
Foreign exchange differences:
39
 Till Year 2002-03 foreign
exchange differences were
adjusted to the cost of PPE.
The same needs to be
removed from cost of PPE due
to retrospective application of
IFRS.
Administrative overheads are
not capitalised as part of cost
of PPE under IFRS.
Adjustment needs to be made
in carrying cost of PPE in the
opening balance sheet to
reflect the above adjustments.

3. Subsequent Spare parts and servicing IFRS provides specific

expenditure equipment are usually carried guidelines regarding the
(Major repairs, as inventory and recognised in subsequent cost that are
inspections and profit or loss as consumed. required to be adjusted to the
replacement cost of the assets. They are:
costs)
Subsequent expenditure –
Parts: New parts used to
replace an existing part of PPE
are capitalised if the
recognition criteria are met.
The replaced part is de
recognised as well.
Major Repairs: Cost of major
repairs is recognised as part of
PPE when the recognition
criteria are met.
Major Inspection: Whenever a
major inspection is performed,
its cost is recognised in the
carrying amount of the item of
property to which the
inspection relates. If a part of
40
 plant is replaced during the
inspection then the same is
derecognised.
Adjustment needs to be made
in carrying cost of PPE in the
opening balance sheet to
reflect the above adjustments.
4. Stand by Stand – by equipment’s when All stand-by equipment, when
equipment’s purchased, are not capitalized purchased, will be capitalised
as fixed assets. as a sub asset of the
equipment/plant and
depreciated over the shorter
of the life of the equipment or
the life of the plant of which it
is part of. The accounting and
useful life of the stand by
equipment’s needs to be
evaluated based on the said
guidelines.
5. Servicing Spare parts and servicing
equipment’s and equipment are usually carried
Major spare parts as inventory and recognised in
profit or loss as consumed.
However, major spare parts
and stand-by equipment
qualify as property, plant and
equipment when an entity
expects to use them during
more than one period. A
detailed analysis of the spare
parts of the company needs to
be carried on to identify major
spares that fulfil the above
criteria. Necessary
adjustments need to be made
in opening balance sheet to
reflect the above guidelines.

41
6.Componentisati On the date of transition, the Under IFRS, each part of an
on Company identify whole as a item of property, plant and
single asset and also equipment with a cost that is
depreciate them as a single significant in relation to the
asset total cost of the item shall be
depreciated separately. This is
called a “componentisation”
approach. On the date of
transition, the Company will
have to identify all significant
components of an asset and
depreciate them separately
over their individual useful
lives
7. Useful life and The Company considers a flat Under IFRS, the depreciable
Residual Values 5% of asset cost as residual amount of PP&E is determined
value of all assets. after deducting its residual
value (or salvage value),
The company apply the
defined as the estimated value
minimum rates specified in
of the asset at the end of its
Schedule XIV of the Indian
useful life less any disposal
Companies Act, 1956 for
costs.
depreciation of assets
The Company should estimate
the actual useful life of each
item of property, plant and
equipment and depreciate the
asset over its estimated useful
life.

Components AS 26(Intangible assets) IAS 38(Intangible assets)

1. Intangibles License for HDPE unit given to Under IFRS, an intangible

assets (including M/s Mitsui Chemicals Inc, asset is an identifiable non-
Goodwill on License for GAILTEL from VSNL monetary asset without
consolidation) are excluded from AS 26 physical substance. Based on
(IAS 38) this criterion, there are two
new intangibles which need
to be recognized as per IFRS:
42
 a) License for HDPE unit
given to M/s Mitsui
Chemicals Inc
b) License for GAILTEL from
VSNL

Notes:

1. In GAIL (I) LTD, under IFRS, the mandate for revenue recognition is recognized only at
the point when the customer acknowledges the receipt because only then that the risks
and rewards are passed onto the customer. This implies that all the billing applications
and contract to be changed and it may add four to five days to the time when revenue
can be recognized.

2. *Prior Period errors are omissions from, and misstatements in, the entity’s financial
statements for one or more prior periods arising from a failure to use, or misuse of,
reliable information that:

i. Was available when financial statements for those periods were authorized to issue

ii. Could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements.

Accounting Policies of GAIL (I) Ltd under GAAP:

Prior period errors are treated in current year under a separate head (prior period
adjustments) which contains the net amount of the error. The information regarding the
adjustment is given under a schedule for the detailed information regarding Net amounts.
43
Accounting Treatment in case of errors occurred in previous year under IFRSs:

● Change is made in respective head of previous year. This will lead to change in reserves
of that year, opening balance of current year and reserves of current year without
affecting final outcome.

● Notes should be written to state in detail the changes made in respective head wise and
year wise because many times we use the net results which is insufficient to
understand.

Accounting Treatment in case of errors occurred before previous year under IFRSs:

● Change in opening balance and reserves of previous year and also opening balance and
reserves of current year.

● Notes to state the changes with respective head wise and year wise.

3. IFRSs 6 (Exploration Business)

GAIL is free to select an accounting policy for exploration business. However, in view of
consistency with practices being followed by other companies, it should undertake the
following two changes:

1. Instead of carrying the drilling cost in CWIP till the time the result of drilling has been
identified and then this cost should be transferred to the cost of the tangible extraction
site.

2. Deprecation should be provided based on the utilization of the Gas Reserve.

44
 CHAPTER3

PROFIT & LOSS ACCOUNT

For the Period Ended 31st March 2010
(According to GAAP)

45
46
 BALANCE SHEET
For the Period Ended 31st March 2010

47
 (According to GAAP)

PROFIT & LOSS ACCOUNT

For the Period Ended 31st March 2011
(According to IFRS)
(Rs.in crores)

48
 2010-2011
Revenue from operations 24556.40
Other Income 541.10
Changes in inventories of finished goods and work in
progress 5.59
Raw material consumed 17629.37
Employee Benefit Expenses 621.20
Depreciation and Amortisation Expenses 561.82
Impairment of Property, Plant & Equipment and
Intangible Assets 0.00
Other Expenses 2097.23
Finance Costs 70.00
Profit Before Tax 4123.47
Income tax expenses 1438.63
Profit for the year from continuing operations 2684.84
Profit (Loss) for the year from discontinued operations 0.00
Profit for the year 2684.84
Other Comprehensive Income:
Exchange difference in translating foreign operations 0.00
Gain (loss) on fair value changes in available for sale 0.00
financial instrument
Gain (loss) on fair value changes in Cash Flow Hedges 0.00
Gain on revaluation of Property, Plant and Equipment 0.00
Actuarial Gain (loss) on defined benefit pension plans 0.00
Other Comprehensive Income net of tax 0.00
Total Comprehensive Income for the year 2684.84
Earnings per share (Rs. Per share) 21.16

BALANCE SHEET
For the Period Ended 31st March 2011
(According to IFRS)

(Rs. in crore)

49
ASSETS 2010-2011
NON-CURRENT ASSETS
Property, Plant & Equipment 11733.85
Capital Work-in-progress 2330.49
Goodwill 0.00
Other Intangible Assets 197.25
Investments in Subsidiaries 251.70
Investments in Joint Ventures 1087.80
Investments in Associates 166.79
Investments – Others 566.74
Available for Sale Investments 0.00
Total non-current assets

CURRENT ASSETS
Inventories 631.70
Trade Receivables 1095.04
Loans & Advances 7606.18
Other Current Assets 8.26
Cash & Cash Equivalents 3916.51
Total current assets

TOTAL ASSETS 29592.31

EQUITY AND LIABILITIES 2010-2011

EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT
Share capital 1268.48
Retained Earnings 15075.52
Other components of Equity 0.00
Non-controlling Interest 0.00
Total Shareholders’ Equity 16344.00

NON-CURRENT LIABILITIES
Long-term borrowings 1332.34
Deferred tax 1389.56
Long-term provisions 165.65
Total non-current Liabilities

CURRENT LIABILITIES
50
Trade and other payables 5448.31
Short-term borrowings 0.00
Current portion of long-term borrowings 148.04
Current tax payable 3950.88
Short-term provisions 813.53
Total current Liabilities 10360.76

TOTAL LIABILITIES 29592.31

STATEMENT OF CHANGES IN EQUITY

For the Period Ended 31st March 2011

(According to IFRS)

Rs. in Crores

Share Retaine Genera Capital Share Investme Bond Total

Capita d l Reserv Premiu nt Redempti Equity
l Earning Reserv e m A/c Allowanc on
s (P&L Reserve
51
 A/c) e e Reserve (BBR)

Balance 845.6 9836.8 2013.1 1.86 0.27 146.48 160.64 13004.

as on 5 4 4 88

31.03.200
9

Profit 2803.5 2803.58

during the 8
year

Dividends (1038.8 (1038.8

(Including 3) 3)
Dividend
Tax)

Issue of 422.8 (422.83 0

Bonus 3 )
Shares

Transfer (312.01 407.37 (0.12) (127.37) 32.13 0

)

Balance 1268. 11289. 1997.6 1.74 0.27 19.11 192.77 14769.

as on 48 58 8 63
31.03.201
0

Profit 3139.7 3139.72

during the 2
year

Dividends (1110.3 (1110.3

(Including 5) 5)
Dividend
Tax)

Transfer (311.01 314.00 (0.12) (2.87) 0

)

52
 Balance 1268. 13007. 2311.6 1.62 0.27 19.11 189.90 16799.
as on 48 94 8 00
31.03.201
1

DRAWBACK:

There is a lack of adequate professionals with practical IFRS conversion experience and
therefore many companies will have to rely on external advisers and their auditors. This is
magnified by a lack of preparedness amongst Indian corporates as this project may be viewed
simply as a project management or an accounting issue which can be left to the finance
function and auditors. However, it should be noted that IFRS conversion will involve a
fundamental change to an entity’s financial reporting systems and processes. It will require a
detailed knowledge of the standards and the ability to consider their impact on business
transactions and performance measures. Further, the conversion process will need to
disseminate and embed IFRS knowledge throughout the organisation to ensure its application
on an ongoing basis

Data Collection: Activity based ratio are often used in accounting practice, especially for
decision making process. Apart from this these ratios also provide useful information about
financial position and performance of the company. In this paper ratio have been calculated
based on figure obtained from financial statement that are constituted according to the two
set of accounting standard Indian GAAP and IFRS for the same ICAI and ministry of corporate
affairs jointly announced for adopting IFRS

3. Study period: For GAAP financial statement 2013-14 and for IFRS financial statement 2014-
15.

4. Variable: In this study the selected variables were collected from the company Balance
sheet and Income statement six financial ratios have been considered in this analysis.

5. Statistical Techniques: Descriptive statistics are presented for each ratio to describe the
features of the collected data. It includes measurement of central tendency, measurement of
variability and measurement of dispersion. For testing the hypothesis student paired t test has
been used. The decision rule is to reject the null hypothesis if calculated value fall outside the
critical value of “t” or if the p value is less than 0.025. Finally, for analysing whether IFRS is
more consecrating or not or to find out whether IFRS negatively or positively affect the
activity-based number.

53
Result and Finding

Ho1 There is no statistically significant difference of Assets turnover ratio calculated on Indian
GAAP and IFRS based financial statement

Table:1 Paired sample t test: Comparative result of GAAP & IFRS Assets turnover ratio

Company Name GAAP Assets FRS Assets Index

turnover ratio turnover ratio

1. WIPRO 0.7851944 1.172137075 0.638621506

2. ROITA India 2.5391 2.43610 1.04229

3. INFOSYS 1.8258 1.07763 1.00458

4. Great 0.15914 7.49596 0.0272

Eastern
Energy
Corporation

5. DABUR India 0.2725 0.66960 0.4070

Ltd.

6. Noida Toll 6.16463 5.60128 1.1005

Bridge Ltd

Total 10.9666 18.4527

54
Mean 1.82776 3.0754 0.8216

Median 0.9155 1.8047

S. D 2.2907 2.8189

Skewness 1.793 0.9835

Kurtosis 3.1375 -0.8703

Maximum 6.1646 7.0495

Minimum 0.1591 0.6696

Paired t test value = 0.3558 T value = 1.016

For assets turnover ratio t test shows the t value -1.016 and p value .35558, since the
calculated value is less than the critical value (2.57) and the p value is more than 0.025 so null
hypothesis is accepted that IFRS adoption does not affect Assets turnover ratio. Ho2. There is
no significant difference of Fixed assets turnover ratio calculated on Indian GAAP and IFRS
based financial statement

5 CHAPTER: CONCLUSIONS & RECOMMANDETIONS

55
 FINDINGS

1. This study found that Adoption of IFRS brings greater transparency and uniformity to
global business this in turn builds confidence which helps create economic partnerships
and growth. This IFRS adoption will create reputation among other business firms. IFRS
implementation makes easy Comparability and access to global capital markets. IFRS
implementation will make valuation easy and improve the key metrics that analysts use
to measure and evaluate client performance and price shares. Under IFRS instruments
are fair valued. It also supports corporate governance to make operations effective and
efficient.

2. Conversion to IFRS offers the possibility to streamline and reduce costs. Early adoption
planning can reduce costs of implementation.

3. 6Study shows that GAIL (I) Ltd will be able to retain trust among stakeholders because
after implementing IFRS investors can have better and more transparent financial
information available and universally accepted financial statements. Because IFRS is
Single, uniform set of high quality and internationally accepted accounting standards.

RECOMMENDATIONS

1. GAIL (I) Ltd should run the system compatible with IFRS and also Indian Accounting
System. This will help company to retain all data for the future use.

2. Proper training should be provided to the employees of the company. For this
knowledge sharing programs will be conducted in the company. The trained employees

56
 will be the asset of the company who can handle IFRS implementation in companies as
well as earn revenue by rendering consultancy services to other companies.

3. Proper documentation and accounting procedures should be maintained.

Documentation is needed for the new entrants to understand the history of the new
system and changes made in the existing system. So, they can easily learn the concepts
and procedures of the new system.

4. Seminars and presentations can be encouraged by the company which will ultimately
impart knowledge to the employees. This study recommends the knowledge sharing
scheme which will be supportive for the effective IFRS implementation in the GAIL (I)
Ltd.

5. Study on IFRS must be provided to students in accounting subject.

6. Knowledge Sharing Scheme:

● For IFRS implementation, company need to follow a scheme for educating the
employees of the company about IFRS. Following are the steps in the IFRS
implementation in GAIL (I) Ltd.

● GAIL (I) Ltd need to identify the employees who should attend the knowledge sharing
program.

● GAIL (I) Ltd has to group the offices which can be given training at feasible location for
the cost control. GAIL (I) Ltd need to make the batches according to the stages of the
knowledge sharing process.

Knowledge sharing:

I. Awareness:

1. This is the first stage of knowledge sharing.

57
 2. This awareness program is mainly designed for the key management
personnel of the company.

3. These employees will be made aware by the seminar and work shop on the
IFRSs.

4. The location for such seminar and work shop will be corporate office of the
company in New Delhi.

5. This stage includes the employees from financial and non- financial
background.

58
II.Concept:

1. This is the second stage of the knowledge sharing program.

2. This program is designed for the middle management of the company who
need to understand IFRS in more detailed manner.

3. For the purpose of giving conceptual knowledge to the employees Company can
club two or more offices which can easily get training at a place.

4. These employees will be given proper training so they can train other
employees.

III. Action plan:

1. This is the plan for providing training to the operating level of the company.

2. These employees need to have a guide who will give the training to them.

3. These guides will be given the training separately so they can be able to
provide training to the employees.

4. It contains detailed education for the employees who will work with IFRSs.

5. Each employee at operation level has to be trained for IFRS adoption.

This all process will help company in the IFRS adoption so employees will become familiar with
new system.

CONCLUSION

59
In summary, this paper develops a model to study the framework of IFRS implementation in
India and ascertains the impact of IFRS implementation. Further, the paper investigates the
major sections of IFRS and the consequential impact of these sections on the balance sheet
and profit & loss account. It also studied the similarity and difference between Indian GAAP &
IFRS.

Convergence with IFRSs will assist to present their Financial Statements in more true and
transparent manner. Transition to IFRS will also bring uniformity; this in turn builds confidence
which helps create economic partnerships and growth.

IFRS implementation also makes easy Comparability and access to global capital markets.
Moreover, it will make valuation easy and will improve the key metrics that analysts use to
measure and evaluate client performance and price shares. In addition, it also supports
corporate governance to make operations effective and efficient. Furthermore, conversion to
IFRS offers the possibility to streamline and reduce costs. Hence early adoption planning can
reduce costs of implementation.

The result of this study will also contribute in assisting other firms in India to present their
financial statements in more transparent manner to their shareholders diversified all over the
world so as to achieve the objective of bringing the Indian Economy in power with other
economies in the world.

These finding led the conclusion that IFRS adoption does not have a significant effect on
Activity based ratio of Indian firms. These indicate the most of activity-based ratio are
negatively affected by transition of IFRS. All the above explanation emphasises the fact that
IFRS is a fair value principles-based accounting which will improve quality of disclosures and
enhance international comparability and understanding of financial statements. This in turn
will boost investment from across the globe that will ensure enhanced performance for Indian
corporate

60
Key Learning

1. The major learning from this project was that I gained theoretical as well as 6practical
knowledge as IFRS standards are implemented.

2. I gained knowledge about IFRS and its workings.

3. I learned about IFRS and its convergence in India.

4. Challenges faced by India in convergence.

References

1. Admas, G. (1994). What K compliance? Journal of Financial Regulation and Compliance,

2, 4, 278- 285.

61
2. Arouri, M., Levy, A. & Nguyen, D.K. (2010), ROE and Value Creation underIAS/IFRS:
Evidence of Discordance from French Firms, European Financialand Accounting Journal,
Vol.5, No.1, pp.84-112 2.
3. Agca, A. & Aktas, R. (2007). First Time Application of IFRS and Its Impact onFinancial
Ratios: A Study on Turkish Listed Firms, Problems and Perspectives in Management,
Vol.5, No.2, pp.99-112
4. Blanchette, M., Racicot, F., & Girard, J. (2011), The Effects of IFRS on Financial Ratios:
Early Evidence in Canada,Certified General Accountants Association of Canada, pp.1-57
4.
5. Callao S., Jarne J.I., &Lainez J.A. (2007), Adoption of IFRS in Spain: Effect on the
comparability and relevance of financial reporting,Journal of International Accounting,
Auditing and Taxation, Vol.16, pp.148 –178 5.
6. Callao, S. Ignacio Jarne J. (2010), Have IFRS Affected Earnings Management in the
European Union?,ZaragozaAccounting and Finance Department Managerial Auditing
Journal, Vol.19 (3),pp.440-461
7. Dimitrios B, Nikolaos E, Konstantinos P, Dimitrios V, (2013), The Impact of IFRS on
Ratios of Listed and New Listed Companies of Athens Exchange, International Journal of
Business and Social Research, Vol.3, No.5, pp.139-157
8. Hung, M. &Subramanyam, K.R. (2007), Financial Statement Effects of Adopting
International Accounting Standards: The Case of Germany, Review of Accounting
Studies, Vol.12(4), 623-657, http://dx.doi.org/ 10.1007/s11142-007-9049-9 8.
9. Ibiamke N.A., Ateboh Briggs P.B., (2014), Financial Ratios Effect of International Financial
Reporting Standards (IFRS) Adoption in Nigeria, International Journal of Business and
Management Invention, Vol.3, No.3, March, pp.50-59 9.
10. Jain, P. (2011). IFRS Implementation in India: Opportunities and Challenges, World
Journal of Social Sciences, Vol.1(1), March, pp.125- 136

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 11.Kubickova, D. &Jindrichovska, I. (2012), Impact of IFRS Adoption on Key Financial Ratios:
Comparison of Selected European Countries,International Conference on Business
Excellence, Brasov
12.Lantto, A. &Sahlstrom, P. (2009). Impact of IFRS Adoption on Key Financial Ratios,
Accounting & Finance, Vol. 49(2), June, pp.341-361, http://dx.doi.org/10.1111/j.1467-
629X.2008.00283.x
13. Mohammed, A.A.E. & Kim-Soon, N. (2012),International Journal of Scientific and
Research Publications,Vol.2(7)
14.Pazarskis, M. Alexandrakis, A. Notopoulos, P. Kydros, D. (2011) “IFRS Adoption Effects in
Greece: Evidence from the IT Sector” Management of International Business and
Economics Systems
15.Terzi, S., Oktem, R., Sen, I.K. (2013). Impact of Adopting International Financial
Reporting Standards: Empirical Evidence from Turkey, International Business Research,
Vol.6(4), pp.55-66
16. YhlasSovbetov (2013), The Impacts of IFRS adoption on Key Financial Ratios in UK
market – Over FTSE 100 Firms Through 2003-2007 years, September,
17. www.academia.edu/6219139 16. http://www.statistica.com.au/

ANNEXURES

Annexure I

Table 6 .1 List of IFRS

Sl No. Title Coverage

63
1 IFRS 1 First Time Covers a framework for switching over from
Adoption of one set of accounting rules / GAAP to IFRSs
International based accounting;
Financial Reporting
Grants concession for applying retrospective
Standards
restatement of accounts ;

Explains how the carrying amount of the

assets and liabilities should be determined
for the purpose of opening IFRSs balance
sheet.
2 IFRS 2 Share - based Covers measurement of share -based
Payment payment transactions, their accounting
treatment and disclosures.

3 IFRS 3 Business Introduces fair value based acquisition

Combinations accounting for business combination
transactions;

Explains identification and segregation of

intangible assets from goodwill on
acquisition;

Distinguishes purchase consideration of a

business combination from the assets /
liabilities arising from pre-existed business
relationship or payment for future
employment;

Introduces a concept of full goodwill.

4 IFRS 4 Insurance This is not a comprehensive standard for
64
 Contracts insurance accounting.

It covers few areas of insurance accounting ,

namely –

segregation of embedded derivative from

insurance contracts; segregation of insurance
component from investment component.
5 IFRS 5 Non current This standard covers the technique of carving
Assets Held for Sale out non-current assets which are held for sale
and Discontinued from other items of non-current assets which
Operations are in use.

This is for better understanding and analysis

of financial performance and position of the
reporting entity.
6 IFRS 6 Exploration This standard prescribes measurement of
for and Evaluation of exploration and evaluation assets at initial
Mineral Resources recognition at cost and defines the cost of
such assets;

Explains measurement after initial recognition

and impairment.
7 IFRS 7 Financial This is a disclosure standard.
Instruments:Disclosu
Focuses on disclosure of financial assets and
res
financial liabilities covered in IAS 32 and IAS
39.

Introduces structure for risk disclosures.

8 IFRS 8 Operating This is a disclosure standard.
65
Segments Covers identification of operating segments ;

Covers disclosures of disaggregated financial

information by operating segment.

66
 Table 6.2 List of IASs

Sl Title Coverage
No.
1 IAS 1 Presentation of Covers structure and contents of financial
Financial Statements statements;

Basic principles of presentation of financial

statements.

To be followed for the preparation and

presentation of stand-alone (non-consolidated)
as well consolidated financial statements.
2 IAS 2 Inventories Explains methodology for inventory valuation;

Elaborates norm for writing down inventories to

net realisable value when cost is higher;

Elaborates norm for writing back the

inventories which were previously written
down;

Explains the norm for expensing inventories.

3 IAS 7 Statement of Explains the methodology for the preparation
Cash Flows and presentation of Statement of Cash flows;

Classifies cash flows into operating, investment

and financing cash flows.
4 IAS 8 Accounting Covers retrospective restatement of change in
Policies, Changes in accounting policies;
Accounting Estimates
Covers the technique of giving prospective
67
 and Errors effect to change in accounting estimates;

Covers the techniques of prospective correction

of errors.
5 IAS 10 Events after Classifies the post reporting period
the Reporting Period transactions / events into : adjusting and non-
adjusting events;

Covers accounting and / or disclosures of those

transactions / events.
6 IAS 11 Construction Explains percentage of completion accounting
Contracts for revenue recognition of partly completed
construction contracts;

Also covers the circumstances when revenue

recognition of a construction contract is limited
to just amount that will be collectible.
7 IAS 12 Income Taxes Prescribes the accounting treatment for income
taxes;

Sets out methodology for the measurement of

deferred tax expense and income leading to
recognition of deferred tax liability and asset
respectively.
8 IAS 16 Property, Prescribes the accounting treatment for
Plant and Equipment property, plant and equipment covering
recognition of the assets, the determination of
December 2004
their carrying amounts and the depreciation
charges.

68
9 IAS 17 Leases Prescribes, for lessees and lessors, accounting
policies and disclosures to apply in relation to
Updated August
leases.
2005
Covers classification of leases into operating and
finance lease.

Sets out principles for recognising profit / loss at

the inception of a sale and leaseback
transaction.
10 IAS 18 Revenue Covers principles of revenue recognition;

Provides guidelines for revenue recognition in

case of sale of goods, sale of services and
interest, royalty and dividend.
11 IAS 19 Employee Requires an entity to recognise:
Benefits
i. a liability when an employee has provided
service in exchange for employee benefits to be
paid in the

future; and

ii. an expense when the entity consumes the

economic benefit arising from service provided
by an employee in

exchange for employee benefits;

Covers classification of employee benefits into

short term , post-employment benefits, other
long term and terminal benefit;

69
 Details out methodology for the measurement
of different kinds of employee benefits.

12 IAS 20 Accounting for Prescribes accounting for government grants

Government Grants covering classification of government grants into
and Disclosure of grants related to assets and grants related to
Government income;
Assistance
Sets out disclosure norms for government
assistance.
13 IAS 21 The Effects of Prescribes how to include foreign currency
Changes in Foreign transactions and foreign operations in the
Exchange Rates financial statements of an entity; and how to
translate financial statements into a
presentation currency.
14 IAS 23 Borrowing Sets out the core principles that –
Costs
(i) borrowing costs which are directly

Attributable to the acquisition, construction or

production of a qualifying asset form part of the
cost of that asset.

(ii) Other borrowing costs are recognized as an

expense.

Prescribes norms for commencement,

suspension and cessation of capitalisation of
borrowing costs.
15 IAS 24 Related Party Sets out disclosure norms for the transactions
70
 Disclosures with related parties.

Defines the related parties and identifies the

related party transactions.
16 IAS 26 Accounting Sets out norms for the preparation and
and Reporting by structure of the financial statements of the
Retirement Benefit retirement benefit plans.
Plans
17 IAS 27 Consolidated Sets out the principles for the preparation and
and Separate presentation of consolidated financial
Financial Statements statements for a parent and its subsidiaries.

Also prescribes the accounting treatment of

investment in subsidiaries and associates and
interest in joint venture in the separate financial
statements of an entity.
18 IAS 28 Investments in Sets out the principles of equity method
Associates accounting and its application to accounting for
investments in associates.
19 IAS 29 Financial Sets out the purchasing power accounting
Reporting in method based on monetary unit current for an
Hyperinflationary entity whose functional currency is the currency
Economies of a hyperinflationary economy.

Updated March Covers restatement procedures as well.

20 IAS 31 Interests in Prescribes the equity method accounting or
Joint Ventures proportionate consolidation for interests in joint
venture.
21 IAS 32 Financial Establishes principles for presenting financial
71
 Instruments : instruments as liabilities or equity , and for
Presentation offsetting financial assets and financial liabilities;

Sets out the norms for the classification of

financial instruments, from the perspective of
the issuer, into financial assets, financial
liabilities and equity instruments; the
classification of related interest, dividends,
losses and gains;

Identifies the circumstances in which financial

assets and financial liabilities should be offset;

Sets out the norms for classifying puttable

instruments as equity.
22 IAS 33 Earnings per Sets out the norm for computation and
Share presentation of basic and diluted earnings per
share or loss per share.
23 IAS 34 Interim Sets out the methodology for the preparation
Financial Reporting and presentation of interim financial report;

Prescribes the minimum content of an interim

financial report ;

Prescribes the principles for recognition and

measurement in complete or condensed
financial statements for an interim period.
24 IAS 36 Impairment of Sets out the norm that assets are carried at no
Assets more than their recoverable amount;

Details out the external and internal signals of

72
 the existence of impairment loss ;

Prescribes the procedures for impairment

testing including identification of cash
generating unit;

Details out norms for reversal of previously

charged impairment loss and the circumstances
when reversals are not permitted.
25 IAS 37 Provisions, Sets out principles for recognition and
Contingent Liabilities measurement of provisions, contingent
and Contingent liabilities and contingent assets;
Assets
Also prescribes the disclosures norms.
26 IAS 38 Intangible Sets out the principles for recognition and
Assets measurement of intangible assets ;

Prescribes the amortisation policy to be

adopted in respect of an intangible;

States the circumstances when an intangible

asset can be classified as having indefinite life
requiring no amortisation ;

Prescribes the norms for recognising

development phase expenses as intangible
asset.
27 IAS 39 Financial Establishes principles for recognising and
Instruments : measuring financial assets, financial liabilities
Recognition and and some contracts to buy or sell non-financial
Measurement items;
73
 Sets out norms for impairment analysis of
financial assets;

Sets out norms for reclassification and

derecognition of financial instruments.

Establishes hedge accounting principles.

28 IAS 40 Investment Establishes principles for recognition, and
Property measurement of investment property, and sets
out the disclosure norm.

29 IAS 41 Agriculture Establishes accounting principles and

measurement and accounting for agricultural
activities, namely, biological assets, agricultural
produce at the point of harvest, and
government grants relating to these agricultural
activities.

Table 6.3 List of IFRIC Interpretations

IFRIC Interpretations Linked to Outline of the issue covered

1. IFRIC 1 Changes in IAS 1 How to give effect to change estimated

Existing liability arising out of Decommissioning,
IAS 8
Decommissioning, Restoration and Similar Liabilities
Restoration and IAS 16

74
 IAS 23

Similar Liabilities IAS 36

IAS 37
2. IFRIC 2 Members'
Covers classification issue of member Shares
Shares in Co-operative IAS 32
in
Entities and Similar IAS 39
Co-operative Entities and Similar Instruments
Instruments
IAS 8

3. IFRIC 4 Determining IAS 16

Whether an Specifies characteristics to classify certain type
IAS 17
Arrangement Contains of arrangements as lease.
a Lease IAS 38

IFRIC 12

IAS 8

IAS 27
5. IFRIC 5 Rights to
Interests Arising from IAS 28 Provides guidance on the accounting for
Decommissioning, contributor’s interest in Joint Decommission
IAS 31
Restoration and Fund and recognition of liability arising out of
Environmental IAS 37 the failure of other members of the fund.
Rehabilitation Funds
IAS 39

SIC 12

5. IFRIC 6 Liabilities IAS 8 Provides guidance on the recognition of waste

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Arising from
Participating in a management liability of prior period(s) set
Specific Market - under a legislation which is linked to market
IAS 37
Waste Electrical and share in that period.
Electronic Equipment
6. IFRIC 7 Applying the
Restatement IAS 12
Approach under IAS Explains how to make restatement of deferred
IAS 29
29 Financial Reporting tax item.
in Hyperinflationary
Economies

7. IFRIC 8 Explains that goods and services received as a

consideration under share based payment
Scope of IFRS 2 * IAS 8
should be valued applying IAS 2.
IFRS 2
On amendment of IFRS 2 in June 2009, this
IFRIC is now withdrawn.
Sets out principles for reassessment of
IAS 39
8. IFRIC 9 embedded derivative after an entity first
Reassessment of IFRS 1 becomes party to the contract. Reassessment
Embedded Derivatives is permitted only when terms of the contract
IFRS 3
is changed.
9. IFRIC 10 Interim IAS 34 Explains that impairment loss recognised on
Financial Reporting goodwill and certain financial assets in an
IAS 36
and Impairment interim financial report is not reversible while
IAS 39 preparing annual financial statements even if
such impairment loss would not be required
to be recognised had the interim financial
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 report was not prepared.
Provides guidance on accounting for share
based transaction with employees when the
entity chooses or required to buy such shares
from others to fulfil the commitment.
IAS 8
10. IFRIC 11* It also clarifies accounting treatment for share
IAS 32 based payments in which a parent company
IFRS 2: Group and
Treasury Share IFRS 2 grants its shares to the employees of its

Transactions subsidiary, and the subsidiary company grants

shares to the employees of its parent in
consideration of service rendered.

On amendment of IFRS 2 in June 2009, this

IFRIC is now withdrawn.
IFRS1,7,8

IAS 8,11
Guides on the accounting by operators for
11. IFRIC 12 Service 17,18,20,
public-to-private service concession
Concession 23,32,36, arrangements.
Arrangements 37,38,39,

IFRIC 4

SIC 29
IAS 8
12. IFRIC 13 Customer Guides on accounting for award credit granted
IAS 18
Loyalty Programmes to the customers by an entity.
IAS 37
13. IFRIC 14 IAS 1 Addresses the issues relating to refunds or
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IAS 19 – The Limit on
a Defined Benefit IAS 8
Asset, Minimum reductions in future obligations in the context
IAS 19
Funding of employee benefits.
Requirements and IAS 37
their Interaction
13. IFRIC 14
IAS 1
IAS 19 – The Limit on a
Addresses the issues relating to refunds or
IAS 8
Defined Benefit Asset,
reductions in future obligations in the context
Minimum Funding IAS 19
of employee benefits.
Requirements and
IAS 37
their Interaction
Establishes methodology for classification
IAS 1,8
15. IFRIC 15 whether sale of real estate is
Agreements for the 11,18,37
i. sale of goods
Construction of Real IFRIC 12,
ii. sale of services or
Estate
IFRIC 13
iii. Construction contracts.

IAS 8 Explains the methodology of identifying

15. IFRIC 16 Hedges of
hedging instruments for the purpose of
a Net Investment in a IAS 21
hedging net investments in foreign operations
Foreign Operation
IAS 39 and accounting thereof.
16. IFRIC 17 IAS 1 Establishes accounting methodology for non-
Distributions of Non- cash distribution to owners.
IAS 10,
cash Assets to Owners
Non-cash distributions include distribution of
IAS 27
property, plant equipment, businesses,

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 IFRS 3 ownership interest in another entity, disposal

IFRS 5 group, etc.

IFRS 7

IAS 1

17. IFRIC 18 IAS 8

Provides guidance of accounting for property,
Transfer of Assets IAS 16
plant and equipment received from customers.
from Customers IAS 18

IAS 20

IFRIC 12

* Interpretations contained in IFRIC 8 and IFRIC 11 are now included in IFRS 2 (as amended in
June 2009).

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 Table 6.4 List of SIC Interpretations

SIC Interpretations Linked to Outline of the issue covered

IAS 1

IAS 8
Discusses issues relating to application of IAS
1. SIC 7 Introduction
IAS 10 21 for changeover from national currency to
of the Euro
EURO by a member state of the EU.
IAS21

IAS 27
2. SIC 10 Explains accounting treatment of
Government Government Grants directed to encourage
IAS 8
Assistance – No operation in a particular industry or grant to
IAS 20
Specific Relation to start a business in undeveloped areas but not
Operating Activities linked to operating activities.
IAS 8
3.SIC12
Consolidation – IAS 19
Discusses the circumstances when SPE
Special Purpose IAS 27
should be consolidated.
Entities
IAS 32

IFRS 2

5. SIC 13 Jointly IAS 8

Controlled Entities –
IAS 16 Deals with venturer’s accounting for non-
Non-Monetary
IAS 18 monetary contribution to JCE.
Contributions by
Venturers IAS 31
5. SIC 15 Operating IAS 1 Techniques recognising incentives in an

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 IAS 8
Leases – Incentives operating lease.
IAS 17
IAS 8
6. SIC 21 Income Interprets the term ‘recovery’ in relation to
Taxes – Recovery of IAS 12 an asset that is not depreciated and is
Revalued Non- IAS 16 revalued in accordance with Para 31 of IAS
Depreciable Assets 16.
IAS 40
7. SIC 25 Income
IAS 1
Taxes – Changes in Guides accounting for tax consequences of a
the Tax Status of an IAS 8 change in the tax status of the entity or its
Enterprise or its shareholders.
IAS 12
Shareholders
IAS 8

IAS 11
8. SIC 27 Evaluating
IAS 17
the Substance of Guides on lease classification and accounting
Transactions in the IAS 18 for an arrangement if it is not classified as a
Legal Form of a lease transaction.
IAS 37
Lease
IAS 39

IFRS 4
9. SIC 29 Disclosure IAS 1 Explains disclosure relating to a service
– Service Concession concession arrangement. See IFRIC 12 for
IAS 16
Arrangements accounting techniques.
IAS 17

IAS 37
81
 IAS 38

IFRIC 12
10. SIC 31 Revenue
– Barter Deals with an issue of measurement of fair
IAS 8
Transactions value by a seller of the advertisement
IAS 18
Involving services received or provided.
Advertising Services
IAS 1

IAS 2

IAS 11
11. SIC 32 Intangible
IAS 16 Explains accounting treatment of web site
Assets – Website
IAS 17 development costs.
Costs
IAS 36

IAS 38

IFRS 3

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83