INRODUCTION:
India has emerged as an international economic force to reckon with and Indian companies have clearly made their presence felt in the global economy. Indian companies, today, have customers, suppliers, manufacturing bases, lenders and investors, across the world. They have been actively acquiring businesses, big and small, in all parts of the world. With this, the Indian companies are no more answerable to a closed group of stakeholders; the current stakeholders are international, and with varying levels of sophistication. And all of them require financial information, and in a language that’s understandable internationally.
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 announced their intention to adopt 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. In view of the benefits of convergence with IFRSs to the Indian Economy, its investors, industry and the accounting professionals, the concept paper has been developed with the objective of exploring:
· The approach for achieving convergence with IFRSs, and
· Laying down a roadmap for achieving convergence with the IFRSs with a view to make India IFRS-compliant.
Presently, the Accounting Standards Board (ASB) of the ICAI formulates Accounting Standards based on the IFRSs keeping in view the local conditions including legal and economic environment, which have recently been notified by the Central Government under the Companies Act, 1956. Accordingly, the Ass depart from the corresponding IFRSs to maintain consistency with legal, regulatory and economic environment, and keeping in view the level of preparedness of the industry and the accounting professionals. In some cases, departures are made on account of conceptual differences with the treatments prescribed in the IFRSs…
WHAT IS IFRS ?
IFRS refers to the entire body of IASB pronouncements, including the standards and interpretations approved by the IASB and IASs and SIC interpretations approved by the predecessor International Accounting Standards Committee (IASC).
Standards that the IASB develops and approves have been known as International Financial Reporting Standards (IFRS). The term IFRS comprises IFRS issued by IASB; IAS issued by IASC; and Interpretations issued by the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB.
WHY IFRS?
A single set of accounting standards would enable internationally to standardize training and assure better quality on a global screen, it would also permit international capital to flow more freely, enabling companies to develop consistent global practices on accounting problems. It would be beneficial to regulators too, as a complexity associated with needing to understand various reporting regimes would be reduced.
ADOPTION OR CONVERGENCE:
While the terms adoption and convergence are often used interchangeably, there is a subtle but important difference between them. Adoption refers to the process of adopting IFRS as issued by the IASB with or without modifications; the modifications generally being in the nature of additional disclosure requirements or elimination of the alternative treatments. Adoption, therefore, generally involves a legislative or regulatory endorsement of IFRS coupled with minor modifications that are done by the national standard setting body. Convergence, on the other hand, means harmonization of national GAAP with IFRS through the design and maintenance of national accounting standards in a way that financial statements prepared in accordance with national accounting standards draw unreserved statement of compliance with IFRS.
SUMMARY OF CONVERGENCE STRATEGY:
Keeping in view the complex nature of IFRSs and the extent of differences between the existing ASs and the corresponding IFRSs and the reasons therefore, the ICAI is of the view that IFRSs should be adopted for the public interest entities such as listed entities, banks and insurance entities and large-sized entities from the accounting periods beginning on or after 1st April, 2011. The countries which have adopted IFRSs have done so for similar types of entities.
WHO IS COVERED:
Keeping in view the complex nature of IFRS and the extent of and reason for differences between the existing Indian Accounting Standards and the corresponding IFRS, the ICAI is of the view that IFRS should be adopted for public interest entities. These have been defined to include:
All listed companies
All banking companies
All insurance companies
All enterprises with a turnover in excess of Rs 100 crores (US$ 23 million)
All enterprises with borrowings in excess of Rs 25 crores (US$ 5.8 million)
In respect of entities other than public interest entities (termed as ‘small and medium sized enterprises’ or SMEs), a separate standard for SMEs will eventually be formulated based on the IFRS for SMEs when this standard is finally issued by the IASB; this is currently in exposure draft stage. Until then, the Indian Accounting Standards shall continue to apply to such entities.
PROPOSED TIMELINES
Reporting under IFRS would be applicable for accounting periods beginning on or after April 1, 2011. However, considering that comparatives would be required for the preceding year, entities would have to prepare an opening balance sheet as of April 1, 2010 (or other transition date), and compile full IFRS financial information for the accounting period beginning on or after April 1, 2010.
SCOPE OF IFRS:
· IASB Standards are known as International Financial Reporting Standards (IFRSs).
· All International Accounting Standards (IASs) and Interpretations issued by the former IASC (International Accounting Standard Committee) and SIC (Standard Interpretation Committee) continue to be applicable unless and until they are amended or withdrawn.
· IFRSs apply to the general purpose financial statements and other financial reporting by profit-oriented entities -- those engaged in commercial, industrial, financial, and similar activities, regardless of their legal form.
· Entities other than profit-oriented business entities may also find IFRSs appropriate.
· General purpose financial statements are intended to meet the common needs of shareholders, creditors, employees, and the public at large for information about an entity's financial position, performance, and cash flows.
· Other financial reporting includes information provided outside financial statements that assists in the interpretation of a complete set of financial statements or improves users' ability to make efficient economic decisions.
· IFRS apply to individual company and consolidated financial statements.
· A complete set of financial statements includes a balance sheet, an income statement, a cash flow statement, a statement showing either all changes in equity or changes in equity other than those arising from investments by and distributions to owners, a summary of accounting policies, and explanatory notes.
· If an IFRS allows both a 'benchmark' and an 'allowed alternative' treatment, financial statements may be described as conforming to IFRS whichever treatment is followed.
· In developing Standards, IASB intends not to permit choices in accounting treatment. Further, IASB intends to reconsider the choices in existing IASs with a view to reducing the number of those choices.
· IFRS will present fundamental principles in bold face type and other guidance in non-bold type (the 'black-letter'/'grey-letter' distinction). Paragraphs of both types have equal authority.
· The provision of IAS 1 that conformity with IAS requires compliance with every applicable IAS and Interpretation requires compliance with all IFRSs as well.
COMPLEXITY IN THE FINANCIAL REPORTING PROCESS:
Under IFRS, companies would need to increasingly use fair value measures in the preparation of financial statements. Companies, auditors, users and regulators would need to get familiar with fair value measurement techniques.
Benefits derived from convergence are lot but also the challenges. The success of the convergence to IFRS in India will depend on cooperation from government, regulators and tax departments. The apex body of accounting profession ICAI should make an all out effort to train accounting professionals and educate stakeholders.
However, officials said, it would be difficult for banks to follow IFRS, since they stick to the Reserve Bank of India's standards, and the RBI is rigid about giving up its accounting procedures for the IFRS.
ACCOUNTING STANDARDS ISSUED BY ICAI v/s IFRS/IAS:
| Position under IAS / IFRS After considering recent changes | Position as per Indian GAAP |
| Disclosure of Accounting Policies
IAS 1, inter alia, deals with overall considerations, including fair presentation, off-setting, comparative information. IAS 1 prescribed minimum structure of financial statements and contains guidance on related issues viz. current liabilities etc. Under IAS 1, financial statements includes Statement showing changes in equity Under IAS 1, there is a presumption that application of IFRS would lead to fair presentation IAS 1 requires specific disclosure for departures from IFRS IAS 1 requires disclosure of critical judgments made by management in applying accounting policies IAS 1 prohibits any items to be disclosed as extraordinary items. |
AS 1 does not deal with these aspects. AS 1 does not prescribe any minimum structure. AS 1 does not prescribe any such statement to be prepared. There is no such presumption under AS 1.
There is no such specific provision in AS 1.
There is no such specific disclosure requirement in AS 1
AS 5 specifically requires disclosure of certain items as Extra-ordinary items. |
| Valuation of Inventories:
IAS 2 prescribes same cost formula to be used for all inventories having a similar nature and use to the entity. There are certain additional requirement in IAS 2 which are not contained in AS 2 which are as under: Purchase of inventory on deferred settlement terms - excess over normal price is to be accounted as interest over the period of financing. Measurement criteria are not applicable to commodity broker-traders. Exchange differences are not includible in inventory valuation. Inventory pledged as security for liabilities requires separate disclosure. |
AS 2 requires that the formula used in determining the cost of an item of inventory needs to be selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. However, there is no stipulation for use of same cost formula in AS 2 as compared to IFRS |
| Cash Flow Statements:
Bank overdrafts are to be treated as a component of cash / cash equivalents under IAS 7. IAS 7 allows interest and dividend paid to be classified either under Operating Activities or Financing Activities. IAS 7 requires additional disclosure of cash payments by a lessee relating to finance lease under Financing Activities. IAS 7 deals with issues relating to disclosure in cash flow statement in consolidated financial statements viz. Undistributed profits of associate & minority interests, Forex cash flows of foreign subsidiary etc. IAS 7 prohibits separate disclosure of extraordinary items in Cash Flow Statements. In case of acquisition of subsidiary, IAS 7 requires two Additional disclosures on acquisitions viz. Cash/ cash equivalents of acquired subsidiary and all other assets acquired. |
AS-3 has no such stipulation
AS 3 mandates disclosure of interest and dividend paid under Financial Activities only.
No such disclosures required under AS 3.
AS 3 was issued prior to AS 21, hence issues relating to consolidate financial statements are not dealt with.
AS 3 mandates such disclosure.
No such provision in AS 3
|
| Contingencies and Events occurring after the Balance Sheet Date:
IAS 10 provides that proposed dividend should not be shown as liability. IAS 10 requires date of authorization for issue of financial statements to be specifically mentioned in the financial statements itself. IAS 10 also requires disclosure of contingent liability to be updated in the light of new information received after the balance sheet date. |
AS 4 specifically requires such disclosure as the same is mandated by statutory requirement. AS 4 has no such stipulation.
AS 4 requires adjustments to figures stated in financial statements for events occurring after the balance sheet date, if such events relate to conditions existing at the balance sheet date. |
| Prior Period Items and Changes in Accounting Policies: In case of change in accounting policy IAS 8 requires retrospective effect to be given by adjusting opening retained earnings. The definition of prior period Items is broader under IAS 8 as compared to AS 5 since IAS 8 covers all the items in the financial statements. IAS 8 requires retrospective restatement of prior period figures by restatement of opening balances of assets, liabilities and equity for the earliest period practicable. IAS 8 requires disclosure of any impending change in accounting policy viz. change mandated by a new accounting standard which is yet to come into effect. IAS 8 prohibits disclosure of any items as extra-ordinary item. |
AS 5 requires only prospective change in accounting policy with appropriate disclosures. AS 5 covers only incomes and expenses in the definition of prior period items.
AS 5 requires prior period items to be included in the determination of net profit or loss for the current period.
AS 5 do not require such disclosure AS 5 requires separate disclosure of extraordinary items. |
| Depreciation Accounting:
In case of change in method of depreciation, IAS 16 requires effect to be given prospectively.
Change in method of depreciation is treated as change in accounting estimate under IAS 16. IAS 16 requires estimation of Residual value without considering inflation effects i.e, residual value has to be estimated assuming that the asset were already of the age and in the condition expected at the end of its useful life |
AS 6 requires retrospectively re-computation of depreciation and any excess or deficit on such re-computation is required to be adjusted in the period in which such change is effected.
AS 6 considers this as change in accounting policy
There is no such stipulation in AS 6 although it prescribes use of realizable value of similar assets, which have reached the end of their useful lives and have operated under conditions similar to the asset as one of the basis of estimating residual value. |
| Construction Contract :
Contract Revenue under IAS 11 is measured at the fair value of the consideration received or receivable.
|
AS 7 does not refer to fair value and states that Contract revenue is measured at the consideration received or receivable |
| Revenue Recognition:
Under IAS 18, revenue from sale of goods cannot be recognized when entity retains continuing managerial ownership or effective control over the goods sold. In case of revenue from rendering of services, IAS 18 allows only percentage of completion method. IAS 18 requires effective interest method prescribed in IAS 39 to be followed for interest income recognition. Under IAS 18, payments received in advance for goods yet to be manufactured or third party sales, cannot be recognized as revenue until such goods are delivered to the buyer. |
AS 9 does not contain any such stipulation.
AS 9 allows completed service contract method or proportionate completion method.
AS 9 requires interest income to be recognized on a time proportion basis.
AS 9 permits recognition when the goods are manufactured, identified and ready for delivery in such cases. |
| Accounting for Fixed Assets:
Under IAS 16, if subsequent costs are incurred for replacement of a part of an item of fixed assets, such costs are required to be capitalized and simultaneously the replaced part has to be de-capitalized. |
AS 10 provides that only that expenditure which increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g., an increase in capacity. |
| Effects of changes in Foreign Exchange Rates:
The revised IAS 21 makes no distinction between an integral foreign operation and non-integral foreign operation as done in AS 11. In fact, the factors of distinction between an integral operation and a non-integral operation are incorporated as considerations for determining functional currency. Revised IAS 21 requires an entity to determine functional currency and measure results and financial position in that currency. Functional currency is the currency of the primary economic environment. Under the revised IAS 21 states that if functional currency of a foreign operation is other than reporting currency, the provisions of translation of such operation are similar to that prescribed for a non-integral foreign operation under AS 11. If financial statements are presented in any other currency other than functional currency, the revised IAS 21 requires Assets /Liabilities to be translated at Closing Rate and Income / Expenses at Average Rate. |
AS 11 provides separate treatment for integral operations and non-integral operations.
There is no concept of functional currency under AS 11.
Absence of functional currency concept does not enable AS 11 to provide for such a stipulation.
AS 11 does not contain any guidance on this issue. |
| Government Grants:
The concept of extra-ordinary item is deleted under all standards of IFRS. In case of non-monetary assets acquired at nominal / concessional rate, IAS 20 permits accounting either at fair value or at acquisition cost In respect of grant related to a specific fixed asset becoming refundable, IAS 20 requires retrospective re-computation of depreciation and prescribes charging off the deficit in the period in which such grant becomes refundable. IAS 20 requires separate disclosure of unfulfilled conditions and other contingencies if grant has been recognised. |
AS 12 requires disclosure of government grants for financial support / compensation for losses as extra-ordinary items in P&L.
AS 12 requires accounting at acquisition cost.
AS 12 requires enterprise to compute depreciation prospectively as a result of which the revised book value is provided over the residual useful life.
AS 12 has no such disclosure requirement. |
| Accounting for Amalgamations:
IFRS 3 allows only purchase method. Option of pooling method given under IAS 22 has been withdrawn. IFRS 3 requires valuation of assets & liabilities at Fair Value. IFRS 3 requires Goodwill to be tested for impairment. IFRS 3 requires recognition of negative goodwill immediately in P&L A/c. IFRS 3: Reverse Acquisition is accounted assuming acquirer is the acquiree. IFRS 3 requires valuation of Financial Assets to be dealt with as per IAS 39. Under IFRS 3, provisional values can be used provided they are updated retrospectively within 12 months with actual values. |
AS 14 allows both Pooling of Interest Method and Purchase Method.
AS 14 requires valuation at carrying value.
AS 14 requires amortization of Goodwill
AS 14 requires it to be credited to Capital Reserve
AS 14 does not deal with reverse acquisition
AS 14 contains no such similar provision.
There is no such provision in AS 14. |
| Employee Benefits:
IAS 19 provides an option to recognise actuarial gains and losses either by following "Corridor Approach" or immediately in P&L A/c. Under IAS 19, the discount rate used to discount post employment benefit obligations should be determined by reference to market yields of high quality corporate bonds or, in case there is no deep market in such bonds, on the basis of market yields of Govt. bonds. Under IAS 19, the liability for termination benefits has to be recognized on constructive basis for e.g. Announcement of a formal plan. IAS 19 provides a choice to recognize the incremental liability on first time application either immediately in P&L or over a period of five years on SLM basis. |
Revised AS 15 (AS 15 ED) does not admit "Corridor Approach".
Exposure draft on revised AS 15 allows use of only market yields on Govt. bonds.
AS 15 ED requires an entity to follow AS 29 in this regard.
AS 15 ED requires adjustment against opening balance of revenue reserves. |
| Borrowing Costs :
IAS 23 prescribes borrowing costs to be recognized as expense as benchmark treatment. It requires capitalization as an allowed alternative. IAS 23 requires disclosure of capitalization rate used to determine the amount of borrowing costs. |
AS 16 mandates capitalization of borrowing costs.
AS 16 does not require such disclosure. |
| Segment Reporting:
IAS 14 prescribes treatment of revenue, expenses, profit/loss, assets and liabilities in relation to Associates & Joint Ventures in consolidated financial statements. IAS 14 encourages reporting of vertically integrated activities as separate segments but does not mandate the disclosure. IAS 14 provides that a business segment can be treated as reportable segment only if, inter alia, majority of its revenue is earned from sales to external customers. Under IAS 14, if a reportable segment ceases to meet threshold requirements, than also it remains reportable for one year if the Management judges the segment to be of continuing significance. In case of change in identification of segments, IAS 14 requires restatement of prior period segment information. In case it is not practicable, IAS 14 requires disclosure of data for both the old and new bases of segmentation. |
AS 17 is silent on the aspect of treatment in consolidated financial statements.
AS 17 does not make any distinction between vertically integrated segment and other segments AS 17 does not contain any such stipulation
Under AS 17, this is mandatory irrespective of the judgment of Management.
AS 17 requires only disclosure of the nature of the change and the financial effect of the change, if reasonably determinable. |
| IAS 24 Related Party Disclosures:
The definition of related party under IAS 24 includes Post employment benefit plans (e.g. gratuity fund, pension fund) of the enterprise or of any other entity, which is a related party of the enterprise. The definition of Key management persons (KMPs) under IAS 24 includes any director whether executive or otherwise i.e. Non-executive directors are also related party. Further, under IAS 24, if any person has indirect authority and responsibility for planning, directing and controlling the activities of the enterprise, he will be treated as a key management person (KMP) The definition of related party under IAS 24 includes close members of the families of KMPs as related party as well as of persons who exercise control or significant influence. IAS 24 requires compensation to KMPs to be disclosed category-wise including share-based payments.
IAS 24 mandates that no disclosure should be made to the effect that related party transactions were made on arms length basis unless terms of the related party transaction can be substantiated No concession is provided under IAS 24 where disclosure of information would conflict with the duties of confidentiality in terms of statute or regulating authority.
Under IAS 24, the definition of "control" is restrictive as it requires power to govern the financial and operating policies of the management of the enterprise The definition of "control" under IAS 24 is restrictive on the count that it does not include control over composition of Board of Directors
The disclosure requirement under IAS 24 are applicable when related party relationship exists as on the date of balance sheet
IAS 24 requires disclosure of terms and conditions of outstanding items pertaining to related parties. IAS 24 does not define "significant influence" which is to be considered while determining related party relationship. |
AS 18 does not include this relationship.
AS 18 read with ASI-18 excludes non-executive directors from the definition of key management persons.
AS 18 does not specifically cover indirect authority and responsibility.
AS 18 covers only relatives of KMPs
AS 18 read with ASI 23 requires disclosure of remuneration paid to key management persons but does not mandate category-wise disclosures. AS 18 contains no such stipulation.
AS 18 provides exemption from disclosure in such cases.
Under AS 18, the definition is wider as it refers to power to govern the financial and /or operating policies of the management.
AS 18 includes control over composition of Board of Directors in the definition of "control"
Under AS 18 the standard applies if related party relationship exists at any time during the year. No such disclosure requirement is contained in AS 18.
AS 18 prescribe a rebuttable presumption of significant influence if 20% or more of the voting any party holds power. |
| Leases :
Under IAS-17 it has been clarified that land and buildings elements of a lease of land and buildings need to be considered separately. The land element is normally an operating lease unless title passes to the lessee at the end of the lease term. The buildings element is classified as an operating or finance lease by applying the classification criteria.
The definition of residual value is not included in IAS 17. IAS 17 specifically excludes lease accounting for investment property and biological assets. IAS 17 does not prohibit upward revision in value of un-guaranteed residual value during the term of lease.
In case of sale & lease back, IAS 17 requires excess of sale proceeds over the carrying amount to be deferred and amortized over lease term. IAS 17 does not require any separate disclosure for assets acquired under finance lease segregated from assets owned. IAS 17 prescribes initial direct costs incurred by lessor to be included in lease receivable amount in case of finance lease and in the carrying amount of the asset in case of operating lease and does not mandate any accounting policy related disclosure. IAS 17 requires assets given on operating leases to be presented in the Balance Sheet according to the nature of the asset. |
AS-19 - " Accounting for Leases" at it stands at present does not deal with lease agreements to use lands. Hence, the classification criteria are applicable only to buildings as a separate asset. To be in line with IAS-17, a suitable modification is required in AS-19 to bring lease agreements for use of land within the purview and prescribe separate classification criteria for land as stated in revised IAS-17.
AS 19 defines residual value.
There is no such exclusion under AS 19.
AS 19 permits only downward revision
AS 19 requires excess or deficiency both to be deferred and amortised over the lease term in proportion to the depreciation of the leased asset. AS 19 mandates such separate disclosure.
AS 19 requires initial direct cost incurred by lessor to be either charged off at the time of incurrence or to be amortised over the lease period and requires disclosure for accounting policy relating thereto in the financial statements of lessor. AS 19 requires assets given on operating lease to be presented in Balance Sheet under Fixed Assets. |
| Earnings per Share (EPS):
IAS 33 requires separate disclosure of basis and diluted EPS for continuing operations and discontinued operations. IAS 33 deals with computation of EPS in case of Share based payment transactions. IAS 33 prescribes treatment of written put options and forward purchase contracts in computing EPS. IAS 33 requires changes in accounting policy to be given retrospective effect for computing EPS, which means EPS to be adjusted for prior periods presented. IAS 23 does not require disclosure of EPS with and without extra-ordinary item
IAS 33 does not deal with the treatment of application money held pending allotment.
IAS 33 requires disclosure of anti-dilutive instruments even though they are ignored for the purpose of computing dilutive EPS. IAS 33 does not require disclosure of normal face value of share |
AS 20 does not requires any such separate computation or disclosure.
AS 20 does not contain any such provision.
AS 20 is silent on this aspect.
AS 20 does not prescribe such treatment.
AS 20 requires EPS / DPS with and without extra-ordinary items to be disclosed separately. Under AS 20, application money held pending allotment should be included in the computation of diluted EPS. AS 20 does not mandate such disclosure.
Disclosure of normal face value is required under AS 20. |
| Consolidated Financial Statements (CFS):
Under IAS 27, it is mandatory to prepare CFS and an entity should prepare separate financial statements in addition to CFS only if local regulations so require. Under IAS 27, exemption from preparation from CFS if certain conditions are fulfilled. Under IAS 27, a subsidiary cannot be excluded from consolidation under any circumstances.
Under IAS 27 while determining whether entity has power to govern financial and operating policies of another entity, potential voting rights currently exercisable should be considered. Under IAS 27, the definition of "control" is restrictive as it requires power to govern the financial and operating policies of the management of the enterprise Use of uniform accounting policies for like transactions while preparing CFS is mandatory under IAS 27. Under IAS 27, minority interest has to be disclosed within equity but separate from parent shareholders equity. Under IAS 27, Goodwill / capital reserve on consolidation is computed on fair values of assets / liabilities
Under IAS 27, 3 months' time gap is permitted between Balance Sheet dates of financial statements of subsidiary and parent. IAS 27 prescribes that deferred tax adjustment as per IAS 12 should be made in respect of timing difference arising out of elimination of unrealised profit. IAS 27 requires drawing up of financial statements as on the date of acquisition for computing parent's portion of equity in a subsidiary.
IAS 27 does not require additional disclosure of list of all subsidiaries including the name, country of incorporation, proportion of ownership interest and if different, proportion of voting power held. |
Under AS 21, it is not mandatory to prepare CFS.
There is no such exemption under AS 21.
Under AS 21, a subsidiary can be excluded from consolidation if (1) the subsidiary is acquired and held with an intention to dispose; or (2) the subsidiary operates under severe long term restrictions impairing its ability to transfer funds to parent. AS 21 does not provide for such eventuality.
Under AS 21, the definition is wider as it refers to power to govern the financial and /or operating policies of the management.
AS 21 gives exemption from following uniform accounting policies if the same is not practicable Under AS 21, minority interest has to be separately disclosed from liability and equity of parent shareholder. Under AS 21, Goodwill / capital reserve on consolidation is computed on the basis of carrying value of assets/ liabilities.
Under AS 21, six months time gap is allowed.
AS 21 is silent on this aspect.
Under AS 21, for computing parent's portion of equity in a subsidiary at the date on which investment is made, the financial statements of immediately preceding period can be used as a basis of consolidation if it is impracticable to draw financial statement of the subsidiary as on the date of investment. AS 21 requires additional disclosure of list of all subsidiaries including the name, country of incorporation, proportion of ownership interest and if different, proportion of voting power held. |
| Accounting for Taxes on Income:
IAS 12 is based on Balance Sheet approach and therefore temporary difference (for e.g. Difference on any upward revaluation of assets, leads to creation of deferred tax liability) Under IAS 12, deferred tax liability for differences associated with investments in subsidiaries, associates and Joint Ventures may not be provided, if the parent is able to control the timing of reversal and it is probable that difference will not reverse in foreseeable future. |
AS 22 is based on income statement approach and only timing differences leads to creation of deferred tax asset or liability. AS 22 provides no such exception as it does not deal with temporary differences |
| Accounting for Associate in Consolidated Financial Statement:
Under IAS-28, Potential voting rights currently exercisable to be considered in assessing significant influence. As per IAS 28, difference between Balance sheet date of investor and associate can not be more than three month. In case uniform accounting policies are not followed by investor & Investee, necessary adjustments have to be made while preparing consolidated financial statements of investor. While recognizing losses of associates / joint ventures under IAS 28, carrying amount of investment in equity and other long term interests to be considered For identification of goodwill / capital reserve, IAS-28 envisages net fair value basis on acquisition
Under IAS 28 it is necessary to subject the investments in associates / joint ventures to the test of impairment. While defining Significant influence under IAS 28 participation in the financial and operating policy decisions is envisaged. |
AS-23 is silent on this.
Under AS 23, no period is specified. Only consistency is mandated
Under AS 23, if it is not practicable to make such adjustments, exemption is given, provided appropriate disclosures are made.
Under AS 23, losses are to be recognised to the extent of investment plus incurred obligations plus payments made towards guaranteed obligations. AS-23 prescribes historical cost basis on acquisition , for computation of goodwill. If decline in value of investment in an associate is permanent, provision for diminution to be made. Impairment testing is not required under AS 23. As per AS-23, participation in the financial and / or operating policy decisions is required |
| Interim Financial Reporting:
Under IAS 34, minimum components of Interim Financial Report includes - Statement showing changes in Equity Under IAS 34, in case of any change in accounting policy, figures of prior interim periods of the current financial year and comparable figures of corresponding previous periods to be restated. Under IAS 34, separate guidance is available for treatment of Provision for Leave encashment, Interim Period Manufacturing Cost Variances, Foreign Currency Translation Gains and Losses. |
No such disclosure is required under AS 25.
AS 25 requires restatement of figures of prior interim periods of the current financial year only
AS 25 does not address these issues specifically. |
| Intangible Assets:
There is no presumption under IAS 38 as regards useful life of an intangible asset
IAS 38 does not exclude intangible assets arising in insurance enterprise from contract with policy holder Under IAS 38, intangible assets having "Indefinite useful life" cannot be amortized. Indefinite useful life means where, based on analysis, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflow for the entity. Indefinite is not equal to Infinite. Such assets should be tested for impairment at each Balance sheet date and separately disclosed IAS 38 does not require any impairment testing if there are no indications of impairment.
Under IAS 38, if Intangible Asset is 'held for sale' then amortization should be stopped. Under IAS 38, R&D expenditure that relates to an in process R&D project acquired separately or in a business combination shall be accounted as per normal principles considering the research phase and development phase. Under IAS 38, Revaluation Model is allowed for accounting Intangible Asset provided active market exists. |
Under AS 26, there is a rebuttable presumption that the useful life of intangible assets will not exceed 10 years.
Intangible assets arising in insurance enterprise from contract with policyholder are excluded from scope of AS-26.
There is no such restriction in AS 26
AS 26 requires test of impairment to be applied even if there is no indication of that the asset is impaired for following assets:
-Intangible asset not yet available for use
-Intangible asset amortised over > 10 years. There is no such stipulation under AS 26.
AS 26 is silent on this.
AS 26 does not permit revaluation model. |
| Financial Reporting of Interests in Joint Ventures:
Under IAS 31, when the investments are made by venture capital organization, mutual funds, unit trusts and similar entities when those investments are classified as held for trading and accounted for as per IAS 39. IAS 31 not to apply if parent is exempt from preparing CFS under IAS 27. Similar exemption for investor satisfying same conditions as parent. IAS 31 permits both proportionate consolidation method and equity method for recognizing interest in a jointly controlled entity in CFS. Equity method prescribed in
IAS 31 is similar to that prescribed in AS 23. |
There is no such provision under AS 27.
There is no such specific provision under AS 27.
AS 27 permits only proportionate consolidation method. |
| Impairment of Assets:
Under IAS 36, for determining net selling price, cost of disposal to be reduced only in cases where asset is intended to be disposed off. IAS 36 does not permit reversal of impairment losses. IAS 36 suggests only bottom-up approach for allocation of goodwill in case of a cash-generating unit. |
AS 28: For determining net selling price, cost of disposal to be reduced from fair value of assets in all cases.
AS 28 permits reversal of impairment losses.
AS 28 allows both bottom up and top down Methods |
| Provisions, Contingent Assets and Contingent Liabilities
IAS 37 permits discounting of provisions. IAS 37 requires that provisions for onerous contracts to be recognized IAS 37 requires provisioning on the basis of construction obligation on restructuring. IAS 37 requires disclosure of Contingent Assets in Financial Statements. IAS 37 provides certain basis and statistical methods to be followed for arriving at the best estimate of the expenditure for which provision is recognised. IAS 37 defines only obligation but does not define present obligation and possible obligation |
AS 29 does not permit any discounting AS 29 does not mandate it.
AS 29 prohibits the same.
AS 29 allows such disclosure only in approving authority report. AS 29 does not contain any such guidance and relies on judgement of management.
AS 29 defines present obligation and possible obligation as well. |
CONCLUSION:
The forces of globalisation prompt more and more countries to open their doors to foreign investment and as businesses expand across borders the need arises to recognise the benefits of having commonly accepted and understood financial reporting standards. In this scenario of globalisation, India cannot insulate itself from the developments taking place worldwide. In India, so far as the ICAI and the Governmental authorities such as the National Advisory Committee on Accounting Standards established under the Companies Act, 1956, and various regulators such as Securities and Exchange Board of India and Reserve Bank of India are concerned, the aim has always been to comply with the IFRSs to the extent possible with the objective to formulate sound financial reporting standards. The ICAI, being a member of the International Federation of Accountants (IFAC), considers the IFRSs and tries to integrate them, to the extent possible, in the light of the laws, customs, practices and business environment prevailing in India. The Preface to the Statements of Accounting Standards, issued by the ICAI, categorically recognises the same. Although, the focus has always been on developing high quality standards, resulting in transparent and comparable financial statements, deviations from IFRSs were made where it was considered that these were not consistent with the laws and business environment prevailing within the country. Now, as the world globalises, it has become imperative for India also to make a formal strategy for convergence with IFRSs with the objective to harmonise with globally accepted accounting standards.
In future, the Indian accountancy profession is expected to play a significant role not only in Indian financial reporting system but also in international financial reporting. This process has already begun, eg: to play an influential role in formulation of IFRSs before their finalisation, incisive comments are being submitted to IASB on their consultative documents.
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