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IFRS Transition – Our Current and New Framework

IFRS Transition – Our Current and New Framework. IBA Workshop ‘IFRS – The Way Ahead’. Presented by CA Vidhyadhar Kulkarni UBS AG, Mumbai Branch

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IFRS Transition – Our Current and New Framework

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  1. IFRS Transition – Our Current and New Framework IBA Workshop ‘IFRS – The Way Ahead’ Presented by CA Vidhyadhar Kulkarni UBS AG, Mumbai Branch (This presentation was produced solely by CA Vidhyadhar Kulkarni. The opinions expressed herein do not necessarily reflect the views and opinions of UBS. UBS accepts no responsibility for the accuracy, reliability or completeness of the information and will not be liable either directly or indirectly for any loss or damage arising out of the use of this presentation or part thereof) August 07, 2009

  2. Agenda SECTION 1 Indian GAAP -Current Framework SECTION 2 International Framework (IFRS)-Background & New Era SECTION 3 IFRS Convergence Approach SECTION 4 The Task Ahead- How well are we prepared? Overall objective of this session is to summarize the background of Indian accounting standards and financial reporting framework–current one and the proposed one

  3. Current Framework for banks – Who are the key authorities here ? • Overall there is a well balanced framework to take care of all stakeholders. • Indian AS’s have generally been in line with IFRS principles or concepts, definitely so in case of recent standards.

  4. International Framework – Background and New Era Who issues the international standards ? • International standards are issued by the International Accounting Standards Board (IASB) of ‘IASC Foundation’. • IASC Foundation refers to ‘International Accounting Standards Committee Foundation’ which is a ‘not-for-profit’ corporation incorporated in USA but primarily operates from London, UK. What is the genesis of the international standards? • Recognizing the need for international harmonization of accounting standards, way back in 1973, professional accountancy bodies of leading economies such as UK, USA, Japan, Germany, Canada, Australia etc. established an international body called ‘International Accounting Standards Committee (IASC)’. • Accounting standards were issued by Board of IASC and were titled as ‘International Accounting Standards (IAS)’. Dawn of New Era – Year 2001 • However, there was emergence of country level accounting standards called National GAAPs (generally accepted accounting principles) e.g. UK GAAP, US GAAP, Indian GAAP and so on. Over a period of time, there were many gaps between these country level GAAPs. • As a result, around the year 2000, the international fraternity of Accountants did a thorough introspection and decided to revise the whole international framework as follows: • IASC Foundation was established. • Standards setting body was renamed as ‘International Accounting Standards Board (IASB)’. • Title of new standards issued was changed to ‘International Financial Reporting Standards (IFRS)’. Note :there are certain standards with title ‘IAS’ still valid, of course there are revisions/refinements in those.

  5. International Framework – Background and New Era What does the term ‘IFRS’ denote ? Strictly speaking, the term ‘IFRS’ denotes the following pronouncements under International GAAP: • International Financial Reporting Standards (IFRS) • International Accounting Standards (IAS) those which are still valid • Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the Standing Interpretation Committee (SIC). However, in practice IFRS is interchangeably used to denote individual accounting standards as well as International GAAP collectively. 21st century has ushered in a Golden Era for IFRS. The notable events are: A) Adoption of IFRS by EU for listed companies from 1st January 2005 B) China adopting accounting standards substantially in line with IFRS in 2006 C) US SEC removing reconciliation requirement for non-US companies in 2007 D) Brazil, Canada, India, Japan establishing IFRS convergence timelines in 2007

  6. International Framework – Governance overview ? Monitoring Board Trustees IASB (International Accounting Standards Board) IFRIC (International Financial Reporting Standards Interpretation Committee) SAC (Standards Advisory Council)

  7. IFRS Convergence Timeline and its Approach in India India‘s accounting standard setters and the Central Government have selected ‘IFRS’ as our new framework and announced the adoption date as 1st April 2011. • In toto-adoption (‘Auto Mode’) i.e. simply start using IFRSs from a selected date and depend entirely on IASB for formulating standards • Carve out approach i.e. review IFRSs issued by IASB, carve out sections not required and endorse rest of the IFRSs for local use (approach followed by European Union) • Local equivalents approach i.e. develop & roll out IFRS equivalent Local Accounting Standards (Approach followed some countries e.g. Australia) What are the adoption approaches available? Approach chosen by us ? Option (3) above. It is stated that local accounting standard setters will bear in mind that the above approach ensures ‘unreserved’ statement of compliance with IFRSs.

  8. The task ahead – how well are we prepared? We have a ‘Marathon’ ahead Accounting Standards Setters – ICAI, NACAS • There are many Indian standards which have major differences with IFRSs. The key ones are: • AS 1 (IAS 1) – Disclosure of accounting policies, AS 10 (IAS 16 ) – Accounting for fixed assets • AS 22 (IAS 12) – Accounting for taxes on income, AS 17 (IFRS 8) – Segment reporting • AS 9 (IAS 18)- Revenue recognition, AS 11 (IAS 21- The effects of changes in foreign exchange rates , AS 14 (IFRS 3) – Accounting for amalgamations, AS 19 (IAS 17) – Leases, AS 15 (IAS 19) – Employee Benefits, AS 28 (IAS 36) – Impairment of assets • There are few IFRSs where either Indian standards are under preparation or have not yet come into force. These include a few critical ones relating to financial instruments AS 30 (IAS 39), AS 31 (IAS 32), AS 32 (IFRS 7) & AS xx (IAS 40) – Investment properties • Framework for the preparation and presentation of financial statements needs alignment with IFRS Legal and Regulatory Framework • Major alignments required in the legal and regulatory framework • Banking Regulations Act 1949 & RBI circulars • Companies Act 1956 Industry -Preparers and Users of F/S • Need a focussed approach and sensitization at all levels of the organization • However, in the corporate world, some signs of ‘Enthusiasm and Leadership’ visible by early adoption of standards on financial instruments viz. AS 30/31 (e.g. Infosys, )

  9. The task ahead –what is required to win the Marathon? Teamwork& Partnership required within each bank and among all external stakeholders

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