IFRS
CONVERGENCE TO IFRS FROM INDIAN GAAPIMPACT AND CHALLENGES
PRESENTED BY 1
IFRS NOMAN AGASHIWALA (PG-FIN) 03
CONVERGENCE TO IFRS FROM INDIAN GAAPIMPACT AND CHALLENGES
A PROJECT SUBMITTED IN THE PARTIAL FULFILLMENT OF THE POST GRADUATE DIPLOMA IN MANAGEMENT TO THAKUR INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH BY Mr. NOMAN AGASHIWALA PGDM –FINANCE 2008-10 UNDER THE GUIDANCE OF PROF. JYOTI NAIR
THAKUR INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH 2
IFRS
KANDIVALI (MUMBAI)
CERTIFICATE This is to certify that the study presented by Mr. NOMAN I. AGASHIWALA to THAKUR INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH in the partial fulfillment of the POST GRADUATE DIPLOMA IN MANAGEMENT
CONVER ERGE GENC NCE E TO IFRS IFRS FR FROM OM INDI INDIAN AN GAAP GAAP-- IMPA IMPACT CT AND AND under CONV CHALLENGES has been done under my guidance in the year 2008-10
The project is in the nature of original work. Reference work and relative sources of information have been given at the end of the project.
Signature of the Candidate
Forwarded through Research Guide JYOTI NAIR
3
IFRS
TABLE OF CONTENTS
Background of IFRS........ ................ ............... ............... ................ ................ ............... ............... ................ .............. .......... ........ ........ ........ ........ ...... .. 11 Scope of IFRS......... .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. ................. ................. .................. .................. ........... 12 .. Benefits Benefi ts of IFRS............................. ............................................... ..................................... ..................................... .................................... ................................................ .............................. 19 Adoption Adop tion of IFRS........................... ............................................. .................................... .................................... .................................... ............................................ .......................... ..... 21 Challenges of IFRS......... .................. .................. .................. .................. .................. .................. .................. ................. ................. .................. .................. .................. ................ ............ .....24 There are several impediments and practical challenges to adoption of and full compliance with IFRS in India. Indi a. These are:......................... ............................................ ..................................... .................................... .................................... ................................................ .............................. ..... 24 The need for a change in several laws and regulations governing financial accounting and reporting in India. In addition to accounting standards, there are legal and regulatory requirements that determine the manner in which financial information is reported or presented in financial statements. For example, the Companies Act, 1956 determines the classification and accounting treatment for redeemable preference shares as equity instruments of a company, whereas these may be considered to be a financial liability under IFRS. The Companies Act (Schedule VI) also prescribes the format for presentation of financial statements for Indian companies, whereas the presentation requirements are significantly different under IFRS. Similarly, the Reserve Bank of India regulates the financial reporting for banks and other financial institutions, including the presentation format and accounting treatment for certain types of transactions................... transactions. .................................... ..................................... ..................................... ...................................................... ....................................24 The recent announcement by the MCA is encouraging as it indicates government support for the timetable for convergence with IFRS in India. However, the announcement stops short of endorsing the roadmap for convergence and the full adoption of IFRS that is discussed in I CAI's concept paper. In the absence of adequate clarity and assurance that Indian laws and regulations will be amended to conform to IFRS, the conversion process may not gain momentum..................................................................... momentum. ....................................................................24 24 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 corporate 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 would involve a fundamental change to a n 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
4
IFRS need to disseminate and embed IFRS knowledge throughout throughout the organization to ensure its application on an ongoing basis.................... basis. ..................................... .................................... .................................... ..................................... ................................................. .............................. ..... 25 Another potential pitfall is viewing IFRS accounting rules as "similar" to Generally Accepted Accounting Principles in India (Indian GAAP), since Indian accounting standards have been formulated on the basis of principles in IFRS. However, this view disregards significant differences between Indian GAAP and IFRS as well as differences in practical implementation and interpretation of similar standards. Further, certain Indian standards offer accounting policy choices, which are not available under IFRS, for example, use of pooling of interest method in accounting for business combinations. . 25 There is an urgent need to address these challenges and work towards full adoption of IFRS in India. The most significant need is to build adequate IFRS skills and an expansive knowledge base amongst Indian accounting professionals to manage the conversion projects for Indian corporates. Leveraging the knowledge and experience gained from IFRS conversion in other countries and incorporating IFRS into the curriculum for professional accounting courses can do this. ......................................................25 25 Ultimately, it is imperative for Indian corporates to improve their preparedness for IFRS adoption and get the conversion process right. Given the current market conditions, any restatement of results due to errors in the conversion process would be detrimental to the company involved and would severely damage investor confidence in the financial system. .............................................................................26 .............................................................................26 Cost Formu Formulae lae................. .................................... ..................................... .................................... .................................... .................................... ................................. ............... ............. 51 Consistency of cost formulae for similar inventories inventories........ ................. .................. .................. .................. .................. .................. ................. ........ ..... ........ ...51 51 Standard Stand ard................... ..................................... .................................... .................................... .................................... ..................................... ..................................... .................................... .................. 52 Cash and Cash equiv equivalen alents ts.................. ..................................... ..................................... .................................... ............................................................. ...........................................52 . Format and content of cash flow flow statement......... .................. .................. .................. .................. .................. .................. .................. .................. ................ ............ .....52 52 Cash flows associated with extraordinary items......... .................. .................. .................. .................. .................. ................ ............ .......... .......... .......... ......... ....52 52 Disclosure of interest paid and received......... .................. .................. .................. .................. .................. .................. .................. ......... ..... .......... .......... .......... .......... .....52 52 Disclosure of dividend paid......... .................. .................. .................. .................. .................. .................. .................. .................. .................. ................. ............ ......... .......... ......... ....53 Disclosure of dividend received........ ................. .................. .................. .................. .................. .................. .................. .................. ................. ................. .................. ............. ....53 53 Disclosure of taxes paid........ ................. .................. .................. .................. .................. .................. .................. .................. .................. ................. ................. ................. ............ ........ ....53 Disclosure of cash payments........ ................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. ............... ........ ..53
Particulars............................................... .......................................................................... ..................................................... ...................................... ..............53 Particulars............................................... .......................................................................... ..................................................... ...................................... ..............53 Standard Stand ard................... ..................................... .................................... .................................... .................................... ..................................... ..................................... .................................... .................. 54 Standard Stand ard................... ..................................... .................................... .................................... .................................... ..................................... ..................................... .................................... .................. 55 5
IFRS Revenue Definition......... .................. .................. .................. ................. ................. .................. .................. .................. .................. .................. .................. .................. ............... .......... ....... ...55 (*)Termination Benefits......... .................. .................. .................. .................. .................. .................. ................. ................. .................. .................. .................. .................. ............... ......61 Basic EPS................. .................................... ..................................... .................................... .................................... .................................... ..................................................... ................................... 67 Consolidated Financial Statements –......... .................. .................. .................. .................. .................. .................. .................. ............... ........... .......... .......... .......... .....68 68 Fringee Benef Fring Benefit it tax................................ .................................................. .................................... ..................................... ..................................... ............................................ ..........................72 Scope................ .................................. .................................... .................................... ..................................... ..................................... .................................... ........................................... ......................... 73 Discontinuing Operations –........ ................. .................. .................. .................. .................. .................. .................. .................. ................. ............. .......... .......... .......... ......... ....74 74 Intangible Assets –......... .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. ............... ......... ...75 Usefull life................... Usefu ..................................... .................................... .................................... .................................... ..................................... ..................................... ............................... ............. 75 .. (*)Contin (*)Co ntingent gent asse assets ts.................. .................................... ..................................... ..................................... .................................... ............................................ .......................... ..........79 (*)Restruc (*)Re structurin turing g cost.................. .................................... .................................... .................................... .................................... ................................................. ............................... .....79
Optional exemption exemptions s........ ................ ............... ............... ................ ............... ............... ................ ................ ............. ......... ........ ........ ........ ........ ...... .. 94 Mandatory Manda tory excep exceptions tions .................. .................................... .................................... .................................... ..................................... ..................................... ............................. ...........98
6
IFRS
ACKNOWLEDGEMENT
It gives me great pleasure to present before you, my final project report for the year 2008-2010.
I express my gratitude towards our director Mrs. Mrinalini Kohojkar, for giving us an opportunity to work on this report.
I take this opportunity to thank our respected project guide Prof. Jyoti Nair, for giving us an opportunity to undertake this project. Her guidance has been invaluable to me to while preparing this report. She provided us with valuable suggestions and excellence guidance about this industry, which proved very help helpfu full to me and help helped ed me to gain gain theo theore reti tica call knowl knowled edge ge as well well as experience in the practical field.
Last but not the least, I am also thankful to CA Nikhil Joganputra for his valu valuabl able e insi insigh ghts ts and and sh shar arin ing g his his expe experi rien ence ce on thes these e topi topic, c, and and to my friend friends, s, to all known known and unknow unknown n indivi individual duals s who have given given me their their cons constr truc ucti tive ve advi advise se,, su sugg gges esti tion ons, s, enco encour urag agem emen ent, t, co-o co-ope pera rati tion on and and motivation to prepare this report.
-
Noman Agashiwala
(Thakur Institute of Management Studies and Research PG) 7
IFRS
EXECUTIVE SUMMARY The The Inte Intern rnat atio ional nal Finan Financi cial al Repo Report rtin ing g Stand Standar ards ds (IFR (IFRSs Ss)) issue issued d by the the Intern Internati ationa onall Accoun Accountin ting g Standa Standards rds Board Board (IASB) (IASB) are incre increasi asingl ngly y being 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 IFRS. Laying down a roadmap for achieving convergence with the IFRSs with a view
to make India IFRS-compliant.
And also to study impact and challenges India will face to converge with IFRS.
Keeping in view the complex nature of IFRSs and the extent of differences betwee between n the existi existing ng ASs and the corres correspon pondin ding g IFRSs IFRSs and the reasons reasons therefore, the ICAI is of the view that IFRSs should be adopted for the public intere interest st entiti entities es such such as lis listed ted entiti entities, es, banks banks and ins insura urance nce entiti entities es and large-sized entities from the accounting periods beginning on or after 1st April, 2011.
In order to get more clarity on these issues, we have taken example of NACIL (National Aviation Company India Ltd.).Project studied the present accounting procedure in NACIL and steps taken by them for converging with IFRS. 8
IFRS
ACCOUNTING STANDARDS----OVERVIEW STANDARDS----OVERVIEW A financial reporting system supported by strong governance, high quality stan standa dard rds, s,
and and
fir firm
regul egulat ator ory y
fram framew ewor ork k
is
the the
key key
to
eco econom nomic
development. Indeed, sound financial reporting standards underline the trust that that inve invest stor ors s plac place e in finan financi cial al repo report rtin ing g info inform rmat atio ion n and and thus thus play play an important role in contributing to the economic development of a country. The Inst Instit itut ute e of Char Charte tere red d Ac Acco coun unta tant nts s of Indi India a (ICA (ICAI) I) as the the acco accoun unti ting ng stand standar ards ds-f -for ormu mula lati ting ng body body in the the coun countr try y has alwa always ys made made effo effort rts s to formul formulate ate high high qualit quality y Accoun Accountin ting g Standar Standards ds and has been been succes successfu sfull in doing so. Indian Accounting Standards have withstood the test of time. As the worl world d
cont contin inue ues s
to glob global aliz ize, e, disc discus ussi sion on on conv conver erge genc nce e
of nati nation onal al
acco accoun unti ting ng stand standar ards ds with with Inte Intern rnat atio ional nal Fina Financ ncia iall Repo Report rtin ing g Stan Standar dards ds (IFRSs)1 has increased significantly.
The forces of globalization prompt more and more countries to open their doors to foreign investment and as businesses expand across borders the need need arises arises to recogn recognize ize the benefi benefits ts of having having common commonly ly accept accepted ed and understood understood financial reporting reporting standards. standards. In this scenario scenario of globalizati globalization, on, India cannot insulate itself from the developments taking place worldwide. In Indi India, a, so far far as the the ICAI ICAI and the the Gove Govern rnme ment ntal al auth author orit itie ies s su such ch as the the National Advisory Committee on Accounting Standards established under the Comp Compan anie ies s Ac Act, t, 19 1956 56,, and and vari variou ous s regu regula lato tors rs su such ch as Secu Securi riti ties es and 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 9
IFRS 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, Standards, issued by the ICAI, categorically recognizes the same. Although, the focus has always been on developing high quality standards, resul resultin ting g in transp transpare arent nt and compar comparabl able e financ financial ial statem statement ents, s, deviat deviation ions s from from IFRS IFRSs s were were made made wher where e it was was cons consid ider ered ed that that thes these e were were not not consist consistent ent with with the laws laws and busines business s enviro environme nment nt prevai prevailin ling g within within the country. Now, as the world globalizes, it has become imperative for India also to make a formal strategy for convergence with IFRSs with the objective to harmonize with globally accepted globally accepted accounting standards. standards.
10
IFRS
INTRODUCTION TO IFRS Background of IFRS Users of financial statements have always demanded transparency in financial reporting and disclosures. However, the willingness and need for bet better ter
disc discllosur osure e
prac practi tice ces s
have ave
int intensi ensifi fied ed
onl only
in
rece recent nt
tim times. es.
Globalization has helped Indian Companies raise funds from offshore capital markets. This has required Indian companies, desirous of raising funds, to follow the Generally Accepted Accounting Principles (GAAP) of the investing countr country. y. The differ different ent dis disclo closur sure e requir requireme ements nts for lis listin ting g purpos purposes es have have hindered the free flow of capital. This has also made comparison of financial state stateme ment nts s acro across ss the the glob globe e impo impossi ssibl ble. e. An Inte Intern rnat atio ional nal body body call called ed International Organization of Securities Commissions (IOSCO), to harmonize diver diverse se dis disclo closur sure e practi practices ces follow followed ed in differ different ent countr countries ies initia initiated ted a movement. The capital market regulators have now agreed to accept IFRS (International Financial Reporting Standards) compliant financial statements as admissible for raising capital. This would ease free flow of capital and reduce costs of raising capital in foreign currencies. Most jurisdictions that report under IFRS, including the EU, mandate the use of IFRS only for the listed companies. However, in INDIA, IFRS would apply to a wider group of entities than their international counterparts. This is prim primar aril ily y beca becaus use e of a larg large e numb number er of priv privat ate e ente enterp rpri rise ses s gett gettin ing g cove covere red d unde underr the the size size crit criter eria ia base based d on thei theirr turn turnov over er and/ and/or or thei theirr borr borrow owin ing. g. Comp Compani anies es also also may may need need to conv conver ertt to IFRS IFRS if they they are are a subs su bsid idia iary ry of a fore foreig ign n comp company any that that must must use IFRS, IFRS, or if they they have have a foreign investor that must use IFRS. The policy makers in India have also realized the need to follow IFRS and and it is expe expect cted ed that that a larg large e numb number er of Indi Indian an comp compani anies es woul would d be requir required ed to follow follow IFRS from from 20 2011 11.. This This poses poses a great great challe challenge nge to the makers of financial statements and also to the auditors. 11
IFRS
Meaning of IFRS Inte Intern rnat atio iona nall
Fina Financ ncia iall
Repo Report rtin ing g
Stan Standa dard rds s
(IFR (IFRS) S) is a
set set
of
accounting standards, developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. IFRS is a principles-based accounting system system,, meani meaning ng it is object objectiv ive-o e-orie riente nted d allowi allowing ng for more more presen presentat tation ion freedom.
Objectives of IFRS
to develop develop, in the the publ public ic inte intere rest, st, a sing single le set set of high high qual qualit ity, y, understandable and enforceable global accounting standards that requir require e high high quali quality, ty, transp transpare arent nt and compar comparabl able e inform informati ation on in fina financ ncia iall
stat statem eme ents nts
and and
other ther
fina financ nciial
repo eporting ting
to
hel help
participants in the world's capital markets and other users make economic decisions;
to promote the use and rigorous application of those standards;
in fulfilling the objectives associated with (1) and (2),
to take account of, as appropriate, the special needs of small and medium-sized entities and emerging economies.
to bring about convergence of national accounting standards and Inte Intern rnat atio iona nall
Acco Ac coun unti ting ng
stan standa dard rds s
and and
IFRS IFRS
to high high
qual qualit ity y
solutions.
Scope of IFRS 1.
IASB Sta Standard ards are kno known as International Fi Financ ancial Rep Reporting
Standards (IFRS’s). 2.
All All Int Inter erna nati tion onal al Ac Acco coun unti ting ng Stan Standa dard rds s ((IA IAS’ S’s) s) and and Int Inter erpr pret etat atio ions ns
issued by the former IASC and SIC continue to be applicable unless and until they are amended or withdrawn. 3.
IFRS’s apply to the general-purpose financial statements and
other financial reporting by profit-oriented entities -- those engaged in 12
IFRS commercial, industrial, financial, and similar activities, regardless of their legal form. 4.
Enti Entiti ties es othe otherr tha than n pro profi fitt-or orie ient nted ed busi busine ness ss enti entiti ties es may may als also o fin find d
IFRSs appropriate. 5.
General-pu -purpose financ ancial st sta atements are are int intended to meet th the e
common needs of shareholders, creditors, employees, and the public at large for information about an entity's financial position, performance, and cash flows. 6.
Other her fina financ nciial rep repo orting ting inc inclu lude des s in infforma ormati tion on pr provid ovide ed outs outsid ide e
financial statements that assists in the interpretation of a complete set of fina financ ncia iall stat statem emen ents ts or impr improv oves es us user ers' s' abil abilit ity y to make make effi effici cien entt economic decisions. 7.
IFRS apply to individual company and consolidated financial
statements. 8.
A com compl plet ete e se set of of fi financ nanciial stat statem eme ents nts inc inclludes udes a bal balan ance ce shee heet,
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. 9.
If an an IFR IFRS S al allows ows bot both h a 'be 'benc nchm hmar ark' k' and and an an 'al 'alllowed owed alt alternati nativ ve'
treatment, financial statements may be described as conforming to IFRS whichever treatment is followed. 10.
In deve develo lopi ping ng Stan Stand dards ards,, IASB IASB int inte ends nds not to to per permit cho choic ices es in in
accounting treatment. Further, IASB intends to reconsider the choices in existing IASs with a view to reducing the number of those choices. 11.
The provision of IAS 1 that conformity with IAS requires
comp compli lian ance ce with with ever every y appli applicab cable le IAS IAS
and and
Inte Interp rpre reta tati tion on requ requir ires es
compliance with all IFRSs as well.
13
IFRS Pronouncements of IFRS
International Financial Reporting Standards (IFRS) Firs Firstt-ti time me Ad Adop opti tion on of Inte Intern rnat atio ional nal Finan Financi cial al Repo Report rtin ing g IFRS 1 Standards IFRS 2 Share-based payment IFRS 3 Business Combinations (Revised) IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for Sale and a nd Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures IFRS 8 Operating Segments International Accounting Standards (IAS) IAS 1 Presentation of financial statements (Revised) IAS 2 Inventories IAS 7 Cash Flow Statements Accoun Accountin ting g Polici Policies, es, Change Changes s in Accoun Accountin ting g Estima Estimate tes s and IAS 8 Errors IAS 10 Events after the balance sheet date IAS 11 Construction Contracts IAS 12 Income Taxes IAS 16 Property, Plant and Equipment IAS 17 Leases IAS 19 Employee Benefits Acco Ac coun untting ing for for gove goverrnmen nmentt Gran Grantts and and Disc Disclo losu surre of IAS 20 Government Assistance IAS 21 The Effects of Changes in Foreign Currency Rates IAS 23 Borrowing Costs (Revised) IAS 24 Related Party Disclosures IAS 26 Accounting and Reporting by Retirement Benefit Plans IAS 27 Consolidated and Separate Financial Statements Sta tements (Revised) IAS 28 Investments in Associates IAS 29 Financial Reporting in Hyperinflationary Economies IAS 31 Interests in Joint Ventures IAS 32 Financial Instruments: Presentation IAS 33 Earnings per share IAS 34 Interim Financial Reporting IAS 36 Impairment of Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 Intangible Assets 14
IFRS IAS 39 IAS 40 IAS 41
Financial Instruments: Recognition and Measurement Investment Property Agriculture
International Financial Reporting Interpretation Committee (IFRIC) Changes in Existing Decommissioning, Restoration and Similar IFRIC 1 Liabilities Memb Membe ers Shar Share es in Co-o Co-ope perrati ative Ent Entitie ities s and Sim Similar IFRIC 2 Instruments IFRIC 4 Determining whether an Arrangement contains a Lease Rights to Interests arising from Decommissioning, Restoration IFRIC 5 and Environmental Rehabilitation Funds Liabil Liabiliti ities es arisin arising g from from Partic Participa ipatin ting g in a Specif Specific ic Market Market IFRIC 6 Waste Electrical and Electronic Equipment Applying Applying the Restatement Restatement Approach under IAS 29 Financial Financial IFRIC 7 Reporting in Hyperinflationary Economies IFRIC 8 Scope of IFRS 2 IFRIC 9 Reassessment of Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment IFRIC 11 IFRS 2 - Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements IFRIC 13 Customer Loyalty Programmes IAS IAS 19 - The The Limi Limitt on a defi define ned d Bene Benefi fitt As Asse set, t, Mini Minimu mum m IFRIC 14 Funding Requirements and their Interaction IFRIC 15 Agreements for the Construction of Real Estate IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 17 Distributors of Non-cash Assets to Owners IFRIC 18 Transfers of assets from customers Standard Interpretation Committee (SIC) SIC 7 Introduction of the Euro Govern Governmen mentt Ass Assist istanc ance e - No specif specific ic Relati Relation on to operat operating ing SIC 10 activities SIC 12 Consolidation- Special Purpose Entities Joint Jointly ly Contr Controll olled ed Entiti Entities es - Non-Mo Non-Monet netary ary Contri Contribut bution ions s by SIC 13 Ventures SIC 15 Operating Leases – Incentives SIC 21 Income Taxes - Recovery of Revalued Non-Depreciable Assets SIC 25 Income Taxes - Changes in the Tax Status of an Entity or its 15
IFRS
SIC 27 SIC 29 SIC 31 SIC 32
Shareholders Evaluating the Substance of transactions Involving the Legal Form of a Lease Disclosure - Service Concession Arrangements Revenue - Barter Transactions Involving Advertising Services Intangible Assets - Web Site Costs
Need for Convergence with IFRSs In the present era of globalization and liberalization, the World has become an econ econom omic ic vill villag age. e. The The glob global aliz izat atio ion n of the the busi busine ness ss worl world d and and the the attendant structures and the regulations, which support it, as well as the development of e-commerce make it imperative to have a single globally accepted financial reporting system. A number of multi-national companies are are esta establ blis ishi hing ng thei theirr busi busine ness sses es in vari variou ous s coun countr trie ies s with with emer emergi ging ng econom economies ies and vice vice vers versa a . The The enti ntities ties in eme emerging ging econo conomi mie es are are increa increasin singly gly access accessing ing the global global market markets s to fulfil fulfilll their their capita capitall needs needs by getting their securities listed on the stock exchanges outside their country. Capital markets are, thus, becoming integrated consistent with this Worldwide wide trend trend..
More More and more more Indian Indian comp compani anies es are are also also bein being g list listed ed on
overseas stock exchanges. Sound financial reporting structure is imperative for economic well-being and effective functioning of capital markets. The use of different different accounting accounting frameworks frameworks in different different countries, countries, which which requir require e incons inconsist istent ent treatm treatment ent and presen presentat tation ion of the same same underl underlyin ying g economic transactions, creates confusion for users of financial statements. This This confus confusion ion leads leads to ineffi inefficie ciency ncy in capita capitall market markets s across across the world. world. Therefore, increasing complexity of business transactions and globalisation of capital markets call for a single set of high quality accounting standards. High standards of financial reporting underpin the trust investors place in financial and non-fi non-finan nancia ciall inform informati ation. on. Thus, Thus, the case case for a sin single gle set of global globally ly accept accepted ed accoun accountin ting g standa standards rds has prompt prompted ed many many countr countries ies to pursue pursue convergence of national accounting standards with IFRSs. Amongst others, 16
IFRS countries of the European Union, Australia, New Zealand and Russia have already adopted IFRSs for listed enterprises. China has decided to adopt IFRS from from 20 2008 08 and Canada Canada from from 20 2011 11.. Insofa Insofarr as US is concer concerned ned,, Financ Financial ial Acco Ac coun unti ting ng Stan Standar dards ds Boar Board d (FAS (FASB) B) of USA USA and and IASB IASB are are also also work workin ing g towa toward rds s conv conver erge genc nce e of the the US GAAP GAAPs s and and the the IFRS IFRSs. s. The The Secu Securi riti ties es & Exchange Commission (SEC) has mooted a proposal to permit filing of IFRScomp compli lian antt
fina financ ncia iall
stat statem emen ents ts
with withou outt
requ requir irin ing g
pres presen enta tati tion on
of
a
reco reconc ncil ilia iati tion on stat statem emen entt betw betwee een n US GAAP GAAPs s and and IFRS IFRS in near near futu future re.. Appendix II contains list of countries which require or permit the use of IFRSs for various types of the entities such as listed entities, banks etc.
Benefits of achieving convergence with IFRSs Ther There e are are many many bene benefi fici ciar arie ies s of conv conver erge genc nce e with with IFRS IFRSs s su such ch as the the economy, investors, industry and accounting professionals.
The Economy As the markets expand globally the need for convergence increases. The convergence benefits the economy by increasing growth of its international business. It facilitates maintenance of orderly and efficient capital markets and and also also help helps s to incr increas ease e the the capi capita tall form formati ation on and and ther thereb eby y econ econom omic ic growth growth.. It encour encourage ages s intern internati ationa onall invest investing ing and thereb thereby y leads leads to more more foreign capital flows to the country.
Investors A stron strong g case case for for conv conver erge genc nce e can can be made made from from the the view viewpo poin intt of the the investors who wish to invest outside their own country. Investors want the information that is more relevant, reliable, timely and comparable across the jur juris isdi dict ctio ions ns.. acco accoun unti ting ng
Fina Financ ncia iall stan standa dard rds s
stat statem emen ents ts prep prepar ared ed us usin ing g help help
inve invest stor ors s
bett better er
a
comm common on set set
unde unders rsta tand nd
of
inve invest stme ment nt
opportunities as opposed to financial statements prepared using a different set of national accounting standards. For better understanding of financial 17
IFRS statements, global investors have to incur more cost in terms of the time and effort efforts s to conver convertt the financ financial ial statem statement ents s so that that they they can confid confident ently ly compare opportunities. Investors’ confidence would be strong if accounting standards used are globally accepted. Convergence with IFRSs contributes to investors’ understanding and confidence in high quality financial statements.
The industry A major force in the movement towards convergence has been the interest of the industry. The industry is able to raise capital from foreign markets at lower cost if it can create confidence in the minds of foreign investors that thei theirr
finan financi cial al
stat statem emen ents ts
comp comply ly
with with
glob global ally ly
acce accept pted ed
accou account ntin ing g
stand standar ards ds.. With With the the dive divers rsit ity y in acco accoun unti ting ng stan standar dards ds from from coun countr try y to country, enterprises which operate in different countries face a multitude of accounting requirements prevailing in the countries. The burden of financial reporting is lessened with convergence of accounting standards because it simp simpli lifi fies es the the proc proces ess s of prep prepar arin ing g the the indi indivi vidu dual al and grou group p finan financi cial al stat statem emen ents ts and and ther thereb eby y redu reduce ces s the the cost costs s of prep prepar arin ing g the the fina financ ncia iall statements using different sets of accounting standards.
The accounting professionals Convergence with IFRSs also benefits the accounting professionals in a way that they are able to sell their services as experts in different parts of the world. The thrust of the movement towards convergence has come mainly from accountants in public practice. It offers them more opportunities in any part of the world if same accounting accounting practices practices prevail prevail throughout throughout the world. They are abl able to quote IFRSs to clients to give them back acking for recommending certain ways of reporting. Also, for accounting professionals in industry as well as in practice, their mobility to work in different parts of the world increases.
18
IFRS
Benefits of IFRS By
adopting IFRS, you would be adopting a "global financial reporting"
basis basis that that will will enable enable your company company to be unders understoo tood d in a global global mark market etpl plac ace. e. This This help helps s in acce accessi ssing ng worl world d capi capita tall mark market ets s and and promoting new business. It allows your company to be perceived as an international player. A
cons consis iste tent nt finan financi cial al repo report rtin ing g basi basis s woul would d allo allow w a mult multin inat atio ional nal
company to apply common accounting standards with its subsidiaries worldwide, which would improve internal communications, quality of reporting and group decision-making. In
incr increa easi sing ngly ly comp compet etit itiv ive e mark market ets, s, IFRS IFRS allo allows ws a comp compan any y to
benchmark itself against its peers throughout the world, and allows invest investor ors s and others others to compar compare e the compan company's y's perfor performan mance ce with with competitors globally. In
addition, companies companies would would get access to number number of capital capital markets markets
across the globe.
Disadvantages Disadvantages of IFRS Desp Despiite
a gene generral conse onsens nsus us of the the inevi nevita tabi billity of
the the glob global al
acceptance of IFRS, many people also believe something will be lost with full acceptance of IFRS. Further
certain issuers without significant customers or may resist IFRS
beca because use they they may may not not have have a mark market et ince incent ntiv ive e to prep prepar are e IFRS IFRS financial statements. Some
other issuers may have to stick with existing GAAP because it is
required for filings with other regulators and authorities, thus resulting in extra costs than currently incurred by following only existing GAAP. Another
concern is that many countries that claim to be converting to
international standards may never get to 100 percent compliance. 19
IFRS Most reserve the right to carve out selectively or modify standards they do not consider in their national interest, an action that could lead to incomparability – one of the very issues that IFRS seeks to address.
20
IFRS
ADOPTION & CHALLENGES OF IFRS Adoption of IFRS More More than 12 12,00 ,000 0 compan companies ies in almost almost 10 100 0 nation nations s have have adopte adopted d IFRS, including including listed listed companies companies in the European European Union. Other countrie countries, s, including Canada and India, are expected to transition to IFRS by 2011. Some estimate that the number of countries requiring or accepting IFRS could grow to 150 in the next few years. Other countries, such as Japan and Mexic Mexico, o, have have plans plans to conver converge ge (elim (elimina inate te sig signif nifica icant nt differ differenc ences) es) their their national standards. In India, India, the ICAI ICAI has issued issued a docume document nt titled titled "Concept "Concept paper of convergence with IFRS in India" to evaluate the need for Indian GAAP to change to IFRS. In the paper, the ICAI notes that as the world globalizes, it has become imperative for India to make a formal strategy for convergence with IFRS with the objective of harmonize with globally accepted accounting standards. In respect of many advantages to various stakeholders viz. the economy, industry, investors, and accounting professionals, it does caution that that the conver convergen gence ce would would requir require e some some fundam fundament ental al change changes s to the corp corpor orate ate laws laws and and regu regula lati tion ons s curr curren entl tly y guid guidin ing g the the acco accoun unti ting ng and and reporting space in India. In view of the difficulties, which may be perceived during during adopting adopting IFRS, the ICAI has decided that IFRS should should be adopted for public interest entities from the accounting periods commencing on or after 1 April 2011. Adopting IFRS will likely impact key performance metrics, requiring thoughtful communications plans for the Board of Directors, shareholders and other key stakeholders. Internally, IFRS could have a broad impact on a company's infrastructure, including underlying processes, systems, controls, and even customer or lender contracts and interactions. Adopting IFRS by Indian corporate is going to be very challenging but at the same time could also be rewarding. Indian corporate are likely to reap 21
IFRS significant benefits from adopting IFRS. The European Union's experience highlights many perceived benefits as a result of adopting IFRS. Overall, most investors, financial statement makers and auditors were in agreement that that IFRS IFRS impr improv oved ed the the qual qualit ity y of fina financ ncia iall state stateme ment nts s and that that IFRS IFRS implementation was a positive development for EU financial reporting (2007 ICAEW Report on 'EU Implementation of IFRS and the Fair Value Directive'). The current decline in market confidence in India and overseas coupled with tougher economic conditions may present significant challenges to Indian companies. IFRS requires application of fair value principles in certain situations and this would result in significant differences from financial information curr curren entl tly y
pres presen ente ted, d, espe especi cial ally ly rela relati ting ng to finan financi cial al inst instru rume ment nts s
and and
busine business ss combin combinati ations ons.. Given Given the curren currentt econom economic ic scenar scenario, io, this this could could resul resultt in sig signif nifica icant nt volati volatili lity ty in report reported ed earnin earnings gs and key perfor performan mance ce measu measure res s like like EP EPS S and and P/E P/E rati ratios. os. Indi Indian an comp compani anies es will will have have to buil build d awareness amongst investors and analysts to explain the reasons for this volatility in order to improve understanding, and increase transparency and reliability of their financial statements.
This situation is worsened by the lack of availability of professionals with adequate valuation skills, to assist Indian corporate in arriving at reliable fair value estimates. This is a significant resource constraint that could impact comparability of financial statements and render some of the benefits of IFRS adoption ineffective.
Although IFRS are principles-based standards, they offer certain accounting policy choices to preparers of financial statements. For example, the use of a cost-based model or a revaluation models in accounting for investment proper propertie ties. s. This This could could reduc reduce e consist consistenc ency y and compar comparabi abilit lity y of financ financial ial information to a certain extent and therefore reduce some of the benefits 22
IFRS from IFRS adoption. The International Accounting Standards Board (IASB) which is an international standard-setting body formulates IFRS.
However, the responsibility for enforcement and providing guidance on impl implem emen enta tati tion on vest vests s with with local local gove govern rnme ment nt and acco accoun unti ting ng and regulatory bodies, such as the ICAI in India. Consequently, there may be differ differenc ences es in inter interpre pretat tation ion or practi practical cal applic applicati ation on of IFRS IFRS provis provision ions, s, whic hich
coul ould
fur further ther
reduc educe e
cons consiisten stency cy
in
fina financ ncia iall
repo eporting ting
and and
comp compar arabi abili lity ty with with glob global al peer peers. s. The The ICAI ICAI will will have have to make make adeq adequat uate e investments and build infrastructure to ensure compliance with IFRS.
23
IFRS
Challenges of IFRS There are several impediments and practical challenges to adoption of and full compliance with IFRS in India. These are: The need for a change in several laws and regulations governing financial accounting and reporting in India. In addition to accounting standards, there are legal and regulatory requirements that determine the manner in whic which h fina financ ncia iall info inform rmat atio ion n is repo report rted ed or pres presen ente ted d in finan financi cial al statem statement ents. s. For exampl example, e, the Compan Companie ies s Act, Act, 19 1956 56 deter determin mines es the classi classific ficati ation on and accoun accountin ting g treatm treatment ent for redeem redeemabl able e prefer preferenc ence e shares shares as equity equity instrume instruments nts of a company company,, wherea whereas s these these may be consid considere ered d to be a financ financial ial liabil liability ity under IFRS. IFRS. The Compani Companies es Act (Sched (Schedule ule VI) also also prescr prescribe ibes s the format format for presen presentat tation ion of financi financial al statements
for
Indian
companies,
whereas
the
presen sentati ation
requ requir irem emen ents ts are are sign signif ific icant antly ly diff differ eren entt unde underr IFRS IFRS.. Simi Simila larl rly, y, the the Reserve Bank of India regulates the financial reporting for banks and othe otherr finan financi cial al inst instit itut utio ions, ns, incl includ udin ing g the the pres presen enta tati tion on form format at and and accounting treatment for certain types of transactions. The The rece recent nt anno announ unce ceme ment nt by the the MCA MCA is enco encour urag agin ing g as it indi indica cate tes s government support for the timetable for convergence with IFRS in India. However, the announcement stops short of endorsing the roadmap for convergence and the full adoption of IFRS that is discussed in ICAI's concept paper. In the absence of adequate clarity and assurance that Indian laws and regulations will be amended to conform to IFRS, the conversion process may not gain momentum.
24
IFRS Ther There e is a lack lack of adequat adequate e profes professio sional nals s with with practi practical cal IFRS IFRS conver conversio sion n experience and therefore many companies will have to rely on external advisers advisers and their auditors. auditors. This is magnified magnified by a lack of preparedn preparedness ess amongst Indian corporate 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 would involve a fundamental change to an entity's financial reporting systems and processes. It will require a detailed knowledge of the the stan standa dard rds s and the the abili ability ty to cons consid ider er thei theirr impac impactt on busi busine ness ss tran transac sacti tion ons s
and perf perfor orma manc nce e
measu measure res. s.
Furt Furthe her, r, the the
conv conver ersi sion on
process will need to disseminate and embed IFRS knowledge throughout the organization to ensure its application on an ongoing basis. Anothe Anotherr potent potential ial pitfal pitfalll is viewin viewing g IFRS IFRS accoun accountin ting g rules rules as "simi "similar lar"" to Generally Accepted Accounting Principles in India (Indian GAAP), since Indi Indian an acco accoun unti ting ng stan standa dard rds s have have been been form formul ulat ated ed on the the basi basis s of principles in IFRS. However, this view disregards significant differences betw betwee een n Indi Indian an GAAP GAAP and and IFRS IFRS as well well as diff differ eren ence ces s in pract practic ical al implementation and interpretation of similar standards. Further, certain Indian standards offer accounting policy choices, which are not available under IFRS, for example, use of pooling of interest method in accounting for business combinations.
There There is an urgent urgent need to address these challenges challenges and work towards full adoption of IFRS in India. The most significant need is to build adequate IFRS skills and an expansive knowledge base amongst Indian accounting profes professio sional nals s to manage manage the conver conversio sion n projec projects ts for Indian Indian corpor corporate ates. s. Leveraging the knowledge and experience gained from IFRS conversion in other countries and incorporating IFRS into the curriculum for professional accounting courses can do this.
25
IFRS Ulti Ultima mate tely ly,,
it is impe impera rati tive ve for for
Indi Indian an corp corpor orat ates es to impr improv ove e
thei theirr
preparedness for IFRS adoption and get the conversion process right. Given the current market conditions, any restatement of results due to errors in the conversion conversion process process would be detrimenta detrimentall to the company involved involved and would severely damage investor confidence in the financial system.
Meaning of ‘Convergence’ with IFRS Before discussing the contours of the convergence strategy with a view to meet the above mentioned objectives, the word ‘convergence’ needs to be clearly understood. In general terms, ‘convergence’ means to achieve harmony with IFRSs; in precis precise e terms terms conver convergen gence ce can be consid considere ered d “to “to desi design gn and and main mainta tain in national accounting standards in a way that way that financial statements prepared in accordance with national accounting standards draw unreserved statement of comp compli lian ance ce with with IFRS IFRSs s Inte Intern rnat atio ional nal Ac Acco coun unti ting ng Stand Standar ard d (IAS (IAS)) 1, Presentation of Financial Statements, Statements , which states that financial statements shall not be described as complying with IFRSs unless they comply with all the the requ requir irem emen ents ts of IFRS IFRSs. s. It does does not not impl imply y that that finan financi cial al state stateme ment nts s prepared in accordance with national accounting standards draw unreserved statement of compliance with IFRSs only when IFRSs are adopted word by word. ord. The IASB IASB acce ccepts pts in its ‘State ‘Statemen mentt of Best Best Pract Practice ice:: Workin Working g Relationships between the IASB and other Accounting Standards-Setters’ that Standards-Setters’ that “adding disclosure requirements or a removing optional treatment does not create noncompliance with IFRSs. Indeed, the IASB aims to remove optional treatments from IFRSs.” Thi This s make makes s it clea clearr that that if a coun countr try y want wants s to add add a disc disclo losu sure re that that is consid considere ered d necess necessary ary in the local local enviro environme nment, nt, or remov removes es an option optional al treatment, this will not amount to noncompliance with IFRSs. Thus, for the purpose of this Concept Paper, ‘convergence with IFRSs’ means adoption of IFRSs with the aforesaid exceptions, where necessary. For a country to be 26
IFRS IFRS-compliant, it is not necessary that IFRSs are applied to all entities of different sizes and of different public interests. Even the IASB recognizes that IFRSs are suitable for publicly accountable entities. The IASB has, therefore, recently issued an Exposure Draft of an IFRS for Small and Medium-sized Entities (SMEs)
PRESENT STATUS OF INDIAN ACCOUNTING STANDARDS The Council of the Institute of Chartered Accountants of India constituted the Accountin Accounting g Standards Standards Board on 21st April, 1977, to formulate formulate Accounting Accounting Standards applicable to Indian enterprises. Initially, the Accounting Standards were were recom recommen mendat datory ory in nature nature.. After After gainin gaining g suffic sufficien ientt experi experienc ence, e, the Council of the Institute gradually started making the Accounting Standards mandatory for its members, i.e., requiring the members to report on whether an ente enterp rpri rise se su subj bjec ectt to audi auditt had had foll follow owed ed a mand mandat ator ory y Ac Acco coun unti ting ng Standard. The legal recognition to the Accounting Standards was accorded for the companies in the Companies Act, 1956, by introduction of section 211(3 21 1(3C) C) throug through h the Compani Companies es (Amend (Amendmen ment) t) Act, Act, 19 1999 99,, where whereby by it is required that the companies shall follow the Accounting Standards notified by the the Cent Centra rall Gove Govern rnme ment nt on a reco recomm mmen enda dati tion on made made by the the Nati Nation onal al Adviso Advisory ry Commi Committe ttee e on Accoun Accountin ting g Standar Standards ds (NACAS (NACAS)) consti constitut tuted ed under under section 210A of the said Act. The proviso to section 211(3C) provides that until the Accounting Standards are notified by the Central Government the Accounting Standards specified by the Institute of Chartered Accountants of India shall be followed by the companies. The Government of India, Ministry of Company Affairs (now Ministry of Corporate Affairs), issued Notification dated December 7, 2006, prescribing Accounting Standards 1 to 7 and 9 to 29 as recommended by the Institute of Chartered Accountants of India, which have come into effect in respect of the accounting periods commencing on or after the aforesaid date with the publication of these Accounting Standards in the Offici Official al Gazett Gazette. e. It may be menti mentione oned d that that the Accoun Accountin ting g Standar Standards ds 27
IFRS noti notifi fied ed by the the Gove Govern rnme ment nt are are virt virtual ually ly iden identi tica call with with the the Ac Acco coun unti ting ng Standards, read with the Accounting Standards Interpretations, issued by the Institute of Chartered Chartered Accountants of India. India. The Reserve Bank of India (RBI), being being the regulato regulatorr of banks banks in India, India, requir requires es all the banks, through through its circ circul ular ars/ s/gu guid idel elin ines es,, to foll follow ow the the Ac Acco coun unti ting ng Stand Standar ards ds issu issued ed by the the Inst Instit itut ute e of Char Charte tere red d Ac Acco coun untan tants ts of Indi India. a. Furt Furthe her, r, the the Secu Securi riti ties es and and Exchange Board of India (SEBI), through the Listing Agreement with stock exch exchan ange ges, s, requ requir ires es all all list listed ed enti entiti ties es to comp comply ly with with the the Ac Acco coun unti ting ng Standards Standards issued issued by the Institute. Institute.Also, Also, the Insurance Insurance Initially, Initially, Accounting Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date, Date, and Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Periods Items and Changes in Accounting Policies, were made mandatory in respect of accounting periods commencing on or after 1.1.1987. Five more Accounting Standards, namely, AS 1, AS 7, AS 8, AS 9, and AS 10 were made mandat mandatory ory from from 1st April, April, 19 1991 91.. There Thereafte after, r, Accoun Accountin ting g Standar Standards ds were were gene genera rall lly y made made mand mandat ator ory y on the the date dates s indi indica cate ted d in the the stan standa dard rds s themse themselv lves es upon upon their their iss issuanc uance e Insura Insurance nce Regul Regulato atory ry and Develo Developme pment nt Auth Au thor orit ity y (IRD (IRDA) A),, whic which h regu regula late tes s the the finan financi cial al repo report rtin ing g prac practi tice ces s of insura ins urance nce compani companies es under under the Insura Insurance nce Regula Regulator tory y and Develo Developme pment nt Authority Act, 1999, through IRDA (Preparation of Financial Statements and Auditor’s Auditor’s Report Report of the Insurance Insurance Companies) Companies) Regulations, Regulations, 2002, 2002, requires requires comp compli lian ance ce with with the the Ac Acco coun unti ting ng Stan Standa dard rds s issu issued ed by the the Inst Instit itut ute e of Chartered Accountants of India for preparing and presenting their financial statement statements s by insurance insurance companies. companies. Presently Presently,, the Accountin Accounting g Standards Standards Board (ASB) of the ICAI endeavors to formulate Indian Accounting Standards (ASs) on the basis of IFRSs as it has been categorically recognised in the Preface Preface to the Statements Statements of Accounting Accounting Standards, Standards, issued by the ICAI, that “The “The ICAI, ICAI, being being a full-f full-fled ledged ged membe memberr of the Intern Internati ational onal Federa Federatio tion n of Acco Ac coun unta tant nts s (IFA (IFAC) C),, is expe expect cted ed,, inte interr alia alia,, to acti active vely ly prom promot ote e the the Internatio International nal Accountin Accounting g Standards Standards Board’s Board’s (IASB) (IASB) pronouncem pronouncements ents in the coun countr try y with with a view view to faci facili lita tate te glob global al harm harmon oniz izat atio ion n of acco accoun unti ting ng 28
IFRS standards. Accordingly, while formulating the Accounting Standards, the ASB will will give give due consid consider erati ation on to Intern Internati ationa onall Accoun Accountin ting g Standar Standards ds (IASs) (IASs) issued by the International Accounting Standards Committee (predecessor body to IASB) or International Financial Reporting Standards (IFRSs) issued by the IASB, as the case may be, and try to integrate them, to the extent possib possible, le, in the light light of the conditio conditions ns and practi practices ces prevai prevaili ling ng in India. India.” ” Accordingly, the Accounting Standards issued by the ICAI are based on the IFRSs. However, where departure from IFRS is warranted keeping in view the Indian conditions, the Indian Accounting Standards have been modified to that that extent extent.. The major major differ differenc ences es betwee between n the two are indicate indicated d in the Appe Ap pend ndix ix to the the Ac Acco coun unti ting ng Stand Standar ard d itse itself lf,, in resp respec ectt of the the rece recent ntly ly issued/revised Accounting Standards. Further, the endeavour of the ICAI is not only to bridge the gap between Indian Accounting Standards and IFRSs by issuance of new Accounting Standards but also to ensure that the existing Indian Accounting Standards are in line with the changes in international thin thinki king ng on vari variou ous s acco accoun unti ting ng issu issues es.. In this this rega regard rd,, the the ICAI ICAI make makes s a conscious effort to bring the Indian Accounting Standards at par with the IFRS IFRSs, s,
incl includ udin ing g
Repo Report rtin ing g
the the
Inte Interp rpre reta tati tion ons s
Inte Interp rpre reta tati tion ons s
Comm Commit itte tee e
issu issued ed
by
Inte Intern rnati ation onal al
(IFR (IFRIC IC), ), by revi revisi sing ng the the
Fina Financ ncia iall exis existi ting ng
Acco Ac coun unti ting ng Stan Standa dard rds. s. Inde Indeed ed,, of late late,, in resp respec ectt of cert certai ain n rece recent ntly ly issued/re issued/revised vised Indian Accounting Accounting Standards, Standards, no material material differenc difference e exists exists betw betwee een n the the Indi Indian an Ac Acco coun unti ting ng Stan Standar dards ds and and the the IFRS IFRSs, s, for for exam exampl ple, e, Accounting Standard (AS) 7, Construction Contracts. Apar Ap artt from from the the ICAI ICAI ensu ensuri ring ng comp compli lian ance ce with with the the IFRS IFRSs s to the the exte extent nt poss possib ible le,,
the the
Nati Nation onal al
Comm Commit itte tee e
on
Acco Ac coun unti ting ng
Stan Standa dard rds s
(NAC (NACAS AS))
const constit itut uted ed by the the Cent Centra rall Gove Govern rnme ment nt for for reco recomm mmen endi ding ng acco accoun unti ting ng standa standards rds to the Gover Governme nment, nt, while while revie reviewi wing ng the Accoun Accountin ting g Standar Standards ds issu issued ed by the the ICAI ICAI,, consi conside ders rs the the devi deviat atio ions ns in the the Indi Indian an Ac Acco coun unti ting ng Standards, if any, from the IFRSs and recommends to the ICAI to revise the Accoun Accountin ting g Standar Standards ds wherev wherever er it consid considers ers that the deviat deviation ions s are not appropriate. 29
IFRS
STRATEGY FOR CONVERGENCE WITH IFRS
Formulation of convergence strategy to achieve the objective specified in requires cognisance of reasons for departure of Indian Accounting Standards from the corresponding IFRSs as discussed in the previous chapter as well as the complexity of the recognition and measurement requirements and the extent of disclosures required in the IFRSs with a view to enforce these on various types of entities, viz., public interest entities and other than public inte intere rest st enti entiti ties es (her (herei einaf nafte terr refe referr rred ed to as ‘sma ‘small ll and and medi medium um-si -size zed d entities’).
Convergence with IFRSs − Public Interest Entities Various IFRSs were examined from the point of view of their complexities in terms terms of recog recognit nition ion and measur measureme ement nt requi requirem rement ents s and the extent extent of disclosures required therein to consider their application to various types of entities. It is noted that those countries which have already adopted IFRSs, i.e., i.e., countr countries ies which which are fully fully IFRS-c IFRS-comp ompli liant, ant, have have done done so primaril primarily y for public interest entities including listed and large-sized entities. It is also noted that the International Accounting Standards Board also considers that the IFRSs are applicable to public interest entities in view of the fact that it has recently issued an Exposure Draft of a proposed IFRS for Small and Mediumsized sized Entities3. Entities3. The ICAI, theref therefore ore,, is of the view that India India should should also also become IFRS compliant only for public interest entities. With With a view view to deter determin mine e which which entiti entities es should should be consid considere ered d as publi public c interest entities for the purpose of application of IFRSs, the criteria for Level I enterprises as laid down by the Institute of Chartered Accountants of India4 and the definition of ‘small and medium sized company’ as per Clause 2(f) of the the Comp Compani anies es (A (Acc ccou ount ntin ing g Stan Standar dards ds)) Rule Rules, s, 20 2006 06,, as noti notifi fied ed by the the Ministry of Company Affairs (now Ministry of Corporate Affairs) in the Official 30
IFRS Gazette dated December 7, 2006, were considered. The ICAI is of the view that in view of the complexity of recognition and measurement principles and the extent of disclosures required in various IFRSs, and the fact that about four four years years have elapse elapsed d sin since ce the ICAI laid laid down down the criteri criteria a for Level Level I enterprises, as far as the size is concerned, it needs a revision. Accordingly, the ICAI is of the view that a public interest entity should be an entity:
whose equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India; or (ii) which is a bank (including a cooperative bank), financial institution, a mutual fund, or an insurance entity; or (iii (iii)) whose whose turn turnov over er (exc (exclu ludi ding ng othe otherr inco income me))
exce ex ceed eds s rupe rupees es one one
hundred crore in the immediately preceding accounting year; or (iv) which has public deposits and/or borrowings from banks and financial
institutions in excess of rupees twenty five crore at any time during the immediately preceding accounting year; or (v) which is a holding or a subsidiary of an entity which is covered in (i) to (iv) above.
It was considered whether it would be appropriate not to apply full IFRSs to listed entities which do not fulfill the minimum turnover and/or borrowings criteria, which do not fall in these criteria would not be required to follow IFRSs. The ICAI is of the view that once an entity gets listed on a stock exchange it assumes the character of a public interest entity and, therefore, it would not be appropriate to exempt such entities from the application of IFRSs. Similarly, a bank, a financial institution, a mutual fund, an insurance entity and holding or subsidiary of a public interest entity also assumes the character of a public interest entity.
Accounting Standards for Small and Medium-sized Entities Once the IFRSs are applied to entities identified, an issue arises as to which Accounting Standards should be applicable to entities which are not covered 31
IFRS by (i.e., (i.e., ‘Small ‘Small and Medium Medium-si -sized zed Entiti Entities’ es’ (SMEs) (SMEs).. The follow following ing three three alternatives were considered: (i) The IFRSs should be modified to provide exemptions/relaxations as has been done in the existing Accounting Standards issued by the ICAI/notified by the Government of India; (ii) (ii) The existi existing ng Accoun Accountin ting g Standa Standards rds with with exempt exemption ions/r s/rela elaxat xation ions s as at present, should continue to apply; (iii) Apply the IFRS for SMEs (the Exposure Draft of which has been issued recently) with or without modifications to suit Indian conditions. The ICAI is of the view that since the IASB itself recognizes that the IFRSs are too onerous for small and medium-sized entities, it would not be appropriate to apply the IFRSs with exemptions/relaxations to SMEs. The ICAI is also of the view that to continue to apply the existing Accounting Standards in India to SMEs with the existing exemptions/relaxations would not be appropriate as it woul would d mean ean that that the the ICAI ICAI/t /the he Gove Govern rnme ment nt woul would d have have to keep keep on modifying the existing Accounting Standards as soon as a change is made in the corresponding IFRSs after considering the appropriateness thereof in the context of Indian SME conditions. The ICAI is, therefore, of the view that it may be appropriate to have a separate standard for SMEs. It was noted that the proposed IFRS for SMEs was still at the Exposure Draft stage and it may undergo changes when finally issued. Accordingly, whether the IFRS for SMEs should be adopted in to or with modifications, should be examined when the said IFRS is finally issued. The ICAI is of the view that a separate standard for SMEs would be more useful from the following perspectives also: (i) The small and medium-sized entities would not have to consider all the IFRSs which are too voluminous; and (ii) it would ensure convergence, to the extent possible, with the proposed IFRS for Small and Medium-sized Entities being issued by IASB, even for this class of entities.
32
IFRS In this context, it is noted that in order to be an IFRS-compliant country, it is not necessary to adopt the IFRS for Small and Medium-sized Entities to be issued by IASB. Whether the IFRSs should be adopted for Public Interest Entities stage-wise or all at once from a specified future date The ICAI examined the IFRSs and the existing Accounting Standards with a view to determine the extent to which they differ from the IFRSs and the reason reasons s theref therefore ore to identi identify fy which which IFRSs IFRSs can be adopte adopted d in near near future future,, which IFRSs can be adopted after resolving conceptual differences with the IASB, which IFRSs can be adopted after the industry and the profession is read ready y in term terms s of the the tech techni nica call skill skills s requ requir ired ed,, and and whic which h IFRS IFRSs s can can be adopted after the relevant laws and regulations are amended. On the basis of this examination, the ICAI has classified various IFRSs into the following five categories:
Cate Catego gory ry I - IFRS IFRSs s whic which h do not not invo involv lve e any any lega legall or regu regula lato tory ry issues issues nor have have any issues issues with with regard regard to their their suitab suitabil ility ity in the existing economic environment, preparedness of industry and any conceptual differences from the Indian Accounting Standards. This category has further been classified into two parts as follows:
Category I A - IFRSs which can be adopted immediately as these do not have any differences with the corresponding Indian Accounting Standards. The following IFRSs have been identified in this category:
IAS 11, Construction Contracts
IAS 23, Borrowing Costs
Category I B - IFRSs which can be adopted in near future as there are are
cert certai ain n
mino minor r
diff differ eren ence ces s
with with
the the
corr corres espo pond ndin ing g
Indi Indian an
Accounting Standards. The following IFRSs have been identified in this category: 33
IFRS
IAS 2 Inventories
IAS 7,Cash Flow Statements
IAS IAS
20,
Acco ccounti unting ng
for for
Gover overnm nmen entt
Grants ants
and and
Disc Discllosur osure e
of
Government Assistance
IAS 33, Earnings Per Share
IAS 36, Impairment of Assets
IAS 38, Intangible Assets
Category Category II - IFRSs which may require require some time to reach reach a level of technical preparedness by the industry and professionals keeping in view the existing economic environment and other factors. Thi This s cate catego gory ry also also incl includ udes es thos those e IFRS IFRSs s corr corres espo pond ndin ing g to which which Indian Indian Accountin Accounting g Standards Standards are under preparati preparation/re on/revisio vision. n. The following following IFRSs have been identified in this category:
IAS 18, Revenue
IAS 21,The Effects of Changes in Foreign Exchange Rates
IAS 26, Accounting and Reporting by Retirement Benefit Plans
IAS IAS
40,, 40
Inve Invest stme ment nt
Prop Proper erty ty
(Cor (Corre resp spon ondi ding ng
Indi Indian an
Acco Ac coun unti ting ng
(Cor (Corre resp spon ondi ding ng
Indi Indian an Ac Acco coun unti ting ng
Standard is under preparation)
IFRS IFRS 2, Shar Sharee-ba base sed d
Paym Paymen entt
Standard is under preparation)
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations (Corresponding Indian Accounting Standard is under preparation)
Cate Catego gory ry III III - IFRS IFRSs s whic which h have have conc concep eptu tual al diff differ eren ence ces s with with the the corresponding corresponding Indian Accounting Standards. This category has further been divided into two parts as follows:
34
IFRS Cate Catego gory ry III III A - IFRS IFRSs s havi having ng conc concep eptu tual al diff differ eren ence ces s with with the the corresponding Indian Accounting Standards that should be taken up with the IASB. The following IFRSs have been identified in this Category:
IAS 17,Leases
IAS 19, Employee Benefits
IAS 27,Consolidated and Separate Financial Statements Sta tements
IAS 28, Investments in Associates
IAS 31, Interests in Joint Ventures
IAS 37, Provisions, Contingent Liabilities and Contingent Assets
Cate Catego gory ry III III B - IFRS IFRSs s havi having ng conc concep eptu tual al diff differ eren ence ces s with with the the corr corres espo pond ndin ing g
Indi Indian an
Acco Accoun unti ting ng
Stan Standa dard rds s
that that
need need
to
be
examined to determine whether these should be taken up with the IASB or should be removed by the ICAI itself.
The following IFRSs have been identified in this Category:
IAS 12, Income Taxes
IAS 24, Related Party Disclosures
IAS 41, Agriculture (Corresponding Indian Accounting Standard is under preparation)
IFRS 3, Business Combinations
IFRS 6, Exploration for and Evaluation of Mineral Resources
IFRS 8, Operating Segments
Category IV - IFRSs, the adoption of which would require changes in laws/regulations because compliance with such IFRSs is not possible until the regulations/laws are amended.
The following IFRSs have been identified in this Category: 35
IFRS
IAS 1, Presentation of Financial Statements
IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10, Events After the Balance Sheet Date
IAS 16, Property, Plant and Equipment
IAS 32 32,, Financi Financial al Instrum Instrument ents: s: Prese Presenta ntatio tion n (Exposu (Exposure re Draft Draft of the Corresponding Indian Accounting Standard has been issued)
IAS 34, Interim Financial Reporting
IAS 39, Financial Instruments: Recognition and Measurement (Exposure Draft Draft of the the Corr Corres espo pond ndin ing g Indi Indian an Ac Acco coun unti ting ng Stan Standar dard d has has been been issued)
IFRS IFRS 1, Firs Firstt-ti time me Ad Adop opti tion on
of
Inte Intern rnat atio iona nall
Fina Financ ncia iall
Repo Report rtin ing g
Standards
IFRS 4, Insurance Contracts
IFRS 7, Financial Instruments: Disclosures
Catego Category ry V - IFRSs IFRSs corres correspon pondin ding g to which which no Indian Indian Accou Account nting ing Standard is required for the time being. However, the relevant IFRSs, when adopted upon full convergence, can be used as the “fallback” option where needed.
IAS 29, Financial Reporting in Hyper-inflationary Hyper-inflationary Economies
Convergence with IFRS – Stage-wise Approach The The ICAI ICAI exam examin ined ed whet whethe herr conv conver erge genc nce e with with IFRS IFRSs s can can be achi achiev eved ed stagewise as below:
Stage I: Convergence with IFRSs falling in Category I immediately
Stage II: Convergence with IFRSs classified in Category II and Category III after a certain period of time, say, 2 years after various stakeholders have achieved the level of technical preparedness and after conceptual differences are resolved with the IASB.
36
IFRS
Stage III: Convergence with IFRSs classified in Category IV only after necessary amendments are made in the relevant laws and regulations.
Stage IV: Convergence with IFRSs classified in Category V by way of adoption on full convergence.
The ICAI considered in-depth the stage-wise adoption approach and its views thereon are as below:
If some IFRSs are adopted in the initial stages and the other IFRSs are adopted later, this may result in mis-match between the requirements of the adopted IFRSs in the first stage and the accounting standards issued iss ued by ICAI/n ICAI/noti otifie fied, d, corre correspo spondi nding ng to those those IFRSs IFRSs which which are not adopted. This is because many accounting standards are inter-related.
Another problem can be that IFRSs adopted in one stage may not be possible to be implemented fully until the adoption of the IFRSs to be adopted at the later stage in view of their inter-relationship.
Even, at present, it is found that when one IFRS is adopted, it results in a
num number ber
of
chang hange es
in
the corr corre esp spo ondi nding Indi Indian an Acco ccounti unting ng
Standards. For example, the issuance of ED of AS 30, ‘Financial Instruments: Recognition and Measurement’ ,
corresp spo onding
to
IAS
39,
‘Financial ‘Financial
Instrument Instruments: s:
Recognition & Measurement’, has resulted in proposed limited revisions to many other accounting standards such as AS 2, AS 11, AS 13, AS 21, AS 23, AS 27, AS 28 and AS 29. Such an approach is fraught with the danger of missing out certain minute aspects in other standards which may also require revision.
Further changes in IFRSs will also make the process more complex as with every revision in IFRS, revisions may be required in the existing Accounting Standards apart from the changes in the adopted IFRSs. Though IASB has decided not to issue any revised IFRS or new IFRS effect effective ive till Januar January y 1, 20 2009 09,, but after after that that date date this this proble problem m will will become acute. 37
IFRS Convergence with IFRS – All-at-once Approach In view of the above difficulties, the ICAI is of the view that it would be more appropriate to adopt all IFRSs from a specified future date as has been done in
many
other
coun countr trie ies. s.
Afte Afterr
cons consid ider erin ing g
the the
curr curren entt
econ econom omic ic
envir environm onment ent,, expec expected ted time time to reach reach the satisf satisfact actory ory level level of techni technical cal preparedness and the expected time to resolve the conceptual differences with the IASB, the ICAI has decided that IFRSs should be adopted for
public interest entities from the accounting periods commencing on or after 1st April, 2011. This will give enough time to all the participants in the financial reporting process to help in building the environment supporting the the adop adopti tion on of IFRS IFRSs. s. Inso Insofa farr as the the lega legall and and regula regulator tory y aspect aspects s are concerned, the ICAI is of the view that, on adoption of those IFRSs, having certai certain n requir requireme ements nts in confli conflict ct with with the laws/r laws/regu egulat lation ions, s, the latter latter will will prevail. The ICAI is further of the view that this approach is appropriate because to wait for full convergence until the relevant laws/regulations are amended would not be practicable as such amendments may not take place for many years. The ICAI also examined whether an entity should have a choice to become fully IFRS compliant before 1st April, 2011. The ICAI is of the view that an early adoption of IFRSs should be encouraged. However, such an adoption should be for all IFRSs and that it cannot be on selective basis.
Format of converged Accounting Standards The ICAI considered whether the existing Accounting Standards should be revised to make them fully compliant with IFRSs by the specified date or on the specified date the IFRSs themselves should be adopted. In either case, Indi Indianan-sp spec ecif ific ic regu regula lato tory ry/l /leg egal al aspec aspects ts may may be incl includ uded ed in a sepa separa rate te section, where appropriate. The ICAI is of the view that it would be more cumb cumber ersom some e to foll follow ow the the firs firstt appr approac oach, h, i.e. i.e.,, revi revisi sing ng the the Ac Acco coun unti ting ng Standards. Therefore, the second approach should be, i.e., IFRSs, including 38
IFRS the IFRS numbers, should be adopted from the specified date of 1st April, 2011. The IFRSs should be issued as Indian ASs, which would be considered IFRS IFRS-e -equ quiv ival alen ent. t. In orde orderr to faci facili lita tate te refe refere renc nce e to the the exis existi ting ng Indi Indian an Accoun Accountin ting g Standa Standards rds,, along along with with the IFRS IFRS number number,, in the bracke brackets, ts, the existing Accounting Standard number may also be given.
Role of various stakeholders to ensure convergence with IFRSs from the specified date, i.e., accounting periods commencing on or after 1st April, 2011 The The foll follow owin ing g sect sectio ions ns deal deal with with the the role role of vari variou ous s stak stakeh ehol olde ders rs in the the standard setting process to ensure smooth transition to the IFRSs from 1st April, 2011, in respect of the listed and a nd other public interest entities.
Role of the ASB of the ICAI The ICAI considered whether it should altogether stop formulating Accounting Standards hereinafter in view of the fact that from 1st April, 2011, the IFRSs existing on that date would come into force for public interest entities. For SMEs, IFRS for SMEs may similarly become applicable. In this context, it is noted that, at present, the ICAI is in the process of formulating certain new acco accoun unti ting ng stan standar dards ds corr corres espo pond ndin ing g to the the IFRS IFRSs s such such as Ac Acco coun unti ting ng Standard (AS) 30, ‘Financial Instruments: Recognition and Measurement’, and Accounting Standard (AS) 31, ‘Financial Instruments: Presentation’, and that Exposure Drafts in respect thereof have already been issued. It was also note noted d that that cert certai ain n exis existi ting ng Ac Acco coun unti ting ng Stand Standar ards ds su such ch as Ac Acco coun unti ting ng Standard (AS) 10, ‘Accounting for Fixed Assets’, is being revised and has reached advanced stage of issuance. The ICAI feels that to stop work on such Accounting Standards would deprive the country of converging with IFRSs before the specified date of 1st April, 2011. The ICAI is, therefore, of the view that it should continue continue to issue Accounting Accounting Standards Standards in conformity conformity with the corres correspon pondin ding g IFRSs IFRSs which which have, have, at presen present, t, reache reached d advanc advanced ed stage stage of 39
IFRS formulation even if they fall within Category IV. This would also make the transition to IFRSs from 1st April, 2011 smoother. The ASB may consider revising Accounting Standards corresponding to IFRSs indicated in Category IB and Category II on priority basis. For this purpose, ASB may consider issuing a composite exposure draft of modifications in the Accounting Standards corresponding to the IFRSs listed in Category IB and issue exposure drafts of Accounting Standards corresponding to IFRSs falling in Category II so that by the time the convergence date arrives, in respect of these standards the country is already in convergence with IFRSs. While this is a broad suggestion, the ASB may consider in-depth its work plan as to which which of these these accoun accountin ting g standar standards ds are capabl capable e of being being revise revised/i d/issue ssued d keeping in view various factors such as extent of changes required. Another adva advant ntag age e of this this proc proces ess s
coul could d
be that that cert certai ain n
Inte Intern rnat atio iona nall stoc stock k
exchanges, say, London Stock Exchange, may decide to allow listing on their stock exchanges exchanges without without requirin requiring g preparati preparation on of reconcil reconciliatio iation n statement statement even prior to 1st April, 2011. For instance, the London Stock Exchange may allow Indian companies to get listed without reconciliation statement from 1st April, 2009 in case the convergence in respect of Categories IB and II and the new accounting standards which are in the process of formulation are issued by that time.
The ASB of ICAI should take up the conceptual differences with the IASB in respect of IFRSs falling in Category III and it should resolve these differences as soon as possible by either convincing the IASB to modify IFRSs or to satisfy itself that the requirements in the concerned IFRSs are appropriate even in the Indian conditions. In respect of IFRSs falling in Category IV, i.e., IFRSs the adoption of which would require changes in laws/regulations, the ICAI should initiate a dialogue with the relevant departments of the Government or the authorities set up by the Govern Governmen mentt such such as the National National Adviso Advisory ry Commi Committe ttee e on Accoun Accountin ting g Standards which formulate laws and with the relevant regulatory authorities 40
IFRS to convin convince ce them them that that either either the legal legal provis provision ions/r s/regu egulat lation ions s relate related d to recogn recogniti ition, on, measu measurem rement ent and dis disclo closur sure e requir requireme ements nts in the financ financial ial statements should be withdrawn by 1st April, 2011, or the same should be appropriately amended to ensure convergence with IFRSs.
The IASB has declared a stable platform for IFRSs up to January 1, 2009, i.e., the IASB will not make any IFRS effective before that date, which is issued prior to that date. Thus, after 1st January, 2009, the IASB may issue new IFRSs or revise the existing ones on frequent basis. The ASB of the ICAI should play a more effective role by sending comments on the discussion pape papers rs/E /Exp xpos osur ure e Draf Drafts ts of the the prop propos osed ed IFRS IFRSs. s. The The AS ASB B sh shou ould ld also also participate in the Round-tables organized by the IASB on various drafts of proposed new IFRSs/revised IFRSs. In other words, the ASB should play a greater role in influencing the future IFRSs. The ASB should also play a similar role in respect of the drafts of the Interpretations issued by the International Financial Reporting Committee (IFRIC). In this context, the section related to the ‘Role of ASB of ICAI in Post-convergence Scenario’ may also be referred to.
The The AS ASB B can can also also play play a grea greate terr role role in infl influe uenc ncin ing g futu future re IFRS IFRSs s in the the following ways:
By identifying experts on IFRSs in India, who can be appointed on the IASB through the selection process followed by the IASB so that the Indian concerns are expressed at the Board level.
By nominating ASB staff on the IASB projects, on secondment basis or otherwise. The ICAI notes that IASB welcomes such participation as is evident from the fact that the staff of certain national standard-setters is presently involved in various IASB projects. Also, IASB’s Statement of Best Practices: Working Relationships between the IASB and other Standard-Setters encourages the national standard setters to do so . 41
IFRS
Role of ICAI as an educator/trainer With With a view view to prep prepar are e its its exis existi ting ng and and pros prospe pect ctiv ive e memb member ers s for for the the impe impend ndin ing g adop adopti tion on of the the IFRS IFRSs s from from 1s 1stt Ap Apri ril, l, 20 2011 11,, the the ICAI ICAI sh shou ould ld formulate strategies with regard to the following:
To revise revise the syllab syllabii of the pre-qua pre-qualif lifica icatio tion n Charte Chartered red Accoun Accountan tancy cy Course to include IFRSs as a part of its curriculum;
The The Cont Contin inui uing ng Prof Profes essi sion onal al Educ Educat atio ion n (CPE (CPE)) Comm Commit itte tee e and and the the Committee for Members in Industry should hold intensive workshops on IFRSs to train the members in practice as well as in industry. In order to encourage members to participate in the IFRS-specific workshops, the ICAI may consider laying down minimum CPE hours requirements in this regard, e.g., the ICAI may make it mandatory for its members to attend a minimum number, say, 50 CPE hours of workshops on IFRSs every every year till till 1st April, April, 20 2011 11 includ including ing those those member members s who are in industry;
Preparation of educational material to guide its members on various intricaci intricacies es involved involved in the implementatio implementation n of IFRSs. IFRSs. The educational educational material may focus on those areas which are new compared to the existing Accounting Standards.
Role of the Government and Regulators The ICAI considers that the Government and the Regulators should play the following role in making the country IFRS-compliant:
The The Gove Govern rnme ment nt and and the the Regu Regula lato tors rs sh shou ould ld estab stabli lish sh lega legall and and regulatory environments that provide for compliance with all the IFRSs.
The Government should frame/ revise laws in consultation with NACAS to reflect the IFRSs. Similarly, various Regulators should frame/revise regulations in consultation with ICAI. This should be considered as a high priority. 42
IFRS
Role of Reporting Entities The reporting entities to which IFRSs are recommended to be applied should prepare themselves in the following ways:
All the affected entities should design and implement an IFRS transition prog progra ramm mme e and and allo alloca cate te the the nece necess ssar ary y reso resour urce ces. s. This This incl includ udes es obtaining the commitment from the top down, i.e., from those charged with with gove govern rnan ance ce to thos those e resp respon onsi sibl ble e for for fina financ ncia iall repo report rtin ing g by individual
business
units.
Also,
they
should
consider
the
interdependencies between the transition to IFRSs and other financial repor eportting ing
pro project jects, s, if any, any, su suc ch
as com compli pliance ance with with laws aws
and
regulations.
The The enti entiti ties es sh shou ould ld prep prepar are e to impl implem emen entt IFRS IFRSs s diff differ eren ence ces s
and and
addre address ssin ing g
requ requir ired ed
finan financi cial al
by iden identi tify fyin ing g
repo report rtin ing g
syst sy stem em
changes.
The
entities
sho sh ould
desig sign
and and
implement
plans ans
to
change
management reporting system used to monitor the performance of the business from the previously applied Accounting Standards to IFRSs.
The The enti entiti ties es shoul should d also also prov provid ide e IFRS IFRS trai traini ning ng to staff staff at all all leve levels ls affected by the transition to IFRSs.
The entities should actively contribute to the international standardsettin setting g proces process, s, in partic particula ular, r, to identi identify fy practi practical cal implem implement entati ation on issues.
The entities should consider at an early stage changes proposed by the Exposure Drafts of IFRSs with a view to gauge the potential impact thereof on their financial statements so that they are able to provide informed comments on the drafts to the IASB/ICAI.
Role of Industry Associations Associations Industry associations such as Federation of Indian Chambers of Commerce and Industry Industry (FICCI), (FICCI), Associated Associated Chambers of Commerce Commerce (Assocham) (Assocham) and 43
IFRS Confederation of Indian Industries (CII) can also play an important role in preparing their constituents for the adoption of the IFRSs in the following ways:
Holding round-tables on the Exposure Drafts of the IFRSs so that the views of the Association can be sent to the IASB/ICAI.
Conducting seminars/workshops on IFRSs for the industry participants to provide them appropriate training.
Provi Provide de indust industry ry-spe -specif cific ic forums forums to their their consti constitue tuents nts to dis discus cuss s the industry specific issues in implementation of IFRSs.
Role of ASB in the post-convergence scenario With regard to the role of ASB of the ICAI in the post-convergence scenario, the ICAI decide decided d to gener generall ally y endors endorse e the role of the nation national al standa standardrdsetters
as
envisag saged
in
the
Stat Statem emen entt
of
Best Best
Prac Practi tice ces: s:
Work Workin ing g
Relati Relations onship hips s betwee between n the IASB IASB and other other Accoun Accountin ting g Standard-setters, issued by the IASB, as follows:
Role in formulation of IFRS- equivalent Indian Accounting Standards 1. ASB should should undertake undertake one or more of the following following processes processes in adopting adopting IFRSs:
determine whether each IFRS meets specified criteria set out in local legislation/regulations;
endors endorse e the IFRS IFRS in the form form of IFRS-e IFRS-equi quival valent ent Indian Indian Accoun Accountin ting g Stan Standa dard rds s for for the the loca locall regu regula lato tory ry fram framew ewor ork, k, with with chan change ges, s, if necessary, as mentioned at 2 and 3 below;
pres presen entt the the stan standa dard rds s for for appr approv oval al of NA NACA CAS S for for the the purp purpos ose e of Gove Govern rnme ment nt noti notifi ficat catio ion n Ther Theref efor ore, e, adop adopti ting ng IFRS IFRSs s woul would d be an ongoing process.
2. In gener general, al, workin working g with with the Gover Governme nment nt and regul regulato ators rs for adopti adoption/ on/ implementation of IFRSs, including deciding in rare circumstances whether 44
IFRS any carving out of the IFRS requirements in the existing local conditions is warranted in the public interest . 3. In some cases, as at present, the ASB may continue the policy of removing option optional al treatm treatment ents s and adding adding dis disclo closur sure e requir requireme ements nts to IFRSs IFRSs when when it believes that doing so provides more comparable and useful information in the country. When ASB makes any change to an IFRS, for example, adding a disclosure that is considered necessary in the local environment, or removing an optional treatment, this should be made clear so that users of the IFRS are aware of the changes. In some cases, certain changes in terminology in IFRS may be required keeping in view legal requirements, e.g., replacing the term ‘tr ‘true & fair air’ for for ‘pr ‘present sent fair fairlly’, in IAS IAS 1, ‘Prese ‘Presenta ntatio tion n of Financ Financial ial Statements’ . Such changes do not lead to non-convergence with IFRS.
4. Inevitably, questions of interpretation will arise when IFRSs are applied. Accordingly, ASB should be familiar with the implementation of IFRSs in the countr country. y. This This famili familiari arizat zation ion proces process s may involv involve, e, or depend depend upon, upon, close close liaison with local capital market and industry regulators. If ASB believes that an issue issue requ requir ires es inte interp rpre retat tatio ion n of IFRS IFRSs, s, it shoul should d requ reques estt the the IFRI IFRIC C to addr addres ess s the the issu issue. e. If IFRI IFRIC C incl includ udes es the the matt matter er for for inte interp rpre retat tatio ion n on its its Agenda, interpretation/guidance on the matter should not be issued. If IFRIC does does not not incl includ ude e the the matt matter er on its its Ag Agen enda, da, it issu issues es reas reason ons s ther theref efor ore e including what a particular requirement of an IFRS means. This itself can provide guidance to various stakeholders. The IFRIC or IASB IASB staff may decide decide that an amendment to an IFRS is the more appropriate course to follow. As part of this process, other accounting standard setters that face a common issue could work together to formulate a possible approach to the issue for resolution by the IFRIC or the IASB. IFRSs IFRSs are intend intended ed to apply apply worldw worldwide ide regar regardle dless ss of local local legisl legislati ative ve and regula regulator tory y enviro environme nments nts.. Howeve However, r, some some iss issues ues may relat relate e to partic particula ularr legislative or other local requirements. In these cases, ASB may decide to 45
IFRS issue guidance. Care needs to be exercised, however, to ensure that the issues are not more widely relevant. In considering such issues, ASB should liaise with the IFRIC, and if it believes it is necessary to issue any guidance, it should avoid incompatibility with IFRSs.
Role of ASB in influencing IFRSs before their finalization 1. ASB should have a role in communicating IASB activities and outputs to the industry and other stakeholders stakeholders through through educational educational and promotion promotional al activities, including publishing or distributing IASB consultative documents in the jurisdic jurisdictio tions, ns, and in both both provid providing ing the IASB IASB with with feedba feedback ck on these these activities and outputs themselves and encouraging them to provide feedback to the IASB.
2. AS ASB B sh shou ould ld enco encour urag age e vari variou ous s stak stakeh ehol olde ders rs to comm commen entt on IASB IASB consultative documents direct to the IASB as well as to the ASB.
3. Foru Forums ms of comm commun unic icat atin ing g view views s othe otherr than than comm commen entt lett letter ers s are are increa increasin singly gly impor importan tantt in gather gathering ing views views,, includ including ing forums forums on specif specific ic issues. ASB should use these forums as a mechanism for encouraging the stakeholders to participate in the IASB’s standard-setting process.
4. ASB can assist the IASB in identifying constituents who can be involved in roun roundd-ta tabl ble e disc discus ussi sion ons s and and othe otherr foru forums ms and and the the issu issues es of part partic icul ular ar relevance to the stakeholders.
5. Without limiting the direct communication of ideas to the IASB, ASB has a role in communicating the views and ideas of the stakeholders to the IASB thro throug ugh h the the consu consult ltat atio ion n proc proces ess— s—pr prov ovid idin ing g a foru forum m for for view views. s. Othe Otherr organi organizat zation ions, s, such such as repre represen sentat tative ive bodies bodies with with an inter interest est in financ financial ial repor reportin ting, g, may also contr contribu ibute te to this this proces process. s. ASB should should make make its own 46
IFRS submissions to the IASB on consultative documents and should convey its view views s to the the IASB IASB rath rather er than than prov provid ide e mere merely ly a sy synt nthe hesi sis s of the the view views s expressed by the stakeholders.
6. ASB should make the IASB aware of any major conceptual differences of opinion it may have with a project as early as possible in the life of a project. This would require ASB to monitor closely the development of the project.
7. The IASB’s IASB’s work programme programme is a subject subject on which it would be particular particularly ly help helpfu full for for AS ASB B to chan channe nell its its view views s and thos those e of the the stake stakeho hold lder ers s in a constructive manner. Since the IASB is unable to respond to every interested part party’ y’s s requ reques estt to deal deal with with a topi topic, c, AS ASB B shoul should d seek seek the the view views s of the the stakeholders on work programme priorities and collect and summarize them for consideration by the IASB.
8. Direct involvement of ASB in the IASB’s projects would help to ensure that a wide range of views and ideas are considered in the early stages of the development of a project. The IASB may provide opportunities to ASB to be directly involved with IASB projects in the following ways:
Involvement in a ‘research project’ alone, or, in partnership with a team of other standard-setters (either as a leader of the team or as team memb member er), ), unde underr the the guid guidan ance ce of IASB IASB staf stafff and and sele select cted ed Boar Board d advisers.
Involvement of the ASB staff in a ‘project team’ on an active IASB project under the direction of the IASB directors.
9. ASB may conduct research or develop thinking on a topic that has not been identified by the IASB as a current priority, and then present the results of that work for consideration by the IASB and/or other national accounting standard setters. For there to be an expectation that those materials would be considered there would need to be some advance agreement both that 47
IFRS the topic is worthy of consideration and that the IASB and/or other standardsetters have a common interest in the topic.
10. The IASB would welcome offers of staff assistance from the ASB. To be effe effect ctiv ive, e, from from both both the the IASB IASB’s ’s pers perspe pect ctiv ive e and and that that of the the AS ASB, B, this this involvement needs to be undertaken with a clear understanding of the staff member’s role and responsibilities.
11.. The IASB 11 IASB establ establish ishes es workin working g groups groups for some some projec projects, ts, and invite invites s constituents to nominate candidates for membership of these groups. The work workin ing g grou groups ps are are a sourc source e of expe expert rt advic advice e and and idea ideas s for for the the staf stafff in progressing progressing a particular particular project. project. ASB may be able to assist in the process of making nominations to, and in facilitating the operations of, working groups by identifying and encouraging suitable individuals to nominate themselves and, if appointed, to liaise actively with those individuals and assist them when needed.
12. The views of ASB can be a valuable source of independent thought in the development of IASB documents. ASB should provide comments to the IASB on consultative documents such as Exposure Drafts and Discussion Papers. If time does not permit ASB-level input, comment from staff of the ASB can be provided. If ASB is unable to comment on each consultative document it shou sh ould ld focu focus s on thos those e proj projec ects ts that that are are of part partic icul ular ar impo import rtan ance ce to the the country, or those on which the ASB believes it can best contribute. It may also be helpful for ASB to comment on other IASB documents, such as issues papers and draft Discussion Papers when it believes that the IASB would benefit from their input at an early stage.
Expectations Expectations from the IASB To ensure smooth convergence with IFRSs, upto 2011 and thereafter also, IASB is also expected to play an important role as follows: 48
IFRS
Provide guidance on issues emerging on adoption of IFRSs on timely basis at least upto 2011.
Addr Ad dre ess
conc concer erns ns
abou aboutt
the the
com complex plexit ity y
and
struc tructture ure
of
the
international standards.
Write Write standa standards rds in simple simple Englis English h that that is unders understan tandabl dable, e, clear clear and capable of translation and consistent application.
In developing the IFRS and setting effective dates, be cognizant of the fact that the final standards are required to be translated in India for the purpose of Government Notification.
In considering changes to the IFRS, be cognizant of the cost vs. the benefits of the proposed changes.
Establish a process, or enhance the existing process to respond in a timely manner to requests for interpretations.
Consider the development of implementation guidance.
49
IFRS DIFFERENCES BETWEEN INDIAN GAAP AND IFRS Presentation of Financial Statements – Particulars
Standard Balan alanc ce Sh Sheet
Income Statement Statement of Comprehensive Income Statement of changes in equity Cash flow statement Accounting Policies Notes to financial statements Prepa Preparat ration ion and Presentation
Estimation Uncertainty
Standards followed under Indian GAAP AS 1 – Disclosure of Accounting Policies Required. Th The bal balan anc ce sh sheet is neit neithe herr class lassif ifie ied d into nto current and non-current nor is it in order of liquidity.
Required
On transition to IFRS IAS 1 – Presentati ation of Financial Statements Required. An entity is required to present current and and nonnon-cu curr rren entt asse assets ts,, and current and noncurrent liabilities, as separate separate classificat classifications ions in the statem statement ent of financi financial al position. Required
Not required
Required
No sepa separa rate te stat statem emen entt of chan change ges s in sh shar areh ehol olde der’ r’s s equity is required. Required
A sepa separa rate te stat statem emen entt of change changes s in share sharehol holder der’s ’s equity is required. Required
Required
Required
Required
Required
Fina Financ ncia iall stat statem emen ents ts are are presented on a single-entity parent company (standalone) basis. It is not mandatory to prepare consolidated financial stat statem emen ents ts but but must must us use e the consolidation standard if prepared.
Finan Financi cial al stat statem emen ents ts are are presented on a conso consoli lidat dated ed basi basis. s. On a volunt voluntary ary basis, basis, an entity entity may presen presentt sin single gle-en -entit tity y parent company (stand andalone) financ ancial statem statement ents s along along with with its consol solidate ated financ ancial statements.
Not required.
The nature of the uncertainty and the carryi carrying ng amount amounts s of such such assets and liabilities at the 50
IFRS
Income Statement Format
Disclosed as a separate item after profit before tax on the face of income statement.
Extraordinary items
Defined as events or transactio transactions ns clearly clearly distinct distinct from the ordinary ordinary activitie activities s of the the ent entity ity and are are not not expected to recur frequently and regularly.
end of the reporting period are required to be disclosed. Fringe Benefit tax is included as a part of relate ated expense which gives rise to incurrence of tax. Prohi ohibite bited. d. All item tems of inco income me and and expe expens nse e are are considere considered d to derive derive from an entity’s ordinary activities.
Inventories – Standards followed under Indian GAAP Standard AS 2 – Valuation of Inventories Cost Formulae Stated at cost on weighted average basis. Cons Consis iste tenc ncy y of Not specified cost formulae for for simi simillar inventories
Particulars
On transition to IFRS IAS 2 – Inventories No change required. Same cost formulae is used us ed for for all all inv invent entori ories that that have have simi simila larr natu nature re and use to the entity
51
IFRS
Cash Flow Statements – Stand Standard ards s fo follo llowed wed On transition to IFRS under Indian GAAP AS 3 – Cash Flow IAS IAS 7 – Stat Statem eme ent of Statements Cash Flows
Particulars
Standard
Cash a nd equivalents
Cash No provision in AS 3 for Cash may include bank class classif ific icati ation on of bank bank overdrafts repayable on overdrafts. demand but not shortterm bank borrowing borrowings; s; these are considered to be financing cash flows.
Format Format and content content of cash flow statement Cash Cash flows flows associ associate ated d with extraord extraordinary inary items Disc Disclo losu sure re of inte intere rest st paid and received
Indirect method.
No change required.
Separa arately disc scllosed.
Prohibited.
Interest paid should be disclo dis closed sed as financ financing ing cash cash flow flow and intere interest st received should be disclo dis closed sed as invest investing ing cash flow.
Interest paid should be disclo dis closed sed as operat operating ing or fina financ ncin ing. g. Inte Intere rest st received is disclosed as either operating or investing cash flow.
52
IFRS Disclosure of dividend paid Disclosure of dividend received Disclosure of taxes paid Disclosure of cash payments
Financing.
Operating or financing.
Investing.
Operating or investing.
Operating.
Similar.
No such requirement.
Additional disclosure of cash payments by a lessee rela relati ting ng to finan finance ce lease lease under financing financing activiti activities, es, addit additio iona nall disc disclo losu sure res s in CFS and for acquisition of subsidiaries.
Events after the Reporting Period – Particulars Standard
Standards followed On transition to IFRS under Indian GAAP AS 4 – Contingencies an a nd IAS 10 - Events After the Events Events Occur Occurri ring ng after after the Reporting Period Balance Sheet Date
Accounting Policies, Policies, Changes in Accounting Estimates Estimates and Error – Particulars
Standards followed under Indian GAAP Standard AS 5 - Net Profit or Loss for the Period, Prior Period Items a nd Changes in Accounting Policies Definition of AS 5 cove covers rs only only item items s of prior period income and expenses under items the definition of prior period items. AS 5 do not include balance sheet miscla misclassi ssific ficati ation, on, which which do not have an income statement impact.
On transition to IFRS IAS 8 - Accounting Policies, Chan Change ges s in Acco Ac coun untting Estimates and Errors IAS 8 covers all the items in financial statements.
53
IFRS Prior items
period Repo Report rted ed as a prio priorr peri period od adjust adjustmen mentt in curre current nt year year resu result lts. s. Comp Compar arat ativ ives es are are not restated.
Errors
Prior period errors are included in determination of profit or loss of the period in which the error is discovered.
An entity sh shal alll correct material prior period errors retrospect retrospectivel ively y in the first set of financial statements aut author horized zed for for issue ssue by restating restating the comparati comparative ve amounts for the prior period(s) presented in which the error occurred. Material prior period errors are corrected retrospectively by restating restating the comparati comparative ve amount amounts s for prior prior period periods s pres presen entted in whic hich the the err error occu occurrred or if the the error error occurr occurred ed before before the earliest earliest period period presented, presented, by rest restati ating ng the the open openin ing g stat state ement of financ ancial position.
Property, Plant and Equipment – Particulars Standard
Method depreciation
Change method depreciation
Standards followed On transition to IFRS under Indian GAAP AS 6 – Depreciation IAS IAS 16 - Prope operty, ty, Plant ant Accounting and Equipment of Stra Straig ight ht-- Line Line basi basis s Meth Method od..
in Requir Requires es retros retrospec pectiv tive e reof computation of depreciation and any excess or deficit on suc su ch re-computation be requ requir ired ed to be adjus adjuste ted d in the the per period in which hich su suc ch change is effected. (*)Reassessment Not currently required. of useful life and
Simi Simila larr but but othe otherr meth method ods s such as diminishing bala balanc nce e meth method od and and the the units of production method are also available. Chan Change ges s in us usef eful ul life life is cons consid ider ered ed as chan change ge in acco accoun unti ting ng esti estima mate te and applied prospectively.
Requires annual reassessment of useful life. 54
IFRS depreciation method
Revenue Recognition – Particulars Standard
Revenue Definition
Standards followed On transition to IFRS under Indian GAAP AS 9 – Revenue IAS 18 - Revenue Recognition IFRIC 13 - Custo stomer Loyalty Programmes
Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities from the scheduled services (such as passenger, excess baggage, mail, and cargo), and from the use by others of enterprise resources yielding handling and servicing revenue, manu manufac factu ture rers rs cred credit it and and incidental revenue.
Measureme Measurement nt of Passenger revenue is revenue recogn recognize ized d on flown flown basis. basis. While Cargo revenue is reco recogn gniz ized ed on upli uplift ft basi basis s after making the necessary adjust adjustmen ments ts for estim estimate ated d cargo cargo carri carriage age beyond beyond the year-end. year-end. The Pool Revenue is accounted on accrual basis as per the arrangement with the airlines concerned. Interest Interest is is re recognized on on a time proportion basis taking int into acc account ount the the amou amount nt outs outsta tand ndin ing g and and the the rate rate applicable.
Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows resu sullt in increa increases ses in equity equity,, other other than than incre increase ases s relat relating ing to contri contribut bution ions s from from equity equity participants. Amounts collected on behalf of third parties such as sales and service taxes and value-added taxes are exclud excluded ed from from reven revenues ues.. (IAS 18) Fair value of revenue from sale of goods and services when when the the infl inflow ow of cash cash and and cash ash equi equiv valen alents ts is deferred is determined by discounting all future receipts using an imputed rate of interest. (IAS 18)
Interest income is recognized using the effective effective interest interest method. method. (IAS 18) 55
IFRS (*)Customer Loyalty Programmes
No sp spec ecif ific ic guid guidanc ance. e. The The company any operates joint “Frequent Flyer Prog Progra ramm mme” e” for for whic which h the the esti estim mated ated food food cost cost and and legal liability if any for free travel under this progra programm mme e is provid provided ed for and and char charge ged d to Prof Profit it and and Loss Account.
Awar Award d cred credit its s grant granted ed to customers as part of a sales transaction are accounted for as a sep separat aratel ely y ident dentiifiab fiablle comp compo onent nent of the sal sales tran transa sact ctio ion( n(s) s),, with with the the consid considera eratio tion n recei received ved or receivable allocated between the award credits and the other components of the sale.
Standards followed under Indian GAAP AS 10 - Accounting for Fixed Assets AS 10 does not require full adoptio adoption n of the compon component ent approach. Aircraft are stated at pur purchase hase pric price. e. Othe ther asse assetts incl ncludi uding air aircraft aft rotables are capitalized and stated at historical cost.
On transition to IFRS
Fixed Assets – Particulars Standard Component accounting
Sale/scrap Fixed Assets
of Gain Gain or loss loss aris arisin ing g out out of sale/ sale/sc scra rap p of Fixe Fixed d As Asse sets ts incl includ udin ing g airc aircra raft ft over over the the net net depr deprec eciiated ated value alue is taken to Profit & Loss accou account nt as Non-O Non-Ope pera rati ting ng Revenue or Expenses.
IAS IAS 16 - Prope operty, ty, Plant ant and Equipment IAS 16 mandates comp compon onen entt acco accoun unti ting ng.. Under component accounting approach, each majo majorr part part of an item item of equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. Non-current assets classified as held for sales are measured at the lower of its its carr carryi ying ng valu value e and fair value less costs to sell. Non-c Non-cur urre rent nt asse assets ts to be dispos dis posed ed of are classi classifie fied d as held for sale when the asset is available for imme immedi diat ate e sale sale and and the the sale is highly probable.
Foreign Exchange – Particulars
Standards
followed On On transition to IFRS 56
IFRS
Standard
Exchange Differences
under Indian GAAP AS 11 - The Effects of IAS 21 - The Effects of Changes in Foreign Changes in Foreign Exchange Rates Exchange Rates Exch Exchan ange ge diff differ eren ence ces s on conversion of foreign curr curren ency cy loan loans/ s/li liab abil ilit itie ies s take taken/ n/in incu curr rred ed afte afterr Ap Apri rill 01, 2004 in respect of qualifying assets is reco recogn gniz ized ed in the the Prof Profit it & Loss Account; or before 31 March 2004 are capitalize capitalized d in the the carr carryi ying ng amou amount nt of these assets.
Transla slation in Foreign currency the consolidated denominated current assets financial a nd current liabilities statements bala balanc nces es at the the year year-e -end nd are are tran transl slate ated d at the the year year en d exchange rate circulated by Foreign Exchange Dealers Associatio Association n of India (FEDAI), and the gains/losses arising o ut of fluctuations in exchange rates are recognized in the Profit and Loss Account. Forward Contracts
Forward Forward exchange exchange contract contract intended for trading or speculation purposes: The premium or discount on the contract is ignored and at each balance sheet date, the value of the contract is marked to its current market market value value and the gain gain or loss loss on the the cont contra ract ct is recognized.
Simi Simillar to Ind Indian ian GAAP GAAP,, exchange differences aris arisin ing g on tran transl slat atio ion n or settlement of foreign curre currency ncy moneta monetary ry items items are recognized in profit or loss in the period in which they arise.
Assets a nd liabilities should should be transl translate ated d from from functional currency to pres presen enta tati tion on curr curren ency cy at the closing rate at the date of the statement of financi financial al positi position; on; income income a nd expenses at actu actual al/a /ave vera rage ge rate rates s for for the period; exchange differences are recognized in othe otherr comp compre rehe hens nsiv ive e incom ncome e and and recy ecycle cled to profit or loss on disposal of the operation. Accounted as a derivative. It is covered in IAS – 39: Financ ancial Instr strument – Recognition and Measurement.
Accounting for Investments – 57
IFRS Particulars Standard
Investments
Standards followed On transition to IFRS under Indian GAAP AS 13 - Accounting for IAS 39 Financial Investments Instru Instrumen ments: ts: Recog Recognit nition ion and Measurement Investments are classified Financ Financial ial ins instr trume uments nts are as long-term or current. clas classi sifi fied ed as at fair fair valu value e through profit or loss if it is Long-term Long-term investmen investments ts are held for tradi ading or has carried at cost less provision been designated as at fair for diminution in value. value through profit or loss upon initial recognition. Cur Current ent inve nvestme stment nts s are are carried at lower of cost and Financ Financial ial ins instr trume uments nts are fair value. classified as held for trading if these are acquired or incurred principally for the purpose of selling or repurchase in the near future, is part of a portfo portfolio lio that that is manage managed d together and for which there is evidence of recent actu actual al pat patter tern of sh shor orttterm profit taking or der derivati ative that that is not not a financial guarantee contract or is not designated as an effective hedging instrument. Financ Financial ial ins instru trumen ments ts can be designated at fair value through profit or loss only if it eliminates or reduces measurement or recogn recogniti ition on incons inconsist istenc ency y or a group of financial instrumen instruments ts are managed managed a nd its performance eval evalua uate ted d on a fair fair valu value e basis in accordance with a documented risk management strategy and informati ation about this grou group p of inst instru rume ment nts s are are 58
IFRS provided to key management personnel.
Investm stment convertible bonds
Held-to-maturity investments are nonderivativ derivative e financial financial assets assets with fixed or determinable payments a nd fixed maturity that an entity has positi positive ve intent intent and abilit ability y to hold to maturity. Held to matu maturi rity ty inve invest stme ment nts s is measu easurred at amo amortize tized d cost using effective interest method. in The The enti entire re ins nstr trum umen entt is The holder may: accounted for as debt ♦ desi design gnat ate e the the hybr hybrid id investment. ins nstr trum umen entt as at fai fair value value throug through h profit profit or loss loss su subj bjec ectt to cert certai ain n conditions, or ♦ designate the debt element as available for sale with changes in fair value recognized in equity an d the conver conversio sion n option option as a derivative with changes in fair value recognized in profit or loss, or ♦ recognize the debt elem elemen entt as loan loans s and and receivables and meas measur ure e at amor amorti tize zed d cost and the conversion opti option on as a deri deriva vati tive ve with changes in fair value recognized in profit or loss.
Employee Benefits – Particulars
Standards followed On transition to IFRS under Indian GAAP 59
IFRS Standard
AS 15 (Revised 2005) Employee Benefits
- IAS 19 - Employee Benefits
IAS 19, Actuarial Detailed Detailed actuarial actuarial valuation valuation valuation to determin determine e present present value of the benefit benefit obliga obligatio tion n is car carried out out at leas leastt once nce ever every y thre three e year years s and and fair fair valu values es of plan plan asse assets ts are are determined at each balance sheet date.
IAS 19, Employee benefits actu actuar aria iall gain gains s and losses
Recogn Recogniz ized ed immedi immediate ately ly in the statement of profit and loss as an income or expense.
IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requ Requir irem emen ents ts and and thei theirr Interaction Similar, b ut detailed actuarial valuation to determine the present valu value e of defi define ned d bene benefi fitt obligati ation and and the fair air valu alue of plan assets is perfor performed med with with suffic sufficien ientt regularity so that the amounts recognized in the financial statements do not differ differ materi materiall ally y from from the amount amounts s that would would have have been been dete determ rmin ined ed at the the end of the reporting period. -
Recognized immediately in profit or loss;
-
Recognized imme immedi diat atel ely y in othe otherr comprehensive income; or
-
Deferred up to a maximum with a ny exce xcess of 10% of the the grea greate terr of the the defi define ned d benefit obligation or the fair fair value alue of the the plan plan assets at the end of the previous reporting period being recognized over the expected average remaining working lives of the participating employees 60
IFRS or other ther basis.
acc acceler elerat ated ed
-
(*)IFR (*)IFRIC IC 14 14,, The No specific guidance. Limit on a Define Defined d Benef Benefit it Asset, Ass et, Minim Minimum um Funding Requirements an d their Interaction
Addresses when refunds or reductions are regarded as available for recognition of an asset; how funding requi equirreme ements nts in futur uture e may effect the availability of reductions in future cont contri ribu buti tion ons s and and when when minimum funding requirement may give rise to a liability.
(*)Termination Benefits
An entity should recognize termin terminati ation on benefi benefits ts as a liab liabil ilit ity y and and an expe expens nse e only when it is demons demonstra trably bly commit committed ted to either: (i) terminate the employment of an employee before the normal retirement date; or (ii) (ii) prov provid ide e term termin inat atio ion n benefits as a result of an offer made in order to encourage voluntary redundancy. Similar but asset is limited to the lower of the net total total of any unreco unrecogni gnized zed actu actuar aria iall losse losses s and past past service cost a nd the present value of a ny available refunds from the plan or reduction in future contributions to the plan.
(*)Asset Ceiling
An entity entity should should recogn recognize ize term termin inat atio ion n bene benefi fits ts as a liab liabiility ity and and an expe xpens nse e when, and only when (a) the entity has a present obli obliga gati tion on as a resu result lt of a past event; (b) (b) it is prob probab ablle that that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a relia reliable ble estim estimate ate can be made of the amount of the obligation. If the net amount determined to be reco recogn gniz ized ed in the the bala balanc nce e sheet is negative (an asset), reco recogn gnit itio ion n of the the asset asset is limited to the lower of: (a) the the asse assett resul esultting ing from from applyin applying g the standar standard, d, and (b) the present value of any economic benefits available in the form of refunds from the the plan plan or reduc educttions ions in future future contr contribu ibutio tions ns to the plan.
61
IFRS Borrowing Costs – Particulars Standard Recognition
(*)Capitalization Rate
Standards followed On transition to IFRS under Indian GAAP AS 16 - Borrowing Costs IAS 23 - Borrowing Costs Borrowing cost that are Similar but borrowing costs directly attributabl able to are also expensed as acquisitio acquisition, n, constructio construction n or incurred (not permitted for pro product ductio ion n of qual qualiifyi fying qualifying assets for which ass assets including capi apital the capitalization date falls work-in-progress are in annual periods capitalize capitalized d up to the date of begi beginn nniing on or aft after 1 commercial use of the January 2009). assets. assets. Recogn Recognizi izing, ng, as an expe expens nse e when when incu incurr rred ed is not permitted. No disclosure required. The disclosure requi equirreme ements nts of IAS IAS 23 require the entity to disc disclo lose se separ eparat atel ely y the the capitalization rate used to dete determ rmin ine e the the amou amount nt of borrowing costs.
Segment Reporting – Particulars Standard
Standards followed On transition to IFRS under Indian GAAP AS 17 - Segment Reporting IFRS 8 – Operating Segments
Determination of AS 17 requires an enterprise segments to identify two sets of segm segme ents nts (bus (busin ine ess and and geographical), using a risks and rewards approach. The company is engaged in air airline line relat elated ed busi busine ness ss,, which is its primary business segment, a nd hence, seg segment resu sullts are not disc discllosed osed.. The The deta detail ils s of geogra geographi phical cal wise wise revenu revenue e earned based on either the loc locatio ation n of prod produc ucti tion on or
IFRS IFRS 8 requi require res s operat operating ing segmen segments ts to be identi identifie fied d on the the basi basis s of int interna ernall reports reports about components components of the group that are regularly regularly reviewed reviewed by the chie chieff oper operat atin ing g deci decisi sion on maker in order to allocate resour resources ces to the segmen segmentt a nd to assess its performance. For each ach operat operating ing segmen segmentt profit profit or loss needs to be reco recogn gniz ized ed by the the chie chief f 62
IFRS servi service ce facili facilitie ties s and other other decision-maker. asset assets s of an ente enterp rpri rise se;; or the location of its customers are specified for areas such as USA/Canada; USA/Canada; UK/Europe; UK/Europe; Asia, Africa, & Australia; and India. Measurement
The major revenue-earning asset of the company is the aircraft fleet, which is flexibly flexibly deployed deployed across across its worl worldw dwid ide e rout route e netw networ ork. k. There is no suitable basis for allocation of assets to geog geogrraphi aphic cal segm segme ents. nts. Cons Conseq eque uent ntly ly,, area area-w -wis ise e assets are not disclosed.
Segm Segmen entt prof profit it or loss loss is reported on the same measurement basis as that used by the chief operating operating decision-m decision-maker. aker. The There re is no defi defini niti tion on of segment revenue, segment expense, segment result, a nd segment asset or segment liability. Entity wide Disclosures of airline related Requir Requires es dis disclo closur sure e of (a) disclosures business as its primary exte extern rnal al reve revenu nues es from from business segment. each each prod produc uctt or serv servic ice; e; ( b) revenues from custom customer ers s in the countr country y of domicile and from foreign countries; (c ) geogra geographi phical cal inform informati ation on on non-current assets loca locate ted d in the the coun countr try y of domicile a nd foreign countries.
Related Party Disclosures Particulars Standard
Identi Identific ficati ation on
Standards followed On transition to IFRS under Indian GAAP AS 18 – Related Party IAS 24 - Related Party Disclosures Disclosures Post Post emplo employme yment nt benefi benefitt Related party includes post plan plans s are are not not incl includ uded ed as employme employment nt benefit benefit plans related parties. for the benefit of employees of the reporting 63
IFRS entity or any entity that is a related party of the reporting entity. Key No other other transa transacti ctions ons with with Compensation of key Management key manag manager eria iall pers person onne nell management management personnel personnel is Personnel exce except pt Remu Remune nera rati tion on and disclosed in total and Perq Perqui uisi site tes s to Chai Chairm rman an & sepa separa rate tely ly for for (a) (a) sh shor orttManaging Director and term term empl employ oyee ee bene benefi fits ts;; Functional Directors. (b) post-employment Transactions such asbene benefi fits ts;; (c) (c) othe otherr long long-providing Airline services in term benefits; ( d) the normal course of Airline termin terminati ation on benefi benefits; ts; and busines business s are not includ included. ed. (e) share-based payments. Howeve However, r, compen compensat sation ion of key management personnel need needs s to be disc discllose osed in total as an aggregate of all items. Close relatives AS 18 includes specific IAS 24 adopts a more relations as relatives. 'substance over form' based approach in defining relatives as close members of the fami amily, i.e., who influence and can be influenced by the individual in his/ her dealings with the reporting entity. Info Inforrmati mation on to Name Name of the the rela relate ted d part party y Relat elatio ions nshi hips ps betw betwe een be disclosed and and natu nature re of the the rela relate ted d paren parents ts and su subs bsid idia iari ries es part party y rela relati tion onsh ship ip wher where e sh shal alll be disc disclo lose sed d and and if cont contro roll exis exists ts is disc disclo lose sed d neither the entity's parent for key managerial nor the ultimate controlling personnel and relatives. party party prod produc uces es finan financi cial al state stateme ment nts s avai availa labl ble e for for publ public ic us use, e, the the nam name of the next most senior paren parentt that that does does so sh shal alll also be disclosed. The reportin reporting g entity entity should should An entity shall disclose the disclose the name, nature of the related party relationship, nature, volume relati ationsh shiip as well as of transac sactions and any information about the other elements of the transactions and rela relate ted d part party y tran transac sacti tion ons s outstanding balances necessary for an necessary for an 64
IFRS understanding of the fina financ ncia iall stat statem emen ents ts.. An Any y outstanding items pertaining to related parties at the the bala balanc nce e sh shee eett date date and provis provision ions s for doubtf doubtful ul debts due from such parties at that that date date and and amou amount nts s written-off or written-back in the period in respect of debts due from or to related parties.
understanding of the potential effect of the relationship on the financi financial al statem statement ents. s. At a minimum, disclosures shall include the amount of the tran transa sact ctio ions ns,, amou amount nt of outstan outstandin ding g balance balances s and their terms and conditions, prov provis isiions ons for for doub doubttful ful debts related to the amo amount of outstan stand ding balances and the expense recognized during the period in respect of bad or doub doubtf tful ul debt debts s due due from from related parties.
Leases – Particulars Standard
Standards followed On transition to IFRS under Indian GAAP AS 19 - Leases IAS 17 - Leases IFRIC 4 - Determining Whethe Whetherr an Arrange Arrangemen mentt Contains a Lease SIC 15 – Operating Leases - Incentives SIC SIC 27 – Eval Evalua uati ting ng the the Substance Substance of Transactio Transactions ns Involving the Legal Form of a Lease
IFRIC 12 Service Concession Arrangements Interest in Leaseh Leasehold old land land is record recorded ed Reco Recogn gniz ized ed as oper operat atin ing g leasehold land as fixed assets. leas lease e (i.e (i.e.. prep prepay ayme ment nt)) unless the leasehold interest is accounted for as inve invest stme ment nt prop proper erty ty and and the fair air valu alue model is adopted. (IAS 17) 65
IFRS Sale Sale and and Leas Lease e If sale a nd leaseback Back tran trans sact action ion resul esultts in an oper operat atin ing g leas lease, e, and and it is clear that the transaction is esta establ blis ishe hed d at fair fair valu value, e, any any prof profit it or loss loss sh shal alll be recognized immediately. If sale and leaseback results in finance lease, AS 19 requir requires es exces excess/d s/defi eficie ciency ncy both to be deferred and amor amorti tize zed d over over the the leas lease e term term in prop propor orti tion on to the the depr deprec ecia iati tion on of the the lease leased d asset. Initial direct Initial direct costs are either cost costs s of less lessor ors s recogn recognize ized d immed immediat iately ely in for assets under the statement of profit and a finance lease loss or allocated against the fina financ nce e incom ncome e over over the the lease term. Initia Initiall lease lease costs costs incurr incurred ed by manufac manufactur turer er or dealer dealer less lessor ors s are are reco recogn gniz ized ed as expense at the inception of the lease.
Initial direct cost costs s of less lessor ors s for assets under a operating lease
Initia Initiall direct direct costs costs incurr incurred ed by lessors are either defe deferr rred ed and and allo alloca cate ted d to income over the lease term in proportion to the recogniti recognition on of rent income, or are are recognized as an expense in the statement of profit and loss in the period in which they are incurred. (*)Determining There is no such guidance. whether an Payments under s uc h arrangement arrangements are contains a lease reco recogn gniz ized ed in acco accord rdan ance ce with the nature of expense incurred.
No change. (IAS 17)
If a sale and leaseback tran transa sac ction tion resul esults ts in a finance finance lease, lease, any exces excess s of sales proceeds over the carr carryi ying ng amou amount nt shall shall be defe deferr rred ed and and amor amorti tize zed d over over the the leas lease e term term.. (IAS (IAS 17) Initial direct costs are are included in the measurement of the finan finance ce lease lease rece receiv ivab able le and reduce the amount of inco income me reco recogn gniz ized ed over over the lease term. Initial lease costs incurred by manufacturer or dealer lessor lessors s are recogn recognize ized d as expense when selling prof profit it is reco recogn gniz ized ed.. (IAS (IAS 17) Initial direct costs incurred by lessors are added to the car carrying ying amou amount nt of the the leased asset and recognized as an expense over the lease term on the same basis as lease income. (IAS 17)
Arrangements that do not take take the the legal gal for form of a lease ease but but ful fulfill fillm ment ent of which is dependent on the use of specific assets and which convey the rights to use the assets are acco accoun untted for for as lease ease.. 66
IFRS
(*)Evaluating the No specific guidance. Substance of Transactions Involving the Legal Form of a Lease
(*)Service No specific guidance. Concession Arran Arrangem gement ents s – recognition
(IFRIC 4) If a se s eries of tr t ransactions involves the legal form of a lease and can only be understood understood with referenc reference e to the the seri series es as a whol whole, e, then the series is accoun accounted ted for as a sin single gle transaction. (SIC 27) Depending on on th the te terms of of the arrangement, a financial asset is recognized where an operator has the unconditional right to receive cash or other fina financ ncia iall asse assett from from the the grantor over the life of the arrangement. (IFRIC 12)
Earnings per share – Particulars Standard Basic EPS
Disclosure separate financial statements
Standards followed On transition to IFRS under Indian GAAP AS 20 – Earnings Per Share IAS 33 - Earnings per share Basic earnings per share are calcu calcula late ted d by divi dividi ding ng the the net profit or loss for the period attributable to equity shareholders by the weight weighted ed averag average e number number of equity shares outstanding during the period.
in AS 20 requires disclosure of basic a nd diluted EPS information both in the separa separate te and consol consolida idated ted financ financial ial statem statement ents s of the parent.
An enti entity ty sh shal alll calc calcul ulat ate e basi basic c earn earnin ings gs per per share share amount amounts s for profit profit or loss loss attr attrib ibut utab able le to ordi ordina nary ry equity holders of the parent entity a n d, if pres presen ente ted, d, prof profit it or loss loss from continuing operations attributable to those equity holders. IAS IAS 33 perm permit its s that that such such disclosure be made only in the consol consolida idated ted financ financial ial state stateme ment nts s of the the pare parent nt i.e. an entity being a parent who presents consol solidate ated financ ancial 67
IFRS statem statement ents s may elect elect not to make these disclosures in its its sepa separa rate te fina financ ncia iall statements. (*)IAS Earnings share disclosure
33, AS 20 does not per these disclosures. -
require IAS 33 requires requires additional additional disc disclo losu sure res s for for EP EPS S from from continuing and disc discon onti tinu nued ed oper operat atio ions ns.. Disclosure is also required for instruments that could pot potenti ential allly dil dilute ute basi basic c earnings per share in the future, b ut were not included in the calculation of dil dilute uted ear earning nings s per per shar sh are e bec because ause they they are are anti-dilutive for the periods presented.
IAS 33, Earnings The control number for The The cont contrrol num number ber for for Per Share - deter determin mining ing dil diluti ution on is net determining dilution is net Extraordinary profit or loss from profit or loss from items continuing ordinary continuing continuing activitie activities s since act activities. EPS with and and no item can be presented without without extraordi extraordinary nary items items as extraordinary item. is to be presented.
Consolidated Financial Statements – Particulars Standard
(*)Scope
Standards followed On transition to IFRS under Indian GAAP AS 21 Consolidated IAS 27 (2008) Financial Statements Consolidated and Separate Financial Statements SIC 12 Consolidation Special Purpose Entities Indian GAAP does not A pare arent is required to spe sp ecify cify ent entitie ities s that that are are prepare consolidated required to present fina financ nciial stat state ement ments s to consolidated financial consolidate all its statements. subsidiaries. A parent need not prepare 68
IFRS
Control
consol solidate ated financ ancial statem statement ents s only only if all the foll follow owin ing g cond condit itio ions ns are are met: ♦ the entity's debt or equity equity ins instru trume ments nts are not not trad traded ed in a publ public ic market; ♦ the entity is not in a process of filing its financial statements for the purposes of issuing any class of instruments in a public market; and ♦ any intermediate parent of the the enti entity ty prod produc uces es conso consoli lida date ted d finan financi cial al statements available for publi public c use that that comply comply with IFRS’s. Cont Contrrol is the the pow power to gove govern rn the the finan financi cial al and and oper operat atin ing g poli polici cies es of an entity so as to obtain benefits from its activities.
Control is: (a) the owner ownershi ship, p, direct directly ly or indirectly through subsi subsidi diar arie ies, s, of more more than than one-half of the voting power of an enterprise; or ( b) control of the composition of the board of dire direct ctor ors s in the the case ase of a company or of the composition of the corr corres espo pond ndin ing g gove govern rnin ing g body so as to obtain econom economic ic benefi benefits ts from from its activities. Potent Potential ial voting voting Pote Potent ntia iall voti voting ng righ rights ts are are The effect of potential rights not considered in assessing voting rights that are control. curr curren entl tly y exer exerci cisa sabl ble e or convertible, including potential voting rights held by another entity, are considered when assessing control. Exclusion of Excluded from If on acquisition a subsidiaries, consolidation, equity subsidiary meets the 69
IFRS asso associ ciat ates es and and accounting or proportionate criteria to be classified as joint ventures consolidation if the held for sale in accordance subs su bsid idiiary ary was acqu acquiired with IFRS 5, it is included with with inte ntent to disp dispo ose of in the consolidation but is within twelve months or if it acco accoun unte ted d for for unde underr that that operates under severe long- standard. term restr strictions which significantly impair its ability to transfer funds to the parent. Repo Report rtin ing g date dates s The The diff differ eren ence ce betwe between en the the The The diff differ eren ence ce betw betwee een n reporting date of the the the repo report rtin ing g date date of the the subsi subsidi diar ary y and that that of the the subsidiary and that of the pare arent shall all be no more pare parent nt sh shal alll be no more more than six months. than three months. Accou ccount ntiing for for Accounted at cost less Ac Acco coun unte ted d eith either er at cost cost inve invest stme ment nts s in impairment loss. less impairment loss or as subs su bsiidiar diariies in avai availlabl able for sale with separate changes in fair value financial recognized in other state atements of comprehensive income. the parent (*)Goodwill Goodwill or o r ca capital re reserve Goodwill or capital reserve is deter determin mined ed on his histor torica icall is determined on the basis cost basis. of assets or liabilities cons consiider dered at thei heir fair fair value, amortization is also provided.
Deferred Tax Asset – Particulars Standard
Standards followed under Indian GAAP AS 22 - Accounting for Taxes on Income Guidance Note on Accounting for Fringe Benefits Tax
On transition to IFRS IAS 12 - Income Taxes SIC SIC 21 - Incom ncome e Tax Taxes Recovery of Revalued NonDepreciable Assets SIC SIC 25 - Incom ncome e Tax Taxes Changes in the Tax Status of an Entity or its Shareholders
Deferred income Deferred
taxes
are Deferred
taxes
are 70
IFRS taxes
computed for timing diff diffe erenc ences in resp spe ect of recognition of items of profit or loss for the purposes of fina financ ncia iall repo report rtin ing g and and for for income taxes.
Recog ecogni niti tion on of Deferred taxes are generally deferred tax reco recogn gniz ized ed for for all all timi timing ng assets and differences. liabilities
(*)Recognition of No specif specific ic guidanc guidance e in AS taxe taxes s on item items s 22 recognized in other comprehensive income or directly in equity
comp comput uted ed for for temp tempor orar ary y diff differ eren ence ces s betw betwee een n the the carrying amount of an asse assett or liability in the stat state ement of financ ancial position and its tax base. Deferred income taxes are recognized for all temporary ary differences betw betwee een n acco accoun unti ting ng and tax base ase of assets and liabilities. Curren Currentt tax and deferr deferred ed tax is recog recogniz nized ed outsid outside e profit or loss if the tax rela relate tes s to item items s that that are are recognized in the same or a different different period, outside outside profit or loss. Therefore the tax on items recognized in other comprehensive income or directly in equity, is also recorded in other comprehensive income or in equity, as appropriate. Deferred tax asset is recognized for carry forward unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and tax credits can be utilized.
Recog ecogni niti tion on of Deferred tax asset for deferred tax unused tax losses and assets unabsor unabsorbed bed deprec depreciat iation ion is recognized only to the extent extent that that there there is virtua virtuall certainty supported by conv convin inci cing ng evid eviden ence ce that that suff su ffiicien cientt futu futurre tax taxabl able inc income ome will be avai availlabl able against which such deferred tax assets can be realized. (*)D (*)Def efer erre red d tax tax No specific guidance. If the potential benefit of business the acquiree's acquiree's income income tax combinations loss carr arry-fo -forward ards or other other deferr deferred ed tax assets assets did not satisfy the criteria in IFRS 3 for separate recognition when the business business combinati combination on was 71
IFRS
Classification
(*)Di *)Disc scllosur osure e
Fri Fringe nge Bene Benefi fitt tax
(*)SIC 21, Recovery of Reval evalue ued d NonNonDepreciable Assets (*)SIC 25, Chan Change ges s in Tax Tax
init initia iall lly y accou account nted ed but but if such benefit is subseq subsequen uently tly recogn recognize ized, d, goodwill is reduced to record pre-acquisition deferred deferred tax assets assets which which are are reco recogn gniz ized ed with within in 12 months months of the acquis acquisiti ition on date as result of new info inform rmati ation on on facts facts and and circumstances that existed on the acquisition date. Always Always classi classifie fied d as nonnoncurrent, if current and noncurr curren entt clas classi sifi fica cati tion on is presented.
Deferred tax assets are to be disclosed on the face of the balance sheet sepa separa rate tely ly afte afterr the the head head 'Investmen 'Investments'. ts'. Deferred Deferred tax liabilities are to be disclosed after after the the head head 'Unse 'Unsecu cure red d Loans'. No su such ch requir quire ement. ent. Recon econci cili liat atiion is pre present sente ed betw betwee een n the the inco income me tax tax expense (income) reported a nd the product of accounting profit multiplied by the applicable tax rate. Unrecognized deferred tax liab liabil ilit ity y on undi undist stri ribu bute ted d earn earnin ings gs of su subs bsid idia iari ries es,, branch branches, es, associa associates tes and joint ventures. Frin Fringe ge bene benefi fitt tax tax is to be Does not meet definition of disclosed as a separate item income taxes a nd is afte afterr det determ ermining ning prof profiit reported as part art of the before tax for the period in underlying expense. whi which the the relat elate ed fri fringe nge benefits are recognized. No specific guidance. Measurement of deferred tax liability or asset arising from from reval revaluati uation on is based based on the the tax tax conse consequ quen ence ces s from the sale of asset rather than through use. No specific guidance. Current and deferred tax consequences are included 72
IFRS Status of an Entity or its Shareholders
in the profit or loss of the peri period od of chan change ge unle unless ss the consequences relate to transact actions or events recogn recognize ized d outsid outside e profit profit or loss either in other comprehens comprehensive ive income income or dire direct ctly ly in equi equity ty in the the same or a different period.
Investments in Associates – Particulars Standard
Standards followed On transition to IFRS under Indian GAAP AS 23 - Accounting for IAS IAS 28 - Inve Invest stme ment nts s in Investments in Associates in Associates Consolidated Financial Statements
Significant influence
Pote Potent ntia iall voti voting ng righ rights ts are are The existence and effect of not considered in assessing potential potential voting rights rights that significant influence. are curren currently tly exerc exercisab isable le or convertible are considered when assessing significant influence.
Scope
Currently there is no exempt exemption ion for invest investmen ments ts made made by vent enture ure capi apital tal organizations, mutual funds, unit trusts a nd similar entities from applying equity method.
Accounting The Consolidated Financial Statements
In Equity method. If the reporting entity does not not hav have su subs bsid idia iari ries es but but has has an assoc associa iate te,, it woul would d not be requir required ed to prepar prepare e consolidated financial statements.
Inve Invest stme ment nts s by vent ventur ure e capital organi anizations, mutu mutual al fund funds, s, unit unit trus trusts ts a nd similar entities including investm stmentlinked insurance funds are exem exempt pted ed from from apply applyin ing g equity method, if an election is made to measure such investments at fair value through profit or loss under IAS 39. Similar but if the reporting enti entity ty does does not not prep prepar are e consol solidate ated financ ancial statements because it has no subsidiaries, its associates should be equity accounted. 73
IFRS (*)Capital Reserve/Negativ e Goodwill
Separate Financial Statement The Investor
Capit Capital al rese reserv rve e aris arisin ing g on the acquisition of an asso associ ciat ate e by an inves nvesto torr shou sh ould ld be incl includ uded ed in the the carrying amount of investment in the associate but should be disc scllosed sed separately. At cost cost less less impa impair irme ment nt loss loss..
Of
Negative goodwill is excluded from the carrying amount of investment and is incl includ uded ed as inco income me in determination of the investor's share of associate's profit or loss. Eith Either er at cost cost or at fair fair value as available for sale with changes in fair value recognized in other comprehensive income.
Discontinuing Discontinuing Operations – Particulars Standard
(*)C (*)Cla lass ssif ific icat atio ion n
Standards followed On transition to IFRS under Indian GAAP AS 24 Discontinuing IFRS 5 - Non-current assets Operations held for sale and discontinued operations An oper operat atio ion n is clas classi sifi fied ed as discontinu discontinuing ing at the earlier earlier of (a) binding sale agree agreeme ment nt for for sale sale of the the operation and (b) on appr approv oval al by the the boar board d of directors of a detailed formal plan and announcement of the plan.
An operat operation ion is classi classifie fied d as disc discon onti tinu nued ed when when it has either either been been dis dispos posed ed of or is classified as held for sale.
Interim Financial Reporting – Particulars Standard
Standards followed On transition to IFRS under Indian GAAP AS 25 - Interim Financial IAS 34 - Inter Interim im Financ Financial ial Reporting Reporting. Similar and there are no material diff differ eren ence ces s betw betwee een n two two standards. 74
IFRS (*)Compliance Conden Condensed sed Balanc Balance e Sheet, Sheet, Similar but Condensed sed with Condensed Income Stat Statem emen entt of Chan Change ges s in requirem requirements ents of Statement, Condensed Cash Equity is required. law, etc. Flow, Explanatory Notes and disclo dis closur sures es like like EPS etc. etc. is required. (*)Minimum content of Interim Interim financial financial reporting
A statute governing an enti entity ty or a regu regula lato torr may may require an entity to prepare a nd present certain info inform rmat atio ion n at an inte interi rim m date, which may be different in form and /or content as required by AS 25.
Does Does not not reco recogn gniz ize e law/ law/ regulator prescribing format of financial statements.
Intangible Assets – Particulars Standard
Standards followed On transition to IFRS under Indian GAAP AS 26 - Intangible Assets IAS 36 3 6 – Im I mpairment of of Assets IAS 38 – Intangible Assets
Measurement
Measured only at cost.
Useful life
Intangible assets are Useful life may be finite or amortized amortized over their their useful useful indefinite. life or five years whichever is lower.
Annual Intangible assets are impairmen impairmentt test amortized amortized over their their useful useful for goodwill and life or five years whichever intangibles is lower to be assessed for impairment at least at each financial year end.
Intangible assets can be measured at either cost or revalued amounts.
Goodwill and indefinite life intangible assets are requ requir ired ed to be test tested ed for for impairment at least on an annua annuall basi basis s or earl earlie ierr if the there is an impai pairment ent indication. 75
IFRS
Particulars Standard
IAS 31, Interests in Joint Ventures – separate financial statement of the venture IAS 31, Interests in Joint Ventures – conso onsoli lida datted financial statements
Standards followed On transition to IFRS under Indian GAAP AS 27 - Financial Reporting IAS 31 – Interests in Joint of Interests in Joint Ventures Ventures
At cost cost less less impa impair irme ment nt loss loss..
At cost cost less less impai impairm rmen entt if consolidated financial statements are not prepared.
IAS 31, Interests Equity method accounting is in Joint Ventures not permitted. – alternative accounting methods. IAS 31, Interests There is no such exemption. in Joint Ventures other arrangements
SIC 13 - Non- No specific guidance. Monetary Contributi Contributions ons by
SIC 13 - Jointl Jointly y Contro Controll lled ed Enti Entiti ties es - NonNon-Mo Mone neta tary ry Contributions by Venturers Eith Either er at cost cost or at fair fair value as available for sale invest investmen mentt with with change changes s in fair value recognized as a component of comprehensive income. If the reporting entity does not prepar prepare e consol consolida idated ted financial statements because it has no subs su bsiidiar diariies, es, its joint ointlly contro controlle lled d entiti entities es should should be either either propor proportio tionate nately ly consol solidate ated or equity accounted. Investments in jointly contro controlle lled d entiti entities es can be proportionately consol solidate ated or equity accounted by the venturer. IAS 31 is not applicable applicable for investments made by venture capital organisations, mutual funds, unit trusts and simi simila larr enti entiti ties es incl includ udin ing g investment-linked insurance funds that upon initial recognition are clas classi sifi fied ed as at fair fair valu value e through profit or loss under IAS 39. Recognition proportionate ate share gains or losses
of of on 76
IFRS Ventures
contributions of of no n on monetary assets in exch exchan ange ge for for an equi quity interest is generally appropriate.
Impairment of Assets –
Particulars Standard
Goodwill
Standards followed On transition to IFRS under Indian GAAP AS 28 - Impairment of IAS 36 – Impair airment of Assets Assets
Uses "bottom-up/ top-down" appro approac ach h unde underr whic which h the the goodwill is, in effect, tested for impairment by allocating its carrying amount to each cash-ge -generati ating unit to which portion of that carr arrying amount can be allo allocat cated ed on reaso reasona nabl ble e and consistent basis.
(*)IFRIC 10, No corresponding Interim pronouncement to IFRIC 10. Reporting and Impairment
IFRIC 10 – Interim Reporting and Impairment Allocated to cash gener generati ating ng units units that that are expe expect cted ed to bene benefi fitt from from the synerg synergies ies of busine business ss combination. Alloc llocat ate ed to the the lowes owestt level level at which which goodwi goodwill ll is inte intern rnal ally ly moni monito tore red d by management, which shou sh ould ld be larg larger er than than an operating segment. Where an entity has recognize recognized d an impairmen impairmentt loss in an interim period in resp respec ectt of good goodwi will ll or an inve invest stme ment nt in eith either er an equity instr strument or a finan financi cial al asse assett carr carrie ied d at cost cost,, that that impa impair irme ment nt is not reversed in subsequent interim financial statem statement ents s nor in annual annual financial statements.
Provisions, Contingent Assets and Contingent Liabilities – Particulars Standard
Standards followed On transition to IFRS under Indian GAAP AS 29 Provisions, IAS 37 37 Provisions, 77
IFRS Cont Contin inge gent nt Liab Liabil ilit itie ies s Contingent Assets
and and Contin Contingen gentt Liabi Liabilit lities ies and Contingent Assets IFRIC 1 – Changes in Existing Decommissioning, Rest Restor orat atio ion n and and Simi Simila larr Liabilities
IFRIC 5 - Rights to Interests arising from Decommissioning, Restoration and Environmental Funds
Recog ecogni niti tion on provisions
IFRIC 6 - Liabilities arising from Part articipating in a Spec Specif ific ic Mark Market et – Wast Waste e Elec Electr tric ical al and Elec Electr tron onic ic Equipment of Provisions involving a No change. substantial degree of estimation estimation in measurem measurement ent are recogn recognize ized d when when there there is a present obligation as a result of past events and it is probable that there will be an outflow of resources.
(*)IFRIC 1, No specific guidance. Changes in Existing Decommissionin g, Resto estora rati tion on an d Similar Liabilities (*)IFRIC 5, No specific guidance. Rights to Interests Interests arising arising from Decommissionin g, Resto estora rati tion on and Environmental Funds
Provisions ar are ad adjusted fo for changes in the amount or timing of future costs and for chang anges in mark arketbased discount rates.
Deals wi w ith the ac a ccounting in the financial statements of the contributor for interests in decommissioning, restoration and environmental rehabilitation fund s establ establish ished ed to fund fund some some or all of the costs of 78
IFRS decommissioning assets or to undertake environmental rehabilitation. (*)IFRIC 6, No specific guidance. Liabilities arising from Participating in a Specific Market Waste Electric Electrical al and and Elec Electr tron oniic Equipment
(*)Contingent assets
(*)Restructuring cost
Provides guidance for liabilities for waste manag anage ement ent cost osts and and requires requires recogniti recognition on of an obligation to contribute to the the cost costs s of disp dispos osin ing g of waste equipment based on the entity's share of market in the measurement period. Cont Contin inge gent nt asse assets ts are are not not Contingent assets are disc disclo lose sed d in the the fina financ ncia iall disc disclo lose sed d in the the finan financi cial al statements. statements where an inflow of economic benefits is probable.
Requires Requires recogniti recognition on based on general recognition crit criter eria ia for for prov provis isio ions ns i.e. i.e. when the entity has a present obligation as a result of past event and the liability is considered probable and can be reliably estimated.
IAS 37 requires provisions on the basis of constructi constructive ve obligations obligations.. A construct constructive ive obligation obligation to restructure arises only when an entity has a detail detailed ed formal formal plan plan for the restructuring and has raised a valid expectation in thos those e affec affecte ted d that that it will carry out the restructur restructuring ing by starting starting to implement that plan or announcing its main features to those affected by it.
New standards AS 30, AS 31 and AS 32 are recently being proposed by Indian GAAP Financial Instruments: Instruments: Recognition and Measurement – Particulars
Indian GAAP
On transition to IFRS 79
IFRS Standard
General Recognition Principle
Deriva Derivativ tives es embedded derivatives Deriva Derivativ tives es hedge accounting
AS 30 30 Fi Financial IAS 39 Financial Inst Instru rume ment nts: s: Reco Recogn gnit itio ion n Inst Instru rume ment nts: s: Reco Recogn gnit itio ion n and Measurement and Measurement IFRIC 9 - Reassessment of Embedded Derivatives The Therre is no defi defini niti tion on of All financial assets, financial instrument. financ ancial liabilities and Curr Curren entl tly, y, deri deriva vati tive ves s are are derivativ derivatives es are recogniz recognized ed not required to be in the statement of reco recogn gniz ized ed in the the bala balanc nce e financ ancial position when she sh eet except ept for for certa ertain in thes these e meet meet the the defi defini niti tion on forward exchange contracts and recognition criteria of a within the scope of AS 11. financial instrument. A financial instrument is a contract that gives rise to a financial asset in one entity and a fina financ ncia iall liab liabil ilit ity y or equity in another entity. and No equiva equivalen lentt standa standard rd on Measured at fair value. derivatives. and No equiva equivalen lentt standa standard rd on Hedge accounting derivatives. (recogniz (recognizing ing the offsetting offsetting effects of fair value changes of both the hedging instrument and the hedg hedged ed item item in the the same same peri period od's 's prof profit it or loss loss)) is permitted in certain circ circum umst stan ance ces, s, prov provid ided ed that the hedging relationship is clearly defi define ned, d, meas measur urabl able, e, and and actually effective. IAS IAS 39 prov provid ides es for for thre three e types of hedges: • fair fair value alue hedg hedge: e: if an entity hedges a change in fair value of a recognized asset or liability or firm commitment, the change in fair values of 80
IFRS both the hedging instrument a nd the hedged item are reco recogn gniz ized ed in prof profit it or loss when they occur; •
cash cash flow flow hedg hedge: e: if an entity hedges changes in the fut future ure cash cash flow flows s relating to a recognized asset or liability or a highly probable forecast transa ansact ctiion, on, then hen the the chang change e in fair fair valu value e of the hedgin hedging g ins instru trumen mentt is reco recogn gniz ized ed in othe otherr compre comprehen hensiv sive e income income until such time as those future cash flows occur. The ineffective portion of the gain or loss on the hedg hedgin ing g inst instru rume ment nt is reco recogn gniz ized ed in prof profit it or loss in the period of such change; and
hedge of a net invest investmen mentt in a foreig foreign n entity: this is treated as a cash flow hedge. A hedge of foreign currency risk risk in a firm firm commit commitmen mentt may be accounted for as a fai fair value alue hedg hedge e or as a cash flow hedge. •
Derecogni Derecognition tion of No specific guidanc ance on Financ ancial liabi abilities are are financial dere dereco cogn gnit itio ion n of finan financi cial al dere dereco cogn gniz ized ed only only when when liabilities liabilities, the obliga obligatio tion n speci specifie fied d in the contra contract ct is dis discha charge rged d or cancelled or have expired.
81
IFRS Financial Instruments Presentation– Presentation– Particulars Standard
Indian GAAP On transition to IFRS AS 31 Financial IAS 32 Financial Instruments: Presentation Instruments: Presentation
Classificat Classification ion Of Capi Capita tall inst instrrume uments nts are are Financial clas classi sifi fied ed base based d on lega legall Liabilities form redeemable pref prefer eren ence ce sh shar ares es will will be classified as equity.
Capi Capittal ins nsttrume uments nts are are clas classi sifi fied ed as liab liabil iliity or equi equity ty depe depend ndin ing g on the the issuer's contractual obligation to deliver cash or othe otherr fina financ ncia iall asse asset, t, for for example redeemable pref prefer eren ence ce sh shar ares es will will be classified as financial liability.
Treasu asury Shares
Acquiring own share ares is perm permit itte ted d only only in limi limite ted d circumstan stanc ces. Share ares repurchased sed should be cancelled cancelled immediate immediately ly and cannot be held as treasury shares.
If an enti entity ty reacq reacqui uire res s its its own shares (treasury shares), these are shown as deduction from equity.
Offsetting
There are no offset rules.
Financial asset and finan financi cial al liab liabil ilit ity y can can only only be offset if the entity has a legally enforceable right to set off the recognized amo amounts unts and and inten ntends ds to either settle on a net basis, or to realize the asset and settle the liability simultaneously.
Classi Classific ficati ation on of Currently, the entire Split the instrument in Convertible instrumen instru mentt is classi classifie fied d as liability a nd equity Debts debt based on its legal form component at issuance. and any interest expense is reco recogn gniz ized ed base based d on the the coupon rate.
82
IFRS
IFRS IMPLEMENTATION AT NACIL---ANALYSIS Introduction Introduction of NACIL – Nati Nation onal al Av Avia iati tion on Comp Compan any y of Indi India a Limi Limite ted d (NAC (NACIL IL)) is a Gove Govern rnme ment nt Company within the meaning of Section 617 of the Companies Act, 1956 and is under the administrative control of the Ministry of Civil Aviation. National Aviation Company of India Limited has been established as a Government Comp Compan any y to be enga engage ged d in the the busi busine ness ss as an airl airlin ine e for for prov provid idin ing g air air transport and allied services. This Scheme proposes the amalgamation of AI and IA in the Transferee Company, which would result in consolidation of the business of all in one entity (i.e. National Aviation Company of India Limited, the Transferee Company). AIR INDIA Limited (“AI” or the “Transferor No 1 Company”) is a Company incorporated under the Companies Act, 1956, having its registered office at Air India Ltd, 3rd Floor, Tower-II, Jeevan Bharati, 124, Connaught Circus, New Delhi - 110 001. AI is a Government Company, within the meaning of Section 617 of the Companies Act, 1956 and is under the administrative control of the Ministry of Civil Aviation, Government of India. AI is an unlisted Company. AI is primarily engaged in the business as an airline for providing air transport and allied services. Indian Airlines Limited (“IA” or the “Transferor No 2 Company”) is a public company registered under the Companies Act, 1956 and having its registered offi office ce at 11 113, 3, Guru Gurudw dwar ara a Rakab Rakabga ganj nj Road Road,, New New Delh Delhii 11 110 0 00 001. 1. IA is a Government Company within the meaning of Section 617 of the Companies Act, 1956 and is under the administrative control of the Ministry of Civil Aviation. IA is an unlisted company. IA is primarily engaged in the business as an airline for providing air transport and allied services. National Aviation Company of India Limited (the Transferee Company) is a Company incorporated under the Companies Act1956, having its registered office at Airlines House, 113 Gurudwara Rakabganj Road, New Delhi 110 001. 83
IFRS
PROFILE OF FINANCE DEPARTMENT OF NACIL (I) The present competitive environment of business has put the focus on availability of finance for an operation of the company and as such Finance department plays a major role in growth and survival of the company. The Finance department has become an integral part of the management decision making process for planning, organizing & implementing operations of the the comp company any.. Finan Finance ce depar departm tmen entt has has to anal analyz yze e the the past past & curr curren entt data/performances/trends data/performances/tr ends to forecast future planning. One One of the the main main acti activi viti ties es of Fina Financ nce e besi beside des s sour sourci cing ng of fina financ nce e for for operations is to relate the entire activity of the airlines into financial terms and relate expenditure into its category and recognize revenue. By booking the revenue and expenditure into appropriate heads the finance department has to describe the company. The Balance Sheet & a Profit & Loss a/c duly audited has to be prepared as on March 31st every year.
ROLE OF FINANCE DEPARTMENT IN NACIL (I)
Management of Financial Resources
Planning & Budgetary Control
Advisory Functions
Financial Scrutiny and Checks
Maintain Financial & Cost Accounts
Analysis of various costs and submitting reports.
OBJECTIVES OF FINANCE DEPARTMENT
Submitting the Regional Profit & Loss a/c & Balance Sheet as on 31st March every year.
Ensu Ensuri ring ng
Comp Compli lian ance ce
of
Stat Statut utor ory y
laws aws
-
Tax Taxatio ation/ n/Ac Acco coun unti ting ng
standards.
Ensuring
audit
of
Annual
accounts
&
Dealing
with
Statu atutory
Auditors/Government Auditors/Government Auditors/ Internal auditors. 84
IFRS
Preparing yearly Revenue Budget & Capital Budget of the Region.
Advisory role to the Regional Director in financial matters.
Conveying financial sanctions, analysis of financial data/and also as a Finance nominee in various contracts.
ACCOUNTING SYSTEM OF WESTERN REGION IN NACIL The accounting at Western Region can be divided into: 1. Expenditu Expenditure re Accounting Accounting includi including ng Non-traffic Non-traffic revenue. revenue. 2. Foreig Foreign n Station Station Accoun Accountin ting g 3. Reven Revenue ue Accoun Accountin ting g
I] Expenditure Divisions:
Expenditur Expenditure e on aircraft aircraft fuel, fuel, insurance, insurance, aircraft spares, aircraft loan interest payments are taken care at headquarters.
All other expenditures viz. Salaries, staff payments, landing, housing, parkin parking g
to AAI(Ai AAI(Airpo rport rt Author Authority ity of India) India),, mainte maintenan nance ce of aircra aircraft, ft,
outside repairs are taken care at regions.
Expenditure Division is further divided into different sections as under: 1. Stores Accounting:
Dealing Dealing with transactions transactions routed routed through through Stores Stores
department by means of Purchase Orders. Further Divided into : a.
Foreign Accounting: Dealing with receipt and dispatch of goods monito monitored red by Purcha Purchase/ se/Rep Repair air orders orders in respe respect ct of aircr aircraft aft items items imported from foreign vendors. The payments pa yments advices received from headquarters through Debit/Credit notes are linked to GRAN by this sect sectio ion. n. Ac Acco coun unti ting ng of all all fore foreig ign n tran transac sacti tion ons s rela relate ted d to stor store e expenditure is done by this section along with reconciliation of stock accounts, accounting of duty, freight, and export freight are carried out.
b. Local Purchase:
Local
Dealing with receipt, dispatch and payment of
Purchase
transactions
routed
through 85
IFRS Purchase/R Purchase/Repair epair/Main /Maintenanc tenance e orders. orders. Accounting Accountings s of transactio transactions ns into respective accounts along with reconciliation of Stock accounts are being done. c.
Costing section: Raising of Bills in respect of jobs undertaken for Outside parties, Loan items, and monitoring expenditure related to accident accident jobs undertake undertaken n on aircraft work work orders. Plus accounti accounting ng for Material issues and preparation of six monthly Cost statements like Labor Utilization, Material costs.
2. Bill Passing Division: Deals with payments of Contractual nature and
Staff claims including medical bills: a.
Outside Outside Party payments payments:: Paymen Payments ts like like Cate Cateri ring ng bill bills, s, Accom ccomm modat odatio ion n Navi Naviga gati tion on,,
bil bills,
Par Parking king,,
payi aying Lice Licens nse e
of
AAI
Fees Fees,,
char charge ges s
Rent Rental als, s,
like
Prop Proper erty ty
Crew Crew
Landi anding ng,, Taxe Taxes, s,
Electricity, Electricity, Water, Telephone, Canteen , Hire of Transport, etc. which are being done by scrutiny, certification etc. Also deals with raising of bil bills ls on Other Other Operat Operator ors s for handli handling ng servic services es render rendered. ed. Als Also o deal deals s with with impr impres estt accou account ntin ing g of cash cash floa floats ts give given n to diff differ eren entt locations/stations. b. Staff Claims: Traveling allowances, Claims for meals, conveyances,
and settlement of all medical bills, CFMS claims, and Hospitalization bills of serving/retired personnel.
3. Pay-Rolls:
Deals with salary processing of the Western Region staff by
means of change advices in respect of any change in the salary quantum of each staff. The section is divided into category wise reporting of the salary salary.. Als Also o deals deals with with Income Income-ta -tax x matter matters s of staff staff like like declar declarati ations ons,, payments of tax deducted to Income Tax department. Have regionally implemented the salary processing and printing of pay slips of the staff.
86
IFRS A Final settlement section deals with all payments/recoveries of staff that cease to be in service. Payment of Gratuity, Provident Fund, and Encashment of Leave etc in respect of cess staff is done by the section. Also deals with the monitoring of Loans granted to any employee by the company.
4. Cash
&
Bank:
Disbursement
Head Headqu quar arte ters rs
account
make makes s
through
peri period odic ical al
which
the
tran transf sfer er
to
payments
the the of
cheque cheques/w s/with ithdra drawal wals s of cash cash are made. made. Proce Processi ssing ng of all payme payments nts by cheques to outside parties, cash payments towards staff claims, salary paymen payments. ts. Monito Monitori ring ng of cash/b cash/bank ank balanc balances es at base base and at differ different ent locations. Has implemented the Electronic Clearing system for clearances of salary.
5. Finance & Budget: To draw the yearly Trial Balance, Balance-sheet as
per Corporation format, Schedule VI format and getting the same audited. Monitoring of sanctions conveyed for various expenditure, Deals also with settlement of Civil Engineering bills of various projects. Also deals with sett settle leme ment nts s
of
bagg baggag age/ e/ca carg rgo o
clai claims ms
of
pass passen enge gers rs,,
cove covera rage ge
of
insurance in respect of cash/staff etc. Provide for depreciation of assets of Wester Western n region region.. Reconc Reconcili iliati ation on of all assets assets with with stores stores ledger ledger.. Have Have adopt adopted ed a cust custom omiz ized ed comp comput uter eriz ized ed sy syste stem m of finan financi cial al acco accoun unti ting ng package for their work.
Miscellaneous: Besides, finance nominees are in various tender committees constitutes a part of regular committees for Stores tender & Civil tenders. Finance also deals with various mandatory agencies & authorities like Income tax, Sales tax, Service tax, Government auditors, statutory auditors, Tax auditors, PF auditors etc. 87
IFRS II] Foreign Station Accounting
Established in Western Region to cater to the needs of Foreign Stations under the region.
Gulf region accounting is done in Western Region.
At present, the following stations in Gulf with NACIL (I) are managed through GSA (General Sales Agency):
Sr.
Station
GSA
No. 1 2 3 4 5
UAE (SHJ, DXB, FUJ, RAS) Muscat – Oman Bahrain Kuwait Riyadh – Ki Kingdom of of Sa Saudi
M/s. M/s. M/s. M/s. M/s.
Arabia
Ltd.
Arabian Travel Agency Ltd. National Travel & Tourism Dadabhai Travel House of Travel Naba Tourism & Transport Co.
In Israel Israel (off-l (off-line ine station) station),, we have have M/s.Tu M/s.Turbo rbo Touri Tourism sm & Avi Aviati ation on Ltd. Ltd. as Passenger Sales Agent.
PAYMENTS: a. GSA GSA makes akes all all paym paymen ents ts in the the Stat Statio ion n on the the appr approv oval al of Coun Countr try y Manager/Accounts Manager out of Revenue collection at the station. b. The The Stat Statem emen entt for for Paym Paymen ents ts alon along g with with su supp ppor orti ting ng Bill Bills/ s/vo vouc uche hers rs is forwarded by GSA to the Regional Office on monthly basis except Kuwait where the Reports are prepared on fortnightly basis. c. On scrutin scrutiny y of the payments payments account accounting ing action action is taken taken at the Region Regional al Finance Dept. and entries are booked in INR. d. Debit Debit Notes are raised raised in respect respect of the follow following ing paymentspaymentsi. ii.
Fuel- Debit Note is forwarded to headquarters on monthly basis. Advance to Cabin crew/ Engineers, technician- amount paid to staff staff from from other other Region Region is debite debited d to concer concerned ned Regio Region n throug through h Debit Notes. 88
IFRS iii. e.
Local Taxes-Debit Note is forwarded to CRA.
The The majo major r head heads s of acco accoun untt are are -Hotel -Hotel Accommod Accommodation, ation, Traveling Traveling Advance, Fuel, Airport Taxes, Reimbursement of out of pocket expenses to Flying Crew, Sales Promotion, Publicity, Food Service (Cabin Crew, Cockpit Crew), Meal to Passenger, Handling Expenses, Landing Fees, Navigation Charges, Salary, Hire of Transport, Conveyance, Housing & Parking Fee, Telephone etc.
The above mentioned accounts are reflected in Regional Trial Balance, Profit and Loss Statement & Balance-Sheet. In case it is proposed to have Regional Trial Balance for Gulf including NACIL (A), the above accounting procedure needs needs to be follow followed ed in respe respect ct of accoun accounts ts mainta maintaine ined d by NACIL NACIL (A) at respective stations.
III] Revenue Accounting i.
Revenu venue e col collecti ection ons s of these hese stat statiions ons (inc includi luding ng agen agentts) are are sent sent to headquarters on day to day basis.
ii. ii.
Cent Centra rall reve revenu nue e acco accoun unts ts (CRA (CRA)) situ situat ated ed at head headqu quar arte ters rs comp compil ile e the the various revenue collections of all stations and work out the revenue of the company.
iii. iii.
Other Other reve revenue nue viz. viz. handli handling, ng, outs outside ide part party y works works etc etc are are acco account unted ed for for at the regions.
Types of Revenue in NACIL (I):
Tra Traff ffic ic - pass passen enge ger, r, exce excess ss bagg baggag age, e, frei freigh ght, t, mail mail,, char charte terr and and aircraft lease.
Incide Incidenta ntall - handli handling, ng, outsid outside e party party repair repair,, Cancel Cancellat lation ion fee and Commission
Non-operating – Bank interest, sale of surplus assets
Sections in Revenue Department
Outstation Screening 89
IFRS
Station Accounts
Bills Receivables
Agency Section
Cargo Agency
1. Outstation Screening Screening, cross-checking and verifying all revenue documents
•
reported at Outstations Maint ainten enan ance ce
•
of
CVD
contr ontrol ol
stat state ement ent
at
outs outsttati ations ons
&
reconciliation. •
Dispatch of documents to EDP/CRA.
•
Raising debit notes for short collection/billing. collection/billing.
2. Station Accounts Independent accounting unit set up at all stations in the NACIL
•
network to service the agents and direct sales. Reports the sales in appropriate forms and deposits the collection
•
in banks. •
Meeting the petty cash expenditure.
•
Station Debit Recovery.
•
Various activities : -
Issuing CVDs, receiving F/N sales reports.
-
Realization of dues and verifying stock statement.
-
Dispatch of reports to ARD/CRA.
3. Bills Receivables •
Screening & cross-checking of bills & invoices through EDP
•
Controlling & Accounting of Credit Sales 90
IFRS •
Dispatch of bills
•
Billing & Accounting of charter revenue
•
Controlling & Accounting of to-pay transactions
•
Compilation of various reports.
4. Agency Agency is a retailer of travel and related products. Whilst this refers to the sales person employed to sell travel products, the term is often applied in reference to the business that is established to sell travel products (the travel agency). Agen Ag ency cy mean means s a pers person on / grou group p of pers person ons s / body body who who is an inte interf rfac ace e between the customer and the airlines by selling the airlines product i.e. Space. In airlines the space sold is in form of passenger seats or cargo space. Today almost 85% of the sales of passenger tickets of NACIL (I) are through agents. As such agency a gency accounting forms a very important function.
5. Cargo Revenue Cargo Cargo sales sales are genera generated ted from from differ different ent Airpor Airports ts and throug through h Agents Agents.. Cargo sales of Airport are being accounted at CRA. ARD reports for sales generated through agents and their realization to CRA. The cargo system has been automated through which automated Airway Bills are generated through system developed by M/s. Kale Consultancy. It provides airlines with with full full financ financial ial contro controll and automa automatio tion n of their their revenu revenue e accoun accountin ting g proc proces ess. s. It deli delive vers rs busi busine ness ss valu value e by help helpin ing g to maxi maximi mize ze reve revenu nue, e, minimize costs, and shorten the time span to billing, thereby enabling increased cash flow.
STEPS FOR TRANSITION TO IFRS FOR NACIL 91
IFRS
IFRS -1 (First-Time Adoption of IFRS) IFRS IFRS 1, Firs Firstt Time Time Ad Adop opti tion on of Inte Intern rnati ation onal al Finan Financi cial al Repo Report rtin ing g Standards is the guidance that is applied during preparation of a company’s first IFRS-based financial statements. NACIL need to apply IFRS 1 when they transi transitio tion n from from Indian Indian GAAP GAAP to IFRS IFRS and prepar prepare e their their first first IFRS-b IFRS-base ased d financial statements. The date of transition to IFRS is defined as the “the beginning of the earliest earliest period for which which an entity entity presents presents full comparativ comparative e informatio information n under under IFRS IFRS in its its first first IFRS IFRS financi financial al statem statement ents”. s”. A first-t first-tim ime e adopte adopterr is required to prepare an opening balance sheet at the date of transition. This opening balance sheet is prepared in accordance with IFRS 1, including the general principle of retrospective application, the optional exemptions and mand mandat ator ory y exce except ptio ions ns.. The The open openin ing g IFRS IFRS balanc balance e sh shee eett need need not not be published as part of the first IFRS financial statements; however it is used as a basis for preparation of those financial statements. The following timetable illustrates first-time adoption of IFRS in 2010 for financial year where comparative statements is prepared for one year – Opening IFRS Balance Sheet Approach 2010 01.04.2010
2011
2012
31.03.2011
31.03.2012
Previous Indian GAAP Reporting
Reporting Date
Time
01.04.2010
Date of Transition to IFRS
First IFRS with IFRS comparatives for 2011
In short, the entity’s first IFRS financial statements shall include at least three statements of financial position, two statements of comprehensive income, 92
IFRS two separate income statements (if presented), two statements of cash flows and and two two stat statem emen ents ts of chang changes es in equi equity ty and and rela relate ted d note notes, s, incl includ udin ing g comparative information. A first time adopter of IFRS is required to comply with all IFRS standards effective at the reporting date with preparation of opening balance sheet in accordance with the provisions of IFRS 1. A first-time adopter is required to:
Recogn Recognize ize all assets assets and liabil liabiliti ities es whose whose recog recognit nition ion is requir required ed by IFRS;
Not recognize items as assets and liabilities if IFRS does not permit such recognition;
Reclassify items recognized under previous GAAP as one type of asset, liab liabil ilit ity y or comp compon onen entt of equi equity ty,, but but are are a diff differ eren entt type type of asse asset, t, liability or component of equity under IFRS; and
Apply IFRS in measuring all recognized assets and liabilities.
All IFRS presentation and disclosure requirements shall be fulfilled in the first IFRS financial statements. In particular, some of the standards, which may have a significant impact on an entity’s presentation and disclosure requirements, are; IAS
14 Segment Reporting,
IAS
19 Employee Benefits,
IAS
32 Financial Instruments,
IAS
33 Earnings per Share,
IAS
36 Impairment of Assets,
IAS
38 Intangible Assets,
IFRS
2 Share-based Payment,
IFRS
3 Business Combinations, and
IFRS
5 Non-current Assets Held for Sale and Discontinued Operations
93
IFRS Optional exemptions In a numb number er of area areas, s, retr retros ospe pect ctiv ive e appl applic icat atio ion n of IFRS IFRS will will requ requir ire e significant resources and may in certain situations be impracticable. IFRS 1 theref therefore ore provi provides des ten option optional al exemp exemptio tions ns to the genera generall princi principle ple of retrospective application. As these exemptions are optional, entities may change change their their accoun accountin ting g polici policies es retro retrospe specti ctivel vely y in these these areas areas if they they desire, provided that they are able to calculate the effects reliably. An entity that elects to apply one of the below exemptions is not required to apply any or all of the other exemptions. Analogous application of the above exemptions to other areas is not permitted.
Business
combinations combinations
An entity may apply IFRS 3 to business combinations prior to the date of transition provided that it obtained the information necessary to apply IFRS 3 at the date of the business combination. Business combinations before the date from which IFRS 3 are applied are accounted for in accordance with IFR IFRS 1, Appen ppendi dix x B2. Asset ssets s and and liabi abilitie ities s acqu acquir ire ed in a busi busine nes ss combin combinati ation on shall shall be recogn recognize ized d and measu measured red in the openin opening g balanc balance e sheet in accordance with IFRS. Goodwill written off against equity under Indian GAAP shall neither be recognized as an asset in the opening IFRS balance sheet nor included in the gain or loss on subsequent disposal or impairment of the subsidiary that gave rise to it.
Fair
value or revaluation as deemed cost
A first-time adopter may elect to measure individual items of property, plant and equipment at fair value at the date of transition to IFRS. Fair value is then then deem deemed ed cost cost at that that date. date. Deem Deemed ed cost cost is an amou amount nt us used ed as a surrogate for cost or depreciated cost at a given date. Deemed cost forms the basis for the cost of the asset under IFRS at the date the valuation was performed and not the date of transition. Depreciation under IFRS is determined from the date deemed cost is applied up until the 94
IFRS date of transition. An adjustment is recognized in retained earnings if the amount recognized under Indian GAAP is materially different to the amount that would have been recognized under IFRS.
Employee
benefits
Under Under IAS 19 Employ Employee ee Benefi Benefits, ts, pensio pension n plans plans are classi classifie fied d as either either defined contribution plans or defined benefit plans. Accounting for defined benefit benefit plans is significan significantly tly more complex complex than for defined defined contributi contribution on plans. Provisions for defined benefit plans are calculated on the basis of a number of actuarial assumptions, and cumulative actuarial gains and losses are recognized in accordance with IAS 19. IFRS 1 requires that the entity identify all defined benefit plans and compares Indian GAAP with IAS 19. Any changes in applied accounting policies are made retrospectively except for an opti option onal al exem exempt ptio ion n conc concer erni ning ng actu actuar aria iall gain gains s and losse losses s and and the the accumulated effect of the changes is taken to equity in the opening balance sheet.
Cumulative translation differences On translation of a foreign operation in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, certain exchange differences are reco recogn gniz ized ed as a sepa separa rate te comp compon onen entt of equi equity ty as well well as requ requir ires es to disclose reconciliation of the opening and closing balances. Under IFRS 1 a first-t first-tim ime e adopte adopterr may elect elect not to calcul calculate ate this this transl translati ation on differ differenc ence e retrospectively and thereby set corresponding translation differences at the date of transition, determined in accordance with previous GAAP, to zero. The gain or loss on subsequent disposal of a foreign operation then includes only only foreig foreign n exchang exchange e differ differenc ences es that that arose arose subsequ subsequent ent to the date date of transition.
95
IFRS Compound financial instruments The general principle in IFRS 1 requires a first-time adopter to apply IAS 32 retrospectively and separate all compound financial instruments into a debt and and equi equity ty port portio ion. n. The The class classif ific icati ation on of the the comp compon onen ents ts is base based d on conditions that existed at the date when the instrument first satisfied the criteria for recognition in IAS 32 without considering events subsequent to that date. If the liability component is no longer outstanding at the date of transition, retrospective application of IAS 32 results in two categories of equity, the cumulative interest in retained earnings and the original equity component.
Assets and liabilities liabilities of subsidiaries subsidiaries If a subsidiary makes the transition to IFRS at a later point in time than its parent, the subsidiary may in its own opening IFRS balance sheet continue with the same carrying carrying amounts that are used in the parent's consolidated consolidated financial financial statement statements s before before any consolidati consolidation on adjustment adjustments. s. Alternati Alternatively vely,, the subsidiary itself may choose to apply IFRS 1 at its date of transition. A similar election is available to an associate or joint venture that becomes a first-time adopter later than an entity that has significant influence or joint control over it. The associate or joint venture may then continue with the same carrying amounts that were used as a reporting basis under IFRS by the entity that has significant influence or joint control over it.
Designation of previously recognized financial instruments IAS 39 Financ Financial ial Instru Instrumen ments: ts: Recogn Recogniti ition on and Measu Measurem rement ent permi permits ts an entity to designate a financial asset or financial liability as at fair value through profit or loss or as available-for-sale. Despite this requirement, IFRS 1 permi permits ts a first-t first-tim ime e adopte adopter, r, at the date of transi transitio tion, n, to design designate ate a financial asset or financial liability as at fair value through profit or loss or as available-for-sale. The basis for this exemption is that a first-time adopter applied previous GAAP at the date of initial recognition and would therefore 96
IFRS not have been able to take advantage of the election, which was available to entities already reporting under IFRS. If an entity uses this exemption it shall disclose certain information.
Share-based payments A first-time adopter has an option not to apply IFRS 2 Share-based Payment retrospectively to equity instruments (equity-settled transactions) granted on or before 7 November 2002. IFRS 1 provides an additional exemption from retrospective application of IFRS 2 for equity instruments that were granted after 7 November 2002 and that vested before the later of (a) the date of transitio transition n and (b) 1 January 2005. 2005. If a first-time first-time adopter adopter elects elects to apply the exemption it is nevertheless required to disclose information that enables users of the financial statements to understand the nature and exte extent nt of sh shar aree-ba base sed d paym paymen entt arra arrang ngem emen ents ts that that exis existe ted d duri during ng the the reporting and comparative periods.
Insurance contracts In contrast to the general principle of IFRS 1, an entity issuing insurance contracts (insurer) may elect on first-time adoption to apply the transitional provis provision ions s of IFRS IFRS 4 Insur Insurance ance Contra Contracts cts.. These These transi transitio tional nal provis provision ions s requ requir ire e an insu insure rerr to apply apply IFRS IFRS 4 pros prospe pect ctiv ivel ely y for for repo report rtin ing g peri period ods s beginning on or after a fter 1 January 2005 with optional earlier application.
Chan Change ges s
in
exis ex isti ting ng
deco decomm mmis issi sion onin ing, g,
rest restor orat atio ion n
and and
simi simila lar r
liabilities In terms of IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities, changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle an existing decommissioning, restoration or similar liability, or a change in the discount rate, shall be added to, or deducted from, the cost of the related asset. The adjusted depreciable amount of the asset is depreciated prospectively over 97
IFRS its remaining remaining useful life. life. For a first-time first-time adopter, adopter, retrospective retrospective application of these requirements would require an entity to construct an historical record of all such adjustments that would have been made in the past, which in many cases will not be practicable.
Mandatory exceptions IFRS IFRS 1 cont contai ains ns four four mand mandato atory ry exce except ptio ions ns to the the gene genera rall prin princi cipl ple e of retrospective application.
Derecognition Derecognition of financial assets and financial liabilities Financ Financial ial assets assets and liabil liabiliti ities es shall shall be recogn recognize ized d and measur measured ed in the opening IFRS balance sheet in accordance with the version of IAS 39 that is effective on the reporting date. However, a first-time adopter may elect to apply the IAS 39 derecognition requirements retrospectively from an earlier date provided that the information required to do so was obtained at the time of initial accounting for the transaction.
Hedge accounting A first-time adopter is required in its opening IFRS balance sheet, to: Measure all derivatives at fair value; and Elimi Eliminat nate e all defer deferred red gains gains and losses losses arisin arising g on deriva derivativ tives es that that were were reported under previous GAAP as assets and liabilities. In terms of IAS 39 a hedging relationship only qualifies for hedge accounting if a numb number er of rest restri rict ctiv ive e crit criter eria ia are are sati satisfi sfied ed,, incl includ udin ing g appro appropr pria iate te designation and documentation of effectiveness at inception of the hedge and subsequently. As a result, in order for a hedging relationship to qualify for hedge accounting at the date of transition, the hedging relationship must have been fully designated and documented as effective in accordance with IAS 39 at the date of the transaction A firs firstt-ti time me adop adopte terr may may unde underr prev previo ious us GAAP GAAP have have defe deferr rred ed or not not recognized gains and losses on a designated fair value hedge of a hedged 98
IFRS item that is not measured at fair value. In that case the hedged item is adjusted in accordance with the implementation guidance to IFRS 1. If the forecast transaction is not highly probable, but is still expected to occur, the entire deferred gain or loss is recognized in equity.
Accounting estimates Accounting estimates required under IFRS that were made under previous GAAP GAAP are not adjust adjusted ed except except for differ differenc ences es in accoun accountin ting g polici policies es or unless there is objective evidence that they were in error. When restating the opening IFRS balance balance sheet, sheet, the entity may have information information available available that was not available at the time the estimate was made. The primary objective of this exception is to prevent entities from adjusting estimates that were made, based on the circumstances and information available at a particular date, with the benefit of hindsight. An estimate required under IFRS that was not required under previous GAAP should reflect conditions that exist at the date of transition. In particular, estimates of market prices, interest rates or foreign exchange rates shall reflect market conditions at the date of transition.
Assets classified as held for sale and discontinued operations operations Retro etrosp spe ecti ctive
appl appliicati cation on
of
IFR IFRS
5
requi equirres
an
enti entity ty to
rever verse
depreciation on non-current assets classified as held for sale from the date those assets satisfied the held for sale criteria. However, an entity that has a date date of tran transi siti tion on prio priorr to 1 Janu Januar ary y 20 2005 05 sh shal alll not not reve revers rse e prev previo ious us depre deprecia ciatio tion n of non-cu non-curr rrent ent assets assets classi classifie fied d as held held for sale sale because because it applies IFRS 5 prospectively in accordance with the transitional provisions of IFRS 5.
99
IFRS The transitional provisions of IFRS 5 require prospective application from 1 January 2005. However, if the valuation and other information needed to apply IFRS 5 retrospectively was obtained at the time the non-current assets originally met the criteria to be classified as held for sale, an entity may select an earlier date from which IFRS 5 is applied prospectively.
Presentation
and disclosure requirements:
The first IFRS financial statements shall be presented in accordance with the presentation and disclosure requirements in IAS 1 Presentation of Financial Statements and the other standards and interpretations under IFRS.
A number of reconciliation between previous GAAP and IFRS are required in the first IFRS financial statements. These include reconciliation of equity at the date of transition and the beginning of the current reporting period as well as of the net profit or loss for the comparative period as illustrated below for an entity with a reporting date of 31 March 2010 disclosing one year of comparatives. Furthermore, supplementary explanations necessary for understanding the transition to IFRS are also required in the first IFRS financial financial statements statements.. The reconcil reconciliatio iation n shall distinguis distinguish h between between errors errors made under previous GAAP (if any) and adjustments arising due to changes in accounting policies.
Interim
reporting 100
IFRS IFRS IFRS does does not require require an entity entity to publi publish sh interi interim m repor reports. ts. If, during during the reporting period, the entity elects to prepare interim reports under IAS 34, IFRS 1 requires a range of further information in the interim report, including reconciliation between previous GAAP and IFRS as well as presentation of restated comparative information in accordance with IAS 34.
Comparative Comparative information information To comply with IAS 1 an entity's first IFRS financial statements shall include at least one year of comparative information under IFRS. If an entity elects or is required required to present more more than one year of full comparative comparative information information prepared in accordance with IFRS, the date of transition is the beginning of the earliest period presented. All comparative information subsequent to the date of transition is restated and presented in accordance with IFRS. If an entity presents more than one year of comparative information not in accordance with IFRS, the entity shall a) label the previous GAAP information clearly and b) provide qualitative disc disclo losur sure e of the the natur nature e of the the main main adju adjust stme ment nts s that that woul would d make make the the information IFRS compliant.
Other disclosures required by IFRS 1 A fir first-t st-tiime adop adopte terr is requ requiired to disc discllose ose the the fair fair value alue and and the the classification and carrying amount in the previous financial statements of financial assets and financial liabilities that are designated either as at fair value through profit or loss or as available-for-sale. If the election to use fair value, revalued amount or an event driven value is applied to an item of property, plant and equipment, investment property or intangible asset, the following disclosure is required in the entity's first IFRS financial statements:
Aggregate
of those fair values; and 101
IFRS Aggregate
adjustment to the carrying amounts a mounts reported under previous
GAAP.
Indian
GAAP-
Acco Ac coun unti ting ng prin princi cipl ples es sh shou ould ld be consi consist sten entt for for finan financi cial al info inform rmat atio ion n presented in comparative financial statements. US GAAP does not give specif specific ic guidanc guidance e on first-t first-tim ime e adopti adoption on of its accoun accounti ting ng princi principle ples. s. However, However, first-time first-time adoption adoption of Indian GAAP requires requires full retrospec retrospective tive application. Some standards specify the transitional treatment upon firsttime application application of a standard standard and specific specific rule for carve-out carve-out entities entities and first-time preparation of financial statements for the public. There is no requirement to present reconciliation of equity or income statement on first-time adoption of Indian GAAP.
CONCLUSION Though convergence with IFRS will improve the overall financial reporting and
tran transp spar are ency ncy
of
com compani panie es
and and
safe safegu guar ard d
the the
int interes erests ts
of
stakeholders, there are various challenges which Indian Inc will have to face while converging with IFRS. The major challenge is to train the staff according to new accounting standards and to make sure that there is prop proper er mech mechan anis ism m for for impl implem emen enti ting ng su such ch stra strate tegy gy.. ICAI ICAI,, AS ASB B and and gove goverrnme nment
hav have
take taken n
vari arious ous
steps teps
and and
hav have
draf drafte ted d
pro proper per
implementation strategy to ensure effective and efficient convergence of I-GAAP to IFRS.
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IFRS REFERENCES
BOOKS –
1. Taxmann’s Taxmann’s “Student “Student’s ’s Guide Guide to Accounti Accounting ng Standards” Standards” By By D. S. S. Rawat 2. Paper on “Concep “Conceptt Paper on converge convergence nce with IFRSs IFRSs in in India” by Insti Institute tute of Charter Chartered ed Accountants of India (ICAI) 3. Resear Research ch repor reportt on IFRS IFRS by Dell Delloit oittt 4. Resear Research ch repo report rt on on IFRS IFRS by KPM KPMG G
WEBSITES –
1. www.iasplus.com 2. www.caclubindia.com 3. www.wikipedia.com 4. www.feeismind.com 5. www.icai.org
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