Convergence with Accounting Standards

Introduction
On 14 January 2011, ICAI posted on its website near-final exposure
drafts (near-final ED) of Indian Accounting Standards (Ind AS)
converged with International Financial Reporting Standards (IFRS).
On 25 February 2011, the Ministry of Corporate Affairs (MCA) notified
the near-final ED of Ind AS after making certain amendments (notified
Ind AS). However, MCA
s press release states that the date of
implementation of the Ind AS will be notified at a later date which was
previously expected to be 1 April 2011. The press release further
states that Ind AS will be implemented in a phased manner only after
various issues including tax related issues are resolved to ensure that
the convergence is achieved smoothly for the stakeholders.

IFRS is adopted in more than 100 countries

The IFRS movement started in India in the year 2001
ICAI presented Position paper in the year 2007 and issued concept
paper in 2009
Due to the announcement in government policy as to adopt IFRS
from 1April 2007, all regulatory procedures were fastened to
implement IFRS in India
By 2011, more than 150 countries would have adopted IFRS
including India, China, Brazil and Korea
IFRS includes
IAS: International Accounting standards
SIC: Standard of interpretation committee
IFRS: International financial reporting standards
IFRIC: International Financial reporting Interpretation committee
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IFRS convergence in India Announcement

by the Ministry of Corporate Affairs (MCA)
Convergence with IFRS in a phased manner starting April 1, 2011
Criteria for companies covered in each phase defined
Two separate sets of Accounting Standards under Section 211(3C)
of the Companies Act, 1956 IFRS converged standards (Ind-AS)
and existing accounting standards
Companies not covered will follow existing accounting standards;
but may voluntarily converge
Carve outs (First-time transition / Ongoing accounting policies)
Carve out - While finalising the Ind AS, the Indian standard setters have examined individual
IFRS and modified the requirements wherever necessary, to suit Indian conditions. These
modifications are routinely termed as 'carve outs'. Carve outs are generally perceived as nondesirable, since they would dilute the key purposes of converging with IFRS.

IFRS convergence in India phased

approach

Phase 1
Transition
date April
1, 2011

Phase 2
Transition
date April
1, 2013

NIFTY50
SENSEX30
Companies whose shares or other securities listed on
stock exchanges outside India
Companies (listed or unlisted) with networth in excess
of INR.1,000 crores
Companies (listed or unlisted) with networth in excess
of INR.500 crores but less than INR.1,000 crores

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Phase 3
Transition
date April
1, 2014

Listed companies with networth less than INR.500

crores

Separate convergence plan for banks (April 1, 2013), NBFC (April 1,

2013 or April 1, 2014) and insurance companies (April 1, 2012)

MCA clarifications on IFRS adoption

Presentation of comparatives
A company may, however, voluntarily choose to report comparative
period figures (i.e. for the year ending March 31, 2011 in case of
Phase 1 entities) as per the converged accounting standards by
inserting an additional column in the financial statements. The
opening balance sheet (and therefore transition adjustments) for
companies in such a case shall be as at April 1, 2010.
Option to present comparatives voluntarily (2010 2011)
Opening balance sheet shall be prepared as at April 1, 2011 (i.e.
Phase 1 entities) and the financial statements for the year ending
March 31, 2012 shall be in accordance with the converged
accounting standards; but comparative period figures (i.e. for the year
ending March 31, 2011) shall those reported as per the nonconverged accounting standards.
Option to choose the IFRS vs. Indian converged accounting
standards
Companies shall need to follow the converged accounting standards
and not IFRS as issued by IASB.
Date for determination of eligibility
The date for the determination of applicability criteria of the
converged standards would be March 31, 2011 for banks and NBFCs
and March 31, 2009 for other companies (other than insurance
companies)

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Voluntary adoption for Phase 2 and 3 companies

Once a company follows the converged accounting standards it
shall continue preparing financial statements in accordance with the
converged accounting standards. It shall not revert to the nonconverged accounting standards even though the applicability criteria
no longer apply to it.
Matters subsequent to adoption
Phase 2 and 3 companies will have an option to early adopt the
converged accounting standards commencing on or after April 1,
2011.
All other companies can also early adopt IFRS
What is included in the Net worth?
Share capital + reserves revaluation reserve debit balance in P&L
account
Net worth shall be determined based on the standalone audited
balance sheet for companies as on March 31, 2009 and for financial
institutions (banks and NBFCs) on March 31, 2011.

Summary of comparison Ind AS vis--vis IFRS

S R No.

Indian Accounting Standard

1.
2.

Ind AS 1 -Presentation of Financial

Statements
Ind AS 2 -Inventories

3.

Ind AS 7 -Statement of Cash Flows

4.

Ind AS 8 -Accounting Policies,

Changes in Accounting Estimates and
Errors
Ind AS 10 -Events after the Reporting
Period
Ind AS 11 -Construction Contracts

5.
6.

Key IFRS
differences

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7.
8.

29.

Ind AS 12 -Income Taxes

Ind AS 16 -Property, Plant and
Equipment
Ind AS 17 Leases
Ind AS 18 Revenue
Ind AS 19 -Employee Benefits
Ind AS 20 -Accounting for Government
Grants and Disclosure of Government
Assistance
Ind AS 21 -The Effects of Changes in
Foreign Exchange Rates
Ind AS 23 -Borrowing Costs
Ind AS 24 -Related Party Disclosures
Ind AS 27 -Consolidated and Separate
Financial Statements
Ind AS 28 -Investments in Associates
Ind AS 29 -Financial Reporting in
Hyperinflationary Economies
Ind AS 31 -Interests in Joint Ventures
Ind AS 32 -Financial Instruments:
Presentation
Ind AS 33 Earnings per Share
Ind AS 34 Interim Financial Reporting
Ind AS 36 -Impairment of Assets
Ind AS 37 -Provisions, Contingent
Liabilities and Contingent Assets
Ind AS 38 -Intangible Assets
Ind AS 39 -Financial Instruments:
Recognition and Measurement
Ind AS 40 -Investment Property
Ind AS 101 -First-time Adoption of
Indian Accounting Standards
Ind AS 102 -Share-based Payment

30.

Ind AS 103 -Business Combinations

31.
32.

Ind AS 104 -Insurance Contracts

Ind AS 105 -Non-current Assets Held

9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.

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33.
34.
35.

for Sale and Discontinued Operations

Ind AS 106 Exploration for and
Evaluation of Mineral Resources
Ind AS 107 Financial Instruments:
Disclosures
Ind AS 108 -Operating Segments

Ind AS 1 Presentation of Financial Statements

S R No.
1.

2.

3.

4.

Ind AS requirement
Ind AS 1 allows only
the single statement
approach. So entities
can not follow two
statements approach

IFRS requirement
With regard to preparation of
Statement of profit and loss, IAS
1 provides an option either to
follow the single statement
approach or to follow the two
statement approach.
Ind AS 1 requires the IAS 1 requires preparation of a
statement of changes Statement of changes in equity
in equity to be shown as a separate statement.
as a part of the balance
sheet.
Ind AS 1 requires only Paragraph 99 of IAS 1 requires
nature-wise
an entity to present an analysis of
classification
of expenses recognized in profit or
expenses.
loss using a classification based
on either their nature or their
function within the entity.
Ind AS 1 does not IAS 1 contains implmentation
include implementation guidance.
guidance
because
various
enactments
have
prescribed
formats, e.g., Schedule
VI to the Companies
Act, 1956.

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Ind AS 2 Inventories
SR No.
1.

Ind AS requirement
Paragraph 38 of IAS 2 dealing with
recognition of inventories as an
expense based on function-wise
classification, has been deleted keeping
in view the fact that
option provided in IAS 1 to present an
analysis of expenses recognised in
profit or loss using a classification
based on their function within the equity
has been
removed and IndAS 1 requires only
nature -wise classification of expenses.

IFRS requirement
IAS 2 allows recognition
of inventories as an
expense
based
on
function-wise
classification.

Ind AS 7 Statement of Cash Flows

S R No.
1.

2.

Ind AS requirement
IndAS 7 does not provide
such an option and requires these item
to be classified as item of financing
activity
and
investing
activity,
respectively.

IFRS requirement
In case of other than
financial entities, IAS 7
gives an option to
classify the interest paid
and
interest
and
dividends received as
item of operating cash
flows.
IndAS 7 requires it to be classified as a IAS 7 gives an option to
part of financing activity only.
classify the dividend
paid as an item of
operating activity.

Ind AS 11 Construction Contracts

S R No.
1.

Ind AS requirement
IFRS requirement
This has been dealt with under IndAS IAS 11 does not deal

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11, since it has been kept out of the with accounting for
scope tofIndAS 18, Revenue.
construction contracts
in respect of real estate
developers.

IND AS 17 Leases
S R No.
1.

Ind AS requirement
Relevant paragraphs of IAS 17
dealing with measurement of the
land and buildings elements when
the lessees interest in both land
and buildings is classified as an
investment property in accordance
with Ind AS 40 Investment Property
if the fair value model is adopted
and paragraph 19 of IAS 17 dealing
with property interest held under an
operating Lease as an investment
property, if the definition of
investment property is otherwise
met and fair value model is applied,
have been deleted, since Ind AS
40, Investment Property, prohibits
the use of fair value model.

IFRS Requirement
Both cost and fair
value
option
are
prescribed
for
investment
property
under Ind AS 40, for
which corresponding
guidance is given
under IAS 17

IND AS 18 Revenue
IND AS Requirement
SR No.
1.
IFRIC 15 has not been included in
Ind AS 18 to scope out agreements
in relation to construction of real
estate and to include the same in Ind
AS 11, Construction Contracts.

IFRS Requirement
The same requirement
forms part of IFRIC 15
based on principles of
IAS 18.

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Ind-AS as compared to IFRS

First category of carve-out's include:
Mandatory deviations from IFRS

Percentage of completion basis Real estate

Recognition of biological/plantation assets at cost
Recognition of 'embedded' foreign currency conversion options
in convertible bonds, as 'equity
Recognition of 'bargain purchase gains' as 'capital reserves
Use of government securities yields for determining actuarial
liabilities

Second category of carve-out's include:

Voluntary deviations from IFRS
Choice to defer exchange differences on long-term foreign
currency assets and liabilities
Choice to follow non-uniform accounting policies/periods for
associates
Choice to consider Indian GAAP carrying values as 'deemed
cost' for fixed assets acquired prior to April 1, 2007

Third category of carve-out's include:

Elimination of options

Single statement presentation of income statement

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 Classification of expenses in the profit and loss account by their

nature
Classification of interest and dividend as financing/investing
cash flows
No choice to carry investment property at fair value
Recognition of actuarial gains and losses directly in reserves
Requirement to present consolidated financial statements by
intermediate holding companies

Re computation of borrowing costs capitalizable.

Regulatory updates :
Representations for deferral of April 1, 2011 timeline:
Delay in issuance of the final standards and final regulatory
amendments
Need for preparatory time (12 months 24 months) after
issuance
Expected changes in IFRS
Lack of clarity on taxation
U.S. and Japan have more extended timelines

Ministry of Corporate Affairs (MCA) comment process:

300 companies invited to comment
Approximately 30 companies responded
Deferral unlikely
Transition year (2011-12) quarterly reporting under Indian
GAAP?
Some additional carve-outs possible

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 Converged Indian accounting standards (Ind AS) yet to be

issued in final form expected in February 2011
Several proposed carve-outs (deviations) from IFRS issued
internationally
Fixed assets
Concessional government loans
Embedded leases
Amendments to the Companies Act
Separate records for tax purposes -Position paper by Institute
of Chartered Accountants of India (ICAI); Committee formed by
Ministry of Finance.

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