CA Himanshu Gupta

Introduction

The IFRS is designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. IFRS is particularly important for companies that have dealing in several companies.

Objective

A financial statement should reflect the true and fair view of business affairs of organisation. As these statements are used by various constituents of regulators, they need to reflect an accurate view of financial position.

Need of IFRS

Different countries have different Accounting Standard while computing profit. It may happen thatif profit computed as per US Accounting Laws are US $ 200 cr but when same is prepared using UK laws it would be UK $ 100 cr and if prepared as per IND-AS it turns out to be $ 400 cr. So to meet this discrepancy IFRS is introduced.

Benefits of IFRS

It is expected that adoption of International Financial Reporting Standards will be benefit to

  • Investors:-
    • Investors who are willing to invest their money abroad want information which is more relevant, reliable. Financial Statement prepared using common set of Accounting Standard help investors to understand the better investment opportunities.
  • Industry:-
    • Industry would be able to raise capital from foreign markets at lower cost if it can create confidence in mind of foreign investors that their financial statement comply with globally accepted accounting standards.
  • Economy:-
    • IFRS will benefit the economy by increasing the growth of its International business by facilitating increasing flow of capital in the market.

Applicability

The MCA of the government of India through a press release issued revised roadmap for companies other than banking companies, insurance companies for implementation of IND AS converged with IFRS.

1. On Voluntary basis any Company may comply with IND-AS for financial period starting on or after 1st April 2015

2. On Mandatory basis following have to comply with IND-AS on or after 1st April 2016

  • All Companies whose equity and/or debt are listed or under process of being listing on any stock exchange in India or outside India and have net worth of 500 crore INR or more.
  • Holding, Subsidiary, Joint Venture or Associate Companies of Companies covered above.

3. Following have to comply with IND-AS on or after 1st April 2017

  • All Companies whose equity and/or debt are listed or under process of being listing on any stock exchange in India or outside India and have net worth of 500 crore INR or less.
  • Unlisted companies whose net worth are more than 250 crore INR but less than 500 crore INR.
  • Holding, Subsidiary, Joint Venture or Associate Companies of Companies covered above.

Requirements of IFRS

  • Statement of financial position
  • Statement of changes in Equity (SOCE)
  • Cash Flow Statement
  • Statement of comprehensive income for the period.

Brief:-

IFRS-I (First time adoption)

First time adoption of IFRS sets out the procedure that an entity must follow when it adopts IFRS for the first time as basis for preparingits general purpose financial statements. The IFRS grants limited exemptions from the general requirement to comply with each IFRS effectively at the end of its first IFRS reporting period.

IFRS-II (Share Based Payment)

It requires an entity to recognise share-based payment transactions(such as share options)in its financial statement, including transactions with employees or other parties to be settled in cash etc. Specific requirements are included for equity settled and cash settled share-based payments transactions, as well as those where entity or supplier has a choice of cash or equity instrument.

IFRS-III (Business Combinations)

It outlines the accounting when the Merger or Acquisition of business takes place.Such business combinations are accounted for using the “acquisition method” which generally requires assets acquired and liabilities assumed to be measured at their fair value at acquisition date.

IFRS-IV (Insurance Contracts)

It applies to all insurance companies (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds. The board issues IFRS 4 because it saw an urgent need for improved disclosures for insurance contracts and some improvements to recognition and measurement practices. IFRS 4 permits an insurer to change its accounting policies for insurance contracts only, if as a result its financial statement presents information that is more relevant and no less reliable, or more reliable and no less relevant. It also permits remeasuring of insurance liability consistently in each period to reflect current market interest rate.

IFRS-V (Non-Current Assets held for Sale and Discontinued Operations)

It outlines how to account for non-current assets held for sale. In general terms, assets held for sale are not depreciated, are measured at lower of Carrying amount and fair value less cost to sell, and are presented separately in the statement of financial position. Now specific disclosures are required for discontinued operations and disposals of non-current assets.Also impairment loss is to be recognised in profit and loss account unless the asset had been measured at revalued amount under IAS 16 or IAS 38.

IFRS-VI (Exploration for and evaluation of Mineral Resources)

It has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRS. It also modifies impairment testing of exploration and evaluation assets by introducing different impairment indicators and allowing carrying amount to be tested at an aggregate level.

IFRS-VII (Financial Instrument Disclosures)

It requires the disclosure of information about the significance of financial instruments to an entity, the nature and extent of risks arising from those financial instruments, both in qualitative and quantitative terms. Specific disclosures are required in relation to transferred financial assets and a number of other matters.

IFRS- VIII (Operating Segments)

It requires particular classes of entities (essentially those with publicly traded securities) to disclose information about their operating segments, products and services, geographical areas in which they operate and their major customers. Information is based on internal management reports, both in identification of operating segments and measurement of disclosed segment information.

IFRS- IX (Financial Instruments)

The standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The IAS board completed its project to replace IAS-39in phases, adding to standard as it completed each phase. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for period beginning on after 1st January 2018 with early adoption permitted. For a limited period, previous versions of IFRS 9 may be adopted early if not already done so provided the relevant date of initial application is before 1st February 2015.

IFRS- X (Consolidated Financial Statements)

It outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee.

(Author can be reached at Himanshugupta2001@gmail.com)

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