CONTENT Sr.No. PARTICULARS Page No. INTRODUCTION i Structure of IFRS 3 2 Benefits of IFRS 4 3 Standards of IFRS 5 IFRS AND INDIA 1 Tniroduction| 6 2 Benefits of adopting for Indian Companies 7 3 IFRS Conversion Program 9 4 Transition From Indian GAAP to IFRS in 5 Key Difference in Presentation of Financial Statement 13 6 Convergence of IFRS with Indian Accounting Standards, 15 7 Challenges to India 16 8 ‘Comparison of Indian GAAP, IFRS and IND AS 18 9 Future Agendas of IFRS 19 IMPORTANCE OF IFRS IN GLOBAL SCENARIO i TERS in China 2B 2 TFRS in Australia 3B 3 TRS in Canada 26 4 TERS in Brazil 26 ‘CASE STUDY OF INDIA 1 Introduction 28 2 Challenges and Issues Involved 31 3 Capacity Building 36 4 Lessons Learned 39 CONCLUSIONINTRODUCTIO! International Financial Reporting Standards (IFRS) are standards adopted by the International Accounting Standards Board (IASB). The main hindrance in the free flow of capital across the borders has been the different reporting standards. So, IFRS has been introduced with the aim of increasing the flow of capital International Financial Reporting Standards are the global accounting standards which are being ineteasingly accepted by more and more countries across the world, Accounting Standards are the principles governing accounting practices and determine the appropriate treatment of financial transactions. Till now different countries across the world used different accounting standards which were called as local GAAP (Generally Accepted Accounting Principles) e.g. India uses Indian GAAP (IGAAP), America uses US GAAP, Australia uses AGAAP etc. But now the world is moving towards common accounting standards called IFRS. IFRS are rapidly increasing their footprints and are gaining worldwide acceptance. IFRS are now being used for public reporting purposes in some 100 countries like Australia, United Kingdom ete. and FASB (Financial Accounting Standards Board of United States) has taken steps to align FAS (Financial Accounting standards) with IFRS. International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the Intemational Accounting Standards Board (IASB) and is becoming a universal standard for the preparation of public company financial statements. Over 100 countries worldwide have moved or in a process of synchronizing their national accounting standards with IFRS. The rationale behind migrating to IFRS is to provide a single set of high quality, understandable and uniform accounting standards, to improve comparability, transparency in reporting to build up investors’ confidence and to seek better access to international capital market at lower cost of capital, In line with the global trend, the Institute of Chartered Accountants of India (ICAI) has declared convergence with IFRS in India with effect from April 1, 2011. Globalization of Indian GAAP will offer blend of rewards as well as challenges. Thus, the analysis of its feasibility in order to reap maximum benefits with a minimum cost and to devise strategies to face the future challenges effectively. International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. The International Financial Reporting Standards the "IFRS" aims to make international financial reporting comparisons as easy as possible because each country has its own set of accounting rules. For example, U.S. GAAP is different from Canadian GAAP and both are far apart from India GAAP. Synchronizing accounting standards across the globe is an ongoing process in the international accounting community.STRUCTURE OF IERS: ‘The Intemational Accounting Standard Committee (IASC) Foundation is an independent body that oversees the International Accounting Standard Board (IASB) The IASC appoints Standard, Advisory Council, The IASB and International Financial Reporting Interpretations Committee (IFRIC). 1. TASB consists of 14 members for the initial term of three to five years. [ASB is responsible for technical matters including: -- Preparation & issue of IFRS ~ Preparation & Issue of exposure draft —Setting up procedures for reviewing comments received on documents published for comments — Issuing bases for conclusions. 2, Standard Advisory Council (SAC) consists of 40 members appointed by IASC Foundation trustees. They are appointed for a renewable term of three years with a diverse geographic and functional background. SAC meets in publie at least 3 times a year with IASB. Their main objectives are to advice the [ASB on agenda decisions, to pass views of the council members on the major standard setting project and other works. 3. IFRIC consists of accounting experts from 12 countries appointed by trustees. The main objects of IFRIC are to develop conceptually sound & practicable interpretations of IERSs to be applied on a global basis: + Fornewly idemtified financial reporting issues not specifically addressed in IFRSs © Where unsatisfactory, conflicting, divergent or other unacceptable interpretations have developed or seem likely to develop in the absence of authoritative guidance.BENEFITS OF IFRS: IFRS are the accounting standards, a set of accounting principles which state the rules, the format to be followed while posting transactions into the financial statements. IFRS are the new standards which have incorporated the International Accounting Standards (IAS), which were issued from 1973-2000. With this standardization, the comparisons of the various financial statements would be made easy across borders. ‘The meaning of IFRS can be classified in terms of narrow and broad: Narrow IFRS - The term narrow related to IFRS means, that the new standards which [ASB is notifying that are different from those issued by IAS. Broad IFRS - Broadly tells us about the entire body of IASB declarations, including standards & Interpretations approved by the IASB, IASC, SIC & IFRIC. IFRS is making a big impact on the minds of the investors because it provides a better standardization and comparison across various markets and international boundaries and helps for an easy entry into the stock exchanges worldwide, Due to the financial results and statements, being more clear and transparent the cost of capital would reduce and also the risk premium would come down. For these changes to happen across the organizations, it would require a large effort in terms of technology and systems change, changes in the accounting policies, financial processes, investor relations, as well as in human resources and their training and development. The companies already implementing IFRS are seeing benefits in terms of costs as they have to prepare similar financial statements under multiple jurisdictions for reporting requirements and preparation of these statements with the guidelines of globally accepted standards would further help to reduce the cost because similar type of statements will be required for local or statutory purposes. Implementation of IFRS also helps to improve the quality and comparability of financial information which give a benefit to the shareholders, stakeholders and the analyst which always are in hunt of consistent, high-quality information to assess companies across borders. Other benefits of IFRS adoption include the following: > Efficient availability and use of resources: As the similar standards would be followed globally. The development of standardized training programs would be facilitated. Divergent accounting systems would be eliminated. > Better controls: It results in a better control over statutory reporting, which reduces risks related to penalties and compliance problems at the local level. > Improved cash management; Cash flow planning would be improved as payments of the dividends from subsidiaries would not be effected by the local standards.STANDARDS OF IFRS: IFRS Effective Standard Standard Name Date First-time Adoption of International Financial Reporting IFRS 1 Standards 1 July 2009 1 January | Share-based Payment | __2005___ Business Combinations J July 2009. 1 January Insurance Contracts. 2005 Non-current Assets Held for Sale and Discontinued 1 January IFRS 5 Operations 2005 1 January IFRS 6 Exploration for and Evaluation of Mineral Resources 2006 1 January IFRS 7 Financial Instruments - Disclosures. 2007, 1 January IFRS 8 Operating Segments 2009 1 January IFRS 9 Financial Instruments 2015 1 January IFRS 10. Consolidated Financial Statements 2013 1 January IFRS 11 Joint Arrangements 2013 1 January IFRS 12 Disclosure of Interests in Other Entities 2013 1 January IFRS 13 Fair Value Measurement 2013 T January IFRS 14 Regulatory Deferral Accounts 2016 1 January IFRS 15 Revenue from Contracts with Customers 2017JERS AND INDIA: For India, adoption and implementation of IFRS has been finalized by Institute of Chartered Accountants of India (ICA). It has been decided that India would be moving to IFRS from the accounting period commencing on or after April 1, 2011 for listed and other publie interest entities such as banks, insurance and large-sized entities. To have a timely implementation of IFRS by 2011, affirmation has also come from the Ministry of Corporate Affairs for the harmonization of the Indian Accounting Standards and to have a continued effort for achieving the convergence with IFRS for large public interest entities. The convergence of Indian GAAP with IFRS is desirable and would be facilitated by the fact that historically Indian standards have been principle-based and because of the nature of the Indian Accounting Standards, the implementation is going to have its own complexities. With over 100 countries mandating International Financial Reporting Standards (IFRS), itis, rapidly emerging as a globally accepted accounting framework. With its inherent benefits in the global economy, countries like Australia, Hong Kong, China and the Middle East have mandated IFRS compliance for publiely listed companies, With more and more companies following these standards U.S Securities & Exchange Commission (SEC) has also allowed foreign private filers in the US. to file IFRS-compliant financial statements which would finally result in cross-border investments, capital flow, enhanced comparability, reporting transparency and reduction in the cost of capital and compliance for enterprises With the adoption of IFRS, it is not only the change from one set of accounting principles to another. The changes would reflect in financial reporting issues and extend to significant business and regulatory matters including implications on performance indicators, compliance with debt covenants, structuring of ESOP schemes, training of employees, modification of IT systems, and implication of mergers and acquisitions and tax planning. Also the basic definitions would change, as Preference equity will become loans; dividends will hecome interest while hedge accounting and fair value will become very difficult concepts. Indian Accounting Standards have not kept pace with changes in IFRS. There are significant differences between IFRS and I-GAAP, because Indian standards remain sensitive to local conditions. In order to have consistency with the legal, regulatory and economic environment of India, the Accounting Standards released by ICAI get departed from the corresponding IFRS. In 2006, it ‘was decided by ICAI that India should adopt IFRS in complete form at least for listed and large companies. In 2006 ASB and ICAI got to the conclusion that there would be many advantages if convergence happens between Indian standards and IFRS and to remove these differences to a minimum level, an IFRS task force has been formed with the aim: > Of formulating an approach for achieving convergence with IFRS, and > Oflaying down a road map for achieving convergence with IFRSAfter the analysis, the IFRS Task Force has decided to implement the change with a ‘big bang” approach, ic. to full convergence of Indian Accounting Standards with IFRS (issued by LASB), with effect from April Ist 2011. Benefits of adopting IFRS for Ini ompani In India, IFRS converged Indian Accounting Standards (Ind AS), have been published by The Institute of Chartered Accountants of India & Notified by the Ministry of Corporate Affairs in February 2011. The date for adoption of Ind AS' by Indian Companies is yet to be finalized. The perceived benefits of IFRS are: > Enhanced comparability of financial statements Improved corporate transparency nv, Improved quality of Financial Statements > Potentially lower cost of capital > Reduced cost of preparing Statements > More discretion to convey superior information, With the present analysis there are many factors, which show that the implementation of IFRS is likely to provide significant benefits to Indian corporate sector. » Improved access to International capital markets > Lower cost of capital > Enable benchmarking with global peers and improve brand value > New opportunities Changing from Indian GAAP fo IFRS would change not only the accounting methods, but would have consequences on business activities also. So, due consideration should be given to the conversion process because it can bring negative publicity and also lead to regulatory action, The various areas which would be affected and might face large number of challenges are: > Business Combinations > Financial Instruments (It should be noted that ICAI has approved AS 30, AS 31 and AS 32. which are based on IFRS > Group Accounts> Fixed Assets and Investment Property > Presentation of Financial Statements > Share-based Payments, In this impact assessment an analysis can be done to have a comparison of the current financial statements and statements that are based on IFRS because the perception of the business can change with IFRS implementation,IFRS CONVERSION PROGRA! The transition to IFRS is a not an easy process. A preliminary study need to be done before proceeding for IFRS conversion, which will give an opportunity to challenge the way it is viewed and evaluated by the outside world. Various steps that can be followed are listed as follows: STEP 1: DIAGNOSTIC AND DESIGN PROCESS ‘The tasks to be carried out in this step would vary according to the nature of business. ‘Companies which have a number of subsidiaries will take more time to implement IFRS. At this step: > Identification of the existing processes, issues related to the industry and study of benchmarks is done. > Observing the differences under the two standards and assessment of the impact on the business will be done. > AWdentification and a and preparing a detailed road map, alysis of the current IFRS practic STEP 2: SOLUTION DEVELO! PROCES: ‘The way the data is handled by the software systems would also change. Determining the changes required in IT systems will be a critical process. ATION AND MAINTENANCE PROCESS STEP 3: IMPLEME! Expert’s inputs will be required for the implementation of IFRS i.e. for stating the opening balance sheet, restating the financial statements for comparative period. Preparation of first IFRS financial statements will also have to be done. For maintenance, it is required to follow the IFRS updates.Diagnostic and LOTTA} Oar nae eet Cerin OTe nia Mees eee cs Perey Mea rad Pee EWI ates Mca Precinct ures) Cae a eR iis Ore eet) timetable Solution pyeille) olan ialg Beams eee Seta re Stn ere i EL) launch development Renee 10 Implementation and Maintenance Ocoee Cees’ state balance sheet Ere Poa tina gel c] ny Beene as nancial Statement Siam ion csTRANSITION FROM INDIAN GAAP Ti Assets and in the opening halance sheet not meeting IFRS definitions: Under IFRS, assets and liabilities are not recognized but under Indian GAAP, they are recognized and so they are required to be eliminated from the opening balance sheet. E.g. under IAS 38, deferred revenue expenditure of share issue expenses do not meet the definition of intangible asset. There is also lots of information that is not disclosed under Indian GAAP but is, required to be disclosed as per IFRS. E.g. Indian GAAP prohibits disclosure of contingent assets but IFRS do not. Similarly proposed vidends cannot be disclosed as liability under IFRS, Assets and liabilities not recognized in Indian GAAP: All derivative financial assets and liabilities and embedded derivatives need to be recognized in IFRS opening balance sheet. If these are not recorded under Indian GAAP, entities need to bring them on the IFRS balance sheet. TERS require restructuring provisions to be recognized based on constructive obligation. Indian GAAP permits recognizing such provision only when legal obligation arises. Therefore, if an cntity had construetive obligation on the opening balance sheet date, it needs to record the provision in the IFRS balance sheet. If there was no legal obligation by that date, Indian GAAP balance sheet would not have recorded such provision. IAS 12 is based on the balance sheet liability approgch. AS 22 requires deferred taxes to be recognized based on the income statement liability approach, Therefore, temporary differences for whieh deferred tax is not recognized under Indian GAAP need to be identified on the opening balance sheet date and deferred tax should be recognized accordingly under IFRS. LERS classification of assets and liabilitis Asset and liability classifications under Indian GAAP balance sheet does not conform to IFRS. ‘Therefore, the assets and liabilities need to be classified to draw up the opening IFRS balance sheet in accordance with IFRS requirements. Indian GAAP balance sheet does not have a separate class as equity. Therefore, items which meet the definition of equity under IFRS need to be identified first and then to be classified into this class in the opening IFRS balance sheet. ‘There may be acquired intangible assets in the past business combinations, which do not mect the definition of intangible assets under IFRS. These need to be classified as goodwill and vice versa in the opening balance sheet. aIFRS 1 provides exemption from split accounting of compound finaneial instruments when certain conditions are satisfied. When this exemption cannot be availed by the entity, compound financial instruments need to be split into equity and liability portions for their appropriate classification. Those items which are liabilities but are classified as equity under Indian GAAP, such as mandatory redeemable preference shares, need to be re-classified as liability in the ‘opening balance sheet. IAS 27 does not provide any exemption from consolidating subsidiaries. Therefore, if the entity has not prepared CFS under Indian GAAP or has not consolidated any subsidiary in its Indian GAAP CFS, opening IFRS balance sheet needs to be redrawn to ensure all subsidiaries are recorded in the consolidated opening balance sheet. 2KEY DIFFERENCE IN PRESENTATION OF FINANCIAL STATEME! IAS | Presentation of Financial Statements is significantly different from the corresponding AS 1 Disclosure of Accounting Policies, While IAS | sets out overall requirements for the presentation of financial statements, guidelines for their structure, and minimum requirements for their content, Indian GAAP offers no standard outlining overall requirements for presentation of financial statements. In India, for various entities, the statutes governing the respective entities lay down formats of financial statements. For example, in the case of companies, format and disclosure requirements are set out under Schedule VI to the Companies Act, 1956. For entities such as partnership firms, the statute governing those entities does not lay down any specific format of financial statements. IAS | recognizes true and fair override, True and fair override is generally not permitted under Indian GAAP. Though Clause 49 of the Listing Agreement contains provisions relating to the true and fair override, no practical guidance is available. IAS | essentially sets out overall requirements for presentation of financial statements. In case of balance sheets, it requires a clean segregation of current and non-current items for assets and liabilities. In the profit and loss account, both, the functional format and the format based on nature of expenses are allowed. Therefore, IAS I significantly impacts the presentation of financial statements. These impacts are covered under the following broad parameters: 1, Enhanced transparency and accountability 2. Better presentation of financial position 3. Legal implications IPRS 3 Business Combinations applies to most business combinations, both amalgamation (where acquiree loses its existence) and acquisition (where aequiree continues its existence). Under Indian GAAP, there is no comprehensive standard dealing with all business combinations. AS 14 applies only to amalgamation, i.e., when acquiree loses its existence and AS 10 applies when a business is acquired on a lump-sum basis by another entity. AS-21, AS-23, and AS-27 apply to subsidiaries, associates and joint ventures respectively. TRS 3 requires all business combinations (excludes common control transactions) within its scope to be accounted as per Purchase method and prohibits merger accounting. Indian GAAP permits both Purchase method and Pooling of Interest method. Pooling of Interest method is allowed only if the amalgamation satisfies certain specified conditions IFRS 3 requires net assets taken over, including contingent liabilities, to be recorded at fair value unlike Indian GAAP, which requires recording of net assets, with a few exceptions, at carrying value. Contingent liabilities are not recorded as liabilities under Indian GAAP. IFRS 3 prohibits amortization of goodwill arising on business combinations and requires it to be tested for impairment. Indian GAAP requires amortization of goodwill in the case of amalgamations. With 13reference to goodwill arising on acquisition through equity, no guidance is provided in Indian GAAP. IFRS 3 requires negative goodwill to be credited to profit and loss account, whereas the same is credited to capital reserve under Indian GAAP. In IFRS 3 acquisition accounting is based on substance. Reverse acquisition is accounted assuming the legal acquirer is the acquire. In Indian GAAP, acquisition accounting is based on form. Indian GAAP does ‘not deal with reverse acquisition. 14ERGENCE OF WITH INDIAN At ARDS: The Ministry of Corporate Affairs (MCA) reported on 13" May 2008 that the initiative for harmonization of the Indian Accounting Standards with International Financial Reporting Standards (IFRS), which was taken up in 2001 and implemented through notification of accounting standards in 2006, would be continued by the Government with the intention of achieving convergence with IFRS by 2011. The initial road map notified by MCA for conversion of Indian Accounting Standards with IFRS is yet to be implemented and a revised road map was under consideration of MCA. A core group was constituted in July 2009 under the Chairmanship of Secretary, MCA to prepare a road map for convergence with representatives from regulatory bodies (RBI, CAG, SEBI, IRDA, and PFRDA), Ministry of Finance, The Institute of Chartered Accountants of India (ICAD, Chambers and Industry bodies and experts. The core group was supported by two sub ‘groups. The core group had communicated the changes required to be carried out by various regulators as well as the road map for implementation of the Converged Accounting Standards (Ind-AS) in phases. As per the road map announced by MCA in March 2010, the Ind-AS were to be applied to specified class of companies in phases beginning with the financial year 1* April 2011. The Ind-AS would be applicable for both stand-alone and consolidated financial statements.CHALLENGES TO INDIA: Shortage of Resources: India has about 145,000 Chartered Accountants, which is far below the number what is required. ‘There is a huge demand of Chartered Accountants because of IFRS implementation, In the recent years with lots of corporate frauds, there has been implementation of SOX, strengthening of ‘corporate governance norms, increasing financial regulations. So, at present we see a shortage of accounting professionals, at least in a short run, Training: If India wants to implement IFRS effectively from 2011, there is a need to train all the stakeholders, comprising CFOs, auditors, audit committees, teachers, students, analysts, regulators, and tax authorities, The best way to have a talent pool in this field can be done by introducing IFRS as a full subject in universities and Accountancy syllabus. Information systems: The computer systems and the software, which are going to handle financial accounting and reporting must be designed and made available in such a way that they produce robust and consistent data for reporting financial information. These systems have to be reliable, The new systems should have the capability of capturing new information for required disclosures, such as segment information, fair values of financial instruments, and related party transactions. The ‘companies need to enhance their IT security so that their business is at minimum risk from potential fraud, cyber terrorism, and data corruption. The differences between GAAP and IFRS are wide and very deep routed, to say a few: Plant Property and Equipment (PPE) accounting, Financial Instruments accounting, Investment accounting, Business combination, Share based payment, current and non-current classification of asset and liabilities, presentation of financial statements, all are not dealt under Indian GAAP. Convergence is not just one time technical steps but will impose practical challenges of significant business and regulatory matters like structuring of ESOP schemes, training of employees, tax planning, modification of IT system, compliance with debt covenants. Educating investors to understand the changed financial reporting's under IFRS. Challenges on account of differences in various conceptual, practical, legal and implementation methods. The Indian GAAP keeps abreast the local conditions, including the legal and economic environment. For example AS 29 does not specifically deal with constructive obligation whereas IAS 37 deals specifically with this in the context of creation of a provision. The effect of this is that in some ‘cases provisions will be required (o be recognized at an early stage. The regulatory and legal requirements in India will pose a challenge unless the same is been addressed by respective regulatory. For example the present direct tax laws do not address any 16tax implications likely to arise from IFRS transitions. Complexities of the introduction of concepts such as present value and fair value measurement, recognition and the extent of disclosure required under IFRS. For example, a few listed below though not all: IFRS does not provide for the compromise, merger and amalgamation through court schemes, effect of all such schemes are recognized through income statement, ‘Treatment of expenses like premium payable on redemption of debentures, discount allowed on issue of debentures, underwriting commission paid on issue of debentures etc is different, This would bring a change in income statement leading to enormous confusion and complexities. Eq receiving a dividend. ty definition changed, this would result impact on tax benefits where interest is treated as Financial statements more complex under IFRS and thereby would pose challenge making useful decision. ‘The law and regulations of a country is a land specific and so of India too, 7MPARISON OF IAN GAAP, IFRS AND IND AS: Presentation of AS-1 Disclosure of | TAS 1- Ind AS 1- Financial Accounting, Presentation of Presentation of Statements Policies Financial Financial Statement Statements Format Schedule VI Only illustrative Ind AS does not prescribes formats for include any mandatory formats | presentation of illustrative format for presentation of | financial for the presentation balance sheet and _| statements have of financial statement of profit | been given. statements though and loss. Ind AS 27 does set out the form in which consolidated financial statements are to be presented. Inventories AS-2 Valuation of | TAS 2- Inventories | Ind AS 2- Inventories Inventories Classification As per the No specific Similar to IFRS requirements of Schedule VI, inventories need to be classified as: Raw materials Work in progress Finished goods Stock in trade Stores and spares Loose tools Others classification requirements- classification should be appropriate to the entity 18TURE AGENDAS OF IF! The historic 2002 Norwalk Agreement between the US standard setter, FASB, and the [ASB called for "convergence" of the two sets of standards, and indeed a number of revisions of either US GAAP or IFRS have already taken place to implement this commitment, with more changes expected in the near future. More recently (late 2007), the US Securities and Exchange Commission waived the longstanding requirement that foreign private issuers (ie. registrants) filing financial statements prepared in accordance with full IFRS (i.., not European or other national versions of IFRS) reconcile those financial statements to US GAAP. Additionally, the SEC is weighing a rule change that would permit US domestic registrants to choose between compliance with US GAAP and IFRS. These current and prospective changes, coupled with ongoing convergence efforts, seemingly portend a «greatly expanded usage of IFRS in world commerce. Typical IFRS timeline can be explained as: The aim was to disclose the plan for IFRS convergence by the end of 2009 and in 2010 the main task to be completed has been outlined as to © Collect IFRS comparative data. © Disclosure of the detailed plan, November 2007: The Securties_| | February 43, 2008: and Exchange Commission ("SEC") | | AcSB confirms IFRS Borees to alow foreign private Ghangeover date as | | tonal CSA dexison Ieeuere to fle IFRS financial being tanuary 1, 2001 Statements without US GAAP for PAES ‘December 34, 2008: December 31, 2008 January 3, 2010: ‘AcS# announces pou fan to relace| Canadian Generaty Quateatve Fest day of quanteative bate of Qicoewe | |Gicaawe™ || oovaced’ | | Sonreruon tor Reapted Aco Pres (Caradon sxpecedobe | | xpectesto ne | | comparative | | punta Goan’) win rs fared" | [femieerie "| | Steet | | Seenntane aE ‘anagemene | [Homa sdor | | Sanecerts | | Srna siya Stements | | fend mas) 19Financial services, health services, consumer and industrial products are the industries which are highly interested in going for IFRS. These industries are interested because most of their ‘competitors are non-U.S. Companies. In addition, cross-border merger and acquisition transactions make IFRS attractive to companies in these industries. US have recognized that IFRS is going to have a significant impact of the US companies. As the principles of IFRS are similar to U.S. GAAP, the professionals there are not going to face much difficulty in implementing IFRS. Major differences have been minimized and the concepts in both have been aligned. Several areas in which substantial convergence between U.S. GAAP and JERS has occurred are: * Share-based payment. ‘© Business combinations. 20IMPORT. E OF IF IN GLOBAL SCENARI ‘The changes and the challenges have not been restricted to a few selected nations. With the fast ‘growth of technology and internet, there has been redefinition of the way business is being carried on and challenges are being faced by new methods of commerce. Different countries following different accounting standards can be looked as “Inefficiency at its Best” Presentation of Standards can be done in different ways. In terms of accounting, standards are a mark of quality. International standards are international marks of quality, and specifically the IFRS. In the recent times, IFRS has been widely recognized as the leading standard to be adhered to in the coming future, The quicker local organizations move to working within this framework, the quicker the investment will flow. India is moving towards IFRS because its major trading partners like Russia and China are planning for a move. There is no legislation as such in UAE which directs the companies to follow IFRS, but the standards are being followed by the banks and the companies which are listed on the stock market, Those countries who want large investments in this competitive world ‘would have to follow IFRS in near future, The IFRS standards would help to link the small and big countries of the world in a better way. Now there is no choice with the companies to follow the local accounting standards. As the business is being carried on globally and companies are getting listed on stock exchanges in different countries, there is a need to have a consistent reporting system across the world. The solution is IFRS. The aim of implementing is to create more reliable, comparable and more detailed financial statements that would expedite trade taking place between countries, ‘There are certain reasons in general which speak about the need to implement and follow IFRS } Subsidiaries and joint ventures of the holding and parent companies, operating under the law where IFRS have been implemented, are required to follow the same accounting regulations as their corporate origin/parent/holding company. > MNCs which want to start their operations in a foreign country will be required to follow TERS to obtain a license to operate and expand. Converting the IAS standards to IFRS is a complex process. It is not only the changes in the accounting exercise but various other aspects of the company would also change that can be listed as © Financial reporting process ‘¢ Issues related to an organization i.e. matters related to law, tax related issues, compensation procedures ete, aAn important moment came on June 6th, 2002 when European Council of Ministers made it mandetory for the EU Companies listed on a regulated market to prepare accounts in accordance with the International Accounting Standards for accounting periods beginning on or after January Ist, 2005. With these steps taken, the importance of IFRS has been increased by European Capital market which is the second largest economic power in the world after US. European ‘commission published the necessary components to achieve a single capital market in ‘Financial Service Action Plan (FSAPY in 1999 which comprises of a five year legislative process. The major objectives are: ‘© To have one EU Wholesale securities market * To have Open and secure retail markets, * To have State of art prudential rules and supervision, ESP Ae(e) eels] Dee et eee eet eta eter ere cee ect 22WORLD WIDE IMPLEMENTATI F IF! ‘The countries till few years back were developing their own Generally Accepted Accounting Principles (GAAP). Based on these laws the financial statements were prepared for the different countries differently. The advent of IFRS has brought with it the choice of adopting a globally accepted set of standards instead of using local GAAP. Financial statements are prepared based ‘on a number of accounting principles and assumptions. Accountants use their judgment to apply these principles and produce financial statements for use by management, shareholders, analysts, finance providers, governmental agencies, the general public and other stakeholders. Based on these financial statements the users are able to make the correct decisions. The accountants can interpret the financial statements differently if no common standard is followed globally. Cases have come up that the companies, which reported under IFRS, have recorded a loss; but when the same company filed its accounts as per different standard, it recorded a profit. With IFRS subjectivity is removed and the information that we get is consistent basis for recognition, measurement, presentation and disclosure of transactions and ‘events in financial statements. Convergence of accounting standards will have the effect of attracting investments through ‘greater transparency and a lower cost of capital for potential investors. Stock exchanges that do not recognize accounts filed in accordance with IFRS are finding it increasingly difficult to attract new listings. Differences in accounting practice make it difficult for investors, whether individual or institutional, to compare the financial results of different companies and make investment decisions JERS IN CHINA: China has made sincere efforts for harmonizing Chinese accounting standards with IFRS. Deloitte Touche Tohmatsu has played a significant role for the development of Chinese Accounting Standards in accordance with the global standards. ‘China has long realized the importance of a sound financial system with its economic transformation happening from a centrally planned economy to # market oriented economy. Earlier as China had a planned economy, the design of the accounting system was different from ‘what is needed now. Earlier the main focus was on whether the state-owned enterprises were able to execute the financial plans or not. So, the performance parameters and objectives were also significantly different from the financial objectives in a modern market oriented economy. In 1979, China opened its door for foreign investments, which lead to rapid growth of its ‘economy, international trade and securities market. This all lead to the need of having new objectives for financial reporting. With the changes happening in the economy, State-owned enterprises now look a lot like profit oriented businesses and reliable information is required for making decisions for efficient allocation of capital. In 1993, there were efforts being made to develop Chinese Accounting Standards (CAS) which were in line with the accounting and reporting standards, MOF engaged Deloitte Touche Tohmatsu as consultants to develop CAS. Since then exposure drafts on about 30 standards have 23been developed and since 2001 remarkable achievement can be seen in this field. In 2001 a new comprehensive Accounting System for Business Enterprises (the “System”) was released .The new System replaced the Accounting System for JSLE from January 1, 2001 and Accounting Regulations for FIE from January 1, 2002. In 2001-2002 all Joint Stock Limited Enterprises (ISLE, including all listed enterprises) and Foreign Investment Enterprises (FIE) were required to follow one unified new System. The MOF plans to ultimately require all medium-size and large enterprises (other than financial enterprises) to adopt the new System, and it also announced its expectation that state-owned enterprises will adopt the new System over time. When all the enterprises will follow these new standards, comparison of the financial statements will be better. With these steps and with the adoption of updated definitions of accounting, ‘elements similar to those of IFRS Chinese financial system is moving closer to the Intern: Accounting standards. nal The financial statements prepared for FIE were earlier based on Accounting Regulation for FIE and so the companies actual results were not reflected and lot of adjustments were required when financial statements were prepared for filing in some other country. This process had cost a lot in terms of money and time. With the adoption of IFRS the results will become more clear and transparent thereby enabling the foreign investors to assess the performance of their investments more efficiently. Over the past few years importance of IFRS has increased significantly. Many countries are accepting this standard for more efficient trade to happen. Convergence with this standard is being seen as a high priority because the differences which are existing between the GAAP of. individual countries and IFRS are significant. This international accounting harmonization is also being supported by ministry of finance of China and it is paying due consideration while drafting each CAS so that it is in accordance with IFRS. MOF is trying to come up with Accounting, Standards in accordance with IFRS and itis also keeping the point that the standards should also follow the national laws ‘The Chinese ministry of finance has accelerated the development of standards that are in accordance with IFRS, The finance ministry has to work, also on the standards that are industry specific- c.g. banking, agriculture, oil and gas. The ministry is also working on the accounting system of small enterprises for better comparability. In recent times significant progress has been made by the Chinese Accounting Standards. With its recent plan we expect China will see further convergence with IFRS in near future and keeping in mind there are standards responsive to Chinese economy during the transitional period. 24IERS IN AUSTRALIA: ‘There are 41 Accounting Standards issued by Australian Accounting Standards Board (the AASB) called as A-IFRS, These were applicable for annual reporting periods beginning on or after I January 2005, A-IFRS is not consistent with IFRS because of: + The updates to accommodate the Australian legislative environment. ‘© Due to the application of ASB 1 ‘First-Time Adoption of Australian Equivalents to International Financial Reporting Standards’ on transition to A-IFRS leads to deletion of transitional provisions in individual Standards. © AdditionaVamended requirements for not-for-profit entities ‘There are also cases in which from a number of options, AASB permits only one option from the corresponding. © Additional disclosures. © Overseas reporting of foreign-owned Australian companies where the foreign parent entity is applying IFRS. July 2002 Australian Financial Reporting Council announced that Australia would adopt international financial reporting standards 1 January 2005. Australian equivalents to IFRS ic. AIFRS take effeet for reporting periods beginning on or after this date. ATERS apply to all listed and non-listed enti «profit, © not-for-profit public sectors AIFRS transition involves two elements; 1. Companies integrating the new reporting requirements into the internal business processes, 2. Share market coming to terms with changed accounting treatments and their impact on a companies ‘on paper’ financial position. 25TERS IN CANADA; In January 2006, the Canadian Accounting Standards Board (ASB) announced its decision to replace Canadian Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS) for all Canadian Publicly Accountable Enterprises (PAEs). PAEs include listed companies and any other organizations that are responsible to large or diverse groups of stakeholders, including non-listed financial institutions, securities dealers and many co-operative enterprises. Effective January 1, 2011. enterprises issuing financial statements under standards other than IFRS must demonstrate that they are not publicly accountable, To allow affected companies sufficient time to prepare for the transition, the AcSB announced a five-year transition period, with an expected changeover date of January 1, 2011, for annual periods beginning on or after that date. This transition will be significant and far reaching for affected organizations and all their stakeholders, including their employees, lenders, and investors, Canada’s small, open economy comprises less than 4% of world capital markets. The AcSB is adopting IFRS for publicly accountable enterprises to help them remain competitive within global capital markets. Not only will the adoption of IFRS improve the clarity and comparability of financial information globally; ultimately, it will also prove more efficient and cost effective by eliminating the need for reconciliations of information reported under separate national standards. While Canada’s standards setters have played a leading role in developing international standards from the onset, Canada’s transition to IFRS has been slower than in some other parts of the world. This is because the AcSB has been careful to consult widely with affected entities before determining the best transition approach for Canada. The AcSB also wanted to be confident that the transition to IFRS occurred with as little disruption as possible, allowing enough time for those affected to learn and understand IFRSs to be able to properly plan for their transition, (Over the last few years, over 100 countries, including the European Union, Australia and New Zealand, have adopted IFRS. Pressure on Canadian businesses to harmonize with U.S. GAAP and its higher compliance costs have declined. The U.S. standard setter, Financial Accounting Standards Board (FASB), is now working with the International Accounting Standards Board (IASB) to develop converged standards; the SEC has proposed to accept foreign issuer filings in accordance with IFRS without reconciliation to U.S. GAAP by 2009. The world-wide trend to IFRS adoption is clear. The transition to IFRS repositions Canadian financial reporting, for the future, IFRS IN BRAZIL: In Brazil, the deadline has been set as 2010 for adoption of IFRS by the Brazilian Central Bank and the Brazilian Securities and Exchange Commission (CVM). So from 2010 IFRS would be followed for the consolidated financial statements of financial institutions and publicly-held ‘companies. As per the recent publication of Law 11.638/07, it has become priority for the Brazilian companies to make the transition to IFRS. By revising the accounting aspects of ‘Company Law 6.404/76, Law 11.638/07, effective from January 1, 2008, is the most significant, change in Brazilian corporate legislation in the last 31 years. The new law talks about various 26