c




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 Ã Ú  

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International Financial Reporting Standards (c
) was issued by International Accounting

Standards Board (IASB). The International Standard setting process began long ago as an effort
to Standardize and make easier to adopt by the developing and smaller nations which feel
difficult to set and establish their own standards on Accounting and Reporting.The importance of
having ONE standard was felt by the regulators, investors, large entities and audit firms as the
business becomes more global.

Convergence with c
 issued by IASB has recently gained momentum all over the world. So
far 109 countries presently require or permit use of c
 in preparation of financial statements in
their countries. By 2011, the number is expected to reach 150. Due to the complex nature of
c
, Institute of Chartered Accountants of India (ICAI) in its 2006 concept paper expressed its
view that c
 should be adopted from 01.04.2011. Implementation will be done in a phased
manner. Adoption of c
 is mandatory for the following entities:

1. Public and Private companies listed and in the process of listing.

2. Private companies who have issued debt instruments in a public market and
3. Private companies which hold assets in fiduciary capacity (ex: Banks and Insurance
companies)

c
cc c

The Standards apply when the entity adopts c
 for the first time by explicit and unreserved
statements of compliance with c
.

These International Accounting Standards specifically covers:

1. Comparable information with the earlier years

2. Identification of the basis of reporting

3. Retrospective application of c
 information

4. Formal identification of reporting date1 and the transition date2

c
 requires an entity to comply with each standard which are effective at the reporting date for
its first financial statements complying c
 pattern. c
 should be applied retrospectively
subject to certain exceptions and exemptions. Thereby, comparative amounts, including opening
balance sheet for the comparative period, should be restated from Indian GAAP to c
.

An entity moving from National GAAP to c
 should apply these requirements. The basic
requirement is full retrospective application of all c
s effective at the reporting date for the
entity¶s first c
 financial statements.
  Ú REPORTING DATE RepÃ
  dae  e "ala e ee dae à e 
  a al

aeme  a expll ae a e Ãmpl w c
 (Ã
example 31 Ma
 2012)

¦
 TRANSITION DATE T
a à dae  e dae à Ãpe   "ala e ee Ã
e p
Ã

 
ea
Ãmpa
a e  a al aeme  (Ã
example 1 Ap
l 2010  e
epÃ
  dae  31
Ma
 2012)

However there are number of exemptions and 4 exceptions to the requirement for retrospective
application. The exemption covers standards for which the IASB considers that retrospective
application could prove to be too difficult or could result in cost likely to exceed any benefits to
users. The exemptions are optional.

 !" #

9 Business combinations
9 Share based payment transactions
9 Insurance contracts
9 Fair value or revaluation as deemed cost for the property, plant and equipment and other assets
9 Leases
9 Employee benefits
9 Cumulative translation difference
9 Investments in subsidiaries, jointly controlled entities and associates
9 Assets and liabilities of subsidiaries, associates and joint ventures
9 Compound financial instruments
9 Assets and liabilities of subsidiaries
9 Designation of previously recognized financial instruments
9 Fair value measurement of financial assets or financial liabilities at initial recognition
9 Decommissioning liabilities included in the cost of property, plant and equipment
9 Service concession arrangements
9 Borrowing cost

$%c#

The exceptions cover areas in which retrospective applications of the c
 requirements is

considered inappropriate. The exceptions are not optional and mandatory. The 4 exceptions are:

1. Estimates
2. Derecognition of financial assets and liabilities
3. Hedge accounting
4. Some aspects of accounting for non-controlling assets



c&'%(# 

The opening c
 balance sheet as at the transition date should

° Recognize all assets and liabilities whose recognition is required by c
, but
° Not recognize items as assets and liabilities whose recognition is not permitted by c


When preparing opening balance sheet:

° Recognize all assets and liabilities whose recognition is required by c
. Examples of
changes from national GAAP are derivates, leases, pension liabilities and assets, and deferred
tax on revalued assets. Adjustments required are either debited or credited to equity

° Remove assets and liabilities whose recognition is not allowed by c
. Examples of changes
from national GAAP are deferred hedging gains and losses. Other deferred costs, some internally
generated intangible assets and provisions. Adjustments are either debited or credited to equity.

° Reclassify the items that should be classified differently under c


° Apply c
 in measuring assets and liabilities by using estimates which are consistent with the
national GAAP estimates and condition at the transition date.

c
)'*%%*c&# 

c
 has a special focus on Fair Value accounting. The IASB defines Fair Value as the amount
for which an asset could be exchanged, or a liability settled, between knowledgeable, willing
parties in an arm¶s length transaction. It has been proposed that there is a four level
measurement hierarchy in establishing fair value.

Level 1 is determinable by direct reference to an observable market price failing that, Level 2
requires an accepted model for estimating market price. Level 3 has regard to the price actually
paid (assuming no persuasive evidence that it was unrepresentative). Level 4 allows techniques
using entity specific data that can be estimated reliably and which is not inconsistent with market
estimations.

There are many advantages when Indian entities converge with c
:

a) The use of common standards in the preparation of public company financial statements
will make it easier to compare the financial results of reporting entities from different countries.

b) It helps investors understand opportunities better.

c) Large public company with subsidiaries in multiple jurisdictions would be able to use 
 
 
 company wide and present their financial statements in same language as
their competitors.
d) Finance professionals will be more mobile and company will more easily able to respond
the human capital need of their subsidiaries around the world.

e) Easy access to foreign capital markets.

f) Helps reduced cost; at present when Indian entities list their securities abroad they have to
make another set of accounts which are acceptable in that country. Convergence with c
 will
eliminate this need for preparation of dual financial statements and thereby reduce the cost of
raising capital from foreign markets.

g) Greater disclosure requirement provides more transparency in the financial statements.

h) It provides way for interpretation. International Financial Reporting Interpretations

Committee (IFRIC) will reassess the standard.

Since convergence with c
 has some complex process and techniques, it involves much cost
and time. The costs also extend to train the professionals under c
. It is a tedious process
when it comes to non-routine items like business restructuring, mergers and acquisitions and
demergers. The data has to be dug out and then do it on fair value basis which will be time
consuming. Small and medium scale enterprises (SME) find it difficult to converge with c
. It
is a challenge for auditors since they have to give their opinion on the financial statements
prepared under c
. So, they have to be trained well in advance. Companies will have an
added task to educate the investors, lenders, business vendors, directors, employees, etc.
Companies and lending institutions will have to analyze the potential impact early on to avoid last
minute surprises. And for the students community it is yet another challenge they will be facing
shortly by the change in syllabus. We are ready!