Financial Reporting Practice in India and Ifrs

RIJBFA
Volume 1, Issue 9(September 2012)
ISSN: 2277- 100X
A Journal of Radix International Educational and

Research Consortium
RIJBFA
RADIX INTERNATIONAL JOURNAL OF
BANKING, FINANCE AND ACCOUNTING
FINANCIAL REPORTING PRACTICE IN INDIA AND IFRS

VIS-A VIS
INDIAN AS 101 THROUGH INDIAN AS 108: SOME OBSERVATION
RISHI BHARGAV DAS

M.COM (FINANCE); NET (JRF); SLET
DEPARTMENT OF COMMERCE
DIBRUGARH UNIVERSITY
INTRODUCTION
Financial reporting is the communication of financial information of an enterprise to its

users for better economic decision making. Bedford conceptualizes the financial reporting
process as consisting of four procedural activities.
1. Perception of the significant activity of the accounting entity or in the environment in

which the entity performs. Implicit in the traditional perception is the belief that financial
transactions represent the significant activities
Journal of Radix International Educational and Research Consortium

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2. Symbolizing the perceived activities in such fashion that a database of the activities is
available that can then be analyzed to grasp an understanding of the interrelationship of
the mass of perceived activities. Conventionally, this symbolization has taken the form of
recordings in accounts, journals, and ledgers using well-established bookkeeping and
measurement procedures
3. Analysis of the model of activities in order to summarize the interrelationships among
activities and to provide a status picture or map of the entity. Traditionally, this analysis
process has been viewed as one of developing accounting reports to provide insights into
the nature or entity activities
4. Communication (transmission) of the analysis to users of the accounting products to
guide decision makers in directing future activities of the entity or in changing their
relationship with the entity.
First two steps constitute the process of accounting measurement, the quantification of an
entitys past, and present, or future economic phenomena on the basis of observations and
rules. Implicit in this conception are the requirements that
(a) There exist some attribute or feature of a business-related objects or event (e.g.; the
value of an asset) worthy of measurement and
(b) There exist a means of making the measurements (e.g., the use of exchange prices to
value enterprise assets)
Step 3 and 4 of the financial reporting process constitute disclosure.

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Hence, measurement and disclosure are two dimensions of reporting process and these
two aspects are interrelated. Together, they give corporate reporting its substance
.Financial statements are a central feature of financial reporting. The accounting process or
financial reporting system, which generates financial information for external users,
encompasses following principal financial statements both stand-alone and consolidated:
1. Balance Sheet (or statement of financial position)

.2. Profit & Loss Account (or statement of earnings or income statement).
3. Cash Flow Statement (or statement of cash flows).
These three financial statements, augmented by footnotes and supplementary data (often
referred to as Notes on Accounts or Notes to the Accounts) are intended to provide
relevant, reliable and timely information essential for making investment, credit and similar
decision. Such financial statements are called general purpose financial statements.
It may be mentioned that the term financial reporting is not restricted to information
communicated through financial statements. Financial reporting includes other means of
communicating information that relates, directly or indirectly to the information generated
through accounting process. Information provided by means of financial reporting other
than financial statements may take various forms and relate to various matters.
Communication by means of financial reporting other than a formal financial statement is
made due to regulatory requirements or customs. In a few occasions, management may

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communicate any matter voluntarily when it considers such communication is useful to the
stakeholders outside the enterprise. Publication of unaudited financial results, news
releases, management forecasts and description of future plans is examples of reports that
are provided outside the general-purpose financial statements.
Corporate financing reporting is not an end in itself but is a means to certain objectives.
There are debates regarding objective of financial reporting. However, some consensus*
has been developed on the objectives of financial reporting through the issuance of the
conceptual framework. The conceptual framework provides the conceptual basis for
generally accepted accounting principles (GAAP). It delineates the characteristics
accounting information must possess to be useful in investment and other economic
decisions. Like other standard setting bodies, the Framework states that the objective of
financial statements is to provide information about financial position, performance and
cash flows of an enterprise that is useful to a wide range of users in making economic
decisions. The Framework specifies present and potential investors, employees, lenders,
suppliers and other trade creditors, customers, governments and their agencies and the
public as the users of financial statements.
MAJOR OBJECTIVES OF FINANCIAL REPORTING

(i) Financial reporting should provide information that is useful to present and potential
investors and creditors and other users in making rational investment, credit, and similar
decisions.
(ii) Financial reporting should provide information to help investors, creditors, and others to
assess the amount, timing and uncertainly of prospective net cash inflows to the related
enterprise.

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(iii) Financial reporting should provide information about the economic resources of an
enterprise, the claims to those resources (obligations of the enterprise to transfer resources
to other entities and owners equity), and the effects of transactions, events and
circumstances that change resources and claims to those resources..
(iv) Financial reporting should provide information about an enterprises financial
performance during a period.
(v) The primary focus of financial reporting is information about an enterprises
performance provided by measures of earnings and its components.
(vi) Financial reporting should provide information about how an enterprise obtains and
spends cash, about its borrowing and repayment of borrowing, about its capital
transactions, including cash dividends and other distributions of enterprises resources to
owners, and about other factors that may affect an enterprises liquidity or solvency.
(vii) Financial reporting should provide information about how management of an
enterprise has discharged its stewardship responsibility to owners (stockholders) for the
use of enterprise resources entrusted to it.
(viii) Financial reporting should provide information that is useful to managers and directors
in making decisions in the interest of owners. Apart from investment decision making
another objective of financial reporting is to provide information on management
accountability.
OBJECTIVES OF THE STUDY

1. An analytical study of the provisions of IFRS 1, IFRS 2 THROUGH IFRS 8
2. An analytical study of the provisions of Ind As 101 to 108

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3. Observing the differences between Indian Accounting Standard 101 through 108 and the
related IFRS.
METHODOLOGY
1. The present study is based on Secondary sources.
FINDINGS
1. Difference between IND AS AND IFRS
Time First Adoption of Indian Accounting Standards
It provides only one option to present first IFRS financial statement includes at least
*Three Statement of financial positions
*Two Statement of comprehensive income
*Two Statement of change in equity
*Related notes including comparative information Reconciliation
*Reconciliation of equity as at beginning of the earliest comparative period.
*Reconciliation of its total comprehensive income for comparative period
*Reconciliation of equity as at the end of the comparative period.
*Ind AS 101: provides an option to recognise exchange difference arising on translation
of certain long term monetary item from foreign currency to functional currency, first in
(*IND AS 21 : The Effect of Changes in the Foreign Exchange Rates.)

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equity & then transferred to profit & loss in an appropriate manner (as a consequence of
paragraph 29A inserted in Ind AS 21*). Ind-AS 101 allows a company to measure noncurrent assets held for sale and discontinued operations at the lower of carrying value and
fair value less cost to sell.
Date of Transition: Entities have to mandatorily transition as of the beginning date of

financial year on or after 1 April 2011 and are not required to present comparative
information; however, entities have an option to present memorandum* comparative
information based on deemed transition date as of the beginning date of immediately
preceding financial year (on or after 1 April 2010).
Additional comparatives as per previous GAAP
Irrespective of the option elected for presentation of memorandum Ind AS comparatives,

the first time adopter shall present latest corresponding previous
periods financial statements prepared as per the previous GAAP (existing Indian GAAP,
also refer point iv. for choice of previous GAAP). Such
previous GAAP financial statements shall be reclassified to the extent practicable, when
presenting its first Ind AS financial statements.
2. BUSINESS COMBINATIONS
Common control transactions: IND AS 103: Common control transactions are included in
the scope; and additional guidance is provided. The additional guidance provides that

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business combination transactions between entities under common control should be

accounted for using the pooling of interest* method
IFRS 3: Common control transactions are excluded from the scope
Gain on bargain purchase: IND AS 103: Gain on bargain purchase is recognized in OCI**
and accumulated in equity as capital reserve if there is a clear evidence of the underlying
reason for classification of the business combination as a bargain purchase; otherwise, the
resulting gain is recognized directly in equity as capital reserve
IFRS 3: Gain on bargain purchase is recognized in profit or loss after reassessment of the
fair value of assets acquired and liabilities assumed.
3. PRESENTATATION OF FINANCIAL STATEMENTS
Classification of expenses recognised in profit or loss
IND AS: Entities should present an analysis of expenses recognized in profit or loss
using a classification based only on the nature of expense.
IFRS: Entities can present an analysis of expenses recognized in profit or loss using either
nature, or functional classification, whichever provides information that is reliable and
more relevant.
* is that a sale and purchase of business have not accrued. Two companies have same similarity pooled
their financial resources and managerial talents in such a manner that owner of each separate business are
now corner of enlarged business.
** OCI = other comprehensive income

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4. STATEMENT OF CASH FLOWS
Classification of interest and dividends paid and received for entities other than
financial institution
IND AS 7: Interest and dividends paid is classified as financing cash flows and interest and
dividends received is classified as investing cash flows.
IFRS 7: Interest and dividends paid and received shall be disclosed separately, and each
shall be classified in a consistent manner from period to period as operating cash flows,
investing cash flows or Financing cash flows.
5. CONSTRUCTION CONTRACT
Construction of real estate
IND AS 11: Revenue from agreements for construction of real-estate is recognised using
percentage of completion* without further evaluation.
IFRS 11: Revenue from agreements for construction of real-estate will generally be
recognised on completion of the contract. Percentage of completion method* to recognise
revenue is applied for such contracts only if such contracts meet the specified criteria

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6. EMPLOYEE BENEFITS
*Actuarial gains and losses for post-employment defined benefit plans and other longterm employee benefit plans
IND AS 19 All actuarial gains and losses for post-employment defined benefit plans and
other-long term employment benefit plans various other comprehensive income
IFRS 19: Actuarial gains and losses for defined benefit plans can be recognised using one of
the following three alternatives: in profit or loss; or in OCI or using corridor approach.
Actuarial gains and losses for other-long term employment benefit plans are recognised in
profit or loss.
7 . DISCOUNT RATE FOR EMPLOYEE BENEFIT OBLIGATIONS
IND AS 19: Discount rate used to discount employee benefit obligations shall be
determined by reference to market yields at the end of the reporting period on government
bonds only.
IFRS 19: Discount rate used to discount employee benefit obligations shall be determined
by reference to market yields at the end of the reporting period on high quality corporate
bonds. In countries, where there is no deep market in such bonds, the market yields(at the
end of the reporting period) on government bonds shall be used.
__________________________________________________________________
*An accounting method in which the revenues and expenses of long-term contracts are recognized yearly
as a percentage of the work completed during that year. It allows taxpayers to defer the reporting of any
income and expenses until a long-term project is completed. The percentage of completion method of
accounting is commonly used in construction projects.

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8. GOVERNMENT GRANTS
Loan from Government at nil or low interest rates
IND AS 20:Benefit resulting from government loan at nil or low rate of interest is recognized
and measured in accordance with revised Ind AS 39 and the difference between the
proceeds from the loan and the initial carrying value of the loan is recognised as
government grant
IFRS 20: Benefit resulting from government loan at nil or low rate of interest is recognize
and measured in accordance with revised IAS 39 Financial Instruments: Recognition and
Measurement and the difference between the proceeds from the loan and the initial
carrying value of the loan is recognized as government grant.
*Non-monetary grants
IND AS 20 Grants are recognized only at their fair value. Grant related assets are presented
only by setting up the grant as deferred income.
IFRS 20 Grants can be recognized either at their fair value or at nominal value. Grant
related assets can be presented either by setting up the grant as deferred income or by
deducting the grant in arriving at the carrying amount of the asset.
*IND AS and IFRS 27: consolidated and separate financial statement

IND AS and IFRS 28: investment in associate
IND AS and IFRS 31: investment in joint venture

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9. Consolidation, proportionate consolidation and equity method of accounting
*Presentation of consolidated financial statements
IND AS 27,28,31*: does not mandate presentation of consolidated financial statements as

requirements to present consolidated or separate financial statements is regulated by
governing statutes in India.
IFRS 27, 28,31: Presentation of consolidated financial statements is mandatory subject to

limited Exceptions
10. * Investments in associates
*Uniform accounting policies
IND AS 28 Revised Ind AS provides an exemption from the use of uniform accounting
policies for like transactions and events in similar circumstance if it is impracticable to do
so.
IFRS 28 The investors financial statements should be prepared using uniform accounting
policies for like transactions and events in similar circumstances
GAIN ON BARGAIN PURCHASE
IND AS 28 Gain on bargain purchase on acquisition of investment in associates should be

recognized in capital reserve.

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IFRS 28 Gain on bargain purchase on acquisition of investment in associates should be

recognized in profit or loss.
11. FINANCIAL INSTRUMENTS
Conversion option embedded in foreign currency convertible bonds
IND AS 32, 39, 107: Conversion option to acquire fixed number of equity shares for fixed
amount of cash in any currency (entitys functional currency or foreign currency) is treated
as equity and accordingly is not required to be premeasured at fair value at every reporting
date
IFRS 7: Conversion option to acquire fixed number of equity shares for fixed amount of cash
in entitys functional currency only is treated as equity. Thus, a conversion option
embedded in foreign currency convertible bonds is treated as embedded derivative*, and
accordingly fair valued through profit or loss at every reporting period end.
Changes in fair value of financial liabilities due to changes in credit risk.
IND AS 32,39, 107 In determining the fair value of the financial liabilities designated at fair
value through profit or loss upon initial recognition, any change in fair value due to changes
in the entities own credit risk are ignored.
_____________________________________________________________________
*A component of a hybrid security that is embedded in a non-derivative instrument. An embedded
derivative can modify the cash flows of the host contract because the derivative can be related to an
exchange rate, commodity price or some other variable which frequently changes

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IFRS: In determining the fair value of the financial liabilities designated at fair value
through profit or loss upon initial recognition, any change in fair value due to changes in
the entities own credit risk are considered
EARNINGS PER SHARE
Presentation of earnings per share (EPS)
IND AS 33: EPS is required to be presented in both, consolidated as well as separate

financial statements.
IFRS 33: When an entity presents both consolidated financial statements and separate
financial statements, EPS is required to be presented only in the consolidated financial
statements. An entity may disclose EPS in its separate financial statements voluntarily.
INVESTMENT PROPERTY
IND AS 40: Investment properties are measured using only cost model.
IFRS 40: Investment properties can be measured using either cost model or fair value
model*

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EPILOUGE
IFRS is a principle based approach with limited implementation and application guidelines.
In the initial years,there is immense learing and subsequently , revisions would araise in
implementation of IFRS .India has set a roadmap for convergence with International
Financial Reporting Standards (IFRS) commencing from 1 April, 2011. The convergence with
IFRS standards is set to change the landscape for financial reporting in India. IFRS
represents the most commonly accepted global accounting framework as it has been
adopted by more than 100 countries. With the growth of Indian Economy and increasing
integration with the global economies, Indian corporate are raising capital globally and the
fair financial reporting with the help of IFRS will be the corporate to grow with the value of
Indian economy.
REFERENCES
1. International Financial Reporting Standards (IFRSs) - published by Taxmann Publications P

Ltd.
2. A Guide through International Financial Reporting Standards July 2008- Published by
IASB.
3. IFRS : A Quick Reference Guide by Robert Kirk
4. Wiley IFRS: Practical implementation guide and workbook by Abbas Ali Mirza, Graham J.
Holt and Magnus Orrell

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5. Wiley IFRS 2008: Interpretation and application of International Accounting and Financial
Reporting Standards 2008 by Eva K. Jermakowicz
6.. Lantto, Anna-Maija and Sahlstrm, Petri (2009). Impact of International Financial
Reporting Standard adoption on key financial ratios. Accounting and Finance, 49, 341
361.and
7. Armstrong, Chris S., Barth, Mary E., Jagolinzer, Alan D. and Riedl, Edward J. (2009).
Market Reaction to the Adoption of IFRS in Europe. Accounting Review Forthcoming.
8. Ball, Ray (2005). International Financial Reporting Standards (IFRS): Pros and Cons for
Investors. Accounting and Business Research, Forthcoming.
9. Daske, Holger, Hail, Luzi, Leuz, Christian and Verdi, Rodrigo S. (2008). Mandatory IFRS
Reporting Around the World: Early Evidence on the Economic Consequences. ECGI - Finance
Working Paper No. 198/2008; Chicago GSB Research Paper No. 12.
10. De Jong, Abe, Roselln Cifuentes, Miguel Angel and Verwijmeren, Patrick (2006). The
Economic Consequences of IFRS: The Impact of IAS 32 on Preference Shares in the
Netherlands. ERIM Report Series Reference No. ERS-2006-021-F&A.
11. Hboxma (2008). Economics and IFRS. Retrieved on October 14, 2009 from
http://www.oppapers.com/essays/Economics-Ifrs/177415.
12 Callao, Susana, Ferrer, Cristina, Jarne, Jose I. and Lainez, Jose A. (2009). The impact of
IFRS on the European Union: Is it related to the accounting tradition of the countries?.
Journal of Applied Accounting Research, 10(1), 33 55.

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13. Carmona, Salvador and Trombetta, Marco (2008). On the Global Acceptance of IAS/IFRS
Accounting Standards: The Logic and Implications of the Principles-Based System. Journal of
Accounting and Public Policy, 27(6).
14. Ramanna, Karthik and Sletten, Ewa (2009). Why do Countries Adopt International
Financial Reporting Standards?. Harvard Business School Accounting & Management Unit
Working PaperNo09-10

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RIJBFA

Volume 1, Issue 9(September 2012)

ISSN: 2277- 100X

A Journal of Radix International Educational and