IFRS - A Comparison with

Indian Generally Accepted

Accounting Principles

1
Agenda
• Discuss the similarity between Indian
GAAP and IFRS
• Discuss areas where different
accounting principles are applied in
Indian GAAP and IFRS reporting
• Discuss areas where different
Accounting Options available
• Discuss different presentations applied
in Indian GAAP and IFRS reporting
2
GENERAL APPROACH
IFRS
 “Principle-Based Accounting” with limited
application guidance

 IGAAP
□ also “Principle-Based Accounting” with limited
application guidance
□ influenced by legal/tax perspectives
•IFRS in India – Significant conceptual matters to
be considered
 Substance over form
 Time value of money
 Fair value option
 Other comprehensive Income
 Restatement
•IFRS in India – Significant conceptual matters to
be considered
 Significance of Consolidated Financial
Statements
 Control
 Uniform accounting policies
 Deferred Tax adjustment during
Consolidation
•IFRS in India – Significant conceptual matters to
be considered
 Componentisation of PPE
 Major overhaul expenses
 Constructive obligation
 Discounting of provisions
 Current and Non current classification
•IFRS in India – Significant conceptual matters to
be considered

 Business combination – Purchase method

 Good will – testing for impairment and not
amortised
 IFRIC 4 – leases
 Prohibition of extra ordinary items
•IFRS in India – Significant conceptual matters to
be considered

 Functional disclosure of items in Profit and

Loss account permitted
 Segment reporting based on CODM
 Compliance with all standards applicable
 Exceptional situation where deviation is
permitted
 •Detailed differences

9
Accounting Policy Changes
Area IFRS Indian GAAP
Primary literature IAS 8 Accounting AS- 5 Net Profit or
Policies, Changes in Loss for the Period,
Accounting Estimates Prior Period Items
and Errors and Changes in
Accounting Policies

Changes in Restated. Prospective

accounting policy application unless the
transitional provisions
of a standard require
Prior period items adjustments in
adjusted in the opening retained
opening retained earnings.
earnings of earliest
period reported.
 Accounting Policy Changes
Area IFRS
Change in Treated as change in
depreciation estimate
method Accounted for prospectively.
Accounted retrospectively in
cases, where rates and
methods vary from those
acceptable under IFRS.
Correction of Restated unless exempted.
errors
Prior period items adjusted
in the opening retained
earnings of earliest period
presented.
Indian GAAP
Change in depreciation method –
depreciation is recalculated
retrospectively and adjusted in the
year of change
Change in Useful life - written
down value depreciated over the
residual useful life
Reported as prior period
adjustment separately.
Restatement of comparatives
prohibited.
Consolidation Policy

Area IFRS Indian GAAP

Primary IAS 27 AS-21 Consolidated
literature Consolidated and Financial Statements
Separate Financial
Statements Council Announcement
SIC 12, XXIII. Elimination of
Consolidation – unrealized profits and
Special Purpose losses under AS 21,
Entities AS 23 and AS 27
 Consolidation Policy
Area IFRS
Definition of Power to govern financial and
“Control” operating policies to obtain
benefits.
Control exists even when the
parent owns less than half of
the voting power but has legal
or contractual rights to control
or de facto control.
Currently exercisable potential
voting rights considered for the
purpose of determining control.
Special Purpose Entities (SPE)
are consolidated wherever
control exists.
Indian GAAP
Control exists only when parent
owns directly or indirectly one-
half or more of the voting rights
or
parent controls composition of an
entity’s Board of directors so as
to obtain economic benefits.
Currently exercisable potential
voting rights not considered for
the purpose of determining
control.
No Specific guidance.
Consolidation Policy
Area
Employee share (stock)
trusts
Reporting periods
Uniform accounting policies
IFRS
Consolidated where
substance of relationship
indicated control.
Differences between
reporting dates of parent
and subsidiary cannot be
more than three months.
Prepared using uniform
accounting policies for all
the entities in a group.
Indian GAAP
Employee share trusts are
not consolidated.
Differences between
reporting dates of parent
and subsidiary cannot be
more than six months.
Policies may differ due to
impracticability. However
the fact should be
disclosed together with the
proportion of items to which
different policies have been
applied .
Consolidation Policy
Area IFRS
Subsidiaries Where control does not
excluded from rest with the majority
consolidation owner.
Where the subsidiary
meets IFRS 5 Non
current Assets Held for
sale and Discontinued
Operations, separate
presentation of assets
and liabilities is required.
Presentation of Within equity.
non-controlling
interests (minority
interests)
Indian GAAP
Where Control is intended
to be temporary
Subsidiary is held for
subsequent disposal in the
near future (ordinarily not
more than 12 months); or
Subsidiary operates under
severe long term
restrictions which
significantly impair its ability
to transfer funds to parent.
Outside equity, between
equity and liability.
Provisions and Contingencies
Area IFRS Indian GAAP

Primary literature IAS 37 Provisions, Contingent AS 4 Contingents and events

Liabilities and Contingent occurring after Balance Sheet
Assets AS 29 Provisions, contingent
liabilities and contingent
assets.

Discounting Provisions are discounted to Discounting is not permitted.

present value where the effect
of the time value of money is
material.
Provisions and Contingencies
Area IFRS Indian GAAP

Restructuring Recognised if Recognised when

detailed formal plan general
announced or recognition
implementation criteria are met.
effectively begun.

Contingent Disclosed in the Are not disclosed

Assets financial statements in the financial
where the economic statements but in
benefits are the report of the
probable. approving
authority.
Provisions and Contingencies
Area IFRS Indian GAAP
Constructive Constructive Present obligation
obligation obligation considered and not constructive
for provisioning. obligation
considered for
provisioning.

Measurement of Best estimate to settle Best estimate basis.

liabilities the obligation,
generally the
expected value.

Measurement of Must adjust the Not applicable as

decommissioning discount rate at each provisions are not
provisions reporting date. discounted.
Property, plant and equipment
Area IFRS Indian GAAP

Primary literature IAS 16 Property, plant AS 6 Depreciation

and equipment accounting
AS 10 Accounting for
Fixed Assets

Componentisation Property plant and Componentisation is not

equipment to be required.
componentised and
depreciated separately.
 Property, plant and equipment
Area IFRS Indian GAAP
Non current Should be classified and presented Assets held for disposal are
assets held for separately in the statement of shown separately in the
sale financial position as Held for sale. financial statements.

Depreciation Depreciable amount allocated The Companies Act 1956

based on the useful life on a prescribes minimum rates of
systematic basis. depreciation.
No requirement for reviewing
Depreciation Methods, Residual at each balance sheet date.
values and Useful lives are
reviewed at the end of each
reporting period.

Frequency of Revaluation to be made with No such requirement.

revaluations sufficient regularity.
Property, plant and equipment
Area IFRS Indian GAAP
Capitalization of Pre- Not permitted. Required.
operative incidental
expenses and trial
run expenses, net
revenue earned
during the trial
period.

Major inspection and Expenditure incurred Expenditure which

overhaul changes to replace a increases the future
separately benefits from the
recognised existing asset should
component of asset only be capitalised.
should be
capitalised.
Leases
Area IFRS Indian GAAP
Primary IAS 17 Leases AS 19 Lease Accounting
Literature IFRIC 4 Determining
whether an arrangement
contains a lease.
SIC 15 Operating leases-
incentives
SIC 27 Evaluating the
substance of transactions
involving the legal form of a
lease.

Leasehold Normally treated as Lease agreements for use of

land operating lease. land are excluded from the
Recognised as prepaid lease scope of AS 19.
rent and amortised over the
lease period.
Leases
Area IFRS Indian GAAP

Separate No such requirement. Assets should be

disclosure of disclosed separately.
leased assets

Upward No such prohibition. Upward revision of un

revision of un- guaranteed residual value
guaranteed is prohibited.
Residual Value

Initial direct To be included as part Option available to

cost of lease receivable in charge off expenses at
case of finance the time of incurrence.
leases.
Financial instruments
Area IFRS
Primary literature IAS 32 Financial Instruments:
Presentation.
IAS 39 Financial Instruments:
Recognition and
Measurement
IFRS 7 Financial Instruments:
Disclosure.
Measurement Held to maturity, loans and
receivables - carried at
amortised cost.
Available for sale investments
– carried at fair value. Any
change in recognised in other
comprehensive income.
Indian GAAP
AS 13 Investments
AS 30:Financial Instruments:
Recognition and Measurement
AS 31: Financial Instruments:
Presentation
AS 32:Financial Instruments:
Disclosure.
(mandatory for certain entities
for accounting periods
commencing on or after 1 April
2011)
Long term investments -
valued at cost less
impairment.
Short term investments –
Valued at lower of cost and fair
value. Any change in value is
recognised in the statement of
profit and loss.
Financial instruments
Area IFRS Indian GAAP
De-recognition of Transfer of risks and Guidance Note issued
financial assets rewards takes lead by ICAI on securitization
over transfer of requires derecognition
control for based on control.
derecognition

Financial liability – Capital instruments No specific guidance.

classification classified based on Classification is based
the substance of on legal form rather than
issuer’s contractual substance.
obligation either as
equity or liability.
Preference shares are
Mandatory classified as equity
redeemable separately under
preference shares shareholder’s funds.
classified as liability.
Financial instruments
Area IFRS Indian GAAP
Treasury Shares - Shown as deduction from Permitted in limited
purchase of own equity. circumstances subject to
shares. provisions of Companies
Act.

Derivatives and Measured at fair value No specific guidance at

other financial Changes in fair value present.
instruments: cash recognised in profit or loss
flow and fair value except for effective portion Once AS 30 is effective,
hedges. of cash flow hedges. there will be no difference
For Cash flow hedges between the two
changes are recognised in standards.
other comprehensive
income until effect of
underlying transactions is
recognised in profit or loss.
Taxes
Area IFRS Indian GAAP
Primary Literature IAS 12 Income AS 22 Accounting for
Taxes taxes on Income.

Guidance note on Fringe

Benefit tax

Deferred income tax Balance Sheet Profit and Loss approach

approach
Based on Based on difference
difference between between accounting
carrying value and income and taxable
tax base of assets income
and liabilities
 Taxes
Area IFRS Indian GAAP
Fringe Benefit Included in related Shown separately after
tax expense which gives profit before tax.
rise to the tax.

Un realised Deferred tax Deferred tax not

intra-group recognised at buyer’s recognised.
profits tax rate. Simple aggregation from
standalone financial
statements.
No adjustment is made on
consolidation.

Revaluation of Deferred tax Deferred tax is not

PPE and recognised in other recognised as considered
intangible comprehensive as a permanent difference.
assets income.
Taxes
Area IFRS Indian GAAP
Deferred tax on Recognised except when Not recognised
Undistributed the parent is able to control
profits of the distribution of profit and
subsidiaries, if it is probable that the
associates and temporary difference will
joint ventures. not reverse in the
foreseeable future.
Recognition of Recognised if it is probable Recognised if
Deferred tax (more likely than not) that a) there is virtually certainty
Assets. sufficient taxable profit will supported by convincing
be available in future. evidence incase of entities
with carry forward tax
losses
b) realization is “reasonably
certain” in case of entities
with no carry forward tax
losses.
Taxes
Area IFRS Indian GAAP

Minimum Recognised as a Considered as prepaid

alternate deferred tax asset if it tax (presented under
tax (MAT) is probable (more Loans and advances)
credit likely than not) that and recognised as an
carry MAT credit can be asset, when and to the
forward. used in future years extent there is
to reduce the regular convincing evidence
tax liability. that MAT credit will be
used in future years to
reduce the regular tax
liability.
Business Combinations
Area IFRS Indian GAAP
Primary literature IFRS 3 Business No specific standards
Combinations to covering all aspects.
AS 14 Accounting for
amalgamations
covering limited
aspects.
Date on which Acquisition date (date No specific guidance.
consideration in a on which control Date of investment.
business passes)
combination is
measured
Accounting method All business Pooling of interests
combinations method in case
accounted under combination satisfy the
Purchase method. conditions of merger.
Others under
Purchase method.
Business Combinations
Area IFRS Indian GAAP
Business combination of Specifically excluded from the No specific guideline.
entities under common scope of the Standard.
control.

Allocation of the cost of At fair value. At carrying value in case of

the business pooling of interests method
combination. At carrying value or fair
value in case of Purchase
method.
Option to measure, on a
Measurement of non- transaction by transaction Measured at carrying value
controlling interests basis, the non-controlling of minority’s share in net
(minority Interests) interest at (a) fair value (b) assets.
the non-controlling interest’s
proportionate share of the
fair value of the identifiable
net assets of the acquiree.
Business Combinations
Area
Excess of fair value of net
assets acquired over
acquisition costs
Goodwill
Deferred tax assets after
initial purchase accounting.
IFRS Indian GAAP
Recognised as a gain Recognised as capital
from bargain purchase in reserve as part shareholders
profit or loss equity.
Goodwill on business Goodwill on amalgamation
combination is not amortised over five years.
amortised but tested for Goodwill on acquisitions is
impairment. tested for impairment
whenever indication of
impairment exists.
Goodwill is reduced to No specific guidance.
record pre-acquisition
deferred tax assets which
are recognised with
twelve months of
the acquisition date as
result of new information
on facts and
circumstances that
existed on the acquisition
date.
Areas Involving “Choices”
Area IFRS Indian GAAP

Expense or capitalize (the

Borrowing costs option to expense will not Capitalize
be available after 1 January
2009)
Equity method or
Joint ventures Proportionate Consolidation Proportionate Consolidation
(ED does not permit
proportionate
consolidation)
In standalone financials, In standalone financials,
Investment in Associates. shown at cost or at shown at cost less
fair value. impairment (there will
be no difference after
limited revision to AS
23 )

Share-based payment Fair value Intrinsic or Fair value

 Areas Involving “Choices”
Area
Employee Benefits –
recognition of Actuarial gains or
losses
Cash Flow Statements
IFRS
Option to recognise in profit or
loss or other comprehensive
income. Corridor approach also
permitted.
Can be prepared using either
direct or indirect method.
Indian GAAP
To be recognised fully in the
statement of profit and loss in
the period of occurrence.
The standard permits both
options.
However indirect method
prescribed for listed entities
and the direct method
prescribed for Insurance
Companies
Presentation / Disclosure differences

Financial Statements
Statement of Cash Flows
Events after the reporting date
Operating Segments
Related party disclosures
Discontinued operations
Financial Statements
Area IFRS Indian GAAP

Primary literature IAS 1 Presentation of AS 1 Disclosure of

Financial Statements Accounting Policies

Presentation Fair Presentation True and fair presentation

Statement of No specific format Formats are prescribed

financial position prescribed by the Companies Act
(Balance Sheet) Separate classification for and other industry
Current/Non Current in the regulations
statement of financial
position. Specific items to be
included in the statement of
financial position.
Financial Statements
Area IFRS
Statement of No specific format.
Comprehensive Specific items to be included.
Income Expenses to be presented either by
function/nature.
Statement of A statement of changes in equity is
Changes in presented showing (a) the total
Equity comprehensive income for the
period (b) effects of retrospective
application or restatement on each
component of equity (c) transactions
with owners and (d) for each
component of equity, a reconciliation
between opening and closing
balances, separately disclosing each
change.
Indian GAAP
Specific items of income and
expenditure to be disclosed.
Formats for specific industry
specified by the respective
regulations.
A statement of changes in
equity is not required.
Movements in share capital,
retained earnings and other
reserves are presented in
schedules to financial
statements.
Financial Statements
Area IFRS Indian GAAP

Extraordinary items Prohibited Events or transactions

clearly distinct from
ordinary activities of the
entity and or expected to
recur frequently or
regularly

Disclosures of Detailed information on Detailed information is not

significant associates significant associates’ assets, required.
liabilities and results is
required.

Offsetting of Assets and Assets and Liabilities cannot No specific guidance.

Liabilities be set off unless permitted
under the standards.
Financial assets and liabilities
can be set off if the entity has
legally enforceable right to
set off and intends to settle
on a net basis.
Cash Flow Statements
Area IFRS Indian GAAP

Literature IAS 7 Statement of Cash AS 3 Cash Flow

Flows Statements

Interest paid May be classified as an Classified as an operating

operating or financing activity for financial
activity. enterprises.
Classified as financing
activity for other
enterprises.

Interest received May be classified as an Classified as an operating

operating or investing activity for financial
activity. enterprises.
Classified as Investing
activity for other
enterprises.
Cash Flow Statements
Area IFRS Indian GAAP
Dividends May be classified as an Classified as an
received operating or investing operating activity for
financial enterprises.
Classified as Investing
activity for other
enterprises
Dividends paid May be classified as an Must be classified as an
operating or financing Financing activity
activity
Presentation of Based on cash Cash excludes bank
bank overdrafts management policies overdrafts
which might differ from Overdrafts classified as
general accounting financing activities
classifications
For example, bank
overdrafts can be
classified as cash and
cash equivalents
Events After the Balance Sheet
Area IFRS Indian GAAP

Literature IAS 1/10 Events After AS 4 – Contingencies

the Reporting Date and Event occurring
after the Balance Sheet

Proposed Dividend Non-Adjusting Event Proposed dividend

adjusted in the financial
statements even though
it is subject to approval
of share holders.

Disclosure of Non Nature and financial No requirement to

Adjusting Events effect of such events disclose in the financial
disclosed. statement.
Such events are
reported in the report of
approving authority
Segment Reporting
Area IFRS
Literature IFRS 8 Operating Segments
(effective from 1 January 2009)
Determination of Operating segments are
segments identified based on the financial
information that is evaluated
regularly by the chief operating
decision maker in deciding how
to allocate resources
and in assessing performance.
Measurement Segment profit or loss is
reported on the same
measurement basis as that
used by the chief operating
decision maker. There is no
definition of segment revenue,
segment expense, segment
result, and segment asset or
segment liability..
Indian GAAP
AS 17 Segment Reporting
AS 17 requires an enterprise to
identify two sets of segments
(business and geographical), using
a risks and rewards approach, with
the enterprise’s system of internal
financial reporting to key
management personnel serving
only as the starting point for the
identification of such segments
Segment information is prepared in
conformity with the accounting
policies adopted for preparing and
presenting the financial statements
of the enterprise as a whole.
Segment revenue, segment
expense, segment result, segment
asset and segment liability have
been defined.
Related Party Transactions
Area IFRS Indian GAAP

Literature IAS 24 Related Party AS 18 Related Party

Disclosures Disclosures

Key management Includes Non- Non-Executive

personnel Executive Directors. Directors are
excluded.

Relative Family member who Spouse, son,

may be expected to daughter, brother,
influence or to be sister, mother, father.
influenced by.
Discontinued Operations
Area IFRS
Literature IFRS 5 Non-current Assets
Held for Sale and
Discontinued Operations
An operation is classified
Classification as as discontinued when it
discontinued has either been disposed
operation of or is classified as held
for sale.
Indian GAAP
AS 24 – Discontinued
Operations
AS 10 Accounting for
Fixed Assets
An operation is
classified as
discontinuing at the
earlier of (a) binding
sale agreement for
sale of the operation
and (b) on approval by
the board of directors
of a detailed formal
plan and
announcement of the
plan.
Discontinued Operations
Area IFRS Indian GAAP

Presentation Post tax profit or loss as a Pre tax profit or loss with
single figure in the statement of related taxes.
comprehensive income/ Income Line items disclosed in the
Statement. Notes to accounts
Analysis of the above figured Pre tax gain or loss on
either in the statement of disposal.
comprehensive income/ income
statement or in the notes.
Net assets disclosed as a
single figure in the statement of
financial position.
Thank you

47