Genesis

SCD GOVT COLLEGE, LDH

ASSIGNMENT ON MODERN ACCOUNTING THEORY AND REPORTING PRACTICES

2014-15 SUBMITTED TO: SUBMITTED BY: Dr.ASHWANI BHALLA MUSKAN KUNDRA ROLL NO: 6204 M.COM 1(1ST SEM)

TOPIC

IFRS-1 FIRST TIME ADOPTION OF

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IFRSCONTENTS INDEX SR. NO 1.

PARTICULARS

PAGE NO.

GENSIS

4-6

2.

INTRODUCTION

6-7

3.

OBJECTIVES

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4.

Reseach Article

9-20

5.

IFRS-1

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6.

Main Features of IFRS-1

22-26

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Exceptions to basic principle

27-29

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Scope of IFRS-1

30-31

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Steps in IFRS-1

31-34

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Explanation of transition to IFRSs

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Additional Disclosure

36-38

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Use of fair value as deemed cost

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13.

Interim financial reports

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14.

Effective Date & Degined Terms

41-42

15.

Discussion and Analysis

43-46

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Summary

46-49

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Bibliography Abbreviations

50-53 54

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Genesis International Accounting Standard Board (IASB) in its drive to develop a single set of high quality, globally acceptable accounting and reporting standards has made a series of efforts to achieve excellence. In regard to this International Accounting Standard Board(IASB) adopted all IAS and began developing new standards known as International Financial Reporting Standards (IFRS). International Financial Reporting Standards (IFRS) is the collection of financial reporting standards developed by the International Accounting Standards Board (IASB). The aim of IFRS is to provide “a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements.” IFRS is becoming a global language. IFRS are standards, interpretations and framework for the preparation and presentation of financial statements. The IFRS Foundation is an independent, not-for-profit private sector organisation working in the public interest. Its principal objectives are:  

to take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs); and to bring about convergence of national accounting standards and IFRSs to high quality solutions.

IFRS are as principles based set of standards that establish broad rules and also dictate specific treatments.

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IFRS Structure

International Financial Reporting Standards comprises of :  International Financial Reporting Standards (IFRS) - standards issued after 2001  International Accounting Standards (IAS) - standards issued before 2001  Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) - issued after 2001  Standing Interpretations Committee (SIC) - issued before 2001 IFRS assist preparers of financial statements produce and present:  high quality,  transparent and,  Comparable financial information.

IFRS1- First Time Adoption of IFRS The International Accounting Standards Board (IASB) published IFRS 1 Firsttime Adoption of International Financial Reporting Standards in 2003. Since then, significant amendments have been made to the Standard (primarily as a

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result of changes to other IFRSs). In November 2008, IFRS 1 was substantially rewritten (without altering the technical content) to make it a more user-friendly document. Most recently, the Standard was revised in July 2009 to introduce additional exemptions. The purpose of IFRS 1 is to establish the rules for an entity’s first financial statements prepared in accordance with IFRSs, particularly regarding the transition from the accounting principles previously applied by the entity (previous GAAP).

Introduction IFRS-1 deals the first time adoption of international financial reporting standards. If an entity is preparing it's financial reports under an accounting framework other than international financial reporting standards i.e.(Accounting standards of their own countries) and decides to change to IFRS then it has to comply with requirements prescribed by IASB on conversion to IFRS. These requirements are stated in IFRS-1 (The first time adoption of international financial reporting standards). It specifies the procedures any entity applying IFRS for the first time must follow. IFRS-1 is essentially a road map for prepares of first year financial statements under IFRS. IFRS-1 also ensures that all first time adopters have consistent starting point. The process of developing the IFRS-1 was started in April 2001 when the international Accounting Standard Board (IASB) adopted SIC-8 first time application of IAS as primary basis of accounting which has been issued by SIC of IASC in July 1998. SIC was replaced with IFRS1 in the June 2003. Since the introduction of IFRS 1 in 2003, amendments have been made to other IFRSs and IASs. As the latter change, the unique needs of first-time adopters are considered, and IFRS 1 is updated where and when appropriate.

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The previous “first-time adoption” guidance (SIC 8) required companies to prepare their statements as if they had always followed International Accounting Standards (that is, including the impact of previous standards). By contrast, IFRS 1 requires presentation in accordance with the standards and interpretations in effect at the reporting date (that is, excluding the impact of previous standards). The general principle of IFRS 1 is that the IFRSs effective at the reporting date (that is, the balance sheet date) should be applied retrospectively to the opening IFRS balance sheet, the comparative period, and the reporting period covered, but with certain exceptions and exemptions. For example, if a company transitions in 2010, they would need to comply with all IFRSs effective December 31, 2010, subject to the exemptions and exceptions. There are two categories of exceptions to the principle that an entity’s opening IFRS statement of financial position needs to comply with each IFRS: i) Optional exemptions from some requirements of other IFRSs. ii) Mandatory exceptions, which prohibit retrospective application of some aspects of other IFRSs.

“First-time adopter” A first-time adopter is an entity that, for the first time, makes an explicit and unreserved statement that its general purpose financial statements comply with IFRSs. An entity may be a first-time adopter if, in the preceding year, it prepared IFRS financial statements for internal management use, as long as those IFRS financial statements were not and given to owners or external parties such as investors or creditors. If a set of IFRS financial statements was, for any reason, given to an external party in the preceding year, then the entity will already be considered to be on IFRSs, and IFRS 1 does not apply.

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An entity can also be a first-time adopter if, in the preceding year, its financial statements asserted compliance with some but not all IFRSs, or included only a reconciliation of selected figures from previous GAAP to IFRSs. IFRS 1 focuses on requirements for:  presentation of the opening statement of financial position (opening balance sheet) at the date of transition, • comparative information as required, • reconciliations between previous GAAP and IFRS, for example with respect to financial position, financial performance, and cash flows, • other requirements and disclosures.

Objective The Objectives of IFRS 1 is to ensure that an organization’s first IFRS financial statements (and any interim financial reports for part of the period covered by those financial statements) contain high-quality information that : • is transparent for users and comparable over all periods presented •provides a suitable starting point for accounting under International Financial Reporting Standards (IFRS) •can be generated at a cost that does not exceed the benefits to users.

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 To standardize accounting methods and procedures.  To lay down principles for preparation and presentation.  To establish benchmark for evaluating the quality of financial statements prepared by the enterprise.  To ensure the users of financial statements get creditable financial information.  To attain international levels in the related areas.

Research Articles Patro.Archana, Gupta.V.K., “ Adoption of International Financial Reporting Standards (IFRS) in Accounting Curriculum in India”, Procedia Economics &Finance, 2012,Vol.2,PP-9 Review Archana Patro (2012) outlines that ICAI announced its decision to adopt IFRS in India w.e.f. April 2011 with the objective that this standard will have an significant impact on capital markets as many European countries have shifted to IFRS and are ahead of India in including IFRS in the curriculum for students and concludes that understanding of Indian Generally Accepted Accounting Principles (GAAP) and IFRS standards is an urgent need for today's students.

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Therefore, the adoption of IFRS mainly depends on the need and interest among students to understand the subject. If students are knowledgeable about the positive impact of the course, they are more likely to take these courses when management colleges or universities offer them.

Teller, R., “First-Time Adoption of IFRS, Managerial Incentives, and ValueRelevance”: Some French Evidence, Journal of International Accounting Research,2009, Vol. 8.2,PP- 2 Review R.Teller (2008) outlines that whether and how managerial incentives influence the decision to elect optional exemptions when first adopting International Financial Reporting Standards (IFRS). It also outlines the value-relevance of the mandatory and optional equity adjustments that must be recognized as a result of the first-time adoption of IFRS and finally concludes that first, managerial incentives influence the decision to strategically elect one or more optional exemptions at the transition date. Second, mandatory equity adjustments are more valued than French GAAP equity, suggesting that the first-time adoption of IFRS by French firms is perceived as a signal of an increase in the quality of their financial statements. Third, the value-relevance of optional IFRS equity adjustments depends on whether they result in the disclosure of new information.

Pascan. Doina.Irina, “Measuring the impact of first time adoption of IFRS on the performance of Romania Listed Entities”, Procedia Economics and Finance,2012,Vol.3,PP-5 Review Irina Doina Pascan (2012),outlines that beginning with 2005 all the entities listed on the European Union regulated markets must prepare consolidated financial statements in accordance with International Financial Standards(IFRS) with the main objective is to identify and measure the impact of first time adoption on the performance of Romania Listed Companies, performance being expressed by means of net income. Romanian listed entities compulsorily apply

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the IFRSs starting with the consolidated financial statements prepared for the financial year 2007. and concludes that no clear tendency can be identified regarding changes in net income of listed entities generated by the transition from Romanian accounting regulations to IFRS.

Tucker.Jon, Yukselturk. Osman, “Does mandatory adoption of IFRS Guarantee Compliance”,International Journal of Accounting,2013,Vol 48.3,PP-36 Review Jon Tucker,Osman Yukselturk (2013) examine whether the mandatory adoption of IFRS by Turkish listed companies in 2005 was successful in practice and what role firm and country level factors played in the adoption with the objective to determine firm-specific factors that affect the degree of change in both measurement and disclosures and conclude that while the standards clearly impact certain accounts, adoption is not uniform across accounts. With regard to disclosures, it concludes that although there are some improvements, the vast majority of the disclosure items required by IFRS were not disclosed. It also reveals that the dominance of tax laws, the lack of enforcement, corporate governance issues, and inadequate management information systems were all significant constraints to the successful adoption of IFRS.

Gorden .Lawrence A, “The impact of IFRS adoption on Foreign Direct Investment” Journal of accounting and Public Policy”,2012, Vol31.4, PP-24 Review Lawrence A Gorden (2012) outlines the impact of IFRS adoption on Foreign Direct Investment (FDI) on companies and concludes that adoption of IFRS by a country results in increased FDI inflows. A key potential driver for IFRS adoption by countries with developing economies is the desire to receive financial aid from the World Bank. It also indicates that overall increase in FDI inflows from IFRS adoption is due to the increase in FDI inflows by countries

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with developing, as opposed to developed, economies. This factor is explicitly taken into account using a two-stage instrumental variable (IV) model. The results using the IV model provide strong confirmation of the OLS results.

Callao, Susana,“Adoption of IFRS in Spain”, Journal of international accounting ,Auditing and Taxation , 2007, Vol 16.2 ,PP-30 Review Susana Callao (2007) outlines that in Spain, listed groups are obliged to prepare consolidated financial information under IFRS, and legislative changes with the objective to bring local rules into line with international standards have been tabled. In this context, the potential impact of IFRS is fraught with uncertainty and concludes that that local comparability has worsened. It reveals that local comparability is adversely affected if both IFRS and local accounting standards are applied in the same country at the same time. Reforms to bring local rules into line with international standards are therefore urgent. It also finds that there has been no improvement in the relevance of financial reporting to local stock market operators because the gap between book and market values is wider when IFRS are applied. While there has been no gain in terms of the usefulness of financial reporting in the short-term, improved usefulness may be achieved in the medium to long-term.

Hasan.A.Enas , “Development Of accounting regulation in Iraq and the IFRS adoption decision”,International Journal of Accounting,2012 Review Enas A Hasan(2012) outlines that the decision to adopt International Financial Reporting Standards (IFRS), and the factors likely to impact the expansion of IFRS application beyond listed companies . The most significant force in the decision to adopt IFRS is coercive pressure, from western forces following the fall of the Ba'ath regime, and from international aid organizations. It was

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concluded that the accounting system in Iraq is likely to be further advanced due to mimetic and normative pressures from Iraq's trade partners, multinational corporations, and the accounting profession and concludes that it is important that IFRS adoption is accompanied by reform to governance and investor protection regimes, together with investment in education and training to support ongoing implementation. Otherwise, IFRS adoption may be perceived as merely symbolic.

Houqe.Nurul.Muhammad, Zijl.Van.Tony , “The Effect of IFRS adoption and investor protection on earning quality around the world” International Journal Of Accounting,2012,Vol 47.3,PP-22 Review Muhammad Nurul , Tony Van outlines the effects of mandatory IFRS adoption and investor protection on the quality of accounting earnings in forty-six countries around the globe and concludes that earnings quality increases for mandatory IFRS adoption when a country's investor protection regime provides stronger protection. This study extends the current literature that shows that accounting practices are influenced by country-level macro settings. The results highlight the importance of investor protection for financial reporting quality and the need for regulators to design mechanisms that limit managers' earnings management practices.

Holt.Graham, “The Road to IFRS”, Accounting and business magazine, June 2009,v-2 Review Graham Holt (2007) outlines that in 2007, the UK Government made a commitment that the UK public sector would move towards adopting the IFRS with the objective to bring about greater consistency and comparability across

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the global economy and to follow private sector best practice in the UK public sector. However, experience has shown that the transition is both lengthy and complex. IFRS 1 has great practical significance for sectors and countries that are expected to adopt the standards in the near future. The introduction of the IFRS will be a significant challenge to a council, as seen in the implementation within the private sector where accounts have, on average, increased by 60% in content and concludes that many types of entity have not yet made the move to IFRS and, similarly, many countries have yet to fully adopt IFRS. A detailed knowledge of IFRS 1 is critical, as it gives entities the opportunity to clean up their balance sheets before being caught by IFRS.

Ahmed.Kamran,Chalmers.Keryn , “A Meta analysis of IFRS adoption”, The International Journal Of Accounting, 2013, Vol48.2 ,PP-44 Review Kamran Ahmed, Keryn Chalmers(2013) outlines the adoption of IFRS around the globe that investigates the financial reporting and capital market effects associated with an accounting regime change. We conduct a meta-analysis of IFRS adoption studies investigating financial reporting effects, namely value relevance and earnings transparency in the form of discretionary accruals, as well as capital market effects, specifically the quality of analysts' earnings forecasts. Findings concludes that the value relevance of book value of equity has not increased post-IFRS adoption, whereas the value relevance of earnings has generally increased when assessed using price models. Results also suggest that discretionary accruals have not reduced, but analysts' forecast accuracy has increased significantly post-IFRS adoption. Findings are not affected materially after controlling for moderating factors including jurisdictional differences such as legal origin, the accounting and auditing enforcement regime, and differences between domestic GAAP and IFRS. However, these associations are moderated by the model used for empirical investigation of value relevance and discretionary accrual effects; they are also moderated by the adoption being voluntary or mandatory. The findings provide evidence to inform policy

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assessments and deliberations of the financial reporting and capital market effects of adopting IFRS.

Schleicher.Thomas , Tahoun.Ahmed , “ IFRS adoption in Europe and investment cash flow sensitivity”, The International Journal of Accounting,2010, Volume 45. 2, PP 143-168 Review Thomas Schleicher, Ahmed Tahoun (2010) outlines the economic consequences of the mandatory adoption of IFRS in EU countries by showing which types of economies have the largest reduction in investment-cash flow sensitivity postIFRS and also examine whether the reduction in investment-cash flow sensitivity depends on firm size as well as economy type and conclude that investment-cash flow sensitivity of insider economies is higher than that of outsider economies pre-IFRS and that IFRS reduces the investment-cash flow sensitivity of insider economies more than that of outsider economies. Also, find that small firms in insider economies have the highest sensitivity of investment to lagged cash flow pre-IFRS, and that they are no longer sensitive to lagged cash flow post-IFRS. Overall, our results suggest that IFRS adoption might have improved the functioning of capital markets in relation to small firms in insider economies. Landsman.R.Wayne,Maydew.L.Edward, “The information Content of annual earnings announcements and mandatory adoption of IFRS”, Journal of Accounting and Economics, Volume 53.2, 2012, Pages 34-54 Review Wayne R. Landsman, Edward L. Maydew outlines whether the information content of earnings announcements – abnormal return volatility and abnormal trading volume – increases in countries following mandatory IFRS adoption, and conditions and mechanisms through which increases occur. Findings conclude that information content increased in 16 countries that mandated adoption of IFRS relative to 11 that maintained domestic accounting standards, although the

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effect of mandatory IFRS adoption depends on the strength of legal enforcement in the adopting country. Utilizing a path analysis methodology there are three mechanisms through which IFRS adoption increases information content: reducing reporting lag, increasing analyst following, and increasing foreign investment. DeFond.Mark ,Hu.Xuesong , ”Impact of mandatory IFRS adoption on foreign mutual fund ownership”, Journal of Accounting and Economics, 2011,Volume 51.3, PP 240-258 Review Mark DeFond, Xuesong Hu outline(2011) that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. and concludes that there is improved comparability as a credible increase in uniformity, defined as a large increase in the number of industry peers using the same accounting standards in countries with credible implementation. Consistent with this assertion, we find that foreign mutual fund ownership increases when mandatory IFRS adoption leads to improved comparability. Following are the highlights of the analysis ► Foreign mutual fund ownership increases in the EU after mandatory adoption of IFRS. ► The increase in mutual fund ownership is larger when IFRS adoption improves comparability .► The effects of improved comparability on foreign fund ownership are primarily driven by foreign global funds, as opposed to foreign regional, country, and other funds. Hou.Qingchuan, Jin.Qinglu , “Mandatory IFRS adoption and executive compensation:Evidence from China”, China Journal of Accounting Research, March 2014 Volume 7.1 , PP 9-29 Review Qingchuan Hou, Qinglu Jin(2014) outlines how the mandatory adoption of International Financial Reporting Standards (IFRS) affects the contractual benefits of using accounting information to determine executive compensation

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in China. After controlling for firm and corporate governance characteristics, it concluded that there was positive impact of mandatory IFRS adoption on the accounting-based performance sensitivity of executive compensation. Subsample analysis suggests that improvements in accounting-based performance sensitivity after IFRS adoption differ across regions with various levels of institutional quality and across firms that are affected to a different extent by the adoption. Additional analysis supports the argument that the positive effects of IFRS adoption on the use of accounting performance in executive compensation are driven by the reduction in accounting conservatism associated with IFRS adoption.

Müller.Victor-Octavian .” The impact of IFRS adoption on the Quality of Consolidated Financial Reporting”, Procedia - Social and Behavioral Sciences, 2014Vol 109, PP 976-982 Review Victor-Octavian Müller outlines(2014) that in the majority of cases (at least on the large European stock markets) listed companies own one or more subsidiaries and therefore are obligated to a dual reporting, being required to produce two sets of financial statements – one at individual level, the other at group level. Furthermore, as of 2005, companies listed on the European stock markets had to adopt IFRS for the preparation of their group accounts, thus needing also to apply different accounting regulations: IFRS for the group accounts and European directives for individual accounts. The study investigates through an empirical association study the impact of the mandatory adoption of IFRS starting with 2005 on the absolute and relative quality (measured through value relevance) of financial information supplied by the consolidated accounts for companies listed on the largest European stock markets (London, Paris, and Frankfurt stock exchanges). The results show an increase of consolidated statements quality (value relevance) once IFRS were adopted, thus suggesting also that the IFRS adoption in Europe led to better complying with the OECD Corporate Governance Principle of high quality disclosure and transparency. Moreover, we ascertained an increase in the quality surplus supplied by group

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accounts compared to parent company individual accounts once the IFRS adoption became mandatory for preparing consolidated financial statements

Alon.Anna , Dwyer.D.Peggy, “Early adoption of IFRS as a Strategic response to transnational and local influences”, The International Journal of Accounting,2014 Review Anna Alon, Peggy D. Dwyer(2014) outlines that International Financial Reporting Standards (IFRS) have been adopted by nations throughout the world. Proponents and standard setters assert that IFRS will produce a number of benefits including improved transparency, international comparability, market efficiency, and cross-national investment flow. This study examine factors that contributed to the early national-level adoption that occurred prior to broad global acceptance of IFRS. Using a conceptual framework of institutional theory and resource dependence,it proposes that the interplay of transnational pressures and local factors influenced the level of adoption. It predicts differential adoption as a strategic response at three levels of either require IFRS, permit IFRS, or do not allow IFRS, using a sample of 71 countries. As predicted, countries with greater resource dependency, as evidenced by weak governance structures and weak economies, were the early adopters who were more likely to require the use of IFRS. Further, resource dependence also trumps nationalistic pressures against transnational conformity.Findings raise concerns that required adoption may not always be accompanied by an appropriately supportive infrastructure; thus, there are implications not only for adoption of IFRS, but also for the diffusion of other transnational regulation that influences global business environment.

Courtenay.Stephen , “The Effect of IFRS adoption conditional upon the level of pre-adoption divergence”, The International Journal of Accounting, June 2014, Volume 49.2, Pages 147-178

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Review Stephen Courtenay (2014) outlines that some of the countries that have adopted IFRS had national accounting standards similar to IFRS prior to adopting IFRS, while others had national accounting standards divergent from IFRS. Prior studies on whether or not International Financial Reporting Standards (IFRS) adoption improves earnings quality have found mixed results. The study examine the effects of IFRS adoption by taking into account the level of divergence prior to the adoption of IFRS. We find that countries experience a greater drop in earnings management when they have a higher level of divergence from IFRS prior to IFRS adoption. More specifically, high divergence countries with higher levels of enforcement benefit the most followed by high divergence countries with lower levels of enforcement. Lower divergence countries with higher levels of enforcement do not significantly benefit from IFRS adoption. Lower divergence countries with lower levels of enforcement do not benefit from IFRS adoption at all. Results support the contention that countries with lower quality local accounting standards prior to IFRS adoption benefit more from IFRS adoption.

Kousenidis.Dimitrios ,Leventis .Stergios , “The impact of IFRS on accounting quality evidence from Greece”,2013, Advances in Accounting Review Dimitrios .Kousenidis, Stergios. Leventis(2013) outlines thatThe present paper examines the impact of IFRS adoption on the quality of accounting information within the Greek accounting setting. Using a balanced sample of firms listed in the Athens Stock Exchange (ASE) for a period of eight years (2001–2008) we find convincing evidence that the implementation of IFRS contributed to less earnings management, more timely loss recognition and greater value relevance of accounting amounts, compared to the local accounting standards. Also, our findings document that audit quality further complements the beneficial impact of IFRS since those companies that are audited by the big-

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5 audit firms exhibit higher levels of accounting quality. Our findings are robust in regard to different model specifications and after controlling for firm-specific effects like size, risk, profitability and growth opportunities. Clarkson. Peter, Hanna.J.Douglas. "The impact of ifrs adoption on the value relevance of book value and earnings, Journal of contemporary Accounting and Economics, June 20th, Vol, 7.1, PP.1-17 Review PeterClarkson, Douglas.J.Hanna(2011) investigate the impact of IFRS adoption in Europe and Australia on the relevance of book value and earnings for equity valuation. Using a sample of 3488 firms that initially adopted International Financial Reporting Standards (IFRS) in 2005, they are able to compare the figures originally reported for the 2004 fiscal years to the IFRS figures that were provided in 2005 as the 2004 IFRS comparative figures. As part of the inquiry, we introduce a cross-product term, equal to the product of EPS and BVPS, into the traditional linear pricing models. The estimated coefficient on the cross-product term is statistically significant and negative, as theory suggests in the presence of important nonlinearities. Further, there is increased non-linearity in the data subsequent to IFRS adoption, with the increase being most pronounced for firms in Common Law countries. With nonlinear effects controlled for, there is no observed change in price relevance for firms in either Code Law or Common Law countries, contradicting the results from the linear pricing models. The results also suggest that the distribution of measurement errors becomes more similar across Code Law and Common Law countries after the adoption of IFRS, removing one difference between these groups. Thus, IFRS enhances comparability, an inference that would not be possible had we confined the analysis only to linear pricing models.

Doukakis.LeonidasC. ."Effect of mandatory IFRS adoption on real and accrual based earning management activities", Journal of Accounting and public policy, 5 September, 2014

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LeonidasC. Doukakis (2014) study examines the effect of mandatory adoption of International Financial Reporting Standards (IFRS) on both accrual-based and real earnings management. While prior literature has mainly examined the effects of IFRS adoption on accrual-based earnings management, no study to date has focused on the impact of IFRS adoption on real earnings management. Using a sample of 15,206 observations from 22 European countries between 2000 and 2010, this study employs a control sample of voluntary adopters and applies a differences-in-differences design to control for confounding concurrent events. The results suggest that mandatory IFRS adoption had no significant impact on either real or accrual-based earnings management practices. Additional analysis on a sub-sample of firms with relatively strong earnings management incentives supports a dominant role for firm-level reporting incentives over accounting standards in shaping financial reporting quality.

IFRS-1 On 19 June 2003, the International Accounting Standards Board issued IFRS 1, First-Time Adoption of International Financial Reporting Standards. IFRS 1 sets out the procedures that an entity must follow when it adopts IFRS for the first time as the basis for preparing its general purpose financial statements. IFRSs are increasingly becoming a truly global accounting framework with many countries committed to adopting them in the next few years. For companies, the process of converting to IFRS and preparing their first IFRS financial statements will be challenging.IFRS-1 deals the first time adoption of international financial reporting standards. IFRS 1 First-time Adoption of International Financial Reporting Standards sets out the procedures that an

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entity must follow when it adopts IFRSs for the first time as the basis for preparing its general purpose financial statements The objective of this Standard is to ensure that first-time IFRS financial statements contain high quality information that can be prepared at a cost not exceeding the benefits. IFRS 1 also specifies a number of additional disclosures for first-time adopters that must be addressed in addition to the normal IFRS presentation and disclosure requirements. If an entity is preparing it's financial reports under an accounting framework other than international financial reporting standards i.e.(Accounting standards of their own countries) and decides to change to IFRS then it has to comply with requirements prescribed by IASB on conversion to IFRS. These requirements are stated in IFRS-1 (The first time adoption of international financial reporting standards).

Main Features Of IFRS-1 I. II.

The IFRS-1 applies when an entity adopts IFRS for the first time by an explicit and unreserved statement of compliance with IFRSs. In general,the IFRS requires an entity to comply with each IFRS effective at the end of its first IFRS reporting period. a. In particular,IFRS requires an entity to do the following :

 Derecognise all assets and liabilities whose recognition is NOT required by IFRSs;  Recognise items as assets or liabilities if IFRSs permit such recognition;  Reclassify items that it recognised under previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under IFRSs; and  Apply IFRSs in measuring all recognised assets and liabilities.

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1. Derecognition of some old assets and liabilities. The entity should eliminate previous-GAAP assets and liabilities from the opening balance sheet if they do not qualify for recognition under IFRSs. For example: a. IAS 38 does not permit recognition of expenditure on any of the following as an intangible asset: research start-up, pre-operating, and pre-opening costs training advertising and promotion moving and relocation If the entity's previous GAAP had recognised these as assets, they are eliminated in the opening IFRS balance sheet. b. If the entity's previous GAAP had allowed accrual of liabilities for "general reserves", restructurings, future operating losses, or major overhauls that do not meet the conditions for recognition as a provision under IAS 37, these are eliminated in the opening IFRS balance sheet. c. If the entity's previous GAAP had allowed recognition of reimbursements and contingent assets that are not virtually certain, these are eliminated in the opening IFRS balance sheet. 2. Recognition of some new assets and liabilities. Conversely, the entity should recognise all assets and liabilities that are required to be recognised by IFRS even if they were never recognised under previous GAAP. For example:

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a. IAS 39 requires recognition of all derivative financial assets and liabilities, including embedded derivatives. These were not recognised under many local GAAPs. b. IAS 19 requires an employer to recognise its liabilities under defined benefit plans. These are not just pension liabilities but also obligations for medical and life insurance, vacations, termination benefits, and deferred compensation. In the case of "over-funded" plans, this would be a defined benefit asset. c. IAS 37 requires recognition of provisions as liabilities. Examples could include an entity's obligations for restructurings, onerous contracts, decommissioning, remediation, site restoration, warranties, guarantees, and litigation. d. Deferred tax assets and liabilities would be recognised in conformity with IAS 12. 3. Reclassification. The entity should reclassify previous-GAAP opening balance sheet items into the appropriate IFRS classification. Examples: a. IAS 10 does not permit classifying dividends declared or proposed after the balance sheet date as a liability at the balance sheet date. In the opening IFRS balance sheet these would be reclassified as a component of retained earnings. b. If the entity's previous GAAP had allowed treasury stock (an entity's own shares that it had purchased) to be reported as an asset, it would be reclassified as a component of equity under IFRS. c. Items classified as identifiable intangible assets in a business combination accounted for under the previous GAAP may be required to be classified as goodwill under IAS 22 because they do not meet the definition of an intangible asset under IAS 38. The converse may also be true in some cases. These items must be reclassified. d. IAS 32 has principles for classifying items as financial liabilities or equity. Thus mandatorily redeemable preferred shares and put shares that may have

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been classified as equity under previous GAAP would be reclassified as liabilities in the opening IFRS balance sheet. e. The reclassification principle would apply for the purpose of defining reportable segments under IAS 14. f. The scope of consolidation might change depending on the consistency of the previous-GAAP requirements to those in IAS 27. In some cases, IFRS will require consolidated financial statements where they were not required before. g. Some offsetting (netting) of assets and liabilities or of income and expense items that had been acceptable under previous GAAP may no longer be acceptable under IFRS. 4. Measurement. The general measurement principle – there are several significant exceptions noted below – is to apply IFRS in measuring all recognised assets and liabilities. Therefore, if an entity adopts IFRS for the first time in its annual financial statements for the year ended 31 December 2005, in general it would use the measurement principles in IFRSs in force at 31 December 2005.

5. Adjustments required to move from previous GAAP to IFRS at the time of first-time adoption. These should be recognised directly in retained earnings or other appropriate category of equity at the date of the transition to IFRSs. III.

The IFRS grants limited exemptions from these requirement on specified areas where the cost of complying with them exceeds the benefits to users of financial statements.

IV.

The IFRS required disclosures that explain how transition from previous GAAP to IFRS affected the entities Reported financial position,financial performance & cash flows.

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V.

An entity is required to apply IFRS if its Ist financial statements are of a period beginning on or after 1July2009. Earlier application is encouraged.

Example:- XYZ ltd. Decides to adopt IFRS from the Financial year 201112i.e April 2011-12. Solution:- In this regard financial statements should be applied retrospectively in the opening IFRS statement of financial position, the comparative period and the first IFRS reporting period. Practically,it must apply all IFRSs effective at the date retrospectively to 2011 -12 and 201011 reporting periods and to the opening statement of financial position as on 1April 2010(assuming one year of comparative information).

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In the above example TRANSITION DATE- It is the beginning of the earliest period for which comparative information is required to be presented in the financial statements i.e 1 April 2010. REPORTING DATE- It is the date upto which the set of IFRS financial statements is being prepared i.e 31 March 2012 . First IFRS Reporting period –The latest reporting period covered by an entity’s first IFRS financial statements i.e commencing on or after 1 April 2011. Comparitive Year- Immediately preceeding year of the first year of reporting year i.e 2010-11.

IFRS-1 adapts this general principle of retrospective application by adding limited number of very important ‘exceptions’ and ‘exemptions’. The ‘exceptions’ are mandatory whereas exemptions are optional – a first time adopter may choose whether and which exemptions to apply.

Exceptions To the basic measurement principle in IFRS 1

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1. Optional exceptions. There are some important exceptions to the general restatement and measurement principles set out above. The following exceptions are individually optional, not mandatory: Business combinations that occurred before opening balance sheet date a. An entity may keep the original previous-GAAP accounting, that is, not restate:  previous mergers or goodwill written-off from reserves;  the carrying amounts of assets and liabilities recognised at the date of acquisition or merger;  how goodwill was initially determined (do not adjust the purchase price allocation on acquisition). b. However, should it wish to do so, an entity can elect to restate all business combinations starting from a date it selects prior to the opening balance sheet date. c. In all cases, the entity must make an initial IAS 36 impairment test of any remaining goodwill in the opening IFRS balance sheet, after reclassifying, as appropriate, previous GAAP intangibles to goodwill. d. IFRS 1 includes an appendix explaining how a first-time adopter should account for business combinations that occurred prior to transition to IFRS. Property, plant, and equipment, intangible assets, and investment property carried under the cost model a. These assets may be measured at their fair value at the opening IFRS balance sheet date (this option applies to intangible assets only if an active market exists). Fair value becomes the "deemed cost" going forward under the IFRS cost model. (Deemed cost is an amount used as a surrogate for cost or depreciated cost at a given date.)

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b. If, before the date of its first IFRS balance sheet, the entity had revalued any of these assets under its previous GAAP either to fair value or to a price-indexadjusted cost, that previous-GAAP revalued amount at the date of the revaluation can become the deemed cost of the asset under IFRS. c. If, before the date of its first IFRS balance sheet, the entity had made a onetime revaluation of assets or liabilities to fair value because of a privatisation or initial public offering, and the revalued amount became deemed cost under the previous GAAP, that amount (adjusted for any subsequent depreciation, amortisation, and impairment) would continue to be deemed cost after the initial adoption of IFRS. IAS 19 - Employee benefits: actuarial gains and losses An entity may elect to recognise all cumulative actuarial gains and losses for all defined benefit plans at the opening IFRS balance sheet date (that is, reset any corridor recognised under previous GAAP to zero), even if it elects to use the IAS 19 corridor approach for actuarial gains and losses that arise after first-time adoption of IFRS. If an entity does not elect to apply this exemption, it must restate all defined benefit plans under IAS 19 since the inception of those plans (which may differ from the effective date of IAS 19). IAS 21 - Accumulated translation reserves An entity may elect to recognise all translation adjustments arising on the translation of the financial statements of foreign entities in accumulated profits or losses at the opening IFRS balance sheet date (that is, reset the translation reserve included in equity under previous GAAP to zero). If the entity elects this exemption, the gain or loss on subsequent disposal of the foreign entity will be adjusted only by those accumulated translation adjustments arising after the opening IFRS balance sheet date. If the entity does not elect to apply this exemption, it must restate the translation reserve for all foreign entities since they were acquired or created. 2.

Mandatory exceptions.

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There are also three important exceptions to the general restatement and measurement principles set out above that are mandatory, not optional. These are: IAS 39 - Derecognition of financial instruments A first-time adopter is not permitted to recognise financial assets or financial liabilities that had been derecognised under its previous GAAP in a financial year beginning before 1 January 2001 (the effective date of IAS 39). This is consistent with the transition provision in IAS 39.172(a). However, if an SPE was used to effect the derecognition of financial instruments and the SPE is controlled at the opening IFRS balance sheet date, the SPE must be consolidated. IAS 39 - Hedge accounting The conditions in IAS 39.122-152 for a hedging relationship that qualifies for hedge accounting are applied as of the opening IFRS balance sheet date. The hedge accounting practices, if any, that were used in periods prior to the opening IFRS balance sheet may not be retrospectively changed. This is consistent with the transition provision in IAS 39.172(b). Some adjustments may be needed to take account of the existing hedging relationships under previous GAAP at the opening balance sheet date.

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SCOPE OF IFRS 1 1.IFRS 1 is applicable to the entity's first set of IFRS financial statements and each interim financial report for part of the period covered by its first IFRS financial statements. 2. An entity's first IFRS statements is defined as the first annual financial statements in which the entity adopts IFRSs, by an “explicit and unreserved statement” of compliance with IFRS. 3. Following are some of the examples of situations where an entity's financial statements under IFRS would be considered as first IFRS financial statements and therefore would be subject to IFRS 1 requirements: (a) An entity presented its most recent previous financial statements: - in accordance with national requirements which are not consistent with IFRSs in all respects; - in conformity with IFRSs in all respect, except that the financial statements did not contain an explicit and unreserved statement of compliance with IFRS; - containing explicit compliance with some but not all IFRSs; - under national requirements inconsistent with IFRS, using some IFRSs to account for items for which national requirements did not exists; - in accordance with national requirements, with a reconciliation of some amounts to the amounts determined under IFRSs; (b) an entity prepared financial statements in accordance with IFRSs for internal use only, without making them available to the entity's owners or any other external users; (c) an entity prepared reporting package in accordance with IFRSs for consolidation purposes without preparing a complete set of financial statements as defined in IAS 1; (d) did not present financial statements for previous period. 4. If the most recent financial statements of an entity contained an explicit and unreserved statement of compliance with IFRS then it will not be considered as a first-time adopter. For example IFRS 1 does not apply when an entity:

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(a) stops presenting financial statements in accordance with national requirements, having previously presented them as well as another set of financial statements that contained an explicit and unreserved statement of compliance with IFRSs (b) presented financial statements in the previous year in accordance with national requirements and those financial statements contained an explicit and unreserved statement of compliance with IFRSs; or (c) presented financial statements in the previous year that contained an explicit and unreserved statement of compliance with IFRSs, even if the auditors qualified their audit report on those financial statements. 5. IFRS 1 does not apply to changes in accounting policy made by an entitythat already applies IFRSs.

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RECOGNITION AND MEASUREMENT Opening IFRS statement of financial position An entity shall prepare and present an opening IFRS statement of financial position at the date of transition to IFRSs. This is the starting point for its accounting in accordance with IFRSs. Accounting policies An entity shall use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. An entity shall not apply different versions of IFRSs that were effective at earlier dates. An entity may apply a new IFRS that is not yet mandatory if that IFRS permits early application. Exceptions to the retrospective application of other IFRSs PARAGRAPH 13 : This IFRS prohibits retrospective application of some aspects of other IFRSs. These exceptions are set out in paragraphs 14–17 . PARAGRAPH 14 : An entity’s estimates in accordance with IFRSs at the date of transition to IFRSs shall be consistent with estimates made for the same date in accordance with

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previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. PARAGRAPH 15 : An entity may receive information after the date of transition to IFRSs about estimates that it had made under previous GAAP. In accordance with paragraph 14, an entity shall treat the receipt of that information in the same way as nonadjusting events after the reporting period in accordance with IAS 10 Events after the Reporting Period. For example, assume that an entity’s date of transition to IFRSs is 1 January 20X4 and new information on 15 July 20X4 requires the revision of an estimate made in accordance with previous GAAP at 31 December 20X3. The entity shall not reflect that new information in its opening IFRS statement . Instead, the entity shall reflect that new information in profit or loss (or, if appropriate, other comprehensive income) for the year ended 31 December 20X4. PARAGRAPH 16 : An entity may need to make estimates in accordance with IFRSs at the date of transition to IFRSs that were not required at that date under previous GAAP. To achieve consistency with IAS 10, those estimates in accordance with IFRSs shall reflect conditions that existed at the date of transition to IFRSs. In particular, estimates at the date of transition to IFRSs of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date. PARAGRAPH 17 : Paragraphs 14–16 apply to the opening IFRS statement of financial position. They also apply to a comparative period presented in an entity’s first IFRS financial statements, in which case the references to the date of transition to IFRSs are replaced by references to the end of that comparative period. PARAGRAPH 18 : An entity may elect to use one or more of the exemptions contained in. An entity shall not apply these exemptions by analogy to other items.

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PRESENTATION AND DISCLOSURE Comparative information With respect to comparative information required, an entity’s first IFRS financial statements must include at least • three statements of financial position • two statements of comprehensive income • two separate income statements (if presented) • two statements of cash flows • two statements of changes in equity • related notes, including comparative information These requirements were mandated with the 2007 changes to IAS 1, and apply for fiscal periods beginning on or after January 1, 2009. The previous requirement was for a minimum of one year of comparative information. Non-IFRS comparative information and historical summaries IFRS 1 does not provide exemptions from the presentation and disclosure requirements in other IFRSs, except that if an entity chooses to include • historical summaries of selected data for periods before the first period for which they present full comparative information under IFRS, or • comparative information under previous GAAP that is in addition to the required comparatives under IFRS,International Financial Reporting Standard 1 (IFRS 1), First-Time Adoption of IFRS• 7 these summaries and additional comparatives do not need to comply with IFRS. For example, 10-year trend graphs or tables wouldn’t need to be converted to IFRS. However, where financial statements contain these types of historical summaries or additional comparative information under previous GAAP, the entity is required to • label the previous GAAP information prominently as not being prepared under IFRS, and

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• disclose the nature of the main adjustments that would make it comply with IFRS. The entity is not required to quantify those adjustments .

Explanation of transition to IFRSs Entities are required to explain how the transition from previous GAAP to IFRS affected its reported financial position, financial performance, and cash flows . These explanations help users understand • the impact and implications of the organization’s transition to IFRS • how users need to change their analytical models to make the best use of the organization’s information that is now being presented using IFRS The required explanations are to be done using a series of reconciliations, with sufficient detail to enable users to understand material adjustments to the balance sheet and statement of comprehensive income. The required reconciliations include the following : a) Reconciliations of its equity reported under previous GAAP to its equity under IFRS for both of the following dates: • the date of transition to IFRS • the end of the latest period presented in the entity’s most recent annual financial statements under previous GAAP b) A reconciliation to its total comprehensive income under IFRS for the latest period in the entity’s most recent annual financial statements, starting with total comprehensive income under previous GAAP for the same period or (if total comprehensive income wasn’t reported) profit or loss under previous GAAP. c) If the entity recognized or reversed any impairment losses for the first time in preparing its opening IFRS balance sheet, it is required to include the disclosures that IAS 36 Impairment of Assets would have required if the entity had recognized those impairment losses or reversals in the period beginning with the date of transition to IFRS. This disclosure highlights impairment losses recorded on transition to IFRS. Without such disclosures, these losses might receive less attention than impairment losses recorded in earlier or later periods.

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Additional disclosures A few final disclosure requirements are as follows: • If an entity presented a statement of cash flows under its previous GAAP, it must also explain the material adjustments to the statement of cash flows. • If an entity becomes aware of errors made under previous GAAP, the reconciliations must distinguish the correction of those errors from changes in accounting policies • If an entity did not present financial statements for previous periods, its first IFRS financial statements must disclose that fact International Financial Reporting Standard 1 (IFRS 1), First-Time Adoption of IFRS A September 2009 survey of accounting standards used by Global Fortune 500 companies revealed that just less than half of them use IFRS or their home countries have committed to adopt IFRSs within the next few years. Perhaps most significant, the percentage of worldwide market capitalization on stock exchanges has shown a dramatic shift: from just under 50% in 2002, US exchanges now account for approximately 35% of market capitalization. The worldwide adoption of IFRSs can only help in this regard. Conversion to IFRSs also provides an opportunity to assess and realign systems and improve internal controls. The increased information needs can result in greater links between finance and operations, thereby increasing knowledge sharing. We need to view this change as an opportunity to improve and realign internal systems and improve teamwork, rather than just as a compliance exercise. PARAGRAPH 23 An entity shall explain how the transition from previous GAAP to IFRSs affected its reported financial position, financial performance and cash flows.

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PARAGRAPH 24 To comply with paragraph 23, an entity’s first IFRS financial statements shall include: (a) reconciliations of its equity reported in accordance with previous GAAP to its equity in accordance with IFRSs for both of the following dates: (i) the date of transition to IFRSs; and (ii) the end of the latest period presented in the entity’s most recent annual financial statements in accordance with previous GAAP. (b) a reconciliation to its total comprehensive income in accordance with IFRSs for the latest period in the entity’s most recent annual financial statements. The starting point for that reconciliation shall be total comprehensive income in accordance with previous GAAP for the same period or, if an entity did not report such a total, profit or loss under previous GAAP. (c) if the entity recognised or reversed any impairment losses for the first-time in preparing its opening IFRS statement of financial position, the disclosures that IAS 36 Impairment of Assets would have required if the entity had recognised those impairment losses or reversals in the period beginning with the date of transition to IFRSs. PARAGRAPH 25 The reconciliations required by paragraph 24(a) and (b) shall give sufficient detail to enable users to understand the material adjustments to the statement of financial position and statement of comprehensive income. If an entity presented a statement of cash flows under its previous GAAP, it shall also explain the material adjustments to the statement of cash flows. PARAGRAPH 26 If an entity becomes aware of errors made under previous GAAP, the reconciliations required by paragraph 24(a) and (b) shall distinguish the correction of those errors from changes in accounting policies .

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PARAGRAPH 27 IAS 8 does not deal with changes in accounting policies that occur when an entity first adopts IFRSs. Therefore, IAS 8’s requirements for disclosures about changes in accounting policies do not apply in an entity’s first IFRS financial statements. PARAGRAPH 28 If an entity did not present financial statements for previous periods, its first IFRS financial statements shall disclose that fact.

Designation of Financial assets or financial liablities PARAGRAPH 29 An entity is permitted to designate a previously recognized financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss. The entity shall disclose the fair value of financial assets or financial liabilities designated into each category at the date of designation and their classification and carrying amount in the previous financial statements.

Use of fair value as Deemed Cost PARAGRAPH 30 If an entity uses fair value in its opening IFRS statement of financial position as deemed cost for an item of property, plant and equipment, an investment property or an intangible asset the entity’s first IFRS financial statements shall disclose, for each line item in the opening IFRS statement of financial position: (a) the aggregate of those fair values; and (b) the aggregate adjustment to the carrying amounts reported under previous GAAP.

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Use of Deemed cost for investment in Subsidiaries, Joint Ventures and Associates PARAGRAPH 31 Similarly, if an entity uses a deemed cost in its opening IFRS statement of financial position for an investment in a subsidiary, jointly controlled entity or associate in its separate financial statements, the entity’s first IFRS separate financial statements shall disclose: (a) the aggregate deemed cost of those investments for which deemed cost is their previous GAAP carrying amount; (b) the aggregate deemed cost of those investments for which deemed cost is fair value; and (c) the aggregate adjustment to the carrying amounts reported under previous GAAP. Use of deemed cost for oil and gas assets Paragraph31A If an entity uses the exemption in paragraph D8A(b) for oil and gas assets, it shall disclose that fact and the basis on which carrying amounts determined under previous GAAP were allocated.

Use of deemed cost for operations subject to rate regulation Paragraph31B If an entity uses the exemption in paragraph D8B for operations subject to rate regulation, it shall disclose that fact and the basis on which carrying amounts were determined under previous GAAP.

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Interim financial reports To comply with paragraph 23, if an entity presents an interim financial report in accordance with IAS 34 for part of the period covered by its first IFRS financial statements, the entity shall satisfy the following requirements in addition to the requirements of IAS 34: (a) Each such interim financial report shall, if the entity presented an interim financial report for the comparable interim period of the immediately preceding financial year, include: (i) a reconciliation of its equity in accordance with previous GAAP at the end of that comparable interim period to its equity under IFRSs at that date; and (ii) a reconciliation to its total comprehensive income in accordance with IFRSs for that comparable interim period (current and year to date). The starting point for that reconciliation shall be total comprehensive income in accordance with previous GAAP for that period or, if an entity did not report such a total, profit or loss in accordancewith previous GAAP. (b) In addition to the reconciliations required by (a), an entity’s first interim financial report in accordance with IAS 34 for part of the period covered by its first IFRS financial statements shall include the reconciliations described in paragraph 24(a) and (b) (supplemented by the details required by paragraphs 25 and 26) or a cross reference to another published document that includes these reconciliations. (c) If an entity changes its accounting policies or its use of the exemptions contained in this IFRS, it shall explain the changes in each such interim financial report in accordance with paragraph 23 and update the reconciliations required by (a) and (b). 33 IAS 34 requires minimum disclosures, which are based on the assumption that users of the interim financial report also have access to the most recent annual financial statements. However, IAS 34 also requires an entity to disclose ‘any events or transactions that are material to an understanding of the current interim period’. Therefore, if a first-time adopter did not, in its most recent annual financial statements in accordance with previous GAAP, disclose information material to an understanding of the current interim period, its interim financial report shall disclose that information or include a crossreference to another published document that includes it.

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Effective date Paragraph 34 An entity shall apply this IFRS if its first IFRS financial statements are for a period beginning on or after 1July 2009. Earlier application is permitted. Paragraph35 An entity shall apply the amendments in paragraphs D1(n) and D23 for annual periods beginning on or after1 July 2009. If an entity applies IAS 23 Borrowing Costs (as revised in 2007) for an earlier period, thoseamendments shall be applied for that earlier period. 36 IFRS 3 Business Combinations (as revised in 2008) amended paragraphs 19, C1 and C4(f) and (g). If an entity applies IFRS 3 (revised 2008) for an earlier period, the amendments shall also be applied for that earlier period.

Defined Terms  Date of transition to IFRSs The beginning of the earliest period for which an entity presents full comparative information under IFRSs in its first IFRS financial statements.  Deemed cost An amount used as a surrogate for cost or depreciated cost at a given date. Subsequent depreciation or amortisation assumes that the entity had initially recognised the asset or liability at the given date and that its cost was equal to the deemed cost.  Fair value The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.  First IFRS financial statements

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The first annual financial statements in which an entity adopts International Financial Reporting Standards (IFRSs), by an explicit and unreserved statement of compliance with IFRSs.  First IFRS reporting period The latest reporting period covered by an entity’s first IFRS financial statements.  first-time adopter An entity that presents its first IFRS financial statements.  International Financial Reporting Standards (IFRSs) Standards and Interpretations adopted by the International Accounting Standards Board (IASB). Previous GAAP The basis of accounting that a first-time adopter used immediately before adopting IFRSs.

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Discussion and Analysis  Impact of IFRS The IFRS adoption and convergence efforts impact much more than just the accounting function. Additional functions that are impacted include the following: • Information systems • Tax • Treasury • Investor relations • Sales • Human resources

Present scenario • India is one of the over 100 countries that have or are moving towards IFRS (International Financial Reporting Standards) convergence with a view to bringing about a uniformity in reporting systems globally, enabling businesses, finances and funds to access more opportunities. • Indian companies are listed on overseas stock exchanges and have to recast their accounts to be compliant with GAAP requirements of those countries. • Foreign companies having subsidiaries in India are having to recast their accounts to meet Indian & overseas reporting requirements which are different. • Foreign Direct Investors (FDI), overseas financial institutional investors (FII) are more comfortable with compatible accounting standards and companies accessing overseas funds feel the need for recast of accounts in keeping with globally accepted standards.

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• ICAI has decided to implement IFRS in India. The Ministry of Corporate Affairs has also announced its commitment to convergence to IFRS by 2011.

Is IFRS different than US GAAP? • There are differences between IFRS and US GAAP but they are more alike than different for most commonly encountered transactions. • IFRS is largely grounded in the same principles as US GAAP. • The US and international standard setters are currently working on convergence projects to better align the standards and reduce these differences.

IFRS is applicable to WHOM?  Compliance with IFRS in India is restricted to ‘Public Entities’ which include those companies & entities listed on any stock exchange or have raised money from the public, or have a substantial public interest, or public sector companies.  IFRS in India would cover the following public interest entities in the first phase.  Listed companies Banks, insurance companies, mutual funds, and financial institutions  Turnover in preceding year > INR 1 billion  Borrowing in preceding year > INR 250 million  Holding or subsidiary of the above  IFRS is not applicable to SME’s as of now.

When IFRS?  IFRS for public entities in India is applicable from 01/04/2011.  The opening IFRS balance sheet at the date of transition to IFRS – 01/04/2010, which is the start date for full comparative information presentation in IFRS

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Analysis Can an entity be a first-time adopter if, in the preceding year, it has prepared IFRS financial statements for internal management use? Yes, as long as those IFRS financial statements were not given to owners or external parties such as investors or creditors. If a set of IFRS statements was, for any reason, given to an external party in the preceding year, then the entity will already be considered to be on IFRS and IFRS 1 does not apply . What if, last year, an entity said it complied with selected, but not all, IFRS, or it included in its previous -GAAP financial statements a reconciliation of selected figures to IFRS figures? It can still qualify as a first-time adopter. When does IFRS 1 take effect? IFRS 1 applies if an entity’s first IFRS financial statements are for a period beginning on or after 1 January 2004.Earlier application is encouraged. If an entity adopts IFRS for the first time in its annual financial statements for the year ended 31December 2005, what is it required to do? 1. Accounting policies. The entity should select its accounting policies based on IFRS in force at 31 December 2005. (The exposure draft that preceded IFRS 1 had proposed that an entity could use the IFRS that were in forceduring prior periods, as if the entity had always used IFRS. That option is not included in the final standard.) 2. IFRS reporting periods. The entity should prepare at least 2005 and 2004 financial statements and restateretrospectively the opening balance sheet (beginning of the first period for which full comparative financial statements are presented) by applying the IFRS in force at 31 December 2005. a. Since IAS 1 requires that at least one year of comparative prior period financial information be presented, the opening balance sheet will be 1 January 2004 if not earlier.

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b. If a 31 December 2005 adopter reports selected financial data (but not full financial statements) on an IFRS basis for periods prior to 2004, in addition to full financial statements for 2004 and 2005, that does not change the fact that its opening IFRS balance sheet is as of 1 January 2004. If an entity is going to adopt IFRS for the first time in its annual financial statements for the year ended31 December 2005, is any disclosure required in its financial statements prior to the 31 December 2005statements? Yes, but only if the entity presents an interim financial report that complies with IAS 34. Explanatory information and a reconciliation are required in the interim report that immediately precedes the first set of IFRS annual financial statements. The information includes changes in accounting policies compared to those under previous local GAAP. A parent or investor may become a first-time adopter earlier than or later than its subsidiary, associate, or joint venture investee. In these cases, how is IFRS 1 applied? 1. If the subsidiary has adopted IFRS in its entity-only financial statements before the group to which it belongs adopts IFRS for the consolidated financial statements, then the subsidiary’s first-time adoption date is still the date at which it adopted IFRS for the first-time, not that of the group. However, the group must use the IFRS measurements of the subsidiary’s assets and liabilities for its first IFRS financial statements except for adjustments relating to the business combinations exemption and to conform group accounting policies. 3. If the group adopts IFRS before the subsidiary adopts IFRS in its entity-only financial statements, then the subsidiary has an option either (a) to elect that the group date of IFRS adoption is its transition date or (b) to first time adopt in its entity-only financial statements. 3. If the group adopts IFRS before the parent adopts IFRS in its entity-only financial statements, then the parent’s first-time adoption date is the date at which the group adopted IFRS for the first time. 4. If the group adopts IFRS before its associate or joint venture adopts IFRS in its entity-only financial statements,then the associate or joint venture should have the option to elect that either the group date of IFRS adoption is its transition date or to first-time adopt in its entity-only financial statements

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Summary The Current Scenario Of IFRS in different countries is as follows:  Over 12,000 companies in over 100 countries have already adopted IFRS.  In the European Union, member states whose securities are listed on EU regulated stock exchanges prepare Consolidated Financial Statements as per IFRS.  In Israel, Australia and New Zealand, IFRS has been adopted as national accounting standards.  China has formulated local GAAP which are IFRS based, although some differences still exist.  Other countries like Canada, India and South Korea are attempting to complete the transition to IFRS by 2011 while Mexico and Japan are working towards convergence by 2012, which would eliminate major differences between their current standards and IFRS. IFRS should be adopted in INDIA due to following reasons:  One language  Comparability enhanced  Understanding enhanced  One set of books  Access to Global capital markets  Low cost of capital  Attract foreign investment  Elimination of multiple reports But there are certain Issues in transitioning : To get a sense of the types of issues likely to arise during an organization’s transition to IFRS, it is useful to look beyond our own borders. Here are some issues experienced by first-time IFRS adopters:

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• During the transition to IFRS, companies face intense pressure on resources, particularly if there is a period where two reporting systems are required, and the increased disclosure requirements and information needs often overwhelm the existing accounting information system. Moreover, the extent of the impact on systems was often underestimated. • Increased disclosures needed to meet requirements may be just as cumbersome (or more so) than the necessary changes to the statements themselves and the underlying transaction recording. To conclude our look at IFRS 1, here are some actions that can be prioritized, in order to take advantage of opportunities: International Financial Reporting Standard 1 (IFRS 1), First-Time Adoption of IFRS• 9 • assess training needs and determine plans • analyze IFRSs and their impact on reporting requirements • evaluate and budget for the costs and benefits of transition • plan the change-management strategy • analyze the required changes to accounting information systems • look for opportunities to incorporate IFRS into operations and existing systems, and centralize accounting systems to streamline • review key performance measures and assess required changes • redevelop a communication strategy to address expanded information • begin educating investors and other stakeholders on how IFRS will impact your financial reporting But there are also significant benefits that result from IFRS conversion, including the potential for: • streamlined reporting and the creation of cost efficiencies for global companies • improved communication between international subsidiaries • increased staff mobility across international borders • improved acquisition opportunities • improved access to capital markets

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Conclusion Looking at the present scenario of the world economy and the position of India convergence with IFRS can be strongly recommended. But at the same time it can also be said that this transition to IFRS will not be a swift and painless process.. Implementing IFRS would rather require change in formats of accounts, change in different accounting policies and more extensive disclosure requirements. Therefore all parties concerned with financial reporting also need to share the responsibility of international harmonization and convergence. Keeping in mind the fact that IFRS is more a principle based approach with limited implementation and application guidance and moves away from prescribing specific accounting treatment all accountants whether practicing or nonpracticing have to participate and contribute effectively to the convergence process. This would lead to subsequent revisions from time to time arising from its global implementation and would help in formulation of future international accounting standards. A continuous research is in fact needed to harmonize and converge with the international standards and this in fact can be achieved only through mutual international understanding both of corporate objectives and rankings attached to it.

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http://www.sciencedirect.com/science/article/pii/S187704281305 2130 Wayne R. Landsman, Edward L. Maydew “The information Content of annual earnings announcements and mandatory adoption of IFRS”,2012, Retrieved from http://www.sciencedirect.com/science/article/pii/S016541011100 0383 Websites www.iasplus.com www.ifrs.org www.ey.com www.pwc.com www.webcrawler.com www.icai.org www.icwai.org http://www.questia.com/favicon.png

Abbreviations 54

EU-European Union FDI-Foreign Direct Investment GAAP- globally acceptable accounting principles. IAS- International Accounting Standards IASB- International Accounting Standard Board IFRIC- Interpretations originated from the International Financial Reporting Interpretations Committee IFRS- international financial reporting standards IFRS-1- first time adoption of international financial reporting standards SIC- Standing Interpretations Committee

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