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Need to consolidate where the substance of the relationship indicates control.
No specific guidance is available in Indian GAAP.
Non-consolidation of subsidiaries
Activities of Dissimilar nature or temporary control are not a justification for non-consolidation.
Only if acquired and held for resale or there are severe long-term restrictions to transfer funds to the parent.
Combinations of Business
Here all business combinations are acquisitions.
There is no comprehensive accounting standard on business combinations. All business combinations are acquisition; however, required use of pooling of interests method in certain amalgamations [when all the specified conditions are met].
Uniting of interests method
It is Prohibited.
Here it is Required for certain amalgamations when all the specified conditions are met, else accounted under the purchase method.
Acquisition of intangible assets
It is capitalising if recognition criteria are met; intangible assets must be amortised over useful life. Intangibles assigned an indefinite useful life must not be amortised but reviewed annually for impairment. Revaluations are permitted in rare circumstances.
It is capitalising if recognition criteria are met; intangible assets must be amortised over useful life with a rebuttable presumption of not exceeding 10 years. Revaluations of such assets are not permitted.
Accounting of plant, property, and equipment
Use historical cost or revalued amounts. Regular valuations of entire classes of assets are required when revaluation option is chosen.
Use historical cost. Revaluations are permitted, however, no requirement on frequency of revaluation. On revaluation, an entire class of assets is revalued, or selection of assets is made on a systematic basis.
Depreciation Accounting methods
Depreciation Allocated on a systematic basis to each accounting period over the useful life of the asset.
Methods are similar to IFRS, except where the useful life is shorter than that envisaged under the Companies Act or the relevant statute, the depreciation is computed by applying a higher rate.
Deferred Income taxes
Use full provision method (some exceptions) driven by balance sheet temporary differences. Recognise deferred tax assets if recovery is probable.
Recognise tax effect of timing difference as deferred tax asset or liability. Recognise deferred tax assets (a) for entities with tax losses carry forward, if realisation is virtually certain, whereas (b) for entities with no tax losses carry forward, if realisation is reasonably certain. A number of other specific differences.
Fringe benefits tax
Included as part of related expense (fringe benefit) which gives rise to incurrence of the tax.
Disclosed as a separate item after profit before tax on the face of the income statement.
Account for convertible debt on split basis, allocating proceeds between equity and debt
Convertible debt is recognised as a liability based on legal form without any split.
Currency of primary economic environment in which entity operates.
Does not define functional currency.
Provision on actual cost to the company basis
Provision based on actuarial valuation
Charged to income statement.
Deferred and written off over the period of 5 years.
loans Origination Cost
Origination cost is amortized in IFRS
Charged to Profit and loss account
Financial liabilities - classification
Mandatory redeemable preference shares are classified as liabilities.
All preference shares are classified as shareholders' funds.
Capitalisation of borrowing costs
It is permitted, but not required for qualifying assets.
This is compulsory when relates to the construction of certain assets.
Foreign exchange fluctuation
Under IAS such gains or losses are required to be expensed
Indian GAAP requires that any profit/loss arising on the restatement of foreign exchange liabilities incurred for the acquisition of imported fixed assets as a result of change in exchange rates is capitalized as part of the original cost of the assets.
Impairment of long lived assets
IAS require that assets be reviewed for impairment and impairment losses recognized in the accounts
Indian GAAP also has adopted the provisions of IFRS with effect from 1.4 2004 for listed companies and commercial enterprise with a turnover > 50 crores
Disclosed as prepaid assets and accounting treatment is similar to operating leases.
Disclosed as a part of fixed assets.
Changes in accounting policies
Restate comparatives and prior-year opening retained earnings.
Include effect in the income statement of the period in which the change is made except as specified in certain standards where the change resulting from adoption of the standard has to be adjusted against opening retained earnings.
Correction of fundamental errors
Restatement of comparatives is mandatory.
Include effect in the current year income statement with appropriate disclosure
Use full provision method (some exceptions), driven by balance sheet temporary differences. Recognise deferred tax assets if recovery is probable.
Deferred tax assets and liabilities should be recognised for all timing differences subject to consideration of prudence in respect of deferred tax assets.
Has been in place for a much longer time.
Applicable since 2001
Source: "Feasibility of Convergence of Indian Accounting Standard (AS) to IFRS" in "Accounting world" The ICFAI University Press, July 2009 p.g. 30-31. (Author : Shyam Lal Dev Pandey)
Process of Convergence:
ICAI is actively promoting the IASB's idea to converge Indian GAAP with IFRS from coming April 1, 2011. As per the Companies Act, 1956 the Central Government of India has prescribed standards for accounting practices with consultation of National Advisory Committee on Indian Accounting Standards established under the Indian Companies Act, 1956.
Securities and Exchange Board of India in November 2009, has decided to provide option to corporate firms listed in stock exchanges to put consolidated financial statements according to IFRS for materializing convergence from April 2011.Â
The Ministry of Corporate Affairs (MCA) issued a press release on dated 22-01- 2010, that prescribed a plan for convergence except Banking and Insurance firms. This press release said that there will be two set of Standards in Companies Act, 1956, Section 211(3C). These set letdown following provisions:
I set would consist IAS that are converged with the IFRS
II set would consist existing IAS that will be applicable to other firms including MSMEs
Table: 2: Showing Phase of Convergence
No. of Phase
Class of companies Specified
Date on IFRS is Effective
Companies who are listed in CNX - Nifty 50
Companies listed in Sensex 30
Companies shares or other securities if listed on stock exchanges outside India
Indian Companies (whether listed or not) having net worth in excess of Rs 1,000 crores
April 1, 2011
Indian Companies (whether listed or not) having net worth in excess of Rs 500 crores but less than Rs. 1, 000 crores
April 1, 2013
All listed companies with net worth less than Rs 500 crores
April 1, 2014
Source:http://indianmba.com/Articles_on_Management/AOM49/aom49.html, article "IFRS - Challenges and Need for India Inc" by Bhuvanesh Sharma.
On March 31, 2010, the MCA finalized plan of convergence for Banking and Insurance Comp. in India, these were exempted in earlier notification on 22-01- 2010.Â These letdowns:
All insurance companies will converge with Converged Indian accounting standards effective April 1, 2012.Â
All scheduled commercial banks will converge effective April 1, 2013. A phased approach of convergence is prescribed for urban co-operative Banks.Â
NBFC which are part of Nifty - 50, Sensex 30 and NBFCs (listed or unlisted) having net worth of more than 1,000 crores will converge effective April 1, 2013.Â Â All other listed NBFC's and other NBFCs having a net worth in excess of Rs 500 crores would converge effective April 1, 2014.Â Unlisted NBFCs having a net worth of less than Rs 500 crores are not mandatorily required to converge but may voluntarily decide to converge.Â
Taken from article "IFRS - Challenges and Need for India Inc" by Bhuvanesh Sharma. Available on http://indianmba.com/Articles_on_Management/AOM49/aom49.html,
Challenges in Adopting IFRS: convergence is not easy for Indian firms and financial reporting community, and one of the biggest challenge in this is a cultural diversity that hampering the process of convergence. With the adoption of IFRS, companies, auditors, regulators, and various users would require to follow an accounting and financial reporting framework that requires more judgment and less dependency on detailed rules. The Indian firms would need to understand the basics of principles and objectives and how they are applied. Emerging economies including India are facing various challenges/difficulties in adopting IFRS such as the followings:
Issues pertaining to Non-Compatible legal and effective regulatory requirement.
Issues of Differences in economic environment of the different countries.
Issues of quality education of accounting to produce Auditors and accountant.
Issues relating to SME accounting and reporting.
Following points highlight the areas need for serious consideration.
Proper Training to Accounting Professional : Training is a big issue and for implementing IFRS in India successfully, it is a need of hour to provide training for all interested parties including Teacher, student, auditors, CFOs, Tax professionals etc. It is imperative that IFRS is introduced as a full subject in universities and Chartered Accountancy syllabus.
Appropriate Information systems: Financial reporting is main element of accounting system therefore the systems must be able to produce consistent and reliable data for reporting financial information. Information must be collected from every aspect of organization and must be used for disclosure purposes. So far as financial accounting and reporting are concerned these have modified to provide information according to IFRS.
Issues related to Taxes: IFRS convergence will have a significant impact on financial statements and consequently tax liability. Tax authorities should ensure that there is clarity on the tax treatment of items arising out of convergence to IFRS.
Proper Communication to Stakeholders: Management of market expectations and educating financial analysts will be critical area and IFRS may significantly change reported earnings and various performance indicators therefore this must be one of major area of thrust. Management of the company must be cautious while viewing and analyzing the company's performance.
Management of Distributable profits in firms: Since IFRS is based on fair value consideration, it is hard to ignore them. Whether profit/ loss can be considered for the purpose of computing distributable profits will have to be debated, in order to ensure that distribution of unrealized profits will not eventually lead to reduction of share capital.
Convergence of IFRS requires complete transformation of existing system that involves employees, processes, and systems. If properly managed and planned, the conversion can bring substantial improvements in the performance of the finance function as well as better controls, and reduced costs.
Conclusion: IFRS signifies a new era of financial reporting that will eventually touch thousands of Indian and U.S. companies. IFRS are used in many parts of the world, including the India, European Union, Hong Kong, Australia, Malaysia, Russia, South Africa, Singapore and Turkey etc. The broader a company's international activities, the greater the effect of IFRS. Some companies will need to adopt IFRS now to meet international financial reporting and lending requirements. Others will recognize the need to supplement current Indian GAAP reporting with IFRS commentary to allow more accurate comparison to foreign competitors. The process of convergence is not an easy job but for making our business association with US and many other countries it is must to change our accounting structure according to international standards. India's preparedness is a big question of the much talked convergence of GAAP with IFRS and if it is systematically analyzed for actionable outcome no doubt that IFRS will become a milestone in the accounting process and in light of LPG wherein all are partner and beneficiaries.