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IFRS Presn welcome to Revaluation

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					IFRS 1 : First Time
 Adoption of IFRS




         CA Manju Agrawal
   Partner Gianender & Associates
                  Need for IFRS -1

   It provides a smooth procedure for transition to IFRS
    for the first time
               HOW
   Accounting Policies under previous GAAP are
    divergent with accounting policies to be adopted
    under IFRS
   Retrospective application of Accounting policies as
    per IAS -8 would not be possible on first time
    adoption
   Through mandatory and optional exemptions from
    retrospective application of accounting policies
                 IFRS 1 : Objective
     To ensure that an entity’s first IFRS financial statements, and its 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 in accordance with
     International Financial Reporting Standards (IFRSs); and


     can be generated at a cost that does not exceed the benefits.



Interim Financial Statements only if IAS 34 is applicable or followed by entity.
                 Applicability

IFRS 1 applies when an entity adopts IFRSs for the first time by an explicit and
unreserved statement of compliance with IFRSs.


This means compliance with ALL IFRSs


Partial Compliance is not enough to make an entity IFRS Compliant.




   Nothing like “Subject to” or “ Except for”
                 Applicability
An entity shall apply this IFRS in:


its first IFRS financial statements; and

each interim financial report, if any, that it presents in accordance with IAS 34
Interim Financial Reporting for part of the period covered by its first IFRS
financial statements.
                    Definitions
First Time Adopter : An entity is referred to as a first-time adopter in the period in
which it presents its first IFRS financial statements.


Date of Transition : The beginning of the earliest period for which
an entity presents full comparative information under IFRS in its “First IFRS
Financial Statements”.


First Time IFRS Financial Statement : The first annual financial statements in
which        an      entity      adopts      IFRS       by    making        an
explicit and unreserved statement of compliance with IFRS.


Reporting Date : The end of the latest period covered by financial statements or
by an interim financial report
               IFRSs Transition , Comparative
               Information and Reconciliations

Statement of Financial Position as on                                           1.4.2010 31.3.2011         31.3.2012
                    Statement of Financial Position as on            1.4.2010    31.3.2011   31.3.2012
                    Statement of Comprehensive Income for the                    31.3.2011   31.3.2012
Statement of Comprehensive Income for the year
                    year ended on                                                              31.3.2011   31.3.2012
                    Statement of Changes in Equity for the year                  31.3.2011   31.3.2012
ended on            ended on
                    Statement of Cash flows for the year ended on                31.3.2011   31.3.2012
Statement of Changes in Equity for the year ended
                    Notes along with comparatives for the year                                 31.3.2011
                                                                                             31.3.2012     31.3.2012
                    2011-12
on                                             1.4.2010
                    Reconciliations with the local GAAP equity as                31.3.2011
                    on
Statement of Cash flows for the year ended on
                    Reconciliations with the local GAAP profit for               31.3.2011
                                                                                               31.3.2011   31.3.2012
                    the year ended on

Notes along with comparatives for the year 2011-                                                           31.3.2012
12
Reconciliations with the local GAAP equity as on                                1.4.2010 31.3.2011

Reconciliations with the local GAAP profit for the                                             31.3.2011
year ended on
     First Time Adoption of IFRS

                     Requirements



     General                          Specific

                              To recognise, De-recognise,
To comply with each IFRS
                              measure & re-classify in the
effective at the
                              opening IFRS statement of
end of its first IFRS
                              financial position that it
reporting period.
                              prepares------------------->
       Opening IFRS Balance sheet
An entity’s statement of financial position at the date of transition to IFRSs.-
prepared in accordance with the requirements of IFRS 1 as of the “date of
transition to IFRS.”



Under Revised IFRS 1 Opening IFRS Statement of Financial Position is ALSO to
be presented with the First Time IFRS Statements.



This is the starting point for its accounting in accordance with IFRSs.
 Principals for preparing Opening Balance
                   sheet

As a starting point IFRS 1.10 requires an entity to do the followings :

recognise all assets and liabilities whose recognition is required by IFRSs;
not recognise items as assets or liabilities if IFRSs do not 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.




   Subject to limited Exemptions & Mandatory Exceptions
Transition Adjustments




                             Exception
Retained                                             Another
                                                    category of
Earnings
                                                      Equity
                       Goodwill
  Tax Impact


                  Adjustment to Intangible Assets
               Adjustment to Intangible Assets
  Are there some relief for 1st time adopter ?




 Yes                                 NO

For Recognition & Measurement        Exemptions or Exceptions for

Limited Voluntary Exemptions ,and   Presentation & Disclosures

Few Mandatory Exceptions            Requirements in other IFRSs
        Accounting Policies

•Use the same accounting policies in opening IFRS statement of financial position
and

•Throughout all periods presented in its first IFRS financial statements

•Those accounting policies shall comply with each IFRS effective at the end of
its first IFRS reporting period, with some exceptions
General Rule -Retrospective Application


  Mandatory exception- 4

  IFRS prohibits retrospective application IFRSs


  Optional exemptions - 15

  Exceptions to the retrospective application of other IFRSs
IFRS 1 : Exemptions & Exceptions


Limited exemptions from these requirements in specified areas where the cost
of complying with them would be likely to exceed the benefits to users of
financial statements.



Also prohibits retrospective application of IFRSs in some areas, particularly
where retrospective application would require judgements by management
about past conditions after the outcome of a particular transaction is already
known.
           Mandatory Exceptions…..


From Retrospective Applications , contained in Appendix C to IFRS 1

     De-recognition of financial assets and liabilities

    Hedge accounting


    Non Controlling Interest


    Para 14 -17 of IFRS – Estimates.
Mandatory Exceptions : Dercognition of
Financial Assets & Financial Liabilities

  If a first-time adopter derecognized financial assets or financial liabilities
  under previous GAAP prior to date of transition , it should NOT recognize
  those assets and liabilities under IFRS.



  However, a first-time adopter should recognize all derivatives and other
  interests retained after derecognition and still existing , and consolidate all
  special-purpose entities (SPE) that it controls at the date of transition to
  IFRS.
Mandatory Exceptions :Hedge Instruments


 Apply hedge accounting prospectively.


 On the date of Transition an entity should


  measure all derivatives at fair value; and


  eliminate all deferred losses and gains arising on derivatives that were
    reported in accordance with previous GAAP as if they were assets or
    liabilities.
Mandatory Exception :Non-Controlling Interests




  If a first-time adopter elects to apply IFRS 3 retrospectively to past business
  Combinations, it shall also apply IAS 27 retrospectively , else NCI related
  transactions to be applied prospectively.
Estimates - Hindsight Prohibited


 Estimates in accordance with IFRSs at the date of transition shall be
 consistent with estimates made for the same date in accordance with previous
 GAAP (after adjustments to reflect any difference in accounting
 policies),unless there is objective evidence that those estimates were in error.


 Information received after date of transition to IFRS about estimates that
 were made under previous GAAP to be treated as non-adjusting events in
 accordance with IAS 10 Events after the Reporting Period.
        Estimates- Example
1. An entity’s date of transition to IFRSs is 1 April,2010. The new
information on 15 April,2010 requires the revision of an estimate made in
accordance with previous GAAP at 31 March,2010.

The entity shall not reflect that new information in its opening IFRS
statement of position (unless there is objective evidence of Error ).

2. Estimates made under previous GAAP needs to be revised to comply
with IFRS e.g provision made for Warranties but at nominal value under
previous GAAP , need to be discounted under IFRS
Estimates – Not Required under Previous
GAAP but Required under IFRS
 Will reflect the conditions at the date of Transition-

 Example ,the provision for an onerous rental contract in a foreign operation
 needs to be calculated using the

 Rental rates

 Interest rates and
 Exchange rates

 What should be the rates for making provision?

 Prevailing as at the date of the Transition.
 Estimates - Summary
 WHETHER
                       Whether                   WHETHER
 ESTIMATE      Yes
                       EVIDENCE OF        No     CALCULATION
 REQUIRED BY
                       ERROR ?                   CONSISTENT
 PREVIOUS
                                                 WITH IFRS ?
 GAAP


                     Yes                       Yes
   No
                                                            No
MAKE
                                                     USE PREVIOUS
ESTIMATE                   USE PREVIOUS
                                                     ESTIMATE &
UNDER IFRS                 ESTIMATE &
                                                     ADJUST
REFLECTING                 PREVIOUS
                                                     CALCULATION
CONDITIONS                 CALCULATION
                                                     TO REFLECT
AT RELEVANT                S
                                                     IFRS
DATE
Voluntary Exemptions : Implications

 Entity is exempt from making retrospective calculations to make the
 transition simpler. In all 16 Voluntary Exemptions.



 This means entity can avoid making retrospective applications.
Voluntary Exemptions - General

 An entity may elect to use one or more of the following exemptions:

 Business Combination ……………..                  Appendix C

 Share-based payment transactions              (D2 –D3)

 Insurance contracts                           (D4)

 Fair value or revaluation as deemed cost    (D5-D8)
  New provisions added for Oil & gas Assets (D8A)
   Rate Regulated entities                  ( D8B)
 Leases                                      (D9)
 Voluntary Exemptions - General

employee benefits                         (D10-D11);

cumulative translation differences        (D12 -D13);

investments in subsidiaries, jointly
 controlled entities and associates        (D14-D15);

assets and liabilities of subsidiaries,
 associates and joint ventures             (D16-D17);

compound financial instruments            (D18);
 Voluntary Exemptions - General

designation of previously recognised financial
 instruments                                               (D19);

fair value measurement of financial assets or financial
 liabilities at initial recognition                        (D20);

decommissioning liabilities included in the cost of
 property, plant and equipment                             (D21);
 New Para added for Oil & gas Assets)

financial assets or intangible assets accounted for in
 accordance with IFRIC 12 Service Concession
 Arrangements                                              (D22);

borrowing costs                                           (D23).


An entity shall not apply these exemptions by analogy to other items.
 Voluntary Exemptions - General

Transfer of Assets from customers   IFRIC 18 ( D24)


Extinguishment of financial
 liabilities with equity
 instruments                         IFRIC 19.
        IFRS 2 – Equity Instruments

                                   For Equity Instruments Granted

Before 7th November 2002                   After 7th November 2002 and vested before
                                           the later of -
                                           (a) the date of transition to IFRSs and
                                           (b) 1 January 2005



            Not required but encouraged to apply IFRS for such instruments
    Fair Value or Revaluation as
           Deemed Cost

                Plant Property & Equipment – Cost or deemed cost
Fair Value as the deemed cost         Revaluation at or before the date of
                                      transition as the deemed cost of that   IF
                                      asset
                                      Revaluation broadly comparable to fair
                                      value or epreciated cost in accordance
                                      with IFRS.
                                      Carrying value of assets used in
Rate regulated entity                 operation
Oil & Gas Companies                   Carrying value under previous GAAP
                                      of some oil & Gas properties in
                                      development and production phase
Intangible Asset & Investment Property

 Same as the Plant, Property and Equipment


      Investment Property                         Intangible Assets

If Entity follows Cost Model            If IA meets the recognition criteria
                                        under IAS 38




 An entity shall not use these elections for other assets or for liabilities.
                  Lease IAS 17
A first-time adopter may apply the transitional provisions in IFRIC 4
Determining whether an Arrangement contains a Lease.


The entity may determine whether the arrangement contains a lease by applying
the criteria in IFRIC 4 on the basis of facts and circumstances existing on the date
of Transition.
               Employee Benefits
A first-time adopter may elect to recognise all cumulative actuarial gains and
losses at the date of transition to IFRSs, even if it uses the corridor approach for
later actuarial gains and losses.



If a first-time adopter uses this election, it shall apply it to all plans.
  Cumulative Translation Differences

 IAS 21 The Effects of Changes in Foreign Exchange Rates) requires an
  entity:


      to recognise some translation differences in other comprehensive income
       and accumulate these in a component of equity


      to transfer, on disposal, the cumulative translation differences for foreign
       operations to profit or loss as part of the gain or loss on disposal
   Cumulative Translation Differences

A first-time adopter is exempted from a transfer of the cumulative translation
adjustment that existed on the date of transition to IFRS.


Upon Exercise of this exemption the cumulative translation adjustment for all
foreign operations would be deemed to be zero at the date of transition to IFRS.


The gain or loss on subsequent disposal of any foreign operation should exclude
translation differences that arose before the date of transition to IFRS, but
would include all subsequent translation adjustments.
Investments in subsidiaries, jointly controlled
entities and associates – In Separate Financial
Statements



       Cost                                       IAS 39


                  DEEMED
                   COST
    COST-
    IAS 27
                                   CARRYING
                                    AMOUNT
               FAIR
                                     UNDER
              VALUE
                                   PREVIOUS
                                      GAAP
      Compound Financial Instruments


A first-time adopter need not separate two portions of the compound Financial
instrument if the liability component is no longer outstanding at the date of
transition to IFRSs.
Decommissioning Liabilities included
in cost of PPE
  A first-time adopter need not comply with the IFRIC 1
     regarding any changes that occurred before date of
      transition.

  If exemption used:
        Measure liability at date of transition in accordance with IAS   37.

       Estimate amount that would have been included in Non Current Asset when
     liability first arose. Discount using rate applicable to the intervening period.

      Calculate accumulated depreciation at date of transition based on the above
     amount.
    Designation of previously recognised
          Financial Instruments
At the date of transition an entity may designated Financial Instruments :

As “Available-for-sale” ; or


As financial asset or financial liability as “at fair value through Profit or
loss” provided the asset or liability meets the criteria of IAS 39 at that date.


 Financial assets at amortised cost - In case of impracticability – fair value
to be the amortised cost on date of transition
Exemptions for Business Combinations

 A first-time adopter may elect not to apply IFRS 3 retrospectively to past
 business combinations that occurred before the date of transition.

 But if any business combination is restated to comply with IFRS 3 all later
 business combinations shall be restated and entity shall also apply from that
 same date.

 The exemption for past business combinations also applies to past
 acquisitions of investments in associates and of interests in joint ventures.
                        Goodwill


Goodwill Shall be at carrying amount in accordance with previous GAAP at
the date of transition subject to following adjustments :


increased by reclassification of Intangible asset or


Decreased upon recognition of Intangible Asset subsumed in goodwill and
if applicable adjust deferred tax and non controlling interest.




    Goodwill be tested for impairment regardless of indicators.
Goodwill Under Previous
        GAAP



  Intangible Assets (IA)
 DOES Not Qualify Under
          IFRS


   IA Recognised Under
          IFRS



     Impairment Loss


   Goodwill Under IFRS
                          Others
 Financial assets or intangible assets accounted for in accordance with
 IFRIC 12 – Service Concession arrangement .

 IAS 23 - Borrowing costs

IFRS 4 Insurance Contracts.


May apply transition provisions
      IAS 12 Income Taxes
An entity to apply IAS 12 to temporary differences between the carrying
amount of the assets and liabilities in its opening IFRS statement of financial
position and their tax bases.
IFRS 1 : Disclosures
•Explicit & Unreserved statement co compliance with all IFRS

•IFRS-1 requires disclosures that explain how the transition from
previous GAAP to IFRSs affected the entity’s reported financial
position, financial performance and cash flow – Reconciliation of
Equity and comprehensive income


•Separate -effects of Errors from Changes- Separate disclosure of
GAAP & Non GAAP issues
                      Reconciliations

Reconciliations of Equity at two dates at;

   the date of the transition, and; ( 1st April,2010)

 the end of the latest period presented in the entity’s most recent annual
financial statements in accordance with previous GAAP.
(31st March,2012)

Reconciliation of Total Comprehensive Income in accordance with IFRSs
for the latest period in the entity’s most recent annual financial statements.




     Also for Interim Reports Covered Separately
    Disclosures: Use of fair value as Deemed Cost

                                  Fair Value

Plant ,
                                  Intangible                     Investment
Property &
                                  Assets                         Property
Equipment

Disclose, for each line item in the opening IFRS statement of financial position:

   the aggregate of those fair values; and

   the aggregate adjustment to the carrying amounts reported under previous GAAP.
 Disclosure : Use of deemed cost for investments in
subsidiaries, jointly controlled entities and associates


 Disclose:

 the aggregate deemed cost of those investments for which deemed cost is
 their previous GAAP carrying amount;


 the aggregate deemed cost of those investments for which deemed cost is
 fair value; and


 the aggregate adjustment to the carrying amounts
    reported under previous GAAP.
                Facts                               IFRS 1 Consideration
First Timer recognised an impairment      Impairment Review required at date of
loss of Rs 5 lakhs 2 year ago on a cash   transition.
generating asset due to decline in        Includes to the write downs and reversals of
market demand . The market decline        prior impairments.
now has reversed. What is the treatment    Reversals of this impairment booked at the
on date of transition.                    date of transition.

                                          DATE OF TRANSITION ENTRY.

                                          DR    Capital Assets             5,00,000
                                          CR      Retained Earnings         5,00,000

                                          DR     Retained Earnings
                                          CR        Assets (Depreciation adj)
                  Facts                            IFRS 1 Consideration
M\s First Timer has accumulated         IFRS 1 exemptions to recognise cumulative
unrecognised actuarial losses of Rs     actuarial losses at the date of transition.
10,00,000/- relating to pension plan.   Otherwise need to revisit from the date of
                                        Plan inception & determine recognised and
                                        unrecognised loss.


                                        DATE OF TRANSITION ENTRY

                                        DR Retained Earnings        10,00,000
                                          CR Pension liability           10,00,000
              Facts                       IFRS 1 Consideration

Mr. First Time Adapter             IFRS 1 Exemption from restating
conducted 3 acquisitions in last   prior business considerations.
15 years.
                                    Avoid restatement of each
Mr. First Timer Adapter does not transactions under IFRS 3
want to revisit these transactions.
                                    Goodwill impairment test still
                                    required.
                    Case Study
Case Study

On IFRS 1: XYZ Limited presented its financial statements under the
national GAAP until 2009. It adopted IFRS from April 1, 2010 and is
required to prepare an opening IFRS balance sheet as at April 1, 2010.
In preparing the IFRS opening balance sheet of XYZ Limited noted:

1.    Under its previous GAAP, had classified proposed dividend of
      Rs.5,00,000 as a current liability.

2.    It had not made a provision for warranty of Rs. 200,000 in the financial
      statements presented under previous GAAP since the concept of
      “constructive obligation” was not recognized under its previous GAAP.

3.   In arriving at the amount to be capitalized as part of costs necessary to
    bring an asset to its working condition, XYZ Limited had not included
    Professional fees of Rs. 300,000 paid to architects at the time when the
    building it currently occupies as its head office was being constructed.
Required:
Advise XYZ Limited on the treatment of all the above items under IFRS1
                         Solution
Solution :
For opening IFRS balance sheet at April 1, 2010, XYZ Limited would need to
make these adjustments to its balance sheet at March 31, 2009, presented under
IGAAP:
 1. IAS 10 does not allow proposed dividend to be recognized as a liability; but to
be disclosed in the Notes . Indian GAAP allowed proposed dividend to be treated
as current liability. Therefore proposed dividend of Rs.500,000 should be
disclosed in footnotes.
2. IAS 37 requires recognition of a provision for warranty but Indian GAAP did
not allow a similar treatment. Thus, a provision for warranty of Rs.200,000
should be recognized under IFRS-37.
3. IAS 16 requires all directly attributable costs of bringing an asset to its working
condition for its intended use to be capitalized as part of carrying cost of property,
plant and equipment. Thus Rs.300,000 of architects’ fees should be capitalized as
part of Property, plant and equipment and cumulative Depreciation needs to be
provided.
                              Adjustments                                               Adjustments
Liabilities           IGAAP   & tax impact   IFRS   Assets                      IGAAP   & tax impact   IFRS
Equity                                              Fixed asssets                       xxx            xxxx
Share capital         xxx     xxx            xxxx   Lease hold land             50      xxx            xxxx
Other equity                                        Investment property         Xxx     xxx            xxxx
Retained earnings                                   Other fixed assets-PPE      8299    xxx            xxxx
Reserve               xxx     xxx            xxxx   Intangible assets           208     xxx            xxxx
Loan Liabilities      xxx     xxx            xxxx   Goodwill                    1220
Current Liabilities                                 Investments
Short term            xxx     xxx            xxxx   Bonds                       Xxx     xxx            xxxx
Payables              xxx     xxx            xxxx   Shares- Trading             Xxx     xxx            xxxx
Long term                                           Shares- AFS                 Xxx     xxx            xxxx
Provisions                                                                      Xxx     xxx            xxxx
Short term                                          Current Assets

Proposed
dividend+B22          xxx     xxx            xxxx   Inventories                 2962    xxx            xxxx

Employee Cost
related               xxx     xxx            xxxx   Trade & other receivables   3710    xxx            xxxx
Provisions            xxx     xxx            xxxx   Loans & Receivables         333     xxx            xxxx
Long term                                           Cash & cash equivalents     748     xxx            Xxxx
Provisions            xxx     xxx            xxxx   Misc Expenditue             100     (100)                 00
Gratuity              xxx     xxx            xxxx
LTC                   xxx     xxx            xxxx
P F etc               xxx     xxx            xxxx
Total                 xxx     xxx            xxx    Total                       xxx     xxx            xxxx
    IFRS CONVERSION KEY CHALLENGES

• Availability of old data / records and information
•   Change management
•   Increased costs
•   Trained staff / auditors / valuers
•   Increasing complexities of IFRS
•   Alignment of internal and external reporting
•   Volatility of results – due to judgement involved
•   Not just an accounting exercise- IT implementation
•   Change in performance measurement- fair valuation
•   Under estimation of the quantum of the work involved
                      GAMMON INDIA LTD - IFRS CONVERSION
                              SEPTEMBER 2010
         IFRS conversion - benefits

   One accounting language company-wide for
    foreign JVs , subsidiaries & Associates

   Foreign competitors, making comparisons easier

   For raising capital abroad



                            CA Manju Agrawal
                      Partner Gianender & Associates
  Thank You

  CA MANJU AGRAWAL
GIANENDER & ASSOCIATES
CHARTERED ACCOUNTANTS
      NEW DELHI
    Mobile : 9810555448

				
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Description: IFRS Presn welcome to Revaluation