Key Differences

Key Difference between IFRS & I GAAP

A Presentation by Rachna Jaggi
FCA, CPA(USA),DIPIFRS(ACCA)UK

Agenda

Presentation of Financial
Statement
Business Combinations
Income tax
Property Plant & equipment,
Investment Property & Lease
Related parties
Impairment
Borrowing cost
Provision contingent liabilities &
contingent assets

IAS

Presentation of Financial Statements IAS 1 & AS 1

I: Presentation Of Financial statements (IAS 1 & AS 1)

Particulars IFRS Indian GAAP

Overall Guidance IAS1 sets out overall Offers no standard
guidance for presentation of outlining over all
financial statements ,their requirement for
presentation of financial
structure & minimum content
statements
requirement

Measurement basis The four measurement basis are In line with IFRS , though in
historical cost, current cost , some situation it disregards
realizable value & Present value. fair valuation for e.g.
Exception to historical costs are investments are valued at
fair valuation of financial lower of cost & market
instrument, revaluation of value.
tangible fixed assets &
Intangibles etc.



Component of Statement of Financial statements Balance sheet
Financial Statement of Comprehensive Income Profit & Loss A/C
Statements Statement of Changes in equity Cash flow statement
Statement of cash flows Notes to accounts
Notes to Accounts
Statement of financial position as at AS5 requires the impact of
the beginning of the earliest material changes in
comparative period has to be accounting policies to be
presented when an entity applies an shown in financial
accounting policy retrospectively, or statements. There is no
makes retrospective restatement of requirement to present an
financial items or when it reclassifies additional balance sheet
items in financial statements



Disclosures of critical Required Disclosures of : No such specific disclosure
critical judgments made by the requirement in AS 1 or
judgment & capital
management in applying schedule VI
disclosures accounting policies
Key sources of estimation
uncertainty
Information that enables users
of its financial statement to
evaluate the entity’s objectives,
policies & processes of
managing capital.
Extraordinary Items Disclosure of items as Nature & amount of each
extraordinary either on the face extraordinary items should be
of the statement of separately disclosed in the
comprehensive income or in statement of P&L in a manner
the notes is prohibited that its impact on current profit
& loss can be perceived.



Dividend IFRS requires Dividends Under Indian GAAP ,
recognized as a proposed dividend is
distribution to owners & shown as
related amount per share
appropriation of profits
to be presented in the
in the profit & loss
statement of changes in
equity or in the notes. account.
The presentation of such
disclosures in the
statement of
comprehensive income
is not permitted.

Business Combination

Particular IFRS Indian GAAP

Scope IFRS 3 applies to most No comprehensive
combinations , including standard dealing with all
amalgamation & acquisition business combinations.
AS 14: Accounting for
amalgamation
AS 21: Consolidated
Financial statements &
AS 23: Investment in
Associates
AS 27: Joint ventures



Method of accounting Use of the pooling of Permits both the purchase
interest method is and the pooling of interest
prohibited. All business method in case of
Combination should be amalgamation. The pooling
accounted under purchase of interest method is
method. allowed only if the
amalgamation satisfies
certain specified conditions

Acquisition date The date on which the The date of
acquire effectively amalgamation as
obtains control of the defined in the
acquiree is acquisition amalgamation/acquisitio
date n scheme is acquisition
date.



Net Asset Value IFRS 3 requires the net Indian GAAP requires
asset taken over in case of subsidiaries
including the contingent associates & joint
liabilities and intangible ventures the recording
assets to be recorded of net asset at carrying
at fair value value.
Contingent liabilities of
acquiree are not
recorded as liabilities
Amortization of IFRS 3 prohibites Indian GAAP requires
Goodwill amortization of amortizations of
Goodwill arising on the goodwill in the case of
acquisition of the amalgamation.
business



Negative Goodwill IFRS requires Negative goodwill is
negative goodwill to credited to Capital
be credited to profit & reserve.
loss a/c

Acquisition accounting Acquisition accounting Acquisition accounting
is based on substance is based on the form

Reverse acquisition is Indian GAAP does not
accounted assuming deal with reverse
the legal acquirer is acquisition.
the acquiree

Reverse Acquisition

Legal Acquirer/ Accounting Acquiree

Legal Acquirer issues shares Legal acquiree gains control

Legal acquiree/ Accounting Acquirer



Reacquired Rights IFRS 3 specifically deals Indian GAAP does not
with accounting of pre- provide guidance for
existing relationships such situations
between acquirer &
acquiree & for reacquired
rights by the acquirere in
a business combination


Contingent IFRS 3-R requires that Under Indian GAAP, AS 14
Consideration contingent consideration requires that, where the
in a business combination scheme of amalgamation
be measured at fair value provides for an adjustment to
at the date of acquisition the consideration contingent
on one or more future events,
the amount of the additional
payment is included in the
consideration if payment is
probable and a reasonable
estimate of the amount of
additional can be made.


Non IFRS 3-R provides an Under Indian GAAP, AS 21
Controlling option to measure any does not provide the first
Interest non- controlling option and it requires
(minority) interest in an minority interest in a
acquiree its fair value or subsidiary to be measured
at the non-controlling at the proportionate share of
interest’s proportionate net assets at book value
share of the acquirer's
net identifiable assets.


Business IFRS 3-R requires that, There is no such
combinations in a business requirement under Indian
achieved in combination achieved in GAAP. Under AS 21 if two or
stages stages, the acquirer more investments are made
remeasures its in subsidies over a period of
previously held equity time, the equity of the
interest in the acquire at subsidiary at the date of
its acquisition date fair investment is generally
value and that it determined on a step-by-
recognizes the resulting step basis.
gain or loss, if any, profit
and loss

Income Tax

Approach IAS 12 Income Tax is based AS 22 Accounting for Taxes on
on the balance sheet liability Income is based on the Income
method which focuses on statement liability method,
temporary differences which focuses on timing
difference
deferred IAS 12 requires the recognition Under Indian GAAP business
taxes arising of deferred taxes in the case of combinations (other than
of business business combination. Under amalgamation) will not give rise
IFRS the cost of a business
combination to a deferred tax adjustment.
combination is allocated to the
identifiable assets acquired and
liabilities assumed by reference
to their fair values. However, if
no equivalent adjustment is
allowed for tax purposes, it
would give rise to a temporary
difference.

Income tax


Recognition of under IFRS the entity Under Indian GAAP if the
deferred taxes. recognizes a deferred tax entity has carried forward
assets rising from unused tax tax losses or unabsorbed
losses or tax credit only to the depreciation, all deferred
extent that the entity has tax assets are recognize
sufficient taxable temporary only to the extent that
differences or there is there is virtual certainly
convincing other evidence that supported by convincing
sufficient taxable profit will be evidence that sufficient
available . IAS 12 does not lay future taxable income will
down any requirement for be available against
consideration of virtual which such deferred tax
certainty assets can be realized.

Property plant & Equipment, Intangible assets,
Investment property and leases

Component IAS 16 property, plant and whereas AS 10 recommends,
Accounting equipment mandates but does not require,
component accounting component accounting

Depreciation IFRS requires depreciation In Indian GAAP,
base to be based on the useful depreciation is based on
economic life of n asset higher of useful life or
schedule XIV rates.


Major Major repairs and in most cases Indian GAAP
repairs and overhaul expenditure are requires these to be charged
overhaul capitalized under IFRS as off to the profit and loss
replacement costs, if they account as incurred
satisfy the recognition
criteria
Review of IFRS requires estimate of In India GAAP there is no
useful lives useful lives and residual need for an annual
values to be reviewed at review of estimates of
least at each financial useful lives and residual
year-end values

Revaluation If an asset is revalued, IFRS In India GAAP revaluation is not
of assets mandates revaluation to be required for all the asset of the given
done for the entire class of class,
property, plant and equipment the selection of the assets to be
to which that asset belongs revalued is made on systematic
and basis,
the revaluation to be Also there is no need to update
updated periodically revaluation regularly under Indian
GAAP

Investment IFRS provide detail rules for Indian GAAP requires Investment
Property the classification of an asset property to be recognized at cost
as an investment property and less other than temporary diminution
allows subsequent in value
measurement of investment
property at cost or at fair value


Intangible Assets- Under IFRS intangible Under Indian GAAP
indefinite useful life assets can have there is no concept of
indefinite useful life. indefinite useful life.
Such assets are required
to be tasted for
impairment and are not
amortized

Revaluation model Under IFRS the whereas, India GAAP
revaluation model is does not permit use of
allowed for accounting of the revaluation model for
an intangible asset intangible assets
provided an active
market exists

Related party Disclosure


Definition While defining related AS 18 Related Party
party under IAS 24 Disclosures defines related
Related Party party as “parties are
Disclosures the considered to be related if at
words used are any time during the reporting
“financial and period and party has the
operating decisions”. ability to control the other
party or exercise significant
influence over the other party
in making financial and/ or
operating decisions



Related Parties IAS 24 includes post AS 18 do not include
employment benefit post employment benefit
plans as related parties plans as related parties

IAS 24 includes close AS 18 includes only
members of families of relatives of key
key management management
personnel as related personnel as a
parties. It also includes related parties.
close members of the
families of persons who
exercise control or
significant influence



Closed Relatives IAS 24 adopts AS 18 includes specific
substance over form relations as relatives
based approach in
defining relatives as
close members of the
family.

Significant Influence IAS 24 does not give AS 18 state that holding
any percentage to 20% or more of the
interpret significant voting power of the
influence and is based entity is presumed to
on the substance result in significant
influence



Control Control is principle As 18 defined control as:
based. Under IAS 24 , Ownership directly or indirectly of
control is the power to more than one half of the voting
govern the financial & power of an entity.
operating policies of an Control of composition of the board
entity so as to obtain the of directors or the governing body
benefits from its activities
A substantial interest in voting
power and the power to direct, by
statute or agreement, the financial
and/or operating policies of an entity



Exemption from IAS 24 does not contain AS 18 provides
Disclosure any exemption from exemption for transaction
disclosure. with the related parties
where reporting of such
disclosures would
conflict with the reporting
entity’s duties of
confidentiality as
specially required in
terms of a statue or buy
any regulator or similar
competent authority

Related party disclosure


Exemption from There is no exemption No disclosure is
Disclosure….. for state controlled required in the
enterprise as regards financial statements of
related party state –controlled
relationships with enterprises as regards
other state controlled related party
enterprises and relationships with
transactions with such other state-controlled
enterprises enterprises and
transaction with such
enterprises.

Impairement


Impairment/ Under IFRS an annual Under Indian GAAP the
Amortization impairment test is required recoverable amount of
for intangible assets with intangible assets which are
an indefinite useful life or not yet available for use, or
an intangible asset not yet those that are amortized
available for use. This test over a period exceeding ten
can be performed at any years from the date when
time during the year, the assets is available for
provided it is performed at use need to be estimated at
the same time every year. least at the end of each
financial year.

Impairment


IAS 36 Impairment of Assets AS 28 Impairment of
require goodwill to be Assets employs bottom-
allocated to each of the up/ top-down approach
acquirer’s CGU which are for goodwill allocation
expected to benefit from the for impairment testing.
synergies of the business This requires goodwill
combination, irrespective of to be allocated to a
whether other assets or CGU or smallest group
liabilities of the acquiree are of CGU to which
assigned to those units or goodwill (or portion
groups of units thereof) can be
allocated on a
reasonable and
consistent basis

Impairment


Reversal Of Once an impairment loss is In Indian GAPP, the
Impairment Loss recognized for goodwill, it impairment loss on
cannot be reversed goodwill is reversed in a
subsequently under IFRS subsequent period when
the impairment loss was
caused by a specific
external event of an
exceptional nature, that
is not expected to recur
and subsequent external
events have occurred
that reverse the effect of
that event.

Impact on Debt Covenant

AMER group Ltd Year-ended 31/3/06 Previous IFRS
GAAP
Share capital $ 200 m $ 200 m

ADJUST: Reclassified Redeemable Cumulative Pref. (20)
Shares (cost 20m, FV 33.9m) (13.9)
Total Equity and Reserves 200 166.1

Debt 20 20
ADJUST: Reclassified Pref. Shares 33.9
Total Debt 20 53.9

DEBT-EQUITY RATIO 0.1 0.32
( D-E ratio impacted by 3.2 times)

Borrowing Costs

Particulars IFRS I GAAP

Scope An entity is not required to There is no such scope
apply IAS 23 to borrowing exclusion under AS 16
Costs directly attributable to
the acquisition, construction
or production of a qualifying
assets, measured at fair
value.
Qualifying assets Qualifying assets are those Indian GAAP is similar to
assets that require a IFRS. However the term
substantial period of time to substential period of time
get ready for their intended has been interpreted to
use or sale or not routinely generally mean more than
produced in large quantities 12 months.
or on a repetitive basis over
a short period of time and
are not ready for their
intended use or sale when

Borrowing Costs


Capitalization rate The disclose separately the There is no such separate
capitalization rate used to disclosure required under
determine the amount of AS 16.
borrowing costs.

Provision, contingent Liabilities
and Contingent assets

Provisions, Contingent liabilities and Contingent assets


Applicability to financial IAS 37 does not apply to AS 29 applies to financial
instruments financial that are within the instruments that are not
scope of IAS 39. carried at fair value. The
ICAI has recently issued
accounting standards on
financial instruments and
limited revision to AS 29.
the limited revision brings
the scope in line with IFRS.
However this limited
revision is recommended
for accounting periods
commencing on or after 1
april 2009, and mandatory
for accounting periods
commencing on or after 1
April 2011.



Definitions IAS 37 defines the terms AS 29 contains definitions
‘legal obligation’ and of the terms ‘present
‘constructing obligation’ obligation’ and ‘possible
which are not there in AS obligation’ which are not
29. define in IAS 37.

Measurement The amount recognized as Provision are based on the
a provision should be the best estimate. There is no
best estimate of the detailed guidance available.
expenditure required to
settle the present obligation
at the balance sheet date.
Detailed guidance is
available on measurement.



Measurement IAS 37 employs a statical Provisions are based on the
notion of expected value in best estimate. There is no
estimating the settlement detailed guidance available.
value of a provision. The
provision is measured
before tax as the tax
consequences of the
provision, and changes in it,
are dealt with under IAS 12.
Present value Where the effect of the time The amount of provision
value of money is material, should not be discounted to
the amount of a provision its present value.
should be the present value
of the expenditures
expected to be required to
settle the obligation . The
discount rate(s) should not



Restructuring provision Restructuring provision Restructuring provision
should be made based on should be made based on
constructive obligation. legal obligation.

Onerous contracts If an entity has a contract The guidance is similar to
that is onerous, the present IFRS, except that
obligation under the discounting of the onerous
contract should be provision is prohibited.
recognized and measured
as a provision.



Contingent assets A contingent is disclosed in A contingent asset should
financial statements where not be disclosed in financial
an inflow of economic statements. However, it can
benefits is probable. be disclosed in Director’s
Report.

THANKS

rachna@rjcorporateconsulting.com
011-47904751

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