Convergence to IFRS

FINANCIAL ACCOUNTING

1. BCM2B02 FINANCIAL ACCOUNTING Module 4 2 nd Semester B. Com University of Calicut II B . Com Computer Application Prepared By: Ms. Leena K P Don Bosco College, Mannuthy

2. Syllabus Convergence to International Financial Reporting Standards: Meaning of Accounting Standards – need and importance of global accounting standards – Role of IASB in developing IFRS – Components of IFRS (IAS, IFRS, IFRIC and SIC) – process of setting IFRS – Conceptual framework and its contents – Definition of elements in financial statements – Criteria or principles of recognition, measurement, presentation and disclosure – Convergence to IFRS – Emergence of Ind AS – Standard setting process in India – Role of NFRA – Entities required to adopt Ind AS – Role of FASB in developing US GAAP – Difference between Ind AS and IFRS

3. Meaning of Accounting Standards Accounting standards are the written statements consisting of rules and guidelines, issued by the accounting institutions, for the preparation of uniform and consistent financial statements and also for other disclosures affecting the different users of accounting information. Accounting standards lay down the terms and conditions of accounting policies and practices by way of codes, guidelines and adjustments for making the interpretation of the items appearing in the financial statements easy and even their treatment in the books of account. Banks, investors, and regulatory agencies, count on accounting standards to ensure information about a given entity is relevant and accurate. Accounting Standard may be defined as the accounting principles and rules which are to be followed for various accounting treatments while preparing financial statements on uniform basis and which will reveal the same meaning to all the interested groups who will use the same. Thus, the Standards are considered as a guide for maintaining and preparing accounts.

4. The Institute of Chartered Accountants of India (ICAI), which is also a member of International Accounting Standards Committee (IASC), had constituted Accounting Standards Board (ASB) in the year 1977. ASB identified the areas in which uniformity in accounting was required. After detailed research and discussions, it prepared and submitted a draft to the ICAI. After proper examination, ICAI finalized them and notified for its use in financial statements.

5. Objectives To provide information To harmonies different accounting process To enhance the contents To communicate uniform results To facilitate comparison To improve the quality of financial statements

6. Advantages Credibility and reliability of financial statements Uniformity Elimination of ambiguity Comparison Determination of managerial accountability Useful to shareholders, investors, researchers etc. Raises the standard of auditing

7. History On 21st April 1977, the Institute of Chartered Accountants of India as the premier accounting body in our country, set up “Accounting Standard Board” (ASB) to harmorize the diverse accounting policies and practice prevalent in our country. The primary duty of ASB is to formulate the accounting standards for India. These standards may be established by the Council of the Institute in India. During formulation the accounting standards, the ASB considered the applicable laws, usage, customs and the business environment existing in our country. For this purpose, ASB took the valued views and guidelines from various industrial houses, Government, and other interested parties.

8. O bjectives of the Accounting Standards Board : ( i ) To conceive and suggest areas in which Accounting Standards need to be developed. (ii) To formulate Accounting Standards with a view to assisting the Council of the ICAI in evolving and establishing Accounting Standards in India. (iii) To examine how far the relevant International Accounting Standard/International Financial Reporting Standard can be adapted while formulating the Accounting Standard and to adapt the same. (iv) To review, at regular intervals, the Accounting Standards from the point of view of acceptance or changed conditions, and, if necessary, revise the same. (v) To provide, from time to time, interpretations and guidance on Accounting Standards. (vi) To carry out such other functions relating to Accounting Standards.

9. Functions: The main function of the ASB is to formulate Accounting Standards so that such standards may be established by the ICAI in India. While formulating the Accounting Standards, the ASB will take into consideration the applicable laws, customs, usages and business environment prevailing in India. To actively promote the International Accounting Standards Board’s (IASB) pronouncements in the country with a view to facilitate global harmonisation of accounting standards. To propagating the Accounting Standards and of persuading the concerned parties to adopt them in the preparation and presentation of financial statements. To provide interpretations and guidance on issues arising from Accounting Standards. To review the Accounting Standards at periodical intervals and, if necessary, revise the same.

10. The body consists of the following members: Company Law board, CBDT, Central Board of Excise and Customs, Controller General of Accounts, SEBI, Comptroller and Auditor General of Accounts, UGC, Educational and Professional Institutions, Councils of the Institutes and representatives of Industry. The Accounting Standards will, however, be issued under the guidance of the Council. As such, ASB has given the authority of propagating the accounting standards and insisting the parties to prepare and present the accounts on the basis of the accounting standards. ASB will explain the basic concept on which accounting principles should be oriented and also will explain the accounting principles on which the practice and procedure should confirm while performing its functions. However, the Council of the Institute of Chartered Accountants of India has issued 29 Accounting Standards (AS) so far.

11. Factors - Need for global standards Development of MNCs Growth of international capital markets Legislative requirement Benefits of global standards Saving cost and time Better analysis of financial data Increase investor confidence Ease in listing of securities

12. International Accounting standards Purpose of accounting- information to internal & external users  financial statements – certain rules & procedures  GAAP – same item, alternative treatment 1904, St. Lois, 1 st International Congress of Accountants  concept of development and establishment of International Accounting Standards 1929 – USA , UK, Australia, Canada… USA- American Institute of Certified Public Accountants codified accounting standards 1930s – US – 1 st formal Accounting Standards

13. International Accounting Standards Committee (IASC) The evolution of the International Accounting Standards began in 1966 with a suggestion to set up a worldwide study group. 1967, the Accountants’ International Study Group was formed, and it began to publish papers on various accounting topics, some of which formed the foundation for accounting standards that came into force later. In 1973, the International Accounting Standards Committee (IASC) was set up with the objective of developing accounting standards that would be internationally followed. IASC  Exposure draft – send to professional bodies, securities markets, regulatory agencies etc. for their comments and suggestions Revised and issued as accounting standards

14. The International Accounting Standards Board (IASB) The International Accounting Standards Board (IASB) is an independent, private-sector body that develops and approves  International Financial Reporting Standards  (IFRSs). The IASB operates under the oversight of the  IFRS  Foundation . The IASB was formed in 2001 to replace the  International Accounting Standards Committee (IASC) . A  full history of the IASB and the IASC going back to 1973  is available on the IASB website. Currently, the IASB has  14 members . The IASB's role Under the  IFRS Foundation Constitution , the IASB has complete responsibility for all technical matters of the IFRS Foundation including: full discretion in developing and pursuing its  technical agenda , subject to certain consultation requirements with the Trustees and the public  the preparation and issuing of IFRSs (other than Interpretations) and exposure drafts, following the  due process stipulated in the Constitution  the approval and issuing of Interpretations developed by the  IFRS Interpretations Committee .

15. Andreas Barckow - Chairman Sue Lloyd – Vice chair IFRS standard setting – “due process” - Includes interested individuals and organisations around the world Setting the agenda Planning the project Developing and publishing the discussion paper Developing and publishing the Exposure Draft Developing and publishing the standard Procedures after a standard is issued Leading role in development of IFRS Takes help and advice of several study groups Promote the use and application of standards – close relation with members in other countries Decisive role in overall economic development of many nations through issuing IFRS

16. IFRS – Three tier structure The IFRS Foundation has a three-tier governance structure, based on an independent standard-setting Board of experts ( International Accounting Standards Board ), governed and overseen by Trustees from around the world ( IFRS Foundation Trustees ) who in turn are accountable to a monitoring board of public authorities ( IFRS Foundation Monitoring Board ). The  IFRS Advisory Council  provides advice and counsel to the Trustees and the Board, whilst the Board also consults extensively with a range of other  standing advisory bodies and consultative groups . # https://www.ifrs.org/about-us/our-structure/

17. IFRS Interpretations Committee Objective – Developing interpretations for the IFRSs issued by IASB 14 voting members – 3 year term – selected by Trustees Interpretations  Public comment (Draft Interpretations- D1, D2…)  Approved (3/14 members) Review and approval(9/14) by IASB Board Role I nterpret the application of IFRSs and provide timely guidance on financial reporting issues not specifically addressed in IFRSs, in the context of the IASB’s Framework, and undertake other tasks at the request of the IASB  I n carrying out its work above, have regard to the IASB‘s objective of working actively with national standard-setters to bring about convergence of national accounting standards and IFRSs to high quality solutions  P ublish after clearance by the IASB draft Interpretations for public comment and consider comments made within a reasonable period before finalizing an Interpretation  R eport to the IASB and obtain the approval of nine of its members for final Interpretations if there are fewer than sixteen members, or by ten of its members if there are sixteen members.

18. National Financial Reporting Authority (NFRA) https://nfra.gov.in/about-us   C onstituted  on 01st October,2018 by the Government of India under  Sub Section (1) of section 132 of the Companies Act, 2013   Duties/Roles/Functions of the NFRA are to: Recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government; Monitor and enforce compliance with accounting standards and auditing standards; Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service; Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.

19. Which companies will be covered by NFRA?

20. Financial Elements Important part of conceptual framework Directly related to measurement of Financial position Financial performance Elements of financial statements and reports Recognition  Process of recording an item in the financial statement Elements Chance of inflow or outflow of economic benefit to or from the entity Cost/Value can be measured with reliability

21. Criteria Asset  Inflow Cost/Value Liability  Outflow -- Yes  Contingent liability Cost/Value -- No Income  Economic benefit Equity / Economic benefit Asset or Liability Expense  Asset Economic benefit Liability Revenue recognition principle  Sale made/service rendered – cash/credit/instalment Revenue on sale of goods  IFRS - Risk and reward transferred – No control over goods – Payment assured – Measurement of revenue – Measurement of costs of earning