01A Overview of IFRS

Overview of IFRS

PwC

What is IFRS?Overview of IFRS

What?

International Financial ReportingWhy?

In July 2007 the ICAI announcedInternational Financial Reporting Standards

• In July 2007, the ICAI announced the move towards convergence with IFRS with effect from April 1, 2011 and issued a concept paper on

Who?

The standard setter is International Accounting Standards Board

and issued a concept paper on Convergence with IFRSs in India.

• Early 2010, the Ministry of Corporate Affairs (‘MCA’) issuedAccounting Standards Board

(IASB) based in LondonCorporate Affairs ( MCA ) issued various press releases on IFRS roadmap and convergence plan for India reaffirming the convergenceIndia, reaffirming the convergence date of April 1, 2011 through 2014 for select companies.

IFRS Proposed Roadmap for India

Overview of IFRS

2011 2012 2013 2014Opening balance sheet as at April 1* using IFRS-converged accounting standards

2011 2012 2013 2014• NSE ‐ Nifty 50 companies,

• BSE ‐ Sensex 30 • All insurance companies • Companies listed or not,

having a net worth betweenRs 500 crores and Rs 1000

• Listed companies having a net worth of less thanRs 500 crores [Note 1]companies,

• Companies whose shares or other securities listed outside India;

• Companies listed or not

Rs.500 crores and Rs.1000 crores [Note 1]

Rs.500 crores [Note 1]

• All scheduled commercial banks

• Urban co‐operative banks having net worth between Rs. 200 to Rs. 300 crores

• Companies listed or not, having a net worth in excess of Rs. 1,000 crores[Note 1]

• Urban co‐operative banks having a net worth in excess of Rs. 300 crores

• NBFCs (all other Listed)• NBFCs (other Unlisted) having net worth between Rs. 500 to Rs. 1000 crores• NBFCs ‐ Nifty 50 or Sensex

30• NBFCs listed or not, having a net worth > Rs.1,000 crores

Note 1: Companies not covered in the above chart will apply ‘existing Indian accounting standards’ OR voluntarily opt to apply the ‘IFRS converged accounting standards’apply the IFRS‐converged accounting standards .

Slide 3

SCI will be covered in Phase I and the first reporting period will be as at March 31, 2012.

IFRS implementation timeline - MCA

Overview of IFRS

Statutory reportingOld

(Dual Reporting )(Dual Reporting )(Dual Reporting )(Voluntary)

Statutory reporting under Indian GAAP

Old GAAP

First IFRS Today

MCA Timeline

reporting period

31/3/2009 1/4/2010 31/3/2012(Reporting Date)Opening IFRS

Balance Sheet

31/3/2011

Regulators still to announce plan onRegulators still to announce plan on

Interim Quarterly Reporting on

Q1 Q2 Q3

announce plan on transition provisions announce plan on

transition provisions

Slide 4

Reporting on IFRS basis

Current International Financial Reporting Structure

Overview of IFRS

International Financial ReportingSTANDARDS

p g

p gStandards (IFRS) and

International AccountingStandards (IAS)

STANDARDS

Almost 3 000

International Financial ReportingInterpretations Committee (IFRIC)

Almost 3,000 pages and

increasing !!!

p ( )And Standing Interpretation

committee (SIC) Type NumberIFRS 9 (9)

Exposure Drafts and Draft Interpretation

IAS 41 (29)IFRIC 19 (18)SIC 33 (11)

Slide 5

Fundamental areas in which Indian GAAP and IFRS differ

Overview of IFRS

• Stand-alone v/s consolidated financialStand alone v/s consolidated financial statements

• Full compliance, qualification not accepted

Indian IFRS

accepted• More guidance, all mandatory• Focus on substance over form

Focus on risks and rewardsGAAP IFRS• Focus on risks and rewards

• Present value and fair value concepts• Estimates• Extraordinary v/s exceptional• Restatement of previously issued

financial statements• Detailed disclosures

Slide 6

Overview of IFRS

Overview of Findings

• The table below provides an overview of the preliminary assessment of the potential impact of each of the relevant financial statement components identified in terms of the effort required to achieve compliancerelevant financial statement components, identified in terms of the effort required to achieve compliance and the potential financial impact on SCI's financial statements.

Key Impact Areas for SCI Impact Other Notes

Select Components of Financial Statements Financial Impact Disclosures Efforts Work Stream

1

Property, Plant and Equipment

(Component approach including dry docking, Forex gain/ loss, Depreciation based on useful life to its residual value, IFRS 1 - Deemed Fair Value option)

High Low High Policy Decision & System Impact

2Revenue and Cost Recognition(Percentage completion method application, Barter transactions)

Low Low MediumPolicy Decision &

System Impact

Determination of Functional currency3

Determination of Functional currency(Functional currency based on primary economic environment in which entity operates, Presentation currency is free choice)

High Low Medium System Impact

4Investment in Joint Ventures

(Equity method or proportionate consolidation, JV’s to compile Medium Low High Data collation( q y p p , pfinancial statements as per SCI’s accounting policy)

Slide 7

Overview of IFRS

Overview of Findings

Key Impact Areas for SCI Impact Other Notes

Select Components of Financial Statements Financial Impact Disclosures Efforts Work Stream

5Employee Benefits

(Actuarial gains and losses)Low Low Low Policy decision

6 Related party Disclosures(Government entities as related party) Nil High Medium System Impact

7First Time Adoption of IFRS(Exemptions and Exceptions – Revaluation options / Land, Vessel, Foreign currency translation adjustments)

Optional Low Low Policy decisionVessel, Foreign currency translation adjustments)

8

Presentation of Financial Statements

(Segmental reporting, Financial Instruments disclosures, Reclassification of Statement of financial position and Income Statement, Recently issued accounting standards ,Classification f T t ti )

Nil Low Low System impact

of Tonnage tax as operating expenses)

Slide 8

Key impact areas―

Overview of IFRS

Parameter Statutory accounts IFRS Business impact

Property, plant and equipment (PPE)


Componentisation of assets

Componentisation notrequired

Significant components of PPE with different useful lives to be depreciated separately

High

separately.

Major overhaul and maintenance

Generally charged as expenses

Cost of periodic major overhaul or dry docks is generally capitalised and amortised till the next

Medium

amortised till the next scheduled maintenance.

Depreciation Depreciation over prescribed rates

PPE depreciated over estimated useful life considering residual value

High

considering residual value

Useful Life andResidual Value

Not required to be revised Revised annuallly Low

Slide 9

Key impact areas―

Overview of IFRS


Revenue


Unfinished Voyage under voyage charter

Income is recognised on completed of voyage

When the outcome can be reliably estimated, revenue is recognized by reference to the stage of completion of the transaction

Medium

transaction

PricewaterhouseCoopers Slide 10

First-time Adoption of IFRS - Requirements

First-time Adoption of IFRS

IFRS 1 requires

• Identify the first IFRS financial statements.

• Prepare an opening balance sheet at the date of transition to IFRS.p p g

• Select accounting policies that comply with IFRS, (latest version of IFRS applicable on the reporting date) and apply those policies retrospectively

• Consider whether to apply any of the 15 optional exemptions from retrospective application.

• Apply the 4 mandatory exceptions from retrospective application.

• Make extensive disclosures to explain the transition to IFRS.

Slide 11

Presentation of financial statementIAS 1R- Presentation of Financial Statements

PwC

Components of financial statements

Overview of IFRS

A complete set of financial statements comprises

• The primary statements- Statement of financial position for the period end- Statement of comprehensive income for the period- Statement of changes in equity for the periodg q y p- Statement of cash flows for the period

• Notes, including summary of accounting policies and other explanatory information

An entity may use titles for the statements other than those prescribed in IAS 1R, however the titles used shall not be misleading.

Slide 13

All primary statements of equal prominence

Statement of Financial Position

Overview of IFRS

Basis of presentation

Classified Balance sheetClassified Balance sheetAn entity shall present current and non-current asset, and current and non-current liability as separate classification on the face of the statement of financial positionp

Exception to above rule• When a presentation based on liquidity provides information that is reliable

and more relevant. • All assets and liabilities are required to be presented in the order of liquidity.

Ch i d i b t f b iChoice driven by type of business • Manufacturers and retailers → current/non-current basis• Financial institutions, banks and real estate companies → liquidity basis

Slide 14


Overview of IFRS

Current vs. Non-current Classification

C t t C t li bilitCurrent asset Current liability

Expected to be realised, sold or consumed within entity’s normal operating cycle

Expected to be settled within entity’s normal operating cycle

Held primarily for trading purposes Held primarily for trading purposes

Expected to be realised within 12 months after balance sheet date

Expected to be settled within 12 months after balance sheet date

Unrestricted cash or cash equivalent No unconditional right to defer settlement for at least 12 months after balance sheet date

An entity shall classify all other assets as

non current

An entity shall classify all other liabilities as

non current

Slide 15

non-current. non-current.


Overview of IFRS

• Property plant and equipment • Held for sale assets and assets

Minimum line itemsProperty, plant and equipment

• Investment property• Intangible assets

Financial assets (other than those

• Held for sale assets and assets included in disposal groups

• Trade and other payables • Provisions• Financial assets (other than those

shown on other line items)• Investments accounted for using the

equity method

• Provisions• Financial liabilities (other than those

shown on other line items)• Current tax assets and liabilitiesq y

• Biological assets• Inventories• Trade and other receivables

Current tax assets and liabilities• Deferred tax assets and liabilities• Liabilities included in disposal groups

Mi it i t t• Trade and other receivables• Cash and cash equivalents

• Minority interest• Issued capital and reserves

attributable to owners of the parent

Slide 16

An entity shall present additional line items, headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entity's financial position.

Statement of Comprehensive Income

Overview of IFRS

An entity shall present all items of income and expense recognised in a period

Basis of presentationAn entity shall present all items of income and expense recognised in a period• in a single statement of comprehensive income, or• in two statements:

t t t di l i t f fit l ( t i– a statement displaying components of profit or loss (separate income statement) and

– a second statement beginning with profit or loss and displaying t f th h i i ( t t t fcomponents of other comprehensive income (statement of

comprehensive income).

Slide 17


Overview of IFRS

Application of the requirement to analyse expenses• Choose most relevant presentation analysis method by:Choose most relevant presentation analysis method by:

- Function - usually used by manufacturers, retailers, etc.- Nature - usually used by financial institutions, etc.If l i b f ti i id d dditi l t di l l i th• If analysis by function is provided, additional note disclosures analysing the nature of expenses is required

Slide 18


Overview of IFRS

• Revenue • Each component of other

Minimum line itemsRevenue

• Finance costs

• Share of profit or loss of associates

• Each component of other comprehensive income by nature

• Share of other comprehensive i f i t d j i tand joint ventures

• Tax expense

• Discontinued operations

income of associates and joint ventures

• Total comprehensive income • Discontinued operations

• Profit or loss

• Profit or loss attributable to:

attributable to:- Minority interest- Owners of the parent

- Minority interest- Owners of the parent

p

Slide 19

An entity shall not present any items of income or expense as extraordinary items


Overview of IFRS

Additional line items, headings and sub-totals • Required when relevant to an understanding of performanceRequired when relevant to an understanding of performance• Description and order of line items amended where necessary to explain

elements of performance • Framework qualitative characteristics of financial statements• Framework qualitative characteristics of financial statements

- Understandability- Relevance- Reliability- Comparability

• Undefined terms may be used where relevant to an understanding (subject y g ( jto meeting qualitative characteristics)

Slide 20

Other Comprehensive Income (‘OCI’)

Overview of IFRS

• Changes in revaluation surplus (on account of PPE and intangibles)

Components of Other Comprehensive Income• Changes in revaluation surplus (on account of PPE and intangibles)• Actuarial gains and losses on defined benefit plans recognised in full in

equity, if the entity elects the option available under IAS 19Gains and losses arising from translation of a foreign operation• Gains and losses arising from translation of a foreign operation

• Gains and losses on re-measuring available-for-sale financial assets• Effective portion of gains and losses on hedging instruments in a cash flow

h dhedge.

C t f OCI h ll b t d ith t f l t d t t f

All non-owners change in equity are recognised in OCI

It f i d i d i fit l l t d d

Components of OCI shall be presented either net of related taxes or at gross of related tax with one amount representing aggregate amount of income tax relating to

those components.

Slide 21

Items of income and expense are recognised in profit or loss unless standards prescribe or permit otherwise.

Other Comprehensive Income (‘OCI’)

Overview of IFRS

‘Recycling’ of other comprehensive income

Reclassifications (‘recycling’) - as required by standards items previously

It Recycled under R k

Reclassifications ( recycling ) - as required by standards items previously recognised in OCI shall be transferred to Statement of Comprehensive Income

Items yIFRS? Remarks

Revaluation of PPE and intangible assets No Decrease can only be recognised in OCI if they

reverse previous increments for the same asset

Actuarial gains/losses on defined benefit plans (optional) No Immediate recognition in retained earnings

FX gains/losses from the translation of foreign operations Yes Transfer to P&L required

Gain/losses on revaluation of available-for-sale financial assets Yes Transfer to P&L required

Effective portion of gains/losses f h fl h d Yes Transfer to P&L or include in cost/carrying amount

f fi i l t li bilit (b i dj t t)

Slide 22

from cash flow hedges Yes of non-financial asset or liability (basis adjustment)

Statement of changes in shareholders’ equity

Overview of IFRS

• This statement shows movements/ transactions during the reporting period that have affected the shareholders’ equity.

• It is generally tabular in approach with the various categories of equity across the top common shares, additional paid-in capital, retained earnings, other reserves.

• The transactions are listed line by line and include amongst others – net income for y gthe year, cumulative translation adjustments (if applicable), issue of shares, dividends paid, other movements in shares.

• The outcome is a reconciliation in the movement of each category of shareholder’s g yequity from one period to the next.

Slide 23

Statement of cash flows

Overview of IFRS

Direct versus Indirect Method

• Enterprise may choose to report the cash flow from operating activity by using te p se ay c oose to epo t t e cas o o ope at g act ty by us geither the direct or the indirect method

• Reconciliation of net income and net cash flow from operating activity is required to be provided if the direct method is used

Net Cash provided by or used in:

• Operating activities

• Investing activities

• Financing activities

• Net increase (decrease) in cash and cash equivalent

Slide 24

Net increase (decrease) in cash and cash equivalent

Notes to financial statements

Overview of IFRS

Notes to financial statements comprise of:

• Background of the Company

• Significant accounting policies

• Accounting estimates

• Changes in accounting policies

• Concentration of risks

• Schedule of individual material items on B/s, I/s, CF and Sh Equity

• Explanation of material transaction e.g., acquisition, disposal.

• Recently issued pronouncements and their implications

Slide 25

Thank You

This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this presentation without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this presentation, and, to the extent permitted by law, presenter or the Company for which he works, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this presentation or for any decision based on it. Without prior written permission of presenter, the contents of this presentation may not be quoted in whole or in part or otherwise referred to in any documents.

This restricted access information was prepared by PricewaterhouseCoopers ("PwC") for the sole benefit and use of Shipping Corporation of India (SCI) pursuant to a client relationship exclusively between PwC and SCI. PwC makes no representations orwarranties regarding the information and expressly disclaims and neither accepts nor assumes any contractual or other responsibility or liability to any other person or entity based on its use of, reliance on or access to this information. This information is not intended to be relied upon by anyone other than SCI.

© 2010 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” , a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

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01A Overview of IFRS