Overview of IFRS & Presentation of Financial Statements The Institute of Chartered Accountants of India (Set up by an Act of Parliament)

Overview of IFRS&

Presentation of Financial Statements

The Institute of Chartered Accountants of India (Set up by an Act of Parliament)

IFRS Comprises

IAS

IAS

IAS

IFRS

IAS 1 : Presentation of Financial Statements

Introduction Issued in September 2007

Replaces the previous version of 2003

Mandatory for period starting on or after January 1, 2009

Earlier adoption permitted

Equivalent Indian GAAP Schedule VI AS 1 : Disclosure of Accounting Policies

Objective To prescribe the basis

for presentation of general purpose financial statements

To ensure comparability With entity’s own statements of previous periods With financial statements of other entities

To set Overall requirements for the presentation of financial statements Guidelines for their structure Minimum requirements for their content

Financial Statements Comprises of

A statement of financial position as at the end of the period A statement of comprehensive income for the period A statement of changes in equity for the period A statement of cash flows for the period Notes, comprising

A summary of significant accounting policies Other explanatory information

A Statement of financial position as at the beginning of the earliest comparative period When an entity applies an accounting policy retrospectively Makes a retrospective restatement of items in its financial

statements When it reclassifies items in its financial statements

General Features Fair presentation and compliance with IFRSs Going Concern Accrual Basis of accounting Materiality and aggregation Offsetting Frequency of reporting Comparative information Consistency of presentation

Fair Presentation and Compliance with IFRSs Financial statement to comply with all the requirements of IFRSs

The application of IFRSs (with additional disclosures) when necessary is presumed to result in fair presentation

Entity to make an explicit and unreserved statement of compliance in notes

Adoption of an inappropriate accounting policy can not be rectified by disclosure of accounting policies, notes or explanatory material

Fair presentation and compliance with IFRSs When non - compliance with the requirements of IFRSs permitted

In extremely rare circumstances When management considers

While assessing a requirement in an IFRS That the objective of financial statement in not achieved in the particular

circumstances As the entity’s circumstances are different from entities complying with

that requirement And concludes

That compliance with a requirement in an IFRS Would be so misleading That it would conflict With the objectives of the financial statements

Fair Presentation Departure from IFRS where regulatory framework requires or does not prohibit

such a departure: Entity to disclose – in the year of departure

that management has concluded that the financial statements present fairly the entity’s financial position, financial performance and cash flows

That it has complied with applicable IFRSs, except that it has departed from a particular requirement to achieve a fair presentation

the title of the IFRS from which the entity has departed the nature of the departure, including the treatment that the IFRS would

require the reason why that treatment would be so misleading in the circumstances

that it would conflict with the objective of financial statements set out in the Framework

the treatment adopted for each period presented, the financial effect of the departure on each item

in the financial statements that would have been reported in complying with the requirement.

Fair presentation and compliancewith IFRSs

Rebuttable presumption that if other entities in similar circumstances comply with the requirement, the entity’s compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements set out in the Framework

Going Concern How to assess:

Consider all available information about the future (minimum 12 months from the reporting date) particularly

Current and expected profitability

Debt repayment schedules

Potential sources of replacement financing

Depends on the facts of each case

Going Concern If management is aware

Of material uncertainties related to events or conditions That may cast significant doubt On entity’s ability to continue as going concern

Disclose the uncertainties

When financial statements not prepared on a going concern basis Disclose the fact Disclose the basis for preparation of financial statement The reasons why the entity is not a going concern

Materiality and Aggregation

Definition:

Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of financial statements.

Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances

The determining factor could be The size or nature of the item, or a combination of both

Offsetting Not to offset

Assets and liabilities Income and expenses

unless permitted by an IFRS

What is not offsetting Measuring assets net of valuation allowances

Obsolescence allowance on inventories Doubtful debts on allowances

Gains (losses) on non-current assets less selling expenses Net basis (Gains less losses) arising from a group or similar transactions

unless material

Frequency At least annually

When change in reporting period, disclose The period covered The reason for using a longer or shorter period The fact that amounts presented in financial statements are not entirely

comparable

May also adopt 52 week period

Comparative Information

Disclose comparative information in respect of the previous period for

all amounts in current period financial statements Narrative and descriptive information when it is relevant to an

understanding of current period’s financial statements

Present when disclosing comparative information, as a minimum Two statements of financial position Two of each of the other statements Related notes

Comparative Information

Present

When an entity Applies an accounting policy retrospectively Makes a retrospective restatement of items in its financial statements Reclassifies items in its financial statements

disclosing comparative information, as a minimum Three statements of financial position Two of each of the other statements Related notes

Comparative Information When change in presentation or classification of items in financial statements

Reclassify comparative amounts Disclose

The nature of reclassification The amount of each item or class of items that is reclassified The reason of reclassification

When reclassification of comparative amounts is not practicable Disclose

The reason for not reclassifying the amounts The nature of adjustments that would have been made if the amounts

had been reclassified

Consistency Retain the presentation and classification of items in the financial statements

from one period to the next unless

It is apparent, following a significant change in the nature of the entity’s operations or a review of its financial statements, that another presentation of classification would be more appropriate

An IFRS requires a change in presentation

Change only when changed presentation provides information that is

Reliable and more relevant to the users Revised structure is likely to continue

Information to be presented in Statement of Financial Position

No prescribed format Minimum line items prescribed Items listed are different in nature or function Additional line items, headings and sub-totals may be presented if relevant Classify as

Current assets and non-current assets Current liabilities and non-current liabilities Unless order of liquidity provides reliable and relevant information

(generally – financial institutions) Disclose under each line item where amount expected to be recovered or settled

after more than 12 months


Minimum line items - assetsA Property, plant and equipmentB Investment propertyC Intangible assetsD Financial assets excluding (E), (H) & (I)E Investments accounted for using the equity methodF Biological assetsG InventoriesH Trade and other receivablesI Cash and cash equivalentsJ The total of assets classified as held for sale and assets included in disposal

group as held for sale in accordance with IFRS 5


Minimum line items - LiabilitiesK Trade and other payablesL ProvisionsM Financial liabilities excluding (K) & (L)N Liabilities and assets for current tax (IAS 12)O Deferred tax liabilities and deferred tax assets (IAS 12)P Liabilities included in disposal group as held for sale in

accordance with IFRS 5Q Non-controlling interests, presented within equityR Issued capital and reserves attributable to owners of the

parent


Additional line items to be judged on the basis of The nature and liquidity of assets The function of assets within the entity The amount, nature and timings of liabilities


Asset is classified as a current asset if it is Expected to be realized in the entity’s normal operating cycle; or Intended for sale or consumption in the entity’s normal operating cycle; or Held primarily for the purpose of being traded; or Expected to be realized within 12 months after the reporting period; or Cash or cash equivalent

All other assets are non-current assets

Non-current assets include tangible, intangible and financial assets of a long-term nature

Current Assets

Operating Cycle

Time between the acquisition of assets for processing & their realization in cash or cash equivalents

If the normal operating cycle can not be identified, it is assumed to be 12 months


Liability is classified as a current liability if

It is expected to be settled in the entity’s normal operating cycle; or

It is held primarily for the purpose of being traded; or

It is due to be settled within 12 months after the reporting period; or

The entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

All other liabilities are non-current liabilities

Non-adjusting events in respect of Loans classified as Current Liabilities

Refinancing on a long term basis

Rectification of a breach of a long term arrangement

Granting by the lender of grace to rectify a breach of a long term arrangement ending atleast 12 months after the reporting period

Information to be presented in Statementof Financial Position

Disclose

either in the statement of financial position

or in notes

sub-classification of line items based on

Requirements of IFRSs

Size, nature and function of the amounts involved

Information to be presented in Statementof Financial Position

Disclose either in the statement of financial position or in the statement of changes in equity in the notes

Desired information for each class of share capital The number of authorized shares The number of issued and fully paid shares The number of issued but not fully paid shares Par value per share or that the shares have no par value

A description of the nature and purpose of each reserve within equity

Statement of Comprehensive Income

Option to present all items of income and expense recognized in a period Option 1: in a single statement

‘statement of comprehensive income’

Option 2: in two statements ‘Separate income statement’ displaying components of profit or loss

‘Statement of comprehensive income’ beginning with profit or loss and displaying components of other comprehensive income


Minimum line items Revenue Finance costs Share of the profit or loss of associates and joint ventures accounted for using

the equity method Tax expense A single amount comprising the total of

The post-tax profit or loss of discontinued operations The post tax gain or loss recognized on the measurement to fair value less costs to

sell or on the disposal of the assets or disposed group(s) constituting the discontinued operations

Profit or loss Each component of other comprehensive income classified by nature Share of the other comprehensive income of associates and joint ventures

accounted for using the equity method Total comprehensive income


Disclose following as allocation of profit or loss for the period

Profit or loss for the period attributable to

Non-controlling interests Owners of the parent

Total comprehensive income for the period attributable to

Non-controlling interests Owners of the parent


Also permitted Additional line items, headings and sub-totals permitted Amend the description of line items Change the order of line items

Not permitted Offsetting of income and expense unless permitted by IFRSs To present any items of income or expense as extraordinary items either in

the

statement of comprehensive income Separate income statement, if prepared, or in notes


Profit or loss for the period

All items of income or expense recognized in the period are included in profit or loss unless an IFRS requires otherwise

Items not recognized in profit or loss are ‘other comprehensive income’


Other comprehensive income comprises of items of income and expense not recognized in profit or loss as required or permitted by other IFRSs Includes

Reclassification adjustments Effect of changes in accounting policies (IAS 8) Changes in revaluation surplus (IAS 16) Actuarial gains (losses) on defined benefit plans (IAS 19) Gains (losses) on translation of the financial statements of a foreign

operation (IAS 21) Gains (losses) on re-measuring available for sale financial assets (IAS

39) The effective portion of gains (losses) on hedging instruments in a cash

flow hedge (IAS 39)


For other comprehensive income for the period

Disclose the amount of income-tax relating to each component of other comprehensive income (including reclassification adjustments) either in the statement of comprehensive income or in notes

May present components of other comprehensive income either

Net of related tax effects

Before related tax effects with one tax amount


Reclassification adjustments

May be presented

in the statement of comprehensive income or

in notes

When presented in notes

The entity presents the components of other comprehensive income after any related reclassification adjustments


Presentation of expenses

Either of two method ‘Nature of expense’ method ‘Function of expense’ or ‘cost of sales’ method

Choice depends on Historical and industry factors Nature of entity

Management to select presentation that is Reliable More relevant

Statement of changes in Equity

Equity includes

Each class of contributed equity

The accumulated balance of each class of other comprehensive income

Retained earnings


Changes in equity

Between the beginning of the reporting period

And the end of the reporting period

Reflects the increase or decrease

In the entity’s net assets


Changes in equity of a period represent

The total amount of income and expense, including gains and losses, generated by the entity’s activities of that period

Changes resulting from transactions with owners in their capacity as owners such as

Equity contributions

Reacquisition of entity’s own equity instruments

Dividends

Transaction costs directly related to such transactions


Show in the statement

Total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests

For each component of equity, the effects of retrospective application or retrospective restatement

recognized in accordance with IAS 8 A reconciliation between the carrying amount at the beginning and the

end of the period, separately disclosing changes resulting from Profit or loss Each item of other comprehensive income

Contd…


Show in the statement…contd

Transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests that do not result in a loss of control

Dividends

Present either in the statement of changes in equity or in the notes The amount of dividends recognized as distribution to owners, and The related amount per share

Statement of Cash Flows

Provides users of financial statements

with a basis to assess the ability of the entity

To generate cash and cash equivalents and

The needs of the entity to utilize those cash flows

IAS 7 sets out requirements for the presentation and disclosure of cash flow information

Main differences with Indian GAAP

Treatment of bank overdrafts

Cash flows from extraordinary items

Classification of interest and dividends

Notes - Structure Presentation

Systematic manner Each item in

Statement of financial position

Statement of comprehensive income / separate income statement

Statement of changes in equity

Statement of cash flows Should be cross-referenced to any related information in the notes

Notes - Structure Order

A statement of compliance with IFRSs A summary of significant accounting policies applied Supporting information for items presented in

Statement of financial position Statement of comprehensive income / separate income statement Statement of changes in equity Statement of cash flows

In the order in which each statement & each line item is presented Other disclosures including:

Contingent liabilities and unrecognized contractual commitments Non-financial disclosures

Order may be varied if necessary or desirable Information may be combined

Notes – Disclosure of Accounting Policies

To disclose and include

Measurement bases

Accounting Policies

Judgments that management has made

Notes :Sources of Estimation Uncertainty

Required

When there are uncertainties that have a significant risk of causing material adjustment To the carrying amount of assets and liabilities Within next financial year

Disclose

Information about the key assumptions concerning the future Other key sources of estimation uncertainty at the end of the reporting

period

Notes :Sources of Estimation Uncertainty

In respect of concerned assets and liabilities, include details of:

Their nature

Their carrying amount at the end of the reporting period

Notes – Other Disclosures

Dividends

The amounts

of dividends proposed or declared before the financial statements were authorized for issue but not recognized as a distribution to owners during the period and

the related amount per share

The amount of any cumulative preference dividends not recognized


Capital Disclosures - Principle Disclose information That enables users of its financial statements To evaluate The entity’s

objectives, policies and processes

For managing capital


Capital Disclosures – Disclose

Qualitative information about its objectives, policies and processes for managing capital

Summary quantitative data about what it manages as capital

Any changes in above from the previous period

Whether during the period it complied with any externally imposed capital requirements to which it is subject

When the entity has not complied with such externally imposed capital requirements, the consequences of such non-compliances

Thank You

Documents

Overview of IFRS & Presentation of Financial Statements The Institute of Chartered Accountants of India (Set up by an Act of Parliament)