MANAGERIAL ACCOUNTING

PRESENTATION

SUBMITTED BY:

SARANSH GUPTA

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(I.F.R.S.)

INTERNATIONAL FINANCIAL REPORTING STANDARDS

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MEANING• International Financial Reporting Standards (IFRS)

are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.

• They are consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries.

• IFRS were issued by the Board of the International Accounting Standards Committee (IASC), known as International Accounting Standard Board(IASB).

OBJECTIVES OF IASB•To develop in the public interest, a single set of high quality, understandable, enforceable and globally acceptable financial reporting standard.

• To promote the use and rigorous application of those standards.

•To attain the objectives associated with 1. and 2. and to take account of the needs of different types of entities in diverse economic settings.

• To promote and facilitate the adoption of IFRS, being the standards and interpretations issued by the IASB, through the convergence of national accounting standards and IFRS. 3

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BENIFITS

• 1)HELPFUL TO ENTERPRISES OPERATING GLOBALLY : Entities having business operations in different countries will face problems of consolidation of accounting standards. IFRS unifies the accounting practices worldwide, as a result of which problem of consolidation is avoided.

• 2) HELPFUL TO INVESTORS : IFRS would be helpful to investors in comparison of financial statements prepared under different accounting standards adopted by different countries . It helps them in taking their investment decisions.

• 3)HELPFUL TO INDUSTRY :Obtaining funds from outside the country becomes easier if the financial statements comply with globally accepted accounting standards. • 4)HELPFUL TO ACCOUNTING PROFESSIONALS: They will be able to provide better services in countries adopting IFRS.

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APPLICABILITY OF IFRS IN INDIA

The ICAI (The Institute of Chartered Accountants of India) has decided that beginning with April 1,2015 these will be complete harmonization between Indian accounting standards and IFRS.

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IMPLEMENTATION OF IFRS

• According to the draft plan, the finance ministry wants to implement the international financial reporting standards (IFRS) beginning with companies that have a net worth of over Rs 1,000 cr. from April 1, 2015.

• In the second phase, both listed and unlisted companies with a net worth of over Rs. 500 cr. but less than Rs. 1,000 cr. will have to converge with the international accounting standards from the financial year beginning April 1, 2016.

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Sr. no TITLE1 IFRS1 First-time Adoption Of International Financial Reporting Standards

2 IFRS2 Share-Based Payment

3 IFRS3 Business Combinations

4 IFRS4 Insurance Contracts

5 IFRS5 Non-Current Assets Held For Sale And Discounted Operations

6 IFRS6 Exploration for and Evaluation of Mineral Resources

7 IFRS7 Financial Instruments :Disclosures

8 IFRS8 Operating Segments

9 IFRS9 Financial Instruments

10 IFRS10 Consolidated Financial Statements

11 IFRS11 Joint Arrangements

12 IFRS12 Disclosure of Interests in Other Entities

13 IFRS13 Fair Value Measurement

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IFRS 1 First-time Adoption of International Financial Reporting

Standards • OBJECTIVE: of this IFRS is to ensure that an entity’s first IFRS

financial statements , and its interim financial reports contain high quality information that:

a. is transparent for users and comparable over all periods presented

b. provides a suitable starting point for accounting in accordance with IFRS.

APLICABILITY: It was issued in November 2008 and applies if an entity's first IFRS financial statements are for a period beginning on or after 1 July 2009.

• SCOPE: It sets out the procedures that an entity must follow when it adopts IFRSs for the first time.

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• An entity shall prepare an opening IFRS statement of financial position at the date of transition to IFRS. This is the starting point for its accounting in accordance with IFRS.

• An entity shall use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements.

• The IFRS requires disclosures that explain how the transition from previous GAAP(Generally Acceptable Accounting Practices) to IFRSs affected the entity’s reported financial position, financial performance and cash flows.

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IFRS 2 Share-based Payment • OBJECTIVE: The objective of this IFRS is to specify the

financial reporting by an entity when it undertakes a share-based payment transaction, and to record the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees.

• APPLICABILITY: It was originally issued in February 2004 and first applied to annual periods beginning on or after 1 January 2005.

• SCOPE: This IFRS requires an entity to recognize share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity.

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• The IFRS sets out measurement principles and specific requirement for three types of share-based payment transactions:

a)Equity settled share-based payment transaction: entity receives goods or services as consideration for equity instruments of the entity.

b)Cash-settled share based payment transaction: entity acquires goods or services by incurring liabilities to supplier of those goods and services for amounts that are based on the price of entity’s share.

c)Entity receives goods or services by settling the transaction either with cash or by issuing equity instruments.

• This IFRS enables users to understand the nature and extent of share-based payment transactions and the effect of share-based payment transactions on entity’s profit or loss for the period and on its financial position.

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IFRS 3 Business Combinations • OBJECTIVE: The objective of the IFRS is to enhance the relevance,

reliability and comparability of the information that an entity provides in its financial statements about a business combination and its effects.

• APPLICABILITY: It was issued in January 2008 and applies to business combinations occurring in an entity's first annual period beginning on or after 1 July 2009.

• SCOPE: Outlines the accounting when an acquirer obtains control of a business (e.g. an acquisition or merger).

• Such business combinations are accounted for using the acquisition method, which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date.

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• Formation of a joint venture or the acquisition of an asset or a group of assets that does not constitute a business are not business combinations.

• The IFRS establishes principles for recognizing and measuring the identifiable assets acquired and the liabilities assumed.

• The IFRS requires the acquirer to disclose information that enables users of its financial statement to evaluate the nature and financial effect of business combinations and disclose any adjustments recognized in the current reporting period that relate to business combinations.

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IFRS 4 Insurance Contracts • OBJECTIVE: The objective of this IFRS is to specify the

financial reporting for insurance contracts by any entity that issues such contracts.

• APLICABILITY: It was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005.

• SCOPE: This IFRS Applies, with limited exceptions, to all insurance contracts (including reinsurance contracts) that an entity issues.

• An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party ( the policy holder) by agreeing to compensate the policy holder if a specified uncertain future event ( the insured event) adversely affects the policyholder.

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• It was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005

• It does not apply to other assets and liabilities of an insurer , such as financial assets and financial liabilities within the scope of IFRS 9 financial instruments.

• The IFRS requires disclosure to help users understand the amounts in insurers financial statements that arise from insurance contracts and the nature and extent of risks arising from insurance contracts.

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IFRS 5 Non-Current Assets Held For Sale And Discontinued Operations

• OBJECTIVE: This IFRS sets out the requirements for entities accounting for assets held for sale, and the presentation and disclosure of discontinued operations.

• APPLICABILITY: It was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005.

• SCOPE: The IFRS classifies disposal group , being a group of assets to be disposed off, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

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• Specifies that an asset classified as held for sale, or included within a disposal group that is classified as held for sale, is not depreciated.

• Specifies that an asset classified as held for sale, and the asset and liabilities included within a disposal group classified as held for sale, are presented separately in the statement of financial position.

• Specifies that the results of discontinued operations are to be shown separately in the statement of comprehensive income.

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IFRS 6 Exploration for and Evaluation of Mineral Resources

• OBJECTIVE: This IFRS specifies the financial reporting for the exploration for and evaluation of mineral resources.

• APPLICABILITY: It was issued in December 2004 and applies to annual periods beginning on or after 1 January 2006

•SCOPE: IFRS 6 is limited to the accounting for and reporting of costs associated only with the exploration and evaluation of mineral resources. These activities are defined as:

the search for mineral resources after the entity has obtained legal rights to explore in a specific area, and

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the determination of the technical feasibility and commercial viability of extracting the mineral resource.

• This IFRS requires entities recognising exploration and evaluation of assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount.

• IFRS 6 requires disclosure of information that identifies and explains the amounts recognised in its financial statements arising from exploration and evaluation of mineral resources.

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IFRS 7 Financial Instruments: Disclosure

•The objective of this IFRS is to require entities to provide disclosures in their financial statements that enable users to evaluate:

The significance of financial statements for the entity’s financial position and performance.

The nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period and how the entity manages those risks.

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The qualitative disclosures describe management’s objectives, policies and procedures for managing those risks.

The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity’s key management personnel.

Together, these disclosures provide an overview of the entity’s use of financial instruments and the exposure to risks they create.• This IFRS applies to all entities irrespective of

their size or scale of operations.

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IFRS 8 Operating Segments• OBJECTIVE: The objective of this IFRS is to deal with

the information that an entity should disclose in its financial statements to enable users to evaluate the nature and financial effects of the business activities and the economic environment in which the business operates.

• APPLICABILITY: This IFRS shall apply to: The separate or individual financial statements of an

entity. Whose debt or equity instruments are traded in a public

market or who is seeking to issue any class of instruments in a public market.

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• This IFRS specifies how an entity should report information about its operating segments in annual financial statements.

• This IFRS also requires an entity to report information about the revenues it derives from its products or services and disclose information concerning the countries in which it earns revenue.

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IFRS 9 Financial Instruments• OBJECTIVE: To establish principles for the financial

reporting of financial assets and liabilities that will present relevant and useful information to users of financial statements for their assessment of amounts, timing and uncertainity of an entity’s future cash flows.

• A financial asset shall be measured at amortized cost if both of the following conditions are met:

The asset is held within a business whose objective is to hold the assets in order to collect contractual cash flows.

The contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

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IFRS 10 Consolidated Financial Statements

• The objective of this IFRS is to establish principles for the preparation and presentation of consolidated financial statements when an entity controls one or more other entities.

• To meet the objective, this IFRS: Requires an entity(parent) that controls one or

more other entities(subsidiaries) to present consolidated financial statements.

Defines the principle of control and establishes control as the basis of consolidation.

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Sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee.

Sets out the accounting requirements for the preparation of consolidated financial statements.

Consolidated financial statements are the financial statements of a group in which the assets, liabilities, incomes, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.• While preparing consolidated financial statements, an

entity must use uniform accounting policies for reporting transactions.

• The disclosure requirements for interests in subsidiaries are specified in IFRS 12 ‘Disclosure of Interests in Other Entities’

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IFRS 11 Joint Arrangements

• The objective of this IFRS is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly.

• A joint arrangement is an arrangement in which two or more parties have joint control.

• This IFRS is to be applied by all the entities that are a party to a joint arrangements.

• The IFRS defines joint control as the contractually agreed sharing of control of an arrangement, which exists only when decisions about the activities require the unanimous consent of the parties sharing control.

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• The IFRS classifies joint arrangements into two types: Joint Operations: Parties to the arrangement are known

as joint operators and have rights on the assets and obligations for the liabilities.

Joint Ventures: Parties to the arrangement are known as joint venturers and have rights on the assets.

• An entity determines the type of joint arrangement in which it is involved by considering its rights and obligations that depends upon the contractual terms agreed to by the parties to the arrangement.

• The disclosure requirements for the parties with joint control of a joint arrangement are specified in IFRS 12 ‘Disclosure of Interests in Other Entities’.

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IFRS 12 Disclosure Of Interests In Other Entities

• The objective of this IFRS is to require an entity to disclose information that enables the users of the financial statements to evaluate:

The nature its interests in other entities and the risks associated with it.

Effect of those interests on its financial position, financial performance and cash flows.

• This IFRS applies to the entities that have an interest in a subsidiary, a joint arrangement, an associate or a consolidated structured entity.

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• The IFRS specifies minimum disclosures that an entity must provide.

• The IFRS requires an entity to consider the level of detail necessary to satisfy the disclosure objective.

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IFRS 13 Fair Value Measurement• It was originally issued in May 2011 and applies to annual

periods beginning on or after 1 January 2013.• IFRS 13 defines fair value as the price that would be received

to sell an asset or paid to transfer a liability.• It emphasizes that fair value is a market based measurement

not an entity specific measurement. • applies to IFRSs that require or permit fair value

measurements or disclosures and provides a single IFRS framework for measuring fair value and requires disclosures about fair value measurement.

• When measuring fair value, an entity uses the assumptions that market participants would use when pricing an asset or a liability under current market conditions, including assumptions about the risks.

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• The IFRS explains that a fair value measurement requires an entity to determine the following:

The particular asset or liability being measured. The market in which the transaction would take

place for the asset or the liability. For a non-financial asset, the highest and the

best use of the asset whether the asset is used in combination with other assets or on a stand-alone basis.

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REFRENCES• www.ifrs.org• www.investorpedia.com• www.icai.org• www.icaew.com• Financial Reporting (volume-1) by ICAI

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THANK YOU !