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Key Differences
Key Differences
Convergence is more about a complete business and financial strategy to adopt international
standards which is expected to be a long drawn process involving investment of time and
resources. We believe that now is the right time to gear up for IFRS.
This BDO India publication is an endeavor to provide a concise summary of the measurement
differences that exist between IFRS and Indian GAAP. We advise readers to consult all the
relevant accounting standards and applicable regulations.
We at BDO India are committed to help you migrate to IFRS as smoothly as possible, and look
forward to teaming with you on this challenging but exciting journey.
ifrs@bdoindia.co.in
B: 6672 9999 / 6639 1101
D: 6672 9606 / 6672 9617
Extraordinary Items
Disclosure as extraordinary items either on Are defined as income or expenses that arise from
the face of the income statement or in the events or transactions that are clearly distinct from
notes is prohibited. the ordinary activities of the enterprise and,
therefore, are not expected to recur frequently or
Cost of PPE
Historical cost or revalued amounts are used. Historical cost is used. Revaluations are permitted,
Regular valuations of entire classes of assets however, no requirements on frequency of
are required when revaluation option is revaluation. Revaluation for the whole class of
chosen. assets is not required.
Biological Assets
Measured at fair value less estimated point of Not specified .Generally Historical cost used.
sale costs, with changes in valuation
recognized in the Income Statement.
Intangible Assets
Valuation Models
Cost Model and Revaluation Model: An Cost Model only: After initial recognition, an
entity shall choose either the cost model or intangible asset should be carried at its cost less any
the revaluation model as its accounting accumulated amortisation and any accumulated
policy. impairment losses. Revaluation of intangible assets
is prohibited.
Active market
Revaluation model is permitted only where Revaluation is prohibited.
there is an active market for the underlying
intangibles.
Impairment of Assets
Reversal of Impairment Loss
An impairment loss recognised in prior An impairment loss recognised for an asset in prior
periods for an asset other than goodwill shall accounting periods should be reversed if there has
be reversed if, and only if, there has been a been a change in the estimates of cash inflows, cash
change in the estimates used to determine the outflows or discount rates used to determine the
asset’s recoverable amount since the last asset's recoverable amount since the last
impairment loss was recognised. If this is the impairment loss was recognised. If this is the case,
case, the carrying amount of the asset shall, the carrying amount of the asset should be
be increased to its recoverable amount. That increased to its recoverable amount. That increase
increase is a reversal of an impairment loss. is a reversal of an impairment loss.
Investment Property
Definition
IAS 40 defines investment property as AS 13 defines an investment property as an
property (land or a building-or part of a investment in land or buildings that are not
building-or both) held (by the owner or by the intended to be occupied substantially for use by, or
lessee under a finance lease) to earn rentals or in the operations of, the investing enterprise.
for capital appreciation or both, rather than
for use in the production or supply of goods
or services or for administrative purposes; or
sale in the ordinary course of business.
Subsequent Measurement
An entity has an option to apply either cost EAC has opined that the investment property needs
model or fair value model. If fair value model to be depreciated as it is a depreciable asset. Hence,
is adopted, then changes in fair value are depreciated cost model must be applied for
recognised in P&L A/c. In the fair value subsequent measurement. Impairment is provided
model the carrying amount is not for where applicable, and reversal of impairments is
depreciated. In the cost model, the asset is permitted
carried at cost less depreciation.
Inventory
Net realizable value
A new assessment of NRV is required to be No specific guidance in AS 2.
made in each subsequent period. Write down
of inventory is reversed if circumstances that
previously caused inventories to be written
down below cost no longer exist or when
Method of discontinuance
Operations and cash flows that have been Pursuant to a single plan, either substantially in its
disposed of are classified as held for sale entirety or piecemeal or terminated through
abandonment.
Presentation
A single amount is presented on the face of The following is separately disclosed on the face of
the income statement comprising the post tax the profit and loss account separately from
profit or loss or discontinued operations and continuing operations:
an analysis of this amount either on the face pre-tax profit or loss and related taxes
of the income statement or in the notes for pre-tax gain or loss on disposal
both current and prior periods. Separate Income/expense line items from continuing and
classification on the balance sheet for assets discontinuing operations are segregated and
and liabilities for the current period only disclosed in the notes to account; but is presented
on a combined basis in the income statement.
No separate presentation is required for
Balance Sheet items.
Financial Instruments
Under Indian GAAP there was no accounting standard specifically for financial instruments. The
ICAI has issued standards for recognition and measurement of financial instruments and their
presentation and disclosure which are recommendatory from 1.4.2009 and mandatory from
Definition
A financial instrument is any contract that No specific standard on financial instruments.
gives rise to a financial asset of one entity and However, accounting of certain financial
a financial liability or equity instrument of instruments are provided in AS 13 “Accounting for
another entity. Investments” and Guidance Note on Accounting for
Equity Index and Equity Stock Futures and Options
issued by the ICAI.
2. HTM:
a. If significant amount of HTM is
reclassified or sold, the remaining
investments in HTM category are to
be reclassified into AFS and no
investment can be classified as HTM
for a period of 2 years (also know as
‘tainting’).
3. AFS:
a. AFS that would have met the
definition of L&R (if it had not been
designated as AFS) it may be
transferred into L&R if the entity has
the intention and ability to hold the
financial asset for the foreseeable
future or until maturity.
Embedded Derivatives
All embedded derivatives are required to be There is no specific guidance dealing with separate
recognized separately from host contract if: recognition of embedded derivatives.
Deferred Tax
Basis
IFRS requires entities to account for taxation Deferred tax is accounted for using the Income
using the Balance Sheet liability approach statement approach, which focuses on timing
which focuses on temporary difference difference.
between the carrying amount of an asset or
liability in the statement of financial position
and its tax base.
Liabilities
Provisions – General
Provision are discounted to Present value Discounting of provisions is not permitted
where the effect of the time value of money is
material
Proposed Dividend
Liability for dividends declared to holders of Dividends are recognised as an appropriation from
equity instruments are recognised in the profits and recorded as liability at the balance sheet
period when declared date, if proposed or declared subsequent to the
reporting period but before approval of the
financial statements
Revenue
Additional condition for recognition of revenue from sale of goods or rendering of services
IAS 18 prescribes an additional condition that This condition is not required to be fulfilled for
the costs incurred or to be incurred in respect recognizing revenue under AS 9.
of the transaction can be measured reliably to
be fulfilled before the recognition of revenue
from sale of goods.
Barter Transactions
The accounting treatment depends on whether No Specific Guidance
the exchange transaction involves goods and
Interest
Interest income is recognised using the Interest is recognised on a time proportion basis
effective interest method. taking into account the amount outstanding and the
rate applicable
Rendering of Services
Requires recognition using percentage of Completed service contract method or
completion method. Revenues from proportionate completion method permitted
installation fees and production commission
are recognised with reference to stages of
completion, unless the installation is
incidental to sale
Determination of Segments
IFRS imposes a “Management Approach” to AS 17 requires an enterprise to identify two sets of
the identification of operating segments which segments (business and geographical), using a risks
is to be based on internal reports that are and rewards approach, with the enterprise’s system
regularly reviewed by the entity’s Chief of internal financial reporting to key management
Operating Decision Maker (CODM) in order personnel serving only as the starting point for the
to allocate resources to the segment and identification of such segments.
assess its performance.
Measurement
Segment profit or loss is reported on the same Segment information is prepared in conformity
measurement basis as that used by the chief with the accounting policies adopted for preparing
operating decision maker. There is no and presenting the financial statements of the
definition of segment revenue, segment enterprise as a whole. Segment revenue, segment
expense, segment result, and segment asset or expense, segment result, segment asset and segment
segment liability liability have been defined
Reporting period
When financial statements of a subsidiary Similar to IFRS, except that the difference between
used in preparation of CFS are prepared as of the reporting dates should not be more than six
a reporting date different from that of the months.
parent, adjustments shall be made for the
effects of significant transactions or events
that occur between that and the date of the
parents financial statements. In any case the
difference between the reporting date of the
subsidiary and that of the parent shall be no
more than three months.
Uniform accounting policies
Compliance with uniform accounting policies CFS should be prepared using uniform accounting
is mandatory. policies for like transactions and other events in
similar circumstances. If it is not practicable to use
uniform accounting policies in preparing the CFS,
that fact should be disclosed together with the
proportions of the items in the CFS to which the
different accounting policies have been applied.
Business Combinations
Scope
Applies to most business combination – both There is no one comprehensive standard. AS-14
amalgamation (where acquiree loses its applies only to amalgamation. AS-21, 23, 27
identity) and acquisition (where acquiree applies to accounting for investments in
continues its existence). IFRS 3 does not subsidiaries, associates and joint ventures
apply to common control transactions, respectively. AS-10 would apply where a demerged
formation of JVs, combinations involving division is acquired on a lump-sum basis by another
mutual entities and combinations through entity.
contract alone.
Acquisition date
The date on which the acquirer effectively The date of amalgamation as defined in
obtains control of the acquiree. Amalgamation/ acquisition scheme of High
Court/RBI.
Contingent Liabilities
Contingent Liabilities are to be included in Contingent liabilities are not recorded as Liabilities.
Net Assets at fair value.
Method of Accounting
All business combinations are accounted Both Purchase Method (agreed values) and Pooling
under Purchase Method at fair values. Pooling of Interest Method (carrying amount) are permitted.
of Interest Method is prohibited.
Contingent Consideration
Consideration for the acquisition includes the No specific guidance.
acquisition date fair value of contingent
consideration. Changes in Contingent
consideration resulting from the events after
the end of the reporting period are recognised
in profit or loss.
Accounting for Goodwill
The acquirer shall, at the acquisition date Treatment of goodwill differs in different
recognise goodwill acquired in a business accounting standards. Goodwill arising on
combination as an asset; and initially measure amalgamation in nature of purchase is amortised to
that goodwill at its cost, being the excess of P&L over 5 years. Goodwill under AS-21, 23 and
the cost of the business combination over the 27 need not be amortised though there is no
acquirer’s interest in the net fair value of the prohibition. In case of amalgamation in nature of
identifiable assets, liabilities and contingent merger, excess amount over net assets taken over is
liabilities recognised. After initial recognition, adjusted against revenue reserves. All goodwill is
the acquirer shall measure goodwill acquired tested for impairment.
in a business combination at cost less any
accumulated impairment losses. Goodwill
amortization is prohibited.
Negative Goodwill
If the acquirer’s interest in the net fair value Recorded as Capital Reserve.
of the identifiable assets, liabilities and
contingent liabilities recognised exceeds the
cost of the business combination, the acquirer
shall reassess the identification and
SIC
SIC 7 Introduction of the Euro
SIC 10 Government Assistance—No Specific Relation to Operating Activities
SIC 12 Consolidation—Special Purpose Entities
SIC 13 Jointly Controlled Entities— Non-Monetary Contributions by Venturers
SIC 15 Operating Leases—Incentives
SIC 21 Income Taxes—Recovery of Revalued Non-Depreciable Assets
SIC 25 Income Taxes—Changes in the Tax Status of an Entity or its
Shareholders
SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of
SIC 29 Service Concession Arrangements: Disclosures
SIC 31 Revenue—Barter Transactions Involving Advertising Services
SIC 32 Intangible Assets—Web Site Costs