23 - Vol-1 - Issue-7 - Financial Statement Effect - Wipro

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International Journal of Multidisciplinary Research

Vol.1 Issue 7, November 2011, ISSN 2231 5780
FINANCIAL STATEMENT EFFECTS ON CONVERGENCE TO IFRS

A CASE STUDY IN INDIA
SHOBANA SWAMYNATHAN**; DR. SINDHU ***
*Chartered Accountant, Research Scholar
School of Management Studies, Jawaharlal Nehru Technological University,
Kukatpally, Hyderabad, Andhra Pradesh, India.
**Associate Professor, School of Management Studies,
Jawaharlal Nehru Technological University,
Kukatpally, Hyderabad, Andhra Pradesh, India.
ABSTRACT
In the present era of globalization a number of multinational companies are establishing their
businesses in emerging economies and they are increasingly accessing the global markets to
fulfill their capital needs by getting their securities listed on the stock exchanges outside their
own country. Such environment requires uniform accounting standards for global business. To
emanate such issues, one global accounting standard for reporting financial statement i.e. IFRS
was developed. During the switch over phase from local GAAP to IFRS companies will have to
modify their accounting system and processes as well as provide comparative financial
information between their previous GAAP and their new IFRS compliant report. This article
examines the financial statement effects on convergence to IFRS from Indian GAAP. The result
concluded that the IFRS is fair valuation approach and are more transparent disclosures and
Indian GAAP is conservative approach.
KEYWORDS: International Financial Reporting Standards, Indian Accounting standards,
Ind AS(carved out version of IFRS), Financial statement.
______________________________________________________________________________
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Beginning from 1st April 2011, Companies listed in National Stock Exchange(Nifty 50), Bombay
Stock Exchange(Sensex 30),Companies whose stocks are listed outside India and Companies
which are listed or not but which have their net worth exceeding Rs 1000 crores are required to
carry out the convergence of Indian Accounting Standard with IFRS. Reliable, consistent and
uniform financial reporting is important part of good corporate governance practices worldwide
in order to enhance the credibility of the businesses in the eyes of investors to take informed
investment decisions. In pursuance of G-20 commitment given by India, the process of
convergence of Indian Accounting Standards with IFRS has been carried out in Ministry of
Corporate Affairs through wide ranging consultative exercise with all the stakeholders. Thirty
five Indian Accounting Standards converged with International Financial Reporting Standards
(henceforth called IND AS) was notified by the Ministry of Company Affairs of India.
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INTRODUCTION
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REVIEW OF LITERATURE
This section briefly reviews more recent empirical studies conducted to examine the impact of
IFRS on key financial aspects emanating from the financial statements of companies. Wong and
Wong(2005) examined to explore the impact of not amortizing goodwill and identifiable
intangible assets with in definitive lives on some commonly used valuation multiples of New
Zealand listed companies. Results indicated that these have a significant downward effect on
EV/EBIT and PE multiples. Hope et al.(2006) investigated the importance of IFRS in the context
of global accounting standards harmonization and to know what institutional factors influence
countries decision to voluntarily adopt IFRS. This study discerned a significant negative
association between the adoption of IFRS and investor protection.
Lantto (2007) examined whether IFRS improved the usefulness of accounting information in a
code law country that has a strong system of legal enforcement and high quality domestic
accounting standards. The result of this study indicated that IFRS have improved the relevance
of accounting information in Finland but they also highlighted the concern about reliability of
those financial statement items that are prepared using judgement. Capkun et al. (2008) analyzed
the impact of mandatory change in financial reporting standards in European Union and found
that the transition from local GAAP to IFRS had a small but statistically significant impact on
total assets, equity, total liabilities and among assets the most pronounced impact on intangible
assets and property plant and equipment. It was examined by Ball (2008) whether an investor got
benefit from implementing IFRS or it is just like a mirror which makes him far from reality. In
case of direct benefit, IFRS offer increased comparability and hence reduced information costs
and information risk to investors. And in case of indirect benefit, IFRS lead to a reduction in
firms cost of equity capital, the researchers observed.
Mingyi Hung and K.R.Subramanyam studied about the financial effects of IFRS in Germany .
While
HGB is stakeholder-oriented and commonly viewed as a historical cost accounting model that
emphasizes income smoothing, IAS is shareholder-oriented and generally perceived as a fairvalue accounting model that emphasizes balance sheet valuation. Consistent with these
perceptions, we find that total assets and book value of equity, as well as variability of book
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finding is driven by the difference in accounting standards or other institutional factors such as
shareholder protection or market development.
Extant literature generally makes comparisons between IAS and U.S. GAAP (e.g., Harris and
Muller 1999; Ashbaugh and Olsson 2002), non-U.S. and U.S. GAAP (e.g., Amir, Harris and
Venuti 1993) and across different local standards including U.S. GAAP (Ali and Hwang 2000;
Ball, Kothari and Robin 2000). This literature, however, rarely compares IAS with local GAAP.
Prior literature examines this question based on cross-sectional comparisons across different
countries and concludes that the shareholder-oriented model is generally more value relevant
than the stakeholder-oriented model (Ali and Hwang 2000; Ball et al. 2000).8 The literature,
however, is unable to disentangle whether this
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value and net income, are significantly higher under IAS than HGB. In addition, we find that
book value (net income) plays a greater (lesser) valuation role under IAS than under HGB.
There is no study carried out in India with regard to convergence effect of IFRS by Indian
companies and so the same has been taken for the study.
OBJECTIVES
This article has the following objectives:
1. To document the difference between Indian Accounting standards and IFRS
2. To examine the effects of voluntary convergence of IFRS on key accounting measures
A case study on Wipro
3. To examine the effects of voluntary convergence of IFRS on financial ratio A case
study on Wipro
SCOPE
The study is based on secondary data on selected variables sourced from the published annual
reports of Wipro for the year ended 31st March 2010. Wipro had voluntarily prepared its annual
report on the basis of Indian GAAP and IFRS for the year ended 31st March 2010, wherein
reconciliation of equity based on Indian GAAP and IFRS is presented for the opening Balance
Sheet as at 1st April 2008 and for Balance Sheet ended 31st March 2009.
HYPOTHESES
For achieving the above objectives the study has the following hypotheses:
1. There is no significant difference between financial statement items based on Indian
GAAP and IFRS for the opening Balance Sheet as at 1st April 2008 by Wipro
WHY IFRS NEED TO BE IMPLEMENTED IN INDIA?

IFRS increases comparability among different sectors, countries and companies, which
will lead to more transparent financial reporting benefiting investors, customers and other
stakeholder in India and overseas.
Convergence with IFRS enables Indian companies to access Global Capital Markets and
eliminate cross border listing and encourage more foreign capital flow to the country.
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3. There is no significant difference between Indian GAAP and IFRS based accounting ratio
for the fiscal year 31st March 2009 by Wipro.
2. There is no significant difference between financial statement items based on Indian

GAAP and IFRS for the opening Balance Sheet as at 31st March 2009 by Wipro
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Uniform Accounting Standard enables investors to understand better investment

opportunities as against to different set of national accounting standard.
Corporates would come to know its true worth has Fair valuation is mandated for many
balance sheet items.
Convergence to IFRS will increase the opportunities for Indian professionals abroad also.
Avoidance of multiple reporting such as Indian GAAP, US GAAP, IFRS
DIFFERENCE BETWEEN IFRS AND INDIAN GAAP
The difference between Indian GAAP and IFRS are highlighted as below:
FIRST TIME ADOPTION
IFRS 1 specifically deals with how to apply IFRS for the first time. Full retrospective
application of IFRSs effective at the reporting date for an entity's first IFRS financial statements
with certain optional exemptions and mandatory exceptions. An entity shall explain how the
transition from previous GAAP to IFRSs affected its reported financial position, financial
performance and cash flow IFRS 1 specifically deals with how to apply IFRS for the first time.
An entity shall explain how the transition from previous GAAP to IFRSs affected its reported
financial position, financial performance and cash flow
Indian Accounting Standards does not give specific guidance on first time adoption of the
standards by an entity.
PRESENTATION AND DISCLOSURE
In IFRS the following need to be presented
Statement of financial position (Balance sheet)
Statement of comprehensive income (Income statement
Cash flow statement,

Notes comprising a summary of significant accounting policies a n d o t h e r e x p l a n a
t o r y information.
An entity shall not present items of income or expenses as extraordinary items either on
the face of the statement of comprehensive income or the separate income statements in
the notes.
Statement of changes in equity
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In Indian GAAP the following need to be presented and disclosed
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Balance sheet
Profit and Loss Account,
Cash flow statement
Accounting policies and Notes to financial statements.
An entity shall disclose statement of profit and loss any income or expenses that arise
from events or transactions that are clearly distinct from the ordinary activities of the
enterprise and, therefore, are not expected to recur frequently or regularly as
extraordinary items.
INVENTORIES
In IFRS When arrangement contains f financing elements, IAS 2 specifically requires that where
inventory is acquired on deferred settlement terms, a difference between the purchase price for
normal credit terms and the amount paid is recognized as interest expense over the period of the
financing
In Indian GAAP, there is no guidance for the treatment of inventories acquired on deferred
settlement terms.
CASH FLOW STATEMENTS
Under IFRS Bank borrowings are normally part of financing activities. Nonetheless, bank
overdrafts that are repayable on demand and that form an integral part of an entity's cash
management are included in cash equivalents. Interest paid or received is disclosed as operating
in case of financing entity. For other entities, the interest paid can be disclosed as operating or
financing cash flow and interest received is usually disclosed as investing cash flow. Dividend
paid can be disclosed as operating or financing. Dividend received is disclosed as operating in
case of financing entity. For other entities, the same can be disclosed as operating or investing.
Under IFRS, An entity shall adjust amounts recognized in the financial statements for events
that provide additional evidence of conditions that existed at the balance sheet date and should
not be adjusted for events that provide evidence of conditions that did not exist at the balance
sheet date.
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Interest paid or received is disclosed as opera ting in case of financing entity. For other entities,
the interest paid should be disclosed as financing cash flow and interest received is usually
disclosed as investing cash flow. Disclosure of dividend paid as financing. Dividend received is
disclosed as operating in case of financing entity. For other entities, the same is disclosed as
investing Contingencies and events occurring after Balance Sheet date
In Indian Accounting Standards.There is no stipulation in AS 3 for classification of bank

overdrafts.
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In Indian GAAP Under AS 4, non-adjusting events are required to b e disclosed in the report of
the approving authority, for example, the board report Change in accounting polic
In IFRS, an entity shall account for change in accounting policy retrospectively.Comparative
information to be restated and the amount of the adjustments relating to prior periods is adjusted
against the opening balance of retained earnings of the earliest year presented. An exemption
applies when it is impracticable to change comparative information
In Indian GAAP, the impact of change in the accounting policy to be adjusted against current
period profit and loss account. Policy changes made on the adoption of a new standard must be
accounted for in accordance with that standard's transitional provisions.
PRIOR PERIOD ITEMS
In IFRS, the definition of prior period items is much broader under IAS 8 as compared to AS 5.
Prior period errors covers all the items in the financial statements including assets and liabilities.
In Indian GAAP, The definition of prior period items is restricted to income and expenses in
current period occurring as a result of errors and omission in the preparations of financial
statements of prior period(s).
DEPRECIATION
Under IFRS, an entity is required to depreciate separately the significant parts of PPE if they
have different useful life (Component Approach).Change in the method of depreciation is treated
as change in accounting estimates, reflected in the depreciation charge for the current and
prospective years. Depreciation on revalued portion cannot be recouped out of revaluation
reserve
Under Indian GAAP, Generally component approach is not required or followed. Change in
method of treated as change in accounting policies and impact is determined by retrospectively
computing depreciation under new method and the impact is recorded in the period of change.
Depreciation on revalued portion can be recouped out of revaluation reserve.
In Indian GAAP, As per AS 10 Fixed Assets are carried at cost less accumulated depreciation.
However revaluation of fixed assets is not required. When revaluation do not covers all assets of
the given class, it is appropriate that the selection of the asset to be revalued be made on
systematic basis, e.g. an entity may revalue a class of assets within one unit and ignore assets of
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In IFRS, AS 16 requires an entity to choose either cost model or revaluation model as its
accounting policy. If an item of PPE is revalued, the entire class of PPE to which that asset
belongs shall be revalued. When entity applies revaluation model it requires regular revaluations
of all PPE. Management must consider at each year end whether fair value is materially different
from carrying value.
PROPERTY PLANT AND EQUIPMENT
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the same class at another unit. There is no requirement to perform revaluations at regular
intervals
REVENUE RECOGNITION
In IFRS Revenue should be measured at the fair value of the consideration received or
receivable. Where the inflow of the cash or cash equivalent is deferred, discounting to a present
value is required to be done An entity shall apply IFRIC 13 and account for award credits as a
separately identifiable component of the sales transaction(s) in which they are granted (the 'initial
sale'). The fair value of the consideration received or receivable in respect of the initial sale shall
be allocated between the award credits and the other components of the sale. The consideration
allocated to the award credits shall be measured by reference to their fair value, i.e. the amount
for which the award credits could be sold separately.
In Indian GAAP, Revenue is measured by the charges made to the customers or clients for goods
supplied or services rendered to them and by the charges and rewards arising from the use of
resources by them. In case of installment sales, discounting would be required. When the
consideration is receivable in installments, revenue attributable to the sales price exclusive of
interest should be recognized at the date of sale. The interest element should be recognised as
revenue, proportionately to the unpaid balance due to the seller There is no specific guidelines of
credit points awarded.
INVESTMENT PROPERTY
Under IFRS, An investment property shall be measured initially at its cost. Transaction costs
shall be included in the initial measurement. For subsequent measurement an entity shall choose
as its accounting policy either the fair value model or cost model and shall apply that policy to all
its investment property
Under Indian GAAP, An enterprise holding investment properties should account for them as
long-term investments. Long-term investments are valued at cost less diminution in value
wherever the decline is other than a temporary decline.
In IFRS, Financial assets are classified as four categories: financial asset at fair value through
profit or loss, held to maturity, loans and receivables, and available for sale IFRS 9 on Financial
instruments which is ma n d a t o r y f o r accounting period commencing on or after 1 January,
2013, classifies measurement category of financial assets in following categories: Amortized
cost and Fair value
In Indian GAAP, AS 30, 31, 32 which are re commendatory up to 31 March, 2011 provide for
classification of financial assets which are similar to IFRS.
FINANCIAL ASSETS
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EMPLOYEE BENEFIT
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In IFRS, IAS 19 provides options to recognize actuarial gains or losses as All actuarial gains or
losses can be recognized immediately in profit or loss for the period or All actuarial gains or
losses can be recognized immediately in Other Comprehensive Income, Statement or An
actuarial gain or loss that exceed the greater of 10% of the present value of the defined benefit
obligation (before deducting plan assets) and 10% of the fair value of any plan assets at the
beginning of the year is amortized over expected remaining working lives of participating
employees (the 'Corridor approach')
In Indian GAAP, Actuarial gains or losses should be recognized immediately in the Profit and
Loss account under AS 15. Actuarial gains or losses should be recognized immediately in the
Profit and Loss account under AS 15.
BORROWING COST
Under IFRS, An entity is not required to apply IAS 23 to borrowing costs directly attributable to
the acquisition, construction or production of a qualifying asset, measured at fair value
In Indian GAAP, As per AS 16.there is no such exclusion under
LEASE
SEGMENT REPORTING
Under IFRS, if any entity changes the structure of its internal organization in a manner that
causes the composition of its reportable segments to change, the corresponding information for
earlier periods, including interim periods, shall be restated unless the information is not
available.
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In Indian GAAP, AS 19 prescribes initial direct cost i.e. commission and legal fees incurred by
lessor with respect to finance lease to be either charged off at the time of incurrence or to be
amortized over the lease period.. There is no specific guidance available under Indian
Accounting Standards for share based payments Initial direct costs incurred specifically to earn
revenues from an operating lease are either deferred and allocated to income over the lease term
in proportion to the recognition of rent income, or are recognized as an expense in the statement
of profit and loss in the period in which they are incurred. AS 19 excludes lease of land from its
scope.
In IFRS, IAS 17 prescribes initial direct cost incurred by lessor to be included in lease receivable
amount in case of finance lease and in the carrying amount of the asset in case of operating lease
recognized as an expense over the lease term on the same basis as the lease income. As per IAS
17, leases of land are classified as operating or finance leases in the same way as leases of other
assets. However, a characteristic of land is that it normally has an indefinite economic life and, if
title is not expected to pass to the lessee by the end of the lease term, the lessee normally does
not receive substantially all of the risks and rewards incidental to ownership, in which case the
lease of land will be an operating lease.
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In Indian GAAP, Changes in accounting policies adopted for segment reporting that have a
material effect on segment information should be disclosed. Such disclosure should include a
description of the nature of the change, and the financial effect of the change if it is reasonably
determinable. No restatement required for prior period figures.
RELATED PARTY DISCLOSURES
Under IFRS, IAS 24 requires disclosure of terms and conditions of outstanding items pertaining
to related parties. Items of a similar nature may be disclosed in aggregate but there is no
provision for 10% materiality exists under IAS 24.
In Indian GAAP, There is no such disclosure requirement under AS 18. Ordinarily a related
party transaction the amount of which is in excess of 10% of the total related party transactions
of the same type is considered material and disclosed in aggregate
EARNINGS PER SHARE
As per IAS 33 an entity shall present basic and diluted EPS for profit or loss from continuing
operations as well as discontinued operations
As per AS 20 an entity shall present basic and diluted EPS for profit or loss from continuing
operations.
In Indian GAAP, Minority interests are presented separately from liabilities and equity. Amount
attributable to minority interest are presented as a component of net income or loss in Income
statement
The difference between reporting dates should not be more than six months in case of subsidiary
and jointly controlled entity. In case of an associate, there is no limit of 3 months between
reporting dates. If the acquirers interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities recognized exceeds the cost of the business combination the excess
shall be disclosed as capital reserve.
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In IFRS, Non controlling interest are presented as a component of equity. The portion of income
statement attributable to non-controlling interest and to the parent is separately disclosed on the
face of the income statement as allocations of income statement for the period. In any case
difference between the reporting date of the subsidiary/ jointly controlled entity associates which
is consolidated and that of the parent shall not be more than three months If the acquirers interest
in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized
exceeds the cost of the business combination, the acquirer shall reassess the identification and
measurement of the acquiree's identifiable assets, liabilities and contingent liabilities and the
measurement of the cost of the business combination, the acquirer shall reassess the
identification and measurement of the acquiree's identifiable assets, liabilities and contingent
liabilities and the measurement of the cost of the combination; and recognize immediately in
profit or loss any excess remaining after that reassessment.
CONSOLIDATED FINANCIAL STATEMENTS
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INVESTMENT IN ASSOCIATES
In IFRS, Goodwill recognized with the cost investment need not be disclosed separately
Under Indian GAAP, Goodwill or capital reserves within the cost of the investments are required
to be separately identified.
INCOME TAX
Under IAS, deferred tax is r recognized for all taxable Under IAS, deferred tax is r recognized
for all taxable temporary differences. Temporary differences are differences between the
carrying amount of an asset or liability in the statement of financial position and its tax base. A
deferred tax asset shall be recognized for the carry forward of unused tax losses and unused tax
credits to the extent that it is probable that future taxable profit will be available against which
the unused tax losses and unused tax credits can be utilized. When tax reporting currency is not
the functional currency deferred tax is recognized on the difference between the carrying
amount determined using the historical rate of exchange and the tax base determined using the
balance sheet date exchange rate
Under AS 22, deferred tax is recognized for all the timing differences. Timing differences are
the differences between taxable income and accounting income for a period that originate in one
period and are capable of reversal in one or more subsequent periods Deferred tax assets should
be recognized and carried forward only to the extent that there is a reasonable certainty that
sufficient future taxable income will be available against which such deferred tax assets can be
realized. Where an enterprise has unabsorbed depreciation or carry forward of losses under tax
laws, deferred tax assets should be recognized only to the extent that there is virtual certainty
supported by convincing evidence that sufficient future taxable income will be available against
which such deferred tax assets can be realized. No deferred tax is recognized when tax reporting
currency is not the functional currency
In Indian GAAP, f an intangible asset is acquired in an amalgamation in the nature of purchase,

the same should be accounted at cost or fair value if the cost/fair value can be reliably measured.
If the same is not reliably measurable it is included as a part of goodwill. Intangible
asset acquired in an amalgamation in the nature of merger, or acquisition of a subsidiary is
recorded at book value Intangible asset acquired in an amalgamation in the nature of purchase is
recorded even if that intangible asset had not been recognized in the financial statements of the
transferor however, in case of amalgamation in the nature of merger if the intangible asset was
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In IFRS, In accordance with IFRS 3 Business Combinations, if an intangible asset is acquired in

a business combination, the cost of that intangible asset is its fair value at the acquisition date.
The intangible assets is recorded by the acquirer irrespective of whether the asset had been
recognized by the acquiree before the business combination The depreciable amount of an
intangible asset with a finite useful life shall be allocated on a systematic basis over its useful
life.
INTANGIBLE ASSET
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not recognized by the acquiree, the acquirer would not be able to record the same. Amortization
is based on allocation of depreciable amount on a systematic basis done over best estimate of
useful life but should not exceed 10 years, unless there is persuasive evidence for amortizing
over a longer period. Both finite life and indefinite life intangibles are required to be amortized.
PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES
As per IFRS, The amount recognized as provision should be the best estimate of the expenditure
required to settle the present obligation at the balance sheet date, detailed guidance is available
on measurement A contingent asset is disclosed in financial statements where an inflow of
economic benefits is probable.
In Indian GAAP, Provisions are based on the best estimate. No detailed guidance is available. A
contingent asset is not disclosed in financial statements.
DIVIDEND
In IFRS, Presented as a deduction in the statement of changes in shareholders equity in the period
w h e n a u t h o r i s e d b y shareholders. Dividends are accounted in the year when paid.
Under Indian GAAP, Presented as an appropriation to the income statement. Dividends are
accounted in the year for which it is proposed
SHARE BASED PAYMENTS
Under IFRS, The 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, equity instruments of the entity.
Under Indian GAAP, The 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 asset or equity instruments of the entity.
Wipro Limited is amongst the largest global IT services, BPO and Product Engineering
comapanies in India. In addition to Information Technology business Wipro also has leadership
position in niche market segments of consumer products and lighting solutions. The company
has been listed since 1945 and started its technology business in 1980. Its equity shares are listed
in India on the Bombay Stock Exchange and the National Stock Exchange; as well as on the
New York Stock Exchange in US. The 2009-2010 Annual Report of Wipro presented the
consolidated financial statement in both Indian GAAP and IFRS. Reconciliation of equity as per
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We have considered the Annual report of Wipro prepared for the year ended 31st March 2010
where in the reconciliation of the equity as per IFRS and Indian GAAP were reported for the
year beginning 2008 and for the year ended 2009.
EFFECTS OF CONVERGENCE TO IFRS ON FINANCIAL STATEMENTS
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IFRS and Indian GAAP was reported for the year beginning 2008 and for the year ended 2009,
which is considered in this study for examination.
TABLE 1: OPENING BALANCE SHEET OF WIPRO-2008 COMPARISON OF IFRS
AND INDIAN GAAP STATEMENT
Particulars
Goodwill
PPE and Intangibles
Available for Sale investment
Investment in equity accounted
Inventories
Trade receivables
Unbilled revenue
Cash and cash equivalents
Net tax assets
Other assets
Total Assets
Share capital and share premium
Share application money pending allotment
Retained earnings
Cash flow hedging reserve
Other reserves
Total Equity
Minority Interest
Loan and Borrowings
Trade Payables
Unearned revenues
Other liabilities and provisions
Total Liabilities
Total liabilities and equity
opening balance April

IGAAP
IFRS
42209
41583
14679
1343
6664
40453
8514
39270
3632
13980
212327
28296
40
87908
-1097
1807
116954
116
44850
27873
4269
18265
95373
212327
2008 (Rupees in millions)

Difference
% of change
42635
-426
-1.01
41344
239
0.57
15247
-568
-3.87
1343
0
0
6664
0
0
40353
100
0.25
8514
0
0
39270
0
0
4486
-854
-23.51
15379
-1399
-10.01
215235
-2908
-1.37
28296
0
94728
-1097
3658
125585
0
44850
27873
4269
12658
89650
215235
0
40
-6820
0
-1851
-8631
116
0
0
0
5607
5723
-2908
0
100
-7.76
0
-102.43
-7.38
100
0
0
0
30.7
6
-1.37
Analyzing the opening financial statement of Wipro for the year 1.4.2008 it is observed there is
1.37% increase in the Total assets value as per IFRS when compared with the total assets value
as per Indian Accounting standards.
There is increase in the value of Net tax asset including deferred taxes in IFRS reporting by 23%
when compared with the amount reported under Indian Accounting Standard. The reason being
as per IAS 12, A deferred tax asset should be recognized for deductible temporary differences,
unused tax losses and unused tax credits to the extent that is probable that taxable profit will be
available in the future to realize the tax benefits and Balance sheet approach is followed in
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INFERENCES
Source:Annual Report of Wipro 2010
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recognizing deferred taxes . Whereas in Indian Accounting standards the deferred tax asset in
respect of carry forward losses is recognized if it is virtually certain that sufficient future taxable
income would be available in the future to realize the tax benefits and Income statement
approach is followed in recognizing deferred taxes.
There is 10% increase in Other assets in IFRS reporting compared to Indian Accounting
standards. The reasons are because of IAS 17 Leases, IAS 18(revenue), IAS 39(Financial
instruments: Recognition and Measurement), IAS 37(Provisions, contingent liabilities and
contingent assets) and IFRS 2 (Share based payment).
Under IAS 17 Leases, leases of land are classified as operating leases unless the title to the
leasehold land is expected to be transferred to the company at the end of lease term. So, there is a
reclassification of land from Property Plant and equipment to other assets under IFRS reporting
resulting in this no impact on equity. Under IAS 18 Revenue, in respect of multiple element
arrangement comprising delivered products and installation services, the Company defers and
recognizes revenue relating to installation services when those services are rendered. Earlier in
Indian Accounting standard the entire revenue is recognized when the products are delivered in
accordance with the contractual terms and the expected cost of installation is also accrued. This
has a impact on the income statement.
The total liability has decreased by 6% in IFRS when compared to Indian accounting standards.
Under IAS 10 Events after the Balanced sheet date, the liability for dividend is recognized only
when it is approved by shareholders. Under Indian accounting standards the liability is
recognized in respect of proposed dividend on company's equity share even though the dividend
is expected to be approved by the shareholders subsequent to the reporting date. Under IAS 1
Presentation of financial statement, share application money received and pending allotment is
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The total equity has increased by nearly 7% in IFRS when compared to the Indian accounting
standards. IFRS 2 share based payment each tranche of vesting interest is treated as a separate
reward and the stock compensation expense relating to that tranche is amortized over the vesting
period of the underlying tranche. Earlier Indian standard permits an entity to recognize the stock
compensation expense, relating to share option which vest in a graded manner on the straight line
basis over the requisite vesting period for the entire award. Under IFRS minority interest is
reported as a separate item within equity whereas under Indian standards minority interest is to
be presented separately from equity.
Under IAS 39(Financial instruments: Recognition and Measurement),loans and receivables are
recognized at amortized cost, which is carried at historical cost under Indian Accounting
standards. This has impact on the equity. Under IAS 37 (Provisions, contingent liabilities and
contingent assets) recovery of fringe benefit tax from the employees was accounted as a
reimbursement right as it was virtually certain that the company would recover the FBT from the
employees. Under IFRS 2 Share based payment, the FBT paid to the tax authorities is recorded
as a liability over the period that the employee renders services. In the earlier Indian accounting
standards FBT liability and the related FBT recovery from the employee is recorded at the time
of exercise of stock option by the employee. This adjustment had no impact on equity.
ZENITH
reported under other liabilities whereas in Indian Accounting standards share application money
pending allotment to be presented as a separate item within equity.
FINDINGS
The total assets under IFRS is more than the Indian accounting standards by 1% which shows
that Indian accounting is more conservative. The most probable reasons are its fair value
measurement, difference in the basis of interest capitalization, deferred tax asset recognition and
difference in accounting for foreign currency forward contracts. It shows that the Indian
accounting standards are conservative.
The equity under IFRS has increased by 7.38% when compared to Indian accounting standard.
Minority interest are treated as part of equity and under IFRS 1 First time adoption, adjustments
required to move from previous GAAP to IFRS should be recognized directly in retained or if
appropriate another category of equity at the date of transition to IFRS.
The total liabilities under IFRS is decreased by 6% when compared to the Indian accounting
standards. The provision for proposed dividend is recognized in IFRS only when it is approved
by shareholders which resulted in reduction of provision.
330
CHART 1:COMPARISON OF IGAAP AND IFRS ON FINANCIAL POSITION AS AT

1ST APRIL 2008
ZENITH
TABLE 2: BALANCE SHEET OF WIPRO 31ST MARCH 2009 COMPARISON OF IFRS

AND INDIAN GAAP STATEMENT
29667
15
119957
-16886
3546
136299
237
56892
40191
8734
29665
135719
29667
0
126646
-14533
5601
147381
0
56892
40191
8734
24092
129909
0
15
-6689
-2353
-2055
-11082
237
0
0
0
5573
5810
0
100
-5.58
13.93
-57.95
-8.13
100
0
0
0
18.79
4.28

INFERENCES
Analyzing the closing financial statement of Wipro for the year 31.3.2009 it is observed there is
1.94% increase in the Total assets value as per IFRS when compared with the total assets value
as per Indian Accounting standards.
Share capital and share premium

Share application money pending allotment
Retained earnings
Cash flow hedging reserve
Other reserves
Total Equity
Minority Interest
Loan and Borrowings
Trade Payable s
Unearned revenues
Other liabilities and provisions
Total Liabilities
331
Particulars
Goodwill
PPE and Intangibles
Available for Sale investment
Investment in equity accounted
Inventories
Trade receivables
Unbilled revenue
Cash and cash equivalents
Net tax assets
Other assets
Total Assets
opening balance April 2009 (Rupees in millions)

IGAAP
IFRS
Change
% of change
56521
56143
378
0.67
52563
53287
-724
-1.38
16426
16293
133
0.81
1670
1670
0
0
7587
7587 iGAAP 0
0
50370
50123 IFRS 247
0.49
14108
14108
0
0
49117
49117
0
0
2672
5759
-3087
-115.53
20984
23203
-2219
-10.57
272018
277290
-5272
-1.94
ZENITH
There is increase in the value of Net tax asset including deferred taxes in IFRS reporting by
115.53% when compared with the amount reported under Indian Accounting Standard. The
reason being as per IAS 12, A deferred tax asset should be recognized for deductible temporary
differences, unused tax losses and unused tax credits to the extent that is probable that taxable
profit will be available in the future to realize the tax benefits and Balance sheet approach is
followed in recognizing deferred taxes . Whereas in Indian Accounting standards the deferred
tax asset in respect of carry forward losses is recognized if it is virtually certain that sufficient
future taxable income would be available in the future to realize the tax benefits and Income
statement approach is followed in recognizing deferred taxes.
There is 10.57% increase in Other assets in IFRS reporting compared to Indian Accounting
standards. The reasons are because of IAS 17 Leases, IAS 18(revenue), IAS 39(Financial
instruments:Recognition and Measurement), IAS 37(Provisions, contingent liabilities and
contingent assets) and IFRS 2 (Share based payment). Under IAS 17 Leases, leases of land are
classified as operating leases unless the title to the leasehold land is expected to be transferred to
the company at the end of lease term. So, there is a reclassification of land from Property Plant
and equipment to other assets under IFRS reporting resulting in this no impact on equity. Under
IAS 18 Revenue, in respect of multiple element arrangement comprising delivered products and
installation services, the Company defers and recognizes revenue relating to installation services
when those services are rendered. Earlier in Indian Accounting standard the entire revenue is
recognized when the products are delivered in accordance with the contractual terms and the
expected cost of installation is also accrued. This has a impact on the income statement. Under
IAS 39(Financial instruments:Recognition and Measu rement),loans and receivables are
recognized at amortized cost, which is carried at historical cost under Indian Accounting
standards. This has impact on the equity.
The total liability has decreased by 4.28% in IFRS when compared to Indian accounting
standards. Under IAS 10 Events after the Balanced sheet date, the liability for dividend is
recognized only when it is approved by shareholders. Under Indian accounting standards the
332
The total equity has increased by nearly 8.13% in IFRS when compared to the Indian accounting
standards. IFRS 2 share based payment each tranche of vesting interest is treated as a separate
reward and the stock compensation expense relating to that tranche is amortized over the vesting
period of the underlying tranche. Earlier Indian standard permits an entity to recognize the stock
compensation expense, relating to share option which vest in a graded manner on the straight line
basis over the requisite vesting period for the entire award. Under IFRS minority interest is
reported as a separate item within equity whereas under Indian standards minority interest is to
be presented separately from equity.
Under IAS 37 (Provisions, contingent liabilities and contingent assets) recovery of fringe benefit
tax from the employees was accounted as a reimbursement right as it was virtually certain that
the company would recover the FBT from the employees. Under IFRS 2 Share based payment,
the FBT paid to the tax authorities is recorded as a liability over the period that the employee
renders services. In the earlier Indian accounting standards FBT liability and the related FBT
recovery from the employee is recorded at the time of exercise of stock option by the employee.
This adjustment had no impact on equity.
ZENITH
liability is recognized in respect of proposed dividend on company's equity share even though
the dividend is expected to be approved by the shareholders subsequent to the reporting date.
Under IAS 1 Presentation of financial statement, share application money received and pending
allotment is reported under other liabilities whereas in Indian Accounting standards share
application money pending allotment to be presented as a separate item within equity.
FINDINGS
The total assets under IFRS is more than the Indian accounting standards by 1.94% which shows
that Indian accounting is more conservative. The most probable reasons are its fair value
measurement, difference in the basis of interest capitalization,deferred tax asset recognition and
appropriate another category of equity at the date of transition to IFRS.
The total liabilities under IFRS is decreased by 6% when compared to the Indian accounting
On analyzing the Total assets has increased by 1.18% when compared to Indian accounting
reporting for the year ended 31.3.2010. The most probable reasons are its fair value
measurement, difference in the basis of interest capitalization,deferred tax asset recognition and
333
The total liabilities under IFRS is decreased by 7.14% when compared to the Indian accounting
appropriate another category of equity at the date of transition to IFRS as a result last year
difference in Indian Accounting standard and IFRS continue to be the difference.
ZENITH
CHART 2:COMPARISON OF IGAAP AND IFRS ON FINANCIAL POSITION AS AT

31ST MARCH 2009
IGAAP
IFRS
EFFECTS OF CONVERGENCE TO IFRS ON FINANCIAL RATIOS

We have examined five ratio that rely on financial statements for the year as at March 31, 2009
(1) Return on Equity defined as net income divided by book value of equity;
(2) Return on Assets, defined as net income divided by total assets;
(3) Total Asset Turnover, defined as sales revenue divided by total assets;
(4) Leverage, defined as total liabilities divided by book value of equity
Ratios
Return on Equity
Return on Asset
Total asset turnover
Leverage
Net Profit Ratio
As per IGAAP As per IFRS

0.29
0.26
0.14
0.14
0.94
0.93
1
0.88
0.15
0.15
334
TABLE 3:FINANCIAL RATIOS FOR THE YEAR ENDED 31ST MARCH 2009 OF
WIPRO
(5) Net Profit ratio defined as Net income divided by sales revenue.
ZENITH
We examine that the Return on Equity and Net profit ratio as reported under IGAAP and IFRS
remains the same. There is a decrease in the leverage or debt equity ratio in IFRS accounting
when compared to IGAAP accounting. The reduction in this ratio in IFRS is due to increase in
value of Equity by 8.13% in IFRS accounting and reduction in value of Total Liabilities by about
4.28% in IFRS accounting when compared with IGAAP accounting.
There is reduction in return on equity mainly because of increase in the equity value by about
8.13% and decrease in Net profit by about 0.61% in IFRS reporting when compared to IGAAP
reporting.
There is reduction in Total asset Turnover mainly because of increase in Total assets by about
1.94% and decrease in turnover by about 0.04% in IFRS reporting when compared with IGAAP
reporting.
CONCLUSION
The study investigates the financial statement implications of adopting IFRS by Wipro. It is
observed that the net income position in IFRS reporting and Indian GAAP is not much varied.
But there are differences in the Total liability and Equity position which is mainly because of
reclassification between Equity and Total liability. The provision under IFRS is reduced mainly
because dividend provision is not recognized in IFRS. Fair value measurement of Available for
sale investment and the share compensation expense recognized in IFRS is higher, as in IFRS
reporting accelerated amortization of stock compensation expense in the initial years following
the grant of options, whereas in Indian GAAP reporting recognizes the stock compensation
expenses in graded manner on a straight line basis over the requisite vesting period for the entire
award which resulted in increase in share based payment reserve. Overall the return on equity,
return on asset, total asset turnover and net profit ration are not significantly affected by
converging to IFRS but the leverage ratio shows significant change on converging with IFRS.
There is also significant changes in the Total Equity and total liability position on convergence to
IFRS but not prominent changes in the Total Asset Position. All these observations make us
conclude that IFRS is fair value oriented and Balance Sheet oriented accounting where there are
more transparent disclosures and Indian GAAP is conservative approach.
2. Lantto A.M and Sahlstrom P (2009) Impact of International Financial Reporting

Standard Adoption on Key Financial Ratio, Accounting and Finance Vol 49, pp 341-361
3. Ball R.(2008) What is the Actual Economic Role of Financial Reporting available at
http://ssrn.com/ abstract=1091538
4. Mingyi Hung, K.R. Subramanyam (2004) Financial Statement Effects of Adopting
IFRS: The case of Germany available at http://ssrn.com/abstract=622921
335
1. Stent W, Bradbury M. and Hooks J.(2010) IFRS in New Zealand: Effects on Financial
Statements and Ratios, Pacific accounting Review, Vol 22, No 2, pp 92-107
REFERENCES
ZENITH
5. Amir,E.T.Harris and E.Venuti 1993 A comparison of the Value relevance of Us versus

Non US GAAP Accounting measure using Form 20F reconciliations. Journal of
Accounting Reseearch 31(supplement):230-264
6. M.S. Turan and Dimple Transition from GAAP to IFRS An evidence from uk Journal
of Accounting and Finance Volume 25, No 2 ,pp57-66
7. Capkun V. Jeny A.C Jeanjean T. and Weiss L.A (2008) Earnings management and value
relevance during the Mandatory Transition from Local GAAP to IFRS in Europe
available at http://ssrn.com/abstract=1125716, retrived on 5 August 2010
8. Lantto A.M (2007) Does IFRS improve the usefulness of Accounting information on
code law country?' available at http:// ssrn.com/abstract=905218 retrieved on 10 August
2010
9. Horton J.Serafeim G (2008) Does Mandatory IFRS adoption improve the information
envirnmnet Harvard Business School working paper No 1264101 available at http://
ssrn.com/abstract=1264101 retrieved on 7 August 2010
10. Hope O.k Jin and Kang (2006) Empirical Evidence on Jurisdictions that Adopt IFRS'
available at http:// ssrn.com/abstract=751264 retrieved on 7 August 2010
11. Sujatha B Accounting Standards in India: Towards convergence published by ICFAI
12. http:// www.article base.com/accounting-articles/working towards a global convergence
of accounting standars-1379167.html
13. IFRS: A quick reference Guide by Robert Krik
14. http:// online library.wiley.com/doi/10.1002/jcaf.20406/abstract
15. http://icai.org/resoucre
336
16. http://www.pwc.com/en-GX/gx/ifrs-reportingservices/pdf/viewpoint_convergence.pdf

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ZENITH

International Journal of Multidisciplinary Research

FINANCIAL STATEMENT EFFECTS ON CONVERGENCE TO IFRS

WHY IFRS NEED TO BE IMPLEMENTED IN INDIA?

2. There is no significant difference between financial statement items based on Indian

Uniform Accounting Standard enables investors to understand better investment

Cash flow statement,

Statement of changes in equity

In Indian GAAP the following need to be presented and disclosed

In Indian Accounting Standards.There is no stipulation in AS 3 for classification of bank

PROPERTY PLANT AND EQUIPMENT

CONSOLIDATED FINANCIAL STATEMENTS

In Indian GAAP, f an intangible asset is acquired in an amalgamation in the nature of purchase,

In IFRS, In accordance with IFRS 3 Business Combinations, if an intangible asset is acquired in

EFFECTS OF CONVERGENCE TO IFRS ON FINANCIAL STATEMENTS

opening balance April

2008 (Rupees in millions)

Source:Annual Report of Wipro 2010

CHART 1:COMPARISON OF IGAAP AND IFRS ON FINANCIAL POSITION AS AT

TABLE 2: BALANCE SHEET OF WIPRO 31ST MARCH 2009 COMPARISON OF IFRS

Source:Annual Report of Wipro 2010

Share capital and share premium

opening balance April 2009 (Rupees in millions)

CHART 2:COMPARISON OF IGAAP AND IFRS ON FINANCIAL POSITION AS AT

EFFECTS OF CONVERGENCE TO IFRS ON FINANCIAL RATIOS

As per IGAAP As per IFRS

2. Lantto A.M and Sahlstrom P (2009) Impact of International Financial Reporting

5. Amir,E.T.Harris and E.Venuti 1993 A comparison of the Value relevance of Us versus

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