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New Delhi, Nov. 13 The Institute of Chartered Accountants of India (ICAI) has brought out a list of over 400 companies that should converge their accounting practices with International Financial Reporting Standards (IFRS) by April 2011. IFRS — issued by International Accounting Standards Board — is acknowledged by 113 countries. This is ICAI’s first list and more companies would be added on its next list, sources said. The first list comprises 439 companies. It includes BSE-Sensex companies, NSE-Nifty companies, companies that have raised debt of over $50 million abroad, financial sector companies, publicly accountable companies (with total borrowings of over Rs 1,000 crore), Indian subsidiaries of foreign companies that have implemented IFRS at the parent company and companies outside these categories with capital of over $50 million abroad. Significantly, ICAI is mulling including venture capital funds also in the IFRS convergence process. The first list includes BSE and NSE compani...

The basic concepts underlying preparation of financial statements will undergo significant change upon implementation of International Financial Reporting Standards (IFRS) in India. There are three key aspects that run through each principle laid down in IFRS: substance over form , fair value , and r ecognizing time value or time cost of money (present value) . These three items need to be understood carefully. Indian GAAP (generally accepted accounting principles), like any other GAAP, also recognizes the importance of substance over form. Accounting Standard 1 (AS-1) on “Disclosure of Accounting Policies” states that substance rather than form should be the guiding principle in selection and application of accounting policies. However, the true application of this principle will happen only under IFRS. That’s because IFRS is more contemporary and has prescribed the treatment for evolving issues. Also, unlike Indian GAAP, it does not recognize the concept of a legal override. Thus, IF...

Implementation of the International Financial Reporting Standards, seem to have hit a roadblock due to differences between the Finance Ministry and Ministry of Corporate Affairs, reports CNBC-TV18's Aakansha Sethi quoting sources. CNBC TV18 had first broken this story where it was reported that the Ministry Of Corporate Affairs would be passing an ordinance to implement IFRS. The Minister for Corporate Affairs Salman Khurshid had also told CNBC-TV18 in an interview that IFRS would be implemented from the April 1, 2011. However this may not be possible now because of differences between the Finance Ministry and the Ministry of Corporate Affairs. Sources close to the development said there are two key differences. One is that the finance ministry says that implementation from April 1, 2011 is not possible because the accounting norms have not been notified as yet. This will only be done by December and in three months from January to March is too little to educate stakeholders and th...

FAIR VALUE: Fair value for most financial instruments, while it has limitations, is the best available method to reflect market conditions when accompanied by appropriate disclosure. Financial instruments currently reported using fair value includes: • as assets most equity and debt securities held • derivatives Most assets and liabilities While fair value information is generally relevant to investors, it is not always sufficiently reliable or practical to implement. These three criteria—relevance, reliability, and practicality—need to be more fully understood prior to any proposed extension of fair value to assets and liabilities where it is not used today. Examples: Assets trade receivables and most bank loans inventories used in production plant and equipment Liabilities trade payables contingent liabilities company-issued debt insurance and other non-traded liabilities Reporting what most financial instruments can be exchanged f...

Derivative instrument is one whose principal source of value depends on the value of something else, such as an underlying asset, reference rate or index. First and foremost, a derivatives instrument is a contract, or agreement, between two counter parties. Unlike many market transactions where ownership of an underlying asset is immediately transferred from the seller to the buyer, a derivatives transaction involves no actual transfer of ownership of the underlying asset at the time the contract is initiated. Instead, a derivative contract simply represents a promise, or an agreement, to transfer ownership of the underlying asset at a specific price and time specified in the contract. The counter party that contracts to buy is said to have established a long position. A counter party that contracts to sell is said to have established a short position. Because of the bilateral nature of derivative contract, the value of contract depends not only on the value of its underlying asset but...

1.1 Meaning of Consolidated Financial Statements Consolidated Financial Statements (CFS) are the financial statements of a group presented as those of single economic entity. A group is a parent and all its subsidiaries. A parent is an investor that controls another entity called subsidiary. The parent and subsidiary (ies) constitute a Group. A parent company is required to prepare CFS of the Group as a whole. CFS are: 1. Consolidated Balance Sheet 2. Consolidated Comprehensive Income Statement 3. Consolidated Statement of Changes in Equity 4. Consolidated Statement of Cash Flows 5. Notes and other statements 6. Statement of Restatement Analysis 1.2 Meaning of Control Control: is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Criteria in deciding control over another entity are: i. Majority voting power (more than half of t...

Adopting International Financial Reporting Standards (IFRS) present challenges that many people underestimate. The International Accounting Standards Board (IASB) on November 24, 2008 has issued Reconstructed version of IFRS 1: First Time Adoption of International Financial Reporting Standards applicable to the entities on or after January 1, 2009 although earlier application is permitted. The Institute of Chartered Accountants of India (ICAI) has issued Ind- AS 41 talking about the transition requirements on the lines of IFRS 1 (Revised). When a company prepares its first IFRS financial statements for the year ending 31st March 2012 with one year comparatives, the date of transition to IFRS will be 1st April 2010 and the opening IFRS balance sheet will be prepared at that date. A company required to present two full years of comparative information should prepare an opening balance sheet at 1st April 2009. The opening IFRS balance sheet is the starting point for all subsequent account...

International Financial Reporting Standards will be mandatory for financial statements from April 2011 With the commencement of the next financial year, the Indian Accounting Standards are all set to go global by converging with the International Financial Reporting Standards (IFRS). While it will enable Indian firms to access and understand the balance sheets of firms in the international markets, many chartered accountants (CA) in Pune feel that the country may not be ready for the transition. According to the CAs, for an economy to make the transition, an enormous amount of training is required, not just for the CAs but for a vast group of people likely to be affected by the new accounting norms. Dolphy D’Souza, national leader, IFRS, is of the view that only big accounting firms like KPMC and a few others have the expertise in IFRS as of now. “While Indian Institute of Chartered Accountants (ICAI) is training CAs, we need to train audit committee members, regulators, financial anal...

The International Accounting Standards Board (IASB) today published for public comment an exposure draft of improvements to the accounting for insurance contracts. The exposure draft proposes a single International Financial Reporting Standard (IFRS) that all insurers, in all jurisdictions, could apply to all contract types on a consistent basis. When the IASB was established in 2001 there were no international financial reporting requirements for insurance contracts. In 2004 the IASB introduced IFRS 4 Insurance Contracts as an interim standard that permitted many existing international accounting practices to be retained, whilst beginning a more comprehensive review of insurance accounting as a second phase of the project. The proposals published today are the result of that review. The IASB launched its public consultation when it published a discussion paper, Preliminary Views on Insurance Contracts , in 2007. In developing the proposals released today, the IASB considered more tha...

Historical cost accounting is fading as India Inc marches into a new era. In the “fair value” accounting regime, what is a company’s really worth? This is the central question that accounting attempts to answer, and it is no easy exercise. Every answer invites debate, and that debate has now intensified, thanks to "fair value" accounting. Under fair value, a company values its assets and liabilities based on what they would fetch today, rather than what they originally cost. The concept is not new — accounting has long operated under a "mixed model”, which records many items at historical cost while requiring that companies mark to market certain asset classes (such as securities and derivatives). But a host of factors have suddenly propelled the calculation of fair value from a secondary concern to a dominant theme of corporate accounting, and many companies are just beginning to understand the ramifications. If fair value takes full hold, as some have suggested it shou...