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Similarities and Differences A Comparison of IFRS, US GAAP and Indian GAAP*
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Similarities and Differences
A Comparison of IFRS, US GAAP and Indian GAAP
eiaie n egn 83 87 48 44 36 23 21 30 3 4 Other accountingandreportingtopics Derivatives andhedging Equity Liabilities Assets Expense recognition Revenue recognition Business combinations Consolidated financialstatements Financial statements Accounting framework Summary ofsimilaritiesanddifferences How tousethispublication Preface Similarities and Differences–Acomparison of Index Abbreviations Contents Interim financialreporting Post-balance-sheet events Discontinued operations Segment reporting Related-party transactions Earnings pershare Foreign currencytranslation 95 IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 Page 82 70 56 94 93 91 90 89 87 97 96 2
1 Contents
en adopting IFRS as it is. en adopting IFRS as a world of divergent GAAP and IFRS and the GAAP and IFRS and all of the key stakeholders in with active inputs from the kes, viz. migrating to IFRS or ucture for uniform interpretation y participant in the financial er - Global Capital Markets Group Global Capital Markets Group er - Sanjay Hegde tegy to align itself with the evolving global evolving the with itself tegy to align to share with you the third edition of this to share with you the le that the Institute of Chartered Accountants Accountants Chartered of Institute the le that rengthening of the training infrastructure to rengthening of the training infrastructure d remain a myth in single global corporate governance model and and model global corporate governance single unicate with the investors, rather than focusing focusing than rather investors, the with unicate ted to include all standards and interpretations ted to include all standards obal capital markets demands a revolution in in a revolution demands obal capital markets d to IFRS, there are fundamentally two areas d to IFRS, there are fundamentally two nvergence of the US nvergence of the US signalling potential areas where we need to Indian accounting scenario, especially with the the especially with scenario, accounting Indian it to be successful, investors and company dian GAAP up to 30 September, 2006. dian GAAP up to 30 g. It is the desire of ever desire of g. It is the take a coordinated effort from l. One, providing an infrastr made by the standard setters GAAP more closely to and maybe ev GAAP more closely rd. Whatever direction the ICAI ta the direction rd. Whatever on of the standards. IFRS, US GAAP and Indian GAAP – November 2006
executives must play a central role. play a central must executives Hopefully, this publication plays its role at converge. which we believe are very crucia the capital markets network. Further, for having a separate Indian GAAP closely aligne having a separate Indian GAAP closely of India is playing in this rega published under IFRS, US GAAP and In published under IFRS, a question about the co We are often asked the have on it could impact that resultant Indian current talks of aligning long-term vitality of the gl We believe that the corporate governance and reportin be would framework reporting and accounting Any frameworks. reporting and accounting able to comm it is effectively if only successful regulations. and rules with compliance technical on principally ro the in confidence have appreciate and We fully publication. This latest version has been upda publication. This latest of reporting supply chain for an establishment understood. accepted and are universally which framework, reporting and accounting a single coul ethics and corporate governance Effective Preface Preface response In guide. this of edition second received to the we response by the We are humbled the edition we are happy to the request to update and application of the standards and secondly, st secondly, and standards the of application and Industry. This transformation will ensure a quick disseminati a stra consider to needs fraternity accounting Indian GAAP. Right choices need to be
Rathin Datta CEO and Chairman – India PricewaterhouseCoopers Lead Director and Executive – India PricewaterhouseCoopers Similarities and Differences – A comparison of
Preface 2 Similarities and Differences–Acomparison of detailed text;however, not all pronouncement stillbeeffectiveattheda 30 September2006;andisbasedonthe This publicationtakesaccountofauth Securities and Exchange Boardof India (SEBI)requ relevant securities regulations –for example,the USS the relevant accounting standards and, where applicable,th most commonly found in practice.When applying the indi material impacton the financial statements. This publicat Indian GAAP.Eveniftheguid No summarypublicationcandojusti document where keydifferences arehighlighted and explained in moredetail. the similaritiesanddifferencesbetween and differencesbetweenIFRS,USGAAP This PricewaterhouseCoopers publication isfor those who wish How tousethispublication ance issimilar,therecanbe recent developments orexposure drafts have been included. ce tothemanydifferencesofdetail oritative pronouncementsissuedunder IFRS,USGAAPandIndianGAAP.Itre most recentversionofthosepronouncem te ofthispublication.Wehave and IndianGAAP.Thefirstpartof IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 irements and localstockexchange listing rules. ecurities and Exchange Commissi ion focuses on the measurement similaritiesand differences vidual accounting frameworks, readersshould consult all differences inthedetailedapp eir national law.Listed companies should alsofollow togain abroadunderstanding of the keysimilarities noted certaindevelopmentswithinthe that existbetweenIFRS,USGAAPand this documentprovidesasummaryof IFRS, USGAAPandIndianupto fers tosubsequentsectionsofthe ents, shouldanearlierversionofa on (SEC)requirements, the lication, whichcouldhavea
3 How to use this publication
21 23 24 . 22 . 21 US GAAP IFRS Similar to Uses historical cost, but cost, but Uses historical property, plant and equipment may be revalued to fair value. Certain derivatives are value. carried at fair No comprehensive guidance on derivatives biological assets. and Similar to Single-entity parent two (standalone) company sheets, years’ balance cash statements, income and statements, flow policies and accounting notes. Public listed company: Additionally are required to prepare consolidated along statements financial with the standalone financial statements. Accounting standards do not prescribe a particular items must certain format; of face the on be presented sheet. balance the Formats are prescribed by Act and Companies the other industry regulations like banking, insurance, etc. US , except ; rarely used IFRS IFRS requires GAAP retrospective application. First-time adoption of Similar to for years required three SEC registrants (public companies) for all except balance statements sheet. accommodations Specific for circumstances certain in foreign private issuers that may offer relief from the requirement. three-year Entities may present either or non- a classified sheet. balance classified the of face the Items on are generally sheet balance decreasing in presented order of liquidity. US public companies should follow SEC regulations. No revaluations except for except for No revaluations certain types of financial instruments. Similar to practice. in IFRS, US GAAP and Indian GAAP – November 2006 s IFRS financial statements, effective at the reporting reporting at the effective date for an entity’s first IFRS with some optional exemptions and limited exceptions. mandatory Two years’ consolidated income sheets, balance flow cash statements, in changes statements, accounting and equity policies and notes. or limited circumstances In on a voluntary basis, an entity may present single- entity parent company (standalone) financial its with along statements consolidated financial statements. Does not prescribe a particular format. A liquidity presentation of assets and liabilities is used, instead of a current/non-current a when only presentation, liquidity presentation provides more relevant and reliable information. Certain minimum items must be of face the on presented sheet. balance the Full retrospective application of all cost, but intangible assets, cost, but intangible property plant and equipment (PPE) and may investment property be revalued to fair value. Derivatives, biological certain assets and to are revalued securities fair value. rare cases, may, in Entities override the standards to give a essential where fair presentation. Similarities and Differences – A comparison of Balance sheet sheet Balance Financial statements Components of financial statements First-time adoption of accounting frameworks Fair presentation override Accounting framework Accounting Historical cost historical Generally uses differences and of similarities Summary SUBJECT IFRS GAAP US Indian GAAP PAGE
Summary of similarities and differences 4 Similarities and Differences–Acomparison of equivalents and cash ofcash definition statements – Cash flow method format and statements – Cash flow equity (stock) holders’ changes in share Statement of income comprehensive other accumulated and statement of income hensive Other compre- expense (SoRIE)/ income and recognised Statement of items Extraordinary items Exceptional statement Income UJC IR U AP ninGA PAGE IndianGAAP USGAAP IFRS SUBJECT overdrafts. and mayinclude bank from thedateofacquisition monthsor less of three equivalents withmaturities Cash includes cash method isused. contents. Directorindirect limited guidanceon Standard headings,but in thenotesapplies. In thiscase,onlydisclosure when aSoRIEispresented. a primarystatement except statement ispresented as The ofequity. components reconciliation ofallother accumulated profit and a the movementin transactions withowners, Statement shows capital equity. changes in shareholders’ primary statementof disclosed separatelyinthe Alternatively itmaybe isnotpresented. equity changes in shareholders’ which caseastatement of as aprimarystatement, in Definedasbeing both A SoRIEcanbepresented Prohibited. the entity. explain theperformanceof disclosure isnecessaryto nature thattheirseparate of such size,incidence or disclosure of itemsthat are requires separate Does notusetheterm,but the income statement. presented on the face of minimum itemsmustbe Certain ornature). (function one oftwoformats in ispresented expenditure standard format,although Does notprescribea IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 excluded. bank overdraftsare Similar to method. encourages the direct method isused;SEC category. Directorindirect for itemsincluded in each but morespecific guidance Similar headingsto primary statement. in thenotesandnot information tobeincluded SEC rulesallowcertain as aprimarystatement; the statement ispresented Similar to in stockholders’equity. the statement of changes income statement orwith or combinedwiththe separate primarystatement presented either asa income aredisclosed, other comprehensive income and accumulated Total comprehensive extraordinary item. goodwill ispresentedasan and are rare.Negative unusual, and infrequent the notes. statement and disclosedin face of the income items arepresented on the individually significant Similar to regulations. should followSEC US publiccompanies by function. Expenditures arepresented format. step ormultiple-step Present aseither asingle- IFRS IFRS IFRS , exceptthat exceptthat , but IFRS , Similar to companies. method forinsurance companies and direct is requiredforlisted However, indirectmethod Similar to ‘Reserves and surplus’. ‘Share capital’and separate schedulesof equity are disclosedin Changes in shareholders’ required. No separatestatement is 27 Not required. regularly. and frequently expected torecur of the entity and arenot from theordinaryactivities transactions clearlydistinct Defined asevents or the termexceptional items. the Companies Actuses Similar to regulations. are prescribedbyindustry Industry-specific formats and the Companies Act. with accounting standards disclosed in accordance expenditure itemsare certain income and standard format;but Does notprescribea US GAAP US IFRS IFRS . , exceptthat . 28 28 27 26 26 26
5 Summary of similarities and differences
28 29 29 30 . 29 IFRS Exemption for certain Exemption Medium Sized ‘Small and (SMEs) having Enterprises’ borrowings turnover or below certain threshold. is change of effect The current-year in included The statement. income is change impact of disclosed. required. The effect of of effect The required. in is included correction income current-year separate with statement disclosure. Based on voting control or over the control composition of the board of directors or the governing body. Control exists when (a) parent owns, directly or indirectly through subsidiaries, more than one half of an entity's voting power or (b) it controls entity’s an of composition board of directors so as to obtain economic benefits from its activities. currently of existence The voting exercisable potential rights is not taken into consideration. . IFRS . Similar to . Similar . is not Restatement IFRS IFRS , is very rare if ever Similar to certain investment entities. entities. investment certain With the adoption of FAS 154, similar to Prior to FAS 154, the effect was of change, net of tax, current-year in included Pro- statement. income were forma comparatives disclosed. Retrospective adjustment was required items. specific for only Similar to A bipolar consolidation model is used, which a between distinguishes variable interest model and a voting interest model. Control can be direct or indirect and may exist with a lesser percentage of ownership (voting interest control’, model). ‘Effective which is a similar notion to under control de facto IFRS practice. employed in IFRS, US GAAP and Indian GAAP – November 2006 Reported in income current the in statement period and future, if applicable. Based on voting control or power to govern. Control is presumed to exist when parent owns, directly or indirectly through subsidiaries, more than one half of an entity's voting power. Control also exists when the parent owns half or less of the voting power but has legal or contractual rights to control, or de (rare control facto The circumstances). currently of existence voting exercisable potential rights is also taken into consideration. entities Special purpose (SPEs) controlled by an are also entity consolidated. Comparatives are restated and, if the error occurred before the earliest prior period presented, the opening balances of assets, liabilities and equity for the earliest prior period are restated. presented No exemptions. No exemptions. for Limited exemptions Comparatives are restated, specifically unless effect the exempted; where of period(s) not presented opening against is adjusted earnings. retained SUBJECT SUBJECT IFRS GAAP US Indian GAAP PAGE Similarities and Differences – A comparison of Consolidation model Changes in accounting estimates Consolidated financial statements Correction of errors Changes in accounting policy Cash flow – statements exemptions
Summary of similarities and differences 6 Similarities and Differences–Acomparison of ventures) entities (joint jointly controlled Presentation of venture ofjoint Definition associates about significant Disclosures associate results Presentation of associate of Definition subsidiaries consolidation of Non- (SPE) purposes entity Special UJC IR U AP ninGA PAGE IndianGAAP USGAAP IFRS SUBJECT accordance with IAS39. cost oratfairvalue in at financials: In standalone method ispermitted. consolidation and equity both proportional financials: In consolidated held-for-sale. Exclusion ifinvestmentis subject tojointcontrol. economic activity,which is parties undertakean whereby twoormore Contractual arrangement results isrequired. assets, liabilitiesand significant associates’ Detailed informationon accordance with IAS39. cost oratfairvalue in at financials: In standalone shown. Share ofpost-taxresultsis equity methodisused. financials: In consolidated affairs. participation inentity’s or greaterinterest if20% presumed influence; Based onsignificant consolidate the subsidiary. sale, theentitydoesnot a subsidiaryisheld-for- the entityoronacquisition above, doesnot restwith ‘definition ofasubsidiary’ under defined as If control, control. relationship indicates substance of the Consolidated where the IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 used. used. cost orequity method is at financials: In standalone circumstances. except in specific equity methodisrequired financials: In consolidated the group. benefit ofthemembers project forthemutual and specificbusinessor businesses asaseparate operated bysmallgroupof A corporationownedand Similar to used. cost orequity method is at financials: In standalone similar to financials: In consolidated ‘associate’. is used instead of the term‘equityinvestment Similar to sold. will beconsolidateduntil A subsidiaryheld-for-sale VIE. primary beneficiaryofa the ownerisnot Similar to not consolidate the QSPE. (QSPE), the transferor does definition ofaqualifiedSPE If aSPE meetsthe consolidated. financial interestis entity holdsacontrolling interest entityinwhichthe returns, orboth.Avoting majority of the expected expected losses,receivea absorb themajorityof variable interestthatwill when the entity has a (VIEs) areconsolidated Variable interestentities IFRS IFRS IFRS IFRS . Certaindisclosuresare . , although , butalsoif associates isnot required. information onsignificant however, detailed required for allassociates; oseii udne 30 No specific guidance. cost lessimpairment. at financials: In standalone is used. proportional consolidation financials: In consolidated subsidiaries. consolidation of exemptions similartonon- definition ofasubsidiaryor Exclusion if it meetsthe Similar to similar to financials: In consolidated subsidiaries. consolidation of exemptions similartonon- Similar to the parent. fundsto totransfer ability restrictions whichimpairits severe long-term control) orif itoperatesin held forresale(temporary If the entity isacquired and cost lessimpairment. at financials: In standalone IFRS IFRS IFRS . . ; 32 34 33 32 31 32
7 Summary of similarities and differences
35 36 36 An entity acquired and and acquired entity An held as a subsidiary An acquisition by way of amalgamation of entity A business acquisition (assets & liabilities only)
Employee share trusts are trusts share Employee consolidated. not accounting standard on on standard accounting business combinations. All business combinations except are acquisition; uniting of interests method is used in certain all when amalgamations are conditions specified the met. Accounting would defer for following: • • • and acquired entity For an held as a subsidiary, the and assets acquired liabilities assumed are incorporated at their amounts carrying existing for consolidation purposes they amalgamation, On may be incorporated at carrying existing their or, alternatively, amounts is consideration the allocated to individual assets and identifiable liabilities at their fair values. However, a court order approving an amalgamation may provide different and/or additional entries. accounting On business acquisition, they may be incorporated or value fair values at their assets. surrendered of No separate restructuring provision is recognised on acquisition. except comprehensive . No , except IFRS IFRS IFRS Similar to guidance specific where Employee Stock applies for Plans (ESOPs) Ownership in SOP 93-6. Similar to Similar to minority interest is stated at pre-acquisition carrying value of net assets, and contingent liabilities of the are not acquiree date of at the recognised rules Specific acquisition. exist for acquired in- and process research development (generally contingent and expensed) liabilities. Some restructuring liabilities relating solely to the acquired entity may be specific if recognised restructuring criteria about are met. plans IFRS, US GAAP and Indian GAAP – November 2006 Assets, liabilities and contingent liabilities of are fair entity acquired valued. If control is obtained in a partial a subsidiary, of acquisition the full fair value of assets, liabilities and contingent liabilities, including portion attributable to the minority (non-controlling) interest, is consolidated recorded on balance sheet. Goodwill is residual as the recognised consideration the between paid and the percentage of the of value fair the identifiable assets, liabilities and contingent liabilities acquired. Liabilities for restructuring activities are recognised an has acquiree when only existing liability at acquisition date. Liabilities for future losses or other costs expected to be the of as a result incurred business combination be recognised. cannot Consolidated where where Consolidated of relationship substance (SIC-12 control indicates own shares model). Entity’s employee share by an held as for are accounted trust shares. treasury are acquisitions. SUBJECT SUBJECT IFRS GAAP US Indian GAAP PAGE Similarities and Differences – A comparison of Purchase method –values on acquisition Types All business combinations Business combinations share Employee (stock) trusts
Summary of similarities and differences 8 Similarities and Differences–Acomparison of fair values adjustments to subsequent method – Purchase goodwill negative method – Purchase lives useful with indefinite intangible assets goodwill and method – Purchase at acquisition minority interests method – Purchase consideration contingent method – Purchase UJC IR U AP ninGA PAGE IndianGAAP USGAAP IFRS SUBJECT to correctan error. statement unless they are are recordedin income adjustments Subsequent acquisition date. within 12monthsofthe adjusted againstgoodwill provisional basiscanbe Fair valuesdeterminedona statement immediately. recognised inincome reassessment is excess remaining after are reassessed.Any and contingentliabilities identifiable assets,liabilities measurement of acquiree’s The identification and applicable. or groupsofCGUs,as unit(CGU)level generating cash- the either at annually impairment atleast assets aretestedfor indefinite-lived intangible amortised. Goodwilland Capitalised butnot and contingentliabilities. identifiable assets,liabilities of the fair value of acquired Stated atminority’s share measured reliably. probable andcanbe date ifadjustmentis combination atacquisition Included in costof IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 goodwill. are recordedagainst to completethe allocation management waswaiting relating todataforwhich during theallocationperiod The adjustmentsmade contingencies. acquisition resolution ofknownpre- permitted exceptforthe no further changes are value allocationisfinalised, Similar to an extraordinary gain. statement immediatelyas recognised in the income exceptions). Any excessis current assets(with certain tonon- assigned values fair reduce proportionatelythe reassessment isusedto Any remaining excessafter different. are itself test testing andtheimpairment the levelofimpairment Similar to value ofnetassets. of pre-acquisitioncarrying Stated atminority’s share amount isdeterminable. contingency isresolvedor Not recogniseduntil IFRS IFRS . Once fair , although in income statement. adjustments arerecorded subsequent All other amalgamation. tothe subsequent date sheet balance annual recognisable bythe first recognised, if itbecomes permitted tobe amalgamation. Itis recognised on depreciation not losses orunabsorbed asset oncarryforward except fordeferredtax No changeispermitted, amalgamation. arising onthe capital reserve,if any, reduced tothe extent of with no activemarketis value ofintangibleassets amalgamation, the fair However, in caseof an not amortisedtoincome. capital reserve,which is Recorded in equity as exceeding 10 years. amortised overaperiodnot intangible assetsare useful livescategory.All intoindefinite classified Intangible assetsarenot exists attheCGUlevel. indication ofimpairment impairment whenever an Goodwill isreviewedfor justified; is period longer a unless not exceeding 5 years, is amortisedoveraperiod Goodwill onamalgamation not exceeding 10 years; amortisation overaperiod amortisation versus practice varies,between no no specific guidance – and businessacquisitions: Goodwill onconsolidation Similar to reasonably estimated. an amount can be payment isprobableand Included in consideration if US GAAP US . 38 40 39 40 37
9 Summary of similarities and differences
40
42 42 44 59 . 47 , except . 46 IFRS IFRS IFRS IFRS Disclosures include names Disclosures of and descriptions the entities, combining date, effective (paid or consideration contingently payable), accounting, of method capital amount of goodwill/ of reserve, and period goodwill amortisation. Similar to is life useful the where shorter as envisaged under the Companies Act or the the statute, relevant depreciation is computed by applying a higher rate. amalgamations when all when amalgamations are conditions specified the met. guidance. No specific Normal business accounting combination would apply. Similar to although conceptually, several differences in detail. Similar to , with . Similar to . Similar ; however, in principle, nt revenue . certain for Required IFRS IFRS IFRS IFRS IFRS Similar to disclosures additional the reasons for regarding details and acquisition the of allocations. Similar to Similar to completed contract method is permitted in rare circumstances. Arrangements with multiple deliverables are divided into separate units of deliverables if accounting meet arrangement in in criteria outlined specified EITF 00-21. Specific exists for guidance software vendors with multiple-eleme arrangements. Generally recorded at use predecessor cost; the of predecessor cost or fair value depends on a number of criteria. Similar to based on four key criteria. Extensive detailed specific exists for guidance transactions. types of IFRS, US GAAP and Indian GAAP – November 2006 values of
IFRS assets and liabilities assets and liabilities results acquired, impact on and financial position of reasons and acquirer, behind the recognition of goodwill. basis to each accounting accounting basis to each life useful period over the of the asset. Accounted using for percentage-of-completion method. Completed is method contract prohibited. No detailed guidance for multiple-element exists. transactions Based on several criteria, which require the recognition of revenue when risks and rewards been have control and transferred and the revenue reliably. be measured can Prohibited. Same as Same Prohibited. Not specifically addressed. elect and Entities apply either consistently purchase or pooling-of- all for accounting interest transactions. such Disclosures include names Disclosures of and descriptions date of entities, combining of cost acquisition, of combination, summary fair values and pre- acquisition Similarities and Differences – A comparison of Expense recognition recognition Expense Depreciation Allocated on a systematic Multiple-element contracts Construction contracts Revenue recognition recognition Revenue Revenue recognition Business combinations involving entities under common control Uniting of interests method Purchase method – disclosure SUBJECT SUBJECT IFRS GAAP US Indian GAAP PAGE
Summary of similarities and differences 10 Similarities and Differences–Acomparison of compensation Employee share PAGE absences Compensated benefits: IndianGAAP Employee USGAAP plans benefit costs –defined pension benefits: Employee IFRS Interest expense SUBJECT options granted. fair value of shares or share recorded ismeasured at settled. Amounttobe to becash- orequity- transaction isdetermined depending onwhether or an increase in equity, recorded eitherasaliability Corresponding amount purchased isrecognised. Expense forservices method. using projected creditunit absences ismeasured for long-termcompensated an accrualbasis.Liability absences isrecognised on term compensated cost of accumulating short- benefits. The expected other long-termemployee It qualifiesasshort-termor can bedeferred. Actuarial gainsandlosses assets atfairvalue. obligation and recordplan determine benefit method isusedto Projected unit credit interest method. basis using the effective Recognised on an accrual IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 pricing model. value atissue using option exercise price)or(b)fair employee contributionor measurement datelessany (market priceat (a) theintrinsicvalue measured basedon either compensation expense is Prior toFAS123R, application. difference existin date. Severalareasof value of awardsatgrant recognised basedonfair expense isgenerally IFRS to model FAS 123R,similar With theadoptionof rare circumstances. Discounting ispermittedin basis. recognised on an accrual compensated absences is the accumulating The expected costof all short-term andlong-term. No segregation between in thedetailedapplication. several areasof differences Similar to Similar to . Compensation IFRS IFRS Recognised on an accrual butwith . discounts andpremiums. respect torecognition of basis; practicevarieswith method. use of the intrinsic value the guidance note allows application. Alternatively, differences indetailed IFRS the guidance issimilarto based on fair value where measurement of cost requires which note ICAI has issued aguidance at the discount value. shares issued atdiscount pricing model;whereasfor value usingtheoption on intrinsicvalueorfair are recordedeither based expense forstockoptions guidelines, compensation companies. Asper guidelines forpubliclisted provided certainbasic accounting standard, SEBI In absence of an on an actuarial valuation. which isrecognisedbased encashable onretirement, other than for leave of compensated absences practice variesfor accrual Prior toAS15(revised) IFRS AS 15(revised),similarto With theadoptionof on other specific issues. limited guidance available actuarial valuation and method isprescribedfor Prior toAS15(revised),no the income statement. are recognised upfront in actuarial gains and losses differences indetail.Eg, IFRS AS 15(revised),similarto With theadoptionof ; severalareasof . , althoughseveral 48 53 48 54
11 Summary of similarities and differences
54 58 60 56 ; however . 56 IFRS IFRS , however, timing of , however, Historical cost is used. Historical cost is used. Revaluations are permitted, however, no requirement on frequency of revaluation. entire an revaluation, On class of assets is revalued, or selection of assets is made on a systematic basis. to requirement is no there an present and classify asset as held for sale on balance the of face the notes. the or in sheet With the adoption of With the adoption similar to AS 15 (revised), IFRS liability could recognising differ. no Prior to AS 15 (revised), guidance. specific Generally, voluntary were retirement expenses acceptance on recognised by employees plan the of 5 to amortised over 3 and years. Similar to Capitalised if recognition criteria are met; all intangibles are amortised a with life over useful rebuttable presumption of years. 10 exceeding not are not Revaluations permitted. except . Similar to . Similar , IFRS IFRS Research and development development and Research as costs are expensed incurred. Some software and website development costs are capitalised. Historical cost is used; are not revaluations permitted. Similar to Four types of termination Four types benefits with three different for timing methods Termination recognition. are indemnity schemes as pension for accounted is plans; related liability vested as either calculated benefit obligation or of value present actuarial benefits. Similar to revaluations are not are not revaluations permitted. IFRS, US GAAP and Indian GAAP – November 2006 Research costs are Research as incurred. expensed Development costs are amortised capitalised and criteria specific when only are met. Historical cost or revalued Regular are used. amounts classes entire of valuations assets are required of when revaluation option is chosen. Non-current asset is sale if for as held classified its carrying amount will be recovered principally a sale transaction through rather than through continuing use. A non- as asset classified current at sale is measured for held the lower of its carrying less value fair and amount costs to sell. Comparative is not sheet balance restated. Capitalised if recognition criteria are met; amortised over useful life. Intangibles indefinite an assigned amortised are not life useful reviewed at least but annually for impairment. Revaluations are permitted rare circumstances. in Termination benefits arising are redundancies from to similarly for accounted provisions. restructuring Termination indemnity for are accounted schemes based on actuarial present value of benefits.
Similarities and Differences – A comparison of Non-current assets held for sale or disposal group Property, plant Property, plant and equipment Internally generated intangible assets Assets Acquired intangible assets Termination benefits SUBJECT SUBJECT IFRS GAAP US Indian GAAP PAGE
Summary of similarities and differences 12 Similarities and Differences–Acomparison of Measured atfair value less Biological assets Carriedatlowerofcost Inventories property Investment borrowing costs Capitalisation of PAGE IndianGAAP assets Impairment of USGAAP accounting Leases –lessor IFRS classification Leases – SUBJECT costs. estimated point-of-sale downs. value ofpreviouswrite- subsequent increase in Reversal isrequiredfor prohibited. determine cost.LIFO method isusedto FIFO orweighted average and net realisablevalue. statement. recognised in the income changes infairvalue cost orfairvalue,with Measured atdepreciated assets, butnotrequired. choice for allqualifying Permitted asapolicy circumstances, than forgoodwill;incertain losses isrequired,other Reversal ofimpairment flows. cash discounted and value in use basedon fair valuelesscoststosell written downtohigherof indicated, assetsare sale. Ifimpairmentis assets otherthanheld-for- flowsfor cash discounted Impairment isassessedon method. (pre-tax) netinvestment rate ofreturnbasedon allocated togiveconstant receivable. Grossearnings leases arerecordedasa finance under Amounts due important. rather thanformis transferred. Substance rewards ofownershipare substantially allrisksand A leaseisafinance leaseif IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 historical costused. Not specified. Generally prohibited. Reversal ofwrite-downis use ofLIFOispermitted. Similar to entities). (for example,investment applies toinvestorentities Industry-specific guidance (depreciated cost). other properties Treated the sameasfor Required. prohibited. Reversal oflossesis flows. 63 value or discounted cash measured using market amount, impairmentlossis used. If lessthan carrying for assetstobeheldand flows cash undiscounted Impairment isassessedon leases. specific rulesforleveraged Similar to requirements. more extensiveform-driven Similar to IFRS IFRS IFRS ; however, , butwith , butwith historical costused. Not specified. Generally Similar to impairment. is carriedatcostless long-term investmentand Treated the sameasa circumstances. required incertain losses forgoodwillis reversal ofimpairment Similar to Similar to Similar to IFRS IFRS IFRS IFRS . 65 , except . 61 . 61 65 64 62
13 Summary of similarities and differences
66 69 70 70 72 , except that , except that , except that IFRS IFRS Limited guidance. In In guidance. Limited general, derecognised based on transfer of risks and rewards. by issued note Guidance ICAI on securitisation requires derecognition based on control. Similar to discounting is not permitted. are gains contingent neither recognised nor disclosed. Long-term investments, Long-term are receivables and loans cost less carried at whereas impairment; are current investments and cost carried at lower of fair value. Any reduction in the any and amount carrying reversal of such reduction to or credited is charged statement. income guidance Industry-specific and applies e.g. banking insurance. Restructuring provisions is when recognised recognition criteria for provisions are met. . Similar to . Similar , with rules IFRS IFRS , with some , with some IFRS Similar to Derecognised based on control. Requires legal in assets even of isolation bankruptcy. Similar to such situations specific for as environmental liabilities, loss contingencies, etc. Recognition of liability based solely on commitment to plan is prohibited. In order to restructuring recognise, to meet the has plan definition of a liability, including certain criteria regarding likelihood that no changes will be made to plan or that plan will be withdrawn. Similar accounting model Similar accounting to in detailed differences example, for application. no ability to designate financial assets at fair value through profit or loss hybrid except certain financial instruments with the adoption of FAS 155. IFRS, US GAAP and Indian GAAP – November 2006 possible losses and probable gains. Provisions relating to present obligations from past events recorded if outflow of resources is probable and can be reliably estimated. to are discounted Provisions the where value present of time value the of effect money is material. Restructuring provision is recognised if detailed formal plan announced or effectively implementation begun. Financial assets are Financial derecognised based on risks and rewards first; test. is secondary control Depends on classification classification on Depends – if held to of investment loans and maturity or are they receivables, cost; carried at amortised otherwise at fair value. on Unrealised gains/losses fair value profit or through loss classification (including trading instruments) is recognised statement. income in Unrealised gains and losses on available-for-sale are recognised investments in equity. Similarities and Differences – A comparison of Contingencies Disclose unrecognised Contingencies Disclose Provisions – restructuring Liabilities Provisions – general Derecognition of financial assets Financial assets – measurement SUBJECT SUBJECT IFRS GAAP US Indian GAAP PAGE
Summary of similarities and differences 14 Similarities and Differences–Acomparison of classification liabilities – Financial transactions and leaseback accounting: sale Leases –lessee accounting Leases –lessee PAGE grants Government IndianGAAP tax Fringe benefits USGAAP approach IFRS taxes –general Deferred income SUBJECT classified asliabilities. preference shares are Mandatorily redeemable either liabilityorequity. contractual obligations, as substance ofissuer’s classified, depending on Capital instrumentsare considered. linkage oftransactionsis at fair value. Substance/ whether the transaction is recognition dependson lease arises,profit amortised. If an operating leaseback isdeferred and arising on saleand finance For finance leases,profit basis. charged on straight-line Operating leaserentals are outstanding obligation. constant interestrateon are apportionedtogive of asset.Rentalpayments Depreciated overuseful life rentals. forfuture obligation recorded asassetand Finance leasesare asset values. offset capitalgrants against received. Entities may them andthegrantswillbe conditions attached to will complywiththe assurance that the entity when there isreasonable income and amortised Recognised asdeferred incurrence of the tax. which givesriseto benefit) (fringe expense Included aspartofrelated not). probable (morelikelythan recognised if recoveryis Deferred taxassetsare temporary differences. driven bybalancesheet used (someexceptions) Full provisionmethodis IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 are classifiedasliabilities. event-certain redemption instruments withadateor Mandatorily redeemable equity). permanent equity’ (i.e.,outsideof classified as ‘mezzanine are permittedtobe redeemable instruments Similar to real estate. the transaction involves criteria areconsidered if recognised. Specific strict Losses areimmediately part of the use of the asset. substantially alloraminor whether sellerrelinquishes recognition dependson Timing ofprofitandloss lease. record operating orcapital rules shouldbemetto Similar to the periodreceived. are recordedasrevenue in lived assetcontributions Long- met. are conditions is delayeduntilsuch case, revenue recognition attached togrant. In this when conditions are Similar to Similar to application. specific differences in Similar to IFRS IFRS IFRS IFRS IFRS butcertain . Specific Disclosedasaseparate , . butwith except
statement. on the face of income item after‘profitbeforetax’ shareholders’ funds. shareholders’ share capitalunder disclosed separatelyas All preference shares are than substance. based onlegalformrather practice, classification is No specific guidance. In Similar to Similar to reserve (inequity). directly creditedtocapital cases, grants receivedare detail. Fore.g.,incertain several differencesin conceptually, although Similar to differences. A numberofotherspecific respectively. tax carryforwardlosses, entities withandwithout certain asapplicablefor certain orreasonably realisation isvirtually assets isrecognisedif income. Deferredtax taxable and accounting from arising differences used drivenbytiming Full provisionmethodis IFRS IFRS IFRS . 79 . 78
73 80 77
15 Summary of similarities and differences
80 82 81 82 83 based IFRS Convertible debt is Convertible as a liability recognised its legal form based on split. without any appropriation to the statement. income in are accounted Dividends proposed. year when the No comprehensive except for: guidance; exchange (a) forward for intended contracts are or trading speculative value; carried at fair for held not those whereas the or trading, speculative premium or discount is the of amortised over life exchange the and contract in is recognised difference statement; income (b) equity index futures and options and equity stock are carried at lower options of cost or market; on clarification (c) interim contract exchange forward to hedge the foreign currency risk of a firm or a highly commitment probable forecast transaction. guidance Industry-specific on certain instruments for e.g. banking industry. practice, treatment would would practice, treatment be similar to the of substance on transaction. limited circumstances subject to the provisions Act. Companies the under On purchase, such shares to be are required be i.e. cannot cancelled stock. kept as treasury . an as Presented . in guidance; No specific . in Purchase is permitted , except no IFRS IFRS IFRS IFRS Similar to Conventional convertible convertible Conventional recognised debt is usually liability, unless entirely as is a beneficial there feature. conversion Similar to Similar to Similar to cash on ‘basis adjustment’ forecasted of hedges flow transactions. IFRS, US GAAP and Indian GAAP – November 2006 sset/liability Presented as a deduction as a deduction Presented of statement the in shareholders’ in changes period when the in equity by authorised shareholders. Dividends year the in are accounted declared. when Derivatives and hedge are measured instruments fair in changes value; at fair in are recognised value except statement income cash of portion effective for the where hedges, flow in are deferred changes equity until effect of underlying transaction is recognised in income statement. Gains/losses from hedge are used that instruments forecasted to hedge may be transactions non- cost of in included financial a (basis adjustment). number of shares for a number of fixed amount of cash) is split on for accounted proceeds basis, with equity allocated between and debt. Liabilities are derecognised extinguished. when between Difference and amount carrying amount paid is recognised statement. income in Show as deduction from equity. Similarities and Differences – A comparison of Derivatives and hedging hedging and Derivatives Derivatives and other financial instruments – and flow cash fair value hedges Dividends on ordinary equity shares Equity instruments instruments Equity Capital instruments – purchase of own shares Derecognition of financial liabilities debt Convertible debt (fixed Convertible SUBJECT SUBJECT IFRS GAAP US Indian GAAP PAGE
Summary of similarities and differences 16 Similarities and Differences–Acomparison of definition economy – Hyperinflationary currency Presentation PAGE determination currency – Functional IndianGAAP definition currency Functional Other accounting and reporting topics USGAAP hedges investment instruments –net IFRS financial other Derivatives and SUBJECT 100%. approaching, orexceeds, rate overthree yearsis and ifcumulativeinflation prices linkedtopriceindex; towards localcurrencyand population’s attitude include: which country, economic environment of by characteristics of Hyperinflation isindicated fluctuate significantly. rates ifdonot transactions, oraverage rate atdatesof are translated atexchange Income statement items balance sheet date. at exchange rateat and liabilitiesaretranslated assets currency, functional currency other than the are presented in the When financial statements which entity operates. economic environment in currency ofprimary operations byfocusing on economic results of entity's represents faithfully currency thatmost functional to determine obvious, judgement isused isnot currency functional If indicators aremixedand which entity operates. economic environment in Currency ofprimary investment. partial disposalof statement on disposalor are transferred toincome Gains/losses heldinequity statement. recorded inincome ineffective portionis recognised in equity; net investmentsis gains/losses onhedgesof Effective portion of IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 investment. complete liquidation of complete orsubstantially statement upon saleor transferred toincome Gains/losses are more. approximately 100%or three-year inflation rateof indicated bycumulative Hyperinflation isgenerally Similar to often key consideration. cash flows aresettledis practice, currency in which factors toconsider. In no specific hierarchy of Similar to Similar to Similar to IFRS IFRS IFRS IFRS . Similar to isnot currency Functional ; however, . .
oseii udne 85 No specific guidance. defined. defined. currency isdisclosed. different forusinga reason isused, currency different financial statements. If a domiciled inpresentingits of thecountryinwhichitis normally uses the currency It isassumed an entity oseii udne 88 No specific guidance. transactions. domiciled inrecordingits of thecountryinwhichitis normally uses the currency It isassumed an entity required. determination isnot currency Functional IFRS . 87 88 87
17 Summary of similarities and differences
91 89 90 90 . . . 91 , except in , except in ; however, . However, IFRS IFRS IFRS IFRS IFRS US GAAP or Similar to Exemption only for certain SMEs having turnover or borrowings below certain threshold. Similar to certain circumstances circumstances certain application share advance received is treated money as dilutive potential equity shares. the determination may be based on legal form rather substance. than parties scope of the Hence, the covered under definition of related party under be less than could IFRS No specific guidance. guidance. No specific 88 Similar to certain explicit exemptions available for disclosures. Exemption for certain SMEs having turnover or borrowings below certain threshold. No exemption for separate financial subsidiaries of statements . . . Similar to . Similar to . Similar IFRS IFRS IFRS IFRS are permitted to IFRS Public entities (SEC registrants): reported based on operating are based which segments, on manner in which chief decision-maker operating evaluates financial information for purposes of and resources allocating assessing performance. Internal financial reporting policies apply (even if policies differ accounting accounting group from policy). Similar to Exemptions are narrower under than Generally does not permit Generally inflation-adjusted financial instead statements; of reporting requires use as currency (US dollar) functional currency. that Foreign private issuers use Similar to Similar to omit quantification of any any of omit quantification differences that would have of application from resulted FAS 52. IFRS, US GAAP and Indian GAAP – November 2006 Group accounting policies accounting Group accounting or entity policies apply. Public entities: primary and and (business secondary are segments geographic) reported based on risks and returns and internal reporting structure. Name of the parent entity is disclosed and, if different, the ultimate controlling party, regardless of transactions whether occur. For related-party of nature transactions, relationship (seven of categories), amount transactions, outstanding balances, terms and types are transactions of disclosed. available Some exemptions for separate financial subsidiaries. of statements Determined by level of control, direct or indirect joint control and significant party over one of influence another or common control by another entity. Entities that have the Entities that currency of hyperinflationary economy as functional currency financial restate their a using statements current unit measurement date. sheet at balance average potential Weighted as are used shares dilutive denominator for diluted EPS. is method share’ ‘Treasury share for used options/warrants. Similarities and Differences – A comparison of Segment reporting – accounting policies Segment reporting – scope and basis of formats Related-party – transactions disclosures Related-party transactions – definition Earnings per – diluted share Hyperinflationary – economy measurement SUBJECT SUBJECT IFRS GAAP US Indian GAAP PAGE
Summary of similarities and differences 18 Similarities and Differences–Acomparison of main disclosures presentation and operations – Discontinued measurement operations – PAGE Discontinued IndianGAAP definition operations – Discontinued USGAAP disclosures IFRS reporting – Segment SUBJECT comparative balance sheet. No restatement of liabilities onbalancesheet. from otherassetsand are presentedseparately operations discontinued Assets andliabilitiesof current andpriorperiods. disclosed innotes,for and further analysis face of income statement, amount isdisclosedon At aminimum,single value lesscoststosell. carrying amount and fair Measured atlowerof resale. exclusively with aviewto subsidiary acquired area of operations, ora business orgeographical separate majorlineof reporting andrepresenta forfinancial distinguished that can beclearly Operations and cash flows reported. assets and capexare segment, revenues,total other items.Forsecondary assets, totalliabilitiesand expenditures (capex),total segment results, capital segment includerevenues, Disclosures forprimary IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 extraordinary items. statement before items on face of income reported asseparateline sale operations are held-for- and Discontinued Similar to Similar to asset grouping. reporting unit,subsidiaryor operating segment, reporting segment, financial reportingcanbe: operationally and for distinguishable component that isclearly Wider definitionthan required. to identifysegmentsis Disclosure offactorsused reported internally. items aredisclosedif exceptional/ extraordinary tax, interestand Depreciation, amortisation, capex arenot required. liabilities andgeographical (primary segment)except Similar disclosuresto IFRS IFRS . Byapplyingotherrelevant . IFRS IFRS :
provisions, etc. impairment ofassets, accounting standard on example, byapplying measurement. For accounting standards for Similar to threshold. borrowings belowcertain or turnover SMEs having Exemption forcertain for balance sheet items. No separatepresentation income statement. combined basisinthe however, presentedona disclosed inthenotes; are segregatedand operations discontinued and fromcontinuing items Income and expenses line disposal. (b) pre-taxgainorlosson and relatedtaxes (a) pre-taxprofitorloss operations: continuing statement separatelyfrom the face of the income following isdisclosedon At aminimum,the area of operations. business orgeographical separate majorlineof reporting andrepresenta forfinancial distinguished that can beclearly Operations and cash flows exceptions. IFRS withsome 94 93 93 91
19 Summary of similarities and differences
95 94 . , except IFRS IFRS Similar to to the However, pursuant listed listing agreement, all are required India in entities to furnish their quarterly results in the prescribed format. Quarterly results include financial results relating to the working of certain and Company the notes thereon. non-adjusting events are events non-adjusting to be not required in financial disclosed are but statements disclosed in report of e.g. approving authority Directors’ Report. . Similar to Similar . . Additional IFRS IFRS Similar to Similar to quarterly reporting for SEC requirements apply US registrants (domestic entities only). Interim reporting requirements for foreign private issuers are based on local law and stock exchange requirements. IFRS, US GAAP and Indian GAAP – November 2006 Financial statements are statements Financial subsequent for adjusted evidence providing events, existed that conditions of date sheet balance at the materially affecting and amounts in financial (adjusting statements Non-adjusting events). are disclosed. events Contents are prescribed and basis should be consistentfull-year with of Frequency statements. reporting (eg, quarterly, half-year) is imposed by local regulator or is at discretion of entity. Similarities and Differences – A comparison of
Interim financial reporting Post-balance- events sheet SUBJECT SUBJECT IFRS GAAP US Indian GAAP PAGE
Summary of similarities and differences 20 Indian GAAP GAAP US Similarities and Differences–Acomparison of IFRS Fair presentationoverride Indian GAAP GAAP US IFRS Historical cost Indian GAAP Income isincreases in economic benefits that resu Equityistheresidualinte GAAP US Assetsareresourcescontrolledfromapasteven IFRS Reporting elements Indian GAAP GAAP US IFRS Qualitative characteristicsoffinancialinformation IFRS Conceptual framework Accounting framework information where no specific guidance exists. frameworks provideabasisfor setting accounting standards an Extremelyrareinpractice,al Historicalcostisthe main accounting convention. However, Therearefivereportingelements:assets,liabilit Financial information should possesscertain characteristics for ittobeuseful. The IASBFramework , US GAAP US Extremely rareinpractice.TheSECw Prohibits revaluations exceptfor certain categories Reporting elements and the definition and recognition criteriaaresimilarto Aseriesof concept statements setout similarcharacteristics to Similar to Historicalcostisthe main accounting convention. However, Reporting elements and the definition and recognition criteriaaresimilarto The and requirements areappliedin such asituation. override doesnot applywhere there isaconflict between localcompany lawand the nature of and the reason for the departure, and the financial impactof the departure. The framework requires, ordoesnot othe should departfromthatrequir and ifthisconcerncannotbeaddressedthroughaddi be somisleadingthatitwouldnot management concludesthatcomp certain categoriesof financial instruments and certain intangible assets,property,plantandeq in decreasesin equity otherthan those relating todistributions toequity participants. and expenses(includeslosses). information. offinancial consistency on the at fairvalue. concept statements contain addi to contributionsfromequityparticipants.Expenses economic benefitswillflowtoorfromtheenti past event.Assetsandliabilitiesarerecognisedon underst tobe information financial requires and distributionstoowners. income includes allchanges in equity during aperiod,exceptthose resulting from investments by comprehensive incomeandfairvaluemeasurem derivatives arecarriedatfair value. of property,plantandequipmentbu industry regulation,thecompany la Indian GAAP Indian GAAP IFRS . If there isaconflict between the accounting standards and the company laworan each have aconceptual framework. The principles setout in the three Frameworksetsout characteristics similarto rest intheassetsafterdeduct IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 though entitiesmaydepartfrom ement ofthestandardorinterpreta tional elements: investments by provide a‘true and fair view’of the entity’s financial statements liance witharequirementin w orindustryregulationisapp t there isno requirement on frequency of revaluation. Certain rwise prohibit,suchadeparture. ill notgenerallyacceptsuchan override. uipment (PPE)andinvestmentproperty. andable, relevant,reliableandcomparable. ty, andthosebenefitsarereliablymeasurable. d apoint of reference for the preparation of financial ies, equity,income(inc ents usedinaccounting.Othercomprehensive t. Liabilitiesarepresentobligationsarisingfroma lt in increases in equity otherthan those relating thebalancesheetwhen aredecreasesin economic benefits that result of financial instrument, which have to be carried carried tobe have which instrument, of financial tional disclosure.Ifth biological assetstobere ing theentity’sliabilities. astandardorinterpretationif IFRS Indian GAAP IFRS IFRS anddistributionstoowners, standard orinterpretationwould tion onlyiftheregulatory permitstherevaluationof lied withadequatedisclosures. . , with greater emphasis placed IFRS ludes revenuesandgains) permitstherevaluation is occurs,theentity requiresdisclosureof IFRS IFRS it is‘probable’that ported atfair value. . . IFRS US GAAP US IFRS alsorequires ; the
IFRS
21 Accounting framework
. US GAAP . Almost all effective at the at the effective IFRS financial statements IFRS for the first time. It for the first sures. First-time adoption of sures. First-time paration of financial IFRS requires full retrospective requires full retrospective financial accounting standards ect with an objective to develop a an ect with AAP hierarchy currently presented in ionally converged, and that lead to that and converged, ionally “Present Fairly in Conformity With time preparation of Statement of Financial Accounting Financial Accounting of Statement are adjusted against opening retained retained opening against are adjusted isting IASB and FASB frameworks and isting IASB and FASB frameworks and edit, and similar decisions. That That similar decisions. edit, and US GAAP are presented in conformity with IFRS al treatment upon first-time application of a of application first-time upon al treatment basis. Some adjustments are made against basis. Some adjustments ties and first-time pre IFRS and is essential to fulfilling the Boards’ goal of and is essential to fulfilling the Boards’ ternally consistent. Such a framework would provide a would a framework Such consistent. ternally prepared and presented on the basis of prepared and presented 38, IAS 39, IAS 40, IAS 41, IFRS 1. Accounting Principles. The proposed Statement would would proposed Statement The Principles. Accounting financial statements, with optional exemptions primarily for for primarily exemptions optional with statements, financial to improve the quality of ses certain requirements and disclo and requirements ses certain IFRS does not give specific guidance on first-time adoption of its of adoption first-time on guidance give specific does not IFRS, US GAAP and Indian GAAP – November 2006 , with certain modifications, the G the Boards) embarked on a joint proj based, internally consistent, internat US GAAP lished an Exposure Draft -- proposed range of issues, will build on the ex andards (SAS) No. 69, The Meaning of . No rules for carve-out entities or first- entities carve-out for . No rules information needed for investment, cr of nongovernmental enterprises that : Framework, AS 1, AS 10, AS 11. US GAAP : CON 1-7, SAB 107, FAS 115, FAS 130, FAS 133, FAS 154. as the primary accounting basis requires full retrospective application of of application retrospective full basis requires accounting primary as the : Framework, IAS 1, IAS 8, IAS 16, IAS IFRS Indian GAAP US GAAP introduces certain reliefs and impo and reliefs certain introduces IFRS first date for an entity’s reporting PPE and other assets, business combinations and pension plan accounting and limited mandatory mandatory limited and accounting plan pension and combinations assets, business other PPE and information is exceptions. Comparative adjustments arising from the first-time application of of application first-time the from arising adjustments earnings of the first period presented on an earnings of the first of adoption principles. However, first-time accounting transition the specify Some standards application. goodwill or against other classes of equity. goodwill or against financial statements. enti carve-out apply for rules Specific standard. statements for the public. public. the for statements for the public.
Similar to Similar : Accounting principles be should consistent for financial information presented in comparative to apply how on standard a specific includes IASB framework The
The proposed Statement would incorporate the AICPA’s Statement on Auditing St Principles.” Generally Accepted Accounting Similarities and Differences – A comparison of REFERENCES Recent proposals – US GAAP with its effort On April 24, 2005, the FASB in connection the in to be used principles the selecting for framework the and principles accounting of sources the identify preparation of financial statements and the standard-setting process, pub Accepted Generally of Hierarchy (SFAS), The Standards framework adoption of accounting First-time IFRS US GAAP Indian GAAP Indian Recent proposals – IFRS and US GAAP In October 2004, the International Accounting Standards Board (the and “IASB”) the Financial Accounting Standards Board (the “FASB”) (together, financial reporting that provides the sound foundation for developing future accounting standards sound foundation for developing future common conceptual framework that is both complete and in complete and is both that framework conceptual common developing standards that are principles- framework, which will deal with a wide frameworks. original their issued they since developments consider
Accounting framework 22 Similarities and Differences–Acomparison of Required 4 Required Required Required 3 Required Required 2 Required – 1 28 Required Required statements tofinancial Notes Accounting policies Required Required Cash flow statement (stock) holders’equity 26 24 Statement of changes in share and expense (SoRIE) Statement of recognised income Income statement Balance sheet under statements offinancial A set The lawrequires entities todisclose whether Components offinancialstatements Indian GAAP GAAP US IFRS Compliance General requirements Financial statements OPNN PG IR U AP IndianGAAP USGAAP IFRS PAGE COMPONENT Except for certain entities, such entities, Exceptforcertain with the income statementorthe theincome with separately highlighted in thestatementof in highlighted separately displa is information equity statement. Supplemental primary Indian GAAP GAAP US IFRS process oflisting,banks,fina Cashfl and‘Reservessurplus’. of‘Share capital’ schedules having borrowingsinexcessofRs.100m enterprises. enterprises. Entities should makean explicitstatem : A statement of changes in shareholders’ equity is notpres is equity shareholders’ Astatementofchangesin UScompanies with registeredsecurities Indian companies should complywith : The statements of other comprehensive income andaccu income Thestatementsofothercomprehensive : compliance with accounting standards isnecessa accounting standards and togivedetailsof non-compliance. There isapresumption that applicable standardandeach cannot beclaimedunless the financial statements complywith allthe requirements of each disclosures. income and equity to another comprehensivebasisofaccounting(suchas SEC’s rulesandregulations and financialinterpreta securities in the US(foreign privatei regulatory requirements.Additionally,listedcompa No separate statement of changes in shareholders’ eq shareholders’ Noseparatestatementofchangesin ncial institutions,insuranceco as investment companies. companies. asinvestment IFRS eurd eurd Required Required – Required 27 Required 27 Required US GAAP US , tions oftheSecuriti illion atanytimeduringtheaccountingpe changes in shareholders’ equity if aSoRIE if equity shareholders’ changes in US GAAP US of changes in stockholders’ equity, orpr equity, stockholders’ of changesin IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 applicable interpretation. isprovidedinthenotes,t financial interpre and 1 1 ssuers) mayissuefinancialstatementsunder Othercomprehensiveincome Indian GAAP mpanies, allenterpriseswhos ent that financial statements complywith Indian GAAP yed in the notes. Recognised income andexpensecanbe income thenotes.Recognised yed in (SECregistrants) es andExchangeBoa ows statements are required fo ows statementsarerequired ented as a primary statement if a SoRIE is presentedasa aSoRIEis statementif ented asaprimary the financial statements complywith applicable comprehensive income and accumulated other Required mulated other comprehensive income may be combined maybecombined income othercomprehensive mulated uity is required. Changes are disclosed in separate in Changesaredisclosed required. is uity tations. Non-UScompani ry togiveatrue and fair view. nies shouldcomplywith , the Companies Actand industry-specific comprisesthefollowingcomponents. IFRS 4 Required ogether with SECand certain should complywith ), aslongareconciliationofnet riod, andtheirholdingsubsidiary esented as a separate primary statement. esented asaseparateprimary is not presented as a primary statement. notpresentedas aprimary is rd ofIndia(SEBI). e turnoverexceed 2 r listed enterprises or in the orin enterprises r listed
es withregistered the rules,regulations US GAAP US IFRS s Rs.500million Not required US GAAP US . Compliance US GAAP US , and the 3 3
or or
23 Financial statements
IFRS s, Unsecured loans, listed companies present shareholders’ equity, ation of total assets and total and non-current liabilities, as ilities are presented broadly in the form of presentation in many year presented (i.e., third year back) (i.e., third year presented requires presentation of the following but are generally presented in other payables, and minority interests This one-off accommodation was This one-off accommodation IFRS IFRS rmats of the balance sheet. sheet. balance the rmats of l liabilities and shareholders’ equity. Items inventories, trade and other receivables, tax other trade and inventories, ents but must use the consolidation standard if if standard consolidation the use must but ents ity parent company (standalone) basis. It is not ity parent company (standalone) basis. assets, financial assets, investments accounted accounted assets, investments assets, financial ical information in the financial statements, with with statements, financial the in ical information ld give two years of comparatives (to the current (to the current years of comparatives ld give two balances, loans and advances, other current current other advances, and loans balances, ated basis. In limited circumstances or on a or on limited circumstances ated basis. In and surplus, Secured loan stock exchanges, public public stock exchanges, Companies Act prescribes a format of the balance balance the of Act prescribes a format Companies ical information in the financial statements. statements. financial the in ical information and in certain circumstances for foreign private foreign for circumstances certain in and ular format, except certain items should be items should except certain format, ular ments, Current assets, loans and advances advances and assets, loans Current ments, and other components of lance sheets except when a liquidity presentation presentation a liquidity except when sheets lance sions, Miscellaneous expenditure. th their standalone financial statements. statements. financial standalone their th e information. All assets and liab eet format, but a separate present d non-current assets, and current of a balance sheet as a primary statement. as a primary statement. sheet a balance of ssets balancing to tota scribe industry-specific fo IFRS, US GAAP and Indian GAAP – November 2006 es. However, as a minimum, ting on or after 1 January 2007. ting on or after 1 January nagement may use judgement regarding provisions, tax liabilities, trade and adopters to avoid recasting the earliest the adopters to avoid recasting IFRS . . . IFRS IFRS IFRS Assets: PPE, investment property, intangible property, intangible Assets: PPE, investment for using the equity method, biological assets, biological method, equity the using for and equivalents; cash and cash assets, and Equity and liabilities: issued share capital (presented within equity). capital, Reserves Share Funds: of Sources financial liabilities, Minority interest; and assets) less Current liabilities and provi Application of Funds: Fixed assets, Invest (inventories, sundry debtors, cash and bank
Other industry regulations pre consolidated financial statements along wi along statements financial consolidated prepared. Pursuant to the listing agreement with prepared. Pursuant to the listing agreement mandatory to prepare consolidated financial statem financial consolidated to prepare mandatory voluntary basis, an entity may present single-entity parent company (standalone) financial statements. financial its consolidated with along statements order of liquidity in such cas limited exceptions in disclosures. in disclosures. limited exceptions rule This comparative year. one requires which sheet, balance the except for all statements year) for statements. primary financial the in are used principles accounting applies whichever adopt that companies for is required adoption, year of the comparatives, in year of one Only star prior to their fiscal year under for non-public entities The general requirement all numer comparatives for year of is one issuers designed to allow liabilities is required. Ma areas. Entities present current an provides more relevant and reliabl sheet: balance the of face the items on separate classifications on the face of their ba their of face the on separate classifications presented on the face of the balance sheet. The The sheet. balance the of face the on presented sheet and requires presentation of the following items on the face of the balance sheet. sheet. balance the of face the items on following the of presentation requires and sheet presented on the face of the balance sheet are similar to sheet balance the of face the on presented decreasing order of liquidity. The balance sheet detail should be sufficient to enable identification of SEC guidance. specific follow should entities Public material components. a single-ent on are presented statements Financial Similar to Similar Accounting standards do not prescribe a partic Similar to Similar shou all registrants that specify SEC requirements Generally presented as total a There is no prescribed balance sh a consolid on are presented statements Financial numer all for comparatives is required year of One
Similarities and Differences – A comparison of Format IFRS Balance sheet Each framework requires prominent presentation IFRS US GAAP GAAP Indian Preparation and presentation Preparation and Comparatives IFRS USGAAP GAAP Indian US GAAP Indian GAAP Indian
Financial statements 24 US GAAP US Indian GAAP Similarities and Differences–Acomparison of Indian GAAP GAAP US IFRS Other balancesheetclassification IFRS Offsetting assetsandliabilities IFRS Current/non-current distinction(general) US GAAP US Indian GAAP Minority interests arepresented asacomponent of equity. Assetsandliabilitiescannotbeoffset,exceptwh The current/non-current distinction isrequired (exceptwhen aliquidity presentation isused). Where Offsetting ispermittedwhere the partiesoweeach Minorityinterestscannotbepresented asequity. Management maychoose topresent either acl In absence of specific guidance practicevaries. Minorityinterestsarepresentedas Nostrictdistinction between current and non- conditions of offsetting. ofoffsetting. conditions the donotmeet generally arrangements netting Master instruments. financial of derivative presentation net topermit isnotsufficient simultaneously, liability and asset the orrealise net settle a net presentation is permitted, offsetting ofam offsetting ispermitted, presentation net a these requirements, e.g.derivativefinancial inst intention tooffset and where the offsetting is repurchase agreements. settle theliabilitysimultaneously.Amasternetting the recognised amounts and intends tosettletransactions on anet basisortorealisethe assetand assets andfinancial the distinction ismade,assetsareclassified as result innon-currentclassificatio reschedule paymentsonalong-te even if the original termwasfor aperiodof morethan 12 months. An agreement torefinance or current when they aredue toberealisedorsettledwithin 12 months of the balance sheet date, realised within12monthsofth assets andliabilitiesareclassified consumption in the normal course of the entity’s operating cycle;orcash orcash equivalents. Both classified asnon-current asof the balance sheet guidelines fortheminimuminformationtobein requirements aresimilarto statements areissued. reschedule paymentsonalong-t completed before the financial statements areissued. Companies Actorindustryregulations. liabilities maybeoffsetwhereanentity IFRS IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 e balancesheetdate.Interest-bear if aclassified balance sheet ispresented. The SECprovides n ofthefinancialliabilitieseven erm basis(includingwaiversfo ascurrentwheretheyareheld rm basisthat iscompletedafter the balance sheet datedoesnot separately fromliabilitiesandequity. enforceable by law.There arecertain exceptions to current. Companiesfollowformatsprescribedbythe cluded bypubliccompanies.Liabilitiesmaybe assified ornon-classified balance sheet. The ount relatedtocertain ruments under masternetting arrangements where current assetsif they are:held for saleor ere specificallypermittedbyastandard.Financial date providedthatagreemen agreement, intheabsen other determinable amounts, where there isan has alegallyenforceablerighttooffset r certain debtcovenants) are if executedbeforethefinancial for tradingorexpectedtobe ing liabilitiesareclassifiedas repurchase andreverse ce oftheintentionto ts torefinanceor
25 Financial statements
does not use IFRS losed separately in the ation of the following items on ation of the following and expenditure items. In items. In expenditure and ement net of taxes. Disclosure of the tax impact the of taxes. Disclosure of net ement distinct from the ordinary activities of the entity entity the ordinary activities of the from distinct ducted from sales to show gross profit, and ducted from sales to show gross profit, from operations, as well as being described in the quired in the footnotes if functional presentation is minority interest is disc tten off to earnings as an extraordinary gain, ement in a manner that its impact on current profit profit current impact on its that a manner in ement gnificant items are disclosed separately on the face face the items are disclosed separately on gnificant come and expense that are of such size, nature or size, nature such of are that expense come and separately disclosed on the face of the income income the of face the on separately disclosed requires, as a minimum, present requires, as a minimum, losure norms for certain income an income statement as a primary statement. statement. as a primary statement income an IFRS scribe industry-specific format of the income statement. statement. income the of format scribe industry-specific IFRS, US GAAP and Indian GAAP – November 2006 te disclosure is necessary to explain the performance of the entity for the the for entity the of performance the to explain is necessary te disclosure of two formats. Either: , except that the Companies Act uses the term ‘exceptional items’. term ‘exceptional the Act uses Companies the , except that IFRS
revenue; finance costs; equity the using for accounted ventures joint associates and of results after-tax of share method; tax expense; discontinued of remeasurement and results to the or loss attributable gain post-tax and operations; net profit or loss for the period. a single-step format where all expenses are classified by function and are deducted from total income to give income before tax; or is de a multiple-step format where cost of sales tax. before to give income presented are then expense and income other
The portion of the net income attributable to the The portion of the net income attributable income statement. statement. income including nature, operating an all items of include should result operating discloses an that entity An those that occur irregularly or infrequently or are unusual in amount. of the income statement when arriving at income at income arriving when statement income the of notes. period. Disclosure may be on the face of the income statement or in the notes. notes. the or in statement income the of face the may be on period. Disclosure items’. term ‘exceptional the or define goodwill arising in a business combination is wri stat income the of face the separately on presented statements. financial to the notes the or in statement income the of face the on is either incidence that their separa their that incidence each of amount and nature the of Disclosure regularly. and frequently expected to recur are not and stat income the in item is required extraordinary or loss can be perceived. presenting its expenses by either function or nature. The portion of profit and loss attributable to the is entity parent to the and interest minority statement. Disclosure of expenses by natureis re statement. income the on used statement: income the of face the • • • • • • • • or loss. income net of as a component are presented interest minority to the attributable the Companies Act prescribe disc practice, the expenses are presented by either function or nature. Other industry regulations pre Similar to Similar clearly or transactions as events are defined These and standards accounting However, the statement. income the for prescribed format is no There These are defined as being both infrequent and unusual. Extraordinary items are rare. Negative si but used, items’ is not term ‘exceptional The one in Presentation Prohibited. Separate disclosure is required of items of in of method select a should entity The statement. income the for prescribed format is no There Similarities and Differences – A comparison of Indian GAAP Indian Extraordinary items Extraordinary IFRS US GAAP US GAAP GAAP Indian Exceptional (significant) items IFRS Format IFRS statement Income of presentation requires prominent Each framework Indian GAAP Indian US GAAP SEC regulations require public companies to categorise expensesby their function. Amounts
Financial statements 26 US GAAP US Indian GAAP GAAP US Thecumulativeamountsaredi Indian GAAP Similarities and Differences–Acomparison of IFRS Statement ofchangesinshare(stock)holders’ equity IFRS Format GAAP US IFRS Presentation Statement ofaccumulatedothercomprehensiveincome Statement ofrecognisedincomeandexpense/Othercomprehensive Indian GAAP Presented asaprimarystatement unless a Thetotalofincomeandexpenserecognisedin Entities that present astatement of recognised Similar to Similar to Oneofthreepossibleformatsmaybeused: Not applicable. Notrequired. Noseparatestatement isrequired. Changes in statement. under • • • • without anyaddition items arepermittedtobedisclosedintheno movement inaccumulatedprofitandareconciliation ‘Presentation’ under discussion Supplemental equity information ispresented in the notes when aSoRIEispresented (see • income and expense itemsarerecognised directlyin equity: comprehensive income).TheSECwillacceptth SoRIE. employment benefitplansinequity primary statement. Entities that choose tor highlighted in the statement of changes in shareholders’ equity if aSoRIEisnot presented asa • • equity informationisprovidedinanote.Rec presenting astatement of changes in shareholder’ schedules of ‘Share capital’and ‘Reservesand surplus’. disclosure ofcertainitemsin the notes. •
actuarial gains and losses, effective from 1 January 2006, with earlier adoption encouraged). encouraged). adoption 2006,withearlier from1January effective losses, and gains actuarial elects the option availableunder the amendment actuarial gains and losseson defi tax, andcashflowhedgesreclassifiedtoincome changes in fair values of certain financial instruments if designated ascash flow hedges, net of the cumulative effect of changes in accounting policy; foreign exchange translation differences; and certainfinancialinstruments; fair valuegains/(losses)onlandandbuildings, a two-statementapproach(a forward ofaccumulatedothercomprehensiveincome; comprehensive incomecontainingbothnetin a singleprimarystatementofincome,othe (as under under (as a separatecategoryhighlighted wi comprehensive income,andast US GAAP US IFRS IFRS IFRS , exceptthat , exceptthat revaluations of land and build . Actuarial gains and losses(when recorded)arerecognised through the income ). al disclosures.
US GAAP US IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 sclosed foreachitemofcomprehe above). Itshould show capitaltransactions with owners, the statement ofcomprehensivein in the periodin which they occur arerequired topresent a atement ofincome);or ned benefit plans recognised directlyin equity (if the entity thin the primarystatement of changes in stockholders’ equity
does nothaveaSoRIE,andSEC rulesrequirefurther ecognise actuarialgains and lossesfrom post- SoRIE ispresented asaprimarystatement. ognised income and expense can beseparately tes rather than in the primary statement. r comprehensiveincomeandaccumulatedother incomeandexpense(SoRIE)areprohibitedfrom theperiodcomprisesnetincome.Thefollowing shareholders’ equityaredisclosed inseparate e presentationpreparedinaccordancewith come, othercomprehensiveincomeandaroll- intangible assets,availa s equity asaprimarystatement; supplemental and/ortherelevanthedg to IAS 19, Employee Benefits, relating to relating Benefits, toIAS19,Employee ofallothercomponentsequity.Certain ings andintangibleassetsareprohibited come andaccumulatedother nsive income(accumulatedother ble-for-sale investments ed asset/liability;and IFRS
27 Financial statements
.
IFRS l institutions, insurance l institutions, insurance are classified as financing cash Similar to to Similar Other enterprises: Investing Other enterprises: Investing Indian GAAP Indian Other enterprises: Financing e on demand but not short-term
, except bank overdrafts are not included , except bank overdrafts are not included
Financial enterprises: Operating; 1, 2 1 vidends and tax within specific categories specific tax within and vidends th operating activities) or the indirect method method indirect or the activities) operating th scribed for listed enterprises and direct scribed for listed enterprises and direct IFRS has a maturity of three or less months from its erating Financial enterprises: Operating; erating Financial enterprises: Operating; tion about ‘cash receipts’ and ‘cash payments’. payments’. ‘cash receipts’ and ‘cash about tion the direct method (cash flows derived from the direct method (cash listing, banks, financia the indirect method is permitted and more the indirect method is permitted and more ing period, and their holding and subsidiary. ing period, and their US GAAP Operating me to cash flows from operating activities is me to cash flows from operating activities fit associated with share-based compensation arrangements
sclosure of certain non-cash and cash transactions at the ificant non-cash transactions are disclosed. transactions non-cash ificant financing activities are classified separately. activities are classified financing s in the balances of overdrafts turnover exceeds Rs. 500 million or having borrowings in excess 500 million or having borrowings in excess turnover exceeds Rs. include bank overdrafts repayabl in investment entities. in investment IFRS, US GAAP and Indian GAAP – November 2006 method is more common. method is more common. r insurance companies. . require the classification of interest, di interest, of classification the require financing Financing Financing financing Financing . However, only indirect method is pre . . US GAAP IFRS IFRS IFRS
financing or investing investing or financing Indian GAAP Indian companies, all enterprises whose companies, all enterprises any time during the account of Rs. 100 million at bank borrowings; these are considered to be financing cash flows. flows. cash to be financing are considered these borrowings; bank acquisition date. Cash may also known amounts of cash and are subject to an insignificant risk of changes in value. An investment investment An value. in changes risk of insignificant to an subject are and cash of amounts known only when it normally qualifies as a cash equivalent in cash and cash equivalents; change equivalents. cash and cash within included being than rather flows, cash flow statement may be prepared using either cash flow statement associated wi payments and receipts cash aggregating (cash flows derived from adjusting net income for transactions of a non-cash nature such as such nature a non-cash of transactions for income net adjusting derived from flows (cash indirect The depreciation). The SEC encourages the direct method; however, direct method; the SEC encourages The Sign disclosed if the direct method is used. method is prescribed fo common in practice. A reconciliation of net inco common in practice. A reconciliation of and and of for enterprises listed or in the process Required to Similar as Same Similar to Similar has additional disclosure rules regarding supplemental di has specific rules regarding the classification tax bene of the The definition of cash equivalents is similar to that in Same as for certa Limited exemptions informa provides relevant statement flow cash The US GAAP , flows from operating, investing and Cash to are readily convertible that investments liquid highly are short-term, equivalents cash and Cash The statement. flow cash the are reported in equivalents’ cash and ‘cash of outflows and Inflows No exemptions. exemptions. No and the classification of derivatives that contain a financing element. bottom of the cash flow statement. US GAAP US GAAP
of the cash flow statement. These are set out below. are set out These statement. flow cash the of ITEM IFRS Similarities and Differences – A comparison of 1 2 Interest received Dividends paid Operating or investing Dividends received Operating or investing Operating or Taxes paid Operating – unless specific identification with Op Op US GAAP IFRS Interest paid Operating or financing Operating IFRS Classification of specific items Format US GAAP Definition of cash and cash equivalents Definition of cash and cash equivalents IFRS Indian GAAP Indian GAAP Indian GAAP Indian Direct/indirect method Direct/indirect method IFRS IFRS USGAAP statement Cash flow Exemptions US GAAP Indian GAAP Indian
Financial statements 28 Similarities and Differences–Acomparison of REFERENCES Indian GAAP GAAP US IFRS Changes inaccountingestimates Indian GAAP GAAP US IFRS Correction oferrors Indian GAAP Policychanges madeon the adoption of anew standard areaccounted for in accordance with that GAAP US IFRS Changes inaccountingpolicy Changes inaccountingpolicyandotherchanges Changes in accounting estimatesareaccounted for in the income statement when identified. The samemethod asfor changes in accounting policyapplies. Changes in accounting policyareaccounted for retrospectively.Comparativeinformation is Similarto Similar to Similarto : Similar to Reportedasaprior-periodadjustmentseparately The cumulative amount of the change isrecognised and disclosedin the income statement in the IFRS Indian GAAP APB 28,30,ARB43,SECRegulationS-X,FIN39 GAAP US cost method in the extractiveindustry. inventory valuation; depreciation in the railindustry; construction contracts and adoption of the full- retrospective adjustments arerequired in certain cases:changes in the method of accounting for discloses pro-formacomparativesas change isrecognised and disclosedin the income statement in the periodof the change. The entity ofthe amount cumulative 2005.PriortoFAS154,the 15December after beginning years for fiscal impracticable tochange balance of retained earnings of the earliestyear prospectively in the periodof change and future periods. estimated useful livesof depreciableassetsis previously recordedassetsistreatedasachange impact on the income statement can beperceive period ofthechange.Tr specified. standard’s transitionprovisions.Th restated, and the amount of the adjustment relating revised remainingassetlife. change; whereas on revision of assetlife, the una retrospectively computing depreciation under the cumulative amount of the change toopening retained earnings (reserves). : IAS1,7,8,19, : CON1-7,FAS16,52,95,130,F IFRS IFRS IFRS IFRS : CompaniesAct,AS1,3,5,6,10,11. . However,the impactof change in for method indepreciation ofFAS154.Priorto154, change adoption withthe , reportedasaprior-periodadjustment;re with the adoption of FAS 154, Accounting Changes and Error Corrections, effective effective ErrorCorrections, and Changes ofFAS154,Accounting adoption with the ansition provisionsofcer comparative information. IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 IAS 21,29,32,SIC-30. e method describedaboveisused if transition provisions arenot if the change had been applie achange in estimate,which isaccounted for presented.Anexemptionapplieswhenitis d. Restatementofcomparativesisprohibited. tain newstandardsrequ mortized depreciableamount ischarged overthe in the income statement in amanner that its new methodandisrecordedintheperiodof in accounting principle. However,achange in the depreciation methodisdeterminedby topriorperiodsisadjusted against the opening AS 141,FAS154,APB20(supersededby154), statement of comparativesismandatory. d tothoseperiods.However, ire adjustment of the
29 Financial statements
ard of directors (de facto directors (de facto ard of benefits of the SPE; nt owns, directly or indirectly d do not object to the parent d do not object to the could have control over an entity entity over an control have could also be considered to determine to determine also be considered or control of the composition of ng rights are consolidated as are consolidated rights ng companies. Specific rules apply for for apply rules Specific companies. wer. Control also exists when sks of the SPE or its assets. voting rights are not considered. Control Control considered. are not rights voting control. However, it may not be olidated (see guidance below). olidated (see guidance olidated financial statements that comply with comply with that statements olidated financial l, referred to as ‘effective control’. This This control’. to as ‘effective l, referred in the majority of the there could be situations in which an entity is entity an which in be situations could there mportant distinction between the three three the between distinction mportant for public listed companies, whereas optional for for public listed companies, whereas optional tity’s voting power or bo to obtain economic benefits from its activities. to govern the financial and operating policies of a to govern the financial and operating policies atements that include all subsidiaries. An exemption exemption An all subsidiaries. include that atements erm employee benefit plans to which IAS 19, lidation decisions are evaluated first under the the under are evaluated first decisions lidation rol in determining whether a parent/subsidiary rol in determining whether a parent/subsidiary majority of the benefits of the SPE; or e potential voting rights should rests have been informed about an rests have been informed r or board of directors. A parent e half of an entity’s voting po ties’. Entities controlled by voti ful and are required for public ful and are required an one-half of the voting rights rights voting the of one-half an rol is presumed to exist when a pare the residual or ownership ri are consolidated where the substance of the relationship indicates indicates relationship the of substance the where are consolidated del. If the entity is a VIE, management should follow the guidance guidance the follow should is a VIE, management entity the del. If under the concept of effective control. control. effective of concept the under an entity controls are cons controls entity an IFRS, US GAAP and Indian GAAP – November 2006 based on the notion of de facto
IFRS US GAAP e purpose of consolidation, is an i is an consolidation, of e purpose , except that currently exercisable potential exercisable potential currently , except that contains a similar notion of de facto contro de facto of a similar notion contains .
IFRS
the owners of the minority inte the owners of the minority not presenting consolidated financial statements, and the parent’s securities are not publicly publicly are not securities parent’s the and statements, financial consolidated presenting not traded; IFRS it is not in the process of issuing securities in public securities markets; and markets; and securities public in securities issuing process of the in it is not parent publishes cons the immediate or ultimate the SPE conducts its activities on behalf of the entity; entity; the of behalf its activities on SPE conducts the the entity has the decision-making power to obta the entity has other rights to obtain the the entity has the majority of
• • • Entities acquired (disposed of) are included in (excluded from) consolidation from the date on which which date on the from consolidation from) (excluded in are included (disposed of) acquired Entities control passes. Currently exercisabl exists. control whether in circumstances where it holds less than 50% of the voting rights of an entity and has no legal or no has and entity an of rights voting the of 50% less than it holds where circumstances in en the majority of the to control rights contractual control). parent owns half or less of the voting power but has legal or contractual rights to control the majority of the entity’s voting powe through subsidiaries, more than on subsidiary to obtain benefits. Cont relationship exists. Control is the parent’s ability relationship exists. Control is the parent’s Employee Benefits, applies are excluded from this rule. rule. this from applies are excluded Employee Benefits, Post-employment benefit plans or other long-t subsidiaries. US GAAP variable interest entity (VIE) mo under consolidated under consolidated is defined as ownership of more th below, under ‘Special purpose enti ‘Special purpose below, under practice. Accordingly, is rarely employed in concept the board of directors or a governing body so as that an entity controls the SPE. Indicators of control arise where: arise where: control of SPE. Indicators the controls entity an that • • • applies to a parent that is itself wholly owned or if: wholly owned or a parent that is itself applies to • are presumed to be more meaning are presumed to be other entities. certain industries. industries. certain Similar to Similar are mandatory statements financial Consolidated Uses a bipolar consolidation model. All conso statements financial Consolidated statements. financial general purpose for exemption is no There (SPEs) entities Special purpose to cont power the of concept the on Focuses st financial consolidated prepare entities Parent that entities Special purpose US GAAP Indian GAAP Indian Similarities and Differences – A comparison of Special purpose entities IFRS Consolidation model and subsidiaries Consolidation model and subsidiaries The definition of a subsidiary, for th frameworks. IFRS IFRS statements financial Consolidated Preparation US GAAP Indian GAAP Indian
Consolidated financial statements 30 Indian GAAP Similarities and Differences–Acomparison of REFERENCES Indian GAAP GAAP US IFRS Reporting periods Indian GAAP GAAP US IFRS Uniform accountingpolicies Indian GAAP GAAP US IFRS Subsidiaries excludedfromconsolidation GAAP US The consolidated financial statements of the parent and the subsidiary areusually drawn up atthe Consolidated financial statements arepreparedusing uniform accounting policiesfor allof the Allsubsidiaries areconsolidated exceptthose for which control doesnot restwith the majority Similar to Similar to Similar to The consolidation of an SPEisrequired byitsprimarybeneficiary when the SPE meetsthe : Nospecific guidance on specialpurpose en Similar to Similar to Asubsidiary isexcluded from consolidation an IFRS Indian GAAP GAAP US months. gap period. been applied. for using the equity method unless the presumption of significant influence can beovercome. sale maynot beprecluded from consolidation. Un and the assetsshould befina that isnot consolidated bythe transferor. The SPEshould beaqualifying SPE(QSPE,asdefined), or post-employment plans). Specific criteriaalsope returns, orboth. There areseveralscopeexceptions tothis rule (such aspension, post-retirement absorb amajorityof the VIE’sexpectedlosses,r months. Adjustments aremadefor significant transactions that occur in the gapperiod. different reportingdateprovided same reporting date.However,the consolidatio disclosed together with the proportions of the consolidation ispermittedin such cases. specialised industry accounting principles.Retention of the specialisedaccounting policyin uniform accounting policiesfor allof the entities in agroup exceptwhen asubsidiary has entities in agroup. • • the presentationforassetsheldfo accordance with IFRS5, Non-current AssetsHeld owner. Asubsidiary that meets,on acquisition, the definition ofaVIEandthe disposed), rather than normal line-by-line consolidation presentation.
it operatesunderseverelong-termrestrictions 12months);or than notmore (being future near inthe disposal toitssubsequent view with a control isintended tobetemporarybecause the subsidiary isacquired and held exclusively funds to the parent. parent. funds tothe : IAS27,SIC-12,IFRS5. : ARB51,FAS94,144,SAB84,EITF96-16,FIN46. IFRS IFRS IFRS IFRS IFRS : AS21,ASI8,Guidancenoteon . However,thedifferencebetweenreport , . However,if itisnot practicaltouse uniform accounting policiesthat fact should be , with certain exceptions. Consolidated financial statements arepreparedusing , butalsoiftheownerisnotprimarybe except that adjustments aregenerally not madefor transactions that occur in the primary beneficiaryhasavariableinterest IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 ncial assets (as defined). defined). (as assets ncial the differencebetweenreportin r sale(ie,separate Employee ShareBasedPayments. Employee tities. ESOPtrusts arenot consolidated. items towhich different accounting policieshave d carriedatcostlessimpairment, if any, when: n of subsidiary accounts can bedrawn up ata eceive amajorityof the VIE’sexpectedresidual for Sale and Discontinued Operations, applies consolidated subsidiaries aregenerally accounted criteria tobeclassified asheld for salein which significantlyimpair rmit thetransferoffinancialassetstoanSPE presentation ofassets neficiary of aVIE.Asubsidiary held-for- ing datesshouldnotbemorethansix intheentitythatwillcauseitto g datesisnomorethanthree and liabilitiestobe itsabilitytotransfer
31 Consolidated financial statements
does US GAAP ed at cost or at fair ed at cost or at fair th a brief description result is disclosed in s. Participation in the s. Participation voting rights leads to a voting rights leads to for example, preference − reverse order of priority in a liabilities of significant associates. cost less impairment. st of the acquisition and investor’s share of of share investor’s and acquisition the st of th a view to its subsequent disposal in the the disposal in a view to its subsequent th uld generally be accounted for in a similar way. in for be accounted generally uld strictions which significantly impair its ability strictions which significantly ment in associate is carri in ment act is disclosed along wi act is disclosed along ility only to the extent that the investor has investor in an entity’s investor in an entity’s at cost, plus its share of post-acquisition profits profits post-acquisition of its share at cost, plus the associate’s policies to conform to that of the the of to that associate’s policies to conform the t account the associate under the equity method. method. equity the associate under the t account ; wherein share of post-tax of share ; wherein ncial and operating policie ncial and sentation on the entity’s board demonstrates board demonstrates entity’s the on sentation amount ill. The goodwill is included in the carrying has significant influence – that is, the power to power is, the – that influence has significant to be adjusted if the associate follows an an associate follows the if to be adjusted vements in reserves, less dividends received. Losses received. Losses dividends reserves, less in vements pplied against any long-term interests that, in es a subsidiary or a joint venture entity. entity. venture or a joint es a subsidiary make payments on behalf of the associate. the of behalf on make payments . In standalone financials: Investment in associate is not may entity an a subsidiary, of absence . However, in ssociate is carried at IFRS IFRS s profits and losses in the income statement. This is shown at a is shown This statement. income the losses in and s profits ises in equity its share of changes in the associate’s equity that that associate’s equity the in changes of its share equity ises in treatment, although it would be acceptable to do so. it would although treatment, ired about the results, assets and e applied to the other components in IFRS, US GAAP and Indian GAAP – November 2006 US GAAP
. If it is not practicable to do so, that f , although the term ‘equity investment rather than ‘associate’ is used. ‘associate’ is used. than rather investment term ‘equity the , although . . . However, equity method is not applied when . However, equity method IFRS IFRS IFRS IFRS IFRS
the investment is acquired and held exclusively wi exclusively held and is acquired investment the under severe long-term re the associate operates to transfer funds to the investor. near future (being not more than 12 months); or
post-tax level. The investor recogn the of acquisition on investor, or loss. The associate’s profit the in recognised been not have co the between difference the for accounts investment, like policies for accounting uniform using are prepared statements financial investor’s An are made to adjustments events; and transactions investor. The investor’s financial statements do not have acceptable alternative policies accounting the between differences the of presents its share of the associate’ the of its share presents goodw fair value of the net identifiable assets as to below zero are a investment the reduce that participate in, but not control, an associate’s fina associate’s an control, not but in, participate operating policies via repre entity’s financial and significant influence. more A 20% or interest by an Invest financials: standalone In statement. income the of the investment. mo post-acquisition of its share or losses, plus associate the in investment net investor’s the part of form substance, investor’s the excess of in recognised Losses loans. receivables and long-term and shares investment in ordinary shares ar incurred legal or constructive obligations to presumption of significant influence. It exclud influence. significant of presumption IAS 39. with accordance in value method. carried at cost or equity no and statements financial prepare consolidated In standalone financials: Investment in a winding up. Further losses are provided for as a liab not include unincorporated entities, although these wo these although entities, unincorporated include not • • Similar to Similar similar to In consolidated financials: to Similar Similar to Similar
Similar to Similar financials: similar to In consolidated to Similar
investor The method. equity the associate using an in investment an for accounts investor An In consolidated financials: Equity method is used investor the over which entity associate is an An Similarities and Differences – A comparison of IFRS US GAAP GAAP Indian IFRS Equity method Equity Presentation of associate results Presentation of associate results IFRS associate is stated the in investment investor’s The IFRS in associates Investments Definition US GAAP US GAAP GAAP Indian US GAAP GAAP Indian Disclosure of information is requ Indian GAAP Indian Accounting Policies
Consolidated financial statements 32 Indian GAAP GAAP US Indian GAAP Similarities and Differences–Acomparison of Indian GAAP GAAP US IFRS Jointly controlledentities IFRS Types ofjointventure Indian GAAP GAAP US IFRS Definition Investments injointventures GAAP US IFRS Impairment Either the proportionateconsolidation method orthe equity method isallowed.Proportionate Distinguishes between three Ajoint venture isdefined asacontractual agreement whereby twoormorepartiesundertake an ImpairmentistestedasprescribedunderIAS36, Only referstojointly controlled entities, where Proportionate consolidation isgenerallynot permittedexceptfor unincorporated entities operating Acorporatejointventure isdefinedasacorpo Equity investments areconsidered impaired if the decline in value isconsidered tobeother than Similar to Impairmenttestonin Proportionate consolidation method isused in Similar to corporate entity. • similar to written downtofairvalue. • the group. businesses asaseparateandspeci • except when an interest in ajointly controlled entity controlled entity. in certain industries. Venturers applythe equity method torecognise the investment in ajointly reported asaseparateline itemin the venturer’s financial statements. combined on aline-by-line basiswith similaritemsin the venturer’s financial statements, or consolidation requirestheventurer’sshareofth • • control of an economic activity. economic activitythat issubject tojoint control. Jo temporary. Theinvestee'sgoodwillisnotsubjectto subject todirectimpairment the investment,orcashflows flowsin cash net offuture itsshare use may investor the test, impairment flowsforthe cash future has objectiveevidence of one of the indicators setout in IAS39.59 (IAS28.31). In the estimation of
jointly controlled assets–aprojectcarried jointly controlled operations –each venturer us partnership); jointly controlled entities –the arrangement isca funds to the investor. investor. funds tothe operates underseverelong-termrestrictionswh is acquired and held exclusively with aviewto IFRS IFRS IFRS . Ifanother-than-temporary . , exceptwhere itmeetsthe definition of subsidiary under AS21, Consolidation. vestment isapplied. testingbytheinvestor. IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 types ofjointventure: expected toarisefromdividends.Theinvestee'sgoodwillisnot fic businessorprojectforthemu impairmentisdeterminedto the arrangement iscarried on through aseparate ration ownedandoperatedbyasmallgroupof on withassetsthatarejointlyowned. the venturer’s consolidated financial statements, e assets,liabilities,incomeandexpensestobe Impairment of Assets, (IAS 28.33) if the investment investment (IAS28.33)ifthe ofAssets, Impairment es itsown assetsfor aspecific project;and int control isthe contractually agreedsharing of its subsequent disposalin the near future; directimpairmentte rried onthroughaseparateentity(companyor ich significantlyimpairitsabilitytotransfer tual benefitofthemembers exist,theinvestmentis sting bytheinvestor,
33 Consolidated financial statements
s to a jointly controlled s to a jointly controlled bilities it has incurred. in their financial statements not been transferred to the not been transferred specific circumstances. circumstances. specific n and equity method is permitted. rried at cost less impairment. fair value when certain strict criteria are met. strict certain when value fair n is used in certain industries to recognise to recognise industries certain in is used n unincorporated joint ventures. The investor’s unincorporated joint ventures. The investor’s in recording contribution ion is used. However, in absence of a subsidiary, have not been expressly clarified in the standard. standard. the in clarified expressly been not have ties without an incorporated structure. A venturer A venturer structure. incorporated an ties without ntrolled assets and any lia oduction of FAS 123 Revised, Share-based Payment, IFRS goods or services by the joint venture. buted cannot be measured reliably; or buted cannot be measured of the contributed assets have of the contributed assets revenues and expenses are included ntributed by other venturers. ntributed by other venturers. ment in joint venture is carried at cost or equity method. method. is carried at cost or equity venture joint in ment stment in joint venture is ca IFRS, US GAAP and Indian GAAP – November 2006 employee share ownershipemployee plans) . . . However, the exceptions in in exceptions . However, the : AS 23, AS 27. IFRS IFRS IFRS : APB 18, FIN 35. : IAS 1, IAS 28, IAS 31, SIC-13. the assets that it controls; it controls; assets that the the liabilities it incurs; and it incurs; expenses the its share of income from the sale of jointly controlled entity; jointly controlled entity; the significant risks and rewards the significant risks contri assets the or loss on gain the the asset is similar to those co the asset is similar to
• • • • In standalone financials: Investment in joint venture is carried at cost or at fair value (IAS 39). the under them account not and statements financial prepare consolidated may not entity an proportional consolidation method. In standalone financials: Inve In standalone financials: Invest recognises in its financial statements: investments in jointly controlled assets. controlled entity in exchange for an equity interest in the jointly controlled entity recognises in the the in recognises entity controlled jointly the in interest equity an for exchange in entity controlled other the of interests equity to the or loss attributable gain the of portion the statement income when: except venturers, • • IFRS US GAAP Indian GAAP in specific cases where the investor owns an undivided interest in each asset of a non-corporate a non-corporate asset of each in interest undivided an owns investor the cases where specific in joint venture. pro-rata share of assets, liabilities, • or more one SEC (or when the with are filed statements financial whose ventures Joint entity. may only use step-up to venturers are SEC registrants) , the guidance in this section is based on the intr In consolidated financials: proportional consolidat Similar to Similar : Similar to Similar Similar to Similar except in is required method Equity financials: consolidated In However, proportionate consolidatio Not specified. accounting is appropriate for investments in Equity basis to use what exists regarding guidance Little In consolidated financials: Both proportional consolidatio A venturer accounts for its share of the jointly co Requirements are similar to jointly controlled enti assets, to a jointly or fixed as shares such assets, non-monetary contributes that A venturer US GAAP Similarities and Differences – A comparison of share trusts (including Employee For effective for public entitiesfor interim filings after 15 June and 2005 non-public entities with fiscal yearsbeginning after 15 December 2005, with earlier adoption encouraged. REFERENCES Presentation of jointly controlled entities (joint ventures) controlled entities (joint ventures) Presentation of jointly IFRS Jointly controlled assets Jointly IFRS US GAAP IFRS US GAAP GAAP Indian Jointly controlled operations Jointly Indian GAAP Indian entity controlled to a jointly Contributions IFRS US GAAP GAAP Indian US GAAP Indian GAAP Indian
Consolidated financial statements 34 Indian GAAP GAAP US employees. Similarities and Differences–Acomparison of REFERENCES IFRS Accounting Employee share-based payments areoften Theassetsandliabilitiesofan Foremployeeshare trusts other than ESOPs,the treatment isgenerally consistent with Employeeshare trusts arenot consolidated. : Specific guidance appliesfor ESOPs,under SOP93-6. Presentation. Instruments: IAS32,Financial under shares treasury (ESOP)as plan ownership SIC-12 criteriaaremet.An entity accounts for itsown shares held under an employeeshare IFRS Guidance Note on Accounting for Employee ShareBasedPayments. forEmployee NoteonAccounting Guidance Indian GAAP GAAP US : IAS32,SIC-12. : FAS123-R,SOP93-6. : SEBI(EmployeeStockOptionSchemeandEm combined withseparatetruststhatbu IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 employeeshare-basedtrustarecons ployee StockPurchase y sharestobegivenorsold olidated bythesponsorif Scheme) Guidelines,1999, IFRS .
35 Consolidated financial statements
ts and liabilities only), further no separate additional accounting entries. eir fair values. However, a court businesses into one reporting entity. into one reporting businesses as either a pooling-of-interests or an or an a pooling-of-interests as either ong entities that operate under common common operate under that entities ong as an acquisition, the acquired asset and asset and acquired the acquisition, as an ing amounts or, alternatively, the consideration ing amounts or, alternatively, the consideration ld as a subsidiary, on consolidation, the date of cost less impairment; whereas on consolidation, consolidation, on whereas cost less impairment; business combinations; uisition of a business (asse ness combinations are acquisition; except uniting except uniting acquisition; are ness combinations s only), acquired assets and liabilities are s only), acquired assets and liabilities are ons when all the specified conditions are met. conditions specified all the when ons 3, Business Combinations, are accounted for as for are accounted Combinations, Business 3, for the immediately preceding period is permitted to immediately preceding the for ties join in substantially equal arrangements to share ties join in substantially and liabilities only) has been acquired. and liabilities only) has been acquired. e one of the combining entities obtains control over the the over control obtains entities combining the of e one business combinations by contract alone. alone. by contract combinations business ties under common control are accounted for at for are accounted control common ties under may provide different and/or ., the date the transaction closes). transaction date the ., the fiable assets and liabilities at th e court scheme or as specified in the purchase agreement. agreement. purchase the in or as specified scheme e court IFRS, US GAAP and Indian GAAP – November 2006 ing together of separate entities or of separate entities ing together generally arises from transactions am transactions arises from generally as FAS 141, Business Combinations, considers the date on which assets are IFRS ness combinations include: acquisition. In case of amalgamation accounted amalgamation case of In acquisition. carry liabilities are incorporated at their existing is allocated to individual identi order approving an amalgamation An acquired entity held as a subsidiary is accounted as long-term investment in the acquirer’s acquirer’s the in investment long-term as is accounted as a subsidiary held entity acquired An is carried at and statements separate financial assets and acquired the however, method, purchase the under is accounted acquisition the carrying amounts. liabilities are incorporated at their existing is accounted amalgamation the amalgamation, On In a business acquisition (assets and liabilitie method. purchase the assets under surrendered of or value values fair at their accounted require the use of the purchase method of accounting for most business combination combination most business for accounting of method purchase the of use the require
• • • be used for consolidation. On amalgamation or acq acquisition is the date of investment in the subsidiary or in absence of financial statements of the the of statements financial of absence or in subsidiary the in investment date of is the acquisition statements date, financial that as on subsidiary it is the date prescribed in th received or securities are issued (i.e are issued received or securities guidance on common control transaction. All busi transaction. control common on guidance of interests method is used in certain amalgamati certain in is used method interests of predecessor book basis. Accounting for a business combination depends upon whether an acquired entity has been held as on amalgamated (accounting been has entity the or whether acquirer by the a subsidiary amalgamation) or whether a business (assets acquisitions. The purchase method of accounting applies. IFRS 3 excludes from its scope business its scope business from excludes IFRS 3 applies. accounting of method purchase The acquisitions. combinations entities involving under commoncontrol, formation of joint ventures, business and entities mutual involving combinations enti of assets or shares net of Transfers Not defined. However, for an entity acquired and he accounting standard on There is no comprehensive USGAAP Similar to Similar combinations. most business for is required accounting of method purchase the of use The or business. entity acquired over the control obtains acquirer the which date on The and and IFRS scope of the within combinations Business a joint venture where the shareholders of the combining enti combining the of shareholders the where venture a joint and control; which group reorganisation, control. control.
Similarities and Differences – A comparison of Indian GAAP Indian IFRS US GAAP Acquisitions Date of acquisition IFRS is wher combination type of most common The transactions. A business combination involves the bring combination involves A business busi other. Other types of • • combinations Business Types IFRS GAAP Indian US GAAP
Business combinations 36 Indian GAAP Indian GAAP Similarities and Differences–Acomparison of GAAP US IFRS Restructuring provisions IFRS Recognition andmeasurementofidentifiableassetsliabilitiesacquired GAAP US IFRS Contingent consideration Indian GAAP GAAP US IFRS exchanged). Specificguidanceappliesund The costof acquisition isthe amount of cash orcash equivalents paid(orfair value of non-monetary assets Cost ofacquisition However, the three frameworks applydifferent criteriato assets surrendered. on acquisitionofabusiness, or, alternatively,theconsiderationisallo incorporated attheir existing carrying amounts (after maki policies); (b)foramalgamationaccountedunderthepurc are incorporated attheir existing carrying amounts (after Under the dateofacquisition. contingent liabilitiesthatexistedatthe Theacquirermay recogniserestru and If partof the purchase consideration iscontingent on afuture event, such asachieving certain profit Shares issued asconsideration arerecordedatthei Indian GAAP The acquirer mayrecognise arestru The additional costisnot generallyrecognised until the contingency isresolvedorthe amount is Shares issued asconsideration aremeasured atth US GAAP US The acquirer mayrecognise arest The additional costisincluded in consideration at Sharesissuedasconsiderationarerecordedat reliable estimatecan bemadeof the amount of the obligation. accounted for similarlyto obligation asaresultofpast accounted underthepurchase methodusingthefair with IAS37,Provisions,Contingent acquiree hasanexistingliabilityattheacquisition Additional considerationtobepaidfortheco recognised ascompensation expense overthe serviceperiod. as towhich part,if any, should beincluded in the costof the acquisition and which partshould be continued employmentofaforme to theestimateisadjustedagainstgoodwill.Additi acquisition ifitisprobablethat market. published priceof ashare atthe dateof exchange isthe bestevidence of fair value in an active date on which the acquirer obtains control overthe acquiree’s net assetsand operations. The recognised in the income statement when the amount becomesdeterminable. and areasonable estimateof the amount can bemade.In allother cases,the adjustment is determinable. Anyadditionalrevisi levels, (interpreted tobeafewdays) restructuring provisionshould m termination orrelocation arrangements tothe employees of the acquired company. The than one yearafter the dateof the business combination. Management should communicate the of the acquisition date. The plan should becomplet met. Managementbeginsto determined/ fixedbystatutoryauthorities. securities isnotinfluencedby price and the proposedtransaction isannounced. The datefor measuring the value of marketable requireseparaterecognition,bytheacquirer,of , (a)onconsolidationofanacquiredentityheld IFRS the acquiredassetsandliabilitiesareincorpora requires an estimateof the amount tobeincl date ofacquisition.Theseassetsandliab cated toindividualidentifi er eachframeworkwhereconsideratio IFRS assessand formulate aplan toexitan activityof the acquired entity as IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 theneedtoobtainsharehol event,thereisaprobableoblig theamountwillbepaidandcan . eet thedefinitionofaliabilit fore andafterthepartiesreach r owner/managerisevaluatedbase ructuring provision atthe acquisition datein amalgamation cturing provisionsaspartofth on totheestimateisrecognised LiabilitiesandContingentAssets. cturing provision atthe acquisition making adjustments toeliminate conflicting accounting the recognition of acquisiti hase method,theacquiredassetsandliabilitiesare ng adjustments toeliminate conflicting accounting policies) ntinued employmentof fairvalue,whichinappropriatecasesmaybe able assetsandliabilitiesattheirfairvalues;( dateforarestructurin thedateofacquisition as asubsidiary,theacquiredassetsandliabilities onal considerationtobepaidcontingentonthe eir marketpriceoverareasonable periodof time theacquiree’sidentifiableassets,liabilitiesand ed indetailassoonpossible,butnomore r fair value asatthe dateof the exchange –the value,onlywhenan uded aspartof the costatthe dateof the der orregulatoryapproval. ted attheirfairvaluesorthevalueof y inordertoberecorded. ation tosettletheliabilityand a ilities arerecognisedatfairvalue n comprisesanexch be reliablymeasured.Anyrevision an agreementonthepurchase e acquiredliabilitiesonlyifthe on restructuringprovisions. asanadjustmenttogoodwill. a formerowner/manageris d onfactsandcircumstances dateif specific criteria are g recognisedinaccordance if thepaymentisprobable enterprise hasapresent ange ofshares. c)
37 Business combinations
similarly US GAAP . tion date as part of so adjusts goodwill as if only if probable and as a separate intangible asset intangible asset as a separate sents contractual or legal rights or legal rights sents contractual ent as an expense. are attributable to the asset will are attributable to the US GAAP ion allowance was established on reliably. However, the fair value of reliably. However, the assets, and finally reduces tax and and lue can be measured reliably. Non- be measured can lue IFRS ed under the purchase method (using fair the extent of capital reserve, if any, arising on on arising any, capital reserve, if of extent the under the pooling of interests method. method. interests of pooling the under allowance (after the allocation period) related to allocation the (after allowance separately at the acquisi bsidiary, the minority (non-controlling) interests at the acquisition date ld, transferred, licensed, rented or exchanged. or exchanged. rented licensed, ld, transferred, book value. Fair values are assigned only to the to the only are assigned Fair values book value. statement. The acquirer al ised in the acquirer’s first annual balance sheet, identified but not recognised at the time of the the time of at the recognised not but identified e minority’s proportion of the net fair value of in the income statem mations accounted under the purchase method using using method purchase the under accounted mations be valued at fair value. However, the acquired in-process R&D R&D in-process acquired the However, value. at fair be valued development (R&D) is recognised (R&D) is recognised development has an alternative future use. use. future alternative an has will, then reduces intangible ntingent liabilities assumed. the amalgamating entity is identified but not recognised at the time at the recognised not but is identified entity amalgamating the separately from goodwill if it repre from goodwill if it separately ferred tax asset for which a valuat that the future economic benefits that that the future economic intangible asset and its fair va intangible IFRS, US GAAP and Indian GAAP – November 2006 are subsumed within goodwill. within goodwill. are subsumed the cost of the asset can be measured the cost of the asset may be recognised under both may be recognised goodwill/ capital reserve for amalgamation account or predecessor basis), whereas, value accounted amalgamation reserves for revenue
• • management can make a reasonable estimate of settlement amounts. amounts. settlement estimate of make a reasonable can management allocating the cost, provided their fair values can be measured reliably. be measured can values fair cost, provided their the allocating the acquisition date reduces good is recorded as expense. acquisition an on tax asset recognised a deferred Any adjustment subsequent the to first annual balance sheet date is routed through the income statement. expense. Subsequent establishment of a valuation a valuation of establishment Subsequent expense. the fair value, if it is probable the fair value, if it is requires acquired in-process R&D to requires acquired in-process it unless immediately is expensed and flow to the enterprise to market is reduced active no assets with intangible amalgamation. the adjusting: the deferred tax asset is recognised by of the amalgamation and is subsequently recogn if it meets the definition of an of definition it meets the if intangible assets identifiable the in reduction subsequent date. The acquisition the at recognised been tax asset had deferred the net carrying amount of goodwill is recognised parent company’s share of the net assets acquired. assets acquired. net the of share company’s parent are stated on the investor’s balance sheet at th sheet balance investor’s the are stated on acquired assets, liabilities and co acquisition and subsequently recognised in the acquirer’s consolidated financial statements, the the statements, financial consolidated acquirer’s the in recognised subsequently and acquisition income deferred tax income is recognised in the or is capable of being separated or divided and so of being separated or is capable and research in-process Acquired Not recognised. Not amalga in asset is recognised intangible An to If a deferred tax asset relating book value. historical at their are valued interests minority The The acquiree’s contingent liabilities are recognised intangible assets Similar Subsequent recognition of a de historical at their are valued interests minority The Where an investor acquires less than 100% of a su is acquiree to the tax asset relating a deferred If The acquiree’s contingent liabilities are recognised asset is recognised An intangible Indian GAAP Indian US GAAP GAAP Indian US GAAP GAAP Indian US GAAP Indian GAAP Indian Similarities and Differences – A comparison of US GAAP Minority interests at acquisition Minority IFRS Deferred tax recognised after initial purchase accounting Deferred tax recognised after initial IFRS IFRS Contingent liabilities Contingent liabilities assets Intangible IFRS
Business combinations 38
Indian GAAP GAAP US Similarities and Differences–Acomparison of IFRS Impairment Indian GAAP GAAP US IFRS Purchased goodwilliscapitalised value in certain cases under Goodwill arisesasthedifferencebetween Goodwill AnimpairmentreviewofCG forimpai butreviewed Goodwillisnotamortised Goodwill is reviewed for impairment, at the reporting unit level, at least annually or whenever events events orwhenever annually least at unitlevel, reporting the at for impairment, Goodwillisreviewed Similar to Similar to Goodwillarisingonamalgamationisamortised A two-stepimpairmenttestisrequired: assessed. events have occurred that reversethe effect of that event. external event of an exceptional nature that is impairment lossforgoodwillispermittedwhen top-down testperformed)andhen whenever anindicationofimpai or changesincircumstancesindi CGU’s assetsiftheimpairmentlo amount. Impairmentisallocatedfirsttogoodwill. loss isrecognised in operating results asthe excessof the carrying amount overthe recoverable fair valuelesscoststosellanditsinuse) impairment duringtheperiod,afur sheet date.Ifnewlyacquiredgoodwillisallocated indication of impairment exists.The impairment re impairment testingcannotbe purposes ofallocatinggoodwillandtestingfor at alowerlevelthanreportingunit,asdefinedunder arise, atthe cash-generating-unit (CGU)level,or A one-stepimpairmenttestispe one level below(ie,acomponent). reporting unitlevel.Goodwillisassi CGU levelwhenever there isatri amortisation overitsusefullifenotexceeding10y on businessacquisitions(assetsan longer periodcanbejustified. 1) 2)
Goodwill isconsideredtobeimpairedifthefair The fairvalueandthecarryingamountofth business combination. The impairment charge isincluded in operating income. and liabilitiesincludedinthereportingunit implied fairvalueofgoodwillisdeterminedbycal measured astheexcessofcarryingamount If goodwillisdeterminedtobeimpairedbase value; and IFRS IFRS Indian GAAP . However,specific differences existin . Goodwill is not amortised but reviewed for impairment at least annually at the the at annually least at forimpairment butreviewed . Goodwillisnotamortised asanintangibleasset. ) ofidentifiableassets,liabilities the costofacquisition Us withallocatedgoodwillisrequiredannuallyorwheneveran IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 larger than asegment. Nospecificguidanceexistsforgoodwillarisingonconsolidationor rment exists),allocationofgoodwilltoaCGU(bottom-upandthen rformed. The recoverableamount of the CGU(ie,the higher of its gger orindicationofimpairment. cate thattherecoverabilityof ss exceedsthebookvalueofgoodwill. ce itsmeasurement, etc.In addition tothis, reversalof an ther impairmenttestisrequired gned toanentity’sreportinguni d liabilitiesonly);practicevaries not expectedtorecur and subsequent external impairment. GroupingsofCGUsforgoodwill is comparedtoitscarryingamount.Theimpairment the impairmentlosswa over itsusefullifenotexceeding5yearsunless rment annually, and when indicators of impairment ofimpairment indicators when and annually, rment group ofCGUs,asapplicable.ACGUistypically e reportingunitincludinggoodwilliscompared. Allocation ismadeonaproratabasistothe toaCGUthathasalreadybeentestedfor thesamemannerasgoodwillisdeterminedina view doesnot need totakeplaceatthe balance ears. Goodwillisreviewedforimpairmentatthe d onstepone,thengoodwillimpairmentis andtheacquirer’sshare valueofthereportinguni of goodwilloveritsimpliedfairvalue.The timing ofimpairmenttesting(reviewed US GAAP US culating thefairvalue and contingentliabilitiesacquired. the carryingamountshouldbe . CGUsmaybeaggregatedfor before the balance sheet date. withnoamortisationversus t (ie,anoperatingsegment)or s causedbyaspecific of fairvalue(carrying of thevariousassets t islessthanthebook
39 Business combinations
on contingencies that Required Required date. Adjustments made acquisition are permitted d contingent liabilities and the liabilities and the d contingent ribution as dividends to the hs of the acquisition acquisition the of hs restructuring provisions if made are related to pre-acquisiti rded in equity) and reduced from the investment rded in equity) and reduced from the investment beyond one year following the date of the the date of the year following one beyond ir values recognised at able adjustments recognised as changes to able adjustments recognised as changes occurring after the acquisition date are recognised date are recognised acquisition the after occurring tion that management has been waiting for to charged to expense if made after the allocation charged to expense if made after the allocation rred tax adjustment discussed above. All other rred tax adjustment discussed above. All determining the value of as given shares and consideration, to treatment accounting be followed should consideration contingent be realised, is also disclosed. the business combination are also disclosed. ognised as an extraordinary gain. ognised as an extraordinary identifiable assets, liabilities an identifiable active market is reduced to the extent of capital reserve, if any, any, capital reserve, if of extent to the active market is reduced equity method investments); equity method investments); r amortised nor available for dist IFRS, US GAAP and Indian GAAP – November 2006 Required Required. Basis for Required Required Required Required Required for Reasons Required. . However, favourable adjustments to IFRS current assets; financial assets (other than assets to be sold; and prepaid pension assets; deferred taxes.
• • • • • values assigned and allocated on a pro-rata basis to all assets other than: than: to all assets other basis a pro-rata allocated on and assigned values remaining is rec Any negative goodwill shareholders. However, in case of an amalgamation accounted under the purchase method, the fair fair the method, purchase the under accounted amalgamation an case of However, in shareholders. value of intangible assets with no amalgamation. the on arising value. Capital reserve is neithe acquisition, adjustments is for relating to informa Adjustments price allocation. complete its purchase statement. income the in statement. income are recorded in adjustments subsequent provided those adjustments are made within 12 mont provided those adjustments are made or goodwill if made during the allocation period, extend cannot period, which allocation period. The period or events allocation the after are finalised recognised as changes to goodwill, with unfavour recognised as changes to goodwill, with measurement of the cost of the combination. Any excess remaining after reassessment is reassessment after excess remaining Any combination. the cost of the of measurement statement. income the immediately in recognised statement. income the in are recognised months 12 after and measurement of the acquiree’s of the acquiree’s and measurement defe certain for is permitted, except No change as capital reserve (reco Negative goodwill is termed fair the proportionately to reduce is used reassessment price after purchase over the excess Any Similar to fa Adjustments against goodwill to the provisional identification the reassesses acquirer the price arises, purchase over the value fair excess of any If Similarities and Differences – A comparison of Indian GAAP Indian The cost of acquisition and the the and acquisition cost of The given, consideration the of form including any deferred and consideration contingent Names and descriptions of the entities combining the date of effective The accounting for combination purposes (ie, acquisition date) Disclosure ITEM General IFRS US GAAP Indian GAAP IFRS US GAAP GAAP Indian and liabilities Subsequent adjustments to assets US GAAP goodwill Negative IFRS
Business combinations 40 Similarities and Differences–Acomparison of amortisation periodbyassets amortisable, residual values and amortisable/non- amounts, intangible assetsincludingtotal Details of amounts allocatedto are alsotobedisclosed. allocations insubsequentperiods Adjustments madetoinitial reasons aredisclosed. statements, this fact and the financial ofthe of issue had not been finalised atthe date yet finalised.Ifthepurchaseprice Initial purchase accounting not period offinthe written and acquired and developmentassets Amount ofpurchasedresearch since the acquisition sheet dateand on the results balance the positionat financial Effect of acquisition on the reducing activities of acquiree or Provisions forterminating equivalents separate disclosureofcash and liabilitiesacquiredwith acquisition amountsofassets Summary offairvalueandpre- Other financial disclosures intangible assets IndianGAAP and alistof unrecognised Factors givingrisetogoodwill amount between opening and closing Reconciliation ofthegoodwill USGAAP goodwill byreportablesegment deductible and the amount of Notspecified, however, amount expectedtobetax Total amountofgoodwill,the Nota Goodwill –impairmentcharge Goodwill –amortizationperiod IFRS Goodwill Required acquired The percentage of voting shares Required Operations tobedisposedof ITEM eurd eurd Disclosureofallocations Required Required Notapplicable Not Required Required Required Not applicable specified impracticable unless Required recognition criteria meeting IAS37 Required, subject to Onlydescriptionof impracticable unless Required Totalamountofgoodwill Required Required Required Required Notspecified, however, Not specified Required Required Required Required pplicable Not Required applicable IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 instead (seebelow). information ispresented forma income statement Not required,butpro- Required Not acquired entity. sheet caption of the assigned toeach balance disclosing amounts sheet isprovided Condensed balance required goodwill isrequired. factors givingriseto are disclosed. amalgamation scheme particulars ofthe disclosed. period andmethodare balance, amortisation the opening and closing reconciliation between not required.However, Not required are disclosed. amalgamation scheme particulars ofthe Not specified, however, Not required required required. Others–not are disclosed. amalgamation scheme particulars ofthe
41 Business combinations
Not specified Not specified existing carrying amounts, velop and consistently apply an velop and apply consistently an not recognised on the transaction; cost, reflecting the transferor’s carrying amount amount carrying transferor’s the cost, reflecting predecessor values or fair values depends on a in a subsidiary may be recognised in the income sclosures are used to explain the impact of impact of the to explain are used sclosures Required only for public Required entities. when all the specified conditions are met, else conditions specified all the when ns. Normal business combination accounting would ies are incorporated at their ting to uniting-of-interests transaction are recognised in in are recognised transaction to uniting-of-interests ting transactions. Entities should de transactions. Entities should de IFRS, US GAAP and Indian GAAP – November 2006 conflicting accounting policies. Goodwill is conflicting accounting policies. Goodwill Not required; however, Not required; and profit the revenue the period is or loss for as though the disclosed acquisition date had of beginning the been that period, unless impracticable. Required Required Not specified specified Required Required Not . the relevant standards. IFRS prohibit the use of this method of accounting if the business combination meets the definition of of definition meets the combination business the if accounting of method this of use the prohibit accounting policy based either on the economic entity or parent company model. company or parent entity economic the on policy based either accounting a group part of is not transaction the if example, are met (for conditions certain if only statement reorganisation). apply as discussed in the above sections. above sections. the in apply as discussed of the assets and liabilities transferred. The use of number of individual criteria. transactions with related parties on the financial statements. statements. financial the related parties on with transactions recorded at predecessor are generally transactions accounting policy; management can elect to apply purchase accounting or the pooling-of-interests pooling-of-interests or the accounting elect to apply purchase can policy; management accounting policy accounting The control. common under entities involving combination to a business method Accounting in Policies, Changes Accounting IAS 8, criteria in the when only be changed can Estimates and Errors, are met. Related-party di Does not specifically address such transactio to Similar permits use of this method only on amalgamation US GAAP A gain or loss from the reduction of an interest Such control. common under entities of combinations for accounting exist for rules Specific Does not specifically address such Does not specifically address such and and the number of entities and and entities of number the brief description; aggregate cost, the the number of equity instruments issued or issuable and value; and any of aggregate amount the contingent payments options or commitments.
the income statement as and when incurred. incurred. when as and statement income the any difference is adjusted against the equity. Expenses rela Expenses equity. the against is adjusted difference any
Indian GAAP Indian US GAAP GAAP Indian Similarities and Differences – A comparison of US GAAP Partial disposals of subsidiaries with control retained IFRS Business combinations involving entities under common control Business combinations involving IFRS accounted under the purchase method. The assets and liabilit accounted under the purchase method. method Pooling (uniting) of interests IFRS a business combination under GAAP Indian after making adjustments to eliminate For a series of individually For a series of individually immaterial business material in are that combinations aggregate: the • • • statement income Pro-forma comparatives including ITEM IFRS US GAAP Indian GAAP
Business combinations 42 2009. TheBoardsarecurrentlyconsid IASB’s workplan, the effective dateof anew propose anumber of significant changes tothe financia 2005.BothEDs inOctober ended periods comment 2005.The inJune Combinations, FAS141,Business and Similarities and Differences–Acomparison of REFERENCES The IASB and the FASBissued exposure drafts (EDs)of Recent proposals–IFRSandUSGAAP Indian GAAP GAAP US IFRS Step acquisitions(investorobtainingco Theacquiree’sidentifiableassets,liabilitiesandcont Similar to : Similar to US GAAP US IFRS Indian GAAP and not atfair value. different dates. acquirer’s netassetsisnot restated,resulting in the accumulation of portions of fairvalues at the costofacquisiti purpose ofdeterminingthecost the dateof the business combination. Each signif acquiree’s identifiableassets,liabilitiesandcont goodwill isnotremeasured.Theadjustmenttoany : IAS12,IFRS3,SIC-9. : FAS38,121,141,142,EITF90-5,95-3,95-8. US GAAP US IFRS : AS5,10,13,14,21,26,28,ASI11 , each significant transaction istreatedseparatelyfor the purposes of determining , exceptthattheassetsandliabilitiesare ering thecommentlettersreceived. on andtheamountofrelatedgood IFRS IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 oftheacquisition willbenoearlierthanforfina l reportingforbusinesscombi ntrol throughmorethanonepurchase) proposedamendmentstoIFRS ingent liabilitiesistreatedasarevaluation. icant transaction istreatedseparatelyfor the and theamountofgoodwill.Anyexisting previously heldinterests ingent liabilitiesareremeasuredtofairvalueat
carried attheirexistingbookvalues will. Anypreviousinterestinthe ncial periodsbegi nations. Accordingtothe 3,BusinessCombinations, of theacquirerin nning 1January
43 Business combinations
and and requires the US GAAP IFRS ding interest, royalties ding interest, royalties in equity, other than in equity, other than The revenue recognition c benefits associated with the and earned (compared to focuses more on revenues rship to the buyer and retained om the sale of goods, from the om the sale of goods, , the accounting standard on revenue revenue on standard accounting , the IFRS US GAAP result in an increase result in an increase uivalents, or the likelihood of its receipt being its receipt being of likelihood or the uivalents, provide guidance related to specific revenue It describes specific criteria for the sale of sale of the for criteria It describes specific nflow of cash, receivables or other consideration consideration or other receivables cash, of nflow n place. Additional guidance for SEC registrants SEC registrants for guidance place. Additional n of enterprise resources yiel of enterprise resources represent actual or expected cash inflows (or the (or the inflows or expected cash actual represent yalties and dividends. basis that takes into account the asset’s effective asset’s effective the account takes into basis that arges made to customers or clients for goods arges made to customers or clients for e of completion of the transaction at the balance balance at the transaction the of completion e of fore revenue is realised l basis. Dividends are recognised when the the when recognised are l basis. Dividends d or receivable. Discounting to present value is required is required value to present d or receivable. Discounting e revenue and costs can be measured reliably. e revenue and costs can be measured from the entity’s major ongoing operations. from the entity’s major e fair value of the consideration received or receivable. consideration the of value e fair revenue arising from the sale of goods. revenue arising from the sale of goods. in, nor control over, the goods. Revenue from the rendering of in, nor control over, the goods. Revenue are the probability that the economi ificant risks and rewards of owne rprise when the inflows rprise when the inflows nary activities of an enterprise fr nary activities of an IFRS, US GAAP and Indian GAAP – November 2006 , except that in certain circumstances, revenue from the rendering of services is of rendering the from revenue circumstances, certain in , except that IFRS in the table below). SEC pronouncements also table below). SEC pronouncements the in and dividends. Revenue is measured by the ch and dividends. Revenue is measured by of use the from arising rewards and charges by the and to them services rendered and supplied the not and commission of amount is the revenue the relationship, agency an In by them. resources consideration. receivables or other cash, of gross inflow increases relating to contributions from equity participants. participants. equity from to contributions relating increases seller to have transferred the sign Revenue, defines revenue as the gross inflow of economic benefits during the period arising from of an ente the ordinary activities occurred or will result equivalent) that have gross i as the revenue defines recognition revenue of the ordi arising in the course and from the use by others rendering of services, a on is recognised revenue date. Interest sheet accrua an on yield. Royalties are recognised goods, the rendering of services, and interest, ro goods, the rendering of services, and interest, criteria common to each of these th transaction will flow to the entity and that neither management involvement stag to the by reference services is recognised is established. to receive payment right shareholder’s guidance, such as FAS, SABs, SOPs, EITFs and AAERs. eq or cash cash into converted realised (either being has related performance the and pending material transaction (no earned and certain) reasonably revenue be no should – ie, there transaction exchange an involves recognition Revenue occurred). take has exchange an until and unless recognition unlike service. Further, of completion on only recognised sets out criteria that an entity should meet be should entity an criteria that sets out recognition situations. revenue. of measurement on provide guidance does not recognition IFRS
on standard accounting The gains. and revenues Framework to include the in is defined Income Similar to Similar . where the inflow of cash or cash equivalents is deferred, and in limited situations under under limited situations in and is deferred, equivalents or cash cash of inflow the where to Statement Concept by the is defined Revenue recognition revenue of sources different of are a number There is extensive. guidance The IFRS IAS 18. recognition, revenue on is a standard There IAS 18, standard The gains. and revenues IASB’s Framework as including the in is defined Income Similarities and Differences – A comparison of Revenue recognition Revenue IFRS US GAAP Measurement at th revenues of measurement require frameworks All three Definition Definition IFRS GAAP Indian receive equivalents or cash cash of amount the is usually This under recognition criteria apply to Additional recognition Revenue Revenue US GAAP Indian GAAP Indian Indian GAAP Indian
Revenue recognition 44 Indian GAAP Similarities and Differences–Acomparison of A barterarrangementexistswhentwocompaniesenterin Barter transactions Indian GAAP GAAP US IFRS Sales ofservices GAAP US IFRS Warranty and Specific revenuerecognitionissues IndianGAAP reliably. transaction can be measured The stageof completion of the measured reliably. in respect of the transaction can be The costsincurredortobe control overthegoods. managerial involvement nor effective USGAAP continuing neither retains entity The rewards ofownershipthegoods. buyer thesignificantrisksand The entityhastransferredtothe measured reliably. The amount of revenue can be will flowtotheentity. It isprobablethateconomicbenefits IFRS Revenue recognitioncriteria
IFRS Servicetransactions areaccounted for under th Warrantyservicingisdeferred Revenuemay be recognisedontheexchange of Servicetransactionsareaccountedforunderthe Similar to Similar to Similar to
product maintenancecontracts warranty periodexceedsunearned revenue. Revenue isnot recognised where the outcome of aservicetransaction cannot bemeasured reliably. persuasive evidence of an arrangement exists,an reliably. incurred that arerecoverablewhen the outcome acts overaspecified periodof time.Revenue may be recognised on astraight-line basisif the serv price includes an identifiable component for subsequent warranty servicing. collectibility isreasonablyassured,deliveryha otherwise. Alossisrecognisedimmediatelyifth do not generate revenue. revenue. do notgenerate goods orservicesreceivedcannot bemeasuredre services received.Thefairvalue revenue canbemeasuredreliably.Thetransactio IFRS IFRS IFRS . . , revenue isrecognised on astraight-line basisunless the pattern of costsindicates determinable. Vendor’s pricetothebuyerisfixedor reasonably assured. determinable, andcollectibilityis Vendor’s pricetothebuyerisfixedor been rendered. Delivery hasoccurredorserviceshave rendered. occurred orserviceshave been arrangement exists,and deliveryhas Persuasive evidence that an determinable. Vendor’s pricetothebuyerisfixedor Collectibility isreasonablyassured. determinable. Vendor’s pricetothebuyerisfixedor IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 and recognisedoverthewarranty of thegoodsandservicesgiven up to anon-cashtransactionexchangegoodsorservices. s occurredorserviceshavebeenrendered, e percentage-of-completion method. Revenue may ices areperformedbyan e expectedcosttoprovi dissimilargoodsandservicesiftheamountof of aservicetransaction cannot bemeasured n ismeasuredatthefairvalueofgoodsor appropriate specifiedguid d thereisafixedordeterminablesalesprice. be recognised only tothe extent of expenses liably. Exchangesofsimilargoods andservices period whereaproduct’sselling completion method. under theproportionate Implied forrecognitionofrevenue recognition. timing ofrevenue associated costmayinfluence the Uncertainty inthedeterminationof Similar to Similar to Similar to revenue. Implied inthedefinitionof is usedwherethefairvalueof de servicesduringthe indeterminatenumberof IFRS IFRS IFRS ance or,ifnone,when
45 Revenue recognition
“Accounting for “Accounting for rtising from unrelated entities. entities. unrelated from rtising . . In other cases, revenue is parately for separate units of IFRS IFRS r software vendors is provided, in particular for e recognition criteria are applied to two or more e recognition the fair value of the goods or services given up of the goods or the fair value ded for post-delivery customer support service. idence (VSOE) or other evidence of fair value. value. fair of evidence (VSOE) or other idence elements are sold separately. Consideration is are sold separately. Consideration elements e divided into separate units of accounting if the the if accounting of units separate e divided into is measured at the fair value of advertising advertising of value fair at the is measured clearly evident than the fair value of the assets the of value fair the than clearly evident e of the advertising given. Fair value is based on e of the advertising given. Fair value is terminable or the exchange transaction is to transaction exchange or the terminable ts of accounting based on their relative fair their based on accounting ts of at occur frequently, involve advertising similar to at occur frequently, involve advertising dissimilar advertising services if the amount of dissimilar advertising by reference to the stage of completion of the the of completion stage of to the by reference tifiable components of a transaction in order to in a transaction of components tifiable the same counterparty as the barter transaction. barter transaction. as the same counterparty the blished for each element of a multiple-element a multiple-element of element each for blished ing given cannot be determined within these criteria. these be determined within cannot given ing series of transactions as a whole. as a whole. transactions series of nable from the entity’s history. history. entity’s the from nable their relative fair values; revenue is recognised as each unit is unit as each is recognised revenue values; relative fair their mpanies enter into a non-cash transaction to exchange to exchange transaction a non-cash into enter mpanies stones agreed in the contract. rminable from the entity’s history. history. entity’s the rminable from ition criteria is considered se -element revenue recognition arrangements exists. The recognition recognition exists. The arrangements recognition revenue -element of advertising provided in a barter transaction is measured by is measured a barter transaction provided in advertising of ce of receiving cash for similar adve for cash receiving ce of IFRS, US GAAP and Indian GAAP – November 2006 provides limited guidance on accounting for advertising barter transactions. barter transactions. advertising for accounting on provides limited guidance provides limited guidance on accounting for advertising barter transactions. barter transactions. advertising for accounting on provides limited guidance
Dot-Com Companies” Dot-Com Companies” accounting. accounting. as revenue are recognised software customised criteria are usually applied to the separately iden criteria are usually applied to the separately However, th transaction. the of substance the reflect cannot effect commercial whole the a way that such in are linked they when together transactions be understood without reference to the arrangement’s The EITF 00-21. in criteria outlined meet specified arrangement the deliverables in separate uni the is allocated among consideration recogn Applicable revenue values. development, including completion of services provi is esta A value arrangements. multiple-element objective ev vendor-specific based on arrangement, VSOE is generally limited to the price charged when price charged limited to the VSOE is generally recognised based on the billing mile allocated to separate units based on allocated to separate units delivered. unless the fair value of the assets received is more assets received the of value fair the unless the both of value fair the if up given asset the cost of at the is measured transaction The up. given de is not asset surrendered the and asset received to customers. facilitate sales transaction reliably. The be measured can revenue services provided. The fair value reference to equivalent non-barter transactions th involve do not and barter transaction the in that practi historical own entity’s the Similar transactions used as a guide to fair value should not be older than six months prior to the prior to the six months be older than not should value to fair as a guide used Similar transactions is likely to which surrendered, advertising the of amount carrying The barter transaction. the date of advertis the of value fair the if be zero, is used It provides that revenue from barter transactions should be recognised only when the fair values of of values fair the when only be recognised should barter transactions from revenue It provides that readily determi are similar transactions It provides that revenue from barter transactions should be recognised only when the fair values of of values fair the when only be recognised should barter transactions from revenue It provides that are readily dete similar transactions practice is similar to increasingly but guidance No specific practice is similar to increasingly but guidance No specific Note on Guidance the except that barter transactions, on guidance No specific Note on Guidance the except that barter transactions, on guidance No specific fo recognition revenue software on guidance Specific deliverables ar multiple with arrangements Revenue based on are measured transactions Non-monetary valu fair at the is recognised expense and Revenue of development the exists. Fees from guidance recognition revenue software No specific No detailed guidance for multiple of exchange the on may be recognised Revenue Similarities and Differences – A comparison of Indian GAAP Indian Multiple-element arrangements – software recognition revenue IFRS US GAAP Multiple-element arrangements IFRS US GAAP advertising services. Barter transactions – advertising – advertising Barter transactions co two exists when barter arrangement advertising An IFRS Indian GAAP Indian (Cont’d) Barter transactions USGAAP Indian GAAP Indian US GAAP Indian GAAP Indian
Revenue recognition 46 Indian GAAP GAAP US Similarities and Differences–Acomparison of REFERENCES Indian GAAP GAAP US IFRS Combining contractsandsegmentingacontract Indian GAAP GAAP US IFRS Completed contractmethod GAAP US IFRS Percentage-of-completion method IFRS Recognition method Indian GAAP GAAP US IFRS Scope Construction contracts Losses arerecognised when incurred orwhen th Indian GAAP Contracts arecombined when partof apackage, Prohibited. When the outcome of the contract can beestima Thepercentage-of-completionmethodisrequired Guidance appliestofixed-price and cost-plus constr The percentage-of-completion meth Combiningcontractsispermittedbutnotrequired. Thepercentage-of-completionmethodispreferred. Twodifferentapproachesareallowed: Guidance isdefined from the perspectiveof the contractor rather than the contract, asin Similar to : Similar to Prohibited. Similar to Similar to use of estimates.The completedcontract method isnot permitted. US GAAP US rare circumstances, when the extent of progress US GAAP US IFRS Indian GAAP separate proposaland when revenues and costscan beclearlyidentified. the expectedcontract costsexceed the contract iscompletedorsubstantially complet towards completioncannotbedeterminedwithenough contract costsincurred that ar the final outcome cannot beestima measurable islessrestrictivethan for afixed-pri outcome can bemeasured reliably.The criterian time-and-materials contracts. Scope isnot limitedtoconstruction-type contract single ofa construction for the allowed in rarecircumstances where estimatesof • recognised asan expense immediately. probable thattotalcontractcostswillexceed reference tothe stageof completion of the contract • contract revenue, regardlessof which accounting method isused.
the revenueapproach(similarto the gross-profitapproach(differentfrom : IAS11,18. tion bytheestimatedgrossprofittodetermine revenue; and percentage ofcompletionbytheestimatedtotal the estimatedtotalrevenues : CON5,SAB104,SOP81-1, 97-2,EITF99-17,00-21,FTB90-1. IFRS IFRS IFRS IFRS providesdetailedguidance on the use of estimates. : AS7(Revised2002),9 . . . . IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 e expectedtoberecovered. asset orcombinationofassets. to determineearnedrevenues ted reliably.Thisrecognisesre od ispreferred. The completedcontract method can beused in the expectedcontract revenue. IFRS ) multipliestheestimatedpe IFRS total contractrevenue,theexpectedlossis ce contract. The zero-profit method isused when e expectedcontract co ecessary for acost-plus contract tobereliably ted reliably,revenueandcostsarerecognisedby towards completion isnot reasonably measurable. coststocompletion and the extent of progress s. Guidance isalsoapplicabletounit-price and or segregatedwhen each contract ispartof a for recognising revenue and expenses if the ed. Losses arerecognised when incurred orwhen ) multipliestheestimate theestimatedgrossprofitearnedtodate. However,the completedcontract method is activityatthe balance sheet date.When itis uction contracts of contractors (not defined), contract coststodetermine the costof earned certainty.Revenueisrecognisedonlywhen IFRS and multipliestheestimated provideslimitedguidance on the venue onlytotheextentof rcentage of completion by sts exceedthe expected d percentageofcomple- IFRS .
47 Revenue recognition
and rational basis contributions into a e of a debt instrument anding, must be performed to or a defined benefit plan. an those relating to distributions to an those relating to ameworks separate pension plans into ameworks separate pension plans into purposes. Under IAS 19 and AS 15 ised on a systematic
e entity to pay fixed premium arising on the issu The effective interest rate is the rate that rate that rate is the interest effective The US GAAP t as actual or expected cash outflows, or the or the outflows, or expected cash t as actual sis using the effective interest method. Directly method. interest effective the sis using ude losses. Expenses are decreases in economic economic decreases in are losses. Expenses ude of IAS 19, Employee Benefits (revised 2004), effective from the entity’s ongoing major operations. from the entity’s ongoing on a periodic basis. If a plan does not have individual 15 (Revised), effective for accounting periods commencing 15 (Revised), effective for accounting periods the plan, including its legal st a defined contribution plan actice varies with respect to their recognition. recognition. to their respect actice varies with IFRS, US GAAP and Indian GAAP – November 2006 result in decreases in equity, other th result in decreases of the debt instrument. provide services to the entity. These fr These entity. provide services to the providing these benefits to be recogn to the plan assets rest with the employee. These frameworks require pension pension require frameworks employee. These the assets rest with plan to the ; however, the contractual life of the debt instrument is generally used in practice. practice. in used is generally debt instrument the of life contractual the ; however, post-employment benefit plans that require th IFRS and defined benefit plans. benefits that result in a decrease in equity. equity. a decrease in in result that benefits or discount any and costs transaction attributable economic benefits during the accounting period in the form of outflows or depletions of assets or of or depletions outflows of form the period in accounting the during benefits economic that incurrence of liabilities equivalent, that have occurred or will result equivalent, that have equity participants. are amortised using the effective interest method. method. interest effective the are amortised using discounts the estimated future cash payments through the expected life of the debt instrument to debt instrument the of expected life the through payments cash future estimated the discounts the initial carrying amount discounts and premiums and pr in as decreases are defined losses. Expenses Framework to include the in are defined Expenses on guidance specific is no basis. However, there accrual an on is recognised expense Interest guidance in this section is based on the introduction Statemen Concept by the defined are Expenses Similar to
ba accrual an on is recognised expense Interest incl Framework to the in are defined Expenses IFRS (Revised), a careful analysis of all terms and conditions of of conditions all terms and of analysis (Revised), a careful determine whether the substance of the plan is that of of is that plan the of substance the whether determine fund. The entity is under no legal or constructive obligation to make furthercontributions to the fund even if losses are sustained. Exposure risks attributable cost to be measured as the contribution payable to the fund for plan contribution a defined is not plan the accounts, participant Similarities and Differences – A comparison of Defined contribution plans Defined contribution plans are Employee benefits – pensions Employee benefits – pensions The Specific expense recognition issues Specific expense recognition Interest expense IFRS and AS 1 January 2006, with earlier adoption encouraged; over the period during which employees defined contribution plans Definition Definition IFRS on or after 1 April 2006. All three frameworks require the cost of recognition Expense Expenses US GAAP Indian GAAP Indian
US GAAP GAAP Indian
Expense recognition 48 Similarities and Differences–Acomparison of and losses actuarial gains Recognition of IndianGAAP assets Valuation ofplan USGAAP obligations for rate Discount IFRS expense post-retirement and pension Determination of ITEM differences existin application. The keyfeatures areoutlined below. The methodology for accounting for defined benefit plans The risksassociatedwith plan a Defined benefitplansobligetheemployer Defined benefitplans chosen. SoRIE option)ifthisoptionis and expense ispresented (the statement of recognised income outside of the income statement; a they occur and recognition maybe losses infulltheperiodwhich recognising actuarialgains and An entity can adoptapolicyof recognised. is year ofthe beginning fair value of plan assetsatthe orthe obligation benefit defined excess of 10% of the greater of the At aminimum,netgain/lossin participating employees. remaining workinglivesof amortised overexpected Recognised immediatelyor obligations. the presentvalueofrelated insurance policiesisdeemedtobe plan, the fair value of those of the benefits payableunder the amount andtimingofsomeorall policies that exactlymatch the include qualifying insurance fair value. Where plan assets Insurance contracts measured at prices unavailable. flowsifmarket cash discounted Measured atfair value orusing high-quality corporatebonds. where there isno deepmarketin Government bondyieldsused quality corporatebonds. Based onmarketyieldsforhigh- method used. Projected unit creditactuarial ssets restwiththeemployer. toprovidedefinedpost-employmentbe IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 is basedon similarprinc comprehensive income. be recognisedinother actuarial gainsandlosseswill unamortized FAS 158,the However, withtheadoptionof is currentlynotpermitted. The SoRIEoptionunder plan participants areinactive. participants ifalloralmost life expectancy of the plan amortised overthe remaining actuarial gains and lossesare Similar to used. conversion value, that value is cash surrender value or contract has adeterminable measured atfair value. If the are ofannuities) purchases Contracts (other than assets below). (see expectedreturn on plan related valueofplanassets return appliedtomarket expected long-term rateof differences resultingfromthe Similar to bonds isnotrequired. reference togovernment Similar to Similar to IFRS IFRS IFRS IFRS , exceptthat , exceptfor , exceptthat . Withtheadoptionof nefits of set amounts to employees. toemployees. amounts ofset nefits iples; however, detailed IFRS
income statement. immediately in the Recognised specific guidance. Earlier, there wasno IFRS guidance issimilarto AS 15 (Revised), With theadoptionof specific guidance. Earlier, there wasno used. similar maturitiesare market yieldswith government bond AS 15 (Revised), With theadoptionof prescribed. method was nospecific however, actuarial valuation, Earlier, basedon to AS 15(Revised),similar IFRS . .
49 Expense recognition
. IFRS . AS 15 (Revised), asset AS 15 limited to the lower of: asset resulting a) the from applying the standard, and b) the present value of any available refunds from the plan, or reduction in future contributions to plan. the Earlier, contributions in actuarial excess of were treated valuation as prepayment. Not required. Similar to With the adoption of With the adoption (Revised), AS 15 is similar to guidance IFRS was no Earlier, there guidance. specific required when the the when required obligation benefit accumulated the of value fair exceeds the by assets. It is increased plan any prepaid pension asset and accrued decreased by any pension liability previously recognised. Positive prior-service costs for current and former employees period over the are recognised during which the employer expects to receive an economic benefit from the increased pension benefit, which is typically the remaining service periods of active employees. Negative offset costs first prior-service previous positive prior-service excess the costs, with same the in recognised manner as positive prior- service cost. If all or almost all plan prior- are inactive, participants service cost is amortised over expectancy life remaining the of the plan participants. No similar requirement. No similar requirement. of adoption the With Based on market conditions Based on of the assets. and nature plan in changes Includes to contributions assets due and benefit payments. the The rate is applied to the of value market-related the is either assets, which plan value or a calculated value fair asset- (which incorporates over related gains and losses than five a period of no more years). IFRS, US GAAP and Indian GAAP – November 2006 and negative past-service past-service negative and Not required. Additional minimum liability over remaining cost recognised vesting period. Where benefits have already vested, past-service immediately. cost is recognised Asset limited to the lower of: a) the asset resulting from applying the standard; and b) the net total of losses actuarial unrecognised any the cost, and past-service and available any of value present refunds from the plan or reduction plan. to the contributions future in Based on market expectations at at expectations market Based on of the period for the beginning the of life entire the over returns Reflects related obligation. plan of value fair the in changes actual of assets as a result paid. contributions and benefits the fair value The rate is applied to of plan assets. Similarities and Differences – A comparison of Past-service cost Positive Recognition of minimum pension liability Balance sheet sheet Balance asset limitation return Expected on plan assets ITEM IFRS US GAAP Indian GAAP
Expense recognition 50 Similarities and Differences–Acomparison of definition Settlement definition Curtailment IndianGAAP group plan forming partofa plan pension USGAAP benefit defined Subsidiary’s IFRS plans Multi-employer ITEM all the benefits under the plan. or forpart obligation constructive eliminates allfurtherlegalor enters into atransaction that A settlement occurs when an entity reduced benefits. benefits, orwillqualifyonlyfor employees willnolongerqualifyfor of future servicebycurrent plan such that amaterialelement when itamends the termsof the employees coveredbytheplanor reduction inthenumberof committed tomakingamaterial an entityisdemonstrably A curtailment occurs either when plan asawhole. defined benefit accounting for the employer, whichmustapply except for the sponsoring is recognised asan expense, contribution payablefortheperiod costs onthatbasis;otherwisethe subsidiary accounts for the benefit the subsidiaryandparent, contractual arrangement between multi-employer plans. If there isa under common control arenot Plans with participating entities profit orlossarerecognised. resulting incomeorexpensein contractual agreement and the liability thatarisesfromthe contribution plan, the assetor accounted for asadefined and itsparticipants,theplanis between the multi-employer plan If there isacontractual agreement available. isnot information sufficient account for itassuch, unless plan, benefit defined If itisa IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 conditions. by the employermeeting three Similar to services. all of employees’future accrual of benefits for someor rather than reduces, the A curtailment eliminates, plan. contribution (multi-employer) participant inadefined overall group plan asa for itsparticipationinan The subsidiary should account accounting used. contribution Defined IFRS
and evidenced definition. definition. Earlier, there wasno the plan. under benefits the all obligations forpartor eliminates allfurther transaction that an entityentersintoa settlement occurs when AS 15 (Revised),a With theadoptionof benefits. only forreduced benefits, orwillqualify for qualify no longer current employeeswill by service future material element of the plan such that a amends the termsof the plan orwhen it employees coveredby the numberof material reductionin otherwise tomakinga requirement or or regulatory arising from astatutory obligation present a has either when an entity curtailment occurs AS 15 (Revised),a With theadoptionof specific guidance. Earlier, there wasno to theircontributions. recognise acostequal entities would legal sponsorandother cost isrecognised by charged, orelse(ii)the benefit costso defined net recognise the subsidiarywould case of an agreement, AS 15(Revised),(i)in With theadoptionof specific guidance. Earlier, there wasno IFRS guidance issimilarto AS 15 (Revised), With theadoptionof .
51 Expense recognition
. IFRS . Similar to With the adoption of (Revised), AS 15 guidance is similar to IFRS was no Earlier, there guidance. specific ins or losses, prior service as a component of other comprehensive ns as of the date of the employer’s statement of of employer’s statement the date of the as of ns ts and benefit obligations effective fiscal years ending years ending fiscal effective obligations benefit ts and delayed recognition of the ga Curtailment losses are Curtailment when it is probable recognised will occur that a curtailment the of effect the and is reasonably curtailment gains estimable. Curtailment realised and until are deferred earnings, in are recognised related the when either or the employees terminate, plan suspension or is adopted. amendment are or losses gains Settlement settlement when recognised occurs. Gains and losses on include curtailments prior-service unrecognised cost (including any remaining transition obligation) for which longer services are no and expected to be rendered, projected the in changes benefit obligation (net of any unrecognised gains or losses and remaining transition asset). The gain or loss on to be recognised settlements in profit or loss only includes net actuarial unrecognised gain or loss plus any asset. transition unrecognised 132(R) on September 29, 2006; effective for financial limited exceptions) and the benefit obligation—in its IFRS, US GAAP and Indian GAAP – November 2006 the notes to the financial statements about certain effects on net periodic on effects certain about statements financial to the notes the s) and prior service costs/(credits) sses the following topics - : AS 15, AS 15 (Revised 2005) limited exceptions; and and limited exceptions; : APB 12, APB 21, FAS 87, FAS 88, FAS 106, FAS 158. : IAS 19, IAS 39, IAS 37. Gains and losses on curtailments/ the in changes include settlements present value of the defined benefit obligation, any resulting changes in assets plan the of value fair the and gains related actuarial any and losses and past-service cost that had not previously been recognised. Gains and losses are recognised are recognised losses and Gains curtailments/settlements when occur. IFRS US GAAP Indian GAAP
: statement of financial position; position; financial of statement recognition of actuarial gains/(losse recognition of the overfunded or underfunded status of a defined benefit post-retirement plan measured as the (with value assets at fair plan between difference income, net of tax; obligatio assets and plan benefit defined of measurement financial position, with disclosure of additional information in arise from year that fiscal upcoming the cost in benefit asset or obligation. transition costs or credits, and
Similarities and Differences – A comparison of
REFERENCES • Recent amendment – US GAAP The FASB issued FAS 158 - Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and after December 15, 2008. It addre • Curtailment/ settlement of (calculation gains and losses) statements issued for fiscal years beginning after December 15, 2006 (public companies) and June 15, 2006 (non- asse plan to measure requirement the with companies) public Curtailment/ settlement (timing of recognition) ITEM IFRS US GAAP Indian GAAP • •
Expense recognition 52 Indian GAAP US GAAP US Similarities and Differences–Acomparison of GAAP US Severaldetailedapplicat IFRS Employer’s payroll tax payable onexerciseofshareoptionsby employees Under the intrinsic value method, the compensatio Severaldetailedapplicatio Indian GAAP IFRS Measurement Indian GAAP GAAP US IFRS Recognition guidelines asapplicabletopubliclistedcompanies. For standards. forboth encouraged adoption 2005,withearlier 15December after beginning years forfiscal entities non-public 2005and 15June filingsafter forinterim entities forpublic effective Payment, Share-based FAS123Revised, and introduction onthe isbased inthissection guidance The Employee sharecompensation Indian GAAP Employers’socialsecurityliabilityarisingfrom Forequity-settledshare-basedpaymenttrans The fair value of shares and options awardedtoemployeesisrecognised overthe periodtowhich Similarconceptual model.The use of the ‘fair-value-based method’ for measuring the value of Employerpayrolltaxesdueonemployeestock- The fair value of the stock-based compensation is Nospecific guidance. Under both the Guidance Noteand the SEBIGuidelines, entities have achoice of accounting The requirement in the Guidance Noteissimilarto , the guidance in this section isbasedon both the Guidance Noteissued bythe ICAIand the SEBI over the sameperiodorperiodsasthe share-based payment charge. fair valuemethodwasapplied. Guidance Noterecommends disclosing the impacton net results and earnings pershare, asif the using an option-pricing model.If an entity chooses tofollow the intrinsic value method, the The fairvaluemethodisbasedonth price). Usually the measurement dateisthe dateof grant. This method iswidelyused in practice. with gradedvesting. market condition,performanceconditio which maybeexplicit,implicitor of the share atthe measurement dateand the pri fair valuemethod. They mayeither follow an intrinsic value method orafair value method. The Guidance Noteprefers methods for determining the costsof benefits arising from employeeshare compensation plans. of awardsbetween equity-settled awardsand cas the ‘cost’ berecognised and amortisedon a on the dateof the event triggering the measuremen (generally the exercisedateand vesting date share-based compensation isrequired. The fair valu fair valueoftheliability.Extens payment transactions,thegoodsorservicesacquire equity byreference tothe fair value of the equity instruments granted. Forcash-settled share-based case with employeeservices,itshould measure the entitycannotestimatereliablyfairvalue corresponding increaseinequityar without any performance criteria. the employees’ servicesrelate.The employees fulfilltheaward’svestingconditio ion differences exist. exist. ion differences n differences exist, such asthe definition of grant date,the classification IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 ive disclosuresarealsorequired. deriveddependingonthetermsof e measuredatthefairvalueof award ispresumedtobeforpast e fair value of the option atthe dateof grant. This isestimated n, or a combination of conditions). ofconditions). combination n, ora of IFRS 2, Share-based Payment, effective 1 January 2005, 1January effective Payment, of IFRS2,Share-based straight-line basisover ns andareentitledtoretaintheaward. for options and restrictedstockrespectively). actions, thegoodsorserv share-basedpaymenttransactionsisrecognised based compensation arerecognised asan expense of thegoodsorservicesreceived,aswillbe their value and the corresponding increase in ce tobecontributedby h-settled awardsand the attribution of expense recognised overthe requisite serviceperiod, n costisthe difference between the market price IFRS t andpaymentofthetax e isdeterminedatthegr d andtheliabilityincurre . However, the goodsorservicesreceived.If
the SEBIguidelines require that thevestingperiod. the awards (servicecondition, services ifitisunconditional ices receivedandthe the employee(exercise to thetaxingauthority ant date,assumingthat d aremeasuredatthe
53 Expense recognition
Indian GAAP Indian e issuance of equity e issuance of equity exchange for equity Scheme Guidelines, 1999 issued ices have also been received. ices have also been ansaction are recognised when ansaction are recognised an the fair value of the equity an the fair value of the liably estimated. However, IFRIC However, IFRIC liably estimated. p of entities) and questions questions and entities) p of an entity to be determined and to be determined and an entity fair value of the obligation to at grant date as the difference at grant date as the ligation to settle the transaction in ligation to settle the e of any identifiable goods or e of any identifiable It addresses how to apply IFRS 2 to (ie, changes from one ESPP to another) (ie, changes from one ESPP to another) me share-based payment transactions me share-based payment transactions e purchase plan (ESPP) (i.e., is not able to buy e purchase plan (ESPP) (i.e., is not able The guidance in this section for for section this in guidance The e. The measurement date of an equity award is e. The measurement date of an equity services are received in e be achieved through th e be achieved through for cash-settled transactions, the liability is for cash-settled transactions, frameworks generally recognise the liability, as the
both a liability and an increase in equity. both a liability and an increase in equity. and Employee Stock Purchase ce period. For a benefit that is attributable to an to an is attributable that ce period. For a benefit tities within the same grou e-based payment transactions are disclosed. transactions are disclosed. e-based payment
n that unidentifiable goods or serv n that unidentifiable g periods commencing on or after 1 April 2006. uired in a share-based payment tr uired in a share-based a liability if the entity has an ob a liability if the entity the goods and services can be re and services can the goods goods or services are measured goods or services are Indian GAAP Indian based payment and the fair valu based payment and goods or services received is less th goods or services received the goods or services exceeds the of the goods or services acquired by or services acquired of the goods
ed for as equity-settled or cash-settled. or cash-settled. as equity-settled ed for IFRS, US GAAP and Indian GAAP – November 2006 ployee Share Based Payments. ribute to an employee shar and and IFRS 2 in May 2005. It applies to so s rise to the right to the benefit. ee starts to contribute to another ESPP ee starts to contribute to another ESPP amendments to IFRS 2 in February 2006. amendments to IFRS 2 in February 2006. US GAAP , : Employee Stock Option Scheme IFRS : FAS 123-R, FIN 44, EITF D-83, EITF 96-18, EITF 00-16. : IAS 19, IAS 37, IFRS 2. Identifiable goods or services acq Identifiable goods or instruments, there is a presumptio instruments, there is services received (or to be received), however services received (or it is settled. date until reporting at each remeasured the cash; to settle in obligation is no there if equity in increase is an credit entry However, the cash. and services will therefor consideration for goods instruments. If the fair value of they are received. Unidentifiable of share- between the fair value settle in cash, the credit entry will comprise used as the value of an equity-settled share-based payment transaction. There is a rebuttable is a rebuttable There transaction. payment share-based equity-settled an of value as the used of that the fair value presumption 8, Scope of IFRS 2 (effective for years commencing on or after May 1 2006), stipulates that where of the the identifiable fair value The credit side of the entry will be The credit side of the instruments are accounted for based on the fair value of the consideration received or the fair value value fair received or the consideration the of value fair the based on for are accounted instruments equity the of value fair The is more reliably measurable. whichever issued, instruments equity the of the of value fair the based on measurement a direct most cases because in is used instruments unreliabl goods and services is generally considered date (b) the and is reached, commitment a performance which on date (a) the earlier of the on fixed on which performance is complete. Indian GAAP by SEBI, Guidance Note on Em IFRS US GAAP
non-cash shar No specific guidance. All : transactions in which goods or All non-employee IFRS 2 requires the fair value is based on AS 15 (Revised), effective for accountin employee provides the service that give service that employee provides the US GAAP Similarities and Differences – A comparison of Recent proposals - IFRS Compensated absences employee’s servi over the may accumulate benefits These REFERENCES The IASB issued an exposure draft of cont account for an employee who ceases to shares under the plan) or if the employ IFRIC issued draft interpretation D17 on or two or more en shares, treasury example, involving (for be account should transactions those whether all three right, accumulating Indian GAAP Indian transactions payment share-based Non-employee IFRS
Expense recognition 54 Terminationindemnityplansarecons Aone-time benefit arrangement isestablished byatermination plan that appliesfor aspecified Indian GAAP Similarities and Differences–Acomparison of REFERENCES IFRS Termination benefits Terminationindemnitiesarege GAAP US Termination benefits arising from redundanci Specific guidance isprovided : With the adoption of AS15 (Revised),termination benefits arising from redundancies areaccounted
employees arerequired torender future service (the communicationdate).Theliabilityisrecognis liability whentheterminationplan termination event orfor aspecified future period IFRS Indian GAAP GAAP US for similarlytorestructuringprovisi Accounting forterminationindemnitiesissimilarto carried forwardtoaccountingperiodsco be cannot amount unamortised butany period itspay-back over cost such defer may 2009, entities However, asatransitionprovision based on the actual number of employeesaccepti If an offer ismadetoencourage voluntary redund of pasteventandtheliabilityisconsider employee’s expecteddateof towhich benefits ofthe value present actuarial vested benefits towhich the employeeisentitled choose whether tocalculate the vestedbenefit ob termination benefitswiththree provisions. Aliabilityisrecorded liabilities wereaccruedsimilartotheguidancein Prior toAS15 (Revised),there wasno specific guidance on termination benefits, but termination termination on voluntary termination benefits,tr based on the number of employees expectedtoacceptthe offer. If an offer ismadetoencourage voluntary redund workforce. discounting). discounting). for consistently with pension obligations (ie,including asalaryprogression element and requirements), but the timing of their payment isuncertain. Termination indemnities areaccounted departure. The payment of such benefits iscerta 4) 3) 2) 1)
arrangement. terminated andwillreceiveate benefit plan.Costsarerecognisedforproba One-time terminationbenefits– event occurs; and employee servicesarerendered, if the benefit accumulates orvests,when the obligating Termination benefitsthatarepaidfornormalse reasonably estimated; date whenitisprobablethate terminated due tothe occurrence of aspecified ev Contractual termination benefits – benefits –benefits benefits termination Contractual which the employees acceptthe offer and the amount can bereasonably estimated; certain employeeselecting toacceptan offer of vo –gene benefits termination Special : IAS19. : FAS43,88,112, 146, EITF88-1,06-2. : AS15,15(Revised2005) aining andcounselling. were deferredandamortisedover3to5years. IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 separation orretirement. on post-employmentbenefits nerally payableregardlessof timing methodsforrecognition: when theentityisdemonstrably meetscertaincriteriaandhas , fortheliabilityincurredontermi mployees willbeentitledtothe ons. That is,when the entity has apresent obligation asaresult rmination benefitunderthete benefits providedtocurrente idered defined benefit plans under under plans benefit defined idered rally additionalbenefitsoffered ed probableandcanbereliablyestimated. mmencing onorafter1April2010. es areaccounted for similarlytorestructuring US GAAP US provided toemployeeswhenemploymentis the employeeiscurrently entitled, basedon the ble and reasonably estimablepayments as in ordertoreceivethe one-time benefits. . These one-time benefits arerecognised asa in (subjecttoanyvest the revisedstandard.Generally,expenditure ed ratablyoverthefutureserviceperiodif ancy, the measurement of termination benefits is ancy, the measurement of termination benefits is if the employeeseparatesimmediately,orasthe ligation asthe actuarial present value of the ng the offer and isimmediatelyexpensed. verances pursuantto IFRS ent under an existing plan, recognised atthe luntary termination, recognised atthe dateon distinguishesbetweenfourtypesof . the reason for the employee’s − forexample,salarycontinuation, been communicatedtoemployees rms ofaone-timebenefit committedtothereductionin mployees that areinvoluntarily benefits andtheamountcanbe nation benefitsupto31March for ashortperiodoftimeto ing orminimumservice US GAAP US an ongoingtermination . Entitiesmay
55 Expense recognition
ognition of internally echnological feasibility is substance controlled by substance controlled the entity should demonstrate , or for administrative purposes. , or for administrative pply to development costs for computer uired intangible is recognised if future is available for general release to customers. release to customers. general is available for ibutable to the intangible asset during its incurred, making the rec bable and the cost of the asset can be measured be measured asset can the cost of the bable and ible assets are classified between the research research the between ible assets are classified pensed. Costs incurred for activities during the pense cannot be capitalised in a subsequent period. a subsequent be capitalised in cannot pense pment stages are capitalised, and costs incurred costs incurred stages are capitalised, and pment tary asset without physical lopment costs for computer software developed for amortisation) applies once t use, the usefulness of the intangible asset;
or services, for rental to others or services, for rental 1 ces to complete the development; and ces to complete the development; and rate future economic benefits – eting the intangible asset; IFRS, US GAAP and Indian GAAP – November 2006 d or internally generated. d or internally generated. ts rare. However, separate rules a internally generated. internally generated...... asset recognition criteria apply. The acq criteria apply. The asset recognition IFRS IFRS IFRS IFRS IFRS IFRS IFRS the existence of a market or, if for internal internal for a market or, if of existence the development. the technical feasibility of compl asset; the intention to complete the intangible the ability to use or sell it; how the intangible asset will gene the availability of adequate resour the ability to measure reliably the expenditure attr
website’s application and infrastructure develo infrastructure and website’s application as incurred. stage are expensed operation the during • phase and development phase. Costs in the research phase are always expensed. Costs in the the Costs in are always expensed. phase research the Costs in phase. development and phase following: the all of demonstrate can entity the unless are expensed phase development • • • • reliably. • in the production or supply of goods in the production or asset are pro to the attributable benefits economic the entity. It may be acquire entity. the or It may be acquired generated intangible asse established. Capitalisation ceases when the product product the ceases when Capitalisation established. deve of elements apply to certain Similar rules use. internal software that is to be sold; capitalisation (and Similar to Similar Similar to Similar An intangible asset is an identifiable non-monetary asset, without physical substance, held use for Similar to Similar Similar to Similar to Similar Similar to Similar as costs are expensed development and Research stage are ex planning the during Costs incurred intang of creation the costs associated with The General asset is an identifiable non-mone An intangible See p38 for accounting for intangible acquired assets in a business combination.
Similarities and Differences – A comparison of US GAAP GAAP Indian Recognition – website costs development IFRS generated intangibles for internally Recognition – additional criteria IFRS IFRS US GAAP GAAP Indian 1 Recognition – separately acquired intangibles acquired Recognition – separately Definition Definition IFRS US GAAP GAAP Indian Assets assets Intangible US GAAP Development costs initially recognised as an ex Indian GAAP Indian
Assets 56 Indian GAAP GAAP US Indian GAAP
Indian GAAP Similarities and Differences–Acomparison of REFERENCES IFRS Impairment –acquiredandinternally generatedintangibles Indian GAAP GAAP US IFRS Amortisation –acquiredandinternally generatedintangibles GAAP US IFRS Subsequent measurement–acquiredandinternally generatedintangibles GAAP US IFRS Measurement –internally generatedintangibles Indian GAAP GAAP US IFRS Measurement –acquiredintangibles Impairment reviewsarerequired whenever change Amortisediftheassethasafinitelife;notamortise Intangible assetssubject toamortisation Thecostcomprisesallexpenditur The costof aseparatelyacquired intangible asset Similar to Similar to Initialrecognitionissimilarto Costsofinternallydeveloping, Similar to Similar to Similar to : Initialrecognitionissimilarto Amortisedovertheestimatedusefullifeofinta Similar to
assets aretestedforimpairmentse allowed under specific circumstances. ten yearsfrom the datewhen the asset isavaila to an entity asawhole, arerecognised asan expense when incurred. identifiable, that have indeterminable lives,orthat US GAAP US IFRS Indian GAAP amortised costlessimpairment. assets areusuallyreviewedforimpairmentaspa Indefinite-lived foruse. ready notyet forassets and lives useful withindefinite assets intangible for required are reviews Annual recoverable. notbe may amount carrying asset’s intangible life. maximum isnopresumed There forimpairment. annually least at tested amortisation arecarriedathist amortisation arecarriedatamortisedcostless an entity adoptsthis treatment (extremelyrarein practice). Revaluations areperformedregularly revaluation ofintangible assets not subject toamortisation arecarried being the fairvalue of the consideration paid. available for use, with arebuttable presumption that the useful life doesnot exceedten years. amortisation/ impairment,oratfairvalueless producing andpreparingtheassetfromda : IAS36,38,SIC-32. : FAS86,142,APB17,SOP 98-1. IFRS IFRS IFRS IFRS IFRS IFRS : AS26,28. , except that annual review is required for intangible assets that are amortised over over amortised are that assets forintangible isrequired review annual that , except , exceptreversalsof impairment lossesare . . . . assetstotheir fair value isbasedon pricesin an activemarket. IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 IFRS IFRS orical costlessimpairment. maintaining orrestoringintangible es thatcanbedirectlyattrib . Revaluationisnotallowed. . Revaluationisnotallowed.All parately fromthereportingunit. and for the entire classof intangib are carriedathistorical costlessaccumulated subsequent amortisation subsequent at historical costunless impaired.Subsequent ngible asset,fromthedatewhenassetis te when the recognition criteria aremet. impairment. Intangibleassetsnotsubjectto ble for use and for assets not yet ready for use. foruse. ready notyet forassets and foruse ble rt ofaCGU.Reversals are inherent in a continuing business and related related and business continuing ina inherent are at the date of acquisition is usually self-evident, self-evident, isusually ofacquisition date the at d iftheassethasanindefi s in events orcircumstances indicate that an prohibited andindefinite-livedintangible uted orallocatedtocreating, Intangible assetssubjectto assetsthat arenot specifically intangible assets arecarriedat /impairment. Intangible le assetsatthesametimeif of impairmentlossesare nite life,butshouldbe
57 Assets
, the fair value IFRS oration costs. Relevant during the period of item and restoring the site on site on the restoring item and e period incurred if a reasonable ations)’ on page 71. to others, or for administrative purposes. They or for administrative to others, uisition of PPE may be offset against the cost the against PPE may be offset of uisition asset retirement costs are capitalised as part of are capitalised as part of costs asset retirement rectly attributable to bringing the asset to the rectly attributable to bringing the asset e recognition criteria are satisfied. The net book net The criteria are satisfied. e recognition e a necessary part of bringing the asset to its the bringing part of e a necessary hedges relating to the purchase of PPE in a hedges relating to the purchase of PPE be capable of operating in the way management way management the in operating be capable of dismantling and site rest met. The cost of a major inspection or overhaul or overhaul a major inspection cost of met. The st of the asset can be measured reliably. be measured asset can the st of ed as incurred. Replacement of parts may be of Replacement ed as incurred. nstruction or acquisition of the asset; asset is functioning properly. Start-up and pre- d exchange difference arising on restatement and and restatement on arising difference d exchange e borrowing costs incurred rement obligations) of dismantling and removing the ies (asset retirement oblig ange liabilities are capitalised. nt obligation is recognised in th more than one reporting period. more than one reporting IFRS, US GAAP and Indian GAAP – November 2006 liabilities (asset reti , except that hedge gains/losses on qualifying cash flow hedges are not included. included. are not hedges flow cash qualifying on gains/losses hedge , except that . PPE. than assets rather term fixed the , except it uses . . on gains/losses of measurement the on guidance specific is no there , except that . to income. are charged replaced components the , except that asset recognition criteria apply. PPE is recognised if future economic benefits benefits economic future if apply. PPE is recognised criteria asset recognition IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS the initial estimate of the costs the costs of site preparation; initial delivery and handling costs; installation and assembly costs; co from arising employee benefits costs of costs of testing whether the asset is functioning properly; fees; professional foreign currency (see p82); and which PPE is located. fair value gains/losses on qualifying cash flow fair value gains/losses on qualifying cash
• acquiring, constructing or producing the asset for use (see p63). (see p77). (see p77). with criteria are met. Consistent certain if costs are included borrowing Relevant settlement of certain foreign exch of a liability for an asset retireme criteria are met, an certain costs, if borrowing occurring at regular intervals is capitalised where th is capitalised where intervals at regular occurring are expected to be used during during used are expected to be for it to location and working condition necessary • • • • • associated be made. The can value fair estimate of amount. asset’s carrying the of capitalisation and hedges flow cash qualifying criteria are recognition general capitalised when overhaul. time of at the be expensed would replaced component any of value production or supply of goods or services, for rental or services, for rental or supply of goods production co the asset are probable and to the attributable intends, including costs of testing whether the ar they capitalised unless costs are not production asset: the of measurement initial the in are also included following The condition. working • • Similar to Similar to Similar to Similar to Similar Similar to Similar Similar to Similar to Similar to Similar is expens expenditure maintenance Subsequent PPE, at initial measurement, comprises the costs di General General the in use for entity by an are held that assets (PPE) are tangible equipment and Property, plant See ‘Decommissioning, restoration and similar liabilit acq with connection received in grants Government The entity has the policy option to include th US GAAP Decommissioning, restoration and similar Similarities and Differences – A comparison of Subsequent expenditure IFRS US GAAP GAAP Indian US GAAP GAAP Indian Initial measurement IFRS GAAP Indian US GAAP GAAP Indian Recognition IFRS IFRS plant and equipment Property, Definition
Assets 58 The increase of an asset’scarrying amount asaresu IFRS Similarities and Differences–Acomparison of REFERENCES Indian GAAP GAAP US IFRS Impairment ofrevaluedPPE Indian GAAP GAAP US IFRS Frequency ofrevaluations Subsequent measurement Indian GAAP GAAP US IFRS Depreciation Indian GAAP Disclosures of the historical costequivalent GAAP US The costmodelrequires an assettobeca Animpairment loss(downwardre notdiffer does amount carrying the sothat uptodate sufficiently kept tobe have Revaluations Thedepreciableamountofanit Notapplicable(seeabove). Notapplicable(seeabove). Similarto PPEiscarriedatcostlessaccumulated depreciat : Similar to Norequirement on frequency of valuation. ThedepreciableamountofanitemPPEisallo Similar to
The revaluationmodelshouldbeapp IFRS Indian GAAP GAAP US useful lives,theappropriatenessof extent thatitrelatestothesame is materiallydifferent the revaluation policyisadopted.Management should consider ateach year-end whether fair value materially fromthefairvalue.This accounting principle. Regarding periodicreviewsof depreciation method beaccounted for asachange depreciation under the new method and isrecordedin Further, the impactof change in depreciation me of lives useful on estimated depreciation atthe ratesspecified in Schedule statute, the depreciation iscomputed byapplying where the useful life determined by a governingstatutemayprovideratesfordepreciat reviewed periodically;residual values and useful depreciation charge for the current and prosp depreciation method used istreatedasach reflecting the pattern in which the entity consumes the asset’sbenefits. Any change in the circumstances suggest the carrying value of an assetisnot recoverable. impairment. However,revaluationof permitted. Consistentwith at revalued amounts arerequired. any excessisrecognised asan expense. revaluation decreaseischarged directlyagainst an asset, previously recognised asan expense. In this under the heading ‘revaluation surplus’, unless it
asset life, the unamortized depreciableamount is : IAS16,23,36. : FAS34,143,144, 154,ARB43,APB6,FIN47. IFRS IFRS IFRS : AS6,10,28,Companies Act,1956. , FAS 154, Accounting Changes and Error Corrections, requires that a change in change a that requires ErrorCorrections, and Changes , FAS154,Accounting . . fromcarryingvalue. IFRS assets, whicheverishigher. IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 em ofPPEisallocatedonasystem , impairmenttestingisperformed asset;any uncovered deficit isrecordedtothe income statement. valuation) maybeoffset against revaluation surpluses tothe requiresregularrevaluationsof thesedecisionsshouldbea management isshorter than that envisaged under the relevant PPEatfair value ispermittedunder the alternative treatment. lied toan entire classof assets. rried atcostlessaccumulated depreciation and (cost and accumulated depreciation) of assetscarried ange in accounting estimatereflected in the ective periods.The depreciation methods are XIV oftheCompaniesActorasdeterminedbased livesarereviewedateach balance sheet date. reversesarevaluation decreasefor the same cated onasystematicbasis thod isdeterminedbyretrospectivelycomputing charged overthe revisedremaining assetlife. ahigher rate.Forexample,acompany provides ion and impairment losses.Revaluations arenot y relatedrevaluationsurpl caseitisrecognised in the income statement. A ion, wherethoserateswouldprevail.However, depreciation methods, residual values and in accounting estimateaffected byachange in lt of arevaluation iscrediteddirectlytoequity the period of change; ssessed ateachreportingdate. all PPEin the relevant classwhen whenever events orchanges in atic basisoveritsusefullife, us forthesameasset; whereas onrevisionof over itsusefullife,but
59 Assets
. visaged as part of visaged as ion of property, plant and ion of property, plant the plan will be withdrawn. ill be recovered principally probable. For the sale to be
committed to a plan to sell the . It deals with accounting for for accounting . It deals with highly
Valuation of Inventories t for cost or revaluation model and if t for cost or revaluation should not nullify the impact of should not nullify the . Some major changes en . Some major le at a price that is reasonable in relation to its to its relation in is reasonable le at a price that Costs to sell include incremental direct costs to direct costs incremental Costs to sell include qualify for recognition as a completed sale within as a completed sale within recognition for qualify ns required to complete the plan should indicate indicate should plan the to complete required ns an will be made or that ach with regard to revaluat if its carrying amount w yer and complete the plan should have been been have should plan complete the yer and equivalent amount from the revaluation reserve, and reserve, and revaluation the from amount equivalent as part of the respective asset, instead of expensing as expensing of asset, instead respective the as part of Accordingly, the revised AS 10 would replace the existing existing replace the would revised AS 10 the Accordingly, charged to the profit and loss by way of a depreciation a depreciation loss by way of and profit to the charged vel of management should be ortised during the selling period. Property, Plant and Equipment ndition, and its sale should be a regular basis so that the carrying amounts of the items revalued do items revalued the of amounts carrying the basis so that a regular Depreciation Accounting IFRS, US GAAP and Indian GAAP – November 2006 sed on revalued amounts and it sed on revalued amounts the existing versions of AS 10 and AS 6. the existing versions of AS 10 and AS 6.
approach is that an entity has to op approach is that an
gnificant changes to the pl conceptually superior appro conceptually superior , and AS 6, , and AS 6, For assets to be disposed of, the loss recognised is the excess of the asset’s the excess of is the loss recognised the For assets to be disposed of, . , except that there is no requirement to classify an asset as held for sale and present present sale and for asset as held an to classify requirement is no there , except that : AS 10, AS 24. IFRS IFRS : FAS 144. IFRS 5. : transact the sale that would not have been incurred had the decision to sell not been made. These made. These been to sell not decision the had incurred been have not would sale that the transact assets are not depreciated or am carrying amount over its fair value less cost to sell. carrying amount over its fair value less through a sale transaction rather than through continuing use. The asset should be available for be available for asset should The use. continuing through than rather a sale transaction through immediate sale in its present co highly probable, the appropriate le a bu active programme to locate an asset, and sa for be actively marketed asset should The initiated. be expected to sale should The value. fair current fair and amount its carrying lower of at the asset is measured sale, the for as held classified Once value less costs to sell. one year from the date of classification, and actio and classification, date of the year from one that it is unlikely that si it separately on the face of the balance sheet. sheet. balance the of face the it separately on IFRS US GAAP Indian GAAP
Similar to Similar : Similar to Similar Revaluation needs to be done on an entire class of PPE to which that item belongs, item belongs, that PPE to which of class entire an on to be done needs Revaluation is recorded ba Depreciation charge an by withdrawing statement income the in revaluation Frequency of revaluation should be on date; sheet balance at the value fair their from materially differ not Accounting for Fixed Assets
sale A non-current asset is classified as held for • • • Indian GAAP Indian US GAAP the revised AS 10 are as follows: are as follows: AS 10 revised the of major inspections or overhauls (i) Capitalisation of costs respective assets; the of lives useful remaining over the charge more refined and (ii) Prescription of a incurred, at present. The costs so capitalized would be costs so capitalized would The at present. incurred, equipment (PPE). The key features of this equipment (PPE). The adopted: revaluation model is to (iii) Enhanced disclosures as compared (Revised) to AS 2 a limited revision by way of amendments (iv) Consequential property, plant and equipment and depreciation thereof. thereof. depreciation and equipment and plant property, AS 10, Similarities and Differences – A comparison of REFERENCES Non-current assets held for sale Non-current assets held for IFRS
Recent proposals – Indian GAAP – Indian GAAP Recent proposals revised AS 10, the to release ICAI is expected The
Assets 60 and Similarities and Differences–Acomparison of depreciated overitsuseful life. Rental income isgenerally All three frameworks require an assetleasedunder an op Operating leases where taxcash flows areincluded. from taxesand financing relating toaleasetransaction. require use of the net investment method toallocategrossearnings; this excludes the effect of cash flows arising constant rateofreturn.Initialdirect The grossearnings areallocated between receiptof the capit residual value guarantees on aportfolio basis. lessee orathird partyunrelated tothe lessor. payments foralessorunder lease payments and the unguaranteed residual value lessgr the amountofnetinvestmentinth All three frameworks require the amount due from alesseeund Recognition oftheinvestment inthelease period atbelowmarketrental continue the leasefor asecondary The lesseehastheabilityto residual falltothe lessee ofthe value fair inthe fluctuation Gains andlossesfromthe are borne bythe lessee On cancellation,thelessor’slosses lease afinance to lead Could modification lessee can use them without major specialised nature such that only the The leasedassetsareof a the fair value of the leasedasset payments isequaltosubstantiallyall The presentvalue the leased asset’seconomic life Indicator of The leasetermisfor the majorityof A bargain purchase option exists lessee atthe end of the leaseterm Ownership istransferredtothe lease afinance Normally to leads INDICATOR IFRS presented inthetablebelow. contains alease.Allthree frameworks provideindicators ownership of the assettothe lessee.Allthree framewor A finance (capital)leaseexistsif the agreement transfer applied under The leaseclassification concepts aresimilarin allthree fr Classification Leases –lessoraccounting Indian GAAP IFRS , generally beused tocalculate the present value of minimum leasepayments. of minimumlease and Indian GAAP IFRS and costs areamortisedoverthe leaseterm. e lease.Thiswillcomprise,atanypoint , Indian GAAP whileextensiveform-drivenrequirementsarepresentin niao fafnnelae Notspecified. Notspecified. Indicator of afinance lease. Notspecified. Indicator of afinance lease. Indicator of afinance lease. Notspecified. Indicator of afinance lease. Specified as90% of the fair value of Specifi Indicator of afinance lease. Indicator of afinance lease. Indicator of afinance lease. and US GAAP US IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 The interestrateimplic IndianGAAP iac es. Finance leaseaccounting required. a finance lease. include guarantees from the lessee or apartyrelatedtothe s substantially allthe risksand rewardsassociatedwith An exception tothis isfor leveragedleasesunder ks provideguidance on determining when an arrangement excludesthirdpartyresidual ameworks. Substance rather than legalform, however, is erating leasetoberecognised byalessor asPPEand for determining the classification of alease;these are recognised on astraight-line basisoverthe leaseterm. oss earnings allocatedtofuture periods.Minimum lease al amount and receipt of finance income toprovidea er afinance leasetober
it in the leasewould, IFRS in time,thetotaloffutureminimum US GAAP GAAP US lease accounting required. credit retained bythe lessor;finance the propertylessanyinvestmenttax accounting required. 75% of the asset’slife; finance lease Finance leaseaccounting required. , US GAAP US value guarantees that provide ed asequal toorgreaterthan ecognised asareceivableat under under and US GAAP US IFRS Indian GAAP , US GAAP US . US GAAP US
61 Assets
amount of an asset to an of amount icular asset, discounted ailable for use is tested use ailable for nt indicators exist for exist for indicators nt changes in circumstances nite useful life or an intangible s is more representative of the time representative of the s is more does not provide specific guidance on on guidance specific provide does not r goodwill is required when the impairment its fair value. No further action is required if its fair value. No further action is required unt. Assets classified as held for sale are for as held Assets classified unt. ceptional nature that is not expected to recur expected to recur is not that nature ceptional of incentives given as a reduction of rental rental of as a reduction given incentives of revisions to the carrying is recognised in the income statement when an be derived from the part e asset exists), the best information available in available in best information e asset exists), the tely classified or disclosed as held for disposal tely classified or disclosed as held for disposal ether there are any indications that an asset may an that indications are any there ether for disposal are measured at the lower of the the lower of at the disposal are measured for een a change in economic conditions or in the the or in conditions economic in a change een verable. Several impairme intangible asset not yet av there is any such indication. In addition, an an addition, In indication. such is any there ility whenever events or Indian GAAP Indian impairment loss for goodwill is not permitted. an intangible asset with an indefi rsed for assets to be held and used, as the impairment loss market-determined rate that reflects the current assessment of the the of assessment current the reflects rate that market-determined would be followed in practice. followed in practice. would be , using market assumptions. fference between the asset’s carrying amount and its recoverable and amount asset’s carrying the between fference IFRS, US GAAP and Indian GAAP – November 2006 IFRS -line basis unless another systematic basi unless another systematic -line basis , except that (a) all intangible assets are amortised and not considered to have to have considered not assets are amortised and (a) all intangible , except that . However, reversal of impairment loss fo . : AS 28. : AS 19. IFRS IFRS IFRS : FAS 142, FAS 143, FAS 144. : FAS 13, FAS 66, FAS 98, FTB 88-1, EITF 01-08. : FAS 13, FAS 66, FAS : IAS 16, IAS 36. : IAS 17, IFRIC 4 require the lessor to recognise the aggregate cost the to recognise lessor the require amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and its to sell and less costs value asset’s fair the of higher is the amount recoverable The amount. to flows cash future is the use in Value use. in value to present value using a pre-tax time value of money and the risks specific to the asset. to the risks specific the and money of time value asset not yet available for use is tested for impairmentat least annually. For assets to be held and used, impairment is first measured by reference to undiscounted cash flows. Any impairment is to value asset’s carrying the by comparing measured there is no impairment by reference to undiscounted cash flows, but the useful life of the asset as held Assets classified be reconsidered. should indefinite useful lives and (b) assets are not separa sheet. balance the of face the (sale) on carrying amount or fair value less costs to sell. carrying amount or fair value less costs making this assessment. In addition, indicate that its carrying amount may not be reco may not amount its carrying that indicate expected use of the asset. Reversal of results in a new cost basis for the asset. Subsequent limited by the but amount, asset’s carrying to the are reported as adjustments be disposed of asset is made. the to dispose of decision the which date on at the amount carrying ex an of event external by a specific loss was caused be impaired. The asset is tested for impairment if be impaired. The asset its recoverable amo exceeds amount asset’s carrying event. that of effect reverse the that occurred have events external subsequent and intangible asset with an indefinite useful life or an for impairment at least annually. An impairment loss less costs to sell. value fair and amount carrying the lower of at the measured Indian GAAP IFRS US GAAP Indian GAAP IFRS US GAAP being either market value (if an active market for th active market for an (if market value either being flows cash future discounted of sum similar assets, or the price for the including circumstances the or other valuation techniques
Similar to Similar Similar to Similar : : Similar to Similar USGAAP Impairment losses cannot be reve shall be tested for recoverab Long-lived assets value, asset’s fair over the amount carrying the excess of as the loss is measured impairment The b has there losses are reversed when Impairment The impairment loss is the di date wh reporting assess at each should entity An and and this issue; however a treatment similar to however a treatment this issue; Indian GAAP Indian pattern over which the benefit of the leased asset is diminished. asset is diminished. leased the of benefit the which over pattern income over the lease term on a straight the lease term on income over
Similarities and Differences – A comparison of REFERENCES Reversal of impairment loss Reversal IFRS Measurement IFRS US GAAP GAAP Indian assets Impairment of Recognition IFRS REFERENCES Incentives IFRS US GAAP US GAAP Indian GAAP Indian
Assets 62 Indian GAAP GAAP US Recent proposals–IFRS Indian GAAP GAAP US Similarities and Differences–Acomparison of REFERENCES inQ1orQ2,2007. expected toIAS23are amendments final The removed. qualifying asset.Theexistingoption borrowing cost,tothe extent they aredirectlyattribut objective istoremovethemaindi of comment forpublic draft exposure an IASBissued The IFRS Measurement IFRS Recognition Capitalisation ofborrowingcosts Theamountofinteresteligibleforcapitalisatio An entity can makeapolicychoice tocapitalis Borrowing costsarecapitalised,including the amor Similar to Similar to : Similar to
months isconsideredassubstantialperiodoftime period oftimetogetitreadyforitsintendeduseorsale. consistently toallqualifyinga debt, ifapplicable.Aqualifying investee’s activities include the use of funds to acquire qualifying assets for its operations. foritsoperations. assets qualifying offundstoacquire use the include activities investee’s activities in progressnecessary tocommence its accounted for using the equity method meetthe criteriafor aqualifying assetwhile the investee has IFRS Indian GAAP GAAP US finance the production of the assetcannot be incurred duringthatperiod. borrowing costscapitalisedduring aperiod Capitalisation of interest ceasesonce the assetisr capitalised. interest the and isnetted production asset’s the tofinance funds borrowed these cases,interest coststobecapitalisedarerequ governmental orprivateentities that finance qua conditions. tightlydefined butunder differences borrowings outstandingduringtheperiodforthat borrowing oran amount calculated using the weighted averagemethod, considering allthe general attributable totheacquisition,constructionorprodu : IAS23. : FAS34,58,62. IFRS IFRS IFRS : AS16,ASI10. , however, there isno choice but tocapita . to onfundsborrowed earned interest and differences exchange foreign that , except fference betweenUSGAAPandIAS23.Th ofimmediaterecognitionthosebo IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 ssets. Aqualifyingassetisoneth assetisdefinedsimilarlyto able tothe acquisition, production orconstruction of a amendments to IAS 23, Borrowing Costs, in May 2006. The 2006.The toIAS23,BorrowingCosts,inMay amendments may not exceedthe amount of borrowing costs netted against interest, exceptfor certain n iseither the actual costsincurred on aspecific e orexpense borrowing coststhat aredirectly lifying assetsthroughtax-exemptborrowings.In Any interestearnedonte entity. Interest can include foreign exchange planned principaloperations,providedthatthe eady for itsintended use orsale.The amount of unless ashorterorlongerperiodcanbejustified. tisation ofdiscountpre ction of aqualifying asse ired tobereducedbyrelatedinterestincome. rrowing costsasanexpensewillbe lise borrowingcosts.Aperiodoftwelve IFRS is willrequirethecapitalisationof at necessarily takesasubstantial , exceptthat investments mporary investmentof mium andissuecostson t. Thepolicyisapplied
63 Assets
would IFRS ent regularity that the investment property. investment property. cost less impairment. ns and circumstances as of the the as of circumstances and ns ed as inventories; investment rchase price and any directly rchase price and any t plans that invest in real estate carry their real estate carry their in invest that t plans ould be made with suffici unted for as PPE until construction is complete; construction as PPE until for unted uired and self-constructed d depreciated cost models for all investment d depreciated cost models for all investment loss arising from a change in the fair value is loss arising from a change in the fair value r legal services, property transfer taxes and other r legal services, property estate companies and operating companies. Investor Investor companies. operating and estate companies vestment and carried at and vestment iled guidance, however, practice similar to however, iled guidance, earn rentals and/or for capital appreciation. The The capital appreciation. for and/or rentals earn companies, insurance companies separate accounts, separate accounts, companies insurance companies, real-estate companies and operating companies. companies. operating and companies real-estate ed property or property held for sale. or property held ed property perty to be sold is re-classifi terially from fair value. perty. Property under finance or operating lease can also be lease can or operating finance perty. Property under perty reflects the market conditio is reclassified as PPE. is reclassified stment property comprises its pu stment property comprises IFRS, US GAAP and Indian GAAP – November 2006 : AS 13 : ARB 43, APB 6. : IAS 40. carrying amount does not differ ma
Investor entities such as many investment investment as many such entities Investor employee benefi and trusts real-estate bank-sponsored investments at fair value. qualified and independent an of use the require does not standard date. The sheet balance appraiser, but the use is encouraged. Revaluations sh attributable costs, such as professional fees fo fees as professional costs, such attributable property is acco costs. Self-constructed transaction pro thenit becomes an investment classified as investment property. follow. investment property. Investment pro The cost of a purchased inve The cost of a purchased gain or property. When fair value is applied, the depreciated. is not amount carrying The statement. income the in recognised property to be owner-occupied definition does not include owner-occupi enterprise. operations of, the investing value. at fair investments their measure entities Reversal of impairment is permitted. IFRS US GAAP Indian GAAP
Not applicable. Not No deta investment. as long-term Accounted the by, or in use for substantially to be occupied intended not buildings) and (land Property as long-term in Investment property is treated guidance. No specific : entities. investment of value fair the apply to determine rules Specific most for cost model is used historical The cost model is applied for real The depreciated No specific definition. Not applicable. The fair value of investment pro the of use in is a change there where classification subsequent for is detailed guidance There an value fair the between choose can entity The acq for is used measurement same cost-based The (land and buildings) held in order to Property US GAAP GAAP Indian Indian GAAP Indian Similarities and Differences – A comparison of US GAAP REFERENCES Frequency and basis of revaluations and basis of revaluations Frequency IFRS IFRS Transfers to/from investment property property Transfers to/from investment Subsequent measurement IFRS US GAAP Initial measurement Initial measurement IFRS IFRS US GAAP GAAP Indian GAAP Indian US GAAP GAAP Indian property Investment Definition
Assets 64 Indian GAAP GAAP US Similarities and Differences–Acomparison of REFERENCES GAAP US IFRS Biological assets REFERENCES Permitted Indian GAAP GAAP US IFRS Allocation offixedoverheads Permitted Indian GAAP GAAP US IFRS Consistency ofthecostformulaforsimilarinventories Permitted Weighted averagecost FIFO Permitted LIFO Prohibited Permitted METHOD Permitted Permitted Prohibited Formula fordeterminingcost IFRS Measurement rendering services. process ofproductionorforsaleinthe All three frameworks define inventories asassetsthat are: Definition Inventories Indian GAAP Biologicalassets aremeasured on initial recognit Any allocation of fixed production overheads is Thesamecostformulaisusedforallinventories Inventories are carriedatthe lowerof cost or Broadly consistent with consistent Broadly Not specified Similar to Similar to Similar to : : Similar to principle. fundamental isa butconsistency Notspecified, Nospecific guidance.
market inventoryaccountingisallowed predictable costsof completion an net realisablevalue(i.e.,estima inventories. Marketvalue isdefined asbeing curre harvest, andmineralsmineralproductsareallo treatment issimilarforinventoriesofagricultur profit margin.Reversalofawrite- IFRS Indian GAAP GAAP US statement in the periodin which they arise. value lessestimatedpoint-of-sale costs.Allchange overheads expensed asincurred. Inventories of producers and dealersof agricultural down) isrequired for asubsequent increase in value of inventory previously written down. costs tobringtheinventoriescompletion).Revers IFRS : IAS2. : IAS41. : ARB43,FAS151. IFRS IFRS IFRS IFRS : AS2.
IFRS − historical costisgenerally used. . . . . form ofmaterials;orsuppliestobeco IFRS IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 , in that the lowerof costand marketvalue isused tovalue ted sellingpriceintheordinaryco down isprohibited,asawrite-do d disposal)andalowerlimitofnetrealisablevaluelessnormal for refinedbullionofpreciousmetals. held for sale in the ordinary course of business; in the inthe ofbusiness; course ordinary inthe forsale held
US GAAP Indian GAAP GAAP Indian GAAP US net realisablevalue (saleproceedslessallfurther al andforestproductsan basedon normal capacitylevels,with unallocated that have asimilarnature and use tothe entity. ion and ateach balance sheet dateattheir fair nt replacement costsubject toan upper limitof andforestproducts,ag wed atnet realisablevalue even if abovecost. s in fair value arerecognised in the income al (limitedtothe amount of the original write- nsumed intheproductionprocessor urse ofbusinesslessreasonably wn creates anew costbasis.The d mineralores.Mark-to- ricultural produce after
65 Assets
. Frequent . IFRS IFRS at its fair value (which is Similar to buying and selling usually instrument. a trading indicates applies to equity Guidance a readily have that securities determinable fair value and all debt securities. Similar to With the adoption of FAS 155 year that fiscal from effective begins after 15 September 2006, option to designate financial assets at fair value with changes in fair value income the in recognised it’s a hybrid if only statement financial instrument that contains an embedded derivative that would otherwise require separation. will or may be settled in the will or may be settled there is no comprehensive guidance on comprehensive guidance there is no d the effect of changes in foreign exchange rates and rates and exchange foreign in changes of effect d the l asset is recognised initially Indian GAAP Indian asset that is not recognised at fair value with changes changes with value at fair recognised is not asset that ll financial assets. ll financial assets defined to include derivatives. The n costs that are directly attributable to the acquisition of of acquisition to the are directly attributable costs that n asset from another entity or to exchange financial financial or to exchange entity another asset from . Under , these include many contracts that , these include many IFRS, US GAAP and Indian GAAP – November 2006 USGAAP IFRS measurement or recognition or recognition measurement inconsistency; liabilities or both is managed and performance is evaluated on a fair value basis; or substantive embedded derivatives. value. at fair measurement Subsequent in recognised are value fair in Changes statement. income the The intention should be to hold the financial asset for a relatively short period, or as part of a portfolio for the purpose of short-term profit-taking. applies to a Guidance An irrevocable decision to classify a to classify irrevocable decision An changes with value, asset at fair financial in fair value recognised in the income statement, provided it results in more either: because information relevant a reduces or significantly a) it eliminates b) a group of financial assets, financial or more one contains contract c) the define a financial asset in a similar way, to include:
1 , there is no specific guidance, however, financial assets are recognised based on the the based on assets are recognised financial however, guidance, specific is no , there
2 lue through profit or loss s and rewards of ownership. e derivatives (under e derivatives (under Indian GAAP Indian financial assets require an entity to recognise a financial asset when and only when the entity becomes a party entity the when only and asset when a financial to recognise entity an require ncial asset may, Indian GAAP Indian is broadly consistent with is broadly and and IFRS US GAAP US GAAP and and , outlines the recognition and measurement criteria for a criteria for measurement and recognition the outlines cash; cash; financial or another to receive cash right a contractual instruments with another entity under conditions that are potentially favourable; and and favourable; potentially are that conditions under entity another with instruments entity. another of instrument equity an
The following table outlines the classification requirements for various financial assets. financial various for requirements classification the table outlines following The GAAP IFRS CLASSIFICATION US transfer of significant risk significant of transfer financial assets except accounting standards on investments an investments on standards except accounting assets financial stock options. equity and options index equity futures, index equity for accounting on notes guidance that asset. Under in fair value recognised in the income statement, transactio statement, income the in recognised value fair in • • a financial case of the in price), plus, transaction the normally • Financial assets includ Similarities and Differences – A comparison of Held-for-trading financial assets for held securities equity Debt and sale in the short term. Includes non- qualifying hedging derivatives. on initial recognition, be classified as fair value through profit or loss criteria. provided it meets certain Two sub-categories: (see below), and trading for held category at to the designated those inception. Any fina Financial assets at fair va entity’s own equity instruments). See p83 for accounting for derivatives. for accounting for See p83 instruments). equity own entity’s Recognition and initial measurement IFRS to the contractual provisions of a financial instrument. A financia Definition IFRS assets Financial IFRS guidance in in guidance
Assets 66 entities had an ability to designate any financial asset or financial liability at fair value though profit or loss. Similarities and Differences–Acomparison of Under 2 1 above categories. those not coveredbyany of the classified asheld for trading, and except those equity securities designated asavailablefor sale, Includes debtand equity securities Available-for-sale assets financial funds). mutual (for example, but notinterestsinpoolsofassets provided theirintentionissimilar, loans and receivablespurchased, in an activemarket.Mayinclude determinable paymentsnotquoted or withfixed assets Financial receivables and Loans life. securities, asthey have an indefinite maturities. Doesnot include equity US determinable paymentsand Includes assetswithfixedor intent andabilitytoholdmaturity. held assets Financial Held-to-maturity investments CLASSIFICATION IFRS GAAP However, the classification criteriaan Banking regulationsrequirein income statement. impairment, ifany.Anyreductioninth Current investments arecarriedatlowerof costand fair long-term investmentisan by itsnatureisreadilyrealisableandintendedtobehe
This restricted fair value option under option value fair restricted This Qualifying hedging derivatives are classified separately. separately. areclassified derivatives hedging Qualifying Indian GAAP , investments are classified ascurrent and long-te withapositive vestments tobeclassifiedbetweenheld-t IFRS d measurement requirements differ from e carrying amount and any reversals of such reductions arerecycledthrough otherthanacurrentinvestment. isapplicableforannualperi income statement. debt securities arerecognised in the Foreign exchangegainsandlosseson collected. income statement when sold,impairedor equity orin aSoRIE)and recycledtothe statement of changes in shareholders’ of taxeffects in equity (ie,presented in a Changes in fair value arerecognised net Measured atfair value. Doesnot define aloan and Measured atamortisedcost. effective interest ratemethod. Measured atamortisedcostusing the available-for-sale assets. reclassify allitsheld-to-maturityassetsas (known astainting).Th periods reporting for twofullannual using the held-to-maturity classification held tomaturity,itisprohibitedfrom in limitedcircumstances), classified as insignificant amount of assets(other than When an entity sellsmorethan an maturity, notsimplyapresentintention. and ability’toholdafinancialasset An entityshouldhavethe‘positiveintent IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 value whereas long-term investments arecarried atcostless ld for not morethan one year e entity should also ods beginningonorafter1Ja rm. Acurrentinvestment o-maturity, tradingandavailable-for-sale. IFRS
and Similar to also apply. Industry-specific guidance may on the definition of asecurity. receivable category.Focuses Similar to recognised in equity. losses on debtsecurities are Foreign exchange gains and comprehensive income. reported inother Changes infairvalueare apply forspecificindustries. carried atcost.Exceptions equity securities aregenerally two years. maturity securitiesshouldbe sales ortransfersofheld-to- states that the taint periodfor listed companies, the SEC assets ceasetobetainted. For GAAP from thedateofinvestment.A
US GAAP US issilentaboutwhen nuary 2006.Priortothatdate, IFRS IFRS is aninvestmentthat . , exceptunlisted , although US
67 Assets
IFRS in the case of an y difference between the the between y difference mpairment on available-for- of previous impairment, to be They are prohibited into and out into and out They are prohibited a change of intent or ability are of intent or ability are a change lue of a financial asset below its . et for an asset, or IFRS ere has been evidence of short-term sale debt and equity securities. securities. equity sale debt and previous gain or loss recognised in equity is previous gain or loss recognised in equity ty is treated as an adjustment of yield. of adjustment ty is treated as an (to) available for sale into (or out of) trading (to) available for sale into (or out of) trading sale, the asset is remeasured at fair value with with value at fair asset is remeasured sale, the turity category, the asset’s fair value at the date at the value asset’s fair category, the turity is established after a security is impaired. a security after is established maturity investment. An at do not have a fixed maturity, any gains and at do not have a fixed r a sufficient period to permit recovery in value; ty until the asset is impaired or derecognised. For ty until the asset is de at lower of cost and carrying amount at the at the amount carrying cost and de at lower of long-term category is made at lower of cost and cost and category is made at lower of long-term available for sale for two years. The assets are years. The two sale for available for fication out of the category is when the whole whole the when category is the of out fication tions provide separate guidelines for transfers. tions provide separate guidelines for transfers. t’s carrying value at the date of reclassification reclassification date of at the value t’s carrying gory where the tainted held-to-maturity portfolio has gory where the tainted circumstances, result in the whole category being being category whole the in result circumstances, erparty; an actual breach of contract; a high a high contract; of breach actual erparty; an , prohibits reversals of i ere is an indicator of impairment, such as: the as: the such impairment, of indicator ere is an ces, with any difference recognised in equity. equity. in recognised difference any ces, with to the transfer of financial assets between categories: categories: assets between financial of transfer to the ective interest rate). For financial assets carried at fair assets carried at fair rate). For financial ective interest mated recoverable amount (present value of expected of value (present mated recoverable amount et rate. Any loss that has been deferred in equity is market prices or, if unavailable, the present value of the the of value present the unavailable, market prices or, if ties, identified as reversals ties, identified nancial asset is reclassified from the held-to-maturity category held-to-maturity the from nancial asset is reclassified earance of an active mark impairment of financial assets. US GAAP ial assets carried at amortised cost, the impairment loss is the loss is the impairment ial assets carried at amortised cost, the maturity category as a result of as a result maturity category of impairment are: the financial health of the counterparty; counterparty; the of health financial are: the impairment of w its cost. A decline in the fair va US GAAP turity, the gain or loss is amortised to profit or loss over the is amortised to profit or loss over the turity, the gain or loss ange of intent or ability, or th IFRS, US GAAP and Indian GAAP – November 2006 of a security does not establish a new cost basis. cost basis. a new establish does not a security of similar to , mpairment charge on available-for- IFRS . Held-to-maturity investments: a fi when there has been a ch profit-taking. Where the reclassification is to held-for-trading, the asset is remeasured to fair to fair asset is remeasured the is to held-for-trading, reclassification the Where profit-taking. asset is financial the Where statement. income the in recognised difference the with value to available for held-to-maturity from reclassified similar to provisions, trigger tainting may a transfer Such equity. in recognised difference the IFRS Available-for-sale financial assets: transfers from should be rare. new amortised cost and the amount due at maturi due amount the amortised cost and new of reclassification becomes its amortised cost. Any its amortised cost. Any becomes reclassification of held-to- the of life remaining amortised over the generally require that, for financ have similar requirements for the
deterioration in the creditworthiness of a count of creditworthiness the in deterioration probability of bankruptcy; the disapp investment in an equity instrument, whether there has been a significant or prolonged decline in the the in decline or prolonged a significant been has there whether instrument, equity an in investment fair value of that investment belo of evidence necessarily rate is not interest risk-free the in increase the from results cost that impairment. An impairment ‘other than temporary’. Indicators a prospects of the below cost; and been has market value the that extent and duration the cost basis market price recovery. A new forecasted whether the investor intends to hold the security fo • held-to-ma the asset into an transfers entity an If • date of transfer; whereas transfer from current to current from transfer whereas transfer; date of regula Banking transfer. date of at the value fair treated as sales and, other than in exceptional exceptional in than other sales and, treated as a reclassi for reason most common The tainted. as to be reclassified has and category is tainted remeasured to fair value in these circumstan these in value to fair remeasured asse financial the case, this In ‘cleansed’. been financial assets with a fixed ma yield method. effective the using instrument the of life remaining becomes its amortised cost. For financial assets th becomes its amortised equi in remain equity in losses already recognised of the fair-value-through-profit-or-loss category. of the fair-value-through-profit-or-loss is ma category to current long-term from Transfer US GAAP US GAAP to be value fair in a decline considers entity an assets when financial of write-down the Requires prohibits the reversal of an i The rules following apply under th when impairment consider should Entities and and and under categories are uncommon between Reclassifications requires changes in value of available-for-sale debt securi available-for-sale of value in changes requires Similarities and Differences – A comparison of US GAAP IFRS IFRS quoted based on is usually recoverable amount the value, mark current at the discounted flows cash expected future impairment. on statement income recycled to the US GAAP statement. income the in recognised Indian GAAP Indian Impairment IFRS its esti and amount asset’s carrying the between difference future cash flows discounted at the instrument’s original eff between of assets Reclassification categories IFRS cate the into may be reclassified instrument An US GAAP sale equity securities. securities. sale equity Reclassifications from the held-to-
Assets 68 Similarities and Differences–Acomparison of REFERENCES IFRS Derecognition exist. nolonger reduction reduction in carrying amount isreversedwhen there isarisein the value of the investment, orif the reasons for the decline infairvaluetobe‘otherth Indian GAAP The difference between the amount receivedand the carrying amount of the assetisrecognised in See ‘Recentpronouncementandpropo Recent pronouncement and proposal Indian GAAP US GAAP US A financial asset (orpart asset Afinancial Thederecognitionmodelisdifferent fromthe : requiresthewrite-downoflong Limitedguidanceonderecognition • • IFRS Indian GAAP GAAP US • • the income statement on derecognition. Any fair 2) 1) transaction arerecognised atfair value. in equityarerecycledtothe 3) substantially alltherisksandrewa assets of the consolidated entity. The entity derecognises the assetif an entity transfers An entity consolidates subsidiaries including asset. Ifanentityneithertransf collateralised borrowing)ifitre of afinancial asset).Itcontinues torecognise the asset,ithastodeterminewhet involvement . If the entity hasretained control, itcontinues to transferee’s practicalabilitytosellth securitised asset. securitised assetsiftheoriginatorlosescont and rewards.However,aGuidance Noteon Accountin
are transferred and the following conditions aremet: transferred; asset istransferred. substantially alltherisksandrewardsareneithe an obligation totransfer the asset’scash flows the rightstoasset’scashflowsandsubsta the rightstoasset’scashflowsexpire; – obligation toremitany cash flow – prohibitionfromsellingorpledgingtheassetothe asset transferred flows fromthe cash equivalent flowsunless cash topay – noobligation : IAS39,SIC-12. for the obligation to pass through cash flows; and flows;and throughcash topass obligation for the collected; the abilityoftransfereeto receivership; transferor and beyond the reach of the transferor and itscreditors,even in bankruptcy orother legal isolation of the transferred assetfrom the transferor no rightorobligationofth or exchange the transferred assetfree from constraint; and redeem ‘not readilyobtainable’ assets(exceptfor ‘clean-up’ call). control througharightorobligationtorepurchase : FAS115,133,140, 155,FAS157. : AS13,GuidanceNoteonA an temporary’.Itdoesnotspecifically sal –USGAAP’onpage81. ) isderecognised when: -term investments toincome statement when an entity considers a income statement.Anynewassets IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 tains substantiallyalltherisks ers norretainssubstantiallyallthe e transferor torepurchase rds ofownershiptheasset(for pledgeorselltheasset her it has retained control ofth control retained ithas her of assets.Ingeneral,derecogn e asset.Theassetisderecognised ccounting for Securitisation. forSecuritisation. ccounting s withoutmaterialdelay;or rol ofthecontractualri SPEs beforeapplyingthe IFRS the asset(the transaction isaccounted for asa recognise the assettothe extent of itscontinuing value adjustmentsofthe ntially allrisksandrewardsofownershipare is assumed,substantially modelandgovernedbythreekeytests: r transferrednorretained,butcontrolofthe r thanassecurityto g forSecuritisationrequ orredeemassetsarighttopurchase lay downindicators − the transferor cannot maintain effective − the transferee has to beabletopledge and rewardsofownershipthe − orliabilitiesarisingfromthe assetshavetobeisolatedfromthe e asset.Controlisbasedonthe risks andrewardsofownership ised basedontransferofrisks ghts thatcomprisethe example,an unconditional sale derecognition teststo if theentityhaslostcontrol. assets formerlyreported allrisksandrewards of impairment.The the eventualrecipients ires derecognitionof
69 Assets
has several has several the restructuring. An tion benefits requires USGAAP e cash flows is fixed. e area of asset retirement asset retirement e area of fair value and are evaluated each al. If a range of estimates is a liability based solely on an bilities and restructuring costs. All restructuring costs. bilities and mployees. Initial liabilities for nt and no amount in the range is more In practice, provisions are measured by are measured practice, provisions In settle the obligation; and settle the obligation; nomic benefits as a result of past events; past events; of as a result benefits nomic sion for one-time termina rate, particularly in th es the entity no realistic alternative to settle the to settle the realistic alternative no entity es the ed when the timing of th de only when the general recognition criteria for estimate of the expenditure required to settle the to settle the required expenditure the estimate of ‘demonstrably committed’ to avoid the future expenditure by its future actions, it tity must be unable to withdraw because it has it has because to withdraw be unable tity must e anticipated cash flows are discounted using a using discounted are flows cash e anticipated main features to those affected (constructive (constructive affected to those features main ke an unreasonably long time to complete. justified if there will be a delay before the e costs, including costs associated with proposed but not not proposed but costs associated with e costs, including prohibits the recognition of e liability if the effect is materi the ‘constructive obligation’ recognition criteria specified under under criteria specified recognition obligation’ ‘constructive the tion of a liability are measured at the plan to the affected e that reflect(s) current market assessments of the time value of of time value the of market assessments current reflect(s) that transfer will be required to transfer will be required IFRS, US GAAP and Indian GAAP – November 2006 US GAAP visions – for example, environmental lia example, environmental visions – for , except that constructive obligations are not considered for recognising provisions. provisions. recognising for considered are not obligations constructive , except that . However, . , except that discounting is not required. required. is not discounting , except that . However, if a range of estimates is prese IFRS IFRS IFRS IFRS IFRS have a specific standard on accounting for various types of provisions. provisions. types of various for accounting on standard a specific have . the entity has a present obligation to transfer eco to transfer obligation a present has entity the a it is probable that such made. be can obligation the of amount the a reliable estimate of
restructurings that meet the defini entity’s commitment to a plan. Recognition of a provi of Recognition to a plan. commitment entity’s communication of the details of provisions are met as compared to IFRS entity is usually demonstrably committed when there is legal obligation or when the entity has a has entity the or when is legal obligation there committed when demonstrably is usually entity en The restructuring. the for plan detailed formal its or announced plan the started to implement allocation interest an using measured value fair in changes subsequent period, with reporting approach. obligation created by the event. If the entity can can entity the If event. created by the obligation has no present obligation and a provision is not recognised. using a substantial degree of estimation. obligation). A current provision is unlikely to be restructuring begins, or the restructuring will ta • • leav event obligating An obligation. or a constructive pre-tax discount rate (or rates) obligations. • date. Th sheet balance at the obligation present money and those risks specific to th predicted and no amount in the range is more likely than any other amount in the range, the ‘mid- the range, the in amount other any is more likely than range the in amount no predicted and the liability. point’ of the range is used to measure is used amount mid-point) the than (rather ‘minimum’ the range, the in amount other any likely than discount to measure the liability. A provision is only be ma can provision a restructuring, case of the In Similar to Similar Similar to Similar Indian GAAP Indian Similar to Similar Similar to Similar Similar to Similar A present obligation exists only when the entity is best is the as a provision recognised amount The is recognised when: A provision and and
Similarities and Differences – A comparison of US GAAP GAAP Indian Restructuring provisions Restructuring provisions IFRS US GAAP GAAP Indian Measurement IFRS a legal obligation either of form It may take the event. obligating an arises from obligation A present GAAP Indian discount the of selection the may arise in Differences IFRS IFRS legislation. yet effective Recognition Liabilities Provisions standards addressing specific types of pro addressing specific standards three frameworks prohibit recognition for futur of provisions US GAAP
Liabilities 70
Similarities and Differences–Acomparison ofIFRS,USGAAP andIndianGAAP–November 2006 REFERENCES IFRS Decommissioning, restorationandsimilarlia REFERENCES Indian GAAP GAAP US IFRS Onerous contracts Indian GAAP GAAP US
Aliabilityforcoststoterminateacontractbefore : : Similar to Similar to being used.Theliabilityisreducedbyestimate right conveyed bythe contract. Acommon examplere benefit tothe entity isrecognised and measured at for coststhatwillcontinuetobeincurredunder IFRS IFRS Indian GAAP GAAP US Indian GAAP GAAP US being obtained. if managementhastheabilityto leasehold propertythathasbeenle contract isrecognised and measured asaprovisi economic benefits expectedtobereceivedunder is onerous (the unavoidable costsof meeting the obligations under the contract exceedthe Ho prohibited. are losses operating Provisions forfuture obtained fortheprope specified bythecontractorhasotherwisenegotia example, when the entity giveswritten notice to fair value when the entity terminates the contr cost model,adecreaseintheliab corresponding adjustmenttothe amount of the future cash flows orchanges in the Changes inthemeasurementof the liability,withacorresponding amount of the future cash flows arerecognised asadecreaseorincrease in the carrying amount of Changes inthemeasurementof liability duetothepassageoftime(accretionth applied tothe change isthe current rate. SimilartoIFRS,changes in the measurement of the decrease the ARO.Forchanges in estimatesthat increase the amount of the ARO,the discount rate discount rateapplieduponinitia estimate offairvaluecanbemade.IFRShasno example, there has tobean existing legalobligation and the AROisrecordedonly if areasonable for accrualandcapitalisationofanAROaremo associated assetretirement costsarecapitalisedaspartof the asset’scarrying amount. The criteria The decommissioningliabilityisreferredtoas estimate fairvalue. discount) areincluded in the income statement. date. Changesinthemeasurement amount of the asset isreduced tozero.The discount rateappliedisadjusted ateach reporting Property, Plant and Equipment and Plant Property, inventories duringthatperiod. installing theitemorusingit related property,plant orequipment (PPE).An entity incurs this obligation asaconsequence of legal orconstructiveobligationisrecognisedand A liabilityforthepresentvalueof the costsofdismantling,removal on capitalisation of these coststoPPE.The IC : IAS16,37,IFRIC1. : IAS37. : FAS143,FIN47. : FAS5,EITF88-10,143,146,SOP96-1. IFRS IFRS : AS29. : AS29 , exceptthat discounting isnot required. , exceptthat discounting is not required and currently there isno specific guidance rty (consistentwith , which proposestoinclude these costsaspartof the relatedPPE. em duringaparticularperiod l recognitionoftheliabilityisus sublease andsubleas increaseordecreasetotherela ility isdeductedfromthecost ft vacant.Theliabilityisreduced tal costof the PPEasset.If the PPEassetismeasured using the bilities (assetretirementobligations) of theliabilityduetopassa liability relatingtochangesin liability relatingtochangesin IFRS act in accordance with the contract terms(for an ‘assetretirementobligation’(ARO).The AI isexpectedtoreleasethe revisedAS10, d sub-leaserentalsthat ). re stringentunderUSGAAPthanIFRS the counterparty within the notification period a contractforitsremain similar requirementregardinganentity’sabilityto on. One of the most common examplesrelatesto the endofitstermisrecognisedandmeasuredat e discount)areincludedin the corresponding costincluded aspartof the ted aterminationwithth discount ratearerecognised immediatelywith a the contract), the present obligation under the itsfair value when the entity ceasestouse the e incomeisprobable(morelikelythannot)of lates toleaseholdpropertythatisnolonger wever, if an entity ispartytoacontract that for purposesotherthantoproduce ed forchangesinestimatesthat of theassetuntilfullcarrying ted capitalisedAROasset.The the estimateoftimingor the estimateoftimingor ge oftime(accretionthe or restorationasaresultof byestimatedsub-leaserentals couldreasonablybe ing termwithouteconomic e counterparty).Aliability theincomestatement. − for
71 Liabilities
s the same treatment for s the same are not required. required. are not IFRS ce recoveries is lower. The recovery is ce recoveries is lower. The future events outside the entity’s control. It control. entity’s the outside events future e likely to occur) rather than virtually certain as as certain virtually than rather e likely to occur) a similar manner as historical waste. The entity entity The waste. as historical a similar manner period. The entity applie period. The ised because it is not probable that there will be ised because it is not probable that there g from a past event and an outflow of economic economic of outflow an and a past event g from n to bear the waste management cost on equipment equipment on cost waste management to bear the n the business. Commercial-user entities can also can entities Commercial-user business. the es from past events and whose existence will be es from past events and whose existence n whose outcome will be confirmed only by the n whose outcome will be confirmed only market – wastemarket – equipment and electronic electrical l. An asset is recognised when the realisation of the associated the of realisation the when asset is recognised l. An e fact pattern is similar. e fact pattern is similar. IFRS, US GAAP and Indian GAAP – November 2006 sclosed unless the probability of outflows is remote. sclosed unless the probability of outflows
. , an accrual for a loss contingency is required if it is probable (defined as likely to as it is probable (defined if is required a loss contingency for accrual , an . , but the threshold for recognising insuran , except that certain disclosures as specified under under as specified disclosures certain , except that . : AS 29. : AS 4, AS 29. .
IFRS IFRS IFRS IFRS IFRS IFRS : FAS 143, FIN 47, FSP No. FAS 143-1. : FAS 143, FIN 47, FSP : FAS 5, SOP 96-1. IFRS : IAS 37 : IAS 37, IFRIC 6. occur) that there is a present obligation resultin obligation is a present there that occur) estimable. is reasonably resources an outflow of economic benefits, or the amount of the outflow cannot be reliably measured. be reliably measured. cannot outflow the of amount or the benefits, economic of outflow an Contingent liabilities are di apply the same treatment if th apply the same treatment not events future uncertain or more one of or non-occurrence occurrence by the only confirmed wholly within the entity’s contro certain. recovery, is virtually insurance as an such benefit, ar or events event future to be probable (the required not recogn can also be a present obligation that is wastemanagement cost on equipment sold to private households on or after 2005 (‘new 13 August new waste in treats legislation national the waste’) if it exits after incurred costs obligated for is not under or more uncertain one of or non-occurrence occurrence sold to private households before 2005 (‘historical 13 August waste’) recognises a liability when it measurement the market during the in participates IFRS Indian GAAP IFRS US GAAP US GAAP Indian GAAP Similar to Similar Similar to Similar Similar to Similar : : Similar to Similar Similar to Similar Similar to Similar A contingent liability is a possible obligatio A contingent asset is a possible asset that aris legislatio national the under obligated entity An
Similarities and Differences – A comparison of US GAAP GAAP Indian US GAAP GAAP Indian REFERENCES US GAAP Contingent liability IFRS Contingencies Contingent asset IFRS GAAP Indian REFERENCES a specific participating in arising from Liability IFRS
Liabilities 72 Similarities and Differences–Acomparison of tracing) allocation (backwards Intra-period tax and intangibleassets Revaluation ofPPE on inventory profits –forexample, Unrealised intra-group applications Specific IndianGAAP difference) USGAAP temporary/ timing provided onthe deferred taxisnot Exceptions (i.e., Similarto IFRS assets andliabilities Fullprovision. Basis fordeferredtax General approach General considerations ISSUE in thetablebelow. All threeframeworksrequireaprovisionfordeferredtaxes, Deferred tax principle’). to equity(the‘follow-up In thiscase,deferredtaxistaken of theassetsaretakentoequity. changes in the carrying amount income statement unless Deferred taxisrecognisedinthe equity. Deferred taxrecognisedin buyer’s taxrate. Deferred taxrecognised atthe the entity. the taxrulesandjurisdictionof differences) existanddependon referred toaspermanent a taxconsequence (commonly donothave that amounts Other time of the transaction. profit nortaxableatthe (b) affects neither accounting not abusinesscombination;and liability inatransactionthat:(a)is Initial recognitionofanassetor taxable temporarydifferences. purposes) doesnotgiveriseto which isnotdeductiblefortax Non-deductible goodwill(that below). and liabilities(seeexceptions amount andtaxbaseofassets difference betweencarrying Temporary differences–ie,the IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 but there aredifferences in the methodologies, assetout in the income statement. allowance) arerecognised changes and valuation subsequent changes (rate recognition, butcertain Similar to revaluation isprohibited. Not applicable,as upon saletoathirdparty. deferred andrecognised company saleare as aresult of the inter- of temporarydifferences) tax effects of any reversal (including taxespaidand effects to the seller taxes. Anyincometax from recognisingdeferred The buyerisprohibited leveraged leases. computing deferredtaxon requirements applyin exemption and special initial recognition Similar to Similar to IFRS IFRS IFRS IFRS forinitial , exceptno Timingdifferences–i.e., . . Similar to Similar to as permanentdifference. recognised asconsidered Deferred taxisnot consolidation. no adjustmentismadeon consolidating entities and statement of all financial standalone taxes areaggregatedfrom recognised asdeferred Deferred taxisnot Similar to periods. or moresubsequent capable of reversalin one one period and are period that originate in taxable incomefora accounting income and the difference between IFRS IFRS IFRS . . .
73 Liabilities
. IFRS As for subsidiaries Similar to No specific guidance, guidance, No specific no deferred tax however, will be recognised. Deferred tax is not recognised as deferred from taxes are aggregated standalone financial all of statements and entities consolidating no adjustment is made on consolidation. As for subsidiaries A tax benefit from an uncertain tax position may be recognised only if it is that not’ ‘more likely than the tax position is sustainable based on its tax merits. The technical as is measured position tax of largest amount the is greater than that benefit 50% likely of being ultimate realised upon settlement. Deferred tax is recognised on temporary differences relating to investments in investees. No deferred tax is No deferred for differences recognised assets and related to are liabilities that local from remeasured currency into the functional currency in resulting from changes rates or exchange indexing for tax purposes. on Deferred tax is required temporary differences arising after1992 that in relate to investments domestic subsidiaries, can amounts such unless be recovered tax-free and expects to use entity the that method. No deferred on taxes are recognised undistributed of profits foreign subsidiaries that indefinite meet the reversal criterion. Deferred tax is required on temporary differences arising after 1992 that relate to investment in domestic corporate joint ventures. No deferred on taxes are recognised undistributed of profits foreign corporate joint meet the that ventures indefinite reversal criterion. IFRS, US GAAP and Indian GAAP – November 2006 Reflects the tax consequences tax consequences the Reflects that follow from the manner in expects, at the entity the which date, to pay to sheet balance (recovered from) the taxation authorities. Deferred tax is recognised can investor the except when and profits of sharing the control it is probable that the temporary difference will not reverse in the future. foreseeable Deferred tax is recognised can venturer the except when and profits of sharing the control if it is probable that the temporary difference will not future. foreseeable the reverse in Deferred tax is recognised Deferred tax is recognised is able to parent the except when of profit control the distribution that the and if it is probable will not temporary difference future. foreseeable the reverse in Deferred tax is recognised on the is recognised on Deferred tax carrying the between difference using the amount determined and exchange of rate historical using the tax base determined date exchange sheet balance the rate. Similarities and Differences – A comparison of Uncertain tax positions Investments in associates – of treatment undistributed profit Investments in joint ventures – treatment of undistributed profit Investments in subsidiaries – of treatment undistributed profit Foreign non-monetary when assets/liabilities the tax reporting currency is not the functional currency ISSUE IFRS US GAAP Indian GAAP
Liabilities 74 Similarities and Differences–Acomparison of Prohibited. value Prohibited. assets/liabilities tofair Step-up ofacquired –acquisitions combinations Business Discounting Prohibited. credit carryforward. alternative tax(MAT) on minimum Recognition ofasset deferred taxassets Taxratesand Recognition of Tax rates tax deferred of Measurement IndianGAAP USGAAP IFRS compensation Share-based ISSUE enacted. been enacted orsubstantively stepped up. the taxbaseofassetisalso Deferred taxisrecordedunless the regulartaxliability. used in future yearstoreduce than not) that MATcreditcan be asset ifitisprobable(morelikely It isrecognised asadeferred tax difference canbeutilised. against whichthetemporary taxable profitwillbeavailable sufficient not)that than likely recognised ifitisprobable(more A deferredtaxassetis price. is basedonthecurrentstock the estimateoftaxdeduction impact the future taxdeduction, If changes in the stockprice an individual award. income. The unit of accounting is taxes arising arerecordedin compensation expense,deferred cumulative share-based deduction islessthanorequalto directly in equity. If the tax excess deduction arerecorded tax calculations basedon the compensation expense,deferred cumulative share-based If atax deduction exceeds tax lawsthathave IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 been enacted. tax lawsusedmusthave permitted. Taxrateand enacted ratesisnot Use ofsubstantively Similar to liability. reduce theregulartax to years infuture used MAT creditcannot be more likelythannotthat valuation allowance,ifit but isthenreducedbya deferred taxassetinfull, It isrecognised asa realised. tax assetwillnotbe some orallofthedeferred more likelythannotthat valuation allowanceifitis then reduced bya recognised infullbutis A deferredtaxassetis deduction (ifany). tax future actual the the stockpricewillaffect assets, future changes in do notimpactdeferredtax expiration. Althoughthey prior tosettlementor result inanyadjustments deferred taxassetor do not impactthe Changes in the stock price to taxexpense thereafter. benefits, and asacharge extent ofpriorwindfalltax shareholders’ equity tothe direct charge to shortfall isrecordedasa deferred taxasset,the tax benefitislessthanthe shareholders’ equity. If the credited directlyto is benefit) tax ‘windfall’ a (knownas benefit recorded, the excess deferred taxasset to the issuer exceedsthe If the taxbenefit available IFRS Deferredtaxes are . Similar to made onconsolidation. and no adjustment is of allconsolidating entities alone financial statements aggregated from stand- liability. to reducetheregulartax will beusedinfutureyears evidence that MATcredit extent there isconvincing tax asset)whenandtothe asset (notasadeferred tax and recognised asan It isconsidered asprepaid carryforward. entities withnotaxlosses reasonably certain for whereas (b)if realisation is losses carryforward, certain forentitieswithtax realisation isvirtually recognised (a)if Deferred taxassetsis permanent difference. recognised asitis Deferred taxisnot IFRS .
75 Liabilities
. . IFRS IFRS . However, if the . Deferred tax asset, net, is disclosed after ‘Net assets’; whereas current deferred tax liability, net, is disclosed after loans’. ‘Unsecured Similar to are All adjustments recorded in income statement. and acquired For entity held as a subsidiary, no adjustment is recorded on consolidation. and acquired For entity amalgamated, similar to IFRS recognition of deferred tax asset is done after the first annual balance sheet date following the combination, effect corresponding the of any subsequent recognition is routed through the income statement. held as a subsidiary, held as a subsidiary, offsetting credit is recorded in income statement. and acquired For entity to amalgamated, similar IFRS . Similar to . Similar , except . and acquired entity For IFRS IFRS IFRS Similar to Deferred tax assets and liabilities are either or as current classified non-current, based on the the of classification related non-tax asset or liability for financial reporting. Tax assets not an associated with underlying asset or liability based on are classified expected reversal the period. Similar to is credit offsetting the against goodwill. recorded Similar to The subsequent resolution of any tax uncertainty relating to a business combination is recorded against goodwill. The subsequent resolution of any tax uncertainty relating to a business combination is recorded first against goodwill, then non-current intangibles tax income then and time is no There expense. limit for recognition of this deferred tax asset. IFRS, US GAAP and Indian GAAP – November 2006 is more than one tax assets and liabilities are classified net as non-current as non-current net are classified with sheet, balance the on supplemental note disclosure for: the of components the (1) temporary differences, and (2) expected to be amounts recovered within 12 months and more than 12 months of the date. sheet balance Permitted only when the entity to right a legally enforceable has to relates balance the and offset tax levied by the same authority. If the resolution the which year in the year after business combination occurred, the result is recognised in the statement. income A deferred tax asset that was not time probable at the considered of the business combination but later becomes probable is is to adjustment The recognised. a with tax expense income corresponding adjustment to goodwill. The income statement shows a debit to goodwill a credit to income and expense time is no There tax expense. limit for recognition of this deferred tax asset. A deferred tax asset is A deferred recognition the if recognised the deferred tax asset criteria for the of a result are met as is credit Offsetting acquisition. recorded in income. as for the Similar requirements offsetting except the acquirer credit is recorded against goodwill. Similarities and Differences – A comparison of Current/non-current Deferred Presentation of deferred tax Offset of deferred tax assets and liabilities Subsequent recognition of deferred tax assets that were not ‘probable’ at the time of the business combination Subsequent resolution of income tax a in uncertainties business combination Tax losses of the (initial acquiree recognition) Previously tax unrecognised acquirer losses of the ISSUE IFRS US GAAP Indian GAAP
Liabilities 76 Similarities and Differences–Acomparison of IFRS Government grants Indian IndianGAAP REFERENCES GAAP USGAAP tax expense actual and expected Reconciliation of IFRS tax creditcaryforward Minimum alternative ISSUE Indian GAAP Grants that relatetorecognised assetsare GAAP US Government grants that arereceivable asco Government grants in the form of non-monetary Governmentgrantsrelatedto specificfixedasse Government grants (orcontributions) received Similarto : Governmentgrantsarenotrecogniseduntilthereis
IFRS under theIncomeTaxAct,1961 GAAP US reasonable assurancethatthegr recognised in the income statement once the conditio intended tocompensate. Capital-based grants ar balance sheet and releasedtothe income statemen delayed until such conditions are met under under met are conditions untilsuch delayed the assetfor which the grant arises. the periodinwhichtheyar purchase of long-lived assetsarereportedin the periodreceived. is recognised asareduction of depreciation. income orbydeducting the grant in arriving atthe asset’scarrying amount, in which casethe grant at anominal value. for on the basisof their acquisition cost.If anon- approach, underwhichagrantistakento approach, underwhichagrantistreatedaspa approaches maybefollowedfortheaccountingtr comply withtheconditionsattach previous accounting periodorfor the purpose of enterprise withnofurtherrelated costs,arerec funds. ofshareholders’ part a as andtreated reserve tocapital credited reporting therelatedexpense.Go to compensate. Such grants areeither shown se statement overthe periodsnecessary tomatch them value. Governmentgrantsrelate the grant asadeduction from the grossvalue of the assetsconcerned in arriving attheir book : IAS1,12,IFRS3. tax ratesarecalculated. the basison which the applicable accounting profit, disclosing also the applicabletaxratesto Required. Computedbyapplying deferred taxamount. Disclosed alongwithanyother : FAS109,FIN48. IFRS : AS22,GuidanceNoteonAccountingforCreditAv , exceptwhen there areconditions attached tothe grant. Revenue recognition is e receivableasanextraordi IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 d torevenuearerecognisedon ant willbereceived.Revenue-bas vernment grantsofthenature ed tothemand(ii)thegrantswillbereceived.Twobroad incomeoveroneormoreperiods. presented in the balance sheet aseither deferred operations. fromcontinuing income tax ratestopre-tax domestic federalstatutory Calculated byapplying the companies only. Required forpublic Similar to US GAAP US mpensation for expenses orlossesincurred in a Specific rules applyfor agricultural assets. as compensation for expenses alreadyincurred are ognised anddisclosedin giving immediatefinancial support tothe assets, given ataconcessional rate,areaccounted ts arepresented in the balance sheet byshowing parately under‘otherincome’ordeductedin rt oftheshareholders monetary assetisgivenfreeofcost,itrecorded e deferredandmatchedwi eatment ofgovernmentgrants:thecapital reasonableassuranceth t tomatchtherelatedexpenditurethattheyare with the relatedcoststhat they areintended ns for their receipthave been metand there is IFRS nary item,ifappropriate. . Contributionsoflong-livedassetsorforthe ailable in respect of Minimum Alternative Tax Alternative respectofMinimum in ailable . Disclosedas“MATcredit a systematicbasisintheincome of promoters’contributionare ed grantsaredeferredinthe ’ funds,andtheincome the incomestatementof Not required. Balance Sheet. on theliabilitiessideof “Provision forTaxation” a deductionfrom credit utilisedisshownas line itemtherein. MAT presented asaseparate the income statement and corresponding creditto and Advances”, with a entitlement” within“Loans th the depreciation on at (i)theenterprisewill
77 Liabilities
criteria on p61) with a grant is recognised when when is recognised grant atic basis is representative of the does not provide specific guidance on on guidance provide specific does not a reduction of rental expense over the lease over the expense rental of a reduction the lease term if shorter. However, this is only the lease term if shorter. However, this nce lease (see classification lease (see classification nce the leased asset. Asset amortisation is consistent is consistent amortisation leased asset. Asset the value is conditional, the value is conditional, biological asset measured at its fair value is fair value at its asset measured biological the lessee obtaining ownership of the asset. The the lessee obtaining ownership of the asset. Indian GAAP Indian ed to calculate the present value of the MLPs. The The MLPs. the of value present the ed to calculate e lease and the implicit rate is lower than the the implicit rate is lower than the e lease and used if the implicit rate is unknown. lessee to renew a lease arrangement. The lessee, under lessee, under The a lease arrangement. lessee to renew ecognised on a straight-line basis over the lease term under term under lease basis over the a straight-line on ecognised would be followed in practice. IFRS, US GAAP and Indian GAAP – November 2006 IFRS straight-line basis unless another system . . , except that the lessee’s incremental borrowing rate is used to calculate the present present the to calculate rate is used borrowing lessee’s incremental the , except that : AS 12. IFRS IFRS . : FAS 116. IFRS : IAS 20, IAS 41. Indian GAAP Indian , recognises the aggregate benefit of incentives as incentives of aggregate benefit the , recognises corresponding obligation for future rentals, at an amount equal to the lower of the fair value of the the of value fair the lower of to the equal amount at an rentals, future for obligation corresponding the of inception at the (MLPs) lease payments minimum future the of value present the asset and or life over its useful asset is depreciated lease. The with permitted if there is no reasonable certainty of of certainty reasonable is no there permitted if us interest rate implicit in the lease is normally recorded as the amount the rate is used, borrowing incremental the rate. If borrowing incremental value of asset and obligation is limited to the fair recognised in the income statement when the grant becomes receivable. If a government grant grant a government If becomes receivable. grant the when statement income the in recognised at its fair biological asset measured to a relating is generally grants government for specified treatment accounting are met. The conditions the at cost. asset measured relates to a biological grant a applied if be lessee’s incremental borrowing rate may it is costs, unless executory representing payments of portion the excluding MLPs, the of value in th practicable to determine the rate implicit Indian GAAP IFRS US GAAP and and Similar to Similar Not specified. specified. Not : US GAAP Not specified. to Similar US GAAP , and a fina under asset held an of recognition Requires government grant related to a An unconditional
this issue; however a treatment similar to term. The incentive is amortised on a leased asset. the of use the from lessee’s benefit the of pattern Similarities and Differences – A comparison of IFRS IFRS Incentives Incentives the to encourage provides lease incentives A lessor often Operating leases r lease is generally operating an under expense rental The Indian GAAP Indian Finance leases IFRS REFERENCES accounting Leases – lessee agricultural assets Grants – IFRS US GAAP GAAP Indian US GAAP
Liabilities 78 Similarities and Differences–Acomparison of REFERENCES Seeabove. Th Sale atmorethanfairvalue Immediaterecognition. Immediaterecognition, unless the Sale atlessthan fair value Sale atfair value lease Operating Deferredandamortisedoverthe Profit orlossonsale lease Finance ISSUE IFRS transactions. These arehighlighted in the tablebelow. There aredifferences between the frameworks in the accounting for profits and lossesarising on saleand leaseback The seller-lessee sellsan assettothe buyer-lessor and leas Sale andleasebacktransactions :
IFRS Indian GAAP GAAP US : IAS17,SIC-15. : FAS13,28,66,98. : AS19. expected tobeused. period forwhichtheassetis be used. over which the assetisexpectedto difference isdeferredovertheperiod future rentals. In such cases,the difference iscompensatedbylower lease term. e differenceisdeferredoverthe and Indian GAAP IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006
es the assetbackin asaleand leasebacktransaction. See above. See above. rewards ofownership. involvement and transfer of risksand leasebacks relating tocontinuing fair value.Specificrulesapplyforsale- to the extent that net bookvalue exceeds recognised immediatelybythe seller-lessee sale. Alosson asale-leaseback is finance leases)isrecognised atdateof recorded amount of the leasedasset(for of MLPs (for operating leases)orthe profit in excessof either the present value substantially allof the use of the asset,any retains morethanaminorpart,butnot generally recognised at the asset.Ifsubstantia substantially alloraminorpartoftheuse on whetherthesellerrelinquishes Timing ofprofitorlossrecognitiondepends US GAAP GAAP US lly all,profit/lossis date ofsale.Ifseller
79 Liabilities
ie, that −
ial liability or provides ial liability or provides for when the holder's tional paid-in capital. paid-in tional of the shares issued it by transferring its assets , certain embedded ognised in liabilities at fair value e unit and recorded as a liability in IFRS debt. Certain embedded derivatives settlement of a financial instrument, ess of the manner in which the ess of the manner in , these include many contracts that will or , these include many y that the fair value does not define financ IFRS it or indirectly through its terms and conditions) it or indirectly through upon the occurrence of an event that is certain is certain that event an of occurrence the upon transferring assets (for example, a forward example, a forward assets (for transferring using an entity’s own equity shares is classified is classified shares equity own entity’s an using ide of permanent equity). The following types of ide of permanent equity). The following een share capital and addi capital and share een are redeemable solely at the option of the issuer, issuer, the of option at the are redeemable solely ies. Specific guidance exists or determinable amount at a fixed or determinable or determinable amount at a fixed or determinable ognised as liability based on legal form without any of redemption, are classified as liabilities. of redemption, are classified as liabilities. ments where the conversion is a fixed amount of of amount is a fixed conversion the where ments Indian GAAP Indian n requiring the issuer to redeem ble debt – see ‘Convertible debt’ below. ble debt – see ‘Convertible option on the issuer’s equity shares that is to be physically is to be physically that shares equity issuer’s the on option varies in such a wa ised in equity and the liability rec rket rate for a non-convertible a non-convertible rket rate for classification is based on legal form rather than substance. All substance. than rather legal form is based on classification , the instrument is treated as on the discretion of the issuer, are classified as equity. Preferred Preferred as equity. classified are issuer, the of discretion the requires separation. Similar to similar way, to include a contractual obligation to deliver cash or a obligation to to include a contractual similar way, of a financial liability regardl of a financial liability ial instrument as a liability if the IFRS, US GAAP and Indian GAAP – November 2006 See also ‘Derivatives’ on p83. See also ‘Derivatives’ ’s own equity instruments). a financial instrument issued in the form of shares that is mandatorily redeemable is mandatorily that shares of form the in issued instrument a financial obligation an embodies at inception, that, share) outstanding an than (other instrument a financial a financial instrument that embodies an unconditional obligation or a financial instrument other at a specified or determinable date (or dates) or at a specified or determinable date (or to occur; to occur; or requires that and obligation, an to such or is indexed shares, equity issuer’s the to repurchase by obligation to settle the issuer the may require purchase contract or written put or may should issuer the that obligation embodies a conditional that share outstanding an than shares. its equity of a variable number settle by issuing embodies an unconditional obligatio unconditional embodies an settled); and cash settled or net define a financial liability in a liability in a define a financial
preference shares are disclosed separately as share capital under shareholders’ funds. as a liability if the number of shares limits. right to redemption is subject to specific scope of FAS 150, Accounting Certain for Financial Instruments with Characteristics of both (ie, outs Liabilities and Equity, as mezzanine equity • • shares requiring the issuer to redeem for a fixed a fixed to redeem for issuer the requiring shares option future date, or where the holder has the the both of control the beyond events future uncertain on is contingent share, as a preferred such is settled that instrument An holder. the and issuer instrument are classified as liabilities under FAS 150: • contractual obligation will be settled. contractual obligation are at and for which distributions equals the obligation. are liabilit to the issuer for cash or another asset) split. On conversion, the amount is allocated betw amount the conversion, split. On calculated by discounting at a ma by discounting calculated may have to be bifurcated. its entirety (no recognition is given to the equity component), unless the instrument contains a that feature conversion beneficial derivatives may have to be bifurcated. cash for a fixed number of shares. The proceeds are allocated between the two components; the the two components; the proceeds are allocated between The shares. of number a fixed for cash equity conversion rights are recogn on the issuer of an instrument to deliver either cash or another financial asset to the holder, that that holder, the asset to financial or another cash deliver either to instrument an of issuer the on definition instrument meets the practice, In guidance. No specific No specific guidance. Convertible liability is rec USGAAP the are outside that redeemable instruments certain of classification the provides for SEC guidance For conventional convertible debt instru convertible for is used ‘Split accounting’ explic (either obligation a contractual is there Where and and Indian GAAP Indian US GAAP is applied to converti Split accounting redeemable, or that are not that shares Preferred The issuer classifies the financ back instrument the to put right the holder give the that instruments (financial instruments Puttable US GAAP GAAP Indian Similarities and Differences – A comparison of IFRS Convertible debt Convertible financial asset to another entity, exchange or to financial instruments with another entity under conditions that are potentially unfavourable. Financial liabilities include derivatives (under IFRS IFRS Classification liabilities Financial Definition may be settled using the entity may be settled using of such liability. guidance on accounting
Liabilities 80 Indian GAAP GAAP US Similarities and Differences–Acomparison of US REFERENCES for theinitialandsubsequent measuremen proposal would createafair value option under which an enti 2006.The inJanuary liabilities financial and assets optionforfinancial value fair onthe ED an FASBissued The GAAP Recent proposal–USGAAP IFRS Derecognition offinancialliabilities IFRS Measurement Indian GAAP GAAP US participants wouldusewhenpricingan market assumptions the todevelop used information the prioritises that hierarchy value fair a FAS 157establishes fair value for either recognitio establishes ameasurementframeworkfor and value fair defines Thisstatement years. fiscal withinthose periods interim 15,2007,and November after assets andliabilitieswhenrequiredby all invaluing consistency 15,2006tocreate onSeptember Measurements Value FAS157-Fair FASBissued The Recent pronouncement–USGAAP Statement willchange Although, this Statement doesnot provideany newfairva value measurements. measure assetsandliabilities.Thedisclo example, the reporting entity's own data.This Statemen and gives the highest prioritytoquoted pricesin active the liability(anexitprice).Thefairva asset orliability).Further,itfocuseson Afinancialliabilityisderecognisedwhen:theob Convertible debtismeasured atfair value on in Similar to Similar to : Nospecificguidance.Generally,lia No specific guidance. In practice,
party. Aliabilityisalsoconsideredextinguishedif cancelled orexpires;theprimaryresponsibility transferred and the amount paidfo The differencebetweenthecarrying from the previous cash flows byatleast10%. the instrument - for example,where the discounted present value of new cash flows isdifferent IFRS certain financial instruments. Entities cannot use use cannot Entities instruments. financial certain instruments. recognition afinancialliabilityat and amortisedusing the effective interest method. interest method. certain criteria.Allother(non-tra those that aretrading can only bedesignated atfairvalue through profit orlossprovidedthey meet instruments) aretradingliabilities. (the changeisrecognisedinth Financial liabilitiesat or loss(includestrading),andallothers.Allderiva There aretwocategoriesoffinancia received plus incremental and directlyattributable costsof issuing the debt. or greaterchange in discounted present value of cash flows). liability eitherjudiciallyorbythecreditor,as means paying the creditorand being relievedof th transaction, however, 10% criteria maynot beapplied. : IAS32,39,IFRIC2. currentpractice. : CON6,ASR268(SEC),APB APB14,FAS140,150,155. IFRS IFRS n ordisclosurespurposesunder . Incremental and directlyattributable costsof issuing debtaredeferred asan asset , afinancialliabilityisderecognisedonly lue hierarchydistinguishesbetweenobse fairvaluethroughprofitorloss(includi useofthepricethatwoul US GAAP US assetorliability(i.e.,theprincipal sures focusontheinputsusedtomeas t ofcertainassetsandfi all financialandnon-fina IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 e incomestatementfortheperiod). ; effective for financial statements ding) liabilitiesarecarriedatam fair valuethroughprofitorloss, Othertradingliabilitiesmayinclud treatmentwouldbesimilarto r itshouldberecognisedinne bilities arerecordedatfacevalue. l liabilities:thosethatarerecogn amount ofaliability(orportionthereof)extinguishedor markets andthelowestpriorit t expandsdisclosuresabouttheuseoffairvalueto lue measures, for mostentities, the application of this ty mayirrevocablyelectfairvalue through profit orloss US GAAP US d bereceivedtoselltheassetorpaidtransfer a resultofsubstantialmodificationinterms(10% itial recognition,whichisusuallytheconsideration ligation specifiedinthe the fairvalueoptionto nancial liabilitiesonacont thereisasubstantialmo ncial assetsandliabilitiesthataremeasuredat tives thatareliabilities(e for theliabilityislegallytransferredtoanother e obligationorbeinglegallyreleasedfromthe There arealsospecific measurement criteriafor , with certain exceptions. if ithasbeenextinguished.Extinguished or mostadvantageousmarketforthe ng trading)aremeasuredatfairvalue rvable inputsandunobservable ure fairvalueandforrecurring ortised costusingtheeffective IFRS except forcertainhybridfinancial t profitorlossfortheperiod. issued for fiscal years beginning beginning years forfiscal issued Financialliabilitiesasidefrom y tounobservabledata,for e ashortpositioninsecurities. ised atfairvaluethroughprofit basedonsubstanceofthe designateatinitial contract isdischarged, xcept qualifyinghedging dification inthetermsof ract-by-contract basis.
81 Liabilities
, certain , certain IFRS s are accounted in the year when or that are redeemable solely at the option of of option are redeemable solely at the or that st of treasury stock over its par value entirely to st of treasury stock over its par value entirely On repurchase, such shares are required to be are required shares such repurchase, On d other categories of shareholders’ equity. equity. shareholders’ categories of d other as all share capital which is not a preference a preference is not capital which as all share ges in shareholders’ equity in the period when period when the in equity shareholders’ ges in share capital (a) that with respect to dividends respect to dividends with capital (a) that share fixed amount of cash, or other financial asset for a tained earnings and additional paid-in-capital paid-in-capital additional and earnings tained ght to be repaid on a winding up or repayment of ght to be repaid on a winding up or repayment ssuer’s discretion, are classified as equity. Only Only as equity. are classified discretion, ssuer’s es only under limited circumstances subject to the to the subject limited circumstances under es only may be net share-settled can be classified as be classified can share-settled may be net al stockseparate (showing categories for non- they are shown as a deduction from shareholders’ shareholders’ from as a deduction are shown they does not contain an obligation to transfer economic economic to transfer obligation an contain does not e accounted in the year when declared. year when the in e accounted are considered to be liabilities. Unlike are considered to be uity instruments, are classified as equity instruments. All other All instruments. as equity are classified instruments, uity rring assets and certain obligations to issue a variable number of of number a variable to issue obligations certain assets and rring uity are treated as derivatives. uity the income statement. Dividend id a fixed amount or an amount calculated at a fixed rate and (b) rate and at a fixed calculated amount or an amount id a fixed IFRS, US GAAP and Indian GAAP – November 2006 , except when treasury stock is acquired with the intention of retiring the stock, an stock, an the retiring of intention the with stock is acquired treasury , except when . : AS 4, Companies Act, 1956. IFRS IFRS : CON 6, APB 6, APB 14, FAS 150. : IAS 32, IAS 39. that with respect to capital carries a preferential ri respect to capital carries a preferential with that capital. carry a preferential right to be pa redeemable preferred stock and common stock) an redeemable preferred to obligations redemption), certain (date or event instruments redeemable financial Mandatorily by transfe repurchase own shares as equity but shares are not classified are or that shares own entity’s an derivatives of equity. as a capital is defined capital. A preference share fixed number of an entity’s own eq fixed number of an to APIC. excess entirely the (APIC); or charge ar Dividends by shareholders. authorised derivative contracts that result in the delivery of a delivery of the in result that derivative contracts own eq derivatives on the entity’s in as a change is shown shares the sale of subsequent the loss on or profit at cost. Any equity equity. co the excess of the to: charge option the has entity re excess between allocate the earnings; retained Act. legal requirements stipulated in the Companies proposed. resources. Preference shares that are not redeemable, redeemable, are not that shares Preference resources. i are at the distributions which for and issuer, the stock. be kept as treasury i.e. cannot cancelled, Indian GAAP IFRS US GAAP capital share equity an Act defines Companies The repurchase its own shar An entity is permitted to Presented as an appropriation to : capit between is analysed equity Shareholders’ Similar to Similar to Similar chan of statement the in as a deduction Presented are repurchased, shares own entity’s an When it when as equity is classified instrument An Indian GAAP Indian Similarities and Differences – A comparison of
REFERENCES Dividends on ordinary equity shares equity on ordinary Dividends IFRS US GAAP GAAP Indian Purchase of own shares IFRS US GAAP US GAAP GAAP Indian Recognition and classification and classification Recognition IFRS Equity instruments Equity
Equity 82 commitment orahighly probableforecast transaction. there wasno specific guidance for forward exchange contracts tohedge the foreign currency riskof afirm accounted similartoforeign exchange contracts not held for contracts tohedge the foreign currency riskof afirm commi exchange 1April2007,forward beginning years formfiscal Witheffect value. ormarket ofcost lower at carried are contract, (ii)aseparateinstrumentwi Similarities and Differences–Acomparison of derivative, and(iii)thehybridinstrumentisnot IFRS Embedded derivatives statement in the reporting periodin which the exchange ra amortised overthe life of the contract and the exchange di value with unrealised gains and lossesrecognised in the Under carried atcostlessimpairment until settlement. should besettledbydeliveryofanunquotedequityinst unless they satisfy the criteriafor hedgeaccounting outlined below.Under relationship thatmightexist.Changesin IFRS Subsequent measurement All derivativesarerecognisedon Initial measurement Indian GAAP IFRS Definition IFRS Derivatives Derivatives andhedging recognised onthebalance They areinitially measured atfair value on the acquisition date.Under and risksoftheembeddedderivativear There aresomedetaileddifferences between provide an option tovalue certain hy GAAP US separate guidance availablefor banking companies. (a) forward exchange contracts and (b)equity index future, equity index options and equity stockoptions. There is no comprehensiveguidancefortherecogn Under hybrid contract (certain exceptions apply). should bebifurcated from itshost contract isrequired on would otherwiseberequired under thecontract.Under is permittedonly when there isachange in the termsof th is meantby‘closelyrelated’.Under and Aderivativeisa and and Indian GAAP Indian GAAP Setsoutsimilarrequirements,except thatthete US GAAP US GAAP US US GAAP US
inclusive definition and statesderivativesinclude, (a securities. security; (b)acontract which derivesitsvalue fr loan, whether secured orunsecured, The guidance note on because of the absence of net settlement. to buyunlistedequityinvest permit net settlement. There aretherefore somederi • • •
whose value changes in response toaspecified vari that is settledatafuture date. that requires no orlittlenetinvestment; and rate); require subsequent measurement of allderivative specify rules for the recognition and measurement of derivatives.Under
, forward exchange contracts intended for trading orspeculation purposes arecarriedatfair , there isno specific guidance. require separationofderivative sheet aseitherfinancia financial instrument: instrument: financial the balancesheetaseitherfina IFRS brid instrumentstofairvalueinstead th thesametermsasembeddedderiva Accounting for Equity Index Options and Equity Stock Options Stock Equity and Options Index Equity for Accounting e not closelyrelatedtothe economic ch aderivative’svalue arerecognised in the income statement asthey arise, , reassessmentofwhetheranembedded ition andmeasurementofderivatives. ments, thatfallwithinthe IFRS IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 measured atfairvaluethroughprofitorloss. l assetsorliabilities.
and s embeddedinhybridcontractsif risk instrumentorcontractfor rument whosefairvaluecannotbereliablymeasuredis US GAAP US US GAAP US income statement, else,the premium ordiscount is an ongoing basis,even if there isno modification of the e contract that significantly modifies the cash flows that te changes.Equityindexopti fference on such contracts isrecognised in the income tment orahighly probableforecast transaction would be speculation ortrading asdiscussed above.Priortothis, om the prices,oran index of prices,of underlying rms ofthederivativecont ncial assetsor , reassessmentofwhether
for certaintypesofembe ) asecurityderivedfrom vatives, such asoption and forward agreements IFRS s attheir fairvalues, regardlessof any hedging Indian GAAP able orunderlying rate(for example,interest of bifurcatingtheembeddedderivative. definition, not the notthe definition, IFRS liabilities under aracteristics and riskof the host , aderivativethatislinkedtoand tive would meetthe definition of a However,guidanceisavailablefor derivative needstobeseparated differences oranyotherformof , only certain derivativesare (i) the economic characteristics ons andequitystockoptions ract shouldrequireor IFRS dded derivativesonwhat a debtinstrument,share, an embeddedderivative US GAAP US Indian GAAP IFRS
and and uses an US GAAP US
definition, definition, US GAAP US , there is
.
83 Derivatives and hedging
, US GAAP d liabilities as et interest rates; foreign terest in one or more cannot be designated as the as the be designated cannot that assumes perfect that assumes perfect nancial assets an dealing with hedge accounting. hedge accounting. with dealing ssed. Hedge instruments should be ssed. Hedge instruments . . . In addition, the foreign currency risk . USGAAP IFRS IFRS IFRS IFRS and and if changes in fair values or cash flows of the the of flows cash or values fair in changes if IFRS changes recognised in earnings – for example, a debt for – earnings in recognised changes permitted as a – is not as trading classified security item. hedged currency exchange rates; or the creditworthiness of the the of creditworthiness rates; or the exchange currency ‘obligor’. Portions of risk hedged risk. be related to: a business item cannot hedged The combination; the acquisition or disposition of subsidiaries; a minority in for accounted or investments subsidiaries; consolidated using the equity method. to commitment a firm risk in exchange foreign The item. be a hedged cannot a business acquire The designated risk is the risk of changes in: the overall overall the in: changes risk of risk is the designated The fair value or cash flow; mark Similar to Similar to Similar to is subsidiary a foreign royalty of a forecasted from arising are conditions certain item if permitted to be a hedged met. Similar to met, a ‘short-cut’ method provided that an entity meets stringent qualifying criteria in criteria in qualifying meets stringent entity an provided that frameworks require documentation of the entity’s risk entity’s the of documentation require frameworks US GAAP
asset or liability that is remeasured to fair value with An tting changes in the fair value or cash flows of the hedging hedging the of flows or cash value fair the in changes tting . within a range of 80% to 125% (‘retrospective’ test). for the designation of specific fi and
US GAAP on a continuingbasis under frameworks. both IFRS IFRS, US GAAP and Indian GAAP – November 2006 US GAAP liability, it and and ffectiveness of the hedge will be asse ffectiveness of the hedge onships involving interest-rate swaps. onships involving interest-rate IFRS fair value for the group. cannot be designated as a be designated cannot ial asset or liability, it may nancial asset or ect to the risks associated risks associated ect to the dividual items should be , there is no specific guidance on hedge accounting. accounting. hedge on guidance specific is no , there contain additional requirements also allows, assuming stringent conditions are conditions stringent also allows, assuming , US GAAP Indian GAAP Indian IFRS
and and effectiveness for certain hedging relati hedging certain for effectiveness instrument (‘prospective’ test) and ‘actual’ results are hedged item are expected to be highly effective in offse in effective to be highly item are expected hedged unlike Similarities and Differences – A comparison of A firm commitment to acquire a business cannot be a cannot a business to acquire commitment A firm risk, because exchange foreign item, except for hedged be specifically cannot are hedged risks that other the measured. and identified Not specified; however, practice is similar to however, Not specified; If similar assets or similar liabilities are aggregated and attributable value fair in change the as a group, hedged to the hedged risk for in proportionate to the change in probable forecast a highly risk of currency foreign The as a hedged item in may qualify transaction intragroup the provided that statements financial consolidated the than other a currency in is denominated transaction functional currency of the entity entering into that transaction and the foreign currency risk will affect or loss. profit consolidated relation to documentation and hedge effectiveness. Both Both effectiveness. hedge and to documentation relation and how the e management objectives resp item with be a hedged fair value provided with only a portion of its cash flows or be measured. can effectiveness that If the hedged item is a non-fi foreign for item only a hedged as may be designated of difficulty the of because its entirety risk, or in currency isolating other risks. If the hedged item is a financ Under the and flows, or cash value fair the in item to changes hedged the of exposure the offsetting in effective highly reliably is measured hedge the of effectiveness under accounting hedge for A hedge qualifies Hedged items IFRS Held-to-maturity investments risk or respect to interest-rate item with hedged investments held-to-maturity risk, because prepayment without regard to require an intention to hold to maturity in to changes due flows or cash value fair in changes interest rates. Criteria for hedge accounting hedge accounting Criteria for is permitted under Hedge accounting Hedge accounting under standards respective the in is set out Detailed guidance IFRS US GAAP GAAP table below. the in are outlined items. These hedged US IFRS
Derivatives and hedging 84 US GAAP US US GAAP US Similarities and Differences–Acomparison of GAAP US IFRS Hedges ofnetinvestments inforeignoperations GAAP US IFRS hedges Cash flow IFRS Fair value hedges IFRS recognised. flows arisingfromanexistingassetorliability;chan Exposure toriskcanarisefrom:changes Hedge relationships Only aderivativeinstrument Hedging instruments Under conditions aremet. as atreasury centre) can qualify asahedging instrument for cash flow hedges of foreign currency riskif specific currency foreign a as (such derivative circumstances. Under IFRS if stringentcriteriaaremet.Writtenoptions option andanetpremiumispaid.Under instruments. Under Under value hedge of an unrecognised firm commitment. GAAP representing differentrisksand Similartreatment tocash flow hedges. The hedging instrument ismeasured atfair value with Hedging instruments aremeasured atfair value, Hedging instruments aremeasured atfair value. The hedged itemisadjusted for changes in itsfair Recognises the following ty permitsasinglehedginginstrument providesthatanon-derivativecanhe IFRS IFRS Similar to Similar to Similar to Similar to , awritten option cannot bedesignated asahedgin , onlyinstrumentsthatinvolveapa hedging instrument and the itembeing hedged, arerecognised in the income statement. transferred tothe income statement on disposal differences arising on the entity’s investment in the foreign operation. These gains/losses are financial assets the costofnon-financiala financial instrumentsusedtohedgeforecasteda statement concurrent with the earnings recognition pattern of the hedged item.Gains and losseson where they areeffective, initially deferred in equity and subsequently released tothe income • • • substantially completeliquida gains/losses deferredinequity,totheextentthat value butonlyduetotherisks hedged item. subsequently releasedtothe income statement A forecasted transaction should behighly probabletoqualify asahedged item.
US GAAP US currency risk of a net investment in a foreign entity. entity. foreign ina investment net riskofa currency asset orliability; a hedge of anet investment in aforeign entity, where ahedging instrument isused tohedge the a cashflowhedgewheretheriskbeinghedgedis a fair value hedge where the riskbeing hedged isachange in the fair value of arecognised US GAAP US IFRS IFRS IFRS IFRS can qualify asahedging instrument in mostcases. , certaininternalderivatives(i designating any such component asthe hedging instrument. . . . Gains and lossesaretransferred tothe income statement upon sale orcomplete ; , however,thebasisadjustmentapproach anentityisgenerallyprohibitedfrom or liabilities. borrowing) tobeusedasahedging US GAAP US in thefairvalueofanexistingasse to hedge morethan one riskin twoormorehedged itemsunder certain will notqualifyforhedgeaccountinginmostcases. dge currency risk only for a net investment in a foreign entity or a fair fair ora entity foreign ina investment net riskonlyfora currency dge pes ofhedgerelationships: IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 rty external tothe reporting entity can bedesignated ashedging tion oftheinvestment. sset orliability–a‘basisadjustment’.Thisisnotpermittedfor being hedged.Gainsandlosseson , awritten option can bedesignated asahedging instrument only ges infuturecashflowsfromatransactionthatisnotyet e, derivativesenteredintowi g instrumentunlessitis withgainsandlosseson concurrent with the defe withthe concurrent or partialdisposaloftheforeignoperation. sset andliabilityacquisitionsmaybeincludedin the hedge iseffective, together with exchange separating aderivativeintocomponents the potentialvolatilityinfuturecashflows;and instrument forforeigncurrencyrisk. is notpermitted.Allgainsandlossesare t orliability;changesinthefuturecash IFRS fair value hedges, for both the forboththe hedges, value fair , however,permitsanon- th anothergroupentitysuch combined withapurchase rred recognitionofthe thehedginginstrument,
US
85 Derivatives and hedging
are IFRS k Futures and Options. are presented in the the in are presented nformation. However, there are However, there nformation. US GAAP ffective for fiscal years ending on or on years ending fiscal for ffective given ‘time bucket’, scheduled based bucket’, scheduled given ‘time st-rate risk, credit risk and market and risk, credit risk st-rate ies. The carrying amounts of the amounts of ies. The carrying Index and Equity Stoc of this publication. Disclosures in of this publication. Disclosures derivative instruments outstanding, (b) purpose of ed foreign currency exposure. dging activities and liquidity i dging activities and unt of assets or liabilities in a or liabilities in a unt of assets e item within assets or liabilit e item within the portfolio are not adjusted. are not adjusted. the portfolio IFRS, US GAAP and Indian GAAP – November 2006
ements, while many similar disclosures in ements, while many (such as those for disclosures of intere (such as those for disclosures certain minimum disclosures as follows, e certain minimum disclosures s (MD&A) for SEC registrants. s (MD&A) for SEC registrants. sclosures, which are outside the scope the are outside which sclosures, : AS 11 (Revised 2003), GN on Accounting for Equity : AS 11 (Revised 2003), GN on Accounting for struments and (c) the non-hedg : FAS 133, FAS 137, FAS 138, FAS 149, FAS 155, EITF D-102, FIN 37. : FAS 133, FAS 137, FAS 138, FAS 149, FAS : IAS 39, IFRS 7, IFRIC 9. , as per a recent notification by the ICAI, pending the issuance of an accounting standard on on standard accounting an of issuance the ICAI, pending by the notification , as per a recent on expected repricing dates of a portfolio. The changes in the fair value of this hedged item are hedged this of value fair the in changes The a portfolio. dates of repricing expected on lin a single separate reflected in individual assets or liabilities in assets or liabilities individual Indian GAAP IFRS US GAAP
: Prohibited. Indian GAAP Indian An entity may designate an amo US GAAP after 31 March 2006,: (a) category wise quantitative data of acquiring such derivative in Similarities and Differences – A comparison of risk), as well as industry-specific di risk), as well as industry-specific Financial Instruments the ICAI requires Financial Instruments differences in the detailed requirements differences in the detailed presentedthe in notes to the financial stat and analysi management discussion Under REFERENCES Disclosure of use entity’s the about information general include and two frameworks the under are similar disclosures The financial instruments, fair value information, details of he rate risk hedge of interest for a portfolio hedge accounting Fair value IFRS
Derivatives and hedging 86 Similarities and Differences–Acomparison of IFRS Tracking oftranslationdifferencesinequity When translating financial statements into adifferent prese Translation –consolidatedfinancialstatements IFRS Translations –theindividual entity Indian GAAP GAAP US IFRS Functional currency –definitionanddetermination Foreign currencytranslation Other accountingandreporting topics Indian GAAP GAAP US rates donotfluctuatesignificantly. Amounts in the income statement aretranslated using th IFRS • • • • • individual entity,asfollows: income under rates areused under •
Translation differences in equity areseparately , currency the as isdefined currency Functional , Exchange gains and lossesarising from an entity’s own fo Non-monetary itemsdenominatedin Non-monetary foreigncurre Monetary assetsandliabilitie currency inforeign denominated oftransactions Translation Income statement amounts aretranslated investment in aforeign operation. See‘Derivativesand he debt securities( capitalised toPPEunder profit orlossfortheyear,exceptthatexchangegain exchange ratethat existedwhen the fair value wasdetermined ( the transaction; average rateasapractical US GAAP US US GAAP US Similarly emphasises the primary economic environment in determining an entity’s functional functional entity’s an indetermining environment economic primary the emphasises Similarly Similar to It does not define or require determination of functional currency. Assumes an entity normally uses uses normally entity an Assumes currency. offunctional determination orrequire notdefine Itdoes Similar to US GAAP US and and appropriate amountofcumulativetr or completesubstantially completeliquidation of the investment. pre-acquisition profitsconstitutes cumulative translation difference isincluded in the gain orloss.The payment of adividend out of disposal onaproratabasisrela cumulative translation difference maybereleased income statement on disposalof aforeign operatio the cash flows rather than the currency that influences the pricing. reporting entity. as the nature of activitiesand extent of transactions between the foreign operation and the financing activitiesaregenerated, orreceiptsfrom fundsfrom inwhich currency fromthe provided be inpriority)may (secondary evidence Additional determines the pricing of transactions (not the cu economic results of the entity's operations by the represents mostfaithfully that currency functional the todetermine itsjudgement should use isnotobvious,management currency functional the and mixed are indicators Ifthe operates. entity the currency of the country in which itisdomiciledin recording itstransaction. currency. However, IFRS US GAAP US Indian GAAP Indian GAAP ). only)aswelllong-termloans,whichin IFRS IFRS Indian GAAP . Thetranslationdifferencesarisingare alternative, providedthe exchange rate . ; ncy assetsandliabilitiesaretranslated however,gainsandlossesare transferred s denominatedinaforeigncurrencyaretran IFRS have similarrequirements regarding the translation of transactions byan requiretheassetsandliabilitiestobetr US GAAP US and a foreign currency and carriedatfair value arereportedusing the . This includes foreign currency gain currency foreign . Thisincludes Indian GAAP IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 using historical ratesof exchange atthe dateof transaction oran
has no hierarchy of indicators. In practice,there isagreaterfocus on tive totheportiondisposed.The a returnoftheinvestmentandis anslation differencerelatingtoth e averageratefor the accounting periodif the exchange s andlossesoncertainfore aresilent on the translation of equity accounts historical ntation currency (for example,for consolidation purposes), dging’ section for the hedge of a net investment (p85). investment net ofa hedge forthe dging’ section reign currency transactions arereportedaspartof the focusing on the currency of the economy that of the primaryeconomic environment in which an tracked and the cumulative amounts disclosed. The is atthe exchange ratein operation on the dateof rrency in which transactions are denominated). denominated). are transactions inwhich rrency through the income statement, for apartial operating activitiesareusually retained, aswell substanceformpartofanentity’snet n and included in the ga IFRS reported inequity(othercomprehensive doesnot fluctuate significantly; and attheappropriate and anslated usingtheclosing(year-end)rate. to the income statement only upon sale slated attheclosing(year-end)rate; Indian GAAP s andlossesonavailable-for-sale proportionate shareoftherelated regardedasapartialdisposal. ign currencyliabilitiesare e entityistransferredtothe historical rate; in orlossonsale.The );
87 Other accounting and reporting topics
n rate is high but less date when financial date when financial nflation rate trends and currency; prices linked to years is approaching or exceeds 100%. years is approaching or exceeds 100%. ly inflationary economy is cumulative ed as current year amounts in the relevant relevant the in year amounts ed as current te at the balance sheet if the cumulative inflatio ial statements for current and prior periods are ial statements for current and prior periods at the closing rate at the date of the most the date of rate at the closing at the the country in which it is domiciled in presenting the country in which ee-year period. Historical i ttitude towards the local ncial statements; the use of the reporting currency currency reporting the of use the statements; ncial of the transaction or are permitted to use average average to use or are permitted transaction the of ncy translationin a hyperinflationary economy. ncy translation in a hyperinflationary economy. ncy translation in a hyperinflationary economy. ed. However, SEC rules provide an accommodation ed. However, SEC rules provide an accommodation of the economic environment of a country. These These country. a of environment economic the of rrency of a non-hyperinflationary economy, to omit quantification of any differences that would have have would that differences any of to omit quantification IFRS ed at the exchange ra ed at the exchange IFRS, US GAAP and Indian GAAP – November 2006 lative inflation rate over three
; historical rates are used in equity. equity. in rates are used ; historical ; however, the prescribed test for a high . . : AS 11 (Revised 2003) hyperinflationary economy economy hyperinflationary IFRS IFRS IFRS IFRS − hyperinflationary economy economy hyperinflationary : FAS 52, FIN 37.
− all items, including comparatives, are translated comparatives, are translated all items, including when amounts are translated into the cu the into are translated amounts when : Framework, IAS 21, IAS 29. recent balance sheet; except, sheet; balance recent comparative amounts are those that were present that are those comparative amounts statements. financial prior-year
its financial statements. If a different currency is used, requires disclosure of the reason for using a using for reason the of disclosure requires is used, currency a different If statements. its financial different currency. statements are presented in a currency other than the functional currency. Income statement items date rate at the exchange at the are translated significantly. fluctuate do not rates exchange the rates if inflation of approximately 100% or more over a thr inflation of approximately 100% or more a price index; and the cumu are also considered factors economic pertinent other than 100%. hyperinflationary economy are translated into a different presentation currency using the following procedure: characteristics include: the general population’s a population’s general the include: characteristics financ The transactions. of measurement for currency current order to present date in sheet balance at the current unit measurement at the remeasured purchasing power. requir (US dollar) as the functional currency is allowing foreign issuers that use Translation. Currency Foreign FAS 52, of application the from resulted transactions in the hyperinflationary economy. economy. hyperinflationary the in transactions • • Indian GAAP IFRS US GAAP of currency the uses normally entity an It assumes curre foreign on guidance specific is no There curre foreign on guidance specific is no There Similar to Similar curre foreign on guidance specific is no There : Similar to Similar Similar to Similar Does not generally permit inflation-adjusted fina Similar to Similar its measuring for used is not economy a hyperinflationary of currency the Not applicable, because by characteristics is indicated Hyperinflation The results and financial position of an entity whose functional currency is the currency of a Entities that have the currency of a hyperinflationary economy as the functional currency use that
Assets and liabilities are translat rates. at closing Translated Indian GAAP Indian US GAAP
Similarities and Differences – A comparison of REFERENCES Indian GAAP Indian US GAAP IFRS Presentation currency Presentation currency Functional currency Functional currency IFRS US GAAP GAAP Indian Foreign currency translation – hyperinflationary economy economy translation – hyperinflationary Foreign currency Definition IFRS IFRS of goodwillTranslation entity of foreign on acquisition adjustments fair value and IFRS USGAAP GAAP Indian Indian GAAP Indian US GAAP
Presentation currency Presentation currency
Other accounting and reporting topics 88 Similarities and Differences–Acomparison of REFERENCES settled in shares. to includeinassumedproceedsthecarry method stock treasury tothe changes 2005,proposingfurther forFAS 128inSeptember ED revised a FASB issued convertible instruments, contracts that maybesettledin eliminate the averaging of quarterly computations, computations ofbasic 2003propo inDecember draft exposure an FASBissued The Recent proposals–USGAAP Indian GAAP GAAP US IFRS Diluted EPS–shareoptions Indian GAAP GAAP US IFRS Diluted EPS Indian GAAP GAAP US IFRS Basic EPS although there are detailedapplication differences. process of issuing such shares under both frameworks. Earnings pershare(EPS)isdisclosedby Earnings pershare The ‘treasury share’ method isused todetermine the effect of share options and warrants. The Fordiluted EPS, earnings areadjusted for the after-tax amount of dividends and the impact BasicEPSiscalculated asprofit availableto Similar to Similar to Similar to : Similar to Similar to Similar to
IFRS Indian GAAP GAAP US each quarterly diluted EPScomputation. by computing a year-to-date weighted averageof the number of incremental shares included in computations, the number of incremental shares to treated asdilutive potential equity shares. no ‘ calculate the bonus element. ComparativeEPSis and the number of shares that would have been i been used torepurchase shares atfair value. The difference between the number of shares issued assumed proceedsfrom the issue of the dilutive potential ordinary shares areconsidered tohave anti-dilutive potential equity shares areignored in calculating diluted earnings pershare. beginning oftheperiodordate adjusted accordingly for any assumed conversions. A resulting from the assumed conversion of dilutive potential ordinaryshares; diluted shares arealso incorporated into the calculation. are treatedasoutstanding for the whole year.Bonus average number of outstanding shares during the peri options/warrants. calculate the diluted EPS.The earnings figure isnot adjusted for the effect of share ordinary shares for no consideration (ie,abonus i de minimis’ de : IAS33. and dilutedEPSwith : FAS128. IFRS IFRS IFRS IFRS IFRS IFRS : AS20. . ; , exceptin certain circumstances e.g.ad . . . dilutionthresholdbelowwhichdilutedE however, when applying the treasury stock(share) method in year-to-date entities whose ordinary shares arepu ing amountofcertaininstrumentscl IFRS IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 . The EDproposedchanges tothe treasury stockmethod to and new computational guidance covering mandatorily For rights issues, atheoretical ex-rights formula isused to of theissuepotentialdilutiveo IFRS cash orshares and contingently issuable shares. The sing revisions to FAS 128, designed to converge the the toconverge toFAS128,designed sing revisions and commonshareholders,di US GAAP US ssued atfair value istreatedasan issue of ssue) and isfactored into the denominator used to adjusted for bonus issues and rights issues. beincludedinthedenominatorisdetermined issues occurring after the year-end are also od. Shares issued asaresult of abonus issue conversion isdeemedtohave occurred atthe PS need not bedisclosed.The effects of vance share application money receivedis use similar methods of calculating EPS, assified asliabilitiesthatmaybe blicly traded,and byentities in the rdinary shares, if later.There is vided bytheweighted
89 Other accounting and reporting topics
, in practice, the practice, the , in of the relationship is in a transaction, the of related parties, including of related parties, including actions with other state- with actions diate parent entity and ultimate Indian GAAP Indian over or borrowings below certain in total and by category of by category of total and in in respect of related-party in respect mpensation of key management l, regardless of whether transactions transactions whether l, regardless of the scope of parties covered under the the under parties covered scope of the n of key management personnel is not . tities need not be disclosed. No exemption for tities need not be disclosed. No exemption related parties and the nature se the amounts involved Indian GAAP Indian lose related-party trans lances, any doubtful amounts related to those cluded within the definition definition the within cluded major category of related parties. related major category of nce to the control or indirect control of one party by one of control or indirect control to the nce tence of the related-party relationship, the name of the the of name the relationship, related-party the of tence and and US GAAP been influenced by the existence of related parties. related parties. of existence the by influenced been or financial statements are made aware of the extent to which to which extent the of are made aware statements financial se any related-party transactions. an the ultimate parent entity, imme ment personnel is disclosed icant influence by one party over another. The accounting accounting The party over another. by one influence icant IFRS USGAAP ver, require disclosure of co this, certain SMEs having turn , ounts involved. There is no specific requirement to disclose the to disclose the requirement specific is no There involved. ounts IFRS, US GAAP and Indian GAAP – November 2006 IFRS ents of subsidiaries. rectors and shareholders. However, under However, under shareholders. rectors and e relationship is one based on contro e relationship is one , except that disclosure of compensatio of disclosure , except that finance, of providers with business of course normal the in transactions , except that e ultimate controlling party. e ultimate controlling legal form rather than substance. Hence, substance. than rather legal form generally determined by refere generally : AS 18, Companies Act, 1956 IFRS IFRS : FAS 57. y could be less than under under be less than y could : IAS 1 and IAS 24. required. SEC regulations, howe separate financial statem compensation. compensation. en trade unions, public utilities and state controlled to disc required are not entities State-controlled controlled entities. In addition to threshold are not required to disclo personnel as well as other specific disclosures. personnel as well as other specific disclosures. disclosed, together with the am name of the related party (other th outstanding balances and balances for each for balances and balances outstanding key manage of compensation The controlling party). There is a requirement to disclo controlling party). There is a requirement ba amount, terms and nature of the outstanding Indian GAAP IFRS US GAAP
Similar to Similar : Similar to Similar all with transactions any of extent and nature The related party and the name of th related party and the Certain disclosures are required if th Certain disclosures exis the include place. These taken parties have the between definition of related part definition of related US GAAP Indian GAAP Indian Similarities and Differences – A comparison of determination may be based on determination may
REFERENCES relationships and transactions is to ensure that users of of users that is to ensure transactions and relationships the financial position and results of operations may have relationships are Related-party Disclosures and exemptions Disclosures and IFRS transactions Related-party by required disclosures the of objective The another, or by the existence of joint control or signif control joint of existence or by the another, frameworks are broadly similar as to which parties would be in similar as to which parties would be frameworks are broadly associates, di ventures, joint subsidiaries,
Other accounting and reporting topics 90 Similarities and Differences–Acomparison of reportable segments Factors used toidentify Main disclosures revenues/expenses of assets/liabilities, Symmetry ofallocation segments Accounting policiesfor Measurement reported segments Maximum numberof Segments not identified as above are Segments not reported segments Threshold forreportable geographical segments Aggregation ofsimilar segments business/operating Basedonprof Aggregation ofsimilar Businessandgeographicalreporting General approach segment of Identification Format Listed entities and entities in the process Scope General requirements ISSUE IFRS information. Thesimilaritiesanddiffe All three frameworks have specific requirements about th Segment reporting oseii icouerqie. Requir Notrequired, butasymmetrical No specificdisclosurerequired. Sameas Symmetry required. accounting policies. additional segmentdata statements. Entitiesmaydisclose Those adoptedfor consolidated financial No limits. included asunallocated items. until the 75% threshold isreached. total, additional segments arereported reported segmentsisbelow75%ofthe more ofallsegments.Ifrevenue Revenue, resultsorassetsare10% risks. exchange control regulations and currency and politicalconditions, specialrisks, factors asgiven, focusing on economic As forbusiness/operatingsegments:six whether productsandserv Specific factors aregiven todetermine internal reportingstructure. Additionally, under full compliance. of listing.Non-listedentitiesmaychoose format requireslessdisclosure. business risksandreturns.Thesecondary The choicewilldepend as primaryformat,theothersecondary. to complywiththestandard. borrowings exceedingRs.100millionneed exceeds Rs.500millionorhave and allotherenterpriseswhoseturnover companies, institutions,insurance financial and rences areshown in the table below. Indian GAAP ile ofrisksandreturns IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 Indian GAAP
on theimpact basedoninternal ices aresimilar. e identification, measurement and disclosure of segment , banks, − one its revenues. service from which each segment derives environments) and ty services, geographic areas,regulatory (for example,basedonproducts and allocations aredisclosed. assessing performance. purposes of allocating resources and the chief operating decision-maker for the Those adoptedforinternalreportingto sources ofrevenuedisclosed. Included in ‘allother’category,with Similar to each materialcountry. operations, foreign countries in totaland consolidated basis,ofdomestic (revenues and assets)arerequired, on a Not specified.Certaindisclosures of similaroperatingsegments. Similar criteriaapplyfor the aggregation segments. Based ontheinternallyreportedoperating assessing performance. purposes of allocating resources and forthe information financial evaluates way the chief operating decision-maker Based on operating segments and the US GAAP GAAP US encouraged but not required tocomply. Listed entities. Non-listed entities are ed, includingbasisoforganisation IFRS IFRS . . pes ofproductand
91 Other accounting and reporting topics
of an 8 ement , except for segment segment , except for . IFRS IFRS part of the short-term convergence project h it and its operates major customers. ED res about Segment of an Enterprise and quirements for disclosing information about about information disclosing for quirements relevant segment that reported the customer external each for revenues of 10% to or equal greater than revenue. consolidated Assets required. Liabilities not required. Assets required. Liabilities Required for reportable segments if segment of measurement the in included profit/loss in internal reporting or otherwise regularly reported to chief decision-maker. operating USGAAP Required. on basis, and a consolidated on Required the in included basis if a segment for profit/loss segment of measurement internal reporting. Similar to liabilities. Same as . Indian GAAP Indian at differs from the information used to prepare the income stat rvices included in in rvices included
), total segment IFRS, US GAAP and Indian GAAP – November 2006 IFRS wording as that of FAS 131. The ED is ent reporting set out in FAS 131, Disclosu ating segments (ED 8) that sets out the re Indian GAAP Indian quired. Liabilities for primary quired. Liabilities for and services, the geographical areas in whic to be published by the end of 2006. and : AS 17. segment format only. segment format only. Reconciliation is required of total segment revenue, total segment measures of profit or loss (for continuing and discontinued under operations External revenue required. Inter-segment External revenue required. format only. revenue in primary segment segment format. Required only for primary Encouraged but not required for primary segment format only. Not required. Required. associate are of operations if Required substantially all within a single segment. under guidance No specific assets, total segment liabilities and any other significant segment totals to the corresponding totals of the entity. operations are disclosed separately from separately from are disclosed operations operations. the results of discontinued Types of products and se Types of products each reported business segment and and segment business reported each geographical each of composition disclosed. segment are : FAS 131. : IAS 14. Indian GAAP IFRS US GAAP
:
Similarities and Differences – A comparison of REFERENCES entity’s operating its segments, products adopts the management approach to segm th information of disclosure require may It Information. Related and balance sheet. ED 8 generally has the same the two standard setters and is expected Recent proposals – IFRS The IASB issued an exposure draft on oper Reconciliation of segment information Major customers Major customers Not required. is disclosed, as well as the Total revenue Income tax Capital expenditure on basis accrual an Profit/loss from investments in equity Not required. and investees, method amount of investment in investees method equity Exceptional (significant) (significant) Exceptional items Interest revenue and interest expense External and inter- segment revenue and Depreciation expense amortisation other significant and non-cash expense Profit Assets and liabilities Assets re continuing Required. The results of of Composition segments ISSUE IFRS ISSUE
Other accounting and reporting topics 92 Similarities and Differences–Acomparison of disclosure Ending dateof Asingle amount is Presentation Lower of carrying value Measurement disclosure Starting datefor timescale IndianGAAP Envisaged discontinued How USGAAP Operations and cash IFRS Definition ISSUE certain SMEshavingturnoverorborrowingsbelowcerta operations. Forexample,accounting standard on impairment of IFRS Discontinued operations changes inassetsandliabilitiesth tion and measurement principles established in other relevant accounting standards torecognise and measure the GAAP
and onlyhasrequirementsforthedisclo
US GAAP US discontinuance. discontinuance. Until completionofthe the currentperiodonly. assets andliabilitiesfor on the balance sheet for Separate classification current andpriorperiods. or inthenotesforboth of the income statement amount either on the face and an analysis of this operations discontinued profit orlossof comprising thepost-tax the income statement presented on the face of sell. or fairvaluelesscoststo sale. is classified asheld for disposed ofor,ifearlier, been has component From thedateonwhicha with limitedexceptions. Completed within ayear, forsale. held as disposed of orclassified flows that have been Operations and cash resale. exclusively with aviewto subsidiaries acquired operations, orare geographical areaof major lineofbusinessor represent aseparate financial reportingand operationally and for distinguished flows that can beclearly have requirements for the measurement and disclosures of ‘discontinued’ operations. e revenue,expenses,gains,lossesand sures of ‘discontinued operations’ and requires an entity toapplyrecogni- IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 classified asheld for sale. groups aresegregatedand current) relatedtothedisposal and liabilities(currentnon- ed byperiodend,butassets discontinuance isnot complet- in balance sheet presentation if operations. There isno change fromcontinuing income after income statement, net of tax, separate lineitemsinthe on disposal)arepresented as orloss gain (and component operations ofdiscontinued measurement date,results of Similar to Similar to Similar to Similar to Similar to involvement. continuing will nothavesignificant will beeliminated,andentity and cash flows have been or Similar to idiary oranassetgrouping. segment, reportingunit,subs- reportable segment, operating reporting. Itmaybea forfinancial and operationally can beclearlydistinguished involvement. Acomponent that continuing significant not have eliminated, andiftheentitywill have beenorwillbe operations and cash flows discontinued operation if the A component isconsidered a in thresholdmayvoluntarily IFRS IFRS IFRS IFRS IFRS IFRS . Similar to Applyotherrelevant accounting . Earlierof:thedateof . Notimeframe specified. Standard . . . Operations From assets,provisions, etc.should befollowed. Further, cash flowsrelatingtoadiscontinued balance sheet items. No separatepresentationfor the income statement. presented onacombinedbasisin disclosed inthenotes;however, operations aresegregatedand discontinued and from continuing Income and expenses line items (b) pre-taxgainorlossondisposal. taxes (a) pre-taxprofitorlossandrelated operations: continuing statement separatelyfrom disclosed on the face of the income At aminimum,thefollowingis of assets,provisions,etc. accounting standard on impairment standards. Eg,byapplying agreement. entering intoabindingsale approved detailedformalplanor announcement of aboard coordinated plan. but emphasise on asingle envisage severalmonthsorlonger, abandonment. piecemeal orterminated through substantially initsentiretyor Pursuant toasingle plan, either reporting purposes. forfinancial and operationally and canbedistinguished geographical areaof operations separate majorlineofbusinessor A componentthatrepresentsa complywiththestandard. IFRS . Indian
93 Other accounting and reporting topics
. IFRS disclosure event disclosure disposal on the liabilities to be disposed date. sheet balance result, tax and cash flows for current and prior periods leading to sale or disposal amount recognised on disposal • group Description of disposal • group. Segment of disposal • the initial Date and nature of • of Expected manner and timing • and Carrying amounts of assets • pre-tax expenses, Revenue, • circumstances and Facts • tax Pre-tax gain or loss and and that materially affect the amounts included. included. amounts the materially affect that and date are events that provide additional evidence evidence provide additional that date are events nce sheet date. The nature and estimated financial estimated financial and nature date. The sheet nce the financial statements from being misleading. misleading. being from statements financial the nce sheet date are defined as events that are that as events date are defined sheet nce . Similar to . Similar , except that , except that IFRS IFRS Similar to Similar to of separate disclosure investing and operating, financing cash flows related to discontinued operations is not required. IFRS, US GAAP and Indian GAAP – November 2006 y e.g. Directors’ Report. yments on page 25. rds on post-balance-sheet events. events. post-balance-sheet rds on referred to as ‘Type 2’ subsequent events. However, see refinancing and and see refinancing However, events. subsequent to as ‘Type 2’ referred . , . : AS 24. IFRS IFRS IFRS : FAS 144, FAS 95. of related disposal of related as classified groups heldsale for are disclosed separately sheet. balance the on pre-tax result, tax and cash flows for current and prior periods of discontinued operations; disposal group; timing of disposal; leading circumstances to sale or disposal; recognised on as held classification for sale; and group. Assets and liabilities Assets and Revenue, expenses, Description of and Expected manner Facts and Gain or loss Segment of disposal : IFRS 5.
presented effects for of discontinued operations sheet. balance not but • • • • • • • of conditions that existed at the balance sheet date sheet balance at the existed that conditions of the after events adjusting to reflect are adjusted statements financial the in recognised amounts The date. sheet balance rescheduling of debt pa bala the arose after that conditions of indicative are disclosed to prevent events such of effects report of approving authorit Indian GAAP IFRS US GAAP
Similar to Similar are disclosed in but statements financial disclosed in to be required are not events Non-adjusting : Similar to Similar Similar to Similar bala the after occur that events Non-adjusting sheet balance the after occur that events Adjusting Similarities and Differences – A comparison of Non-adjusting events after the balance sheet date after the Non-adjusting events IFRS
Post-balance-sheet events similar standa have frameworks The sheet date after the balance Adjusting events IFRS REFERENCES US GAAP GAAP Indian Comparatives re- Income statement US GAAP GAAP Indian Disclosures ISSUE IFRS US GAAP Indian GAAP
Other accounting and reporting topics 94 Similarities and Differences–Acomparison of REFERENCES • • Additional guidance under the frameworks Additional guidance Indian GAAP GAAP US IFRS Stock exchangerequirements Interim financialreporting REFERENCES Indian GAAP GAAP US IFRS Announcement ofadividend relatingtothefinancialyear justended • • • cumulative periodtodateand the corresponding periodof the preceding year. Quarterly interimreportscontaincompara frameworks. three all under statements financial annual last fromthe taken are sheet balance forthe Comparatives •
changes toaccountingpoliciesthatitisknownwillbemade Use ofaccountingpoliciesconsistentwiththepreviousannua one periodtothenext; st ofinterim ofpreparation basis similar and Consistent Preparation oftheinterimstatemen application of anew standard); viewing theinterimperiodasadist Summarised incomestatement(including results; interim tothe applied rate tax effective annual ofthe estimate onan isbased frameworks periods, and deferral of certain costvariances expected However, are not reversed. periods inrespectofgoodwill,oraninve transactions aretherefore treatedin the samewayasat A narrativecommentary. equity, selected notes and (under Thisisanon-adjustingevent. Similar to The declaration of acash dividend isanon-adjust US GAAP US : : Thestandardoninterimfinancial Dividendproposedrelatingtothe financial resultsonaquarterlybasisin Pursuant tothe listing agreement, allthe listedcompanies in India arerequired tofurnish interim comply withthestandard. IFRS IFRS Indian GAAP GAAP US Indian GAAP GAAP US reporting –see‘Additi requirements inRegulationS-Xapp domestic USSECregistrantsshouldfollowAPB28 IFRS event. reports, however,ifanentityis even thoughitissubject : IAS34,IFRIC10. : IAS10. doesnotrequirepublicentitiestoprodu allowsallocation between interim periodsof cer : APB28,FAS130,131. : AUSection560. IFRS : AS 25 and Listing Agreement : AS25andListing : AS4. , the FASBdoesnot mandate interim statements. However,if required bythe SEC, IFRS inct accountingperiod,ratherthanpa ts usinga‘discreteapproach’tore onal guidance’ below. tives (other than for the balance sheet) under allthree frameworks for the ) astatement of recognised income and expense; and to shareholders’approval. is similar.Theyincludethefollowing: stment ineitheranequityinstrument segmentrevenue/profit),balancesheet IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 required orelectstopresent inte reporting doesnotrequireentiti financial yearjust ended isadjusted in the financial statements licable toquarterlyreporting. a formatprescribedinthelistingagreement. atements, with previously reported annual data and from and data annual reported withpreviously atements, theyear-end.Impairmentlo to beabsorbedbyyear-end. The taxcharge in allthree intheyear-endfinancial ce interim statements but encourages interim l financialstatements,togeth ing event, but astockdividend isan adjusting and complywith the specific financial reporting tain costs benefiting mo benefiting costs tain venue andexpenditurerecognition rt oftheannualcycle.Incomplete orafinancialassetcarriedatcost, rim financialreport,itneedsto es to present interim financial financial interim topresent es , cashflowstatement,changesin sses recognisedininterim statements (forexample, er withadoptionofany re thanoneofthose
− thatis,
95 Other accounting and reporting topics
States of America ciples in United IFRS, US GAAP and Indian GAAP – November 2006 Accounting Principles in India Reporting Interpretations Committee Reporting Interpretations Certified Public Accountants Certified Public Accountants ding Interpretations Committee ding Interpretations Capital (Share Premium) ncial Reporting Standards ncial Reporting Standards Similarities and Differences – A comparison of ARB – Accounting Research Bulletins Bulletins Research ARB – Accounting Release Series ASR – Accounting Standards Auditing on Statements of AU – Codification Concepts CON – Statement of Financial Accounting DIG – Derivatives Implementation Group EITF – Emerging Issues Task Force Standards Financial Accounting of FAS – Statement Board FASB – Financial Accounting Standards FIN – FASB Interpretations FTB – FASB Technical Bulletins OCI – Other Comprehensive Income Oversight Board PCAOB – Public Company Accounting SAB – SEC Staff Accounting Bulletin States United of Commission Exchange and SEC – Securities SOP – AICPA Statement of Position SoX – Sarbanes Oxley Act, 2002 US GAAP – Generally Accepted Accounting Prin APB – Accounting Principles Board Opinions Board Opinions Principles APB – Accounting APIC – Additional Paid-in SoRIE – Statement of Recognised Income and Expense Expense and Income Recognised of SoRIE – Statement of AICPA – American Institute Abbreviations Standard Accounting IAS – International Standards Board Accounting IASB – International Financial IFRIC – International Fina IFRS – International by Stan SIC – Interpretations AS – Accounting Standard ASB – Accounting Standards Board of India ASI – Accounting Standard Interpretation Notes GN – Guidance India of Accountants Chartered of Institute ICAI – The Indian GAAP - Generally Accepted India Board of Exchange and Securities SEBI – The
Abbreviations 96 iaca ses 66 66,80, 83 26 21 26 82 Similarities and Differences–Acomparison of 32 instruments Financial assets Financial Fair presentationoverride 53 Extraordinary items 89 48 Expenses 48 35 Exceptional items Equity method of accounting 55 Equity instruments Employee shareownershipplans(ESOPs) 73 Employee share compensation 54 66 benefits –termination benefits Employee –pensions benefits Employee 93 80 Employee benefits –compensated absences Earnings pershare 82 Dividends 37 operations discontinued Discontinuing/ 47 Derivatives 83 Derecognition offinancia 21 46 Depreciation 59 30 Deferred tax Debt securities 27 Convertible debt consideration Contingent 72 Contingencies 28 28 contracts Construction 42 Consolidation ofsubsidiaries 23 Conceptual framework Computer software Comprehensive income 65 63 36 Comparatives 24 24 45 statements offinancial Components transactions Common control 40 Cash flow statement equivalents Cash Capitalisation ofborrowingcosts 40 Business combinations–subsequentadjustments Business combinations–disclosure Business combinations 29 Biological assets 29 Barter transactions Page Balance sheet Associates 32 Acquisitions 36 Accounting policies,changesin Accounting estimates,changes in Subject Index seslaiiis 69,81 l assets/liabilities IR,U APadIda AP–Nvme 06 IFRS,USGAAP andIndianGAAP–November 2006 rauysae 82 36,42 30 91 44 Uniting ofinterests Treasury shares 27 70 Subsidiaries 30 27 Statement of recognised income and expense 36 Statement of changes in shareholders’ equity 90 82 Special purpose entities 56 46 Software Segment reporting recognition Revenue 33 Restructuring provisions Research and development costs 58 80 40 Related-party transactions 94 38 ofownshares Purchase method Purchase 60 Provisions 70 Proportionate consolidation 79 33 Property, plant and equipment 61 Preference (preferred) shares 61 78 Post balance sheet events 64 forsale held assets Non-current Negative goodwill 48 Minority interests 95 Leases –saleand leaseback Leases –lessoraccounting 38,56 Leases –lesseeaccounting 26 21 Leases –classification Joint ventures Investment property 84 65 Inventories 33,39,57,59,62, 68 77 Interim financialreporting expense Interest 87 Intangible assets–webs assets Intangible Income statement Impairment 87 Historical cost Hedge accounting grants Government 88 Goodwill 39 currency Functional 22 Foreign currency –hyperflationary economy Foreign currency translation First-time adoption of accounting framework 23 Financial statements –contents and presentation Financial lia ujc Page Subject bilities 80 t eeomn ot 56 ite developmentcosts
97 Index
Notes
Notes 98
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The GCMG has been serving Indian companies over the last 10 years in their endeavour to access overseas capital markets and in applying US GAAP or IFRS. With a global set-up, we combine our knowledge of local business practices and draw upon expertise from our colleagues around the world to suit an engagement. This gives us an unparalleled understanding of the issues and solutions that will work for companies from any industry and with every conceivable financial structure.
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Acknowledgements
Our sincere thanks to Joy Jain, Sunder Iyer, Shrenik Baid,
Arvind Daga of the Global Capital Markets Group and Thomas
Mathew, Bhavesh Dhupelia, Himanshu Goradia from Assurance Group for their efforts in leading the development of this edition of the publication, including designing this publication. We are also grateful to the following individuals for their contributions:
Khazat Kotwal Uday Shah Rahul Chattopadhya Gaurav Vohra Rakesh Agarwal Mradul Sharma Nitin Khullar Sharad Sharma Urvesh Thakkar Pratiq Shah Rosy Fernandes Anuradha Sanghavi
1
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At PricewaterhouseCoopers, we have created the Global Capital Markets Group (the “GCMG”), a dedicated team of professionals who specialise in providing technical, strategic and project management advisory services to companies interested in accessing the U.S. or other overseas capital markets and/ or applying US GAAP or IFRS while converting the financials from local GAAP. We also assist companies in embedding these accounting requirements into the financial reporting systems to enable companies to report on a sustainable basis and provide training to management and accounting teams.
The GCMG has been serving Indian companies over the last 10 years in their endeavour to access overseas capital markets and in applying US GAAP or IFRS. With a global set-up, we combine our knowledge of local business practices and draw upon expertise from our colleagues around the world to suit an engagement. This gives us an unparalleled understanding of the issues and solutions that will work for companies from any industry and with every conceivable financial structure.
As you deal with the challenges of managing your business during an offering, listing or conversion project, we can team up with you to anticipate and resolve complex technical accounting and SEC registration or other regulatory process issues that could pose serious challenges to your offering or cause you to incur costly delays.
Write to us for further information or additional copy of the CD or a printed version of this Monograph. Alternatively, this is also available online at www.pwc.com/india www.pwc.com/india
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