DIFFERENCES BETWEEN IFRS & Ind AS

IFRS 1 differences

Deemed cost exemption for property, plant and equipment

IFRS 1 permits a first-time adopter to
measure its items of property, plant and equipment (PPE) at deemed cost at
the transition date. The deemed cost can be:

• The
  fair value of the item at the date of transition

• A
  previous GAAP revaluation at or before transition date, if revaluation meets
  certain criteria

Similar exemption is also available for
intangible assets and investment property measured at cost.

Ind AS 101 also provides similar deemed
cost exemption. In addition, if there is no change in the functional currency
at the transition date, Ind AS 101 allows a first-time adopter to continue
with the previous GAAP carrying value for all of its PPE as recognised in the
previous GAAP financial statements at the transition date. The same is   used as deemed cost at that date, after
making adjustment for decommissioning liabilities.

In Ind AS CFS, the previous GAAP amount
of the subsidiary is the amount used in the previous GAAP CFS. If an entity
avails the option under this paragraph, no further adjustments to the deemed
cost so determined is made.

Similar exemption is also available for
intangible assets and investment property. 
Fair value as deemed cost exemption is not allowed for investment
property.

Additional exemptions relating to composite leases and land
lease

Under IFRS 1, an entity classifies a
lease based on the lease terms that are in force at its date of transition
based on the circumstances that existed at the inception of the lease.

Ind AS 101 provides the following
additional exemptions:

• When
  a lease includes both land and building elements, a first time adopter may
  assess the classification of each element as finance or operating lease at
  the date of transition to Ind AS based on the facts and circumstances existing
  as at that date.

• If
  there is any land lease newly classified as finance lease, then the first
  time adopter may recognise asset and liability at fair value on that date.
  Any difference between those fair values is recognised in retained earnings.

Exchange differences arising on long-term monetary items

IAS 21 requires exchange differences
arising on restatement of foreign currency monetary items, both long term and
short term, to be recognised in the income statement for the period.

Under the erstwhile Indian GAAP,
companies recognised exchange differences arising on restatement of foreign
currency monetary items, both long term and short term, in the profit or loss
immediately. Alternatively, they were given an irrevocable option to defer/
capitalise exchange differences on long-term foreign currency monetary items.

IFRS 1 differences

For the companies applying second option
under the erstwhile Indian GAAP, Ind AS 101 provides an additional option.
They may continue to account for exchange differences arising on long-term
foreign currency monetary items recognised in the financial statements for
the period ending immediately before the beginning of first Ind AS reporting
period using the previous GAAP accounting policy. Ind AS 21 does not apply to
exchange differences arising on such long term foreign currency monetary
items.

Additional exemption relating to amortisation of toll roads

IAS 38 has a rebuttable presumption that
the use of revenue-based amortisation method is inappropriate for intangible
assets.

The old Indian GAAP allowed revenue
based amortisation for toll roads. 
Under Ind AS, an entity on first time adoption of Ind AS may decide to
retain the previous GAAP amortisation method for intangible assets arising
from service concession arrangements related to toll roads recognised in
financial statements for the period immediately before the beginning of the
first Ind AS reporting period.

Under Ind AS 38, the guidance relating
to amortisation method does not apply to the assets covered in the previous
paragraph.

Additional exemption relating to non-current assets held for
sale and discontinued operations

There is no exemption under IFRS 1
relating to non-current assets held for sale and discontinued operations.

Ind AS 101 allows a first-time adopter
to use the transition date circumstances to measure the non-current assets
held for sale and discontinued operations at the lower of carrying value and
fair value less cost to sell.

Previous GAAP

IFRS 1 defines the term “previous GAAP”
as a basis of accounting that a first-time adopter used immediately before
adopting IFRS. Thus, an entity preparing two complete sets of financial
statements, viz., one set of financial statements as per the Indian GAAP and
another set as per the US GAAP, may be able to choose either GAAP as its
“previous GAAP.”

Ind AS 101 defines the term “previous
GAAP” as the basis of accounting that a first-time adopter used immediately
before adopting Ind AS for its statutory reporting requirements in India. For
instance, the companies preparing their financial statements in accordance
with section 133 of Companies Act, 2013, will consider those financial
statements as previous GAAP financial statements.

Consequently, it is mandatory for Indian
entities to consider their Indian GAAP financial statements as previous GAAP
for transitions to Ind AS.

Differences from other IFRS standards

Current/ non-current classification on breach of debt covenant

If an entity breaches a provision of a
long-term loan arrangement on or before the period end with the effect that
the liability becoming payable on demand, the loan is classified as current
liability.

This is the case even if the lender has
agreed, after the period end and before the authorisation of the financial
statements for issue, not to demand payment as a consequence of the breach.
Such waivers granted by the lender or rectification of a breach after the end
of the reporting period are considered as non-adjusting event and disclosed.

First, Ind AS 1 refers to breach of
material provision, instead of any provision. This indicates that breach of
immaterial provision may not impact loan classification.

Second, under Ind AS 1, waivers granted
by the lender or rectification of breach between the end of the reporting
period and the date of approval of financial statements for issue are treated
as adjusting event. A corresponding change has also been made in Ind AS 10.

Analyses of expenses in the statement of profit and loss

IAS 1 requires an entity to present an
analysis of expenses recognised in profit or loss using a classification
based on either their nature or their function within the entity, whichever
provides the information that is reliable and more relevant.

Ind AS 1 requires entities to present an
analysis of expenses recognised in profit or loss using a classification
based on their nature only. Thus, there is no option to use functional
classification for presentation of expenses.

Materiality and aggregation

IAS 1 requires:

??each
material class of similar items to be presented separately in the financial
statements; and

??items
of a dissimilar nature or function to be presented separately unless they are
immaterial

Ind AS 1 modifies these requirement by
adding the words ‘except when required by law.’  Hence, if the applicable law requires
separate presentation/ disclosure of certain items, they are presented
separately irrespective of materiality.

Differences from other IFRS standards

Also,
IAS 1 states that specific disclosure need not be provided if the same is
considered immaterial.

Presentation of financial statements

IAS 1 provides broad illustrative
format.

In addition to the broad illustrative
format included in Ind AS 1, Schedule III prescribes a detailed format for
presentation of financial statements and disclosures. The disclosures include
information required under certain Indian statutes.  Companies Act, 2013 also requires certain
statutory disclosures (eg contribution to political parties) to be made in
Ind AS financial statements.

Cash flow statement –

Classification of interest paid and interest and dividend
received

For non-financial entities, interest
paid and interest and dividends received may be classified as ‘operating
activities’. Alternatively, interest paid and interest and dividends received
may be classified as ‘financing activities’ and ‘investing activities’
respectively.

Ind AS 7 does not give an option.  It requires non-financial entities to
classify interest paid as part of ‘financing activities’ and interest and
dividend received as ‘investing activities’.

Cash flow statement –

Classification of dividend paid

Dividend paid may be classified either
as operating or financing cash flows.

Dividend paid is classified as financing
cash flows.

Bargain purchase gains

Where consideration transferred for
business acquisition is lower than the acquisition date fair value of net
assets acquired, the gain is recognised in the income statement after a
detailed reassessment.

Ind AS 103 requires bargain purchase
gain to be recognised in OCI and accumulated in the equity as capital
reserve. However, if there is no clear evidence for the underlying reason for
bargain purchase, the gain is directly recognised in equity as capital
reserve, without routing the same through OCI. A similar change has also been
made with regard to bargain purchase gain arising on investment in associate/
JV, accounted for using the acquisition method.

Common control business combinations

IFRS 3 excludes from its scope common
control business combinations.

Ind AS 103 requires business
combinations of entities or businesses under common control to be mandatorily
accounted using the pooling of interest method. The application of this
method requires the following:

• Assets
  and liabilities of the combining entities are reflected at their carrying
  amounts.

• No
  adjustments are made to reflect fair values, or recognise any new assets or
  liabilities.

• Financial
  information in respect of prior periods is restated as if business
  combination has occurred from the beginning of the earliest period presented.

• The
  balance of the retained earnings appearing in the financial statements of the
  transferor is aggregated with the corresponding balance appearing in the
  financial statements of the transferee; alternatively, it is transferred to
  general reserves, if any.

• The
  identity of the reserves is preserved and appear in the financial statements
  of the transferee in the same form in which they appeared in the financial
  statements of the transferor.

• The
  difference between the amount recorded as share capital issued plus any
  additional consideration in cash or other assets and the amount of share
  capital of the transferor is transferred to capital reserve and presented
  separately from other capital reserves.

Foreign currency convertible bonds (FCCB)

A fixed amount of foreign currency does
not result in fixed amount in the entity’s functional currency. Consequently,
FCCBs, where the conversion price is fixed in foreign currency, do not meet
“fixed-for-fixed” criterion to treat the conversion option as equity. Hence,
FCCBs are generally treated as a hybrid financial instrument containing a
liability component and the conversion option being a derivative. The
derivative element is measured at fair value at each reporting date and
resulting gain/ loss is recognised in the profit or loss for the period.

Ind AS 32 contains an exception to the
definition of financial liability. As per the exception, the equity
conversion option embedded in a convertible bond denominated in foreign
currency to acquire a fixed number of entity’s own equity instruments is
considered an equity instrument if the exercise price is fixed in any
currency. Hence, entities will treat the conversion option as fixed equity
and no fair valuation thereof is required.

Differences from other IFRS standards

Straight-lining of lease rentals in operating leases

Rental under an operating lease are
recognised on a straight-line basis over the lease term unless another
systematic basis is more representative of the time pattern of the user’s
benefit.

Lease payments under an operating lease
are recognised as an expense on a straight-line basis over the lease term
unless either:

a) Another systematic basis is more
representative of the time pattern of the user’s benefit, or

b) Payments to the lessor are structured
to increase in line with expected general inflation to compensate for the
lessor’s expected inflationary cost increases. If payments to the lessor vary
because of factors other than general inflation, then this condition is not
met.

Uniform accounting policies

Compliance with uniform accounting
policies is mandatory.

Ind AS 28 also requires the use of
uniform accounting policies. However, an exemption on the grounds of
“impracticability” has been granted for associates. This is for the reason
that the investor does not have “control” over the associate and it may not be able to
influence the associate to prepare additional financial statements or to
follow the accounting policies that are followed by the investor.

Use of the fair value model for investment property (IP)

An entity has an option to apply either
the cost model or the fair value model for subsequent measurement of its
investment property. If the fair value model is used, all investment
properties, including investment properties under construction, are measured
at fair value and changes in the fair value are recognised in the profit or
loss for the period in which it arises. Under the fair value model, the
carrying amount is not required to be depreciated.  Among other options, companies are allowed
to use fair value as deemed cost exemption for IP at the date of transition
to IFRS.

Ind AS 40 does not permit the use of
fair value model for subsequent measurement of investment property. It
however requires the fair value of the investment property to be disclosed in
the notes to financial statements. 
Also, consequent to the above change, companies are not allowed to use
fair value as deemed cost exemption for IP at the date of transition to Ind
AS.

Grants in the form of
non-monetary assets

IAS 20 provides an option to entities to
recognise government grants in the form of non-monetary assets, given at a
concessional rate, either at their fair value or at the nominal value.

Ind AS 20 requires measurement of such
grants only at their fair value. Thus, the option to measure these grants at
nominal value is not available under Ind AS 20.

Grants related to assets

IAS 20 gives an option to present the
grants related to assets, including non-monetary grants at fair value, in the
balance sheet either by setting up the grant as deferred income or by
deducting the grant in arriving at the carrying amount of the asset.

Ind AS 20 requires presentation of such
grants in the balance sheet only by setting up the grant as deferred income.
Thus, the option to present such grants by deduction of the grant in arriving
at the carrying amount of the asset is not available.

Use of equity method to account for investments in
subsidiaries, joint ventures and associates in SFS

IAS 27 allows an entity to use the
equity method to account for its investments in subsidiares, joint ventures
and associates in its SFS. Consequently, an entity is permitted to account
for these investments either

• At
  cost

• In
  accordance with IFRS 9

• Using
  the equity method

This
is an accounting policy choice for each category of investment.

Ind AS 27 does not allow the use of
equity method to account for investments in subsidiaries, joint ventures and
associates in SFS. This is because Ind AS considers equity method to be a
manner of consolidation rather than a measurement basis.

Confidentiality exemption

IAS 24 does not provide any exemption
from disclosure requirements on the grounds of confidentiality requirements
prescribed in any statute or regulation.

Ind AS 24 exempts an entity from making
disclosures required in the standard if making such disclosures will conflict
with its duties of confidentiality prescribed in a statute or regulation.

Definition of close members of the family of a person

As per IAS 24, “close members of the
family” of a person are those family members who may be expected to
influence, or be influenced by, that person in their dealings with the
entity. They may include

a)
the person’s spouse or domestic partner and children,

Definition “close members of the family”
under Ind AS 24 is similar.

In
addition to relations prescribed under IFRS, it includes brother, sister,
father and mother in sub-paragraph (a).

Differences from other IFRS standards

b) children of the person’s spouse or
domestic partner, and

c) dependents of the person or the
person’s spouse or domestic partner

Differences in local implementation

Classification of refundable deposits received from
customers/ suppliers

Deposits received from the customer/ dealer
are refundable on demand if the connection/ dealership is surrendered.
Deposits being repayable on demand are classified as current.

The ITFG has originally clarified that
refundable deposit repayable on demand should be classified as current. However,
this clarification was subsequently withdrawn by the ITFG.  Consequently, many entities present them as
non-current liabilities.

Application of the pooling of interest method in common
control business combinations

IFRS 3 excludes from its scope common
control business combinations.

Ind AS 103 requires common control
business combination to be accounted for using the pooling of interest
method. The ITFG has provided the following guidance on the use of SFS vs.
CFS numbers:

• Where
  a subsidiary merges with the parent, then it would be appropriate to
  recognise combination at the carrying amounts appearing in the CFS of the
  parent, since nothing has changed from group perspective.

• If
  a subsidiary is merged with other fellow subsidiary, then the amount as
  appearing in the SFS of the merging subsidiary should be used for application
  of the pooling of interest method.

Date of accounting for common control business combination

No specific guidance. Globally, business
combinations including those under common control are generally accounted
from the date on which all substantive approvals are received.

In India, many merger & amalgamation
schemes need to be approved by the Court/ National Company Law Tribunal
(NCLT). In Indian scenario, the court/ NCLT approval is considered to be
substantive and is not merely a rubber stamping.  The ITFG has clarified that in a common
control business combination, the court/ NCLT approval received after the
reporting date and before approval of the financial statements for issue
would be treated as an adjusting event.

Determination of 
functional currency for the entity and its branch

Depending on specific facts, functional
currency for a branch can be different from that of the company.

A company is carrying on two businesses
in completely different economic environments, say, one INR and the other
USD. The ITFG has stated that the functional currency is determined at the
company level. Hence, functional currency should be same for both the
businesses.

SFS of parent: Impact of Interest free loan to subsidiary on
transition to Ind AS (Guidance provided by ITFG under Ind AS on matters which
are not relevant under IFRS)

•  Under the erstwhile Indian GAAP, interest free loans to subsidiaries are
  accounted for at nominal amount. Under Ind AS, such loans are accounted at
  fair value. Any difference in nominal amount and fair value is added to
  investment subsidiary.

• What
  happens to fair value impact of past loans outstanding at transition date?
  The company has used previous GAAP carrying amount as deemed cost option for
  measuring investment in subsidiary on the date of transition to Ind AS.

The
ITFG has clarified that any difference between the carrying amount and fair
value of loan will be added to the investment measured at cost.

Treatment of dividend distribution tax (DDT) – (Guidance
provided by ITFG under Ind AS on matters which are debatable under IFRS)

As per the tax provision in India,
companies paying dividend are required to pay dividend distribution tax.  The ITFG has clarified that the company is
paying DDT on behalf of shareholders. Hence, it should be treated as
distribution of profit and debited to SOCIE.

In
case of DDT paid by subsidiary on dividend distributed to holding company,
the holding company can claim deduction for tax paid by subsidiary against
its own tax liability pertaining to dividend distribution.  The ITFG has clarified that DDT paid by subsidiary
on dividend distributed to holding company is charged to P&L in CFS.  This is because there is a cash outflow for
the group to a third party; i.e., the tax authorities. Timing of charge is
based on Ind AS 12 principles. 
However, if a portion / total tax paid is claimed as set off against
holding company’s DDT liability (on dividends paid to its own shareholders) ,
then the offset amount is recognised in SOCIE and not P&L in CFS.  DDT paid on dividend distributed to NCI is
recognised in SOCIE.

Other minor differences

Variable consideration – Penalties

Under IFRS 15, the amount of
consideration, among other things, can vary because of penalties.

Under Ind AS 115, where the penalty is
inherent in determination of transaction price, it will form part of variable
consideration. For example, where an entity agrees to transfer control of a
good or service in a contract with a customer at the end of 30 days for
INR100,000 and if it exceeds 30 days, the entity is entitled to receive only
INR95,000, the reduction of INR5,000 will be regarded as variable
consideration. In other cases, the transaction price will be considered as
fixed.

Disclosure of reconciliation between revenue and contracted
price

IFRS 15 requires extensive qualitative
and quantitative disclosures including those on disaggregated revenue,
reconciliation of contract balances, performance obligations and significant
judgments.

Ind AS 115 contains all the disclosure
requirement in IFRS 15. In addition, Ind AS 115 requires presentation of a reconciliation
between the amount of revenue recognised in statement of profit or loss and
the contracted price showing separately adjustments made to the contracted
price, for example, on account of discounts, rebates, refunds, price
concessions, incentives, bonus, etc. specifying the nature and amount of each
such adjustment separately.

Exchange differences regarded as adjustment to interest costs

In accordance with IAS 23, borrowing
cost includes exchange difference arising from foreign currency borrowings to
the extent that they are regarded as an adjustment to interest costs.
However, it does not provide any specific guidance on measurement of such
amounts.

Ind AS 23 is similar to IAS 23. However,
Ind AS 23 provides following additional guidance on manner of arriving at
this adjustment:

• The
  adjustment should be of an amount equivalent to the extent to which the
  exchange loss does not exceed the difference between the costs of borrowing
  in functional currency when compared to the costs of borrowing in a foreign
  currency.

• If
  there is an unrealised exchange loss which is treated as an adjustment to
  interest and subsequently there is a realised or unrealised gain in respect
  of the settlement or translation of the same borrowing, the gain to the extent
  of the loss previously recognised as an adjustment should also be recognised
  as an adjustment to interest amount.

Statements of comprehensive income/ Statement of profit and
loss

With regard to preparation of statement
of profit and loss, IFRS provides an option either to follow the single
statement approach or to follow the two statement approach. An entity may
present a

• single
  statement of profit or loss and other comprehensive income, with profit or
  loss and other comprehensive income presented in two sections; or

• it
  may present the profit or loss section in a separate ‘statement of profit or
  loss’ which shall immediately precede the ‘statement of comprehensive
  income’, which shall begin with profit or loss.

Ind AS 1 allows only the single statement
approach and does not permit the two statements approach.  For deletion of two statements approach,
consequential amendments have been made in other Ind AS also.

Frequency of reporting

In accordance with IAS 1, an entity
consistently prepares financial statements for each one-year period. However,
for practical reasons, some entities prefer to report, for example, for a
52-week period. IAS 1 does not preclude this practice.

Ind AS 1 does not permit entities to use
a periodicity other than one year to present their financial statements.

Earnings Per Share –

Applicability

IAS 33 applies only to an entity whose
ordinary shares or potential ordinary shares are traded in a public market or
that files, or is in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of
issuing ordinary shares in a public market.

This scope requirement has been deleted
in the Ind AS as the applicability or exemptions is governed by Companies
Act, 2013 and the rules made thereunder. 
Since there is no exemption from disclosing EPS under the Companies
Act, all companies covered under Ind AS need to disclose EPS.

Presentation of EPS in separate financial statements

IAS 33 provides that when an entity
presents both consolidated financial statements (CFS) and separate financial
statements (SFS), it provides EPS related information in CFS.

Ind AS 33 requires EPS related
information to be disclosed both in CFS and SFS. In CFS, such disclosures
will be based on consolidated information. In SFS, such disclosures will be
based on information given in the SFS.

Other minor differences

Segment reporting Application

IFRS 8 applies only to an entity whose
ordinary shares or potential ordinary shares are traded in a public market or
that files, or is in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of
issuing ordinary shares in a public market.

This scope requirement has been deleted
in the Ind AS as the applicability or exemptions is governed by Companies
Act, 2013 and the rules made thereunder. 
Currently, the Companies Act does not exempt any company (except few
government companies in defence sector) from presentation of segment
information.

Aggregation of transactions for related party disclosure

IFRS does not provide any guidance on
the aggregation of transaction for disclosure purposes.

Ind AS 24 provides an additional
guidance whereby items of similar nature may be disclosed in aggregate by
type of related party. However, this is not done in such a way as to obscure
the importance of significant transactions. Hence, purchases or sales of
goods are not aggregated with purchases or sales of fixed assets. Nor a
material related party transaction with an individual party is clubbed in an
aggregated disclosure.

Regulatory Deferral Accounts 
– Explanation to the definition of “previous GAAP”

IFRS 14 defines the term “previous GAAP”
as a basis of accounting that a first-time adopter used immediately before
adopting IFRS.

Ind AS 114 defines the term “previous
GAAP” as the basis of accounting that a first-time adopter used immediately
before adopting Ind AS for its reporting requirements in India. Further an
explanation has been added to the definition to consider the Guidance Note on
Accounting for the Rate Regulated Activities issued by the ICAI to be the
previous GAAP.

Regulatory Deferral Accounts 
– Scope

An entity is allowed to apply the
requirements of IFRS 14 in its subsequent financial statements if and only
if, in its first IFRS financial statements, it recognised regulatory deferral
account balances by electing to apply the requirements of IFRS 14.

Ind AS 114 contains similar requirement.
In addition, its states that an entity applies the requirements of previous
GAAP in respect of such regulated activities:

• in
  the case of an entity subject to rate regulation coming into existence after
  Ind- AS coming into effect; or

• if
  its activities become subject to rate regulation subsequent to preparation
  and presentation of its first Ind AS financial statements.

Repeat application of IFRS/Ind AS

IFRS 1 states that an entity that
stopped applying IFRS in the past and chooses, or is required, to resume
preparing IFRS financial statements has an option to either apply IFRS 1
again or to retrospectively restate its financial statements as if it had
never stopped applying IFRS.

Ind AS 101 does not contain this
provision. Rather, MCA roadmap states that once a company opts to follow Ind
AS, it will be required to follow the Ind AS for all the subsequent financial
statements.

Presentation of comparative information

IFRS 1 requires comparative information
for minimum one year. If an entity elects, it can give comparative
information for more than one year.

The ITFG has clarified that due to the
Companies Act notification, a first-time adopter can give Ind AS comparative
information only for one year.

Exemption relating to borrowing cost

IFRS 1 permits a first time adopter to
apply the requirements of IAS 23 from the date of transition or from an
earlier date as permitted by the transitional requirements of IAS 23.

There is no such exemption under Ind AS
101, since Indian GAAP requires the borrowing cost relating to qualifying
assets to be capitalised if the criteria laid down in AS 16 (Indian GAAP) are
fulfilled.

Small and medium-sized entities

The IASB had issued a separate IFRS for SMEs in July
2009. IFRS for SMEs is based on the fundamental principles of full IFRS, but
in many cases, it has been simplified to make the accounting requirements
less complex and to reduce the cost and effort required to produce the
financial statements. To achieve this, the IASB removed a number of the
accounting options available under full IFRS and attempted to simplify
accounting, including recognition and measurement principles, for SMEs in
certain areas.

Whilst the standard provides a broad
level definition of an SME to help in understanding the entities to which
IFRS for SMEs is applicable, the preface to the standard indicates that the
decision as to which entities are required or permitted to apply the standard
will lie with the regulatory and legislative authorities in each
jurisdiction.

In India, there is no separate standard
for SMEs that will correspond to IFRS for SMEs.  As per the MCA roadmap, Ind AS applies in
phases to:

• Listed
  companies;

• Non-listed
  companies having net worth of INR 250 crores or more;

• Holding,
  subsidiary, joint venture and associate companies of the above companies

All other companies will continue to
apply Indian GAAP or they may adopt Ind AS voluntarily. ICAI is separately
upgrading Indian GAAP to bring it closer to Ind AS. In certain cases, the
ICAI may use IFRS for SMEs principles while revising Indian GAAP.