INTERNATIONAL FINANCIAL

REPORTING STANDARDS

-Anand BathiyaB. Com., A.C.A., A.C.S., LL.B.

anand@shbathiya.com

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Measurement–

Concept and Basis of Measurement

Agenda

Introduction–

Broad Points for Discussion

Recognition–

Concept, Elements & Conditions

WIRC – ICAI – Initiation to IFRS – 22nd January, 2011 –

Expected Time: 90 minutes

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Concept and Basis of Measurement

Disclosure Requirement–

Some additional disclosures in IFRS

General Discussion

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QUICK POINTS

Framework to IFRS is a base document

that gives guidance on the fundamental

accounting principles under IFRS.

Recognition, Measurement,

Presentation & Disclosure is all we do!

QUICK POINTS

Recognition and Measurement are

conceptually similar to current Indian

GAAP.

Disclosure Requirements under

Exposure Drafts \ IND-AS \ IFRS

(‘IFRS’) much more and elaborative as

INTRODUCTIONDiscussion Points

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Recognition, Measurement and

Disclosure Requirements covered in this

Session. Presentation is covered in next

session.

(‘IFRS’) much more and elaborative as

compared to current Indian GAAP.

Most of the standards

deal with all the 4

attributes.

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RECOGNITION

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GRecognition

“Recognition is the process of incorporating in the balance sheet or

income statement an item that meets the definition of an element

and satisfies the criteria for recognition.”

Elements of Financial Statements:

1. Assets

2. Liabilities

3. Equity

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3. Equity

4. Income

5. Expenditure

Criteria for Recognition:

a. Future economic benefit associated with the item will

flow to or from the entity

b. Item has a cost or value that can be measured with

reliability

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The failure to recognize such items is not rectified by disclosure of

the accounting policies used nor by notes or explanatory material.

It involves the depiction of the item in words and by a monetary

amount and the inclusion of that amount in the balance sheet or

income statement totals.

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Download Framework to IFRS from http://www.ifrs.org/IFRSs/IFRS.htm

Almost all standards have recognition guidance and parameters

built-in for recognition of different elements of Financial

Statements (‘FS’).

Any element which does not fulfill the criteria for

recognition shall be derecognized.

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GRecognition

Broad Rules for Recognition of different Elements:

Assets:

• Probable that measurable future economic benefits will flow

• Probable that the future economic benefits will flow beyond the current period

Liabilities:

• Probable that a measurable outflow of resources will result from the settlement of a present

obligation

Income:

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Income:

• An increase in measurable future economic benefits related to an increase in an asset or a

decrease of a liability

• Should have a sufficient degree of certainty

Expenses:

• Decrease in a measurable future economic benefits related to a decrease

in an asset or an increase of a liability

• Basis of systematic and rational allocation procedures with matching

concept.

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MEASUREMENT

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Measurement is the process of determining the monetary amounts at

which the elements of the financial statements are to be recognised

and carried in the balance sheet and income statement.

Recognition is WHAT to record, Measurement is HOW MUCH to record.

Recognition is at Inception, Measurement is at all subsequent periods

also.

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Measurement involves selection of Basis of Measurement. Guidance

available in framework for different Basis of Measurements as

applicable to different elements of financial statements.

A number of different Basis of Measurement bases are

employed to different degrees and in varying

combinations in financial statements. Accounting policies

should include Basis of Measurement.

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Four broad Basis of Measurement:

Historical Cost:

Recording at cost or fair value at the time of occurrence of the

transaction.

Current Cost:

Recording at amount that would have to be paid if the same of

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Recording at amount that would have to be paid if the same of

equivalent element was transacted currently.

Realizable Value:

Recording at amount that could currently be obtained by

settling\selling an element currently.

Present Value:

Recording at present discounted value of future cash

inflows\outflows.

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GMeasurement

Aircraft purchased by an Tej Airways for ` 10 crores on 31st March

2005. Similar aircraft available for ` 7 crores on 31st March 2010.

Fisher Airways makes offer to Tej Airways for purchase of the Aircraft

on 31st March, 2010 at ` 6.5 crores. Tej expects the present value of

future cash flows from flying the aircraft at ` 9 crores. Record the

book value of Aircraft under different Basis of Measurement as on

31.03.2010 (ignore depreciation).

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At Historical Cost: ` 10 crores

At Current Cost: ` 7 crores

At Realizable Value: ` 6.5 crores

At Present Value: ` 9 crores

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What basis of measurement are followed for the following items

under the current Indian GAAP?

A. Fixed Assets:

B. Inventories:

C. Gratuity:

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D. Discontinuing Operations:

E. Goodwill:

Indian GAAP is biased towards Historical Cost with few

elements allowed to be recognized under other basis.

IFRS is based on Historical Cost but mandates and

encourages other basis more frequently.

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DISCLOSURE REQUIRMENTS

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GDisclosure Requirements

Extensive and Elaborate Disclosure Requirements in IFRS as compared

to current Indian GAAP.

Lesser quantitative disclosure requirements as no Schedule VI.

Every standard has specific disclosure requirements. Disclosure

requirements in standards are divided into two:

1. Mandatory

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1. Mandatory

2. Recommendatory

IFRS for SME’s has lesser disclosure requirements, however

India’s stand on IFRS for SME’s is still unclear.

On an average, size of ‘F’ pages in an Annual Report

increases by 2.0 times as compared to corresponding Indian

GAAP.

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GDisclosure Requirements

Some of the additional Disclosure Requirements in IFRS

a. Corporate Information, Critical Accounting Estimates and

Judgments

b. Functional and Presentation Currencies \ Statement of

Compliance with IFRS

c. Standards early adopted by the Company and its impact

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d. Standards issued but not yet effective and not early

adopted by the company and its impact

e. Note on transition to IFRS and reconciliation statement

providing explanation to major adjustments.

f. Optional exemptions under IND-AS 41 – First Time

Adoptions as availed \ not-availed by the entity.

g. Reclassification and regroupings made in the FS

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h. Note on Business Combination including acquisitions and

sale made during the periods

i. Assets and Liabilities acquired through business

combination, their fair values and consideration paid by

the entity

j. Estimated useful life of Property Plant & Equipment

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k. Items considered as Investment property and fair value of

the same

l. Category-wise disclosure of Financial instruments along

with their fair values

m. Note on Foreign Exchange Risk Management

n. Note on Liquidity \ Credit Risk Management

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o. Note on Interest rate risk management and its sensitivity

p. Note on Commodity rate risk management and its sensitivity

q. Elaborate disclosure note on Share-Based Payments and

Hedge Accounting

r. Effective Tax Reconciliation statement

s. Details of major customers segment-wise

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s. Details of major customers segment-wise

t. Details of retrospective application of accounting policies into

respective past years

u. Explanation on various types of reserve and restrictions on

use of these resources

v. Key terms of loan facilities availed by the entity, e.g.

Security, type of lender, average rate of interest, etc.

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w. Details of repayment schedule of loans year-wise

x. Note on Capital Management and key ratios

y. Name of the Ultimate Parent \ owner

z. Contingent Assets

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Many other Mandatory and Recommendatory disclosure

requirements are required by individual standards.

“ Sunlight is the best disinfectant. Disclose!”

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Thank You

Questions invited or can be

subsequently emailed to:

anand@shbathiya.com

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