Jamil Khatri’s IFRS Diary: Part 9

Source: MoneyControl.Com

The ‘near final’ Ind-AS (IFRS converged standards to be followed in India) have recently been issued. While Ind-AS are based on IFRS (as issued by the International Accounting Standards Board); there are some important areas where Ind-AS are not in conformity with IFRS. Such divergences are commonly referred to as ‘carve-out’s’.

The carve-out’s may be classified into the following three categories:

Mandatory deviations from IFRS: Indian companies do not have a choice but to follow policies divergent from IFRS Voluntary deviations from IFRS: Indian companies may elect a policy choice that is either compliant or divergent with IFRS

Elimination of options: Indian companies need to follow certain specific policies even though IFRS offers alternative choice of policies. The specific policies are however, compliant with IFRS

The first category of carve-outs are the most troublesome, as companies do not have a choice but to diverge from IFRS. This is problematic for those Indian companies that may seek to achieve full compliance with IFRS either because they are listed in overseas markets or for any other reasons. The first category of carve-out’s include:

Recognition of revenues from sales of real estate on a percentage of completion basis (IFRS requires that revenues be recognized when possession is given to the customer)

Recognition of biological/plantation assets at cost (IFRS requires fair value measurements)

Recognition of ‘embedded’ foreign currency conversion options in convertible bonds, as ‘equity’ (IFRS requires ‘liability’ treatment and consequent mark-to-market)

Recognition of ‘bargain purchase gains’ as ‘capital reserves’ (IFRS requires recognition of such gains through the profit and loss account)

Use of government securities yields for determining actuarial liabilities (IFRS requires use of corporate bond yields).

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