1. IFRS 1: First time adoption

In a column for the Hindu Business Line, Dolphy D’Souza, Partner Ernst and Young, writes that the most critical aspect while converting from local GAAP to a new accounting framework IFRS aspect, is to restate the opening balance sheet as if the new accounting framework was always followed.Mr. D’Souza points out that due to major differences of Schedule XIV depreciation rates, residual values, capitalization of exchange differences and component accounting. it becomes difficult to adopt IFRS from local GAAP.Fortunately, IFRS 1 allows certain exemptions such as in the case of fixed assets, these could be fairly valued as of the opening balance sheet date (date of transition) and the same would constitute a deemed cost under IFRS. Mr. D’Souza further says that the exemption allowed by IFRS 1 in regards to accounting of business combinations is important in Indian context since under IFRS business combinations are accounted for on the basis of fair valuation principles. First time adopters of IFRS also have the choice of recognizing all the cumulative actuarial gains and losses at the date of transition to IFRS even if it uses the corridor approach for later actuarial gains and losses which may leave some actuarial gains and losses unrecognized. Similarly, that first time adopter also may not have to apply apply IFRS 2 share-based payment to equity instruments that were granted after November 7, 2002, that vested before the later of the date of transition to IFRS and January 1, 2005.Mr. D’Souza notes that While IFRS provides exemptions, in a few cases, it also prohibits retrospective application of IFRS. Such is evident in the case of hedge accounting. A converting company needs to recognize and reclassify items as assets, liability and component of equity to change from Indian GAAP to IFRS.Mr. Dsouza recommends that while Indian entities start preparing themselves for converting to IFRS by first identifying the key differences between the two GAAPs.Mr. D’Souza observes that those who approach IFRS adoption as a mere technical exercise will not be able to fully optimise on the benefits of adopting IFRS.

Source: Hindu Business Line

Aug 18, 2008

http://www.blonnet.com/mentor/2008/08/18/stories/2008081850421200.htm