Comprehensive income: The profit and loss account is going to look very different under IFRS. IAS 1 requires that all items of income and expense be presented either in a single statement — a ‘statement of comprehensive income'; or in two statements — a separate ‘income statement' and a second statement beginning with profit and loss and displaying components of other comprehensive income — ‘a statement of comprehensive income.'
Currently, in India, there is no concept of other comprehensive income. Under IFRS, an entity is permitted to classify expenses based on function or on nature, whichever provides information that is reliable and more relevant. Entities classifying expenses by function are required to disclose certain additional information on the nature of expenses. In India, Schedule VI requires an analysis of expenses by nature.
Financial instruments: In the area of ‘financial instruments,' you are likely to see major profit and loss impact. Gains and losses arising from derivatives that are not designated as hedging instruments are included in the profit or loss for the period leading to a great deal of volatility in the income statement and drastically changing the reported profit number.
IFRS is likely to restrict the de-recognition of financial assets, which means that fewer gains will be recognised upfront. Investment properties measured using the fair value model will also require changes in fair value to be recognised in the profit or loss.
IFRS has more detailed guidance on revenue recognition; hence there could be a difference in the revenue reported under Indian GAAP and IFRS.
Prior period items: Prior period items are also accounted differently under IFRS, with material prior period items being corrected retrospectively by restating the comparative amounts for prior periods presented in which the error occurred or if the error occurred before the earliest period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented. Under Indian GAAP, prior period items are normally included in the determination of net profit or loss of the period in which the error is discovered with a separate disclosure so that its impact on the current profit or loss can be perceived.
Depreciation: Even the depreciation charge under IFRS, based on the component approach and the estimated useful life of an asset, could be quite different than that currently reported under Indian GAAP using the rates specified in Schedule XIV to the Companies Act, 1956.
Deferred taxation, share-based payments: Since the concept of “temporary differences” under IFRS is much wider than the concept of “timing” difference under Indian GAAP, even the deferred tax numbers will be different.
The accounting for share-based payments under IFRS 2 which covers share-based payments both for employees and non-employees could also impact the profit for the period as the use of the intrinsic value for determining the costs of benefits is prohibited under IFRS.
The conversion to IFRS may also change the components and calculation of finance charges and finance income.
Consolidation, JV: In the consolidated financial statements, the inclusion of assets and liabilities at fair values on the date of the business combination will change the related depreciation charge. Recognition of bargain purchases in the income statement will enhance the profit for the year under IFRS.
Also, if instead of using the proportionate consolidation method, the equity method is used for accounting for an interest in a joint venture (JV) under IFRS, the revenue and cost figures reported under Indian GAAP would undergo a change, thereby creating a perception that the volume of business has reduced which is not actually the case.
