IFRS workshop All India Chartered Accountants Society Session: AS convergence to IFRS Aseem Vohra July 10, 2010

1. IFRS workshopAll India Chartered Accountants SocietySession: AS convergence to IFRSAseem VohraJuly 10, 2010

3. IFRS transition in India… Road Ahead

4. Global economy - need to speak in a language which is globally accepted. International Financial Reporting Standards (‘IFRS’) has now evolved into being the most widely accepted and trusted financial reporting language Considering the emerging role of India in the global economy, it was imperative for India to harmonize with global financial reporting standards In August 2007, ICAI announced India’s intention to converge its reporting standards with IFRS - ICAI released a concept paper on convergence MCA has set up a core group to develop a roadmap for India's transition to IFRS – roadmap released in January 2010 MCA also released a separate roadmap for Banking and Insurance Companies in March 2010 SEBI amended the listing agreement to permit voluntary early adoption of IFRS (as issued by IASB) by listed parent companies IFRS transition in India – an introductionNeed for Adoption in India

5. IFRS transition in India – an introductionProgress to date Highlights of the MCA Roadmap Phased approach to convergence Companies (except banking & insurance) - 2011 to 2014 Banking & Insurance Companies – 2012 to 2014 Two separate sets of accounting standards to be maintained under Section 211(3C) Early adoption of IFRS converged standards permitted Clarifications on implementation matters issued by MCA Clarity still required on several practical aspects MCA reiterates commitment to transition by 2011 MCA sets up core group to develop roadmap MCA's roadmap on transition released May 2008 Feb 2009 July 2009 Nov 2009 Jan 2010 Mar / Apr 2010 Oct 2007 BFSI Roadmap issued by MCA Amendment to listing agreement permits IFRS reporting ICAI released concept paper on convergence with IFRS ICAI releases update on convergence process SEBI approves move to permit voluntary early adoption of IFRS Government remains strongly committed to achieving the 2011 deadline

6. IFRS transition in India – an introduction Roadmap: Phased Approach Unlisted Classes of Companies Listed (only in India) Listed overseas (any securities) Company in Nifty or Sensex Phase I Phase I NA Net worth > Rs 1,000 Cr Phase I Phase I Phase I Net worth > Rs 500 Cr upto Rs 1,000 Cr Phase II Phase I Phase II Exempt Net worth upto Rs 500 Cr Phase III Phase I • Companies in Phase II and III can early adopt from years beginning April 1, 2011 onwards • Companies not covered in the 3 phases (including Small and Medium Companies can voluntarily adopt converged standards 6

7. IFRS transition in India – an introduction Roadmap: Phased Approach MANDATORY REQUIREMENT OPTION FOR EARLY ADOPTION Opening balance sheet date First year end (with IFRS comparatives) Phases Opening balance sheet date First year end (without IFRS comparatives) 1 April 2010 31 March 2012 Phase I 1 April 2011 31 March 2012 1 April 2011 31 March 2013 Phase II 1 April 2013 31 March 2014 1 April 2011 31 March 2013 Phase III 1 April 2014 31 March 2015 • March 31, 2011 information to be given in an additional column (in addition to existing Indian GAAP comparatives) • Phase II and III companies can early adopt from year starting April 1, 2011 onwards 7

8. IFRS transition in India – an introductionMCA roadmap - BFSI: A phased approach Criteria for phased implementation Companies Opening balance sheet First financial statements All insurance companies- Insurance Companies April 1, 2012 March 31, 2013 All scheduled commercial banks Banking Companies April 1, 2013 March 31, 2014 Urban co-operative banks net worth >Rs 300 cr April 1, 2014 Urban co-operative banks with net worth > Rs 200 cr but not exceeding Rs 300 cr March 31, 2015 NSE- Nifty 50 or BSE- Sensex 30 Index Listed & unlisted with net worth > Rs 1,000 cr April 1, 2013 March 31, 2014 Non Banking Financial Companies (NBFCs) April 1, 2014 All other listed NBFCs Unlisted NBFCs with net worth > Rs 500 cr (other than above) March 31, 2015 Urban Co-operative Banks with net worth less than Rs 200 Crores, Unlisted NBFCs with net worth less than Rs 500 Crores and Regional Rural Banks are exempt, though they may voluntarily opt to do so 8

9. IFRS transition in India – an introductionMCA Roadmap: clarifications • Net worth: • reference date for companies (other than banking & insurance) is March 31, 2009 • Standalone net-worth to be considered • Net worth = share capital + reserves – revaluation reserves – miscellaneous expenditure – debit balance of P&L • Early adoption available for those in Phase II & Phase III • From April 1, 2011 onwards (opening balance sheet on 1 April 2010) • Once converged standards adopted, cannot revert to existing Indian GAAP • Group situations • each entity to apply its own criteria. However, early adoption permitted • Comparative information for first year • no IFRS comparatives required – but voluntary disclosures permitted • IFRS or Indian GAAP • Companies to follow converged standards and not IFRS • First public reporting • SEBI to clarify on quarterly reporting requirements (relevant for listed entities in the Group) 9

10. IFRS transition in India – an introductionRoadmap: Developments to track • Company law • Draft Companies (Amendment) Bill • NACAS to finalise amendments to Schedule VI • Schedule XIV to also be amended shortly • New Companies Bill under evaluation of Parliamentary Committees will also need revision before enactment • Accounting Standards • ICAI to finalise – NACAS to recommend by mid year • Taxation • ICAI and CBDT set up joint study group to recommend changes • MCA considering a tax neutral state for year 1 • Direct Tax Code under evaluation of Parliamentary Committees will also need revision before enactment • Potential impact • Several of these changes will impact IFRS transition strategies • Key areas to watch out for include: • New standards, primarily IFRS 1 equivalent as it would spell out the exact transitional provisions • Tax laws – the Group would like to minimize the tax impact due to the transition to IFRS – key decisions and accounting choices would be impacted by these changes • Schedule VI being amended – may require additional disclosures and possibly functional classification 10

11. IFRS transition in India – an introductionInternational scenario • IFRS continues to evolve • IFRS 9 to replace IAS 39 (AS 30) • in the process of development • Part issued – significant portions in progress. • Expected completion date – end 2010 • Several significant projects in pipeline • Apart from 3 exposure drafts (ED) relating to Financial Instruments, 10 other EDs expected in next 6 months • Revenue recognition, leases, financial statement presentation, income taxes, etc • India working to a moving target • Potential impact • Several of these changes could impact you significantly • Key changes include revenue recognition, leases, financial instruments, etc • Very important for you to assess these likely changes when making the transition decisions and changes to systems, processes and business practices 11

12. ICAI has already issued exposure drafts of all existing accounting standards that will be converged with IAS and IFRSs ICAI has also issued exposure drafts on new standards, which are not existing as of now, key ones being: Ind-AS 41: equivalent to IFRS 1, First time adoption AS 40: equivalent to IFRS 9, Financial Instruments AS 33: equivalent to IFRS 2, Share based payments AS 37: equivalent to IAS 40, Investment properties Once adopted, the converged accounting standards shall form the basis of generally accepted accounting principles in India (Indian GAAP) IFRS transition in India – an introductionConvergence

13. Impact of convergence

14. Impact of convergencePotential Areas of Impact

15. Impact of convergence Wider Impact

16. Impact of convergence Challenges to a enterprise Generate the IFRS financial information Assess impact of IFRS information on key stakeholders • Getting employees IFRS literate • Gaining expertise to deal with complex accounting matters • Getting processes and systems in place to generate IFRS information • Making the whole IFRS reporting process, sustainable and cost effective so as to be able to generate information every quarter • Employees and management – impact on performance linked compensation structures • Lenders – impact on key debt covenants • Investors and analysts – impact on key performance metrics • Stakeholders – communicating with and educating on a timely basis • Tax authorities – still unclear on how IFRS impacts taxation

17. Impact of convergence Common issues and pitfalls • Lack of a convergence plan • Viewed as a technical accounting exercise resulting in under estimation of efforts involved • Lack of senior management commitment • Significant investment in IT Systems and training manpower • Lack of communication with stakeholders and users of financial reports • Difficulties in estimating fair values • Complexities in the presentation of financial statements • Non availability of skilled manpower

18. Process of transitioning financial reporting

19. Process of transitioning financial reporting • Cost and time shall be based on the size of an enterprise and complexity of operations • Process needs to be steered by the management • Should be based on a focused approach using project management principles • Changes shall be required at all functional processes, controls and data points

20. Process of transitioning financial reporting Key Activities • Constitute a project management structure: all functions • Draft a transition process • Determine key accounting impact areas • Determine areas of external assistance, valuation etc • Coordinate with IT vendor and review of changes in ERP functionalities • Draft a detailed training program for different functional and responsibility levels 20

21. Process of transitioning financial reporting Focused approach Diagnostic review Implementation Reporting Accounting Sustainable Initial IFRS Implement - - Project Set Diagnostic Issue IFRS conversion ation up Study resolution reporting Prepare Prepare Organisational Organisational Prepare Prepare Parallel run Parallel run Decide Decide Research Research Subsidiaries Subsidiaries & Operational & Operational Component Component reporting reporting Way Forward Way Forward Background Background IFRS IFRS Changes Changes Evaluations Evaluations Accounts Accounts Change Change - - over over Give Authority Give Authority Identify Identify Implement Implement Resolve Resolve decision decision to Proceed to Proceed Problems Problems Consolidate Consolidate new Systems new Systems Issues Issues & Analyse & Analyse & Procedures & Procedures Sustainable Sustainable Establish Establish Recommend Recommend Group IFRS Group IFRS Prepare Prepare and efficient and efficient Project Project Way Forward Way Forward Accounts Accounts Instructions Instructions reporting reporting Governance Governance

22. Process of transitioning financial reporting Aligning Operating processes & controls • Currently processes & controls are designed to capture, review & record financial information as per Indian GAAP • Converged AS shall bring in additional information requirements & accordingly new processes & related controls need to be defined • An enterprise should consider the following while drafting its transition: • Impact on CEO/CFO certification (Clause 49) • Aligning Risk management framework • Aligning Internal audit function & activity

23. Process of transitioning financial reporting Human resources needs • Transition to different set of accounting rules & principles encompass resources at all levels for all functions • Following functions need to be proficient in converged AS before April 01, 2011: • Accountants (data entry) • Finance managers (Review function) • Chief Financial Officer (Review function) • Audit committee members (Review function) • Senior Management (Decision Making)

24. Process of transitioning financial reporting Human resources needs – Training programs 24

25. Process of transitioning financial reporting Aligning Information Systems • Converged AS shall require following information systems to capture & generate GAAP compliant information • Internal MIS reporting • Financial accounting • Current Information system to be aligned depending upon application & modules currently implemented • Integration exercise will at the minimum include the following: • Establishing new data requirements • Changes to Chart of Accounts • Re-configuration of applications • Manage parallel systems

26. Illustrative timeline Week Phase Activity 1 2 3 4 5 6 7 8 9 10 11 12 I Detailed assessment of impact on consolidated financial statements Detailed assessment of impact on HR, IT, Processes etc. Preparation of shell consolidated IFRS financial statements & reporting packs II Mapping of reporting packs back to Trial Balance of each entity III Rolling out the reporting packs and instructions for completion Assistance with completion of reporting packs and consolidation thereof

27. Questions

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