Sub-group on addressing IFRS convergence implementation issues and formulation of operational guidelines relating to banks

Sr. Topic Issues faced by the banks Accounting as prescribed by IFRS Accounting practices Relevant RBI Impact of any Suggestions
No. adopted presently guidelines statute /
legislation

A IAS 1: Presentation of Financial Statements

A.1 Components of financial statements Whether information to be disclosed in the separate A complete set of financial statements Section 29 of the B. R. Act, Forms are set out Companies Act, Form set out in Third schedule needs to be
format? comprises: 1949 prescribes: in Third Schedule 1956 suitably amended.
- Accounting standard does not prescribe a particular i. financial position statement (Balance i. Balance sheet (Form A) of the B.R. Act, A sub-group to be formed to submit the required
format; sheet) ii. Profit and Loss Account 1949 changes to the Third Schedule on the lines of
- Comprehensive statement is requires additional ii. Comprehensive statement (Form B) Schedule VI Companies Act
disclosures not specified in Form B of Third schedule iii. Changes in equity iv. 16 Schedules
of B.R. Act, 1949 iv. Cash flow statement
- The Third schedule does not require banks to v. notes and other explanatory
publish Statement of Changes in Equity in a separate information
statement but are disclosed in separate schedules
"Share Capital" and "Reserves and Surplus"

B IAS 2: Inventories Not Applicable

C IAS 7: Statement of Cash Flows

C.1 Definition of cash and cash equivalents Treatment of bank overdrafts Cash includes cash equivalents with
maturities of three months or less from
the date of acquisition and may include
bank overdrafts (IAS 7.8)
Bank overdrafts are not None AS 3 (Revised): Cash Flow Statements to be
included in cash and cash suitably amended
equivalents; changes in the
balances of overdrafts are
classified as financing cash
flows

D IAS 8: Accounting Policies, Changes in Accounting

Estimates and Errors
D.1 Extraordinary items Prohibited Defined as events or None AS 5 (Revised): Net Profit or Loss for the Period,
transactions clearly distinct Prior Period Items and Changes in Accounting
from the ordinary activities Policies to be suitably amended
of the entity and are not
expected to recur
frequently and regularly.
The amount is adjusted
against the current profit or
loss.

D.2 Changes in accounting policy Comparatives are restated, unless The effect of change is Master Circular - AS 5 (Revised): Net Profit or Loss for the Period,
specifically exempted; where the effect included in the income Disclosure in Prior Period Items and Changes in Accounting
of periods) not presented is adjusted statement in the period of Financial Policies to be suitably amended
against opening retained earnings change Statements -
Notes to
The Conceptual Framework suggests that Accounts
the itmes which are specifically required
to be stated in the financial statements
cannot be shown only in the Notes.

D.3 Correction of errors Impact of Prior period adjustment disclosed in Notes Comparatives are restated and, if the Restatement is not Master Circular - AS 5 (Revised): Net Profit or Loss for the Period,
to accounts of restate the comparatives? error occurred before the earliest prior required. Reported as a Disclosure in Prior Period Items and Changes in Accounting
period presented, the opening balances prior period adjustment Financial Policies and the Master Circular of RBI which
of assets, liabilities and equity for the separately in the income Statements - requires the impact of prior period adjustments on
earliest prior period presented are statement. Notes to current year's profit or loss to be disclosed in
restated Accounts Notes to accounts to the balance sheet of banks
(Para 4.1)to be suitably amended.

E IAS 10: Events after the Reporting Period No differences in the GAAP

F IAS 11: Construction Contracts No differences in the GAAP

G IAS 12: Income Taxes Discussed by the Income tax Core Group

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 Sub-group on addressing IFRS convergence implementation issues and formulation of operational guidelines relating to banks

Sr. Topic Issues faced by the banks Accounting as prescribed by IFRS Accounting practices Relevant RBI Impact of any Suggestions
No. adopted presently guidelines statute /
legislation
H IAS 16: Property, Plant and Equipment
H.1 Depreciation on Computers An item of property, plant and All commercial banks Circular DBOD The circular needs to be suitably withdrawn/
equipment should be depreciated over excluding RRBs and LABs No.BP.BC.37/21. amended
its estimated useful life, and the are required to charge 04.018/2000
depreciation charge must be recognized depreciation on computers dated October
as an expense unless it has to be on Straight line Basis at the 20,2000
included in the carrying amount of rate of 33.33 % p.a
another asset

I IAS 17: Leases No differences in the GAAP

J IAS 18: Revenue Recognition

J.1 Effective Interest rate method Interest shall be recognized using the Interest is recorded without The RBI RBI has issued Draft guidelines on Valuation of
effective interest method any adjustments pertaining guidelines are Investments which shall be looked by another
to effective interest silent on the group working on AS 30/31/32
method method of
interest income
recognition.

K IAS 19: Employee Benefits

K.1 Recognition of liability based on constructive obligation Under IFRS, post-employment benefits Unlike IFRS, read with AS - - -
include all benefits payable after 29, it also does not seem to
employment (before or during allow recognition of
retirement) e.g., pensions, medical termination benefits based
benefits after employment and severance on constructive obligation.
payments. Post-employment benefit
plans include both formal arrangements
and informal arrangements that give rise
to constructive obligations. All post-
employment benefits are accounted for
under a single set of requirements.

K.2 Recognition of liability in the financial statements Under IFRS, actuarial gains and losses of
defined benefit plans are recognized
either in profit or loss, or immediately
directly in equity. Amounts recognized
directly in equity are not recycled to
profit or loss. The corridor is 10 percent
of the greater of the obligation and the
fair value of plan assets at the beginning
of the period.
The AS15 does not allow - - AS 15 needs to be suitably amended
corridor approach to
recognizing actuarial gains
and losses – these should be
recognized immediately in
the profit and loss account.

L IAS 20: Accounting for Government Grants and RBI issues various circulars from time to time on Exposure Draft on AS UBD.PCB.Cir.No. No conclusion was reached
Disclosure of Government Assistance subvention, loan waivers (forgivable loans), etc 12(Revised). Last date to 58/13.05.000/2
comment 31.07.2008 007-08 dated
June 20, 2008

M IAS 21 The Effects of Changes in Foreign Exchange

Rates
M.1 Recording and reporting of FC transactions - concept Can functional cuurency be different from local An entity measures its assets, liabilities,
of functional currency currency? revenues and expenses in its functional
currency, which is the currency that best
reflects the economic substance of the
underlying events and circumstances
relevant to the entity, i.e. the currency
of the primary economic environment in
which the entity operates. Functional
currency of an entity may be different
from the local currency. (IAS 21.8-13)
There is no concept of - - -
functional currency under
Indian GAAP. Enterprises in
India have to prepare their
general purpose financial
statements in Indian
rupees. (Schedule VI part I
note (b) and Part II of the
Companies Act, 1956)

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 Sub-group on addressing IFRS convergence implementation issues and formulation of operational guidelines relating to banks

Sr. Topic Issues faced by the banks Accounting as prescribed by IFRS Accounting practices Relevant RBI Impact of any Suggestions
No. adopted presently guidelines statute /
legislation
M.2 Integral and Non integral operations Whether foreign branches of Indian Banks and Off The financial statements of foreign There is a distinction As per the RBI - On implementation of IFRS, the RBI circular on
shore banking units should be classified as ‘non – operations are translated as follows: between integral and non- circular on compliance with AS 11 (R) would have to be
integral foreign operation’. Representative offices assets and liabilities at the closing rate, integral foreign operations. compliance with withdrawn
would be classified as ‘Integral foreign operations’? revenues and expenses at actual rates or The reporting currency of AS – 11 (R) –
appropriate averages, and equity even an integral foreign
components at historic rates. operation will be different
from the reporting currency
of the reporting entity,
thereby necessitating
translation.

M.3 Presentation of transactions An entity may present supplementary No guidance available under - - -
financial information in a currency other Indian GAAP.
than its presentation currency if certain
disclosures are made.
M.4 Accounting for foreign exchange contracts At present there is a conflict relating to accounting IAS 21 does not deal with forward The treatment prescribed At present # Convergence with IAS 39 is prescribed in AS 30
of forward exchange contracts as per AS -11 or AS -30 exchange contracts as the entire gamut under AS -11 of accounting NACAS suitable modifications will have to be made to
(recommendatory) of foreign exchange derivative is covered for forward exchange mandates reduce the scope of forward exchange contracts
by IAS 39. (IAS 21 Para 3(a), 4 and 5) contracts is different than standards till from AS 11
that under IAS 39. (AS 11.36- AS 29 # NACAS will need to incorporate AS–30/31 and
39) future IFRS as mandatory standards for a banking
company

N IAS 23: Borrowing Costs The revised IAS 23 removes the option The AS-16 did not have None - -
to expense borrowing costs and is the option of expensing
applicable from 01.01.2009 borrowing costs.
Capitalization was
required.

O IAS 24: Related Party Disclosures

O.1 Definition of Related party transactions The control definition is different from the one Determined by the level of direct or Based on legal form rather None - Need to suitably amend the control definition
prescribed in IFRS as a result less number of entities indirect control, joint control or than substance
are covered under related party as per Indian GAAP significant influence of one party over
another or common control of an entity

P IAS 27: Consolidated and Separate Financial

Statements
P.1 Definition of Control The control definition is different from the one Control is the power to govern the Control is defined as None Companies Act, Need to suitably amend the control definition
prescribed in IFRS financial and operating policies of an ownership of more than half 1956
entity so as to obtain economic benefits of the voting rights or
from its activities control of composition of
the board of directors or
governing body so as to
obtain economic benefits
from its activities

P.2 Special Purpose Entity (SPE) The consolidation of SPEs is not covered Consolidated where substance of the No specific guidance - - Need to issue an interpretation on the lines of SIC-
relationship indicates control 12
All the SIC/ IFRIC will be the part of the standards
on convergence with IFRS

Q IAS 28: Investments in Associates No differences in the GAAP

R IAS 29: Financial Reporting in Hyperinflationary
Economies
Need guidance Hyperinflation is indicated by
characteristics of economic
environment of country, which include:
population's attitude towards local
currency and prices linked to price
index; if cumulative inflation rate over
3 years is approaching or exceeds 100%
No specific guidance
- -
The ASB should issue a standard in this regard
for banks having branches in such economies;
e.g. Zimbabwe and need to consolidated the
accounts
The standard will be issued very soon

S IAS 31: Interests in Joint Ventures

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 Sub-group on addressing IFRS convergence implementation issues and formulation of operational guidelines relating to banks

Sr. Topic Issues faced by the banks Accounting as prescribed by IFRS Accounting practices Relevant RBI Impact of any Suggestions
No. adopted presently guidelines statute /
legislation
S.1 Contractual arrangement whereby two or more parties Presentation of jointly controlled entities (joint In Consolidated financials: both In Consolidated financials: None - The AS 27 needs to be suitably amended to be in
undertake an economic activity, which is subject to ventures) proportional consolidation and equity proportional consolidation line with IFRS
joint control. method permitted is used
In standalone financials: at cost or fair In standalone financials: at
value as per IAS 39 cost less impairment

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 Sub-group on addressing IFRS convergence implementation issues and formulation of operational guidelines relating to banks

Sr. Topic Issues faced by the banks Accounting as prescribed by IFRS Accounting practices Relevant RBI Impact of any Suggestions
No. adopted presently guidelines statute /
legislation
T IAS 32: Financial Instruments- Presentation Discussed in a seaprate sheet

U IAS 33: Earnings per share No differences in the GAAP

V IAS 34: Interim Financial Reporting No differences in the GAAP

W IAS 36: Impairment of Assets No differences in the GAAP

X IAS 37: Provisions, Contingent Liabilities and No differences in the GAAP

Contingent Assets

Y IAS 38: Intangible Assets

Y.1 Acquired intangible assets Whether to amortise over useful life or 10 years Capitalized if recognition criteria are
irrespective of useful life less/more than 10 years? met; amortized over useful life.
Intangibles assigned an indefinite useful
life are not amortized but reviewed at
least annually for impairment.
Revaluations are permitted
Capitalized if recognition
criteria are met; all
intangibles are amortized
over the useful life with a
rebuttable presumption of
not exceeding 10 years.
Revaluations are not
permitted

Y.2 Definition of an intangible asset An intangible asset is recognized An intangible asset is Section 15(1) of - Section 15 needs to suitably exclude certain
separately from goodwill if it represents recognized in the B.R.Act, 1949 intangibles
contractual or legal rights and is capable amalgamations accounted restricts payment
of being separated or divided and sold, under the purchase method of dividend by
transferred, licensed, rented or using the fair value, if it is Indian banks
exchanged. Acquired in process research probable that the future until all
and development (R&D) is recognized as economic benefits that are intangibles are
a separate intangible asset if it meets the attributable to the asset completely
definition of an intangible asset and its will flow to the enterprise written off.
fair value can be measured reliably. Non and the cost of the asset
identifiable intangible assets are will be measured reliably.
subsumed within goodwill. However the fair value of
For an item to be recognized as an the intangible asset with no
intangible asset it must be an active market is reduced to
identifiable non-monetary asset without the extent of capital
physical substance. (IAS 38.8-17, BC.4-5) reserve, if any, arising from
the amalgamation.
An intangible asset is an
identifiable non-monetary
asset without physical
substance held for use in
the production or supply of
goods or services, for rental
to others or for
administrative purposes. AS
26.6

Y.3 Recognition and amortization of intangible assets # Rebuttable presumption of 10 years Intangible assets with finite useful lives There is a rebuttable Section 15(1) of - RBI vide circular DBOD No. BP.BC.
# Review of residual value at minimum each financial are amortized over their expected useful presumption that the useful the B.R.Act, 1949 82/21.04.018/2003 – 04 has issued guidance on
year lives. There is no presumption under IAS life of an intangible asset restricts payment compliance of AS 26 by banks. RBI has stated that
# Revaluation is not permitted under Indian GAAP 38 as regards useful life of an intangible will not exceed 10 years. of dividend by banks in India will have to seek exemption from
unlike IFRS asset. (IAS 38.7) (AS 26.63) Indian banks section 15(1) of the B.R.Act, 1949 from the
until all government. Else, the B.R.Act, 1949 needs to be
The residual value of an intangible asset The residual value is intangibles are amended to that effect.
with a finite useful life is reviewed at estimated using prices completely
least at each financial year end/ prevailing at the date of written off.
reporting year end. (IAS 38.102) acquisition of the asset.
The residual value is not
Intangible assets may be revalued to fair subsequently increased for
value only if there is an active market. changes in price or value.
(AS 26.77)

Revaluation of intangible
assets not permitted.

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 Sub-group on addressing IFRS convergence implementation issues and formulation of operational guidelines relating to banks

Sr. Topic Issues faced by the banks Accounting as prescribed by IFRS Accounting practices Relevant RBI Impact of any Suggestions
No. adopted presently guidelines statute /
legislation

Z IAS 39:Financial Instruments - Recognition and Discussed in separate sheet

Measurement

AA IAS 40: Investment Property

AA.1 Time period of acquisition of Investment property by Section 9 of the B.R.Act, 1949 states that assets in Investment Property are disclosed under At present investment in
banks. Further, no specific head is mentioned about the nature of Investment Property can be acquired Non Current Assets the form of property is not
the disclosure requirements for Investment Property for period of 7 years and for further 5 years with the very prevalent in the Indian
under Third Schedule of the B.R.Act, 1949 special extension from the RBI Banking Scenario. Schedule
8 "Investments" under the
Third Schedule to the
B.R.Act, 1949 classifies
Investment under :
1) Government Securities
2) Other Approved
Securities
3)Shares
4)Debentures and Bonds
5)Subsidiaries and/or Joint
Ventures
6) Others (to be specified)
Schedule 8 Many Real Estate Venture Funds & Investors are
"Investments" locking in capital in Investment Properties where
under the Third they are getting Rental Returns of 9 % to 12 % p.a
Schedule to the on Investment and the possibility of Capital
Banking Appreciation. Further Real Estate Mutual Funds
Regulation Act, are on the anvil. Hence we suggest:
1949. # Suitable amendment to B.R.Act, 1949 to permit
Banks to invest in these type of Investment
Properties
# The disclosure norms in the Schedule 8 under
Third Schedule must be specific

AB IAS 41: Agriculture Not applicable to banks

AC IFRS 1: First-Time Adoption of International Financial Not addressed by Indian GAAP No specific guidance
Reporting Standards

AD IFRS 2: Share-based Payment

AD.1 Measurement and recognition Fair value or intrinsic value? Share-based employee payments should
be measured with reference to fair
value. (IFRS 2.11)
Goods or services received in a SBT are
measured at fair value.
An intrinsic value approach is permitted
only when the FV of the equity
instruments cannot be estimated
reliably.
Share-based employee - - -
payments can be accounted
for either by the fair value
method or the intrinsic
value method. However, an
entity using the intrinsic
value method is required to
make extensive fair value
disclosures. (Guidance Note
Para 10 to 39 and 48)

AD.2 Measurement of goods and services No guidance on measurement of goods Goods should be recognized when they
are obtained and services recognized
over the period that they are received.
(IFRS 2.Para 13-15)
No guidance is available in - - -
respect of the goods.
Employee services are
recognized over the period
that they are received.
(Guidance Note Para 10 to
12)

AD.3 Settlement in redeemable shares No guidnace in the Indian GAAP A Share-based transaction settled in No guidance available - - -
redeemable shares is classified as cash-
settled.
AD.4 Treatment of awards with graded vesting Option to treat as separate Share-based arrangement Awards with graded vesting are Awards with graded vesting - - -
or on straight line basis accounted for as separate Share-based may be accounted for as
payment arrangements. separate Share-based
arrangement or on a
straight-line basis over the
total service period of the
award. However, the cost
recognized at any date
must at least equal the FV
of the vested portion of the
award at that date.

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 Sub-group on addressing IFRS convergence implementation issues and formulation of operational guidelines relating to banks

Sr. Topic Issues faced by the banks Accounting as prescribed by IFRS Accounting practices Relevant RBI Impact of any Suggestions
No. adopted presently guidelines statute /
legislation
AD.5 Share based payments to non employees No guidance in the Indian GAAP Share-based payments to non-employees No guidance is available - - -
generally are measured based on the fair
value of the goods or services received.
(IFRS 2.13)

AE IFRS 3: Business Combinations Will be discussed in Phase 2

AF IFRS 4: Insurance Contracts Not applicable to banks

AG IFRS 5: Non-Current Assets Held for Sale and

Discontinued Operations
AG.1 Definition The definition as per AS-24 does not cover Operations and cash flows that can be A component that DBOD No. -
subsidiaries acquired exclusively with a view to resell clearly distinguished operationally and represents a separate major BP.BC.82/21.04.
for financial reporting and represent a line of business or 018/2003-04
separate major line of business or geographical area of Merger/ closure
geographical area of operations, or are operations and can be of branches of
subsidiaries acquired exclusively with a distinguished operationally banks by
view to resale and for financial reporting transferring the
purposes assets/ liabilities
to the other
branches of the
same bank may
not be deemed
as a
discontinuing
operation

AG.2 Discontinued operations - envisaged timescale No timescale specified in the AS/ Circular for Completed within a year with limited No timeframe specified. Circular DBOD The AS/ Circular to be amended suitably
completion exceptions Standard envisages several No.
months or longer but BP.BC.82/21.04.
emphasise on a single 018/2003-04
coordinated plan

AG.3 Measurement Measurement requirements of discontinued Lower of carrying value or fair value less Apply other relevant Circular DBOD No guidance in the Circular
operations not there in AS-24 costs to sell accounting standards, e.g. No.
by applying AS on BP.BC.82/21.04.
impairment, provisions, etc 018/2003-04

AH IFRS 6: Exploration for and Evaluation of Mineral Not applicable to banks

Resources

AI IFRS 7: Financial Instruments - Disclosures Discussed in separate sheet

AJ IFRS 8: Operating Segments

Whether to report the uniform segments as per RBI Operating segments are identified based on AS 17: Segment Reporting needs to DBOD.No.BP.BC.81/21.04.0 RBI circular needs to be suitably amended
circular or decide on operating segments based on the management reporting system which meet the revised 18/2006-07 dated April 18,
flowchart? majority of aggregation criteria and the quantitative 2007
thresholds

AK IFRIC/ SIC Will be discussed in Phase 2

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