1. Learning Unit 2: GAAP and IFRS
Group 1:
Anu Maharjan (#16119)
Bina Rana Magar (#16126)
Nikhil N. Shakya (#16130)
Pratibha Shrestha (#16136)
Sami Shakya (#16131)
Sujan Neupane (#16124)

2. What is accounting???
It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information
Language of business
Means of communication

3. GAAP
GAAP is simply the universally accepted guidelines used by the accountants more precisely to measure process and communicate the financial information to various stakeholders.
These principles are established by the International Financial Accounting Standard Board (IFASB).

4. Composition of GAAP Accounting concepts Accounting principles
Business entity concept
Money measurement concept
Going concern concept
Accounting period concept
Accounting principles
Cost principle
Revenue principle
Matching principle
Full disclosure principle
Accounting conventions
Materiality
Consistency
Conservatism
Cost-benefit analysis
Industry practices

5. IFRS International Financial Reporting Standards

6. IFRS ? Units 50km/l Mileage 45km/l 140km/hr Speed 160km/hr
50km/l Mileage m/gallon
140km/hr Speed m/hr
HONDA ACTIVE VS TVS JUPITER
Units

7. IFRS
Set of accounting standards that MUST be followed by the accountants
Previously known as International Accounting Standards (IAS)
Developed by International Accounting Standard Board (IASB)
IFRS is a global language
Governs how the accounting system works
Understandability and making comparisons easier.
The standards are made on clearly articulated principles
Makes financial reporting considerable easier
The Growing international shareholding and global trade has led to the need of such standards.

8. CREDIT & INVESTMENT OPPORTUNITY
UNDERSTAND
COMPARE
CREDIT & INVESTMENT OPPORTUNITY
TRANPARENCY
CREDIBILITY

9. IFRS 10 Consolidated Financial Statements
IAS 1Presentation of Financial Statement
IAS 4 Depreciation Accounting
IFRS 11 Joint Arrangements
IAS 7 Statement of Cash Flows
IFRS 13 Fair Value Measurement
IAS 12 Income Taxes
IFRS 14 Regulatory Deferral Accounts
IAS 19 Employee Benefits 
IFRS 16 Leases
IFRS 1 First-time Adoption of International Financial Reporting Standards
IFRS 2 Share-based Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments
IFRS 9 Financial Instruments

10. IAS 29 Financial Reporting in Hyperinflationary Economies
 Zimbabwe's peak month of inflation is estimated at 79.6 billion percent in mid-November 2008
2008 Mid-Nov.79,600,000,000%
US$1= Z$2,621,984,228.
By no currency printing

11. History
International Accounting Standard were issued by International Accounting Standards Committee (IASC)
Replaced by International Accounting Standards Board (IASB) in1st April, 2001
In 2002, the IAS was implemented in countries European Union
By 2005, more than 70 countries were using it
Now more than 100 countries uses the completed IFRS or synchronized form

12. Regulatory Bodies Trustee The Board Standing Advisory Council(SAC)
The IFRS Interpretations Committee is the interpretative body of the IASB. The mandate of the Interpretations Committee is to review on a timely basis implementation issues that have arisen within the context of current IFRS and to provide authoritative guidance (IFRIC Interpretations) on those issues. Interpretation Committee meetings are open to the public and webcast. In developing interpretations, the Interpretations Committee works closely with similar national committees and follows a transparent, thorough and open due process.
IFRIC (International Financial Reporting Interpretation Committee)

13. Conceptual Framework
Conceptual Framework sets out agreed concepts that underlie financial reporting
Deals with :
Objectives
Underlying Assumptions
Qualitative characteristics
Elements
Recognition
Presentation and disclosure

14. Objectives To provide financial information
To provide information about the cash flows
To disclose the obligation and economic resources of an entity

15. Underlying Assumptions
Accrual Basis
Revenue recognition
Revenue is earned
Revenue is realized or realizable
Expenses recognition
Going concern basis

16. Qualitative Characteristics
Understandability
Relevance
Faithful representation
Comparability

17. Elements relating to financial position
Assets
Liabilities
Equity
Elements relating to financial performance
Income
Expenses

18. Recognition and Measurement concepts
An item that meets the definition of an element should be recognized in the financial statement, if:
Any future economic benefit associated with the item will from or to the entity
The item has a cost or value that can be measured with reliability

19. Presentation and disclosure
Presentation: Prescribed form of disclosure of financial information
Disclosure: process of presenting relevant financial information about the entity to users

21. Key Differences Between IFRS and GAAP
BASIS
IFRS
US GAAP
1.Base
2.Assumptions
3. Method
4. Terminology difference
Principle based
Accrual
Going concern
Single-step method for impairment write-downs
Turnover-
Profit
Profit before tax
Share capital 11
Rule based
Economic entity
Periodicity
Monetary unit
Two step method is used
Revenue
net income
pretax income
common stock

22. CONTD.. IFRS US.GAAP 5. Cash flow Direct cash flow method
Indirect cash flow method
6. Inventory costing
FIFO is used
LIFO is used

23. Considerations before adopting IFRS
Benefits
Generally accepted on a global basis
Best way to account for and report a transactions
Focus on investors
Lower cost of capital to companies and higher share prices
Allows comparability
Improved consistency and transparency of financial reporting

24. Challenges for adopting IFRS
Legal
Economic
Accounting education
Transparency and fraud
Lack of technical skills

25. Adoption of IFRS and Convergence with IFRS.
Convergence means that the U.S. Financial Accounting Standards Board (FASB) and the IASB would continue working together to develop high quality, compatible accounting standards over time.
Adoption would mean that the SEC sets a specific time table when publicly listed companies would be required to use IFRS as issued by the IASB.
Convergence will make adoption easier and less costly .
Convergence is good, adoption is necessary to be truly able to harvest the benefits of the change.

26. NAS & NFRS

27. Nepal Accounting Standards (NASs)
Introduction:-
Written policy documents issued by expert accounting body or other regulatory body
Cover the aspects of recognition, measurement, presentation and disclosure of accounting transactions in the financial statements
Nepal has Issued its own NAS in 2001 A.D. to localize them properly
NASs are the standards issued by Accounting Standards Board (ASB) in Nepal. 
In Nepal, there are 27 issued Nepalese accounting standards.
FS are prepared in every organization to summarise the end results of all the business activities by an enterprise during an accounting period in monetary terms. These business activities vary from one enterprise to other. To compare the F.S. of various reporting…. It is a principal that guides and standardizes accounting practices. In case of Nepal, even though Nepal has accepted IFRS and IAS.....

28. Objective of NAS:-
To harmonize the diverse accounting policies and practices
To promote transparency in accounting
To ensure the adequacy and reliability of the accounts
To facilitate comparison of financial statements
To bring uniformity in accounting as a need of world trade
To assess the Enterprise performance
To improve the quality of financial reporting
It removes differences and Variations in the treatment of several accounting aspects…..Similarly, It brings Standardization in the Prepn of F.S. or information.
NAS provides reliable, understandable and comparable information to all users of financial statement i.e. investors, customers, employees, shareholders, lenders etc.

29. NAS Formulation Process:-
IFRS is the source for NAS
Technical Committee to Prepare Drafts
First Reading in Board
Second Reading in the Board
Numbering Of Exposure Drafts
 Public Discussion on Exposure Drafts
 Issuance of Standards
 Request for Compliance
Language of the Standards

30. List of Nepal Accounting Standards (NAS):-
NAS 1: Presentation of Financial Statements
NAS 26: Accounting & Reporting by Retirement Benefit Plans
NAS 2: Inventories
NAS 27: Consolidated & Separate Financial State.
NAS 7: Statement of Cash Flows
NAS 8: Accounting Policies, Changes in Accounting Estimates and Error
NAS 28: Investments in Associates
NAS 32: Financial Instruments: Presentation
NAS10: Events after the Reporting Period
NAS 33: Earnings Per Share
NAS 11: Construction Contracts
NAS 34: Interim Financial Reporting
NAS 12:  Income Taxes
NAS 16: Property, Plant & Equipment
NAS 36: Impairment of Assets
NAS 17: Leases
NAS 37: Provisions, Contingent Liabilities & Contingent Assets
NAS 18: Revenue
NAS 38: Intangible Assets
NAS 19: Employee Benefits
NAS 39: Financial Instruments: Recognition & Measurements
NAS 20: Accounting for Government Grants and Disclosure of Government Assistance
NAS 21: The Effects of Changes in Foreign Exchange Rates
NAS 40: Investment Property
NAS 41: Agriculture
NAS 23: Borrowing Cost
NAS 24: Related Party Disclosures
As you can see, these are the list of 27 issued NAS from NAS-1 Presentation of Financial Statements to NAS-41 Agriculture. These are standard serial number.

31. Accounting Standards Board:-
Established in March 2003 by virtue of the Institution of Chartered Accountants of Nepal (ICAN) Act 1997
ASB is primarily responsible for setting Accounting and Financial Reporting Standards for entities in line with the International Financial Reporting Standards (IFRSs)
ASB consists of 13 members
Members of Board are appointed by the Government of Nepal (GoN) from Accounting Professional, Regulatory Bodies and GoN agencies
Implementation and Monitoring of NAS are done by ICAN
ASB is an independent statutory body responsible for setting accounting standards for the preparation and presentation of financial statements in Nepal.

33. Conclusion….
Standards have facilitated uniformity, transparency, reliability and compressions in the books of accounts and its presentation
The main problem lies in the lack of qualified and competent man power rather than the problems or inadequacy of standards
Accounting Standards can be improvised with the implementation of IFRS from which corporate and foreign investment will benefit
Although it is said to have systematic integration, there is poor integration and coordination among stakeholders
Lack of ethical and moral values in the Nepalese Accounting Professionals

34. NFRS (Nepal Financial Reporting Standards)
They are Accounting standards developed by Accounting Standards Board (ASB)
They comprise of :
a. Nepal Financial Reporting Standards;
b. Nepal Accounting Standards;
c. IFRIC Interpretations issued by the International Accounting Standards Board (IASB);
d. Application Guidance and SIC interpretations issued by IASB
The March,2003 amendment to ICAN Act,1997 requires that NASB develop NFRS for business enterprises in line with IFRS . It was only in 2013 that NASB formally issued NFRS .Earlier it has issued NAS.
Implementation date:
In Ashadh 2067, the ICAN has announced that IFRS shall be effective from following fiscal years:
2068/69 Listed Companies
2069/70 Public Companies
2070/ All Companies

35. List of NFRS issued :
1 NFRS 1 : First Time Adoption of Nepal Financial Reporting Standards
2 NFRS 2: Share-based payment
3 NFRS 3: Business Combination
4 NFRS 4: Insurance Contracts
5 NFRS 5 : Non-Current Assets Held for Sale & Discontinued Operation
6 NFRS 6 : Exploration for and Evaluation of Mineral Resource
7 NFRS 7: Financial Instruments: Disclosures
8 NFRS 8 : Operation Segments
9 NFRS 9: Financial Instrument
10 NFRS 10 : Consolidated Financial Statements
11 NFRS 11: Joint Arrangements
12 NFRS 12 : Disclosure of Interest in Other Entities
13 NFRS 13 : Fair Value Measurement

36. Development of NFRS:
Identification and review of issues to be considered
Exchange of views with national regulators
Consultation with ASB members and Advisory grounds
Publishing exposure draft and letting it for public comments
Final draft of standards (approval of at least 7 members of ASB essential)

37. Contd…
once NFRS is approved by ASB , they are sent to ICAN for pronouncements
However,
Preface to NFRS states that: “when IASB revises , amends or withdraw IAS , IFRS , or such other standards ,such revision , amendment , withdrawal shall accordingly be treated as effective with immediate revision ,amendment and withdrawal in NFRS by ASB as well as to extent not in conflict with existing National laws.”

38. Status of IFRS implementation in Nepal
Beneficiaries of convergence with IFRS:
Economy: through growth of international business
Investors: financial statements prepared using common sets of Accounting Standards helps to understand ,compare and take decision for global investors
Industry: increase in capital from foreign market if it can create confidence in mind of foreign investors that their financial statements comply with global standards
Accounting Professionals: to sell their services as experts in different parts of the world( pertaininig to the flourishing globalization).

39. Besides all these advantages ,full implementation of NFRS is still difficult in our context due to following reasons :-
Awareness among users of Financial statements :
The promoters , investors , and other stakeholders are still not aware of IFRS in Nepal so its difficult to implement NFRS
Trainings :
Its big challenge to train nearly about 7800 professional accountants(including Registered Auditors) in short period of time
Amendments in laws :
Though these standards are not above law but they have effect on different acts in addition to Company law viz : Income tax Act , Insurance Act , BAFIA Act , etc
Effective mechanism:
In Nepal till now there is no effective mechanism enforcing implementation of IFRS for examples,
The Regulatory agents like Security Board , Registrars Office don’t review financial documents or their adherence with reporting framework
They also don’t insist on IFRS implementation

40. Conclusion…
GAAP is the common law that is adopted to make the accounting easier
IFRS is an international GAAP aimed at bridging the gap among various accounting languages.
The use of single set of high quality standard by companies all over the world improves comparability and transparency of financial statements
Following the same pace, NASB has developed NFRS in line with IFRS retaining already issued NASs i.e convergence with IFRS.
NFRS is still in its implementation stage and overcoming challenges hopefully it will meet up the standard of IFRS as is expected.

41. THANK YOU!!!