1. IFRS Transition – Our Current and New Framework August 07, 2009 IBA Workshop ‘IFRS – The Way Ahead’ Presented by CA Vidhyadhar Kulkarni UBS AG, Mumbai Branch (This presentation was produced solely by CA Vidhyadhar Kulkarni. The opinions expressed herein do not necessarily reflect the views and opinions of UBS. UBS accepts no responsibility for the accuracy, reliability or completeness of the information and will not be liable either directly or indirectly for any loss or damage arising out of the use of this presentation or part thereof)

2. 1 Agenda SECTION 1 Indian GAAP -Current Framework SECTION 2 International Framework (IFRS)-Background & New Era SECTION 3 IFRS Convergence Approach SECTION 4 The Task Ahead- How well are we prepared? Overall objective of this session is to summarize the background of Indian accounting standards and financial reporting framework–current one and the proposed one

3. 2 Current Framework for banks – Who are the key authorities here ? Professional & Technical Expert Bodies Legal and Regulatory Authorities ICAI (Council and Accounting Standard Board)  ASB was formed in 1977 and has been issuing accounting standards (AS’s) since then  AS’s received ‘Legal’ recognition in 1999 when section 211(3C) of Companies Act 1956 was amended to this effect MCA (Ministry of Corporate Affairs)  Notifies or prescribes accounting standards/practices to be followed by the companies – the standards notified are basically AS’s recommended by ICAI and NACAS RBI (Reserve Bank of India)  Being a Banking sector Regulator, RBI issues Circulars, Guidelines on specific topics/accounting matters affecting banks SEBI (Securities & Exchange Board of India)  Being regulator of securities market, SEBI can issue circulars/notification on accounting matters for listed entities NACAS (National Advisory Committee on Accounting Standards)  Constituted in 1999 u/s 210A of Co. Act 1956  It’s Role is to ‘Advise’ Central Govt. on formulation of and laying down of AS’s for companies or a class of companies  Effectively, it reviews and clears AS’s of ICAI for notification by MCA under Co. Act 1956 RBI and SEBI have a representation on both the above bodies  Overall there is a well balanced framework to take care of all stakeholders.  Indian AS’s have generally been in line with IFRS principles or concepts, definitely so in case of recent standards.

4. 3 International Framework – Background and New Era Who issues the international standards ?  International standards are issued by the International Accounting Standards Board (IASB) of ‘IASC Foundation’.  IASC Foundation refers to ‘International Accounting Standards Committee Foundation’ which is a ‘not-for- profit’ corporation incorporated in USA but primarily operates from London, UK. What is the genesis of the international standards?  Recognizing the need for international harmonization of accounting standards, way back in 1973, professional accountancy bodies of leading economies such as UK, USA, Japan, Germany, Canada, Australia etc. established an international body called ‘International Accounting Standards Committee (IASC)’.  Accounting standards were issued by Board of IASC and were titled as ‘International Accounting Standards (IAS)’. Dawn of New Era – Year 2001  However, there was emergence of country level accounting standards called National GAAPs (generally accepted accounting principles) e.g. UK GAAP, US GAAP, Indian GAAP and so on. Over a period of time, there were many gaps between these country level GAAPs.  As a result, around the year 2000, the international fraternity of Accountants did a thorough introspection and decided to revise the whole international framework as follows:  IASC Foundation was established.  Standards setting body was renamed as ‘International Accounting Standards Board (IASB)’.  Title of new standards issued was changed to ‘International Financial Reporting Standards (IFRS)’. Note :there are certain standards with title ‘IAS’ still valid, of course there are revisions/refinements in those.

5. 4 International Framework – Background and New Era What does the term ‘IFRS’ denote ? Strictly speaking, the term ‘IFRS’ denotes the following pronouncements under International GAAP:  International Financial Reporting Standards (IFRS)  International Accounting Standards (IAS) those which are still valid  Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the Standing Interpretation Committee (SIC). However, in practice IFRS is interchangeably used to denote individual accounting standards as well as International GAAP collectively. 21 st century has ushered in a Golden Era for IFRS. The notable events are: A) Adoption of IFRS by EU for listed companies from 1 st January 2005 B)China adopting accounting standards substantially in line with IFRS in 2006 C)US SEC removing reconciliation requirement for non-US companies in 2007 D)Brazil, Canada, India, Japan establishing IFRS convergence timelines in 2007

6. 5 International Framework – Governance overview ? Monitoring Board Trustees IASB (International Accounting Standards Board)  It’s membership comprises EU, IOSCO’s Technical Committee & Emerging Markets Committee, US SEC, Japanese Financial Services Agency and as an observer Chairman of Basel Committee on Banking Supervision (BCBS)  A formal link ( via MOU) b/w Trustees and the above Public Authorities  Responsible for giving strategic direction to and raising funds for IASCF. Also, responsible for appointing members of the IASB, IFRIC and SAC  Total 22 Trustees representing various regions of the world, current mandate is to have SIX members each from Asia/Oceanic, Europe, North America regions and balance FOUR from any area. (Mr. Mohandas Pai, Director, Infosys Technologies Ltd is a Trustee member)  IASB is solely responsible for setting accounting standards and developing and pursuing the ‘Technical’ agenda  Again, to have good international representation, there are mandatory number of members required from various regions of the world IFRIC (International Financial Reporting Standards Interpretation Committee)  It’s role is to interpret application of IASs/IFRSs and provide timely guidance on financial reporting issues SAC (Standards Advisory Council)  Advise IASB on technical agenda and priorities; communicate views of various organizations/individuals. (Mr. Shailesh Haribhakti, Managing Partner & CEO of M/s Haribhakti & co. is a member)

7. 6 IFRS Convergence Timeline and its Approach in India  In toto-adoption (‘Auto Mode’) i.e. simply start using IFRSs from a selected date and depend entirely on IASB for formulating standards  Carve out approach i.e. review IFRSs issued by IASB, carve out sections not required and endorse rest of the IFRSs for local use (approach followed by European Union)  Local equivalents approach i.e. develop & roll out IFRS equivalent Local Accounting Standards (Approach followed some countries e.g. Australia) India‘s accounting standard setters and the Central Government have selected ‘IFRS’ as our new framework and announced the adoption date as 1 st April 2011. What are the adoption approaches available? Approach chosen by us ? Option (3) above. It is stated that local accounting standard setters will bear in mind that the above approach ensures ‘unreserved’ statement of compliance with IFRSs.

8. 7 The task ahead – how well are we prepared?  There are many Indian standards which have major differences with IFRSs. The key ones are:  AS 1 (IAS 1) – Disclosure of accounting policies, AS 10 (IAS 16 ) – Accounting for fixed assets  AS 22 (IAS 12) – Accounting for taxes on income, AS 17 (IFRS 8) – Segment reporting  AS 9 (IAS 18)- Revenue recognition, AS 11 (IAS 21- The effects of changes in foreign exchange rates, AS 14 (IFRS 3) – Accounting for amalgamations, AS 19 (IAS 17) – Leases, AS 15 (IAS 19) – Employee Benefits, AS 28 (IAS 36) – Impairment of assets  There are few IFRSs where either Indian standards are under preparation or have not yet come into force. These include a few critical ones relating to financial instruments AS 30 (IAS 39), AS 31 (IAS 32), AS 32 (IFRS 7) & AS xx (IAS 40) – Investment properties  Framework for the preparation and presentation of financial statements needs alignment with IFRS We have a ‘Marathon’ ahead Accounting Standards Setters – ICAI, NACAS Legal and Regulatory Framework  Major alignments required in the legal and regulatory framework  Banking Regulations Act 1949 & RBI circulars  Companies Act 1956 Industry - Preparers and Users of F/S  Need a focussed approach and sensitization at all levels of the organization  However, in the corporate world, some signs of ‘Enthusiasm and Leadership’ visible by early adoption of standards on financial instruments viz. AS 30/31 (e.g. Infosys, )

9. 8 The task ahead –what is required to win the Marathon? Teamwork & Partnership required within each bank and among all external stakeholders IFRS Convergence is not just a ‘Finance/Accounting’ issue but ‘Entity wide’ issue and also it is a ‘Country Wide’ issue.