Ifrs Gapp Infosys

MGT 515 ACCOUNTING FOR MANAGERS

TERM PAPER Neetu Singh RS1904A09

Ashish Suman RS1904A10

FINANCIAL REPORTING STANDARD (IFRS) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

Infosys technologies LTD- It was founded on July 2,1981 in Pune by NR Narayana Murthy and 6 other people .The company was incorporated as private company and went public in 1993.In its recent annual reports , Infosys technologies limited also provides its balance sheet as per the inter national financial reporting standards.

INTERNATIONAL FINANCIAL RE-PORTING STANDARD (IFRS) v IFRS are standards ,interpretations and framework adopted by the International Accounting Standards Board [IASB] which was issued between 1973 and 2001 by IASC . v In India The Institute of chartered accountants of India has announced that IFRS will be

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Generally accepted accounting principles is the term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction  GAAP includes the standards conventions and rules accountants follow In recording and summarizing transactions and in the preparation of financial statements 



Features of IFRS  IFRS

standards are principle based whereas GAAP standard are rule based. Indian standards are basically modeled on the basis of IFRS  ConvergenceIn the Accounting Standard parlance ,convergence means alignment of national requirements with the international norms  102countries have either adopted or are converging to IFRS.

Benefits of IFRS  Immediate

benefits of convergence are comparability of financial statement, portability of professional skills across countries. Easy merger & acquisition process and doing with the need to translate to different accounting norms  This will greatly bolster the ability of Indian companies to raise and attract foreign capital at low cost. 

Contd.  Once

Indian companies adopt IFRS, the global acceptability of them will be enhanced.  The adaptation of IFRS is expected to increase transparency of financial statements.  The risk of being exposed to errors in reporting under different accounting frameworks for Indian multinational companies will be eliminated.  Indian professionals trained under IFRS could be benefited immensely as they can scout for new client around the

Differences Between GAAP & IFRS

Indian

Significant difference between the Indian GAAP & IFRS. An example is accounting for amalgamations and mergers. Indian GAAP is very liberal, in this respect where as IFRS is rather stringent.  As per Indian GAAP, while accounting for amalga-mations, goodwill on acquisition has to be amortized over fives years or so. That, is whether or not the goodwill is impaired, the company will have to charge it as expenditure in the financial statement affecting its profitability. However IFRS provides for retaking the 

Cont.  According

to Indian GAAP current investment are required to be valued at lower cost and fair values. Thus, if the fair value of an investment is lower than the cost, the loss is recognized but the gain is ignored. However IFRS requires firms to reckon both gains and losses for arriving at the profit. It means for investment held for trading, both the losses and gains as the case may be ,would have to reflect in the profit and loss.

Cont.  In



India, fixed assets are valued at the price they were bought (historical cost) after allowing for depreciation. But this historical cost does not reflect the current fair market value of assets. Once IFRS is implemented, such anomalies will be removed.

Cont.  In

India, fixed assets are valued at the price they were bought (historical cost) after allowing for depreciation. But this historical cost does not reflect the current fair market value of assets. Once IFRS is implemented, such anomalies will be removed.  Some other areas of major differences are preparation of consolidated financial statements and exposures of firms to forward contracts on foreign currency transaction

Infosys Balance Sheet as per Indian GAAP in crores Rs

31.03.05

Sources of fund: Sh.holder’s fund Capital 135 Res. & surplus 5090 Total Sh.holder 5225 fund Other 94 L.T.Liability & C.Liabilities Prov. Liabilities 656 Provisions 777 Total C.L. & Prov. 1433 Total sources of 6752 fund

31.03.06

Absolute inc./dec.

% change

138 6828 6966 68

3 1738 1741 -26

+2.22 +34.14 +33.32 -27.65

934 1412 2346 9380

278 635 913 2628

+42.37 +81.72 +63.71 +38.92

Application of fund: Fixed Assets Net Gross Block Capital work in progress Investments Deferred Tax Assets

1256 318

1655 571

399 253

+31.76 +79.55

1211 45

755 65

-456 20

-28.97 +44.44

1608 3429

286 1853

+21.63 +117.57

1297 3988 7034

273 1500 1715

+26.66 +60.28 +32.24

C.A.,loans & Adv. S. Debtors 1322 Cash & Bank balance 1576 Loans & Advances 1024 Total C.Assets 2488 Total Application of 5319 fund

Interpretations In current Assets total increase amounts to 1500 cores (60.28%). The increase in cash was the most i.e. Rs.1853 cores(117.57%)  Current Liabilities increases up to Rs 913 cores(63.71%).This increase is greater than increase in current asset that means in 0506 the liquidity of Infosys has decreased.  During the yr. 05-06 reserves & surplus have increased by Rs 1738 cores(34.14%). The Sh. Holder fund have increased by Rs 1741 cores (33.32%) which represent the financial soundness of the business.  During the year the investment has been decreased & is used to pay off its other long term liability. 

Infosys Balance sheet Based On IFRS in million dollars

31.03.05

Assets: Current Assets Cash & cash equivalents 410 Investment in liquid 278 mutual fund unit Trade account 303 receivable Unbilled revenue 32 Other C.A. &prepaid 35 exp. C.A. Total 1058 Property, Plant & 352 equipments Goodwill 8 Deferred tax asset 10 Advance Income Tax _ Other assets 26 Total Assets 1454

31.03.06 Absolute change 889 479 170 -108

%change

361 48 40 1508 491 8 14 18 27 2066

19.14% 50% 14.2% 42.5% 39.4% 0% 40% _ 3.8% 42%

58 16 5 450 139 0 4 18 1 612

116.8% -38.8%

Liabilities & Sh. Holder’s Current Liability equity Account Payable Income tax payable Client deposits Unearned revenue Other accrued liabilities Total current liabilities Non-current liability Preferred stock of subsidiary Other non-current liability Stock holder’s equity Equity shares Additional paid in capital Accumulated other compare income Retained earning Minority interest Total Liability

1 23 7 20 124 175

3 _ 2 44 160 209

2 -23 -5 24 36 34

200% -100% -71.4% 120% 29% 19.4%

21 5

_ 5

-21 0

-100% 0%

31 279 33 910 _ 1454

31 428 9 1369 15 2066

0 149 -24 459 15 612

0% 53.4% -72.7% 50.4% _ 42%

Currency rate A/c to Indian GAAP  Deferred tax asset= Rs 65 cores  A/c to IFRS  Deferred tax asset= 14 million $  Comparing both, we get  1$=650000000/14000000  =Rs 46.42  Thus currency rate is 1 US $ = Rs 46.42 

Comparison between both B/S  Indian

GAAP has followed the Accounting standard of India (AS1) while IFRS has followed International Accounting Standards (IAS1).  A/c to IFRS total CA has increased up to 42.5 % while a/c to Indian GAAP the increase in CA is up to 61.49%.  IFRS has made differentiation regarding CA, non CA, liabilities & non liabilities however its not in Indian GAAP.

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