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Comparison of IFRS and Indian Accounting Standards

admin — Tue, 23 Mar 2010 07:08:43 +0000

IFRS is a novel way of looking at accounting. IFRS is a “principle-based” standards rather than “rule-based” standard which are currently followed.

Under IFRS there is need to apply professional judgment consistent with intent and spirit of standards.

Various countries have adapted to IFRS in different ways, often embedding local cultures and that is why there are no standard rules; only broad principles which define the outer boundary of accounting.

IFRS questions valuation of fixed assets on historical cost basis, questions application of uniform rates of depreciation on all components of a fixed asset as also the amortization of intangible assets such as goodwill or patents.

In IFRS off-balance sheet transactions had been made as part of accounts; it brings a whole new meaning to the reported numbers.

It defines control of entities not through percentage of holdings but by the decision-making power inherent in the parent company.

Top management has, thus, to work out new targets of earnings depending on the direction of impact caused by the new accounting principles.

Earnings will no more be a steady figure that can be easily targeted depending as it is not just on sales and expenses but also changes in asset values and the ability to measure those correctly.

To be adequately prepared for IFRS, senior management has to also shape up by analyzing which management models and strategies will work best for their organizations facing a huge level of turbulence.

Financial statement will include:
• Consolidated Income Statement
• Consolidated Statement of other comprehensive income
• Consolidated Balance sheet
• Consolidated statement of changes in equity
• Consolidated cash flow statement

Comprehensive Income includes the following:
• Profit/Loss for the year from Continuing Operations
• Profit/Loss for the year from Discontinuing Operations
• Other Comprehensive income
- Exchange differences in translating foreign operations
- Gain/Loss on fair value changes in AFS financial instruments, Cash Flow hedges
- Actuarial Gain/Loss on Defined benefit pension plans
- Share of other comprehensive income of Associates
- Income tax relating to items of other comprehensive income
• Total Comprehensive Income for the year

In Indian GAAP the Balance Sheet format is to start with Liabilities. Within the liabilities, the Capital is shown first. After the Liabilities, the Asset is shown.

Under IFRS the treatment is reverse as given below:
• First Assets in the order of liquidity.
• Next is Liability and to start with all the borrowings are taken first.
• Last item will be Equity Capital, which is the net worth of the entities.

Author : CA Shalini Tibe

Delay in defining roadmap of IFRS for banking industry in India

admin — Wed, 03 Mar 2010 12:03:33 +0000

Banking system in India is so far accustomed to rule based approach and hence for any implementation, Banks look to the regulator for guidelines i.e. RBI.

In case of Basel II implementation, the National Supervisor i.e. RBI is provided with power to modify the guidelines to suit the country condition. The Objective of Basel seems to be first to achieve robust banking practices and then to have uniformity of approach.

In case of IFRS, it is doubtful whether the National Regulator has role to play.

IFRS recognizes a ‘Carve Out’ procedure for country specific issues. But this has to be approved by IASB. In reality, it is gathered that IASB is not comfortable with carved out procedures, as it will affect the standardization of systems and procedures.

One of the main concerns for banking and financial institution today is that standard on Financial Instrument IAS 39 it is under going change and will be replaced by IFRS 9 (new standard) which will be mandatory with effect from year 2013-2014. There is huge difference between IFRS 9 and IAS 39.

However early adoption is permitted for IFRS 9 but standard is expected to be ready only by December 2010. It is still under draft stage.

Standard covers at least 80-90% of balance sheet items for banking sector. So currently it’s very difficult to say in this regard because either of the standards implemented will involve huge IT cost.

Author: CA Shalini Tibe, IFRS Consultant

UAE Economy: Impact of Dubai crisis

admin — Sat, 27 Feb 2010 09:09:48 +0000

Introduction
In 2009, the U.A.E. witnessed a significant slowdown in growth and strains in the banking system as a result of the global financial crisis, the decline in oil prices, and the continuing fallout from the bursting of the Dubai property bubble. The ramifications of the DW debt event will depend on the scope and modalities of the debt restructuring, its impact on the financial sector, and the strategy being developed by the Government of Dubai (GD) to put Dubai World (DW) and possibly other corporate entities on a viable economic and financial footing.

Improved global conditions, especially out of Asia, will fuel Dubai’s logistics and service sector. However, the correction in the over-extended property and construction sector renders the overall outlook highly uncertain. With foreign investor confidence shaken and international capital markets less accessible, Abu Dhabi’s policy of selective support to Dubai will play an important role in limiting contagion to the U.A.E. economy and the banking system.

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Key issues

The contrast between growth based on hydrocarbon resources and that based on non hydrocarbon diversification funded by maturity-mismatched leverage
The spillover effects and financial support structures in the federation
The volatility of markets in response to a lack of information disclosure and transparency
In particular, the debt announcement undermined the widely held market perception of implicit government support, including from Abu Dhabi

Relook
The authorities responded to the global financial crisis in a comprehensive and prompt manner. Also, the increased spending on strategic infrastructure projects, mainly in Abu Dhabi, to reduce the contraction in construction activity, and provided support to quasi-public entities and national banks, has done a larger good for the UAE economy as a whole.

However, recent developments in Dubai, while material, should be viewed in the wider perspective of the U.A.E. as a whole. Although the need to roll over part of Dubai’s substantial external borrowing in the post-Lehman environment has highlighted the risk embedded in the financing strategy of some Dubai entities, the U.A.E. has a net external creditor position well in excess of 100 percent of GDP, among the largest in the Fund’s membership.

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Recent Economic Developments
After the Global downturn, it hit simultaneously all of the U.A.E.’s three growth engines in 2009; Oil receipts plummeted, global trade and logistics contracted, and property development all but ground to a halt as incomes fell and property prices plunged.

Actions taken by Abu Dhabi boosted the fiscal stance via equity injections and loans. The central bank deployed bank liquidity support facilities and lowered interest rates. The federal government rolled out large scale recapitalization measures and provided AED 50 billion term funding to the banks. Finally, the GD announced a support package of $20 billion (half provided by the central bank and the other half by Abu Dhabi) to finance the needs of Dubai’s GREs, and established the Dubai Financial Support Fund (DFSF) to manage the support program.

UAE Economy (2009)

Notwithstanding the compensatory measures adopted by the authorities, overall real GDP of Dubai is estimated to have contracted by about ½ percent in 2009.
Hydrocarbon GDP declining by 6¼ percent. Crude oil production averaged only 2.4 million barrels per day in 2009 lower then a average of 2.6 million barrels per day in 2008.

Non Hydrocarbon growth, which had averaged 8 percent in the three previous years, is estimated to have slowed to about 1 percent.
Inflation declined to 1 percent in 2009, reflecting lower import prices (-10 percent in 2009) and a reduction in rents as an increased share of rental contracts got renewed at the deflated market prices and new buildings came on stream.

The external current account balance is estimated to have shifted to a deficit of 2.7 percent of GDP in 2009, the first deficit in decades.
New external borrowing, mainly by Abu Dhabi entities, helped stabilize the reserves by the end of 2009, which stood at central bank international reserves to $31 billion by year’s end.

Broad money growth slowed from 19 percent in 2008 to 10 percent in 2009. The consolidated fiscal position is estimated at a virtual balance in 2009, following a surplus of 21 percent of GDP in 2008.

Outlook for 2010 and the Medium term
The fiscal and monetary policy mix will need to show adaptability over the medium term in order to sustain a further diversification of the economy within a more uncertain environment.

Given Dubai’s share in U.A.E.’s non-oil GDP (above 50 percent) real GDP growth for the U.A.E. as a whole will be low (about ½ percent), despite the authorities’ support packages and Abu Dhabi’s investment projects that will help offset the contraction in Dubai.
Growth would recover starting in 2011 owing to higher activity in the oil and trade sectors in response to the recovery in Asia; and orderly restructuring of Dubai’s GREs.
Medium-term non hydrocarbon growth is projected to average about 4½ percent a year over the medium term, or 4 percentage points lower than before the crisis, a reflection of less activity in Dubai’s property sector and higher costs to access international capital markets.
CPI inflation is expected to reflect higher import prices and the impact of Abu Dhabi’s large investments in infrastructure.
Based on the WEO’s oil price projections, the overall fiscal position is projected to return to a surplus of about 10 percent of GDP in 2010. Over the medium term, the overall surplus will increase to about 15 percent of GDP, mainly due to a gradual increase in non-oil revenues associated with the introduction of the VAT.
In 2010, the non hydrocarbon deficit is projected to contract by about 4 percentage points, to 30 percent of NHGDP, owing mainly to a slowdown in project implementation in Abu Dhabi, and to improve over the medium term because Abu Dhabi is not expected to continue providing support to its GREs
The external current account is expected to shift to a surplus of about 7 percent of GDP in 2010, and to increase gradually in subsequent years. In the financial account, capital outflows would resume, reflecting official outward investment, but the Central Bank of the United Arab Emirates’ (CBU) gross official reserves would increase steadily.

Conclusion
The ramifications of the Dubai event are still unfolding, as it will take some time for the GD to develop a strategy to restructure its GREs. Downside risks could materialize if the Dubai debt restructuring were to generate additional uncertainty.
It is important that uncertainty be removed regarding the financial viability of DW entities, the extent of implicit government guarantees to GREs, and the insolvency regime. If uncertainties remain in these areas, ramifications could include sustained lack of market access for even stronger Dubai entities and a more permanent loss of confidence in Dubai as a reliable business location.
The Dubai authorities stressed that they were committed to working with creditors in achieving an orderly and cooperative debt restructuring. They also indicated that they were working on improving transparency and corporate governance. This was regarded as important for viable companies to maintain access to international capital markets. The scope of the corporate restructuring and the debt restructuring options were still being defined.
Restructuring would seek to ensure economic and financial viability while protecting systemically-important entities. So far the debt restructuring is limited to the announced $22 billion, but the authorities recognized that other property GREs may have to enter a similar process.
The spillover effects of the Dubai event on the GCC, the wider region, and advanced economies appear manageable. However, the event may have a lasting impact on the availability and cost of external capital as creditors likely will further discount notions of implicit guarantees in pricing quasi-sovereign and private risk.

Author name: Abhijeet Ahir, Economic Analyst, MBA Finance (SIIB)

Infosys result analysis

admin — Wed, 13 Jan 2010 11:34:16 +0000

Infosys declared its third quarter result today. The results came better than than the street expectations. The sales were around 3% above the Bloomberg consensus estimate, whereas the net profit was around 12% below, which was boosted on account of higher other income.

BSE : INFOSYS

NSE : INFOSYSTCH

Bloomberg : INFO IS Equity

CMP : Rs. 2,587.45

Sector : IT Services

View : Neutral with positive bias

RESULT HIGHLIGHTS:

The consolidated net sales for the quarter ended December 09 contracted by 1% to Rs. 5,741 cr, this was mainly on account of recovery by the North American Financial Services Sector
Its other income grew by a whopping 505% to Rs. 230 cr this was on account of a Rs 20 cr gain from forex transactions as compared to a Rs 218 cr loss in Q3 2008
Company’s net profit contracted by around 4% to a level of Rs. 1,582 cr, this is mainly on account of a strengthening of rupee on a YoY basis
Company’s operating margin remained fairly stable around 35.5% on account of increased utilizations
Company’s diluted EPS fell by around 3%, to Rs. 27.72/ share
The company plans to be aggressive on the hiring front. It plans to add 6,000 employees to its rolls in Q4. It is comfortable with utilisation between 76-80%
Its Q4 guidance is muted but has improved compared to the last quarter’s guidance and the company has also increased its full year EPS and revenue guidance both in rupee and dollar terms
The management says clients are still cautious about the business environment and budgets from the clients side has not been finalised yet

Dollar Guidance:
- FY10 consolidated revenue seen at USD 4.75-4.76 billion, YoY growth of 1.8%-2.0%.
- FY10 EPS seen at USD 2.26 a share, YoY growth of 0.4%

Rupee Guidance:
- FY10 revenues seen at Rs 22,473 cr-Rs. 22,519 cr, growth of 3.6% to 3.8%
- FY10 EPS seen at Rs 106.85-107.06, YoY growth of 2.2% to 2.4%

Author: Rahul Sonthalia, Analyst, Kredent Group

Indian Economy – Review and Analysis, November 2009

admin — Wed, 09 Dec 2009 05:11:34 +0000

First of all sorry for the delay in posting October’s monthly economic review. This is the third review in the “Economic review and analysis” series bought to you by MoneyBol every month. Hope this is useful to you.

SENSEX

After massive fall witnessed during October, equity markets paired the gains during first half of November and remained upbeat for the rest of the month. Index rose 12% from its monthly low to reach a high of 17,290. Dubai crisis led to sell off at the end of the month. MoM markets rose by 6% to close at 16,926.

10 year Benchmark G-Sec Yields

Yields were relatively quite after a hectic October. Yields rose following upbeat IIP data at the start of month but in the later part of the month finance minister’s comments about retaining fiscal stimulus and absence of any new issuance of securities by Govt kept yields under check. On a monthly basis, yields touched a high of 7.38 during the month and closed at 7.257, 4 basis points lower than last month’s close.

USDINR Exchange Rate

Rupee resumed its strengthening spree after a pause during second half of last month. First half of the month saw rupee touching a high of 45.7 gaining strength from good industrial production numbers. It closed the month at 45.51, 39 paise above last month’s close of 46.90.

Gold

Gold remained bullish throughout the month and touched its all time high of $1,227/Oz buoyed by the comments of central banks around the world to keep the interest rates steady. Gold prices for January delivery on Comex of US rose 13.3% for the month from $ 1,040/ Oz at the close of October to $ 1,181/ Oz.

Crude Oil

Crude oil prices started the month on a bullish tone to touch a high of $81.06/barrel but soon ran out of steam and remained range bound to bearish for the rest of the month. Good stock piles of USA and lack of demand contained the prices. Crude for December delivery closed at $77.28/ barrel, 28 cents more than last month’s close.

Author: Praveen Bajaj, B.Com(H), MBA (SCMHRD)

Indian Economy – Review and Analysis, October 2009

admin — Sat, 31 Oct 2009 10:41:24 +0000

Moneybol brings the economic review every month. This is the Second such review in the series. The Team of analysts at Monybol.com are committed to provide you the power of first hand research. Hope you will find it useful. Please feel free to comment your suggestions and feedback.

Monthly market round up – October’09

Equity – Sensex

Equity markets started with a slight bearish note but in the middle of the month huge selling and concerns of increasing interest rates drove the markets below 16,000 levels to close at 15,896, 7.18% down from the September close.

Exchange rate

Rupee continued its strengthening journey during initial part of the month reaching 46/USD but later with massive selling in equity markets and drawing down of funds, the same weakened and closed the month at 46.9/USD.

10 year Benchmark yields

G-Sec yields rose for this month as well touching a high of 7.47% but with SLR increase of 1%, buying surfaced in the bonds driving down yields to 7.3% at month end.

Crude Oil

Crude oil started the month on a bullish note. December future rose from $70.61 as on September end to touch the monthly high of $81.37 on Oct 21. The future closed at $76.99 on Oct 30 showing a rise of 9% during the month mainly on account of recovering prospects of US economy.

Gold Prices

Gold prices remained above the 1000 dollar mark all through the month. Gold prices increased at a stretch at the beginning of the month but thereafter corrected to close at $1040.40, up 3.2% from September.

Author: Praveen Bajaj, B.Com(H), MBA (SCMHRD)

Indian Economy – Review and Analysis, September 2009

admin — Tue, 20 Oct 2009 10:00:48 +0000

Moneybol brings the economic review every month. This is the first such review in the series. The Team of analysts at Monybol.com are committed to provide you the power of first hand research. Hope you will find it useful. Please feel free to comment your suggestions and feedback.

The month of September bought quite a lot of good news for India. Equity markets zoomed with renewed optimism and exchange rate strengthened. Among other broad based indicators, Index of Industrial Production continued its good growth. Exports and imports which were declining sharply saw a decline in the rate of de-growth and consequently trade balance improved. Monsoon and inflation are the factors which have contained the good news. Monsoon this year has been 23% below normal, forcing the country to face worse drought conditions since 1972. Crop sowing has been affected and this leads us to our second errant factor which is inflation. Food prices have already been high and owing to poor monsoons prices may inch up higher in coming months pushing inflation upwards at a higher rate. This poses crucial challenges for the Reserve Bank of India as economy is recovering from recent downturn and any interest rate moves this time should be in careful consideration of both inflation and recovery.

Share Market

Equities started September month on a bearish note but soon recovered and rose for most part of the month. Sensex closed the month at 17126 highest since June’08. Rise was 9.3% from August’09.

Government Securities

For Benchmark 6.90% 2019 bond, the month started with high yields of 7.44% but during the month buying in the G-Sec pushed yields to a low of 6.95%. Yields stood at 7.19% on the last day. Volumes also increased considerably during the month.

Gold Prices

Gold prices rose substantially during first half of the month to reach a monthly high of $1,024/Oz. Thereafter prices corrected a bit to close at $ 1, 008/Oz.

Crude Oil Prices

Crude oil remained quite volatile during the month. From last month’s close of $69.96/brl, prices rose to a monthly high of $72.47/brl and thereafter fell to $66.02/brl. Month end price was $70.61/brl

Exchange Rate – Dollar – Rupee ($-INR)

Rupee weakened on the 1st day of month to 49.13 that was the highest point for the month. Thereafter rupee strengthened continuously to close the month at 47.70, 2.1% lower than last month.

If you need information information on any particular sector, please feel free to contact us

Author: Praveen Bajaj, B.Com(H), MBA (SCMHRD)