Archieves*of*Business*Research*–*Vol.4,*No.1*
Publication*Date:!Feb.!25,!2015!
DOI:!10.14738/abr.41.1754.!!
!
Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!
Integration:!with!Special!Focus!on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
!
International*Financial*Reporting*Standards((IFRS)(for(
International*Accounting$and$Financial$Integration:$With$
special(focus(on(Wipro(Limited(of(India*
!
Dr.*Ehtesham*Husain*Abbasi*
Assistant!Professor,!Department!of!Accounting!
College!of!Business,!King!AbdulAziz!University,!Rabigh,!Kingdom!of!Saudi!Arabia,!!
!
Abstract*
There* is* a* growing* international* consensus* on* the* International* Financial*
Reporting* Standards* (IFRS)* as* acceptable* standards* for* assessment* of* the*
financial* health* of* a* company* across* the* globe.* With* the* world* becoming* a*
global* village,* companies* and* investors* who* operate* business* in* several*
countries* need* to* understand* each* nation’s* accounting* principle.* Although*
basic* accounting* principles* such* as* the* accrual* basis* and* the* goingaconcern*
assumption*are*widely*accepted,*the*application*of*these*principles*in*different*
economic*and*cultural*environments*has*led*to*significant*differences*as*to*how*
accountants*report*similar*transactions.*Local*differences*exist*in,*for*example,*
the* treatment* of* goodwill,* the* definition* of* a* group,* treatment* of* borrowing*
costs,* measurement* of* impairment,* and* the* treatment* of* deferred* taxes.* * The*
author*considered*the*Annual*reports*of*Wipro*Limited*of*India.*Where*in*the*
reconciliation* of* the* equity* as* per* IFRS* and* Indian* Generally* Accepted*
Accounting*Principles*(IGAAP)*were*reported*for*the*year*beginning*2010*and*
for* the* year* ended* 2011.* The* 2011a2012* Annual* Reports* of* Wipro* presented*
the* consolidated* financial* statement* in* both* Indian* GAAP* and* IFRS.*
Reconciliation* of* equity* as* per* IFRS* and* IGAAP* was* reported* for* the* year*
beginning*2010*and*for*the*year*ended*2011,*which*is*considered*in*this*study*
for*examination.*
!
Keywords:* * International! Financial! Reporting! Standards! (IFRS),! Indian! Generally!
Accepted! Accounting! Principles! (IGAAP),! Wipro! Limited,! International! Accounting!
Standards!Board!(IASB)!
!
INTRODUCTION*
There!is!a!growing!international!consensus!on!the!International!Financial!Reporting!Standards!
(IFRS)!as!acceptable!standards!for!assessment!of!the!financial!health!of!a!company!across!the!
globe.! With! the! world! becoming! a! global! village,! companies! and! investors! who! operate!
business!in!several!countries!need!to!understand!each!nation’s!accounting!principle.!Although!
basic! accounting! principles! such! as! the! accrual! basis! and! the! going<concern! assumption! are!
widely! accepted,! the! application! of! these! principles! in! different! economic! and! cultural!
environments! has! led! to! significant! differences! as! to! how! accountants! report! similar!
transactions.!Local!differences!exist!in,!for!example,!the!treatment!of!goodwill,!the!definition!of!
a! group,! treatment! of! borrowing! costs,! measurement! of! impairment,! and! the! treatment! of!
deferred!taxes.!!!
!
For! entities! that! are! globally! active,! these! differences! in! financial! reporting! requirements!
create! extra! complications! in! terms! of! preparing,! consolidating,! auditing,! and! interpreting!
financial! statements.! This! is! because! financial! statements! have! to! be! reconciled! before!
!
!
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
67!
Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
consolidated! financial! statements! can! be! prepared,! the! analysis! of! potential! acquirers! in! a!
foreign!country!increases!the!costs!of!the!mergers!and!acquisitions!department!because!they!
have! to! familiarize! themselves! with! a! foreign! accounting! system,! and! investors! have! to! be!
informed! about! differences! in! financial! reporting.! In! general,! the! differences! in! accounting!
treatments! create! non<optimal! information! for! users! of! financial! statements,! which! in! turn!
leads! to! less! than! optimal! allocation! of! resources.! It! has! been! said! that! accounting! is! the!
"language!of!business,"!and!though!not!all!users!need!to!create!the!language,!all!users!should!
be! able! to! "read"! the! language.! For! decades,! however,! it! has! been! difficult! to! read! and!
understand!company!performance!when!financial!information!originated!from!different!global!
locations.! Many! of! these! companies! effectively! prepared! financial! statements! under! different!
accounting! rules! and! regulations.! As! a! result,! the! different! rules! created! different! values! or!
measures!for!the!same!economic!event.![1]!
!
In! India,! the! Institute! of! Chartered! Accountants! of! India! (ICAI)! has! made! IFRS! mandatory! in!
India!for!financial!statement!from!1st!April!2011.![35]!The!rules!for!the!first<time!adoption!of!
IFRS!are!set!out!in!IFRS!1!–First!time<adoption!of!International!Financial!Reporting!Standards.!
IFRS! 1! states! that! a! company! should! use! the! same! accounting! policies! in! its! opening! balance!
sheet! and! throughout! all! periods! presented! in! its! IFRS! financial! statements.! The! standard!
requires!these!policies!to!comply!with!IFRS!effective!at!the!reporting!date!of!the!first!published!
financial!statements!under!IFRS.!IFRS!1!permits!certain!mandatory!exemptions!and!also!allows!
exemptions! from! the! application! of! certain! IFRS! in! order! to! assist! companies! with! the!
transaction!process.!According!to!an!Oracle!White!Paper!(2008)!the!International!Accounting!
Standards! Board! (IASB)! has! since! 1970! worked! to! develop! a! single! set! of! International!
Standards,!the!IFRS.!The!world’s!capital!market!ebb!and!flow!continuously,!and!participants!in!
that! market! place! must! have! access! to! financial! information! that! factually! reflects! their!
economic!performance,!is!consistent!among!companies!around!the!globe,!and!is!governed!by!a!
trusted!and!respected!authority!of!corporate!compliance.![4]!
!
Beginning!from!1st!April!2011,!Companies!listed!in!National!Stock!Exchange(Nifty!50),!Bombay!
Stock! Exchange(Sensex! 30),Companies! whose! stocks! are! listed! outside! India! and! Companies!
which!are!listed!or!not!but!which!have!their!net!worth!exceeding!INR!1000!crores!are!required!
to!carry!out!the!convergence!of!Indian!Accounting!Standard!with!IFRS.![35]!Reliable,!consistent!
and! uniform! financial! reporting! is! important! part! of! good! corporate! governance! practices!
worldwide!in!order!to!enhance!the!credibility!of!the!businesses!in!the!eyes!of!investors!to!take!
informed!investment!decisions.!In!pursuance!of!G<20!commitment!given!by!India,!the!process!
of!convergence!of!Indian!Accounting!Standards!with!IFRS!has!been!carried!out!in!Ministry!of!
Corporate! Affairs! through! wide! ranging! consultative! exercise! with! all! the! stakeholders.!
International!Financial!Reporting!Standards!(IFRS)!have!recently!emerged!as!the!numero!uno!
accounting! framework,! with! widespread! global! acceptance.! The! IASB,! a! private! sector! body,!
develops! and! approves! IFRS.! The! IASB! replaced! the! IASC! in! 2001.! The! IASC! issued! IAS! from!
1973!to!2000.!Since!then,!the!IASB!has!replaced!some!IAS!with!new!IFRS!and!has!adopted!or!
proposed!new!IFRS!on!topics!for!which!there!was!no!previous!IAS.!Through!committees,!both,!
the!IASC!and!the!IASB!have!issued!interpretations!of!standards.!
!
IFRS!refers!to!the!new!numbered!series!of!pronouncements!that!the!IASB!is!issuing,!as!distinct!
from!the!IAS!series!issued!by!its!predecessor.!More!broadly,!IFRS!refers!to!the!entire!body!of!
IASB! pronouncements,! including! standards! and! interpretations! approved! by! the! IASB,! IFRIC,!
IASC! and! SIC.! Currently,! 41! IAS! and! 9! IFRS! are! effective.! In! addition,! 11! SICs! and! 16! IFRICs!
provide! guidance! on! interpretation! issues! arising! from! IAS! and! IFRS.IFRS! is! principle! based,!
drafted!lucidly!and!is!easy!to!understand!and!apply.!!However,!the!application!of!IFRS!requires!
!
!
URL:*http://dx.doi.org/10.14738/abr.41.1754.!
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an!increased!use!of!fair!values!for!measurement!of!assets!and!liabilities.!!The!focus!of!IFRS!is!on!
getting! the! balance! sheet! right,! and! hence,! can! bring! significant! volatility! to! the! income!
Statement.!
!
OBJECTIVES*
The! prime! objective! of! the! present! work! is! to! study! impact! and! consequences! on! financial!
statement!due!to!IFRS!adoption!with!the!help!of!case!study!of!Wipro!Limited.!!
!
More!specifically,!this!article!has!the!following!objectives:!
1. To!observe!the!effects!of!voluntary!convergence!of!IFRS!on!financial!statement!of!Wipro!
Ltd,!an!IT!based!company.!!
2. To! scrutinize! the! effects! of! voluntary! convergence! of! IFRS! on! financial! ratio! of! Wipro!
Ltd.!
!
RESEARCH*METHODOLOGY*
Study*Area*
This! study! has! been! conducted! by! incorporating! the! provisions! of! IFRS! adopted! /! to! be!
adopted!by!the!Wipro!Ltd,!a!software!company!running!business!in!India.!
!
Research*Design*
This!study!is!analytical!as!well!as!descriptive!in!nature.!The!study!gives!the!comparative!details!
about!the!IFRS!and!IGAAP!for!the!purpose!of!better!understanding!and!analysis.!We!have!not!
taken!any!hypotheses!in!the!study!because!adoptions!of!IFRSs!are!in!progress!and!it!takes!time!
to!come!in!full<fledged!manner.!
!
Data*Collection*
The!study!is!based!on!secondary!data!on!selected!variables!sourced!from!the!published!annual!
reports! of! Wipro! for! the! year! ended! 31st! March! 2012.! Wipro! had! voluntarily! prepared! its!
annual!report!on!the!basis!of!Indian!GAAP!and!IFRS!for!the!year!ended!31st!March!2008!&!31st!
March!2012,!wherein!reconciliation!of!equity!based!on!Indian!GAAP!and!IFRS!is!presented!for!
the! opening! Balance! Sheet! as! at! 1st! April! 2010! and! for! Balance! Sheet! ended! 31st! March!
2011.The! main! sources! of! secondary! data! are! company‘s! manual,! annual! general! reports,!
journals,!newspapers!and!concerned!websites.!
!
Data*Analysis*
Comparative! study! and! chart! has! been! prepared! for! bird‘s! eye! view.! Since! the! data! has! been!
analyzed! and! provided! by! the! company! itself,! we! have! elaborated! the! reasons! behind! the!
differences!and!suggested!tentative!solutions!towards!better!convergence!of!IFRS.!
!
Table.1*How*IFRS*was*implemented:*Road*Map*I*
Companies other than Insurance companies, Banking companies and Non-Banking finance companies
Applied to
Applicability Not applied to
Phase I :- (i) NSE-Nifty 50 and BSE-Sensex 30 1st April,
companies
2011
(ii) Companies listed in overseas stock exchanges
(iii) Companies with net worth above INR 1000 crore
(i) Unlisted companies having a net worth
of INR 500 crore or less and whose
securities are not listed overseas
(ii)Small and medium companies (SMCs)
They can voluntarily opt to follow the
converged Accounting Standards
Phase II :-Companies whether listed or not having a net 1st April,
worth exceeding INR 500 crore but not above INR 1000 2013
crore
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
!
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Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
Phase III :- Listed companies having a net worth of INR 1st
500 crore or less
April,2014
* When the accounting year ends on a date other than 31st March, the conversion of the opening Balance Sheet will be
made in relation to the first Balance Sheet which is made on a date after 31st March.
Source: http://www.icai.org/
Table*2.*How*IFRS*was*implemented:*Road*Map*II*
Insurance companies, Banking companies and Non-Banking finance companies
Applied to
Phase
(i)All insurance companies
Date
of Not applied to
Applicability
I 1st April,2012
(i) Urban co-operative banks having net worth
≥200 crore and regional rural banks
(ii) Listed NBFCs and unlisted NBFCs, not
being part of Nifty and Sensex, with net worth
above
INR
500
crore
(iii)Unlisted NBFCs having a net worth of INR
500 crore or less.
They can voluntarily opt to foll w the
converged accounting standards
Phase
II 1st April,2013
(ii)(a) NSE-Nifty 50 or BSE- Sensex 30 NBFCs.
and NBFCs, listed or not, having a net worth
above Rs 1000 crore.
(b)Scheduled commercial banks and urban cooperative banks with net worth net worth above
INR 300 crore
Phase
III 1st April,2014
(iii)Urban co-operative banks having a net worth
in excess of INR 200 crore but not exceeding 300
crore
Source:*http://www.icai.org/*
!
After! postponing! its! implementation! once,! India! is! again! attempting! to! adopt! International!
Financial!Reporting!Standards!(IFRS).!India!originally!decided!to!implement!IFRS!from!1!April!
2011! in! a! phased! manner! but! it! was! postponed.! In! January! 2013,! the! ministry! for! corporate!
affairs!(MCA)!sought!the!opinion!of!the!Institute!of!Chartered!Accountant!of!India!(ICAI)!as!to!
when! India! could! converge! to! IFRS.! ICAI! gave! its! recommendations! in! February,! suggesting!
that! companies! with! net! worth! above! Rs! 1,000! crore! should! implement! IFRS! from! 1! April!
2015;!those!worth!Rs!500<1,000!crore!by!1!April!2016!and!all!others!by!1!April!2017.!
!
India! has! no! choice! but! to! adopt! IFRS.! More! than! 100! countries! have! already! adopted! IFRS,!
including! China,! Canada! and! Australia.! Even! US! is! now! considering! moving! from! US! GAAP! to!
IFRS.!India!is!one!of!the!few!countries!in!the!world!which!has!yet!to!adopt!IFRS!or!come!out!
with!a!clear!timeframe!for!the!same.!Many!of!India’s!peer!countries!have!also!implemented!the!
IFRS<!China!(a!couple!of!years!ago),!Brazil!(in!2008)!and!Russia!(in!2012).!Japan!is!one!of!the!
few!developed!countries!that!have!not!yet!implemented!IFRS.!The!whole!of!Europe!is!already!
in!the!IFRS!mode.!
!
Rationale*behind*adopting*IFRS*in*Indian*Accounting*scenario**
A!set!of!financial!reporting!standards!issued!by!the!International!Accounting!Standards!Board!
is!recognized!under!the!brand!name!International!Financial!Reporting!Standards!(IFRSs).!IFRS!
!
!
URL:*http://dx.doi.org/10.14738/abr.41.1754.!
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Vol.4,!Issue!1,!Feb.<2016!
is! a! trade! mark! of! the! International! Accounting! Standards! Committee! Foundation.! The! main!
objective! of! International! Financial! reporting! Standard! (IFRS)! is! to! harmonize! accounting!
between! countries! which! will! make! it! easier! to! conduct! business! internationally! and! can!
subsequently!raise!funds!in!global!capital!market.!!
!
International!Financial!Reporting!Standards!(IFRSs)!comprise!of:!!
• International!Financial!Reporting!Standards!(IFRS)—standards!issued!after!2001!!
• International!Accounting!Standards!(IAS)—standards!issued!before!2001!!
• Interpretations! originated! from! the! International! Financial! Reporting! Interpretations!
Committee!!!(IFRIC)—issued!after!2001!!
• Standing!Interpretations!Committee!(SIC)—issued!before!2001!!
• Framework!for!the!Preparation!and!Presentation!of!Financial!Statements!(1989)!!
!
Presently,! there! are! nine! IFRS,! forty! one! IASs,! eighteen! IFRIC! interpretations! and! twelve! SIC!
interpretations!(Given!in!Appendix).![35]!
!
In! general! connotation,! ‘convergence’! means! to! achieve! harmony! with! IFRS;! in! precise! term,!
convergence!can!be!considered!“to!design!and!maintain!national!accounting!standards!in!a!way!
that! financial! statements! prepared! in! accordance! with! national! accounting! standards! draw!
unreserved! statement! of! compliance! with! IFRS”.! In! this! context,! attention! is! drawn! to!
paragraph! 14! of! International! Accounting! Standard! (IAS)! 1,! Presentation! of! Financial!
Statements,! which! states! that! financial! statements! shall! not! be! described! as! complying! with!
IFRS!unless!they!comply!with!all!the!requirements!of!IFRS.!
!
Thus,!‘convergence!with!IFRSs’!means!adoption!of!IFRS.!!
!
IFRS*—*A*truly*global*accounting*standard*
The!year!2000!was!significant!for!IAS,!now!known!as!IFRS.!The!International!Organization!of!
Securities! Commission! formally! accepted! the! IAS! core! standards! as! a! basis! for! cross<border!
listing! globally.! ! In! June! 2000,! the! European! Commission! passed! a! requirement! for! all! listed!
companies! in! the! European! Union! to! prepare! their! CFS! using! IFRS! (for! financial! years!
beginning!2005).!Since!2005,!the!acceptability!of!IFRS!has!increased!tremendously.!There!are!
now! more! than! 100! countries! across! the! world! where! IFRS! is! either! required! or! permitted.!
This! figure! does! not! include! countries! such! as! India,! which! do! not! follow! IFRS! but! whose!
national!GAAP!is!inspired!by!IFRS.!!
!
The!table!below!provides!a!snapshot!of!IFRS!acceptability!globally.!
!
Table*3.*Snapshot*of*IFRS*acceptability*
Domestic listed entities
Number of
countries
IFRS required for all domestic listed companies
85
IFRS permitted for domestic listed companies
24
IFRS required for some domestic listed companies
4
IFRS not permitted for domestic listed companies
34
Total
147
Source:*http://www.icai.org/*
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
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Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
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!
Benefits*of*adopting*IFRS*for*Indian*companies*
The!decision!to!converge!with!IFRS!is!a!milestone!decision!and!is!likely!to!provide!significant!
benefits!to!Indian!corporates.!
!
Improved&access&to&international&capital&markets&
Many!Indian!entities!are!expanding!or!making!significant!acquisitions!in!the!global!arena,!for!
which!large!amounts!of!capital!is!required.!The!majority!of!stock!exchanges!require!financial!
information!prepared!under!IFRS.!Migration!to!IFRS!will!enable!Indian!entities!to!have!access!
to!international!capital!markets,!removing!the!risk!premium!that!is!added!to!those!reporting!
under!Indian!GAAP.!
!
Enable&benchmarking&with&global&peers&and&improve&brand&value&
Adoption! of! IFRS! will! enable! companies! to! gain! a! broader! and! deeper! understanding! of! the!
entity’s! relative! standing! by! looking! beyond! country! and! regional! milestones.! Further,!
adoption! of! IFRS! will! facilitate! companies! to! set! targets! and! milestones! based! on! global!
business!environment,!rather!than!merely!local!ones.!
!
Escape&multiple&reporting&
Convergence! to! IFRS,! by! all! group! entities,! will! enable! company! managements! to! view! all!
components!of!the!group!on!one!financial!reporting!platform.!This!will!eliminate!the!need!for!
multiple!reports!and!significant!adjustment!for!preparing!consolidated!financial!statements!or!
filing!financial!statements!in!different!stock!exchanges.!
!
Reflects&true&value&of&acquisitions&
In! Indian! GAAP,! business! combinations,! with! few! exceptions,! are! recorded! at! carrying! values!
rather!than!fair!values!of!net!assets!acquired.!Purchase!consideration!paid!for!intangible!assets!
not! recorded! in! the! acquirer’s! books! is! usually! not! reflected! separately! in! the! financial!
statements;!instead!the!amount!gets!added!to!goodwill.!Hence,!the!true!value!of!the!business!
combination! is! not! reflected! in! the! financial! statements.! IFRS! will! overcome! this! flaw,! as! it!
mandates!accounting!for!net!assets!taken!over!in!a!business!combination!at!fair!value.!It!also!
requires!recognition!of!intangible!assets,!even!if!they!have!not!been!recorded!in!the!acquirer’s!
financial!statements.!
!
Lower&cost&of&capital&
Migration!to!IFRS!will!lower!the!cost!of!raising!funds,!as!it!will!eliminate!the!need!for!preparing!
a!dual!set!of!financial!statements.!It!will!also!reduce!accountants’!fees,!abolish!risk!premiums!
and!will!enable!access!to!all!major!capital!markets!as!IFRS!is!globally!acceptable.!
!
New&opportunities&will&open&up&for&corporates&
Benefits! from! the! adoption! of! IFRS! will! not! be! restricted! to! Indian! corporates.! In! fact,! it! will!
open! up! a! host! of! opportunities! in! the! services! sector.! With! a! wide! pool! of! accounting!
professionals,! India! can! emerge! as! an! accounting! services! hub! for! the! global! community.! As!
IFRS! is! fair! value! focused,! it! will! provide! significant! opportunities! to! professionals! including,!
accountants,! valuers! and! actuaries,! which! in<turn,! will! boost! the! growth! prospects! for! the!
BPO/KPO!segment!in!India.!!
!
IFRS*challenges*
Financial! reporting! systems! must! be! amenable! to! change! so! that! finance! professionals! can!
respond!to!investor!and!analyst!with!confidence.!According!to!Oracle!White!Paper!(2008)!most!
!
!
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companies! are! able! to! adopt! a! new! accounting! standard,! but! a! truly! successful! transition!
depends!on!a!company’s!ability!to!provide!full!audit!trails,!variance!analysis,!and!reconciliation!
of!prior!standards!to!satisfy!internal!and!external!inquiries:!
!
Shortage&of&resources&
With!the!convergence!to!IFRS,!implementation!of!SOX,!strengthening!of!corporate!governance!
norms,! increasing! financial! regulations! and! global! economic! growth,! accountants! are! most!
sought! after! globally.! Accounting! resources! is! a! major! challenge.! India,! with! a! population! of!
more!than!1!billion,!has!only!approximately!145,000!Chartered!Accountants,!which!is!far!below!
its!requirement.!
!
Training&
If! IFRS! has! to! be! uniformly! understood! and! consistently! applied,! training! needs! of! all!
stakeholders,! including! CFOs,! auditors,! audit! committees,! teachers,! students,! analysts,!
regulators!and!tax!authorities!need!to!be!addressed.!It!is!imperative!that!IFRS!is!introduced!as!
a!full!subject!in!universities!and!in!the!Chartered!Accountancy!syllabus.!
!
Information&systems&
Financial! accounting! and! reporting! systems! must! be! able! to! produce! robust! and! consistent!
data! for! reporting! financial! information.! The! systems! must! also! be! capable! of! capturing! new!
information! for! required! disclosures,! such! as! segment! information,! fair! values! of! financial!
instruments!and!related!party!transactions.!As!financial!accounting!and!reporting!systems!are!
modified! and! strengthened! to! deliver! information! in! accordance! with! IFRS;! entities! need! to!
enhance!their!IT!security!in!order!to!minimize!the!risk!of!business!interruption,!in!particular!to!
address!the!risk!of!fraud,!cyber!terrorism!and!data!corruption.!!
!
Distributable&profits&
IFRS! is! fair! value! driven,! which! often! results! in! unrealized! gains! and! losses.! Consideration! of!
computing!distributable!profits!will!have!to!be!debated,!in!order!to!ensure!that!distribution!of!
unrealized!profits!will!not!eventually!lead!to!reduction!of!share!capital.!
!
Taxes&
IFRS!convergence!will!have!a!significant!impact!on!financial!statements!and!consequently!tax!
liabilities.! Tax! authorities! should! ensure! that! there! is! clarity! on! the! tax! treatment! of! items!
arising! from! convergence! to! IFRS.! For! example,! will! government! authorities! tax! unrealized!
gains!arising!out!of!the!accounting!required!by!the!standards!on!financial!instruments?!From!
an! entity’s! point! of! view,! a! thorough! review! of! existing! tax! planning! strategies! is! essential! to!
test! their! alignment! with! changes! created! by! IFRS.! Tax,! other! regulatory! issues! and! the! risks!
involved!will!have!to!be!considered!by!the!entities.!
!
Communication&
IFRS! may! significantly! change! reported! earnings! and! various! performance! indicators.!
Managing! market! expectations! and! educating! analysts! will! therefore! be! critical.! A! company’s!
management! must! understand! the! differences! in! the! way! the! entity’s! performance! will! be!
viewed,!both!internally!and!in!the!market!place!and!agree!on!key!messages!to!be!delivered!to!
investors! and! other! stakeholders.! Reported! profits! may! be! different! from! perceived!
commercial!performance!due!to!the!increased!use!of!fair!values,!and!the!restriction!on!existing!
practices! such! as! hedge! accounting.! Consequently,! the! indicators! for! assessing! both! business!
and!executive!performance!will!need!to!be!revisited.!
!
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
!
73!
Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
Management&compensation&and&debt&covenants&
The! amount! of! compensation! calculated! and! paid! under! performance<based! executive,! and!
employee!compensation!plans!may!be!materially!different!under!IFRS,!as!the!entity’s!financial!
results! may! be! considerably! different.! Significant! changes! to! the! plan! may! be! required! to!
reward! an! activity! that! contributes! to! an! entity’s! success,! within! the! new! regime.! Re<
negotiating!contracts!that!referenced!reported!accounting!amounts,!such!as,!bank!covenants!or!
FCCB!conversion!trigger,!may!be!required!on!convergence!to!IFRS.!
!
Firstatime*adoption*of*IFRS*
ICAI!has!announced!convergence!with!IFRS!for!accounting!periods!commencing!on!or!after!1!
April!2011.!As!per!the!Announcement,!all!listed!entities,!public!interest!entities,!such!as!banks,!
insurance! entities! and! large<sized! entities! shall! adopt! IFRS.! In! addition,! the! Ministry! of!
Corporate! Affairs! (MCA)! had! issued! a! press! release! in! which! the! Ministry! had! committed! to!
IFRS!convergence!from!1st!April!2011.!
!
Nearly! all! the! studies! highlighted! the! need! of! IFRS! and! how! to! move! from! country! specific!
accounting!standards!to!globally!!!!!!accepted!reporting!standards.!In!fact!the!above!mentioned!
studies!ignored!the!practical!aspect,!problems!which!a!company!might!face!while!converging!
from! country! specific! accounting! standards! to! IFRS.! There! is! very! limited! text! which! talked!
about!implementation!of!the!internationally!recognized!financial!reporting!standards!i.e.!IFRS.!
Therefore!our!study!is!based!on!to!gauge!the!impact!of!adoption!of!IFRS!and!the!problems!a!
company! face! at! the! time! of! conversion! period! through! case! study! of! Wipro! Limited.! Few!
studies! have! been! carried! out! in! India! with! regard! to! convergence! effect! of! IFRS! on! Indian!
companies.!
!
The*Company*overview**
Wipro! Limited! (“Wipro”! or! the! ”Parent! Company”),! together! with! its! subsidiaries! and! equity!
accounted! investees! (collectively,! “the! Company”! or! the! “Group”)! is! a! leading! India! based!
provider! of! IT! Services,! including! Business! Process! Outsourcing! (“BPO”)! services,! globally.!
Further,! Wipro! has! other! businesses! such! as! IT! Products,! Consumer! Care! and! Lighting! and!
Infrastructure!engineering.!Wipro!is!a!public!limited!company!incorporated!and!domiciled!in!
India.! The! address! of! its! registered! office! is! Wipro! Limited,! Doddakannelli,! Sarjapur! Road,!
Bangalore! <! 560! 035,! Karnataka,! India.! Wipro! has! its! primary! listing! with! Bombay! Stock!
Exchange! and! National! Stock! Exchange! in! India.! The! Company’s! American! Depository! Shares!
representing!equity!shares!are!also!listed!on!the!New!York!Stock!Exchange.!These!consolidated!
financial!statements!were!authorized!for!issue!by!Audit!Committee!on!May!31,!2010.!!
!
ANALYTICAL*RESULTS*
Impact*of*Convergence*to*IFRS*on*Financial*Statementsastudy*on*Wipro*Ltd*
Companies!have!started!the!process!of!preparing!IFRS!compliant!financial!statements!and!have!
already! adopted! the! change! in! a! timely! manner.! Few! companies! such! as! Wipro,! Infosys!
Technologies,! NIIT,! Mahindra! &! Mahindra,! Tata! Motors,! Bombay! Dyeing! and! Dr! Reddy‘s!
Laboratories!have!already!began!to!align!their!accounting!standards!to!IFRS.!
!
The! author! considered! the! Annual! report! of! Wipro! prepared! for! the! year! ended! 31st! March!
2012!where!in!the!reconciliation!of!the!equity!as!per!IFRS!and!Indian!GAAP!were!reported!for!
the!year!beginning!2010!and!for!the!year!ended!2011.!The!2011<2012!Annual!Report!of!Wipro!
presented!the!consolidated!financial!statement!in!both!Indian!GAAP!and!IFRS.!Reconciliation!of!
equity!as!per!IFRS!and!Indian!GAAP!was!reported!for!the!year!beginning!2010!and!for!the!year!
ended!2011,!which!is!considered!in!this!study!for!examination.!
!
!
URL:*http://dx.doi.org/10.14738/abr.41.1754.!
74!
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!
Vol.4,!Issue!1,!Feb.<2016!
!
Table*4:*Reconciliation*of*Profits*between*IFRS*and*Indian*GAAP*(INR*in*millions)*
Notes
Profit after tax as per
Indian GAAP
Intangible asset
amortization
Difference in
revenue recognition
norms
Stock Compensation
Expense
Others
Tax adjustments
Net Income as per
IFRS
Fiscal 2012
Fiscal 2011
46,310
38,999
A
(259)
(43)
B
26
(32)
C
15
(101)
D
(21)
(140)
45,931
(75)
13
38,761
Source:*Annual*Report*of*Wipro,*2012.*
!
Under! IFRS,! a! portion! of! the! purchase! consideration! in! a! business! acquisition! is! allocated! to!
intangible!assets!which!meets!the!criteria!for!being!recognized!as!an!asset!apart!from!goodwill.!
These! intangible! assets! are! amortized! over! their! useful! life! in! proportion! to! the! economic!
benefits! consumed! in! each! reporting! period.! The! increase! in! intangible! amortization! is!
primarily!due!to!acquisition!of!CITI!Technologies!in!fiscal!2011.!!
!
Under! IFRS,! revenue! relating! to! product! installation! services! is! recognized! when! the!
installation! services! are! performed.! Under! Indian! GAAP,! the! entire! revenue! relating! to! the!
supply! and! installation! of! products! is! recognized! when! products! are! delivered! since!
installation!services!are!considered!to!be!incidental!/!perfunctory!to!product!delivery!and!the!
cost!of!installation!services!is!also!accrued!upon!delivery!of!the!product.!!
!
Under! IFRS,! the! Company! amortizes! stock! compensation! expense! relating! to! share! options!
which! vest! in! a! graded! manner! on! an! accelerated! basis,! as! compared! to! straight<line! basis!
under!Indian!GAAP.!!
!
Also! under! IFRS,! the! stock! compensation! expense! is! recognized! net! of! expected! attrition! as!
compared!to!Indian!GAAP,!where!stock!compensation!expense!is!reversed!for!options!which!do!
not!vest!due!to!attrition!at!actual.!!
!
This!includes!difference!in!accounting!for!certain!foreign!currency!forward!contracts!and!basis!
of!interest!capitalization!under!IFRS!and!Indian!GAAP.!
!
Table*5.*Consolidated*Financial*Statement*under*IFRS*of*WIPRO*Limited,*Reconciliation*of*
Equity*as*at*April*1,*2010*
Particulars
Amount
as
per
Previous
IGAAP
Amount as
per IFRS
Effect
of
Transaction
to IFRS
%
of
Change
Relevant
Notes
for
adjustments
Goodwill
42209
42635
(426)
(1.01)
8
PPE and Intangibles
41583
41344
239
0.57
1,2
Available for
investment
14679
15247
(568)
(3.87)
3
1343
1343
0
0
Sales
Investment in equity
accounted
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
!
75!
Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
Inventories
6664
6664
0
0
Trade receivables
40453
40353
100
0.25
Unbilled revenue
8514
8514
0
0
39270
39270
0
0
Net tax assets
3632
4486
(854)
(23.51)
5
Other assets
13980
15379
(1399)
(10.01)
2(a),4,9,10,13
Total Assets
212327
215235
(2908)
(1.37)
Share capital and share
premium
28296
28296
0
0
Share application
money
pending
allotment
40
0
40
100
Retained earnings
87908
94728
(6820)
(7.76)
Cash flow
reserve
(1097)
(1097)
0
0
Other reserves
1807
3658
(1851)
(102.43)
Total Equity
116954
125585
(8631)
(7.38)
Minority Interest
116
0
116
100
Loan and Borrowings
44850
44850
0
0
Trade Payables
27873
27873
0
0
Unearned revenues
4269
4269
0
0
18265
12658
5607
30.7
95373
89650
5723
6
212327
215235
(2908)
(1.37)
Cash
and
Equivalents
cash
hedging
Other liabilities
provisions
and
Total Liabilities
Total liabilities
equity
and
4
12
3,7,11
11
6,8,10,12
Source:*Annual*Report*of*Wipro,*2010,*p170a71.*
!
Notes*
1. Under!IFRS,!the!amortization!charge!in!respect!of!finite!life!intangible!assets!is!recorded!
in! proportion! of! economic! benefits! consumed! during! the! period! to! the! expected! total!
economic!benefits!from!the!intangible!asset.!Under!Previous!GAAP,!finite!life!intangible!
assets!are!amortized!usually!on!a!straight!line!basis!over!their!useful!life.!As!a!result,!the!
accumulated!amortization!under!IFRS!is!lower!by!INR!101as!at!April!1,!2010.!
2. Listed! below! are! the! key! differences! in! property,! plant! and! equipment! between! IFRS!
and!Previous!GAAP:!
!
a. Under! IFRS,! leases! of! land! are! classified! as! operating! leases! unless! the! title! to! the!
leasehold!land!is!expected!to!be!transferred!to!the!Company!at!the!end!of!the!lease!term.!
Lease!rentals!paid!in!advance!and!lease!deposits!are!recognized!as!other!assets.!Under!
Previous!GAAP,!the!lease!rentals!paid!in!advance!and!lease!deposits!are!recognized!in!
property,!plant!and!equipment.!Under!IFRS,!INR!645!of!such!payments!towards!lease!of!
!
!
URL:*http://dx.doi.org/10.14738/abr.41.1754.!
76!
Archives!of!Business!Research!(ABR)!
!
Vol.4,!Issue!1,!Feb.<2016!
land! has! been! reclassified! from! property,! plant! and! equipment! to! other! assets.! This!
adjustment!has!no!impact!on!equity.!!
b. Difference! in! the! basis! of! interest! capitalization! between! Previous! GAAP! and! IFRS!
resulted! in! higher! interest! capitalization! by! INR! 305! under! IFRS,! net! of! related!
depreciation!impact.!!
!
3. Under!IFRS,!available!for!sale!investments!are!measured!at!fair!value!at!each!reporting!
date.!The!changes!in!fair!value!of!such!investments,!net!of!taxes,!are!recognized!directly!
in!equity.!Under!Previous!GAAP,!short<term!investments!are!measured!at!lower!of!cost!
or! fair! value.! Consequently,! carrying! value! of! the! available! for! sale! investments! under!
IFRS!is!higher!by!INR!568!(tax!effect!INR!165).!!
4. Under! IFRS,! an! entity! is! required! to! allocate! revenue! to! separately! identifiable!
components! of! a! multiple! deliverable! customer! arrangement.! The! revenue! relating! to!
these!components!are!recognized!when!the!appropriate!revenue!recognition!criteria!is!
met.! Under! IFRS,! in! respect! of! multiple! element! arrangements! comprising! delivered!
products!and!installation!services,!the!Company!defers!and!recognizes!revenue!relating!
to! installation! services! when! those! services! are! rendered.! Under! Previous! GAAP,!
installation!services!are!considered!to!be!incidental!/!perfunctory!to!product!delivery.!
Entire!revenue!is!recognized,!when!the!products!are!delivered!in!accordance!with!the!
contractual! terms,! and! expected! cost! of! installation! services! is! also! accrued.!
Consequently,!under!IFRS!the!Company!has!unearned!revenue!of!INR!100!and!reversed!
INR!78!of!cost!accrued!for!installation!services.!The!deferred!revenues!are!recognized!
when!the!related!installation!services!is!performed.!!
5. Under!IFRS,!tax!benefits!from!carry!forward!tax!losses!is!recognized!if!it!is!probable!that!
sufficient! taxable! profits! would! be! available! in! the! future! to! realize! the! tax! benefits.!
Under! Previous! GAAP,! deferred! tax! asset! in! respect! of! carry! forward! tax! losses! is!
recognized! if! it! is! virtually! certain! that! sufficient! future! taxable! income! would! be!
available! in! the! future! to! realize! the! tax! benefits.! Further,! Previous! GAAP! requires! an!
entity! to! follow! the! income! statement! approach! for! recognizing! deferred! taxes,! while!
IFRS!mandates!the!balance!sheet!approach!in!recognizing!deferred!taxes.!As!a!result,!net!
deferred!tax!assets!under!IFRS!are!higher!by!INR!854.!!
6. Under! Previous! GAAP,! a! liability! is! recognized! in! respect! of! proposed! dividend! on!
Company’s!equity!shares,!even!though!the!dividend!is!expected!to!be!approved!by!the!
shareholders! subsequent! to! the! reporting! date.! Under! IFRS,! liability! for! dividend! is!
recognized! only! when! it! is! approved! by! shareholders.! Accordingly,! provisions! under!
IFRS!are!lower!by!INR!6,842.!!
7. The! Company! grants! share! options! to! its! employees.! These! share! options! vest! in! a!
graded!manner!over!the!vesting!period.!Under!IFRS,!each!tranche!of!vesting!is!treated!
as! a! separate! award! and! the! stock! compensation! expense! relating! to! that! tranche! is!
amortized!over!the!vesting!period!of!the!underlying!tranche.!This!results!in!accelerated!
amortization! of! stock! compensation! expense! in! the! initial! years! following! the! grant! of!
share! options.! Previous! GAAP! permits! an! entity! to! recognize! the! stock! compensation!
expense,! relating! to! share! options! which! vest! in! a! graded! manner,! on! a! straight<line!
basis! over! the! requisite! vesting! period! for! the! entire! award.! However,! the! amount! of!
compensation!cost!recognized!at!any!date!must!at!least!equal!the!portion!of!the!grant<
date!value!of!the!award!that!is!vested!at!that!date.!Accordingly,!the!stock!compensation!
expense!recognized!under!IFRS!is!higher!by!INR!1,332!as!at!April!1,!2010!in!respect!of!
the!unvested!awards.!!
8. Under! IFRS,! contingent! consideration! relating! to! acquisitions! is! recognized! if! it! is!
probable! that! such! consideration! would! be! paid! and! can! be! measured! reliably.! Under!
Previous!GAAP,!contingent!consideration!is!recognized!after!the!contingency!is!resolved!
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
!
77!
Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
and! additional! consideration! becomes! payable.! As! a! result,! under! IFRS,! the! Company!
has!recognized!INR!426!of!contingent!consideration!as!additional!goodwill!and!liability.!
This!adjustment!has!no!impact!on!equity.!!
9. Under!IFRS,!loans!and!receivables!are!recognized!at!amortized!cost,!which!is!carried!at!
historical! cost! under! Previous! GAAP.! As! a! result,! the! carrying! value! of! such! loans! and!
receivables!under!IFRS!is!lower!by!INR!154.!!
10. Indian!tax!laws,!levies!Fringe!benefit!Tax!(FBT)!on!all!stock!options!exercised!on!or!after!
April! 1,! 2009.! The! Company! has! modified! share! options! plan! to! recover! FBT! from! the!
employees.! Under! IFRS! 2,! Share! based! payment,! the! FBT! paid! to! the! tax! authorities! is!
recorded!as!a!liability!over!the!period!that!the!employee!renders!services.!Recovery!of!
the! FBT! from! the! employee! is! accounted! as! a! reimbursement! right! under! IAS! 37,!
Provisions,!contingent!liabilities!and!contingent!assets,!as!it!is!virtually!certain!that!the!
Company! will! recover! the! FBT! from! the! employee.! Accordingly,! under! IFRS,! the!
Company!has!recognized!the!reimbursement!right!as!a!separate!asset,!not!to!exceed!the!
FBT! liability! recognized! at! each! reporting! period.! Under! Previous! GAAP,! FBT! liability!
and!the!related!FBT!recovery!from!the!employee!is!recorded!at!the!time!of!exercise!of!
stock!option!by!the!employee.!Accordingly,!under!IFRS!the!Company!has!recognized!INR!
766!as!other!liabilities!and!reimbursement!right!in!respect!of!outstanding!stock!options.!
This!adjustment!has!no!impact!on!equity.!
11. Under! IFRS,! minority! interest! is! reported! as! a! separate! item! within! equity,! whereas!
previous!GAAP!requires!minority!interest!to!be!presented!separately!from!equity.!
!
Table*6.*Consolidated*Financial*Statements*under*IFRS*a*WIPRO*Limited*Reconciliation*of*Equity*
as*at*March*31,*2011*
Particulars
Amount
Amount
Effect
of %
of Relevant
as
per as
per Transaction Change Notes
for
adjustments
Previous
IFRS
to IFRS
IGAAP
Goodwill
PPE
and
Intangibles
Available for Sales
investment
Investment
in
equity accounted
Inventories
Trade receivables
Unbilled revenue
Cash and
cash
Equivalents
Net tax assets
Other assets
56521
52563
56143
53287
378
(724)
0.67
(1.38)
1,10
1,2,3
16426
16293
133
0.81
4
1670
1670
0
0
7587
50370
14108
49117
7587
50123
14108
49117
0
247
0
0
0
0.49
0
0
2672
20984
272018
5759
23203
277290
(3087)
(2219)
(5272)
(115.53)
(10.57)
(1.94)
29667
0
0
0
15
100
126646
(6689)
(5.58)
Total Assets
Share capital and 29667
share premium
Share application 15
money
pending
allotment
119957
Retained earnings
5
6
3(a),5,9,13
12
!
!
URL:*http://dx.doi.org/10.14738/abr.41.1754.!
78!
Archives!of!Business!Research!(ABR)!
!
Cash
flow
hedging reserve
Other reserves
Total Equity
Minority Interest
Loan
and
Borrowings
Trade Payables
Unearned revenues
Other
liabilities
and provisions
Total liabilities
Vol.4,!Issue!1,!Feb.<2016!
(16886)
(14533)
(2353)
13.93
6
3546
136299
237
56892
5601
147381
0
56892
(2055)
(11082)
237
0
(57.95)
(8.13)
100
0
4,8,11
40191
8734
29665
40191
8734
24092
0
0
5573
0
0
18.79
135719
129909
5810
4.28
11
7,9,10,11,13
Table*6.*Consolidated*Financial*Statements*under*IFRS*a*WIPRO*Limited*
Reconciliation*of*Equity*as*at*March*31,*2011*
Source:*Annual*Report*of*Wipro,*2011.*
!
Notes*
1. Under! IFRS,! all! the! assets! and! liabilities! arising! from! a! business! combination! are!
identified! and! recorded! at! fair! value.! Accordingly,! a! portion! of! purchase! price! is!
allocated! towards! customer! related! intangible! in! respect! of! business! combination!
consummated! subsequent! to! the! Transition! date.! Under! Previous! GAAP,! assets! and!
liabilities! arising! from! a! business! combination! are! recognized! at! carrying! value! in! the!
books!of!the!acquired!entity.!Internally!generated!intangible!assets!would!not!have!been!
recognized! by! the! acquired! entity! and! therefore! customer! related! intangible! arising!
from! the! business! combination! is! not! recognized! under! Previous! GAAP.! Accordingly,!
goodwill!under!IFRS!is!lower!by!INR!1,139!(net!of!deferred!taxes)!and!intangible!assets!
are!higher!by!INR!1,535!(net!of!amortization!of!INR!91).!!
2. Under!IFRS,!the!amortization!charge!in!respect!of!finite!life!intangible!assets!is!recorded!
in! the! proportion! of! economic! benefits! consumed! during! the! period! to! the! expected!
total! economic! benefits! from! the! intangible! asset.! Under! Previous! GAAP,! finite! life!
intangible!assets!are!amortized!usually!on!a!straight!line!basis!over!their!useful!life.!As!a!
result! the! accumulated! amortization! under! IFRS! is! lower! by! INR! 149! as! at! March! 31,!
2011.!!
3. Listed! below! are! the! key! differences! in! property,! plant! and! equipment! between! IFRS!
and!Previous!GAAP:!!
!
a. Under! IFRS,! leases! of! land! are! classified! as! operating! leases! unless! the! title! to! the!
leasehold!land!is!expected!to!be!transferred!to!the!Company!at!the!end!of!the!lease!term.!
Lease!rentals!paid!in!advance!and!lease!deposits!are!recognized!as!other!assets.!Under!
Previous!GAAP,!the!lease!rentals!paid!in!advance!and!lease!deposits!are!recognized!in!
property,!plant!and!equipment.!Under!IFRS,!INR!1,293!of!such!payments!towards!lease!
of!land!has!been!reclassified!from!property,!plant!and!equipment!to!other!assets.!This!
adjustment!has!no!impact!on!equity.!!
b. Difference! in! the! basis! of! interest! capitalization! between! Previous! GAAP! and! IFRS!
resulted! in! higher! interest! capitalization! by! INR! 331! under! IFRS,! net! of! related!
depreciation!impact.!
!
4. Under!IFRS,!available!for!sale!investments!are!measured!at!fair!value!at!each!reporting!
date.!The!changes!in!fair!value!of!such!investments!net!of!taxes!are!recognized!directly!
in!equity.!Under!Previous!GAAP,!short<term!investments!are!measured!at!lower!of!cost!
or!fair!value.!Consequently,!available!for!sale!investments!under!IFRS!is!higher!by!INR!
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
!
79!
Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
5.
6.
7.
8.
9.
(tax!effect!INR!33).!Additionally,!investment!in!non<convertible!debentures!amounting!
to! INR! 250! is! classified! as! investments! under! Previous! GAAP! whereas! the! same! is!
shown!under!other!assets!in!IFRS.!This!has!no!impact!on!equity.!!
Under! IFRS,! an! entity! is! required! to! allocate! revenue! to! separately! identifiable!
components! of! a! multiple! deliverable! customer! arrangement.! The! revenue! relating! to!
these!components!are!recognized!when!the!appropriate!revenue!recognition!criteria!is!
met.! Under! IFRS,! in! respect! of! multiple! element! arrangements! comprising! delivered!
products!and!installation!services,!the!Company!defers!and!recognizes!revenue!relating!
to! installation! services! when! those! services! are! rendered.! Under! Previous! GAAP,!
installation!services!are!considered!to!be!incidental!/!perfunctory!to!product!delivery.!
Entire!revenue!is!recognized,!when!the!products!are!delivered!in!accordance!with!the!
contractual! terms,! and! expected! cost! of! installation! services! is! also! accrued.!
Consequently,!under!IFRS!the!Company!has!deferred!revenue!of!INR.!247!and!reversed!
INR.!195!of!cost!accrued!for!installation!services.!The!deferred!revenues!are!recognized!
when!the!related!installation!services!is!performed.!!
Under!IFRS,!tax!benefits!from!carry!forward!tax!losses!is!recognized!if!it!is!probable!that!
sufficient! taxable! profits! would! be! available! in! the! future! to! realize! the! tax! benefits.!
Under! Previous! GAAP,! deferred! tax! asset! in! respect! of! carry! forward! tax! losses! is!
recognized! if! it! is! virtually! certain! that! sufficient! future! taxable! income! would! be!
available! in! the! future! to! realize! the! tax! benefits.! Further,! Previous! GAAP! requires! an!
entity! to! follow! the! income! statement! approach! for! recognizing! deferred! taxes,! while!
IFRS! mandates! balance! sheet! approach! in! recognizing! deferred! taxes.! As! a! result,! net!
deferred! tax! assets! under! IFRS! are! higher! by! INR.! 3,087! (including! impact! of! foreign!
currency!translation!adjustment,!where!necessary).!!
Under! Previous! GAAP,! liability! is! recognized! in! respect! of! proposed! dividend! on!
Company’s! equity! share,! even! though! the! dividend! is! expected! to! be! approved! by! the!
shareholders! subsequent! to! the! reporting! date.! Under! IFRS,! liability! for! dividend! is!
recognized! only! when! it! is! approved! by! shareholders.! Accordingly,! provisions! under!
IFRS!are!lower!by!INR!6,856.!!
The! Company! grants! share! options! to! its! employees.! These! share! options! vest! in! a!
graded!manner!over!the!vesting!period.!Under!IFRS,!each!tranche!of!vesting!is!treated!
as!to!that!tranche!is!amortized!over!the!vesting!period!of!the!underlying!tranche.!This!
results! in! accelerated! amortization! of! stock! compensation! expense! in! the! initial! years!
following!grant!of!share!options.!Previous!GAAP!permits!an!entity!to!recognize!the!stock!
compensation! expense,! relating! to! share! options! which! vest! in! a! graded! manner,! on! a!
straight<line!basis!over!the!requisite!vesting!period!for!the!entire!award.!However,!the!
amount!of!compensation!cost!recognized!at!any!date!must!at!least!equal!the!portion!of!
the! grant<date! value! of! the! award! that! is! vested! at! that! date.! Accordingly,! the! stock!
compensation! expense! recognized! under! IFRS! is! higher! by! INR! 1,432! as! at! March! 31,!
2011,!in!respect!of!unvested!awards.!!
Indian!tax!laws!levy!Fringe!Benefit!Tax!(FBT)!on!all!stock!options!exercised!on!or!after!
April! 1,! 2009.! The! Company! has! modified! share! options! plan! to! recover! FBT! from! the!
employees.!Under!IFRS!2,!Share!based!payment;!the!FBT!paid!to!the!tax!authorities!is!
recorded!as!a!reimbursement!right!under!IAS!37,!Provisions,!contingent!liabilities!and!
contingent!assets,!as!it!virtually!certain!that!the!Company!will!recover!the!FBT!from!the!
employee.! Accordingly,! under! IFRS,! the! Company! has! recognized! the! reimbursement!
right! as! a! separate! asset,! not! to! exceed! the! FBT! liability! recognized! at! each! reporting!
period.! Under! Previous! GAAP,! FBT! liability! and! the! related! FBT! recovery! from! the!
employee! is! recorded! at! the! time! of! exercise! of! stock! option! by! the! employee.!
Accordingly,! under! IFRS,! the! Company! has! recognized! INR! 741! as! other! liabilities! and!
!
!
URL:*http://dx.doi.org/10.14738/abr.41.1754.!
80!
Archives!of!Business!Research!(ABR)!
!
Vol.4,!Issue!1,!Feb.<2016!
reimbursement! right! in! respect! of! outstanding! stock! options.! This! adjustment! has! no!
impact!on!equity.!!
10. Under! IFRS,! contingent! consideration! relating! to! acquisitions! is! recognized! if! it! is!
probable! that! such! consideration! will! be! paid! and! can! be! measured! reliably.! Under!
Previous!GAAP,!contingent!consideration!is!recognized!after!the!contingency!is!resolved!
and! additional! consideration! becomes! payable.! As! a! result,! under! IFRS,! the! Company!
has!recognized!INR!761!of!contingent!consideration!as!additional!goodwill!and!liability.!
This!adjustment!has!no!impact!on!equity.!!
11. Under! IFRS,! minority! interest! is! reported! as! a! separate! item! within! equity,! whereas!
Previous!GAAP!requires!minority!interest!to!be!presented!separately!from!equity.!This!
presentation!difference!between!IFRS!and!Previous!GAAP!has!resulted!in!an!increase!in!
equity!under!IFRS!by!INR!237!as!at!March!31,!2011.!!
12. Under!IFRS,!share!application!money!received!and!pending!allotment!is!reported!under!
other! liabilities,! whereas! Previous! GAAP! requires! share! application! money! pending!
allotment!to!be!presented!as!a!separate!item!within!equity.!This!presentation!difference!
between! IFRS! and! Previous! GAAP! has! resulted! in! a! decrease! in! equity! under! IFRS! by!
INR!15!as!at!March!31,!2011.!!
13. Difference!in!accounting!for!certain!foreign!currency!forward!contract!has!resulted!in!a!
decrease! in! other! assets! by! INR! 260! and! other! liabilities! by! INR! 236! under! IFRS! as! of!
March!31,!2011.!!
!
Evaluating!the!closing!financial!statement!of!Wipro!for!the!year!31.3.2011!it!is!observed!there!
is! 1.94%! increase! in! the! Total! assets! value! as! per! IFRS! when! compared! with! the! total! assets!
value! as! per! Indian! Accounting! standards.! There! is! increase! in! the! value! of! Net! tax! asset!
including! deferred! taxes! in! IFRS! reporting! by! 115.53%! when! compared! with! the! amount!
reported!under!Indian!Accounting!Standard.!There!is!10.57%!increase!in!other!assets!in!IFRS!
reporting!compared!to!Indian!Accounting!standards.!The!total!equity!has!increased!by!nearly!
8.13%! in! IFRS! when! compared! to! the! Indian! accounting! standards.! The! total! liability! has!
decreased!by!4.28%!in!IFRS!when!compared!to!Indian!accounting!standards.!
!
Table*7.*Reconciliation*of*Profit*for*the*Year*Ended*March*31,*2011*
Particulars
Revenues
Cost of revenues
Gross profit
Selling and
marketing
expenses
General
and
administrative
expenses
Foreign
exchange
gains/(losses), net
Results from operating
activities
Finance expense
Finance
and
other
income
Share of profits of
equity
accounted
investees
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Amount as per
Previous GAAP
INR 256,995
(179,230)
77,765
(17,853)
Effect of Transition
to IFRS
INR (104)
(985)
(1,089)
540
Amount as
IFRS
INR 256,891
(180,215)
76,676
(17,313)
(14,356)
(154)
(14,510)
(1,553)
0
(1,5553)
44,004
(704)
43,300
(3,865)
5,057
41
0
(3,824)
5,057
362
0
362
45,558
(6630
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
!
per
Relevant
Notes
for adjustments
1
1,2,5
1(c),2,3,5
2,5
81!
Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
Equity holders
Company
Minority Interest
of the
Source:*Annual*Report*of*Wipro,*2011*
!!!!!!
Notes*
The!following!are!the!primary!differences!in!revenue!between!IFRS!and!Previous!GAAP:!
!
a. Under! Previous! GAAP,! revenue! is! reported! net! of! excise! duty! charged! to! customers.!
Under! IFRS,! revenue! includes! excise! duty! charged! to! customers.! As! a! result,! revenues!
and!cost!of!revenues!under!IFRS!is!higher!by!INR!1,055.!!
b. Under! IFRS,! revenue! relating! to! product! installation! services! is! recognized! when! the!
installation!services!are!performed.!Under!Previous!GAAP,!the!entire!revenue!relating!to!
the! supply! and! installation! of! products! is! recognized! when! products! are! delivered! in!
accordance! with! the! terms! of! contract.! Installation! services! are! considered! to! be!
incidental! to! product! delivery! and! the! cost! of! installation! services! is! accrued! upon!
delivery!of!the!product.!Accordingly,!revenue!and!cost!of!revenue!under!IFRS!is!lower!
by!INR!147!and!INR!117,!respectively.!!
c. Under! IFRS,! generally! cash! payments! to! customers! pursuant! to! sales! promotional!
activities!are!considered!as!sales!discounts!and!reduced!from!revenue.!Under!Previous!
GAAP,! such! payments! are! considered! as! cost! of! revenue! and! selling! and! marketing!
expense.! As! a! result,! under! IFRS,! revenue! is! lower! by! INR! 1,011! and! cost! of! revenues!
and!selling!and!marketing!expenses!are!lower!by!INR!275!and!INR!736,!respectively.!
!
Under! IFRS,! the! Company! amortizes! stock! compensation! expense,! relating! to! share! options,!
which! vest! in! a! graded! manner,! on! an! accelerated! basis.! Under! Previous! GAAP,! the! stock!
compensation! expense! is! recorded! on! a! straight<line! basis.! As! a! result,! under! IFRS! the!
Company!has!recognized!additional!stock!compensation!expense!of!INR!40!in!cost!of!revenue,!
INR!30!in!selling!and!marketing!expenses!and!INR30!in!general!and!administrative!expenses.!!
!
Under!IFRS,!the!amortization!charge!in!respect!of!finite!life!intangible!assets!is!recorded!in!the!
proportion! of! economic! benefits! consumed! during! the! period! to! the! expected! total! economic!
benefits!from!the!intangible!asset.!Under!Previous!GAAP,!such!finite!life!intangible!assets!are!
amortized! on! a! straight<line! basis! over! the! life! of! the! asset.! Further,! the! Company! recorded!
additional! amortization! in! respect! of! customer! related! intangible! arising! out! of! business!
combination!consummated!subsequent!to!the!Transition!date.!Accordingly,!amortization!under!
IFRS!is!higher!by!INR!43.!!
!
This!includes!difference!in!accounting!for!certain!foreign!currency!forward!contracts!and!basis!
of!interest!capitalization!under!IFRS!and!Previous!GAAP.!!
!
Under! Indian! tax! laws,! the! Company! is! required! to! pay! Fringe! Benefit! Tax! (FBT)! on! certain!
expenses! incurred! by! the! Company.! Under! Previous! GAAP,! FBT! is! reported! in! the! income!
statement!as!a!separate!component!of!income!tax!expense.!Under!IFRS,!FBT!does!not!meet!the!
definition! of! income! tax! expense! and! is! recognized! in! the! related! expense! line! items.!
Accordingly,! the! cost! of! revenue,! selling! and! marketing! expenses! and! general! and!
administrative!expenses!under!IFRS!are!higher!by!INR!165,!INR!124!and!INR!124,!respectively!
and!income!tax!expense!is!correspondingly!lower.!
!
!
!
URL:*http://dx.doi.org/10.14738/abr.41.1754.!
82!
Archives!of!Business!Research!(ABR)!
!
Vol.4,!Issue!1,!Feb.<2016!
Impact*of*Convergence*to*IFRS*on*Financial*Ratios**
Researcher!have!examined!five!ratios!that!depends!on!financial!statements!for!the!year!as!at!
March!31,!2011!
!
1. Return!on!Equity!defined!as!net!income!divided!by!book!value!of!equity;!!
2. Return!on!Assets,!defined!as!net!income!divided!by!total!assets;!!
3. Total!Asset!Turnover,!defined!as!sales!revenue!divided!by!total!assets;!!
4. Leverage,!defined!as!total!liabilities!divided!by!book!value!of!equity!!
5. Net!Profit!ratio!defined!as!Net!income!divided!by!sales!revenue.!
!
Table*7:*Financial*Ratios*for*the*year*ended*31st*March*2011*of*WIPRO*Ltd.*
RATIO
As Per IGAAP
As Per IFRS
Return on Equity
0.29
0.26
Return on Asset
Total asset turnover
0.14
0.14
0.94
0.93
Leverage
1
0.88
Net Profit Ratio
0.15
0.15
Source:!Annual!Report!of!Wipro!Limited.!2011.!
!
The! author! examine! that! the! Return! on! Equity! and! Net! profit! ratio! as! reported! under! IGAAP!
and! IFRS! remains! the! same.! There! is! a! decrease! in! the! leverage! or! debt! equity! ratio! in! IFRS!
accounting!when!compared!to!IGAAP!accounting.!The!reduction!in!this!ratio!in!IFRS!is!due!to!
increase! in! value! of! Equity! by! 8.13%! in! IFRS! accounting! and! reduction! ! in! ! value! ! of! ! Total!!
Liabilities!!by!!about!4.28%!!in!!IFRS!accounting!when!compared!with!IGAAP!accounting.!There!
is!reduction!in!return!on!equity!mainly!because!of!increase!in!the!equity!value!by!about!8.13%!
and! decrease! in! Net! profit! by! about! 0.61%! in! IFRS! reporting! when! compared! to! IGAAP!
reporting.!!There!!is!reduction!!in!!Total!!asset!Turnover!!mainly!!because!!of!!increase!!in!!Total!!
assets! ! by! about! ! 1.94%! and! decrease! in! turnover! by! about! ! 0.04%! in! IFRS! reporting! when!
compared!with!IGAAP!reporting.!
!
CONCLUSIONS*
The!study!investigates!empirically!the!effect!of!voluntary!adoption!and!convergence!of!IGAAP!
with!IFRS.!!It!has!been!found!from!our!study!that!there!is!not!much!deviations!and!fluctuations!
in!the!net!income!position!as!disclosed!by!financial!statement!of!Wipro!Ltd!in!IFRS!reporting!
and! Indian! GAAP.! ! But! deviation! is! rather! prominent! when! observing! the! total! liability! and!
equity! position! which! is! mainly! because! of! reclassification! between! equity! and! total! liability.!!
The! provision! under! IFRS! is! reduced! mainly! because! dividend! provision! is! not! recognized! in!
IFRS.! Fair! value! measurement! of! Available! for! sale! investment! and! the! share! compensation!
expense!recognized!in!IFRS!is!higher,!as!!in!!IFRS!!reporting!!accelerated!amortization!!of!!stock!
compensation! ! expense! ! in! ! the! ! initial! ! years! ! following! ! the! grant! ! of! options,! ! whereas! ! in!!
Indian!!GAAP!!reporting!recognizes!!the!!stock!!compensation!expenses!!in!!graded!manner!on!a!
straight! line! basis! over! the! requisite! vesting! period! for! the! entire! award! which! resulted! in!
increase! in! share! based! payment! reserve.! In! true! generalized! sense,! the! return! on! equity,!
return! on! asset,! total! asset! turnover! and! net! profit! ratio! are! not! significantly! affected! by!
converging! to! IFRS! but! the! leverage! ratio! shows! significant! change! on! converging! with! IFRS.!
There!are!also!significant!changes!in!the!total!equity!and!total!liability!position!on!convergence!
to!IFRS!but!not!prominent!changes!in!the!total!asset!position.!
!
The!study!suffers!with!some!limitations!also.!The!content!discussed!in!this!article!is!drawn,!by!
and!large,!from!secondary!sources,!i.e.,!journal!articles,!magazines,!newspapers,!annual!report!
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!
!
83!
Abbasi,!E.!H.!(2016).!International!Financial!Reporting!Standards!(IFRS)!for!International!Accounting!and!Financial!Integration:!with!Special!Focus!
on!Wipro!Limited!of!India.!Archives)of)Business)Research,)4(1),!67P85.!
!
etc.! The! study! is! qualitative! as! well! as! quantitative! in! nature! but! there! is! less! possibility! of!
judging!!or!!analyzing!!the!!data!!on!!basis!!of!our!!own!!best!judgment!!because!!readymade!!
comparative! ! analysis! ! of! financial! statement! of! Wipro! Ltd! under! IFRS! and! IGAAP! has! ! been!!
considered!!in!!the!!study!!due!!to!!difficulty!!in!examining!the!issues!through!quantitative!tools!
at!the!very!budding!stage!of!this!adoption!process.!
!
In!summary,!it!can!be!said!that!differences!in!accounting!methods!!!create!!!information!!!costs!
for! ! ! the! preparers,! auditors,! and! users! of! financial! ! ! statements.! Several! organizations!
recognized!the!need!to!harmonize!financial!reporting,!and!the!European!Union!was!one!of!the!
first! to! publish! directives! to! reduce! differences! in! the! reporting! of! similar! transactions.!!
Convergence! in! India! would! be! facilitated! by! the! fact! that! historically! Indian! accounting!
standards! have! been! based! on! principles! as! against! rules.! However,! given! the! nature! of!
accounting!and!peculiarities!of!the!Indian!economic!environment,!the!process!of!convergence!
has!its!own!set!of!challenges.!The!conflicting!legal!!and!!regulatory!!requirements!!related!!to!!
financial! statements,! ! the! technical! preparedness! of! industry! and! accounting! ! professionals!!
and! ! the! ! economic! ! environment! prevailing! ! in! ! the! ! country! ! will! ! pose! ! challenges! ! to! ! this!
convergence.! Given! the! task! and! challenges,! all! the! entities! should! ensure! that! their!
convergence!plan!are!designed!in!such!a!way!as!to!achieve!the!objective!of!doing!it!once,!but!
doing!it!right.!
!
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Dr Ehtesham Abbasi