Applicability of IND AS - Objectives and FAQs

Ind AS are accounting standards established under the supervision of the Accounting Standards Board (ASB). This board was established in 1977 as a body within the ICAI, or Indian Institute of Chartered Accountants. Companies in India use these accounting standards.

The application of the IND AS began gradually, beginning with the fiscal year 2016-17. The MCA amended the regulations thrice, with each update passing in 2016, 2017, and 2018.

What are Indian Accounting Standards (IND AS)?

Indian Accounting Standards (IND AS) are a collection of accounting principles and procedures that have been created and followed in India for the production and presentation of corporate financial statements.

These guidelines guarantee that financial information organizations present is consistent, transparent, and dependable, making it simpler for investors, creditors, and other stakeholders to make informed choices.

IND AS was introduced to converge with International Financial Reporting Standards (IFRS), which followed globally. This convergence aims to enhance the comparability and credibility of financial statements of Indian companies in the international arena.

Phases of Adoption of IND AS

The adoption of Indian Accounting Standards (IND AS) in India occurred in several phases to facilitate a smooth transition to the new accounting framework; we have provided the phases in the adoption of IND AS:

Mandatory Adoption for Certain Companies (Phase I):

• The first phase began in April 2016.
• Listed companies and certain other entities with a net worth exceeding a specified threshold were required to adopt IND AS for their financial reporting.

Voluntary Adoption Permitted (Phase II):

• From the financial year 2015-16, companies were allowed to voluntarily adopt IND AS voluntarily, even if they didn't meet the mandatory adoption criteria.
• This phase provided an option for early adopters to align with international standards.

Mandatory Adoption for Banks, Insurance Companies, and NBFCs (Phase III):

• In April 2018, banking, insurance, and non-banking financial companies (NBFCs) were mandated to adopt IND AS.
• This expanded the scope of IND AS to cover a broader range of financial institutions.

Extension of IND AS to Smaller Companies (Phase IV):

• From April 2017 onwards, based on specified criteria, smaller companies were permitted to adopt a simplified version of IND AS known as the 'Ind AS for Small and Medium-sized Companies' (Ind AS for SMEs).
• This phase aimed to make the transition more manageable for smaller entities.

Final Transition to IND AS (Phase V):

• By April 2019, all companies, including unlisted ones, must adopt Indian Accounting Standards.
• This marked the completion of the transition to a unified accounting framework based on international standards.

Objectives of IND AS

The objectives of IND AS were to enhance the quality of financial information, making it more useful for various stakeholders. Here are the key objectives:

International Convergence: Aligning Indian accounting standards with international standards, particularly the International Financial Reporting Standards (IFRS), to facilitate global comparability.

Transparency: Ensuring that financial statements provide a true and fair view of a company's financial performance and position.

Reliability: Promoting accuracy and reliability in financial reporting, thereby enhancing the credibility of financial information.

Economic Substance: Emphasizing the economic reality of transactions over their legal form, preventing manipulation of financial statements.

User-Focused: Making financial statements more informative and relevant for investors, creditors, and other stakeholders.

Consistency: Promoting consistency in the recognition, measurement, presentation, and disclosure of financial transactions and events.

Disclosure: Encouraging comprehensive and meaningful disclosures to understand a company's financial affairs clearly.

Adaptability: Adapting to evolving business environments and financial instruments to maintain relevance and usefulness.

SEBI’s Guidance Regarding IND AS

SEBI has released guidance on applying Indian Accounting Standards and disclosures required in offer papers. Typically, SEBI requires issuer businesses to give financial information for the five fiscal years before the year of offer document filing while adhering to similar accounting rules for each fiscal year. These considerations should be highlighted by issuing firms who file an offer document:

• All financial statements submitted by them up to March 31, 2017, may be filed in accordance with Indian GAAP.
• Between April 1, 2017, and March 31, 2018, disclosures in the three fiscal years immediately before the relevant fiscal year must be made in accordance with Indian Accounting Standards principles. In contrast, disclosures in the remaining two fiscal years may be made in accordance with Indian GAAP.
• Between April 1, 2018, and March 31, 2019, disclosures in the three fiscal years immediately before the relevant fiscal year must be made in accordance with IND AS principles, whereas disclosures in the remaining two fiscal years may be made in accordance with Indian GAAP.
• Disclosures in the four fiscal years immediately before the relevant fiscal year must be made on IND AS principles between April 1, 2019 and March 31, 2020, whereas disclosures in the remaining one fiscal year may be made under Indian GAAP.
• On or after April 1, 2020, disclosures for the prior five fiscal years must be provided in accordance with the IND AS standards.

Net Worth Calculation by IND AS

Net worth will be calculated using the company's stand-alone records as of March 31, 2014, or the first audited quarter ending after that date. After subtracting cumulative losses, postponed spending, and miscellaneous expenditure that has not been written off, net worth is the sum of paid-up share capital and all reserves from the profit and securities premium account. Only capital reserves derived from promoter contributions and government grants may be included. Reserves resulting from asset revaluation and written-back depreciation cannot be included.