INTRODUCTION TO IND AS | CAP CLASSES
INTRODUCTION TO INDIAN ACCOUNTING STANDARDS (IND AS)
1.
Previously,
companies in different countries having different Accounting Standards used to
prepare their financial statements in accordance with their respective
Accounting Standards.
2.
Since
they consider their economic, legal and political environment while designing
domestic accounting standards, there is a possibility that one country’s
accounting framework substantially differs from the framework of other
countries.
3.
However
the present era of globalisation make it imperative to have a single globally accepted
financial reporting system.
4.
A
number of multi-national companies are establishing their businesses in various
countries and are increasingly accessing the global markets to fulfill their
capital needs by getting their securities listed on the stock exchanges outside
their country.
5.
Over
a period of time many Indian companies have grown leaps and bounds and are
being listed on overseas stock exchanges.
6.
The
use of different accounting frameworks in different countries, which require
inconsistent treatment and presentation of the same underlying economic
transactions, creates confusion for users of financial statements.
7.
The
increasing complexity of business transactions and globalisation of capital
markets call for a single set of high quality accounting standards.
8.
Thus,
the necessity for a single set of globally accepted accounting standards has
prompted many countries to pursue convergence of national accounting standards
with IFRS.
9.
International
Financial Reporting Standards (IFRS) are considered a
"principles-based" set of standards. In fact, they establish broad
rules rather than dictating specific treatments.
10. More than 130 countries and
reporting jurisdictions currently require or permit the use of or have a policy
of convergence or adoption of IFRS.
CONVERGENCE
WITH IFRS
1.
India
is one of the biggest emerging economies in the world. For the economic
development foreign direct investment is needed.
2.
To
facilitate the investment climate, it needs to have its financial reporting
system in such a manner that the global investors understand the financial
statements of Indian companies.
3.
In
short there must be uniformity and comparability of the financial statements
prepared by an Indian company and the financial statements prepared in other
countries (developed economies).
4.
At
present, Indian companies are preparing their financial statements as per the
Financial Reporting Framework accepted in India. This constitutes Indian GAAP
and statutory requirements (for eg: Sch III of the companies Act, 2013).
5.
The
principles of present Accounting Standards are based on IFRS but were substantially
modified to suit Indian economic environment, laws and practices.
BENEFITS
OF CONVERGENCE WITH IFRS
There are many beneficiaries of
convergence with IFRS such as the economy, investors, industry etc.
The
Economy:
·
The
convergence benefits the economy by increasing growth of its international
business.
·
It
facilitates maintenance of orderly and efficient capital markets.
·
It
helps to increase the capital formation and thereby economic growth.
·
It
encourages international investing and thereby leads to more foreign capital
flows to the country.
Investors:
·
To
make effective investment decisions, investors look for the information that is
more relevant, reliable, timely and comparable.
·
Financial
statements prepared using a common set of accounting standards help investors
better understand investment opportunities as opposed to financial statements
prepared using a different set of national accounting standards.
·
Convergence
with IFRS contributes to investors’ understanding and confidence in high
quality financial statements.
The
Industry:
·
The
industry is able to raise capital from foreign markets at lower cost if it can
create confidence in the minds of foreign investors that their financial
statements comply with globally accepted accounting standards.
·
With
the diversity in accounting standards from country to country, enterprises
which operate in different countries face a multitude of accounting
requirements prevailing in the countries.
·
The
burden of financial reporting is lessened with convergence of accounting
standards because it simplifies the process of preparing the individual and
group financial statements and thereby reduces the costs of preparing the
financial statements using different sets of accounting standards.
Indian
Accounting Standards (Ind AS): First Step towards IFRS
1.
With
a view to enhance the acceptability and transparency of the financial
information, the ICAI initiated the process of moving towards IFRS (issued by
IASB), way back in 2006. The move towards IFRS was accepted by the Government
of India.
2.
The
Government of India, in consultation with the ICAI and after discussion with
various stakeholders, decided to converge and not to adopt IFRS issued by the
IASB.
3.
Accordingly,
while formulating IFRS-converged Indian Accounting Standards (Ind AS), efforts
have been made to keep these Standards, as far as possible, in line with the
corresponding IAS/IFRS and departures have been made where considered
absolutely essential.
4.
These
changes have been made considering various factors, such as, various
terminology related changes have been made to make it consistent with the
terminology used in law, e.g., ‘statement of profit and loss’ in place of
‘statement of comprehensive income’ and ‘balance sheet’ in place of ‘statement
of financial position’.
5.
Certain
changes have been made considering the economic environment of the country,
which is different as compared to the economic environment presumed to be in
existence by IFRS.
INDIAN
ACCOUNTING STANDARDS (IND-AS)
1.
Ind
AS are the IFRS converged standards issued by the Central Government of India
under the supervision and control of Accounting Standards Board (ASB) of ICAI
and in consultation with National Advisory Committee on Accounting Standards
(NACAS).
2.
ASB
is a committee under Institute of Chartered Accountants of India (ICAI) which
consists of representatives from government department, academicians, other
professional bodies viz. icsi, icai, representatives from ASSOCHAM, CII, FICCI,
etc.
3.
National
Advisory Committee on Accounting Standards (NACAS) recommend these standards to
the Ministry of Corporate Affairs (MCA). MCA has to spell out the accounting
standards applicable for companies in India.
4.
The
Ind AS are named and numbered in the same way as the corresponding
International Financial Reporting Standards (IFRS).
CARVE
OUTS/ INS IN IND AS
1.
Removal
of options in accounting principles and practices in Ind AS vis-a-vis IFRS,
have been made to maintain consistency and comparability of the financial
statements to be prepared by following Ind AS. However, these changes will not
result into carve outs.
2.
Certain
changes have been made considering the economic environment of the country,
which is different as compared to the economic environment presumed to be in
existence by IFRS.
3.
These
differences are due to differences in application of accounting principles and
practices and economic conditions prevailing in India. These diffferences which
are in deviation to the accounting principles and practices stated in IFRS, are
commonly known as ‘Carve-outs’.
4.
Note:
In Ind AS 103 “Business Combination”, an additional guidance on “Accounting of
Business Combinations of Entities under Common Control” is given which is over
and above what is given in IFRS. This is termed as ‘Carve-in’.
IFRS
CONVERGED IND AS - ROADMAP
1.
With
a view to achieve international benchmarks of financial reporting, the
Institute of Chartered Accountants of India (ICAI) set out to introduce Indian
Accounting Standards (Ind AS) converged with the International Financial
Reporting Standards (IFRS).
2.
Though
initially Ind AS were expected to be implemented from the year 2011, it was
postponed for various reasons including tax issues.
3.
In
July 2014, the government recognised the urgency to converge the existing
accounting standards with the International Financial Reporting Standards
(IFRS) through adoption of the new Indian Accounting Standards (Ind AS) by the
Indian companies from the financial year 2015-16 voluntarily and from the
financial year 2016-17 on a mandatory basis.
4.
Subsequently,
the Ministry of Corporate Affairs (MCA) has issued the Companies (Indian
Accounting Standards) Rules, 2015 vide Notification dated February 16, 2015
covering the revised roadmap of implementation of Ind AS for companies other
than Banking companies, Insurance Companies and NBFCs and Indian Accounting
Standards (Ind AS).
5.
As
per the Notification, Indian Accounting Standards (Ind AS) converged with
International Financial Reporting Standards (IFRS) shall be implemented on
voluntary basis from 1st April, 2015 and mandatorily from 1st April, 2016.
6.
The
road map is as follows:
For
companies other than Banks, NBFCs and Insurance Companies
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Phase I
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1st
April 2015 or thereafter: Voluntary Basis for all companies (with
Comparatives)
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1st April 2016: Mandatory Basis
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(a)
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Companies listed/in process of
listing on Stock Exchanges in India or Outside India having net worth >
INR 5 Billion
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(b)
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Unlisted Companies having net
worth > INR 5 Billion
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(c)
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Parent, Subsidiary, Associate and
J.V. of above
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Phase II
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1st April 2017: Mandatory Basis
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(a)
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All companies which are listed/or
in process of listing inside or outside India on Stock Exchanges not covered
in Phase I (other than companies listed on SME Exchanges)
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(b)
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Unlisted companies having net
worth INR 5 Billion > INR 2.5 Billion
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(c)
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Parent, Subsidiary, Associate and
J.V. of Above
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Companies listed on SME exchange not
required to apply Ind AS.
Once Ind AS are applicable, an
entity shall be required to follow the Ind AS for all the subsequent financial statements.
Companies not covered by the above
roadmap shall continue to apply existing Accounting Standards notified in
Companies (Accounting Standards) Rules, 2006.
For
Scheduled Commercial Banks (Excluding RRBs), Insurance companies and NBFCs
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Non-Banking Financial
Companies (NBFC’s)
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Phase I:
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From 1st April, 2018 (with
comparatives)
a) NBFCs whether listed or not,
having a net worth of Rs. 500 crores or more
b) Holding, Subsidiary, JV and
Associate companies of above NBFC other than those already covered under
corporate roadmap shall also apply from said date.
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Phase
II:
|
From 1st April, 2019 (with
comparatives)
a) NBFCs whose equity and/or debt
securities are listed or are in the process of listing on any stock exchange
in India or outside India and having net worth less than 500 crore
b) NBFCs that are unlisted having net
worth 250 crore or more but less 500 crore
c) Holding, Subsidiary, JV and
Associate companies of above other than those already covered under corporate
roadmap shall also apply from said date
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Applicable
for both Consolidated and individual Financial Statements
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NBFC
having net worth below 250 crore shall not apply Ind AS.
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Adoption
of Ind AS is allowed only when required as per the roadmap.
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Voluntary
adoption of Ind AS is not allowed.
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Scheduled Commercial banks
(excluding RRB’s) and Insurers/Insurance companies
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From 1st
April, 2018 (with comparatives):
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Holding,
subsidiary, JV and Associates companies of scheduled commercial banks
(excluding RRB’s) shall also apply from the said date irrespective of it
being covered under corporate roadmap.
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Applicable
for both Consolidated and individual Financial Statements
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Urban
Cooperative banks (UCBs) and Regional Rural banks (RRBs) are not required to
apply Ind AS.
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RBI
DEFERS THE EFFECTIVE DATE OF IND AS
1)
On
5th April, 2018, the Reserve Bank of India through its press release
deferred the implementation of Indian Accounting Standards (IND AS) by one year
for scheduled commercial banks.
2)
That
means 2019-20 would be the first year of Ind AS with 2018-19 as the comparative
year.
3)
The
implementation of Ind AS by banks requires certain legislative changes in the
format of financial statements to comply with disclosures required by Ind AS.
4)
The
change in format requires an amendment to the third schedule of the Banking Regulation
Act, 1949 to make it compatible with Ind AS.
5)
Also,
RBI is yet to issue prudential norms and operational guidelines to facilitate
the implementation of the new accounting standards.
6)
The
largest impact is expected on accounting for financial instruments, on
application of Ind AS 109, Ind AS 32 and Ind AS 7. Implementation of these
standards is expected to affect almost all the line items in the banks
financial statements.
7)
Ind
AS 109 requires early recognition and significant increase in provisions for
loans and off balance sheet exposures based on an expected credit loss (ECL)
model. This change is likely to increase the capital requirements in banking
sector.
8)
The
Ind AS deferral would provide more time for implementation of Ind AS for the
banking sector, to better prepare for this major financial reporting reform.
9)
IFRS
9 is applicable from 1st Jan, 2018 in several countries across the
world. Since Indian Banking Sector is implementing this one year later, banks
in India are expected to benefit from the implementation experience of their
global peers. However delayed adoption would impact the comparability of
financial statements of banks in India with their global counter parts till the
transition.
LIST
OF IND AS WITH COMPARATIVE IFRS
Comparison Chart Showing the
‘International Financial Reporting Standards (IFRS)’/ ‘International Accounting
Standards (IAS)’ and the Corresponding ‘Indian Accounting Standards (Ind AS)’
notified by MCA
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Sl. No.
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IFRS/ IAS
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Ind AS
|
Subject
|
|
1
|
IAS 1
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Ind AS 1
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Presentation of Financial Statements
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2
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IAS 2
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Ind AS 2
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Inventories
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3
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IAS 7
|
Ind AS 7
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Statement of Cash Flows
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4
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IAS 8
|
Ind AS 8
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Accounting Policies, Changes in
Accounting Estimates and Errors
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5
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IAS 10
|
Ind AS 10
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Events after the Reporting Period
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6
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IAS 11
|
Ind AS 11
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Construction Contracts
|
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7
|
IAS 12
|
Ind AS 12
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Income Taxes
|
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8
|
IAS 16
|
Ind AS 16
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Property, Plant and Equipment
|
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9
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IAS 17
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Ind AS 17
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Leases
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10
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IAS 18
|
Ind AS 18
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Revenue
|
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11
|
IAS 19
|
Ind AS 19
|
Employee Benefits
|
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12
|
IAS 20
|
Ind AS 20
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Accounting for Government Grants and
Disclosure of Government Assistance
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13
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IAS 21
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Ind AS 21
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The Effects of Changes in Foreign
Exchange Rates
|
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14
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IAS 23
|
Ind AS 23
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Borrowing Costs
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15
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IAS 24
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Ind AS 24
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Related Party Disclosures
|
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16
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IAS 26
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None
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Accounting and Reporting by
Retirement Benefit Plans [Ind AS corresponding to IAS 26, Accounting and
Reporting by Retirement Benefit Plans, has not been issued as this standard
is not applicable to companies].
|
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17
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IAS 27
|
Ind AS 27
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Consolidated and Separate Financial
Statements
|
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18
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IAS 28
|
Ind AS 28
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Investments in Associates and Joint
Ventures
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19
|
IAS 29
|
Ind AS 29
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Financial Reporting in Hyper
Inflationary Economies
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20
|
IAS 32
|
Ind AS 32
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Financial Instruments: Presentation
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21
|
IAS 33
|
Ind AS 33
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Earnings per Share
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22
|
IAS 34
|
Ind AS 34
|
Interim Financial Reporting
|
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23
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IAS 36
|
Ind AS 36
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Impairment of Assets
|
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24
|
IAS 37
|
Ind AS 37
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Provisions, Contingent Liabilities
and Contingent Assets
|
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25
|
IAS 38
|
Ind AS 38
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Intangible Assets
|
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26
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IAS 39
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None
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Financial Instruments: Recognition
and Measurement [Since India has decided to converge early with IFRS 9,
Financial Instruments. Accordingly, Ind AS 109, Financial Instruments, has
been issued and Ind AS 39, Financial Instruments: Recognition and Measurement,
has not been issued].
|
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27
|
IAS 40
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Ind AS 40
|
Investment Property
|
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28
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IAS 41
|
Ind AS 41
|
Agriculture
|
|
29
|
IFRS 1
|
Ind AS 101
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First-time Adoption of Indian
Accounting Standards
|
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30
|
IFRS 2
|
Ind AS 102
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Share-based Payment
|
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31
|
IFRS 3
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Ind AS 103
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Business Combinations
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32
|
IFRS 4
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Ind AS 104
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Insurance Contracts
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33
|
IFRS 5
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Ind AS 105
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Non-current Assets Held for Sale and
Discontinued Operations
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34
|
IFRS 6
|
Ind AS 106
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Exploration for
and Evaluation of Mineral Resources
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35
|
IFRS 7
|
Ind AS 107
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Financial Instruments: Disclosures
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36
|
IFRS 8
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Ind AS 108
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Operating Segments
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37
|
IFRS 9
|
Ind AS 109
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Financial Instruments
|
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38
|
IFRS 10
|
Ind AS 110
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Consolidated Financial Statements
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39
|
IFRS 11
|
Ind AS 111
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Joint Arrangements
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40
|
IFRS 12
|
Ind AS 112
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Disclosure of Interest in Other
Entities
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41
|
IFRS 13
|
Ind AS 113
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Fair Value Measurement
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42
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IFRS 14
|
Ind AS 114
|
Regulatory Deferral Account
|
List of Interpretations issued by
the IFRS Interpretations Committee (IFRIC)/ Standards Interpretations Committee
(SIC) included in Appendix to relevant Indian Accounting Standards (Ind AS)
|
Sl.
No. |
IFRIC/
SIC No. |
Corresponding Appendix of Ind AS
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IFRIC/ SIC Subject
|
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1
|
IFRIC 1
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Ind AS 16 (Appendix A)
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Changes in Existing Decommissioning,
Restoration and Similar Liabilities
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2
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IFRIC 2
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None
|
Members’ Shares in Co-operative
Entities and Similar Instruments [Appendix corresponding to IFRIC 2 is not
issued as it is not relevant for the
companies]. |
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3
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IFRIC 4
|
Ind AS 17 (Appendix C)
|
Determining whether an Arrangement
contains a Lease
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4
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IFRIC 5
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Ind AS 37 (Appendix A)
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Rights to Interests arising from
Decommissioning, Restoration and Environmental Rehabilitation Funds
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5
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IFRIC 6
|
Ind AS 37 (Appendix B)
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Liabilities arising from
Participating in a Specific Market – Waste Electrical and Electronic Equipment
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6
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IFRIC 7
|
Ind AS 29 (Appendix A)
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Applying the Restatement Approach
under Ind AS 29 Financial Reporting in Hyperinflationary Economies
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7
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IFRIC 10
|
Ind AS 34 (Appendix A)
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Interim Financial Reporting and
Impairment
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8
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IFRIC 12
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Ind AS 11 (Appendix A)
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Service Concession Arrangements
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9
|
IFRIC 13
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Ind AS 18 (Appendix B)
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Customer Loyalty Programmes
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10
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IFRIC 14
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Ind AS 19 (Appendix B)
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The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction
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11
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IFRIC 16
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Ind AS 109 (Appendix C)
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Hedges of a Net Investment in a
Foreign Operation
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12
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IFRIC 17
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Ind AS 10 (Appendix A)
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Distributions of Non-cash Assets to
Owners
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13
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IFRIC 18
|
Ind AS 18 (Appendix C)
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Transfer of Assets from Customers
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14
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IFRIC 19
|
Ind AS 109 (Appendix D)
|
Extinguishing Financial Liabilities
with Equity Instruments
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15
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IFRIC 20
|
Ind AS 16 (Appendix B)
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Stripping Cost in the Production
Phase of a Surface Mine
|
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16
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IFRIC 21
|
Ind AS 37 (Appendix C)
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Levi
|
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17
|
SIC-7
|
None
|
Introduction of Euro [Appendix
corresponding to SIC 7 is not issued as it is not relevant in the
Indian context]. |
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18
|
SIC-10
|
Ind AS 20 (Appendix A)
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Government Assistance –
No Specific Relation to Operating Activities
|
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19
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SIC-15
|
Ind AS 17 (Appendix A)
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Operating Leases – Incentives
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20
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SIC-25
|
Ind AS 12 (Appendix A)
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Income Taxes – Changes in the Tax
Status of an Entity or its Shareholders
|
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21
|
SIC-27
|
Ind AS 17 (Appendix B)
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Evaluating the Substance of
Transactions Involving the Legal Form of a Lease
|
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22
|
SIC-29
|
Ind AS 11 (Appendix B)
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Service Concession Arrangements:
Disclosures
|
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23
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SIC-31
|
Ind AS 18 (Appendix A)
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Revenue – Barter Transactions
Involving Advertising Services
|
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24
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SIC-32
|
Ind AS 38 (Appendix A)
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Intangible Assets – Web Site Costs
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