FORMULATION OF AS AND IND AS

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Accounting Standards
Accounting Standards are written policy documents which can be issued by expert accounting body
or by government or other regulatory body covering the aspects or recognition, treatment,
measurement, presentation and disclosure of accounting transactions in the financial statements.

Objectives
The whole idea of accounting standards is centered around harmonization of accounting policies and
practices followed by different business entities so that the diverse accounting practices adopted for
various aspects of accounting can be standardized. Accounting Standards standardize diverse
accounting policies with a view to:
(i) eliminate the non-comparability of financial statements and thereby improving the reliability
of financial statements; and
(ii) provide a set of standard accounting policies, valuation norms and disclosure requirements.
Accounting standards reduce the accounting alternatives in the preparation of financial
statements.

Overview of Accounting Standards in India

1. In India, the Institute of Chartered Accountants of India (ICAI), being a premier accounting
body in the country, took upon itself the leadership role by constituting the Accounting
Standards Board (ASB) on 21st April, 1977.
2. The main function of ASB is to formulate accounting standards so that such standards may
be established in India by the Council of the ICAI.
3. The council of the “Institute of Chartered Accountants of India” has, so far, issued 32
Accounting Standards. However, AS-8 on ‘Accounting for Research and Development’ has
been withdrawn consequent to the issuance of AS 26 on ‘Intangible Assets’ and AS-6 on
Depreciation Accounting has been withdrawn consequent to issue of new AS-10 “Property
Plant and Equipment”. Thus effectively, there are 30 Accounting Standards at present.

Introduction to Ind AS
In the present era of globalization and liberalization, the world has become an economic village. The
globalization of the business world, the attendant structures and the regulations, which support it,
as well as the development of e-commerce make it imperative to have a single globally accepted
financial reporting system. A number of multi-national companies are establishing their businesses
in various countries with emerging economies and vice versa. The entities in emerging economies
are increasingly accessing the global markets to fulfill their capital needs by getting their securities
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FORMULATION OF AS AND IND AS 1.2
listed on the stock exchanges outside their country. 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. This confusion leads to
inefficiency in capital markets across the world. Therefore, increasing complexity of business
transactions and globalization of capital markets call for a single set of high quality accounting
standards.

Benefits of Convergence with IFRS

There are many beneficiaries of convergence with IFRS such as the economy, investors, industry etc.

The Economy: When the markets expand globally the need for convergence increases since the
convergence benefits the economy by increasing growth of its international business. It facilitates
maintenance of orderly and efficient capital markets and also 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: A strong case for convergence can be made from the viewpoint of the investors who wish
to invest outside their own country. Investors want the information that is more relevant, reliable,
timely and comparable across the jurisdictions. 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. Investors’
confidence is strong when accounting standards used are globally accepted. Convergence with IFRS
contributes to investors’ understanding and confidence in high quality financial statements.

The Industry: A major force in the movement towards convergence has been the interest of 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.

What are Indian Accounting Standards (Ind AS)?

Indian Accounting Standards (Ind-AS) are the International Financial Reporting Standards (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).

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FORMULATION OF AS AND IND AS 1.3
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. 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.
The Ind AS are named and numbered in the same way as the corresponding International Financial
Reporting Standards (IFRS).

What are Carve out/ ins in Ind AS?

The Government of India in consultation with the ICAI decided to converge and not to adopt IFRS
issued by the IASB. The decision of convergence rather than adoption was taken after the detailed
analysis of IFRS requirements and extensive discussion with various stakeholders.
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. 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’.
 Removal of options in accounting principles and practices in Ind AS vis-à-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.
 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. These differences are due to differences in application of accounting principles and
practices and economic conditions prevailing in India. These differences which are in
deviation to the accounting principles and practices stated in IFRS, are commonly known as
‘Carve-outs’.

Roadmap for Implementation of Indian Accounting Standards (Ind AS)

1. For Companies other than banks, NBFCs and Insurance Companies
Phase I 1st April 2015 or thereafter: Voluntary Basis for all companies (with
Comparatives)
1st April 2016: Mandatory Basis
(a) Companies listed/ in process of listing on Stock Exchanges in India or
Outside India having net worth ≥ INR 5 Billion
(b) Unlisted Companies having net worth ≥ INR 5 Billion
(c) Parent, Subsidiary, Associate and J.V. of above
Phase II 1st April 2017: Mandatory Basis
(a) All companies which are listed/or in process of listing

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FORMULATION OF AS AND IND AS 1.4
Inside or outside India on Stock Exchanges not Covered in Phase I
(other than companies listed on SME Exchanges)
(b) Unlisted companies having net worth INR ≥ 2.5 Billion
(c) Parent, Subsidiary, Associate and J.V. of above

 A Company may voluntarily apply for registration

 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.

2. Non-Banking Financial Companies (NBFC’s)

Phase I: From 1st April, 2018 (with comparatives)
• NBFCs (whether listed or unlisted) having net worth 500 crore or more
• Holding, Subsidiary, JV and Associate companies of above NBFC other
than those already covered under corporate roadmap shall also apply
from said date
Phase II: From 1st April, 2019 (with comparatives)
• NBFC's whose equity and/ or debt securities are listed or are in the
process of listing on any stock exchange in India or outside India.
• NBFCs that are unlisted having net worth 250 crore or more.
• Holding, Subsidiary, JV and Associate companies of above other than
those already covered under corporate roadmap shall also apply from
said date.
 Applicable for both Consolidated and individual Financial Statements
 NBFC having not worth below 250 crore shall not apply Ind AS.
 Adoption of Ind AS is allowed only when required as per the roadmap.
 Voluntary adoption of Ind AS is not allowed.

3. Scheduled Commercial Banks (excluding RRB’s) and Insurers/ Insurance companies

 From 1st April, 2018 (with comparatives):
•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.
• Applicable for both Consolidated and individual Financial Statements
 Urban Cooperative banks (UCBs) and Regional Rural banks (RRBs) are not required to
apply Ind AS.

ELITE CONCEPTS CA. RAJ K AGRAWAL