An Aerial View on Overview of Ind AS – By CA Alok Garg

Background

IFRS convergence has already entered in the accounting premises of Indian Industry and MCA has notified 40 Indian Accounting Standard (Ind AS) vide its notification dated  February 16,  2015 and March 30, 2016. India has not adopted IFRS  but taken a convergence route to apply IFRS to its domain. Ind AS (Indian Accounting Standard converged with IFRS) are Indian version of IFRS having some Carve outs, Carve Ins and removal of options.

Carve out : Under Ind AS,  different accounting treatment is defined in comparison to the accounting treatment defined under IFRS. For instance, As per IFRS 3,the gain on bargain purchase is required to be recognized in Profit and loss account whereas under Ind AS 103,  the same is required to be recorded in reserves.

Carve Ins :  Under Ind AS, an additional guidance is inserted which is not there in IFRS. For instance, for Common Control Transactions, there is no guidance in IFRS 3 whereas Appendix C to Ind AS 103 talks about accounting for Common Control Transactions.

Removal of Options : This means that for some IFRS, the choices for accounting treatment are available but for some standards in Ind AS those choices have been removed. For instance, , IAS 20 allows non monetary grants to be measured either at Fair Value or Nominal Value whereas Ind AS 20 requires such grants to be measured at Fair Value only. Similarly, IAS 40 requires Investment Property to be subsequently recognized at Cost or Fair Value whereas Ind AS 40 requires such Investment Property to be subsequently recognized at Cost only.

Phase 1 Companies have already reported their annual financials for FY 2016-17  under Ind AS and few Phase 2 companies which are listed have also reported their interim results under Ind AS for Q1 and Q2’ 2017-18.

India has already established Accounting Standards in its accounting and reporting portfolio which were notified under Section 133 of the Companies Act, 2013 read with Companies (Accounting Standards) Rules, 2006. Having said that, New Accounting Standard i.e Ind AS were also notified under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016, which is a matter of confusion that which set of standards would be applicable to which companies. Therefore, it’s important to understand the applicability of Ind AS rather than discussing the applicability of AS under old regime of Indian GAAP.

Roadmap and Applicability of Ind AS in India

 

The applicability of Ind AS is categorized on the basis of following class of companies:

 

Phases Mandatory Adoption date for accounting periods beginning on or after Applicability
 

Companies other than Banking, Insurance and NBFC

Voluntary Phase 1 April 2015
Phase -1 1 April 2016 •      Listed/ Unlisted Companies having a net worth of Rs. 500 cr. or more.

 

•      Holding, subsidiaries, joint ventures or associate companies of above companies.

Phase -2 1 April 2017 •      Companies whose equity and/or debt securities are listed or are in process of getting listed in  any recognized stock exchange

 

•      Unlisted companies having a net worth of more than Rs.250 cr. or more but less than Rs.500 cr.

 

•      Holding, subsidiaries, joint ventures or associate companies of above companies.

 

Banking Companies

Single Phase 1 April 2018 All Scheduled Commercial Banks except Regional Rural Banks

 

Non-Banking Financial Companies (NBFC)
Phase -1 1 April 2018 •      NBFCs  having a net worth of Rs. 500 cr. or more.

 

•      Holding, subsidiaries, joint ventures or associate companies of above companies.

 

Phase -2 1 April 2019 •      NBFCs whose equity and/or debt securities are listed or are in process of getting listed in any recognized stock exchange

 

•      Unlisted companies having a net worth of more than Rs.250 cr. or more but less than Rs.500 cr.

 

•      Holding, subsidiaries, joint ventures or associate companies of above companies.

 

Insurance Companies
Phase -1 1 April 2020 •      As per IRDA circular dated June 28, 2017, all Insurance Companies in India are required to adopt Ind AS from April 1, 2020.

 

Key Points related to applicability of Ind AS:

  • Insurance Companies, Banking Companies and NBFCs are not allowed to adopt Ind AS voluntarily. These companies are not allowed to adopt Ind AS before their mandatory adoption date.
  • Companies listed on SME exchange are not required to adopt Ind AS mandatorily but they can adopt voluntarily if they wish to.
  • Ind AS will apply to both Consolidated as well as standalone financials of the company.
  • Ind AS once adopted either voluntarily or mandatorily cannot be revoked in succeeding years
  • An Indian Company which is a Subsidiary, Associate or a JV of a Foreign company should prepare its Financial Statements as per Ind AS, if it meets the criteria.
  • An Overseas Subsidiary, Associate or a JV of an Indian Company may prepare its Standalone Financial Statements in accordance with the requirements of the specific jurisdiction but Indian Parent will have to mandatorily prepare its Consolidated Financial Statements as per Ind AS, if it meets the criteria covered in the roadmap.
  • Points relating to Net Worth criteria –
    • There is no net worth criteria for Banking and Insurance Companies
    • Meaning of net worth is same as defined under section 2(57) of the Companies Act, 2013.
    • Net worth to be calculated as per Standalone financials
    • Net worth = Paid up share Capital + reserves created out of profits (excludes revaluation reserve etc.) + Securities premium account – accumulated losses – deferred expenditure – Misc expenditure not written off as per audited B/S
Conclusion

Ind AS are principle-based standards which reflect the underlying economic substance of business transactions. There is increased emphasis of fair-value accounting under Ind AS. It’s adoption will have a significant impact on the accounting and reporting by the Indian Companies. The phase wise implementation will help in smooth transition of companies in to the new era of accounting and reporting and help successor to learn with the experiences of the predecessors.

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