There is a growing need for global accounting standards and this need has been recognised by the ICAI (Indian Chartered Accountants Institute) in these global times. In collaboration with the Government of India, the ICAI has decided to not accept and adopt the IFRS the way they are. This led to the development of Indian Accounting Standards or Indian AS. Let us understand in detail the development of international and Indian Accounting Standards.
Accounting Standards were formulated by The Institute of the Chartered Accountants of India (ICAI). The process of migrating towards the International Financial Reporting Standards (IFRS) was initiated by ICAI. The IFRS are issued by the International Accounting Standards Board (IASB). The purpose of this shift was to increase the transparency and acceptability of the financial statements of the Indian corporates on an international level.
For the development of Indian Accounting Standard, ICAI and the government analysed in detail the requirements of IFRS before deciding to converge the two. The Ind AS were formulated in line with the IFRS by the Accounting Standards Board (ASB).
The Indian Accounting Standards were issued by the Central Government of India in consultation with the National Advisory Committee on Accounting Standards (NACAS). This was done under the supervision and control of the Accounting Standards Board (ASB) of ICAI. The Indian AS was recommended by NACAS to the Ministry of Corporate Affairs who is entitled to make Ind AS applicable to the companies in India. The Ind AS are named and numbered in the same way as their corresponding IFRS. Till date, 40 Indian AS have been issued.
The Indian AS help in the flow of money across borders, facilitate global listing and allow comparability of the financial statement on the international level. This facilitates global investments, thus benefiting the capital market stakeholders. The Indian AS help the investor in doing a comparison of the investments on a global level. With the Indian AS in place, there is no need for the reinstatement of financial statements of Indian Corporates.
The Initial implementation year of Indian AS was 2011 but it was postponed due to certain issues by the Ministry of Corporate Affairs. The Companies (Indian Accounting Standards) Rules were issued in February 2015 by the Ministry of Corporate Affairs. This revised roadmap of implementation excluded the Banking companies, Insurance companies, and NBFCs from it.
Ind AS were implemented on a voluntary basis from 1st April 2015, and were made mandatory from 1st April 2016 as per the notification. The later notification issued included the NBFCs, Banking companies, and Insurance companies for the purpose of implementation. A Company may choose to follow Ind AS either voluntarily or mandatorily. But, once it starts following the Ind AS, it cannot revert back to its old method of accounting.
The phase-wise adoption of Ind AS as notified by the Ministry of Corporate Affairs is as follows:
(This notification incorporates the specific classes of companies based on their Net worth and listing status)
From 1st April 2016, Indian AS mandatorily applicable to every company provided::
It is a listed or unlisted company
The Net worth of the company is ≥ ₹ 500 crores
Net worth to be calculated using figures for the previous three Financial Years (31.03.2014, 31.03.2015 and 31.03.2016).
From 1st April 2017, Indian AS mandatorily applicable to every company provided:
It is a listed company or is in the process of being listed
Its Net worth is ≥ ₹ 250 crores but ≤ ₹ 500 crores (on any of the above-mentioned dates).
Net worth to be calculated using figures for the previous four Financial Years (31.03.2014, 31.03.2015, 31.03.2016 and 31.03.2017).
From 1st April 2018, Indian AS mandatorily applicable to all Banks, NBFCs and Insurance companies provided;
Net worth is ≥ ₹ 500 crores w.e.f 1st April 2018.
A separate set of Ind AS for Banking and Insurance Companies as notified by the IRDA, with effect from 1st April 2018. Core investment companies, stockbrokers, venture capitalists, etc. included in NBFCS.
Net worth to be calculated using figures for the previous three Financial Years (31.03.2016, 31.03.2017 and 31.03.2018)
From 1st April 2019, Indian AS are mandatorily applicable to all NBFCs provided:
Net worth is ≥ ₹ 250 crores but ≤ ₹ 500 crores
When the Ind AS becomes applicable to a company, it shall by default apply to:
All its subsidiaries
Associated companies and
Joint ventures (irrespective of individual qualification of such companies)
Q1. What Changes have been made in IFRS during the Development of Accounting Standards in India?
Ans. During the development of accounting standards in India, ICAI has tried to keep them in line with the IFRS as far as possible. The changes made were only those that were deemed absolutely essential. Some of the changes made were:
Change in the AS terminology to make them consistent with the terminology used in law
Changes in cohesion with the economic conditions of the country
Q2. How is Net Worth to be calculated in the Indian Accounting Standards?
Ans. Net Worth = Total Paid-up share capital + all reserves out of profits and securities premium – accumulated losses – deferred expenditure and miscellaneous expenditure not written off
Net worth should include only the capital reserve arising out of Promoters Contribution and any government grant received.
Net Worth should not include reserves created out of revaluation of assets and written off depreciation in Capital Reserves