A Brief Overview of India Accounting Standards
Get Your Financial House in Order with a Quick Guide to India Accounting Standards.
India Accounting Standards (Ind-AS) govern all financial documentation and policies of a business’ accounting transactions. It is issued and regulated under the supervision of the Accounting Standards Board (ASB), a sub-committee of the Institute of Chartered Accountants of India (ICAI).
Initially, accounting transactions were done based on general accounting standards of the Indian generally Acceptable Accounting Principle (IGAAP). This process, however, did not facilitate a global comparison of Indian companies’ financial position. The result was less than ideal as India’s businesses have a strong global presence. A solution came with the convergence of the global International Financial Reporting Standards (IFRS), resulting in the Ministry of Corporate Affairs (MCA) notifying companies on the current Ind-AS.
Ind-AS main aim is to standardize accounting policies and practices, thereby creating a reliable financial reporting system. It provides accounting transaction principles for financial documents which include:
- Disclosure
- Recognition
- Measurement
- Presentation
- Treatment
Legalities of Ind-AS
By virtue of the Companies Act 2013, all enterprises and corporate entities in India need to prepare their financial statement in accordance with Ind-AS and the IFRS. These rules are mandatory as of 2016, with April 1st being the beginning of the fiscal year, for all listed and unlisted corporate entities within a specified net worth.
Ind-AS had a staggered introduction and mandatory inception.
- Phase I (1st April 2016) for all listed and unlisted companies with a net worth of more than or equal to INR 500 crore.
- Phase II (1st April 2017) changed this to listed or about to be listed companies with a net worth of more than or equal to INR 250 crore.
- Phase III (1st April 2018) for all Banks, Nonbank Financial Companies (NBFCs) and Insurance Companies with a net worth of more than or equal to INR 500 crore. Note that NBFCs include investment companies, venture capitalists, stockbrokers etc.
- Phase IV (1st April 2019) changed NBFCs’ net worth parameters to more than or equal to INR 250 crore but less than INR 500 crore.
Net worth is the value of a company’s assets minus all liabilities and expenditures. In relation to Ind-AS, it covers the stand-alone accounts of a company or its first audited period. It expressly excludes the revaluation of assets and back depreciation.
Ind-AS applicability is across board an entire company including:
- Associated companies
- Subsidiary companies
- Joint ventures of the company
- Holding companies
For any Indian company with foreign operations, stand-alone financial statements are permissible as per their country of operations. Accounts will then be adjusted for the Indian-based parent company’s submission.
Currently, there are 41 notified accounting standards under the Ind-AS. These include income, financial instruments, statement of cash flows, assets and inventories amongst others. For a full list of these standards, check out the Institute of Chartered Accountants of India website.
The Need for Ind-AS
There are many benefits to having a nationalized global standard to follow. These include:
- A measure of consistency and legitimacy across the board
- Facilitate accessibility and authenticity to both local and foreign investors.
- Easier to compare financial statements as there is uniformity
- Changes in standards are governed by global economic situations, thereby applying worldwide
The Ind-AS is the ideal standard in governing the qualitative financial reports of Indian businesses, especially small and medium enterprises (SMEs). Hence, the importance of providing proper advisory services to prepare financial documentation under India Accounting Standards is quite crucial.
Contact 3E Accounting today for assistance and guidance in establishing a sound financial reporting system.
