CMA INTERMEDIATE
FINANCIAL ACCOUNTING Applicability of IND AS
Introduction
Accountancy is often referred to as an art of recording, classifying and summarizing financial
information, which involves the use of accountant’s creative skills. However, if full independence
is provided to the accountants regarding the accounting system and practices to be followed,
it is bound to result in lack of uniformity, and in some cases may end up in manipulation of
accounts. Thus, there arises a need for an accounting framework on the basis of which the
financial transactions should be recorded in the books of accounts and ultimately make the
resulting financial statements comparable. This need led to the framing of the Generally
Accepted Accounting Principles (GAAP).
Generally Accepted Accounting Principles (GAAP)
The main objective of accounting is to provide financial information to the stakeholders, thus
helping them in taking informed decisions. This financial information is normally
communicated via the financial statements, which happen to be the interface between an
organisation and its stakeholders. The financial statements are prepared from the information
contained in the books of accounts, which are based on certain Generally Accepted Accounting
Principles (GAAP).
In simple terms, Generally Accepted Accounting Principles (GAAP) is a collection of commonly
followed accounting rules and standards meant for accounting of transactions and ultimately
their reporting. It is an embodiment of rules and standards which are accepted and practiced
by the accountants. GAAP contains a set of accounting standards, principles, and procedures
that accountants must follow. These are basic accounting principles and guidelines which
provide the framework for more detailed and comprehensive accounting rules, standards and
other industry-specific accounting practices.
Accounting Standards (AS)
Accounting Standards are written policy documents which discuss the aspects of recognition,
measurement and treatment of specific accounting transactions, along with the presentation
and disclosure thereof in the financial statements of an entity. These are usually issued by
specified professional accounting bodies, or by the government, or other regulatory bodies. In
India, accounting standards are governed by The Institute of Chartered Accountants of India
(ICAI). In the US, the American Institute of Certified Public Accountants (AICPA) is responsible
to lay down the standards. The Financial Accounting Standards Board (FASB) is the body that
sets up the International Accounting Standards. These standards basically deal with accounting
treatment of business transactions and disclosing the same in financial statements.
In India, the Accounting Standards for non-corporate entities including Small and Medium
sized Enterprises, are issued by the Accounting Standards Board (ASB) of Institute of
1
CMA INTERMEDIATE
FINANCIAL ACCOUNTING Applicability of IND AS
Chartered Accountants of India (ICAI), to establish uniform standards for preparation of
financial statements, in accordance with the Indian GAAP (Generally Accepted Accounting
Practices), for better understanding of the users. However, in the case of corporate entities,
the Accounting Standards notified by the MCA are applicable. These standards are mandatory
on and from the dates specified either in the respective document or as may be notified by
the ICAI/ MCA.
It may be noted that MCA also issues the Accounting Standards for companies, based on
recommendations made by the ICAI. Accordingly MCA notifies such Accounting Standards vide
Companies (Accounting Standards) Rules and amendments thereto, applicable for companies
including Small and Medium Sized Companies to whom Indian Accounting Standards (Ind AS)
are not applicable.
Convergence to Indian Accounting Standards (Ind AS) – Applicability and Scope
In the context of financial accounting and reporting, convergence refers to the process of
harmonising the accounting standards issued by various regulatory bodies of different countries
of the world. It refers to the goal of establishing a single set of high quality accounting standard
that will be used internationally , and in particular the effort to reduce differences between
the local generally accepted accounting practice and International Financial Reporting
Standards (IFRS). IFRS are a set of accounting standards developed by the International
Accounting Standards Board (IASB). These are the global standards for the preparation of
public company financial statements
The objective of the convergence exercise is to produce a common set of high quality accounting
standards to enhance the consistency, comparability and efficiency of financial statements.
There are two aspects to the concept of convergence of accounting standards:
• International-level Convergence: It is the process within which the International Accounting
Standards Board (IASB) and National Standard-Setters (NSS) converge their respective
accounting standards into one global set of accounting regulations. This concept of a single
global comprehensive set of accounting standards is a conceptual ideal. It would help to
ensure the comparability of financial statements. Further, it would allow companies to
enjoy a lower cost of capital as a result of their financial statements being more readily
comprehended and understood. A single set of accounting standards would also ensure
lower barriers to the free movement of accountants in business across jurisdictions.
• National-level Convergence: This involves the adoption of the international accounting
standards as national GAAP. For example, the Institute of Chartered Accountants of India
(ICAI) has converged its accounting standards with those of the IASB. The two aspects are
clearly intertwined, the IASB works with the national standard setting body in one country
2
CMA INTERMEDIATE
FINANCIAL ACCOUNTING Applicability of IND AS
to converge IFRS and local generally accepted accounting practices, which has implications
for the convergence of local GAAP in another country with IAS.
In the Indian context, convergence means that the Indian Accounting Standards and the
International Financial Reporting Standards would, over time, continue working together to
develop high quality, compatible accounting standards. It would be worth noting here that
conceptually ‘convergence of accounting standards’ is different from that of ‘adoption of
accounting standards’ which means full-fledged use of IFRS as issued by the IASB by the Indian
public companies.
The Indian Accounting Standards (Ind AS), as notified under section 133 of the Companies
Act 2013, have been formulated keeping the Indian economic & legal environment in view
and with a view to converge with IFRS Standards as issued by the IFRS Foundation.
Applicability and Scope of Ind AS
Ind AS are the Indian version of IFRS which are global standards governing the accounting
aspects. These are basically standards that have been harmonised with the IFRS to make
reporting by Indian companies more globally accessible. The Ministry of Corporate Affairs
(MCA), in 2015, had notified the Companies (Indian Accounting Standards) Rules 2015, which
stipulated the adoption and applicability of IND AS in a phased manner beginning from the
Accounting period 2016-17. The MCA has since issued seven Amendment Rules, one each in
year 2016, 2017, 2018, 2019, 2020, 2021 and 2022 to amend the original 2015 rules.
Following is the timeline of applicability of Ind AS:
A. For Companies other than the Banks, Non-banking Financial Companies, and Insurance
Companies Phase-I
1. 1st April 2015 and onwards: Application on a voluntary basis for all the companies along
with comparatives.
2. 1st April 2016: Mandatory for the following companies:
• Companies listed or in the process of listing in India or outside India with a net worth
equal to or more than ₹ 500 crores
• Unlisted companies having a net worth equal to or more than ₹ 500 crores
• Holding, subsidiary, joint venture, and associate of the above companies
Phase-II: From 1st April 2017
● All the companies that are listed or in the process of listing in India or outside India that
are not covered in Phase-I
● Unlisted companies with a net worth of ₹ 250 crores or above but less than ₹ 500 crores
● Holding, subsidiary, joint venture, and associate of the above companies.
3
CMA INTERMEDIATE
FINANCIAL ACCOUNTING Applicability of IND AS
In this respect, the following points are to be noted:
● Companies that are listed on the SME exchange are not required to apply Ind AS on a
mandatory basis
● Once the company starts to follow Ind AS, whether voluntarily or mandatorily, then it shall
follow Ind AS for all the subsequent financial statements even though any of the criteria does
not subsequently apply to it.
● The companies who satisfy the above criteria in an accounting year shall immediately apply
the Ind AS in subsequent accounting year with comparatives. The Ind AS shall be applicable
on both standalone and consolidated financial statements.
● The remaining companies not covered above shall continue to apply the existing Accounting
Standards as notified in the Companies (Accounting Standards) Rules, 2006.
B. For Scheduled Commercial Banks (excluding Regional Rural Banks), Non-Banking Financial
Companies, Insurers, and Insurance Companies
(1) Non-Banking Financial Companies (NBFCs)
Phase-I: From 1st April 2018:
• Listed or unlisted NBFCs with a net worth of ₹ 500 crores or more
• Holding, subsidiary, joint venture, and associate companies of the above companies
excluding those that are already covered under the corporate roadmap.
Phase-II: From 1st April 2019
• NBFCs with a net worth of less than ₹ 500 crores whose equity or debt securities are
listed or in the process of listing on the stock exchange in India
• Unlisted NBFCs with a net worth of ₹ 250 crores or more but less than ₹ 500 crores
• Holding, subsidiary, joint venture, and associate companies of the above companies
excluding those that are already covered under the corporate roadmap.
In this respect, the following points are to be noted:
The Ind AS shall be applied on both standalone and consolidated financial statements. Also,
NBFCs with a net worth of less than ₹ 250 crores shall not apply Ind AS on a voluntary basis.
(2) Scheduled Commercial Banks (Excluding Regional Rural Banks)
Ind AS were required to be implemented by Scheduled Commercial Banks (excluding RRBs)
from 1st April 2018. However, presently it stands deferred till further notice.
(3) Insurance Companies / Insurers
The insurance companies were required to prepare Ind AS based stand-alone and consolidated
financial statements for FY 2018-19 with comparatives of FY 2017-18. The IRDA issued a
4
CMA INTERMEDIATE
FINANCIAL ACCOUNTING Applicability of IND AS
circular under Section 34 of the Insurance Act, 1938, which mandates insurers to comply
with Ind AS and its implementation Roadmap issued by the MCA.
AS 10 Ind AS 16
Does not exclude accounting for real estate Excludes the accounting for real estate developers
developers.
Specific recognition criteria for recognition of fixed No recognition criteria for fixed assets are laid out.
assets are laid out.
Components approach is followed. Does not require adoption of components
approach.
Requires organisation to choose Cost model or Recognises the revaluation of fixed assets.
Revaluation model.
Change in method of depreciation is considered as No specific guidance provided.
a change in accounting estimate.
Does not deal with jointly owned assets. Deals with fixed assets that are owned jointly with
others.
Doesn’t deal with assets held for sale. Deals with fixed assets that have been put up for
sale and that have been retired from active use.
Additional costs incurred in construction of self- No specific guidance provided.
generated asset should not be considered.
Revaluation Surplus may be transferred to Guidance note provides recycling to income
retained earnings on derecognition of asset. statement in the ratio of additional depreciation.
Gain on derecognition should be considered as No specific guidance provided.
Revenue.
PPE acquired in exchange of non-monetary asset PPE acquired in exchange is to be recorded at net
is recognised at fair value. book value of asset given up.
Ind AS 21 AS 11
Forward exchange contracts are not covered. Forward exchange contracts are included within
its scope.
Accounting of foreign operations is based on Accounting of foreign operations is based on
functional currency approach. integral and non-integral approach.
No specific guidance provided. Option to recognise exchange difference arising on
translation of certain long-term monetary items
over the period is available.
Presentation currency could be different from the No such specification provided.
local currency.
5
CMA INTERMEDIATE
FINANCIAL ACCOUNTING Applicability of IND AS
Ind AS 23 AS 16
Qualifying Assets will never Include Biological Qualifying Assets may Include Biological Assets.
Assets.
No specific definition and explanation on the Specific definition and explanation on the
understanding of substantial period of time has understanding of substantial period of time is
been provided; rather, it is a matter of judgement. provided.
Inventories which are produced in large quantities Inventories may be considered as Qualifying assets
should not be considered as Qualifying Assets. It if condition of substantial period is satisfied.
implies that Inventories which are produced in
lower quantity only can be considered as
Qualifying assets.
interest expense which is capitalized or not Disclosure is required to be made only if
capitalized during the period should be disclosed capitalization of borrowing cost has been made
separately during the period.
Borrowing costs in hyper-inflationary situation is Inflation in interest rate is not addressed.
addressed. If interest cost increase due to hyper
inflationary situation then the increase in Interest
cost should be written off in income statement.
Weighted Average capitalisation rate on No specific guidance provided.
borrowings should be disclosed in Notes to
accounts.
In consolidated financial statements, weighted No specific guidance provided.
average capitalisation rate on total borrowing of
Holding & subsidiaries is to be considered.
Ind AS 20 AS 12
Disclosure required in financial statements with No specific guidance as does not deal with other
indication on other forms of government forms of government assistance
assistance received
Government grants in the nature of capital Government grants as capital contribution are
contribution are not recognized specifically recognized
Prohibition of recognition of grants directly to the Grants for non-depreciable assets are required to
shareholder’s fund be shown as a capital reserve under shareholder’s
funds
Recognition of non-monetary grants at fair value Recognition of non-monetary grants at acquisition
cost or nominal value
No option to deduct the amount of grant from the Optional to deduct the amount of grant from the
book value of the asset. book value of the asset.
6
CMA INTERMEDIATE
FINANCIAL ACCOUNTING Applicability of IND AS
Ind AS 12 AS 22
Based on Balance Sheet approach. Based on Income Statement approach
Recognition is done based on difference between Recognises the difference between taxable income and
carrying amounts of assets and liabilities and accounting income.
their tax base.
Applies to two types of differences - Timing Applies to two types of differences - Taxable
Differences and Permanent Differences. Temporary Differences and Deductible Temporary
Differences. This standard does not address
Permanent Differences.
Deductible temporary differences are recognised Deferred taxes are recognised only when and to the
to the extent that future periods are likely to degree that there is a reasonable certainty of its
provide taxable earnings. realisation.
No concept of virtual certainty. When a corporation has unabsorbed depreciation or
losses carried forward, the deferred tax asset should
be to the degree that there is a virtual certainty
backed up by convincing evidence.
Current and deferred tax is recognised on No specific guidance provided.
income statement, except for tax that arises
from transactions done in Other Comprehensive
Income or directly in equity.
The disparity between carrying the amount of a The disparity between carrying the amount of a
revalued asset and its tax base is dealt with. revalued asset and its tax base is not covered.
