UNIT 2: INTRODUCTION TO AS AND Ind AS

Accounting Standards are accounting rules and procedures relating to

measurement, valuation and disclosure issued by the Council of the Institute of
Chartered Accountants of India. They are stated to be the norms of accounting
policies and practices by way of guidelines that should be followed while
preparing accounts and disclosed in the annual financial statements. They are
intended to apply only to items which are material. Accounting Standards are
mandatory in nature. They are mainly applicable to the published accounts of
Limited Companies. The accounting standards apply to the preparation of
general-purpose financial statements i.e., Balance Sheet, Profit & Loss account
and other statements.
If the financial accounting process is not properly regulated, there is possibility
of financial statements being misleading, tendentious and providing a distorted
picture of the business, rather than the true. To ensure transparency,
consistency, comparability, adequacy and reliability of financial reporting, it is
essential to standardize the accounting principles and policies. Accounting
Standards provide framework and standard accounting policies for treatment of
transactions and events so that the financial statements of different enterprises
become comparable. Accounting standards are written policy documents issued
by the expert accounting body or by the government or other regulatory body
covering the aspects of recognition, measurement, presentation and disclosure
of accounting transactions and events in the financial statements.
OBJECTIVES OF ACCOUNTING STANDARDS
 Ensure companies in India adopt these standards to implement
internationally recognized best practices.
 Ensure that compliance is maintained worldwide.
 Have a single framework for a single accounting system.
 The standard was developed in accordance with IFRS principles.
Therefore, it serves as a guide for the implementation of the standard.
 Accounting systems used in India can be analyzed and understood by
global companies.
 This will make the annual financial statements and company accounts
transparent.
 These standards are harmonized to ensure that companies comply with
global requirements.
 A wider scope is acceptable through this Indian accounting standard as
Indian companies have expanded their global scope as compared to the
past.

BENEFITS OF ACCOUNTING STANDARDS

 Harmonization:
By adopting these standards, companies can harmonize accounting rules.
Global accounting principles can be built through harmonization.
 International Base:
These are Internationally recognized accounting standards. So, when a
company wants to expand internationally, such principles are adopted.

 Global Acceptance:
The existence of these standards guarantees international recognition of all
government institutions and agencies.
 Compliance:
By adopting these standards, companies can ensure effective compliance.

PROCEDURE FOR ISSUING ACCOUNTING STANDARDS

1.Determination of the board areas in which Accounting Standards need to be
formulated.
2. Formulation of Study groups. At the time of formulation of study groups,
provisions will be made for wide participation by the members of The Institute
for Chartered Accountants of India and others. The study groups will help ASB
in the preparation of the Accounting Standard.
3. Holding of dialogue by ASB with the representatives of the government,
Public Sector Undertakings, Industry and other organisations for ascertaining
their views.
4. Preparation and publication of an exposure draft of the proposed standard
for comments by the members of the Institute and the public at large. An
exposure draft is prepared on the basis of the work of the study groups and the
dialogue with different parties as mentioned above.
The draft of the proposed standard will include the following basic points:
(a) A statement of concepts and fundamental accounting principles relating to
the standard.
(b) Definitions of the terms used in the standard.
(c)The manner in which the accounting principles have been applied for
formulating the standard.
(d) The presentation and disclosure requirements in complying with the
standard.
(e) Class of enterprises to which the standard will apply.
(f) Date from which the standard will be effective.
5.Finalization of the draft by ASB after considering the comments received from
different corners.
6.Submission of the final draft to the Council of the Institute of Chartered
Accountants of India.
7.The Council will consider the final draft to the proposed standard and if found
necessary modify the same in consultation with ASB.
8.Publication of the standard on the relevant subject under the authority of the
Council.

NEED FOR CONVERGENCE TOWARDS GLOBAL STANDARDS

The last decade has witnessed a sea change in the global economic scenario.
The emergence of trans-national corporations in search of money, not only for
fueling growth, but to sustain on going activities has necessitated raising of
capital from all parts of the world, cutting across frontiers. Each country has its
own set of rules and regulations for accounting and financial reporting.
 Therefore, when an enterprise decides to raise capital from the markets
other than the country in which it is located, the rules and regulations of that
other country will apply and this in turn will require that the enterprise is in
a position to understand the differences between the rules governing
financial reporting in the foreign country as compared to its own country of
origin. Therefore, translation and reinstatements are of utmost importance
in a world that is rapidly globalizing in all ways.
 In themselves also, the accounting standards and principle need to be robust
so that the larger society develops degree of confidence in the financial
statements, which are put forward by organizations. International analysts
and investors would like to compare financial statements based on similar
accounting standards, and this has led to the growing support for an
internationally accepted set of accounting standards for cross-border lings.
 The harmonization of financial reporting around the world will help to raise
confidence of investors generally in the information they are using to make
their decisions and assess their risks. Also, a strong need was felt by
legislation to bring about uniformity, rationalization, comparability,
transparency and adaptability in financial statements. Having a multiplicity
of accounting standards around the world is against the public interest. If
accounting for the same events and information produces different reported
numbers, depending on the system of standards that are being used, then it
is self-evident that accounting will be increasingly discredited in the eyes of
those using the numbers. It creates confusion, encourages error and
facilitates fraud. The cure is to have a single set of global standards, of the
highest quality, set in the interest of public.
 Global Standards facilitate cross border ow of money, global listing in
different bourses and comparability of financial statements. The convergence
of financial reporting and accounting standards is a valuable process that
contributes to the free ow of global investment and achieves substantial
benefits for all capital market stakeholders. It improves the ability of
investors to compare investments on a global basis and thus lowers their risk
of errors of judgment. It facilitates accounting and reporting for companies
with global operations and eliminates some costly requirements say
reinstatement of financial statements. It has the potential to create a new
standard of accountability and greater transparency, which are values of
great significance to all market participants including regulators. It reduces
operational challenges for accounting rms and focuses their value and
expertise around an increasingly unified set of standards. It creates an
unprecedented opportunity for standard setters and other stakeholders to
improve the reporting model. For the companies with joint listings in both
domestic and foreign country, the convergence is very much significant.
INDIAN ACCOUNTING STANDARDS (IND AS)
• The Institute of Chartered Accountants of India (ICAI) being the
accounting standards-setting body in India, way back in 2006, initiated
the process of moving towards the International Financial Reporting
 Standards (IFRSs) issued by the International Accounting Standards
Board (IASB) with a view to enhance acceptability and transparency of
the financial information communicated by the Indian corporates through
their financial statements. This move towards IFRS was subsequently
accepted by the Government of India.
• The Government of India in consultation with the ICAI decided to
converge and not to adopt IFRSs 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 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. 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.
• Ind AS are IFRS converged standards issued by the Central Government
of India under the supervision and control of ASB of ICAI and in
consultation with National Advisory Committee on Accounting Standards
(NACAS).
• NACAS recommends these standards to the MCA. MCA has to spell out
the accounting standards applicable for companies in India. Consistent,
comparable and understandable financial reporting is essential to
develop a robust economy. With a view to achieve international
benchmarks of financial reporting, the ICAI, as a proactive role in
accounting, set out to introduce Ind AS converged with the IFRS. This
endeavor of the ICAI is supported by the Government of India.
• Initially Ind AS were expected to be implemented from 2011. However,
keeping in view the fact that certain issues including tax issues were still
to be addressed, the MCA decided to postpone the date of
implementation of Ind AS in India.
• In July 2014, the Finance Minister of India at that time, Late Shri Arun
Jaitley Ji, in his Budget Speech, announced an urgency to converge the
existing accounting standards with the IFRS through adoption of the Ind
AS by the Indian companies.
• Pursuant to the above announcement, various steps have been taken to
facilitate the implementation of IFRS-converged Ind AS. Moving in this
direction, the MCA issued the Companies (Indian Accounting Standards)
Rules, 2015 vide Notification dated February 16, 2015 covering the
revised roadmap of implementation of Ind AS for companies other than
Banking companies, Insurance Companies, NBFCs & Ind AS.
• As per the Notification, Ind AS converged with IFRS were required to be
implemented on voluntary basis from 1st April, 2015 and mandatorily
from 1st April, 2016.
• Separate roadmaps were prescribed for implementation of Ind AS to
Banking, Insurance companies and NBFCs.
Applicability of IND AS –The Ministry of Corporate Affairs (MCA), in 2015,
had notified the Companies (Indian Accounting Standards (IND AS)) 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 three Amendment Rules, one each in year 2016, 2017, and 2018 to
amend the 2015 rules. The IND AS are basically standards that have been
harmonised with the IFRS to make reporting by Indian companies more globally
accessible.
Since Indian companies have a far wider global reach now as compared to
earlier, the need to converge reporting standards with international standards
was felt, which has led to the introduction of IND AS.
Phases of adoption: MCA has notified a phase-wise convergence to IND AS
from current accounting standards. IND AS shall be adopted by specific classes
of companies based on their Net worth and listing status.
Phase I
Mandatory applicability of IND AS to all companies from 1st April 2016,
provided:
 It is a listed or unlisted company
 Its Net worth is greater than or equal to Rs. 500 crore*
*Net worth shall be checked for 3 previous Financial Years (2013-14, 2014-15,
2015-16).
Phase II
Mandatory applicability of IND AS to all companies from 1st April 2017,
provided:
 It is a listed company or is in the process of being listed (as on
31.03.2016)
 Its Net worth is greater than or equal to Rs. 250 crore but less than Rs.
500 crore (for any of the below mentioned periods).
Net worth shall be checked for 4 previous Financial Years (2014-14, 2014-15,
2015-16, 2016-17)
Phase III
Mandatory applicability of IND AS to all Banks, NBFCs, and Insurance
companies from 1st April 2018, whose:
 Net worth is more than or equal to INR 500 crore with effect from 1st
April 2018.
 IRDA (Insurance Regulatory and Development Authority) of India shall
notify the separate set of IND-AS for Banks & Insurance Companies with
effect from 1st April 2018. NBFCs include core investment companies,
stock brokers, venture capitalists, etc. Net Worth shall be checked for the
past 3 financial years (2015-16, 2016-17, and 2017-18)
Phase IV
All NBFCs whose Net worth is more than or equal to INR 250 crore but less
than INR 500 crore shall have IND AS mandatorily applicable to them with
effect from 1st April 2019.
Please Note: If IND AS becomes applicable to any company, then IND AS
shall automatically be made applicable to all the subsidiaries, holding
companies, associated companies, and joint ventures of that company,
irrespective of individual qualification of such companies. In case of foreign
operations of an Indian Company, the preparation of stand-alone financial
statements may continue with its jurisdictional requirements and need not be
prepared as per the IND AS. However, these entities will still have to report
their IND AS adjusted numbers for their Indian parent company to prepare
consolidated IND AS accounts.
Voluntary adoption
Companies can voluntarily choose to incorporate IND AS in their reports for
accounting periods beginning on or after April 01, 2015. While reporting, such
companies must include a comparative report for the periods ending 31 March
2015 or thereafter, where IND AS have been incorporated to present a
comparative view. However, once a company has started reporting as per the
IND AS, it cannot change to reporting as per previous laws.
SEBI Clarification
For all the issuer companies whose offer documents are filed with SEBI on or
after 1st April 2016, SEBI has issued a clarification on the applicability of the
Indian Accounting Standards (IND AS) and disclosures to be made in the offer
documents. Typically, SEBI requires issuer companies to disclose financial
information for the previous 5 financial years immediately preceding the year of
filing of the offer document, while following uniform accounting policies for
each of the financial years. For those issuer companies filing an offer document
these points can be noted:
 Up to March 31, 2017, all of the financial statements filed by them can be
under Indian GAAP. Between April 1, 2017 and March 31, 2018, disclosures
in the previous three financial years immediately preceding the relevant
financial year will have to be made under the IND AS principles, while
disclosures for the remaining two financial years may be done under Indian
GAAP.
 Between April 1, 2018, and March 31, 2019, disclosures in the previous
three financial years immediately preceding the relevant financial year will
have to be made under the IND AS principles, while disclosures for the
remaining two financial years may be done under Indian GAAP.
 Between April 1, 2019 and March 31, 2020, disclosures in the previous four
financial years immediately preceding the relevant financial year will have to
be made under the IND AS principles, while disclosures for the remaining
one financial year may be done under Indian GAAP. On or after April 1,
2020, disclosures in all the previous five financial years will have to be made
as per the IND AS principles.
SEBI has also provided discretion to issuer companies to present financial
statements for all five financial years under IND AS on a voluntary basis. This
clarification does not apply to issuer companies making rights issue. The major
standards are listed here below:
Ind AS 101 First-time adoption of Ind AS
Ind AS 102 Share Based payments
Ind AS 103 Business Combination
Ind AS 104 Insurance Contracts
Ind AS 105 Non-Current Assets Held for Sale and Discontinued Operations
Ind AS 106 Exploration for and Evaluation of Mineral Resources
Ind AS 107 Financial Instruments: Disclosures
Ind AS 108 Operating Segments
Ind AS 109 Financial Instruments
Ind AS 110 Consolidated Financial Statements
Ind AS 111 Joint Arrangements
Ind AS 112 Disclosure of Interests in Other Entities
Ind AS 113 Fair Value Measurement
Ind AS 114 Regulatory Deferral Accounts
Ind AS 115 Revenue from Contracts with Customers
Ind AS 1 Presentation of Financial Statements
Ind AS 2 Inventories Accounting
Ind AS 7 Statement of Cash Flows
Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Ind AS 10 Events after Reporting Period
Ind AS 11 Construction Contracts
Ind AS 12 Income Taxes
Ind AS 16 Property, Plant and Equipment
Ind AS 17 Leases
Ind AS 18 Revenue
Ind AS 19 Employee Benefits
Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance
Ind AS 21 The Effects of Changes in Foreign Exchange Rates
Ind AS 23 Borrowing Costs
Ind AS 24 Related Party Disclosures
Ind AS 27 Separate Financial Statements
Ind AS 28 Investments in Associates and Joint Ventures
Ind AS 29 Financial Reporting in Hyperinflationary Economies
Ind AS 32 Financial Instruments: Presentation
Ind AS 33 Earnings per Share
Ind AS 34 Interim Financial Reporting
Ind AS 36 Impairment of Assets
Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets
Ind AS 38 Intangible Assets
Ind AS 40 Investment Property
Ind AS 41 Agriculture