Chapter 2 : IND AS - Introduction

CHAPTER 2
IND AS - INTRODUCTION
INTRODUCTION TO INDIAN ACCOUNTING STANDARD (IND AS)
In the present era of globalisation and liberalisation, the world has become an economic village. The
globalisation of the business world, the attendant structures and the regulations, which support it, as
well as the development of e-commerce make it imperative to have a single globally accepted financial
reporting system. A number of multi-national companies are establishing their businesses in various
countries with emerging economies and vice versa. The entities in emerging economies are
increasingly accessing the global markets to fulfill their capital needs by getting their securities listed
on the stock exchanges outside their country. Capital markets are, thus, becoming integrated
consistent with this world-wide trend. More and more Indian companies are being listed on overseas
stock exchanges. The use of different accounting frameworks in different countries, which require
inconsistent treatment and presentation of the same underlying economic transactions, creates
confusion for users of financial statements. This confusion leads to inefficiency in capital markets
across the world. Therefore, increasing complexity of business transactions and globalisation of capital
markets call for a single set of high quality accounting standards.
High standards of financial reporting underpin the trust investors place in financial and nonfinancial
information. Thus, the case for a single set of globally accepted accounting standards has prompted
many countries to pursue convergence of national accounting standards with IFRS.
International Financial Reporting Standards (IFRS) are considered a "principles-based" set of standards.
In fact, they establish broad rules rather than dictating specific treatments. Every major nation is
moving toward adopting them to some extent. Large number of authorities requires public companies
to use IFRS for stock-exchange listing purposes, and in addition, banks, insurance companies and stock
exchanges may use them for their statutorily required reports. So over the next few years, thousands
of companies will adopt the international financial reporting standards while preparing their financial
statements.
GOVERNMENT OF INDIA - COMMITMENT TO IFRS CONVERGED IND AS
Consistent, comparable and understandable financial reporting is essential to develop a robust
economy. With a view to achieve international benchmarks of financial reporting, the Institute of
Chartered Accountants of India (ICAI), as a proactive role in accounting, set out to introduce Indian
Accounting Standards (Ind AS) converged with the International Financial Reporting Standards (IFRS).
This endeavour of the ICAI is supported by the Government of India.
Initially Ind AS were expected to be implemented from the year 2011. However, keeping in view the
fact that certain issues including tax issues were still to be addressed, the Ministry of Corporate Affairs
decided to postpone the date of implementation of Ind AS.
In July 2014, the Finance Minister of India at that time, Shri Arun Jaitelyji, in his Budget Speech,
announced an urgency to converge the existing accounting standards with the International Financial
Reporting Standards (IFRS) through adoption of the new Indian Accounting Standards (Ind AS) by the
Indian companies from the financial year 2015-16 voluntarily and from the financial year 2016-17 on a
mandatory basis.

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Pursuant to the above announcement, various steps have been taken to facilitate the implementation
of IFRS-converged Indian Accounting Standards (Ind AS). Moving in this direction, the Ministry of
Corporate Affairs (MCA) has 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 and NBFCs and Indian Accounting
Standards (Ind AS). As per the Notification, Indian Accounting Standards (Ind AS) converged with
International Financial Reporting Standards (IFRS) shall be implemented on voluntary basis from 1st
April, 2015 and mandatorily from 1st April, 2016.
Initially, India decided to adopt Ind AS 115 corresponding to IFRS 15 two years ahead of the world.
However, after the same were notified by the MCA, many representations were being received from
various organisations, industry associations etc. for deferring the applicability of Ind AS 115.
Considering the difficulties being faced by various industries, it was decided to defer the applicability of
Ind AS 115 and to bring Ind AS 11 and Ind AS 18 in its place. Further, there were certain amendments
that were made in IFRS/IAS issued by the IASB. The Institute of Chartered Accountants of India (ICAI) to
keep up the pace with the global developments, revised the notified Ind AS in line with the
amendments made in IFRS/IAS issued by the IASB. MCA had notified the amendments to the Ind AS
vide notification dated March 30, 2016, as Companies (Indian Accounting Standards) Amendment
Rules, 2016.
WHAT ARE INDIAN ACCOUNTING STANDARDS (IND AS)?
Indian Accounting Standards (Ind-AS) are the International Financial Reporting Standards (IFRS)
converged standards issued by the Central Government of India under the supervision and control of
Accounting Standards Board (ASB) of ICAI and in consultation with National Advisory Committee on
Accounting Standards (NACAS).
ASB is a committee under Institute of Chartered Accountants of India (ICAI) which consists of
representatives from government department, academicians, other professional bodies viz. ICSI, ICAI,
representatives from ASSOCHAM, CII, FICCI, etc. National Advisory Committee on Accounting
Standards (NACAS) recommend these standards to the Ministry of Corporate Affairs (MCA). MCA has
to spell out the accounting standards applicable for companies in India.
The Ind AS are named and numbered in the same way as the corresponding International Financial
Reporting Standards (IFRS).
WHAT ARE CARVE OUTS/INS IN IND AS?
The Government of India in consultation with the ICAI decided to converge and not to adopt IFRS
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 IAS/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, e.g., ‘statement of profit and loss’ in place of ‘statement of
comprehensive income’ and ‘balance sheet’ in place of ‘statement of financial position’.

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• Removal of options in accounting principles and practices in Ind AS vis-a-vis IFRS, have been
made to maintain consistency and comparability of the financial statements to be prepared by
following Ind AS. However, these changes will not result into carve outs.
• 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.
These differences are due to differences in application of accounting principles and practices
and economic conditions prevailing in India. These differences which are in deviation to the
accounting principles and practices stated in IFRS, are commonly known as ‘Carve-outs’.
Note: In Ind AS 103 “Business Combination”, an additional guidance on “Accounting of Business
Combinations of Entities under Common Control” is given which is over and above what is
given in IFRS. This is termed as ‘Carve-in’.
ROADMAP FOR IMPLEMENTATION OF THE INDIAN ACCOUNTING STANDARDS (IND AS)

For Companies other than banks, NBFCs and Insurance Companies

Phase I 1st April 2015 or thereafter: Voluntary Basis for all companies (with Comparatives)
1st April 2016: Mandatory Basis
(a) Companies listed/in process of listing on Stock Exchanges in India or Outside India
having net worth > INR 5 Billion
(b) Unlisted Companies having net worth > INR 5 Billion
(c) Parent, Subsidiary, Associate and J.V. of above
Phase II 1st April 2017: Mandatory Basis
(a) All companies which are listed/or in process of listing inside or outside India on Stock
Exchanges not covered in Phase I (other than companies listed on SME Exchanges)
(b) Unlisted companies having net worth INR 5 Billion > INR 2.5 Billion
(c) Parent, Subsidiary, Associate and J.V. of Above
• Companies listed on SME exchange not required to apply Ind AS.
• Once Ind AS are applicable, an entity shall be required to follow the Ind AS for all the
subsequent financial statements.
• Companies not covered by the above roadmap shall continue to apply existing Accounting
Standards notified in Companies (Accounting Standards) Rules, 2006.
For Scheduled Commercial Banks (Excluding RRBs), Insurers/Insurance Companies and Non-Banking
Financial Companies (NBFC’s)
Non-Banking Financial Companies (NBFC’s)
Phase I: From 1st April, 2018 (with comparatives)
(a) NBFCs (whether listed or unlisted) having net worth 500 crore or more

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(b) Holding, Subsidiary, JV and Associate companies of above NBFC other than those
already covered under corporate roadmap shall also apply from said date
Phase II: From 1st April, 2019 (with comparatives)
(a) NBFCs whose equity and/or debt securities are listed or are in the process of listing on
any stock exchange in India or outside India and having net worth less than 500 crore
(b) NBFCs that are unlisted having net worth 250 crore or more but less 500 crore
(c) Holding, Subsidiary, JV and Associate companies of above other than those already
covered under corporate roadmap shall also apply from said date
• Applicable for both Consolidated and individual Financial Statements
• NBFC having net worth below 250 crore shall not apply Ind AS.
• Adoption of Ind AS is allowed only when required as per the roadmap.
• Voluntary adoption of Ind AS is not allowed.
Scheduled Commercial banks (excluding RRB’s)
Scheduled Commercial Banks (SCBs) excluding Regional Rural Banks (RRBs) were initially required to
implement Indian Accounting Standards (Ind AS) from 1 April 2018. RBI vide a press release dated 5
April 2018, deferred the implementation of Ind AS by one year i.e. from 1 April 2019. However, later on
it deferred the Ind AS implementation till further notice RBI through a notification dated 22 March
2019.
Insurers/Insurance companies
The Insurance Regulatory and Development Authority (IRDA) has deferred the date of implementation
of Indian Accounting Standard (Ind-AS) for the insurance sector from FY20-21 till further notice.
Clarifications
How to calculate Net Worth?
Net worth for a company is to be calculated in accordance with its SFS as on 31st March 2014 or the
first financial audited statements for accounting period which ends after that date. Accordingly, if a
company has net worth more than INR 500 crores as of 31st March 2015, then it will be covered in the
Phase 1 itself and apply Ind AS from financial year beginning on or after 1st April 2016.
For the purpose of computing the net worth, reference should be made to the definition under the
Companies Act, 2013. In accordance with section 2(57) of the Companies Act, 2013, net worth means
the aggregate value of the paid-up share capital and all reserves created out of the profits and
securities premium account, after deducting the aggregate value of the accumulated losses, deferred
expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does
not include reserves created out of revaluation of assets, write-back of depreciation and
amalgamation.

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Companies not covered in the roadmap

• Companies whose securities are listed or in the process of listing on SME exchanges. These
companies shall continue to comply with the existing accounting standards unless they
choose otherwise.
• Companies not covered by the roadmap shall continue to apply the existing accounting
standards prescribed in the Annexure to the Companies (Accounting Standards) Rules, 2006.
• Once a company opts to follow the Indian Accounting Standards (Ind AS), it shall be required
to follow the Ind AS for all the subsequent financial statements.
Standalone and consolidated financial statements
It is now clear that Ind AS will apply to both consolidated and stand-alone financial
statements of a company covered by the roadmap. This is helpful as companies will not have
to maintain dual accounting systems.
Foreign operations
It is a relief that an overseas subsidiary, associate or joint venture of an Indian company is
not required to prepare its stand-alone financial statements as per the Ind AS, and instead,
may continue with its jurisdictional requirements. However, these entities will still have to
report their Ind AS adjusted numbers for their Indian parent company to prepare
consolidated Ind AS accounts.
DIVISION II OF THE SCHEDULE III TO THE COMPANIES ACT, 2013
The Ministry of Corporate Affairs vide its notification dated 6th April, 2016 notified amendments to
Schedule III to the Companies Act, 2013 thereby inserting Division II to Schedule III for preparation of
financial statements by those entities who have to comply with Indian Accounting Standards (Ind AS).
Now
1. Division I is applicable to a company whose financial statements are required to comply with
the current accounting standards
2. Division II is applicable to a company whose financial statements are drawn up in compliance
with Ind AS.
3. Division III, which is applicable to Non-Banking Finance Companies whose financial statements
are drawn up incompliance with Ind AS.
Points for consideration
• All companies that prepare, either voluntarily or mandatorily, Financial Statements in
compliance with the Companies Ind AS Rules, should consider Ind AS Schedule III as well as this
Guidance Note.
• The requirements of Ind AS Schedule III however, do not apply to companies as referred to in
the proviso to Section 129(1) of the Act, i.e., any insurance or banking company, or any
company engaged in the generation or supply of electricity or to any other class of company for
which a form of Balance Sheet and Statement of Profit and Loss has been specified in or under

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any other Act governing such class of company. Moreover, the requirements of Ind AS Schedule
III do not apply to Non-Banking Finance Companies (NBFCs) that adopt Ind AS.
• It may, however, be clarified that for companies engaged in the generation and supply of
electricity, neither the Electricity Act, 2003, nor the rules framed there under, prescribe any
specific format for presentation of Financial Statements by an electricity company. Section 1(4)
of the Act states that the Act will apply to electricity companies, to the extent it is not
inconsistent with the provisions of the Electricity Act. Keeping this in view, Ind AS Schedule III as
applicable may be followed by such companies till the time any other format is prescribed by
the relevant statute.
• Listed entities shall follow guidelines issued by SEBI by way of circulars prescribing formats for
publishing financial results (quarterly, half yearly and annual) which is guided by the relevant
provisions of the Ind AS and Ind AS Schedule III and may make suitable modifications, as
applicable.
❖ Applicability
✓ It is applicable to every company to which Ind AS apply in preparation of its financial
statements.
✓ The provisions of Schedule III also apply when a company is required to prepare consolidated
financial statements, in addition to the disclosure requirements specified under Ind AS.
✓ Financial Statements include Balance Sheet, Statement of Changes in Equity for the period,
Statement of Profit and Loss for the period and Notes. Cash Flow Statement shall be prepared
in accordance with the requirements of the relevant Ind AS.
✓ The Ind AS Schedule III requires that if the compliance with the requirements of the Act
including Ind AS as applicable to the companies, require any change in presentation or
disclosure in the Financial Statements, the requirements of Ind AS Schedule III will stand
modified accordingly.
❖ Balance Sheet
✓ Schedule III provides a format of the balance sheet and sets out the minimum requirements of
disclosure on the face of the balance sheet
✓ Items presented in the balance sheet are to be classified as current and non-current.
✓ Schedule III does not permit companies to avail of the option of presenting assets and liabilities
in the order of liquidity, as provided by Ind AS 1, Presentation of Financial Statements.
❖ Statement of Profit and Loss
✓ Schedule III provides a format of the statement of profit and loss and sets out the minimum
requirements of disclosure on the face of the statement of profit and loss.
✓ The statement of profit and loss is to be presented in accordance with the nature of expenses
and would include profit or loss for the period and other comprehensive income for the period.

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❖ Statement of changes in Equity

✓ This is a new component for preparers of financial statements that have historically prepared
financial statements under Indian GAAP.
✓ The Statement of changes in equity would reconcile opening to closing amounts for each
component of equity including reserves and surplus and items of other comprehensive income.
✓ The format also includes disclosure of the equity component of compound financial
instruments in ‘other equity’, which is in accordance with Ind AS 32, Financial Instruments:
Presentation.
❖ Statement of Cash Flows
✓ The Statement of cash flows would be presented when required in accordance with Ind AS7,
Statement of Cash Flows.
❖ Notes
✓ Notes containing information in addition to that which is presented in the financial statements
would be provided, including, where required, narrative descriptions or disaggregation of items
recognised in the financial statements and information about items that do not qualify for such
recognition.
✓ Disclosure under Ind AS (for e.g., fair value measurement reconciliation, fair value hierarchy,
risk management and capital management, disclosure of interests in other entities,
components of other comprehensive income, reconciliations on first-time adoption of Ind AS,
etc.) shall be made in the Notes or by way of additional statement(s) unless required to be
disclosed on the face of the Financial Statements.
❖ Compliance with Ind AS and the Companies Act, 2013
✓ In situations where compliance with the requirements of the 2013 Act including Ind AS requires
any change in treatment or disclosure (including addition, amendment, substitution or deletion
in the head/sub-head or any changes in the financial statements or statements forming part
thereof) in the formats given in Schedule III, then Schedule III permits such changes to be made
and the requirements of Schedule III would stand modified accordingly.
❖ Conflict of requirements of Ind AS and Schedule III
✓ It further mentions that disclosure requirements specified in Schedule III would be in addition
to and not in substitution of the disclosure requirements specified in Ind AS. Companies would
be required to make additional disclosures specified in Ind AS either in the notes or by way of
additional statement(s) unless required to be disclosed on the face of financial statements.
Similarly, all other disclosures as required by the 2013 Act should be made in the notes in
addition to the requirements of Schedule III.
✓ This is an important provision, as it clarifies that in situations where an accounting treatment or
disclosure in an Ind AS is in conflict with the requirements of Schedule III, companies are
required to comply with the relevant Ind AS.

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❖ General Instruction
✓ Where any Act or Regulation requires specific disclosures to be made in the Financial
Statements of a company, the said disclosures shall be made in addition to those required
under Ind AS Schedule III.
✓ Note 8 to General Instructions for Preparation of Financial Statements in Ind AS Schedule III
states that the terms used in the Ind AS Schedule III will carry the meaning as defined by the
applicable Ind AS.
For example, the terms such as ‘associate’, ‘related parties’, etc. will have the same meaning as
defined in Ind AS notified under the Companies Ind AS Rules.
✓ For any terms which are not specifically defined in Ind AS, attention may also be drawn to the
Framework for the preparation and presentation of Financial Statements in accordance with
Indian Accounting Standards (‘Ind AS Framework’) issued by ICAI. However, if any term is not
defined in the Ind AS Framework, the entity may give consideration to the principles described
in Ind AS 8 for the purpose of developing and applying an accounting policy.
✓ A General Instruction on ‘Materiality’ has been included in Note 7 to General Instructions for
Preparation of Financial Statements requiring Financial Statements to disclose items that could,
individually or collectively, influence the economic decisions that users make on the basis of the
Financial Statements. Materiality depends on the size or nature of the item or a combination of
both, to be judged based on particular facts and in particular circumstances.
✓ Moreover, Ind AS 1 states w.r.t. ‘materiality’ that an entity shall present separately each
material class of similar items. An entity shall present separately items of a dissimilar nature or
function unless they are immaterial except when required by law.
LIST OF INDIAN ACCOUNTING STANDARDS

Ind AS Title of Ind AS

101 First Time Adoption of Indian Accounting Standards
102 Share Based Payment
103 Business Combinations
104 Insurance Contracts
105 Non-current Assets Held for Sale and Discontinued Operations
106 Exploration for and Evaluation of Mineral Resources
107 Financial Instruments: Disclosures
108 Operating Segments
109 Financial Instruments
110 Consolidated Financial Statements
111 Joint Arrangements
112 Disclosure of Interests in Other Entities
113 Fair Value Measurement
114 Regulatory Deferral Accounts
115 Revenue from Contracts with Customers

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116 Leases
1 Presentation of Financial Statements
2 Inventories
7 Statement of Cash Flows
8 Accounting Policies, Changes in Accounting Estimates and Errors
10 Events after the Reporting Period
12 Income Taxes
16 Property, Plant and Equipment
19 Employee Benefits
20 Accounting for Government Grants and Disclosure of Government Assistance
21 The Effects of Changes in Foreign Exchange Rates
23 Borrowing Costs
24 Related Party Disclosures
27 Separate Financial Statements
28 Investment in Associates and Joint Ventures
29 Financial Reporting in Hyperinflationary Economies
32 Financial Instruments: Presentation
33 Earnings per Share
34 Interim Financial Reporting
36 Impairment of Assets
37 Provisions, Contingent Liabilities and Contingent Assets
38 Intangible Assets
40 Investment Property
41 Agriculture

QUESTIONS FROM RTP/MTP/EXAMS

Q1: Fresh Vegetables Limited (FVL) was incorporated on 2nd April, 20X1 under the provisions of the
Companies Act, 2013 to carry on the wholesale trading business in vegetables. As per the
audited accounts of the financial year ended 31st March, 20X7 approved in its annual general
meeting held on 31st August, 20X7 its net worth, for the first time since incorporation,
exceeded ₹ 250 crore. The financial statements since inception till financial year ended 31st
March, 20X6 were prepared in accordance with the Companies (Accounting Standards) Rules
2006. It has been advised that henceforth it should prepare its financial statements in
accordance with the Companies (Indian Accounting Standards) Rules, 2015.

The following additional information is provided by the Company:

– FVL has in the financial year 20X2-20X3 entered into a 60:40 partnership with Logistics
Limited and incorporated a partnership firm 'Vegetable Logistics Associates' (VLA) to
carry on the logistics business of vegetables from farm to market.

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– FVL also has an associate company Social Welfare Limited (SWL) that was incorporated
in July, 20X5 as a charitable organization and registered under section 8 of the
Companies Act, 2013. Social Welfare Limited has been the associate company of FVL
since its incorporation.

Examine the applicability of Ind AS on VLA & SWL. [RTP May 2022]

Ans: Applicability of Ind AS in general:

• Currently Ind AS is applicable to the following companies except for companies other
than banks and Insurance Companies, on mandatory basis:

(a) All companies which are listed or in process of listing in or outside India on Stock
Exchanges.

(b) Unlisted companies having net worth of ₹ 250 crore or more but less than ₹ 500
crore.

(c) Holding, Subsidiary, Associate and Joint venture of above.

• Companies listed on SME exchange are not required to apply Ind AS on mandatory
basis.

• Once a company starts following Ind AS either voluntarily or mandatorily on the basis of
criteria specified, it shall be required to follow Ind AS for all the subsequent financial
statements even if any of the criteria specified does not subsequently apply to it.

• Application of Ind AS is for both standalone as well as consolidated financial statements

if threshold criteria met or adopted voluntarily.

• Companies meeting the thresholds for the first time at the end of an accounting year
shall apply Ind AS from the immediate next accounting year with comparatives.

• Companies not covered by the above roadmap shall continue to apply existing
Accounting Standards notified in the Companies (Accounting Standards) Rules, 2006.

Since the net worth of FVL in immediately preceding year exceeded ₹ 250 crore, Ind AS is
applicable to it. The entity VLA and SWL have to be examined as they may fall in criteria (c)
above.

Applicability of Ind AS on VLA

Joint arrangement can be either joint operation or joint venture. However, for the purpose of
identifying the applicability of Ind AS, the Act defines Joint venture (as an explanation to section
2(6) of the Companies Act, 2013), as follows:

“The expression "joint venture" means a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement”.

Accordingly, if an entity is classified as joint operation and not joint venture, then Ind AS would
not be applicable to such entity.

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In the case of VLA, if partners conclude that they have rights in the assets and obligations for
the liabilities relating to the partnership firm then this would be a joint operation. However, Ind
AS would not be applicable on VLA in such a case since it is the case of joint operation (and not
a joint venture).

Alternatively, if partners conclude that they have joint control of the arrangement and have
rights to the net assets of the arrangement relating to the partnership firm, then this would be
a joint venture. In such a case, Ind AS would be applicable to them.

Applicability of Ind AS on SWL

Social Welfare Limited (SWL) is the associate company of FVL. Accordingly, Ind AS would be
applicable on SWL too irrespective of the fact that SWL has been incorporated as a charitable
organisation.

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