[Commerce Class Notes] on Development of Indian Accounting Standards Pdf for Exam

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.

Table of Contents

• Indian Accounting Standards – Introduction 

• Formulation of the Indian Accounting Standards

• Significance of Indian Accounting Standards

• Applicability of Indian Accounting Standards

• Phases of Adoption of Indian Accounting Standards

• Key learnings 

• Frequently asked questions 

Inception of 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 the 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).

Formulation of the Indian Accounting Standards

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.

Significance of Indian Accounting Standards

The Indian AS helps 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 helps 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.

Applicability of Indian Accounting Standards

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.

Phases of Adoption of Indian Accounting Standards

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)

Phase I

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).

Phase II

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).

Phase III

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.

Phase IV

From 1st April 2019, Indian AS are mandatorily applicable to all NBFCs provided:

When the Ind AS becomes applicable to a company, it shall by default apply to:

Key Learning from The Article

• IFRS is the global accounting standard on the basis of which an Indian standard GAAP has been formulated.

• ICAI is the authority to regulate, control and monitor the accounting standards in India.

• The Indian Accounting Board formulated the standards on the basis of IFRS.

• The AS is incorporated under the Companies Act of 1956 and further modifications are done under the Companies Act 2013.

• The Ministry of corporate affairs is the responsible ministry.

• The accounting standards were adopted in four different phases.