Indian Accounting Standards, Applicability, Key Provisions

Indian Accounting Standards are a set of rules and guidelines that tell companies in India how to record, measure and report financial information. These standards are issued by the Accounting Standards Board under the Institute of Chartered Accountants of India. The purpose of these standards is to bring uniformity, reliability and transparency in financial statements so that all companies follow the same method while preparing accounts. They help investors, regulators, lenders and other users understand financial statements easily. Indian Accounting Standards are also aligned with International Financial Reporting Standards to match global practices. By following these standards, companies present a true and fair picture of their financial performance. This improves trust, reduces confusion and supports better decision making.

Applicability of Indian Accounting Standards (Ind AS):

1. Mandatory Applicability for Companies (Phase I & II)

Ind AS is mandatorily applicable to certain classes of companies as notified by the Ministry of Corporate Affairs (MCA). This includes:

• Listed and Unlisted Companies (including holding, subsidiary, associate, and joint venture companies) with net worth ≥ ₹500 crore.
• All Listed Companies (on any stock exchange in India or outside).
• Unlisted Companies with net worth ≥ ₹250 crore but < ₹500 crore.

  Net worth is calculated as per the standalone accounts of the previous financial year.

2. Voluntary Adoption and Roadmap

Companies not meeting the mandatory criteria can voluntarily adopt Ind AS, provided they make an irrevocable choice. Once adopted, they must comply with all standards consistently. The roadmap also specifies that once a company starts using Ind AS, its holding, subsidiary, associate, and joint venture companies are also required to adopt Ind AS for their consolidated financial statements, ensuring uniformity across the group regardless of their individual net worth.

3. Exemptions and Non-Applicability

Certain entities are exempted or prohibited from applying Ind AS:

• Banks, NBFCs, and Insurance Companies follow standards prescribed by their respective regulators (RBI, IRDAI).
• Small and Medium-sized Companies (SMCs) as defined under the Companies Act, 2013, can continue using the existing Accounting Standards (AS).
• Non-profit organizations and entities whose securities are listed or in the process of listing on SME exchanges are not required to adopt Ind AS.

4. Applicability for Consolidated Financial Statements

The applicability rules are stricter for consolidated financial statements. If a parent company is required to adopt Ind AS (mandatorily or voluntarily), it must prepare its consolidated financial statements in Ind AS, even if its subsidiary, associate, or joint venture individually does not meet the net worth or listing criteria. This ensures the entire group’s consolidated view is presented under a single, high-quality set of accounting standards.

Key Indian Accounting Standards (Ind AS):

• Ind AS 1: Presentation of Financial Statements

Defines overall structure and minimum content requirements for financial statements (Balance Sheet, P&L, etc.) to ensure comparability and fair presentation under the going concern assumption.

• Ind AS 2: Inventories

Prescribes accounting treatment for inventories, including cost formulas (FIFO/Weighted Average) and measurement at lower of cost and net realizable value, excluding biological assets.

• Ind AS 7: Statement of Cash Flows

Mandates presentation of cash flows classified by operating, investing, and financing activities, providing insights into liquidity, solvency, and cash-generating ability.

• Ind AS 16: Property, Plant and Equipment

Covers recognition, initial measurement at cost, subsequent measurement (cost or revaluation model), depreciation, and derecognition of tangible fixed assets used in operations.

• Ind AS 38: Intangible Assets

Defines criteria for recognizing intangible assets (like software, patents) separately from goodwill, and specifies amortization and impairment testing for assets with finite lives.

• Ind AS 109: Financial Instruments

Comprehensive standard for classification, measurement (amortized cost, FVTPL, FVOCI), impairment (Expected Credit Loss model), and hedge accounting of financial assets and liabilities.

• Ind AS 115: Revenue from Contracts with Customers

Core principle: recognize revenue when control of goods/services transfers to the customer, at an amount reflecting the consideration expected.

• Ind AS 116: Leases

Requires lessees to recognize most leases on-balance sheet as a Right-of-Use Asset and Lease Liability, fundamentally changing lease accounting from prior operating lease treatment.