CHAPTER 1

INTRODUCTION TO INDIAN
ACCOUNTING STANDARDS
LEARNING OUTCOMES
After studying this chapter, you will be able to:
 Appreciate the concept of Accounting Standards
 Grasp the Indian scenario prior to Ind AS and the need of time leading to emergence
of global accounting standards
 Acknowledge the benefits of global accounting standards
 Distinguish between convergence and adoption of global accounting standards
 Discuss about Ind AS transition in India and benefits thereof
 Recognise the process of development and finalisation of Ind AS (IASB to ICAI to
MCA)
 Describe India’s roadmap for applicability of Ind AS for listed and unlisted entities,
NBFCs, banking and insurance sector
 Illustrate the salient features of Ind AS like numbering, flow and structure
 Tabulate the important statutory provisions under the Companies Act and SEBI
regulations involving Ind AS
 Identify the format of balance sheet, statement of changes in equity, profit and loss
and significant notes related to them as given in Division II to Schedule III to the
Companies Act, 2013
 Analyse key takeaways from guidance note on Division II to Schedule III to the
Companies Act, 2013
 1.2 2.2 FINANCIAL REPORTING

CHAPTER OVERVIEW

Introduction

Indian Scenario prior to introduction of Ind AS in India

Limitations of AS
Emergence of Global Standards
Need for Global standard in India
Benefits of Global Accounting Standards
Convergence vs Adoption of IFRS
Introduction to Process of development and finalisation of Ind AS
Indian
Accounting
Transition from AS to Ind AS About Indian Accounting Standards
Standards
How Ind AS has been numbered
How Ind AS has been structured
Roadmap for applicability of For listed entities
Ind AS
Ind AS Roadmap for Non -Banking
Financial Companies (NBFC)
Ind AS Roadmap for Banking and
Insurance Companies
Ind AS Roadmap for Mutual Funds

Ind AS relevant Statutory Relevant Sections referring Ind AS in

Provisions the Companies Act, 2013 and Rules
Relevant SEBI Rules and
Regulations
Format of Division II to Schedule Part I - Format of Balance Sheet and
III to the Companies Act - Statement of Changes in Equity
Structure
Part II – Statement of Profit and Loss

Guidance Note on Division II to Schedule III to the Companies Act, 2013

 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.3 1.3

1. INTRODUCTION
A set of financial statements are a key tool of communication about the financial position,
performance and changes in financial position of an entity that is useful to a wide range of
stakeholders in making economic decisions. Accounting Standards is an essential building block
in the financial reporting world. These Accounting Standards provide principles and rules that
must be followed to ensure accuracy, consistency and comparability of financial statements.
These accounting guidelines also ensure that financial statements should be understandable,
relevant, reliable and comparable.
Accounting Standards are a set of documents that lay down the principles covering various
aspects, such as, recognition, measurement, presentation & disclosure of accounting transaction
in the financial statements. Objective of accounting standards is to standardize the diverse
accounting policies & practices with a view to eliminate the non-comparability of financial
statements to the extent possible and also to enhance the reliability to the financial statements.
Accounting standards play a very significant role in enabling the stakeholders to get the reliable
and comparable accounting data and investors to make more informed economic decisions.
The Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (The
ICAI), since its establishment way back in 1977, has been involved in the formulation of
Accounting Standards and standard setting process of the country. ASB has been relentlessly
working to ensure that the world’s fastest growing emerging economy of India is equipped with
high quality Accounting Standards (AS) comparable to the best in the world. The ICAI also issued
Accounting Standards which are applicable to the entities other than companies and are aligned
with Accounting Standards notified by the Ministry of Corporate Affairs (MCA) with certain
differences.
ASB is an Accounting Standards-Setting arm of the ICAI, which formulates Accounting Standards
through a process that is robust, comprehensive, and inclusive with a view to assisting the Council
of the ICAI in evolving and establishing Accounting Standards to discharge its role of national
standard-setter. Once the ASB finalises the draft of AS post incorporating the public comments
on exposure draft, ASB recommends such approved draft of AS to National Financial Reporting
Authority (NFRA) 1 and then Government of India, through MCA notifies AS or Ind-AS for corporate
entities under Companies Act and ICAI issues AS for non-corporate entities.

1 NFRA was constituted under the Companies Act, 2013 which replaced National Advisory Committee On
Accounting Standards (NACAS) which was constituted under Companies Act, 1956.
 1.4 2.4 FINANCIAL REPORTING

2. INDIAN SCENARIO PRIOR TO INTRODUCTION OF

IND AS IN INDIA
Prior to introduction of Indian Accounting Standards (Ind AS) which are Accounting Standards
duly converged with International Financial Reporting Standards (IFRS), ASB has issued various
AS to deal with various reporting matters. As on February 2002, ICAI has issued 27 AS, the list
thereof with their respective applicability is as under 2. These AS are applicable to
(a) companies other than those following Ind AS,
(b) SMCs and also
(c) non-corporate entities.
AS Name of AS Applicable Applicable Applicable to Non-Corporate Entities 4
No. to all to Small Level Level Level III Level IV
Companies and I II
Other than Medium
those Sized
following Companies
Ind AS (SMCs) 3
1 Disclosure of Yes Yes Yes Yes Yes Yes
Accounting
Policies
2 Valuation of Yes Yes Yes Yes Yes Yes
Inventories
(Revised)
3 Cash Flow Yes Yes Yes NA NA NA
Statement
4 Contingencies Yes Yes Yes Yes Yes Yes
and Events
occurring after
the Balance

2 This table should be read in conjunction of Appendix 1 to Compendium of Accounting Standards (as on
1 st February, 2022)
3 SMCs are defined under Notification dated 23 rd June, 2021, issued by the Ministry of Corporate Affairs,

Government of India
4 Criteria for classification of Non-company Entities as decided by the Institute of Chartered Accountants

of India should be referred back from Appendix 1 to Compendium of Accounting Standards (as on
1 st February, 2022)
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.5 1.5

Sheet Date
(Revised
2016)
5 Net Profit or Yes Yes Yes Yes Yes Yes
Loss for the
Period, Prior
Period Items
and Changes
in Accounting
Policies
7 Construction Yes Yes Yes Yes Yes Yes
Contracts
9 Revenue Yes Yes Yes Yes Yes Yes
Recognition
10 Property, Plant Yes Yes Yes Yes Yes (with Yes (with
and Equipment disclosure disclosure
(Revised) exemption) exemption)
11 The Effects of Yes Yes Yes Yes Yes (with Yes (with
Changes in disclosure disclosure
Foreign exemption) exemption)
Exchange
Rates
12 Accounting for Yes Yes Yes Yes Yes Yes
Government
Grants
13 Accounting for Yes Yes Yes Yes Yes Yes (with
Investments disclosure
(Revised) exemption)
14 Accounting for Yes Yes Yes Yes Yes NA
Amalgamation
(Revised)
15 Employee No Applicable Yes Yes (With certain exemptions)
Benefits with some
exemptions
16 Borrowing Yes Yes Yes Yes Yes Yes
Costs
17 Segment No No Yes No No No
Reporting
18 Related Party Yes Yes Yes No No
Disclosure
 1.6 2.6 FINANCIAL REPORTING

19 Leases No Applicable Yes Yes (with disclosure exemption)

with some
exemptions
20 Earnings per No Applicable Yes No No No
share with some
exemptions
21 Consolidated Yes Yes Yes No No No
Financial
Statements
(Revised)
22 Accounting for Yes Yes Yes Yes Yes Yes (only
Taxes on related to
Income current tax
provisions)
23 Accounting for Yes Yes Yes No No No
Investments in
Associates in
Consolidated
Financial
Statements
24 Discontinuing Yes Yes Yes Yes No No
Operations
25 Interim No Applicable Yes No No No
Financial with some
Reporting exemptions
26 Intangible Yes Yes Yes Yes Yes Yes (with
Assets disclosure
exemption)
27 Financial Yes Yes Yes No No No
Reporting of
Interests in
Joint Ventures
28 Impairment of No Applicable Yes Yes (with NA
Assets with some disclosure
exemptions exemption)
29 Provisions, No Applicable Yes Yes (with disclosure exemption)
Contingent with some
Liabilities and exemptions
Contingent
Assets
(Revised)
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.7 1.7

3. LIMITATIONS OF ACCOUNTING STANDARDS

With the increasing flow of foreign funds, following were few of the rising complexities which were
not explicitly and comprehensive dealt by AS and it was needed to have guidance around the same
to witness consistent accounting treatments by entities.
a) Capital being raised in the form of complex financial instruments like optionally convertible/
compulsorily convertible shares / debentures etc.
b) Various derivative instruments embedded in the foreign currency bonds/equity instruments,
commodity derivatives etc.
c) Group restructuring, business acquisitions, mergers, demergers, slump sale etc.
d) Complex revenue arrangements and business models with innovating emerging digital
economy
e) Diverse stock-based compensation with innovative remuneration models for C-suite
f) Complex tax provisions and impact thereof in determination of current and deferred tax
g) Different ways to provide shareholders’ return and various modes of shareholder’s
investments in kind in the event of group reorganisation.
Further, a need was felt to have comprehensive disclosures in the financial statements so as to
enable the investors to have a complete overview of business background, risks involved and other
important aspects. The disclosure requirements in ASs are limited and the need was felt to improve
those disclosures especially about aspects like revenue, related party transactions, segment
reporting, business combinations etc. so as to improve the quality of financial reporting and enable
investors to take an informed decision.

4. EMERGENCE OF GLOBAL ACCOUNTING STANDARDS

In 1973, International Accounting Standards Committee (IASC) was formed through an agreement
made by professional accountancy bodies from Canada, Australia, France, Germany, Japan,
Mexico, the Netherlands, the UK and Ireland, and the United States of America. The main goal of
the committee was to harmonize different financial reporting practices. The standard setting board
of the IASC was known as the IASC Board. The IASC Board promoted various standards,
conceptual Framework, which was directly adopted by many countries and many national accounting
 1.8 2.8 FINANCIAL REPORTING

standards setters were referring to the same to govern the standard setting process in their
countries.

Nearly after 25 years of its operations, IASC felt a need to change its structure in order to effectively
converge national accounting standards to lead to one set of Global Accounting Standards. As a
result, International Accounting Standards Board (IASB) was formed on 1st July 2000. It was further
decided that it would operate under a new International Accounting Standards Committee
Foundation (IASCF, now known as IFRS Foundation). IASB members are responsible for the
development and publication of International Financial Accounting Standards (IFRS). For IFRS to
be truly global standards, consistent application and interpretation is required. The Interpretations
Committee assists the IASB in improving financial reporting through timely assessment, discussion
and resolution of financial reporting issues identified within the IFRS framework.
As early as 1989 the International Organisation of Securities Commissions (IOSCO), the world’s
primary forum for co–operation among securities regulators, prepared a paper noting that cross
border security offerings would be facilitated by the development of internationally accepted
standards. For preparers, greater comparability in financial reporting with their global peers had
obvious attractions. In May 2000 IOSCO announced that it had completed its assessment of
30 accounting standards of the International Accounting Standards Committee (IASC 2000
standards). As a result, the IOSCO Presidents’ Committee recommended that its members permit
incoming multinational issuers to use the 30 IASC 2000 standards to prepare their financial
statements for cross-border offerings and listings, as supplemented by reconciliation, disclosure and
interpretation where necessary to address substantive outstanding issues at a national or regional
level.
On 19 th July 2002, a regulation was passed by the European Parliament and the European Council
of Ministers requiring the adoption of IFRS. As a result of the Regulation, all EU listed companies
were required to prepare their financial statements following IFRS from 2005. This has led to
IFRS being considered as one of the major unified GAAP in the world.

So with this, two prominent and widely adopted accounting standards have emerged:
1) Accounting Standards set up by US Financial Accounting Standards Board (FASB) (widely
known as “US GAAP”) and
2) International Financial Reporting Standards (IFRS)
The "Group of 20" (G20) is made up of the finance ministers and central bank governors of 19
countries and the European Union: Argentina, Australia, Brazil, Canada, China, France, Germany,
India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea,
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.9 1.9

Turkey, United Kingdom and United States of America. The G20 meets regularly to discuss
matters of common interest. As a result of the global financial crisis, the G20 began to explore
ways to improve the global financial system, including regulations related to financial reporting
and institutions. The G20 has for sometime called for the global convergence of accounting
standards and has supported the IASB-FASB convergence process.
The joint convergence project was launched in 2002 by the International Accounting Standards
Board (IASB) and US Financial Accounting Standards Board (FASB). The objective of this project
is to eliminate a variety of differences between International Financial Reporting Standards and
US GAAP. The project, which is being done jointly by FASB and IASB, grew out of an agreement
reached by the two boards in October 2002 (the 'Norwalk Agreement'). The scope of the overall
IASB-FASB convergence project has evolved over time and is currently under progress.
So, IFRS is now, together with US GAAP, one of the two globally recognised financial reporting
frameworks. Although the goal of a single set of high–quality global accounting standards has not
been fulfilled, as per IASB research, presently, 168 jurisdictions require the use of IFRS
Accounting Standards for all or most publicly listed companies.

5. NEED FOR GLOBAL ACCOUNTING STANDARDS IN

INDIA
Modern economies rely on cross-border transactions and the free flow of international capital.
Investors seek diversification and investment opportunities across the world, while companies
raise capital, undertake transactions or have international operations and subsidiaries in multiple
countries.
In the past, such cross-border activities were complicated to be followed by Indian Companies
due to increased compliance costs of maintaining multiple sets of financial books following varied
national accounting standards. This reworking of accounting requirements often added cost,
complexity and ultimately risk both to companies preparing financial statements and investors and
others using those financial statements to make economic decisions.

Applying local accounting standards led to a totally different basis for amounts appearing in
financial statements. Solving this complexity involved studying the details of national accounting
standards, because even a small difference in requirements could have a major impact on a
company’s reported financial performance and financial position — for example, a company may
recognise profits under one set of national accounting standards and losses under another. For
 1.102.10 FINANCIAL REPORTING

e.g.: A company has made non-current investments in equity instruments and there is a temporary
decline in the value of investments. As per AS, it may be required to report the investment at cost
but may have to fair value the same as per IFRS. Hence this may lead to recognizing losses as
per IFRS.
With this emerging need to move AS to comparable Global Standards and also considering the
limitations of AS to deal with emerging business transactions and structure, need to revamp
current AS was felt inevitably. International investors were apprehensive to rely on the financial
information of Indian Companies due to their limited understanding of accounting framework in
India and often sought companies to produce such financial information under IFRS.
Considering above, India made a commitment towards the convergence of Indian accounting
standards with IFRS at the G20 summit in 2009.

6. BENEFITS OF GLOBAL ACCOUNTING STANDARDS

Global Accounting Standards address above challenges by providing a high-quality,
internationally recognised set of accounting standards that bring transparency, accountability and
efficiency to financial markets around the world. Global Standards bring transparency by
enhancing the international comparability and quality of financial information, enabling investors
and other market participants to make informed economic decisions.
Further, Global Standards strengthen accountability by reducing the information gap between the
providers of capital and the people to whom they have entrusted their money. As a source of
globally comparable information, Global Accounting Standards are also of vital importance to
regulators around the world.
Global Accounting Standards also contribute to economic efficiency by helping investors to identify
opportunities and risks across the world, thus improving capital allocation. For businesses, the
use of a single, trusted accounting language lowers the cost of capital and reduces international
reporting costs. This also resulted into increased investment in jurisdictions adopting IFRS. Also
for a Company which has operations in multiple countries, it became easy for them to consolidate
their operations, track operational key performance indicators, and reduce the number of different
reporting systems.
These advantages of global standards have been accepted by various jurisdictions, resulting into
many countries following the path of adoption or convergency with IFRS with minimal carve outs.
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.11 1.11

7. CONVERGENCE VS ADOPTION OF IFRS

In common parlance, many users refer Convergence to IFRS and Adoption of IFRS
interchangeably. However, there exists a significant difference between the two

Adoption of IFRS, in simple terms, means that the Country applying IFRS would be implementing
IFRS in the same manner as issued by the IASB and would be 100% compliant with the guidelines
issued by IASB.

The dictionary definition of Convergence states that “to move towards each other or meet at the
same point from different directions”. Hence convergence with IFRS means the national
accounting standards setter would work with IASB to develop high quality Accounting Standards
over the time. Hence the national accounting standard setter is said to have “Converged with
IFRS” if it has adopted IFRS with some exceptions, and work with IASB towards those exceptions
to reach at a point wherein there are no differences left.

An entity is required to apply IFRS 1 First–time Adoption of International Financial Reporting

Standards – when it first asserts compliance with IFRS. The IASB has, therefore, established
unambiguously the principle that full application of its standards and related interpretations is
necessary for an entity to be able to assert that its financial statements comply with IFRS (as
issued by the IASB). Consequently, it is necessary for countries that align their national standards
with IFRS to require the application of IFRS 1 so that entities reporting under those standards can
assert compliance with IFRS. In addition, an entity that applies IFRS as amended by a local
authority cannot assert compliance with IFRS.

It is merely impossible for IASB to consider the individual factors of each country. Hence, such
countries decide to converge to IFRS with limited exceptions. These exceptions are regularly
looked upon and in order to meet at a point where no exceptions are left.
Countries like Canada, Bahrain, Cambodia etc have adopted IFRS while countries like India,
China, Hongkong etc have converged with IFRS.
 1.122.12 FINANCIAL REPORTING

8. PROCESS OF DEVELOPMENT AND FINALISATION OF

INDIAN ACCOUNTING STANDARDS
As discussed above, accounting standards in India are formulated by the ASB of ICAI. The central
government prescribes the standards of accounting, or any addendum thereto, as recommended
by the ICAI, in consultation with and after examination of the recommendations made by the
NFRA. The Ministry of Corporate Affairs (MCA) notifies the standards under the Companies Act
by publishing them in the Gazette of India. Notified standards are authoritative under Indian law.
It may be noted that IFRS are being issued / revised by the IASB from time to time. As a part of
convergence with IFRS, the Ind AS may be issued/revised corresponding to the IFRS.
Accordingly, whenever IASB issues any new IFRS or update the current one, ASB of ICAI
considers the convergence thereof under Ind AS. While doing so ASB provides considerations to
local regulatory landscape, business practices, tax and other relevant provisions to develop
exposure draft with proposed carve in or carve out from IFRS.
The Ind-AS setting process can be briefly outlined as follows:
♦ Consideration of preliminary draft prepared (with requisite carve in and carve out) by ASB
and revision thereof, as need be.
♦ Circulation of Draft Ind AS to the Council members of ICAI and specified outside bodies
such as MCA, Securities and Exchange Board of India (SEBI), Comptroller and Auditor
General of India (C&AG), Central Board of Direct Taxes (CBDT) etc.
♦ Meeting with the representative of the specified outside bodies to ascertain their views on
the Draft Ind AS

♦ Finalisation of Exposure Draft of Ind AS and its issuance for inviting public comments
♦ Consideration of comments received on the Exposure Draft and finalisation of Ind AS by
ASB for submission to the Council of ICAI for its consideration and approval for issuance.

♦ Consideration of the final draft of proposed Ind AS by the Council of the ICAI, and if found
necessary, modification of the draft in consultation with the ASB
♦ Final draft Ind AS to be submitted to NFRA with ICAI recommendations for notification
♦ NFRAs reviews and provides inputs, if any, to ICAI before finalising. Post that, MCA notifies
the Ind AS under Companies Act for Companies to follow with announcement of
applicability date.
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.13 1.13

To summarise,
Consideration of
IASB issues new IFRS Issue of Exposure comments received on
or updates the existing Draft for Public the Exposure Draft
one Comments and finalisation of final
draft

Deliberation and Incorporation of

Final draft sumbission
consideration of draft Comments from
to NFRA with
Ind AS in line with Council and outside
recommendations
IFRS by ASB bodies

Circulation of Draft Ind Meeting with the

AS to the Council representative of the NFRA (MCA) notifies
members of ICAI and specified outside Ind AS under
specified outside bodies to ascertain Companies Act
bodies their views

9. TRANSITION FROM AS TO IND AS

India made a commitment towards the convergence of Indian accounting standards with IFRS at
the G20 summit in 2009. In line with this, MCA issued a roadmap for implementation of Ind AS
converged with IFRS beginning April 2011. However, this plan was suspended due to unresolved
tax and other issues. In the presentation of the Union Budget 2014–15, the Honourable Minister
for Finance, Corporate Affairs and Information and Broadcasting proposed the adoption of Ind AS.
The Minister clarified that the respective regulators will separately notify the date of
implementation for banks and insurance companies. Also, standards for tax computation would
be notified separately. In accordance with the Budget statement, the MCA has notified the
Companies (Indian Accounting Standards) Rules 2015 vide its G.S.R dated 16 th February 2015.
Accordingly, it has notified 39 Ind AS and has laid down Ind AS transition roadmap for companies
and non-banking finance companies excluding banking companies and insurance companies.
The implementation of Indian Accounting Standards (Ind AS) converged with International
Financial Reporting Standards (IFRS) by Indian Companies is a monumental step in the
accounting history of India. It was possible due to the relentless and collective efforts of regulators
and accounting professionals of this large growing economy aspiring to be economic superpower
in the coming decades. ICAI believes that Ind AS implementation has provided better insights
 1.142.14 FINANCIAL REPORTING

into the financial affairs of the companies and Ind AS based financial statements reflect the
underlying economics of the transactions/events in a transparent and unbiased manner. It has
also improved the comparability and benchmarking of the financials of Indian Companies with
Global Peers, thereby improving the accessibility of Indian Companies to Global Capital Markets.
IFRS convergence is an ongoing initiative, and the process of issuing IFRS is dynamic. The IASB
issues new/revised IFRS on a regular basis. To avoid significant changes in Ind AS for a period
post its transition in India, it was decided to keep the applicability date of some of the IFRS earlier
than its applicability date announced by IASB.

Example 1
IFRS 15 Revenue from Contracts with Customers is effective for annual periods beginning on or
after 1st January 2017, while in India Ind AS 115 was applicable from 1 st April 2018. Hence, it
wasn’t implemented in advance of IFRS 15. Another example is that of IFRS 16 Leases, which
was issued in 2016 and made effective for annual reporting periods beginning on or after
1 st January 2019, while in India Ind AS 116 was applicable from 1st April 2019.

9.1 About Indian Accounting Standards

Ind AS are the IFRS converged standards. Similar to IFRS they are principles-based standards,
but substantially different from Indian GAAP. Ind AS is not the same as IFRS. It is a separate
accounting framework based on IFRS as created by the MCA and has certain carve-outs to
accommodate Indian business nuances.

As on date, 39 Ind AS are notified by Ministry of Corporate Affairs, which are as under:

IND AS Description

Ind AS 101 First-time Adoption of Indian Accounting Standard

Ind AS 102 Share-based Payment

Ind AS 103 Business Combinations

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

 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.15 1.15

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 116 Leases

Ind AS 117 Insurance Contracts

Ind AS 1 Presentation of Financial Statements

Ind AS 2 Inventories

Ind AS 7 Statement of Cash Flows

Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Ind AS 10 Events after the Reporting Period

Ind AS 12 Income Taxes

Ind AS 16 Property, Plant and Equipment

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

 1.162.16 FINANCIAL REPORTING

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

9.2 How Ind AS have been numbered?

Ind AS are numbered in a similar manner as compared to IFRS. So in order to understand how
Ind AS are numbered, it is important to understand how IFRS are numbered. Ind AS differ from
the IFRS, as they contain certain carve outs and carve ins for making them contextually relevant
to the Indian economic and legal environment.
International Accounting Standard Committee (IASC) was formed in 1973 and its main objective
was to harmonize different financial reporting practices. It continued issuing standards under
heading “International Accounting standards” (IAS) and they were numbered chronologically from
1. Eg: IAS 1, IAS 2 etc. Till 2000, it had notified 41 IAS (some of them are now repealed or
omitted). Post incorporation of IASB on 1 st July 2000., standards issued are known as IFRS and
a new numerical series was started i.e. IFRS 1, IFRS 2 etc
In Indian context, numbers for IAS are retained. For e.g.: For IAS 1 – Presentation of Financial
Statements, corresponding standard in Ind AS is Ind AS 1 – Presentation of Financial statements.
For IFRS, a new series starting after 100 was used. For e.g.: For IFRS 1 – First time adoption of
International Financial Reporting Standards, corresponding Ind AS is Ind AS 101 - First time
adoption of Indian Accounting Standards.
Further, IFRS Interpretations Committee (IFRIC) is the interpretative body of the IASB. Its main
work is to address application issues and suggest official IFRS Interpretations, which are
eventually approved by the IASB. These interpretations are titled ‘IFRIC’ and numbered as IFRIC
1,2 etc. Interpretations issued before 2003 were titled ‘SIC’ and some of them are still in force
today. IFRIC and SICs are included in Ind AS as part of Appendix in relevant Ind AS.
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.17 1.17

♦ Total reporting standards required as on 1.11.2024 under IFRS are 41. However, IFRS 18
and IFRS 19 have also been issued which will be required by 1st January, 2027. While total
reporting standards issued and effective in India under Ind AS are 39. IAS 26 Accounting
and Reporting by Retirement Benefit Plans has yet not notified in India as Ind AS. IAS 39
contains only part relating to hedge accounting which is still valid globally as continuation
of this part is permitted globally. But in India, only Ind AS 109 corresponding to IFRS 9
hedge accounting is permitted, hence the part of IAS 39 is not relevant, and no equivalent
Ind AS exists in India.

♦ Total interpretations under IFRS (IFRIC + SIC) are 20. Total interpretation included under
Ind AS (Appendix to relevant standards) are 18. IFRIC 2 – Members’ Shares in Co-
operative Entities and Similar Instruments and SIC -7 Introduction of the Euro are neither
included under Ind AS nor notified. However, Appendix C to Ind AS 103 – Business
Combinations was developed and additionally included in India for which no corresponding
IFRIC or SIC is available.

9.3 How Ind AS have been structured?

Ind AS have followed the structure of IFRS and IAS and have not changed the same. Ind AS
retained the paragraph numbers of IFRS and IAS too to allow readers to refer back similar
guidance under IFRS and IAS while also appreciating the carve out and carve in. For ex. If
Ind AS do not contain corresponding paragraph of IFRS, the same number had been kept blank
with a note mentioned referring to Appendix – Comparison with IFRS.
Ind AS have following components and they are generally structured as follows:
1. Objective – What is the main purpose for which the Ind AS is formed is mentioned in this
heading. On a bird’s eye view, it mentions the issues dealt by it and what objective it seeks
to achieve from laying the principles in it.

Example 2
Following is Ind AS 2’s objective:
“The objective of this Standard is to prescribe the accounting treatment for inventories. A
primary issue in accounting for inventories is the amount of cost to be recognised as an
asset and carried forward until the related revenues are recognised. This Standard deals
with the determination of cost and its subsequent recognition as an expense, including any
write-down to net realisable value. It also provides guidance on the cost formulas that are
used to assign costs to inventories.”
 1.182.18 FINANCIAL REPORTING

2. Scope – What the standard intends to cover in its ambit is mentioned in the scope heading.
In many cases, it defines specifically what it intends not to cover. For e.g.: Para 2 of
Ind AS 2 states that it applies to all inventories except financial instruments and biological
assets related to agricultural activity and agricultural produce at the point of harvest.
3. Definitions – It includes definitions of various terms used in the standards. For standards
which are converged from International Accounting standards, definition is a part of
structure while for standards which are converged from International Financial Reporting
standards (Ind AS 101 onwards), the definitions are included in appendices.

4. Content of the Standard – This includes the main principles of the standard. It generally
contains principle of recognition, measurement, subsequent measurement along with any
other standard specific contents grouped in appropriate headings.
5. Disclosure – This section covers what qualitative / quantitative information required to be
disclosed in financial statements pertaining to the matter covered in the standard.
Wherever applicable, it also contains how a particular asset / liability / income / expense
should be presented in financial statements.
6. Transitional provisions and effective date –For any Ind AS notified, it mentions effective
date and transitional provisions from which it would be applicable. Under Ind AS,
transitional provisions are mentioned mainly at two places. Firstly, it is broadly mentioned
in Ind AS 101 - First-time Adoption of Indian Accounting Standard and secondly in the
individual Ind AS wherever applicable. The transitional provisions mentioned in Ind AS 101
are applicable to first time adopter of Ind AS. The transitional provisions mentioned in
individual standards are applicable to entities that have already applied Ind AS. In many
standards, transitional provisions and effective date are mentioned in Appendices
7. Appendices – As and where applicable, the Ind AS also has appendices which are integral
part of the standard. They mainly consist of:
a. Explanation on industry specific issues which require detailed guidance. For e.g.:
Appendix to Ind AS 16 contains treatment of stripping costs in the production phase
of a surface mine
b. Application Guidance – These are mainly in standards which are converged from
International Financial Reporting Standards (Ind AS 101 and onwards). It contains
detailed guidance in applying the principles mentioned in the standard
c. Defined terms – It mentions definition of terms mentioned in the standard
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.19 1.19

d. References to matters contained in other Ind AS - It lists the appendix which is a

part of another Indian Accounting Standard and makes reference to the particular
standard.
e. Comparison with IFRS – Differences with IFRS are explained in this section
f. IFRIC and SIC applicable and relevant for the respective Ind AS
In each Ind AS, certain texts are highlighted in bold while certain are in plain. The text in
bold mentions the principle while the text in plain mentions its application guidance / other
explanation. Paragraphs set in bold type and plain type, have equal authority. In
Ind AS 101, principles are numbered in chronological order while detailed explanation or
guidance applicable to these principles are included in the respective Appendices, as
applicable.

10. ROADMAP FOR APPLICABILITY OF IND AS

MCA has notified the Companies (Indian Accounting Standards) Rules, 2015 vide its G.S.R dated
16 February 2015. Accordingly, it has notified 39 Ind AS and has laid down an Ind AS transition
roadmap for companies and non- banking finance companies excluding banking companies and
insurance companies. MCA has proposed phase-wise approach for mandatory transition to
Ind AS.

10.1 For Listed Entities

Phase I
As per the Companies (Indian Accounting Standards) Rules, 2015, following companies were
covered under Phase I for accounting periods beginning on or after 1st April 2016, with the
comparatives for the periods ending on 31 st March 2016:
a. companies whose equity or debt securities are listed or are in the process of being listed
on any stock exchange in India or outside India and having net worth of rupees five hundred
crore or more;
b. companies other than those covered by sub-clause (a) above and having net worth of
rupees five hundred crore or more;
c. holding, subsidiary, joint venture or associate companies of companies covered by sub-
clause (a) and sub-clause (b) as mentioned above
 1.202.20 FINANCIAL REPORTING

Phase 1

2015 2016-17

April March April March

Opening Balance Financial Statements

Comparative for
Sheet for the year ended
31st March, 2016
1 April, 2015
st
31st March, 2017

Phase II
Following companies were covered under Phase II for accounting periods beginning on or after
1 st April 2017, with the comparatives for the periods ending on 31st March 2017:
a. companies whose equity or debt securities are listed or are in the process of being listed
on any stock exchange in India or outside India and having net worth of less than rupees
five hundred crore;
b. companies other than those covered in sub-clause (a) above i.e. unlisted companies having
net worth of rupees two hundred and fifty crore or more but less than rupees five hundred
crore.
c. holding, subsidiary, joint venture or associate companies of companies covered by sub-
clause (a) and sub-clause (b) as mentioned above.
The Companies (Indian Accounting Standards) Rules, 2015 clarifies that, the roadmap shall not
be applicable to companies whose securities are listed or are in the process of being listed on
SME exchange as referred to in Chapter XB or on the Institutional Trading Platform without initial
public offering in accordance with the provisions of Chapter XC of the Securities and Exchange
Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. For the
purpose, it clarifies SME Exchange to have the same meaning as assigned to it in Chapter XB of
the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009.
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.21 1.21

Phase 2

2016-17 2017-18

April March April March

Opening Balance Financial Statements

Comparative for
Sheet for the year ended
31st March, 2017
1 April, 2016
st
31st March, 2018

Ind AS would not be applicable to companies other than listed companies whose net worth is less
than ` 250 Crores and they will continue to follow AS as per its applicability discussed above.
However, they can voluntary adopt Ind AS.
It is notable that the Companies (Indian Accounting Standards) Rules, 2015 gave an option to the
companies for early adoption of Ind AS for their financial statements for accounting periods
beginning on or after 1 st April 2015, with the comparatives for the periods ending on
31st March 2015 or any time thereafter.
10.1.1 Key Matters on Transition
1. Comparative Financial Information
All companies applying Ind AS are required to present comparative information as per Ind
AS for one year. To comply with this requirement, Ind AS will be applicable from the
beginning of the previous period.

Example 3
A company adopted Ind AS from 1st April, 20X4 for its accounting period 20X4-20X5. Hence
it will be required to prepare its first Ind AS financial statements for financial year 20X4-
20X5 with comparatives for financial year 20X3-20X4, and the date of transition to Ind AS
will be considered as 1 st April 20X3.

2. Ind AS applicability
As per clause 4 of the aforementioned MCA notification, companies to which Indian
Accounting Standards (Ind AS) are applicable as specified in those rules shall prepare their
first set of financial statements in accordance with the Ind AS effective at the end of its first
Ind AS reporting period.
 1.222.22 FINANCIAL REPORTING

Example 4
A company adopted Ind AS from 1st April, 20X4 for its accounting period 20X4-20X5.
Hence it shall prepare Ind AS financial statements for financial year 20X4-20X5 by applying
all Ind AS duly effective as on 31 st March 20X5.

3. Consistent Application of Ind AS

As per clause 9 of the notification, once a company starts following the Indian Accounting
Standards (Ind AS) either voluntarily or mandatorily on the basis of criteria specified, it shall
be required to follow the Indian Accounting Standards (Ind AS) for all the subsequent
financial statements even if any of the criteria specified in the Rules does not subsequently
apply to it.
4. Ind AS Applicability for Indian Group Companies
As specified in the Companies (Indian Accounting Standards) Rules, 2015 issued by MCA,
if Ind AS is applicable to a company, it would also be applicable to its holding company,
subsidiary company, associate company and joint venture.
5. Ind AS Applicability for Overseas Group Companies
As per clause 5 of the Companies (Indian Accounting Standards) Rules, 2015 issued by
MCA, overseas subsidiary, associate, joint venture and other similar entities of an Indian
company may prepare its standalone financial statements in accordance with the
requirements of the specific jurisdiction, provided that such Indian company shall prepare
its consolidated financial statements in accordance with the Indian Accounting Standards
(Ind AS) either voluntarily or mandatorily as per the criteria as specified in the Rules.
6. Ind AS Applicability for Standalone and Consolidated Financial Statements
As per clause 3 of the notification issued by MCA, Ind AS once required to be complied
with in accordance with these rules, shall apply to both stand-alone financial statements
and consolidated financial statements.
10.1.2 Calculation of Net Worth
For the purpose of determining the applicability of Ind AS as per the roadmap, net worth shall
have meaning as per clause 57 of section 2 of the Companies Act, 2013.

Following is the definition of net worth as per the section:

“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
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.23 1.23

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;”
Further, it is clarified that:
a. the net worth shall be calculated in accordance with the stand-alone financial statements
of the company as on 31 st March, 2014 or the first audited financial statements for
accounting period which ends after that date;
b. for companies which are not in existence on 31st March, 2014 or an existing company falling
under any of thresholds specified in the Ind AS applicability thresholds above for the first
time after 31 st March, 2014, the net worth shall be calculated on the basis of the first audited
financial statements ending after that date in respect of which it meets the thresholds
specified.

Example 5
The companies meeting net worth threshold for the first time as per financial statements of
the year ending on 31 st March, 2017 shall apply Ind AS for the financial year 2017-2018
with comparatives for financial year 2016-2017.

Hence to summarize, the roadmap considers net worth as on 31 st March 2014 as cut-off date for
Ind AS applicability. A company which meets the Ind AS applicability criteria on this cut-off date,
needs to apply Ind AS as per the applicable phase. If any company does not meet the Ind AS
applicability criteria as on the cut-off date, they will have to reassess the Ind AS applicability
criteria at each balance sheet date.
Illustration 1
Following is a snapshot of audited balance sheet of company A as on 31 st March 2014.
Company A’s equity shares are listed on Bombay Stock Exchange since 2010.

Liabilities ` in crores Assets ` in crores

Equity Share Capital 160 Fixed Assets 455

Securities Premium 200 Investments 200

General Reserve 150 Current Assets 50

Revaluation Reserve 40 Miscellaneous Expenditure not 80

written off
 1.242.24 FINANCIAL REPORTING

Profit and Loss A/c 75

Liabilities 160

Total 785 Total 785

• As per roadmap, which Phase company A fall into?

• Will your answer change if Company A is an unlisted company?

Solution
Calculation of Net Worth:

Particulars ` in crores

Equity Share Capital 160

Securities Premium 200

General Reserve 150

Profit and Loss A/c 75

Miscellaneous Expenditure not written off (80)

Net Worth as per Section 2(57) of The Companies Act, 2013 505

Note – Revaluation Reserve would not be included in the calculation of net worth as per definition
mentioned in section 2(57) of The Companies Act, 2013
The company is a listed company and it does meet the net worth threshold of ` 500 Crores. Hence
it would be covered under phase I. Hence Ind AS would be applicable to the company for
accounting periods beginning on or after 1st April 2016.
Even if Company A is an unlisted company as company A’s net worth is more than 500 Crores, it
would be covered under Phase I of the road map and hence Ind AS would be applicable for the
accounting periods beginning on or after 1st April 2016.
Illustration 2
Let’s say in Illustration 1, the balance of profit and loss account is negative ` 375 crores. When
Ind AS should be applicable to Company A? Will you answer change if Company A is an unlisted
company?
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.25 1.25

Solution
If the balance of Profit and Loss A/c is negative 375 Crores, the net worth as per section 2(57) of
The Companies Act, 2013 would be ` 55 Crores (Equity share capital ` 160 Cr + Securities
Premium ` 200 Cr + General Reserve ` 150 Cr – Debit balance of P&L `375 Cr – Miscellaneous
expenditure not written off ` 80 Cr). Hence, it does not meet the criteria as mentioned in Phase I
i.e. Listed company or Net worth of ` 500 Cr or more.
However, as Company A is a listed company, it will irrespective be covered under Phase II as the
first criteria of phase II states “companies whose equity or debt securities are listed or are in the
process of being listed on any stock exchange in India or outside India and having net worth of
less than rupees five hundred crore”. Hence, Ind AS would be applicable to Company A for the
accounting periods beginning on or after 1st April 2017.
If Company A is an unlisted company, Ind AS would not be applicable until it breaches the net
worth criteria mentioned in the roadmap.
Illustration 3
The net worth of Company B (an unlisted company) was ` 600 crores as on 31 st March 2014.
However due to losses incurred in FY 14-15, the net worth of the company was ` 400 Crores as
on 31st March 2015. From when company B shall apply Ind AS?
Solution
Here the company’s net worth as on cut-off date was greater than ` 500 crores, which suggests
that it should be covered under phase I of the roadmap. A question may however arise in mind
that since, the net worth as on immediately preceding year-end was ` 400 crores, would the
company be covered under phase II of the roadmap?
“It may be noted that the net worth shall be calculated in accordance with the stand-alone financial
statements of the company as on 31 st March, 2014. Accordingly, if the net worth threshold criteria
for a company are once met, then it shall be required to comply with Ind AS, irrespective of the
fact that as on later date its net worth falls below the criteria specified.”
In view of the above, the Company B will be required to follow Ind AS for accounting periods
beginning on or after 1st April 2016
Illustration 4
The net worth of Company C (an unlisted company) was ` 400 crores as on 31st March 2014.
However, the net worth of the company was ` 600 Crores as on 31 st March 2015. From when
company B shall apply Ind AS?
 1.262.26 FINANCIAL REPORTING

Solution
Similar issue has been encountered in ITFG Bulletin 1, Issue 1 which gives reference to clause
2b of the notification wherein it is stated that:
“For companies which are not in existence on 31st March, 2014 or an existing company falling
under any of thresholds specified in sub-rule (1) for the first time after 31 st March, 2014, the net
worth shall be calculated on the basis of the first audited financial statements ending after that
date in respect of which it meets the thresholds specified in sub-rule (1)”
Hence, any company that meets the thresholds as specified in the Companies (Indian Accounting
Standards) Rules, 2015 in a particular financial year, Ind AS will become applicable to such
company in immediately next financial year. Hence, in the present case, Company C is covered
by Phase I of the roadmap and accordingly, Ind AS will be applicable to Company C for accounting
periods beginning on or after 1 st April 2016

Illustration 5
Company A is the parent company of a group. Company A is an unlisted company having net
worth of 60 crores as on 31st March 2014. Following are the other companies of the group.

Name of the company Relationship Net worth as on 31 st March 2014

Company B (Unlisted) Subsidiary of Company A ` 600 Crore

Company C (Unlisted) Subsidiary of Company B ` 150 Crore

Whether Ind AS be applicable to companies A, B and C?

Solution
Company A and C are unlisted and do not exceed the net worth criteria. However, the net worth
of Company B exceeds ` 500 crore hence it would be covered as per the roadmap for
implementation of Ind AS in the preparation of its Financial Statements.
As Ind AS be applicable to Company B, the parent company of Company B i.e. Company A and
subsidiary of Company B i.e. Company C would also get covered under Ind AS irrespective of net
worth criteria. Hence Ind AS would be applicable to all three companies i.e. Company A, B and
C
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.27 1.27

Illustration 6
Following is the structure of Company D

Company D

Company E Company H
(Subsidiary of D) (Subsidiary of D)

Company F Company G Company I

(Subsidiary of E) (Associate of E) (Subsidiary of H)

All the companies in above structure are unlisted companies and the net worth of company E is
` 300 Crores and net worth of all the other companies is below ` 250 crores. To which company
would Ind AS be applicable?
Solution
As mentioned in the Companies (Indian Accounting Standards) Rules, 2015, if Ind AS is applicable
to a company, it would also be applicable to its Holding Company, subsidiary company, associate
company and Joint Venture.
As the net worth of company E is above ` 250 crores, it would be covered under Phase II of the
roadmap. Hence, its subsidiary (Company F), associate (Company G) and Holding (Company D)
would also be covered under Ind AS with effect from 1st April 2017.
With respect to other companies of the group, following guidance is given in ITFG clarification
bulletin 15, Issue 10: “It may be noted that Ind AS applies to holding, subsidiary, joint venture and
associate companies of the companies which meet the net worth/listing criteria. This requirement
does not extend to another fellow subsidiary of a holding company which is required to adopt Ind
AS because of its holding company relationship with a subsidiary meeting the net worth/listing
criteria. Holding company will be required to prepare separate and consolidated financial
statements mandatorily under Ind AS, if one of its subsidiaries meets the specified criteria and
therefore, such subsidiaries may be required by the holding company to furnish financial
statements as per Ind AS for the purpose of preparing Holding company’s consolidated Ind AS
financial statements. Such fellow subsidiaries may, however, voluntarily opt to prepare their
financial statements as per Ind AS.”
 1.282.28 FINANCIAL REPORTING

Hence the other companies of the group i.e. Company H and Company I would not be covered
under Ind AS. However, as mentioned in ITFG, Company H and I would be required to prepare
its financial statements under Ind AS so as to facilitate Company D for preparation of its
consolidated financial statements. Hence, though statutorily Company H and I may continue to
prepare its financial statements under AS, but it will also have to converge to Ind AS. Moreover,
they may also opt to voluntarily adopt Ind AS and prepare its statutory accounts under Ind AS too.
Illustration 7
ABC Inc., incorporated in a foreign country has a net worth of ` 700 Crores. It has two subsidiaries
Company X whose net worth as on 31 st March 2014 is ` 600 Crores and Company Y whose net
worth is ` 150 Crores. Whether Company X and Y would be required to follow Ind AS from
accounting periods commencing on or after 1st April 2016 on the basis of their own net worth or
on the basis of the net worth of ABC Inc.?
Solution
Similar issue has been dealt in ITFG Clarification Bulletin 2, Issue 2. ITFG noted that as per Rule
4(1)(ii)(a) of the Companies (Indian Accounting Standards) Rules, 2015, Company X having net
worth of ` 600 crores at the end of the financial year 2015-16, would be required to prepare its
financial statements for the accounting periods commencing from 1st April, 2016, as per the
Companies (Indian Accounting Standards) Rules, 2015. While Company Y Ltd. having net worth
of ` 150 crores in the year 2015-16, would be required to prepare its financial statements as per
the Companies (Accounting Standards) Rules, 2006.
Since, the foreign company ABC Inc., is not a company incorporated under the Companies Act,
2013 or the earlier Companies Act, 1956, it is not required to prepare its financial statements as
per the Companies (Indian Accounting Standards) Rules, 2015. As the foreign company is not
required to prepare financial statements based on Ind AS, the net worth of foreign company ABC
would not be the basis for deciding whether Indian Subsidiary Company X Ltd. and Company Y
Ltd. are required to prepare financial statements based on Ind AS.

10.2 Ind AS Roadmap for Non -Banking Financial Companies (NBFC)

For the purpose, NBFC is defined as a Non-Banking Financial Company as defined in clause (f)
of section 45-I of the Reserve Bank of India Act, 1934 and includes Housing Finance Companies,
Merchant Banking companies, Micro Finance Companies, Mutual Benefit Companies, Venture
Capital Fund Companies, Stock Broker or Sub-Broker Companies, Nidhi Companies, Chit
Companies, Securitisation and Reconstruction Companies, Mortgage Guarantee Companies,
Pension Fund Companies, Asset Management Companies and Core Investment Companies
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.29 1.29

Ministry of Corporate Affairs, in its circular dated 30 th March 2016, amended the Companies
(Indian Accounting Standards) Rules, 2015 to include its applicability to Non-Banking Finance
Companies. As per the circular, NBFCs to apply Ind AS in the following two phases:
Phase I
As per the Companies (Indian Accounting Standards) Rules, 2015, following NBFCs were covered
under Phase I for accounting periods beginning on or after 1st April 2018, with the comparatives
for the periods ending on 31st March 2018.
a. NBFCs having net worth of ` 500 Crores or more
b. Holding, subsidiary, associate or Joint Venture of NBFCs already covered under sub clause
(a) above, other than companies already covered under Ind AS roadmap for Non-Financial
companies

Phase 1

2017-18 2018-19

April March April March

Opening Balance
Comparative for 31st Financial Statements for the
Sheet
March, 2018 year ended 31st March, 2019
1 April, 2017
st

Phase II
Following NBFCs were covered under Phase II for accounting periods beginning on or after
1 st April 2019, with the comparatives for the periods ending on 31st March 2019
a. NBFCs whose equity or debt securities are listed or in the process of listing on any stock
exchange in India or outside India and having net worth less than rupees five hundred
crore;
b. NBFCs, that are unlisted companies, having net worth of rupees two-hundred and fifty crore
or more but less than rupees five hundred crore; and
 1.302.30 FINANCIAL REPORTING

c. Holding, subsidiary, associate or Joint Venture of Companies already covered under sub
clause (a) and (b) above, other than companies already covered under Ind AS roadmap for
Non-financial companies

Phase 2

2018-19 2019-20

April March April March

Opening Balance
Comparative for Financial Statements for the
Sheet
31st March, 2019 year ended 31st March, 2020
1 April, 2018
st

NBFCs having net worth below rupees two fifty crores and not covered above shall continue to
apply ASs. Further, where Ind AS is applicable to NBFCs, the same shall apply to both standalone
and consolidated financial statements.
It is notable that NBFC can apply Ind AS only if they fall in any of the above criteria. Voluntary
adoption of Ind AS by NBFCs are not allowed.
10.2.1 Clarification on calculation of Net Worth
For the purposes of calculation of net worth of NBFCs for determining the applicability of Ind AS,
the following principles shall apply, namely:-
a. the net worth shall be calculated in accordance with the stand-alone financial statements
of the NBFCs as on 31st March 2016 or the first audited financial statements for accounting
period which ends after that date;
b. for NBFCs which are not in existence on 31st March 2016 or an existing NBFC falling first
time, after 31st March 2016, the net worth shall be calculated on the basis of the first
audited stand-alone financial statements ending after that date, in respect of which it meets
the thresholds.
Explanation.- For the purposes of sub-clause (b), the NBFCs meeting the specified thresholds as
given in the roadmap for the first time at the end of an accounting year shall apply Ind AS from
the immediately next accounting year
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.31 1.31

For E.g. –
(i) The NBFCs meeting threshold for the first time as on 31st March, 2019 shall apply Ind AS
for the financial year 2019-20 onwards.
(ii) The NBFCs meeting threshold for the first time as on 31st March, 2020 shall apply Ind AS
for the financial year 2020-21 onwards and so on.

Application of Ind AS to non-finance companies whose parent / subsidiary or associate or

joint venture is a NBFC
The date for application of Ind AS to non-finance companies is not aligned with that of NBFCs.
Hence it has been clarified in the notification that the companies shall apply AS or Ind AS on the
basis of respective standard applicable to them. However, for the purpose of preparation of
Consolidated Financial Statements it is clarified that :

A. where an NBFC is a parent (at ultimate level or at intermediate level), and prepares
consolidated financial statements as per AS, and its subsidiaries, associates and joint
ventures are non-finance companies and are required to prepare financial statements as
per Ind AS as per the roadmap given in The Companies (Indian Accounting Standards)
Rules, 2015, such subsidiaries, associate and joint venture shall prepare its financials as
per Ind AS. However, such subsidiaries, associate and joint venture has to provide the
relevant financial statement data in accordance with the accounting policies followed by
the parent company for consolidation purposes (until the NBFC is covered under Ind AS.
B. Where a parent is a non-finance company covered under Ind AS as per the roadmap given
in The Companies (Indian Accounting Standards) Rules, 2015 and has a NBFC subsidiary,
associate or a joint venture, the parent has to prepare Ind AS-compliant consolidated
financial statements and the NBFC subsidiary, associate and a joint venture has to
provide the relevant financial statement data in accordance with the accounting policies
followed by the parent company for consolidation purposes (until the NBFC is covered
under Ind AS).
It implies that the NBFC subsidiary, associate or a joint venture, in such case shall continue to
prepare the financials under AS until Ind AS are applicable to it.
Illustration 8
As per the roadmap, Ind AS is applicable to Company X from the financial year 2017-18. Company
X (non-finance company) is a subsidiary of Company Y (NBFC). Company Y is an unlisted NBFC
company having net worth of ` 400 crores. What will be the date of applicability of Ind AS for
 1.322.32 FINANCIAL REPORTING

company X and company Y? If Ind AS applicability date for parent NBFC is different from the
applicability date of corporate subsidiary, then, how will the consolidated financial statements of
parent NBFC be prepared?
Solution
In accordance with the roadmap, it may be noted that NBFCs having net worth of less than 500
crore shall apply Ind AS from 1 April, 2019 onwards. Further, the holding, subsidiary, joint venture
or associate company of such an NBFC other than those covered by corporate roadmap shall also
apply Ind AS from 1 April, 2019.
Accordingly, in the given case, Company Y (NBFC) shall apply Ind AS for the financial year
beginning 1 April, 2019 with comparative for the period ended 31 March, 2019. Company X shall
apply Ind AS in its statutory individual financial statements from financial year 2017-2018 (as per
the corporate roadmap). However, for the purpose of Consolidation by Company Y for financial
years 2017-2018 and 2018-2019, Company X shall also prepare its individual financial statements
as per AS.

10.3 Ind AS Roadmap for Banking and Insurance Companies

As per the Companies (Indian Accounting Standards) (Amendment) Rules, 2016, The Banking
Companies and Insurance Companies shall apply the Ind AS as notified by the Reserve Bank of
India (RBI) and Insurance Regulatory Development Authority (IRDA) respectively. As the same
are yet to be notified, Ind AS is not applicable to Banking and Insurance Companies presently.

It is notable that Banks and Insurance Companies shall not be allowed to voluntarily adopt
Ind AS. However, this does not preclude them from providing Ind AS compliant financial
statements for the purpose of preparation of consolidated financial statements by its
parent/investor, as required by the parent/investor to comply with the existing requirements of law.

10.4 Ind AS Roadmap for Mutual Funds

The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (the MF
Regulations) lay down the regulatory framework for operations and functioning of Mutual Funds
(MFs). The MF Regulations are amended by SEBI from time to time to enhance transparency and
disclosures, to address emerging issues, to protect the interests of investors, and to strengthen
the regulatory framework of MFs.

On 25 January 2022, SEBI vide a notification issued the SEBI (Mutual Funds) (Amendment)
Regulations, 2022. As per this notification, the financial statements and accounts of MF schemes
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.33 1.33

will be prepared in accordance with Indian Accounting Standards (Ind AS). Additionally, SEBI
vide a circular dated 4 February 2022 (the circular) provided certain guidelines on accounting with
respect to Ind AS for MFs. The circular also provides specific formats of the financial statements
to be prepared for the MF schemes under Ind AS. The requirements of the circular will become
applicable from 1 April 2023.

11. IND AS RELEVANT STATUTORY PROVISIONS

11.1 Relevant Sections referring to Ind AS in the Companies Act, 2013

and Rules
Ind AS were initially notified under the Companies (Indian Accounting Standards) Rules, 2015.
Post that it was amended from time to time to include the amendments / changes in the Ind AS.
Following are the some of the key relevant provisions of the Companies Act 2013, which gives
reference to Ind AS:
♦ Section 2(2) states that accounting standards means the standards of accounting or any
addendum thereto for companies or class of companies referred to in Section 133
♦ Section 133 states the Central Government may prescribe the standards of accounting or
any addendum thereto, as recommended by the Institute of Chartered Accountants of India,
constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in
consultation with and after examination of the recommendations made by the National
Financial Reporting Authority. Under the power given to the Central Government under
section 133, it notified the Companies (Indian Accounting Standards) Rules, 2015.
♦ Section 129 suggests the financial statements shall give a true and fair view of the state
of affairs of the company or companies, comply with the accounting standards notified
under section 133 and shall be in the form or forms as may be provided for different class
or classes of companies in Schedule III:

♦ Section 134 (5) (a), a statement that the applicable accounting standards had been
followed with proper explanation relating to material departures shall be given in the
Director Responsibility statement to be issued under section 134 (3) (c) in the Director’s
report to be published in Annual General Meeting
♦ Section 143, auditor has to opine whether the financial statements comply with the
accounting standards
 1.342.34 FINANCIAL REPORTING

♦ Section 230 – Power to compromise or make arrangements with creditors and members
and Section 232 – Merger and amalgamation of Companies, the scheme of compromise or
arrangement is to be sanctioned by the tribunal only after obtaining a certificate from the
company’s auditor that the accounting treatment given proposed in the scheme of
compromise or arrangement is in conformity with the accounting standards mentioned in
Section 133.
♦ Section 66 – Reduction of Share Capital, which states that no application for reduction of
share capital shall be sanctioned by the Tribunal unless the accounting treatment, proposed
by the company for such reduction is in conformity with the accounting standards specified
in section 133 or any other provision of this Act and a certificate to that effect by the
company‘s auditor has been filed with the Tribunal.

11.2 Relevant SEBI Rules and Regulations

Formats for publishing financial results (Circular dated 30th November 2015)
SEBI via circular dated 30 th November, 2015 amended the format for publishing quarterly financial
statements. Point 5 of the circular clarified that Companies adopting the Ind AS in terms of
Companies (Indian Accounting Standards) Rules, 2015 notified by the Ministry of Corporate Affairs
on 16 th February, 2015 while publishing quarterly / annual financial results under Regulation 33 of
the Listing Regulations, 2015, shall ensure that the comparatives filed along with such
quarterly/annual financial results are also Ind AS compliant.
Clarification regarding applicability of Indian Accounting Standards to disclosures in offer
documents under SEBI (ICDR) Regulations, 2018
The applicability of Ind AS for financial information (last 3 years financials) to be disclosed in the
offer document as specified under SEBI (ICDR) Regulations, 2018 and provided the year wise
applicability of Ind AS based on the period of filling offer document.
Example 6
For a company filling offer document between 1 st April 2021 to 31st March 2022, the financial
statements of latest financial year, second latest financial year and third latest financial year shall
be as per Ind AS.

Revised Formats for financial results and implementation of Ind AS by Listed Entities
For the period ending on or after 31st March, 2017, the formats for Unaudited / Audited quarterly
financial results i.e. Statement of Profit and Loss and the Unaudited / Audited Half-Yearly Balance
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.35 1.35

Sheet to be submitted by the Listed Entities, with the stock exchanges, shall be as per the formats
for Balance Sheet and Statement of Profit and Loss (excluding notes and detailed sub-
classification) as prescribed in Schedule III to the Companies Act, 2013. However, Banking
Companies and Insurance Companies shall follow the formats as prescribed under the respective
Acts / Regulations as specified by their Regulators.

12. FORMAT OF DIVISION II TO SCHEDULE III TO THE

COMPANIES ACT - STRUCTURE

12.1 Introduction
Schedule III to the Companies Act, 2013 was notified along with the Companies Act, 2013 (Act)
itself on 29 th August, 2013 thereby providing the way every company registered under the Act
shall prepare its Financial Statements. Financial Statements as defined under the Act include
Balance Sheet, Statement of Changes in Equity for the period if applicable, the Statement of Profit
and Loss for the period, Cash flow statement for the period and Notes.
‘Division II’ – ‘Ind AS Schedule III’ was inserted in the Companies Act,2013 to give a format of
Financial Statements for companies that are required to comply with the Companies (Indian
Accounting Standards) Rules, 2015, as amended from time to time. This is newly inserted into
Schedule III for companies that adopt Ind AS. Accordingly, such companies, while preparing its
first and subsequent Ind AS Financial Statements, would apply Division II to Schedule III to the
Act.
The requirements of Division II to Schedule III, however, do not apply any insurance or banking
company 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 any other Act governing such class of company.
Moreover, the requirements of Division II to Schedule III do not apply to Non-Banking Finance
Companies (NBFCs) that adopt Ind AS of Companies (Indian Accounting Standards) Rules, 2015
notified in Companies (Indian Accounting Standards) (Amendment) Rules, 2016 as amended from
time to time. For NBFCs, Division III to Schedule III to the Companies Act, 2013 prescribes the
formats of financial statements.

‘Division II’ – ‘Ind AS Schedule III’ is divided into following three parts:
♦ Part I – Format of Balance Sheet and Statement of Changes in Equity and notes related to
them (Elements of Balance Sheet and its line items)
 1.362.36 FINANCIAL REPORTING

♦ Part II – Format of Statement of Profit and Loss and notes related to it (Elements of
Statement of Profit and Loss and its line items)

♦ Part III – General Instructions for preparation of Consolidated Financial Statements

12.2 Applicability
As per the Government Notification no. S.O. 902 (E) dated 26 March, 2014, Schedule III is
applicable for the Financial Statements prepared for the financial year commencing on or after
1 st April, 2014. Further, as per the Government Notification no. G.S.R. 404(E) dated
6 th April, 2016, Schedule III is amended to include a format of Financial Statements for a company
preparing Financial Statements in compliance with the Companies Ind AS Rules. Schedule III has
been further amended vide the Government Notification dated 24 th March, 2021 to include certain
additional presentation and disclosures requirements and changes some existing requirements.
These changes need to be applied in preparation of financial statements for the financial year
commencing on or after 1st April, 2021. 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 ICAI’s Guidance Note on Division II to Schedule III to the
Companies Act, 2013. Additionally, preparers of financial statements should also consider
requirements of the Act as well as other Statutes, Notifications, Circulars issued by various
Regulators.

Division II to Schedule III to the Companies Act, 2013 has been annexed at the end of the
study material for reference.

13. GUIDANCE NOTE ON DIVISION II TO SCHEDULE III TO

THE COMPANIES ACT, 2013
Corporate Laws & Corporate Governance Committee (CLCGC) of ICAI issued the Guidance Note
on Division-II to Schedule III to the Companies Act, 2013 in 2017 and kept on revising the same
as per requirements. Latest Guidance Note on the subject is issued in January, 2022. This
Guidance Note aims to provide guidance on the amended Division-II to Schedule III to the
Companies Act, 2013. It also lays down broad guidelines to deal with practical issues that may
arise in the implementation of Division-II to Schedule III to the Companies Act, 2013. Accordingly,
wherever required conceptual guidance has been provided in the Guidance Note.
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.37 1.37

Following are the some of the key guidance stated in guidance note. The following should be read
in conjunction with Guidance Note issued on the subject:
1. Property, Plant and Equipment: Under the Ind AS Schedule III, land and building are
presented as two separate classes of property, plant and equipment. In contrast,
paragraph 37 of Ind AS 16 gives an example of grouping land and building under same
class for revaluation purposes. The para states that a class of property, plant and
equipment is a grouping of assets of a similar nature and use in an entity's operations.
However, companies should continue to present land and building separately as given in
Ind AS Schedule III and such presentation needs to be followed consistently.
As per Ind AS Schedule III, capital advances/ advances for purchase of capital assets
should be included under other non- current assets and hence, should not be included
under capital work-in-progress
2. Non-current Investment: Under each sub-classification of Investments, there is a
requirement to disclose details of investments including names and the nature and extent
of the investment in each body corporate which is a subsidiary, associate, joint venture and
structured entity. The nature and extent would imply the number of such instruments held
and the face value of such instrument.
Ind AS Schedule III requires disclosure of the aggregate amount of quoted investments and
market value thereof and the aggregate amount of unquoted investments. The aggregate
amount of such investments would include aggregate amount of carrying value of these
investments as at the reporting date as included in the financial statements.
The market value of quoted investments would, generally, mean disclosure of the ‘fair
value’ of quoted investments as at each reporting date. Ind AS 113 defines fair value and
also states that the fair value of assets might be affected when there has been a significant
decrease in the volume or level of activity for that asset in relation to normal market activity
for that asset. A decrease in the volume or level of activity on its own may not indicate that
a quoted price does not represent fair value. However, based on the company’s evaluation,
if it determines that a quoted price does not represent fair value, then the company shall
disclose the market value of quoted investments based on the quoted price which would
be different from the investment’s fair value.
As per Ind AS Schedule III, aggregate amount for impairment in value of investments should
be disclosed separately. As per Ind AS 109, the company is required to recognize a loss
allowance (i.e. impairment) for expected credit losses on investments measured at
 1.382.38 FINANCIAL REPORTING

amortized cost. Such loss allowance should be presented as an adjustment to the

amortized cost of the investment.

As per Ind AS 109, in case of debt investments measured at fair value through other
comprehensive income (FVTOCI), a company shall estimate a portion of fair value change,
if any, attributable to a change in credit risk of such investment and disclose the same in
the profit and loss section of the statement of profit and loss with a corresponding impact
in other comprehensive income section.
No disclosure is required in case of equity investments measured at fair value since Ind AS
109 does not permit a separate calculation / evaluation of impairment amount for all such
investments.
The aggregate provision for impairment as per Ind AS 36 in the value of investments may
be either presented in totality, where relevant, for all the investments or separately for each
class of investments (e.g., ‘Investment at amortized cost’, ‘Investment in debt instruments
at FVOCI’) disclosed in the financial statements.
A limited liability partnership is a body corporate and not a partnership firm as envisaged
under the Partnership Act, 1932. Hence, disclosures pertaining to Investments in
partnership firms will not extend to investments in limited liability partnerships. The
investments in limited liability partnerships will be disclosed separately under ‘other
investment’.
Note: Any application money paid towards securities, where security has not been allotted
on the date of the Balance Sheet, shall be disclosed as a separate line item under ‘other
non-current financial assets’. In case the investment is of current investment in nature,
such share application money shall be accordingly, disclosed under other current financial
assets.
3. Trade Receivables: A receivable shall be classified as 'trade receivable' if it is in respect of
the amount due on account of goods sold or services rendered in the normal course of
business and the company has a right to an amount of consideration that is unconditional
(i.e. if only the passage of time is required before payment of that consideration is due).
Hence, amounts due under contractual rights, other than arising out of sale of goods or
rendering of services, cannot be included within Trade Receivables. Such items may
include dues in respect of insurance claims, sale of Property, Plant and Equipment,
contractually reimbursable expenses, etc. Such receivables should be classified as "other
financial assets" and each such item should be disclosed nature-wise
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.39 1.39

The ageing of the trade receivables needs to be determined from the due date of the
invoice. Due date is generally considered to be the date on which the payment of an invoice
falls due. The due date of an invoice is determined based on terms agreed upon between
the buyer and supplier. In case if the due date is neither agreed in writing nor orally, then
the ageing related disclosure needs to be prepared from the transaction date.
Schedule III requires split of trade receivables between ‘disputed’ and ‘undisputed’. These
terms have not been defined in the Schedule III. A dispute is a matter of facts and
circumstances of the case; however, dispute means disagreement between two parties
demonstrated by some positive evidence which supports or corroborates the fact of
disagreement. In case there are any disputes such fact should also be considered while
assessing the credit risk associated with respective party while computing the impairment
loss. However, a dispute might not always be an indicator of counterparty’s credit risk and
vice-versa. Hence, both of these should be evaluated independently for the purpose of
making these disclosures.
4. Other Non-Current Financial Assets – Ind AS Schedule III does not specify about the
presentation of finance lease receivables. However, the guidance note clarifies that he non-
current portion of a finance lease receivable shall be presented under ‘Other non-current
financial assets’ while its current portion shall be presented under ‘Other current financial
assets’.
5. Current Assets - As per Ind AS Schedule III, all items of assets and liabilities are to be
bifurcated between current and non-current portions. In some cases, the items presented
under the “non-current” head of the Balance Sheet may not have a corresponding “current”
head under the format given in Ind AS Schedule III. Since Ind AS Schedule III permits the
use of additional line items, in such cases the current portion should be classified under
the “Current” category of the respective balance as a separate line item and other relevant
disclosures should be made.
6. Cash and Cash Equivalents - Cash and cash equivalents is not defined in Ind AS Schedule
III however, according to Ind AS 7 Statement of Cash Flows, Cash is defined to include
cash on hand and demand deposits with banks. Cash Equivalents are defined as short
term, highly liquid investments that are readily convertible into known amounts of cash and
which are subject to an insignificant risk of changes in value.
As per para 8 of Ind AS 7 “where bank overdrafts which are repayable on demand form an
integral part of an entity’s cash management, bank overdrafts are included as a component
of cash and cash equivalents. A characteristic of such banking arrangements is that the
 1.402.40 FINANCIAL REPORTING

bank balance often fluctuates from being positive to overdrawn.” Although Ind AS 7 permits
bank overdrafts to be included as cash and cash equivalent, however for the purpose of
presentation in the balance sheet, it is not appropriate to include bank overdraft as a
component of cash and cash equivalents unless the offset conditions as given in paragraph
42 of Ind AS 32 are complied with. Bank overdraft, in the balance sheet, should be included
as ‘borrowings’ under Financial Liabilities.
7. Current Tax Assets - If amount of tax already paid in respect of current and prior periods
exceeds the amount of tax due for those periods (assessment year-wise and not cumulative
unless tax laws allow for e.g., say tax laws in the country of overseas subsidiary permits),
then such excess tax shall be recognised as an asset. The excess tax paid (presented as
current tax assets) may not be expected to be recovered / realised within one year from
the balance sheet date and if so, the same shall be presented under non-current assets.
An entity should evaluate whether current tax assets meet the definition of current assets
or not and should accordingly present the same.
8. Equity Share Capital - The accounting definition of ‘Equity’ is principle based as compared
to the legal definition of ‘Equity’ or ‘Share’, such that any contract that evidences residual
interest in an entity’s net asset is termed as ‘Equity’ irrespective of whether it is legally
recognized as a ‘Share’ or not. Accordingly, all instruments (including convertible
preference shares and convertible debentures) that meet the definition of ‘Equity’ as per
Ind AS 32 in its entirety and when they do not have any component of liability, should be
considered as having the nature of ‘Equity’ for the purpose of Ind AS Schedule III. Such
instruments shall be termed as ‘Instruments entirely equity in nature’.
9. Borrowings- The phrase "term loan" has not been defined in the Schedule III. Term loans
normally have a fixed or pre-determined maturity period or a repayment schedule.
Terms of repayment of term loans and other loans shall be disclosed. The term ‘other
loans’ is used in general sense and should be interpreted to mean all categories listed
under the heading ‘Non – Current borrowings’ as per Ind AS Schedule III. Disclosure of
terms of repayment should be made preferably for each loan unless the repayment terms
of individual loans within a category are similar, in which case, they may be aggregated.
Ind AS Schedule III requires presenting ‘current maturities of long-term debt’ under ‘current
borrowings’. Long-term debt is specified in Ind AS Schedule III as a borrowing having a
period of more than twelve months at the time of origination. The portion of non-current
borrowings, which is due for payments within twelve months of the reporting date is required
to be classified under “current borrowings” while the balance amount should be classified
under non-current borrowings.
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.41 1.41

10. Trade Payable - A payable shall be classified as 'trade payable' if it is in respect of the
amount due on account of goods purchased or services received in the normal course of
business. Hence, amounts due under contractual obligations or which are statutory
payables should not be included within Trade Payables. Such items may include dues
payable in respect of statutory obligations like contribution to provident fund or contractual
obligations like contractually reimbursable expenses, amounts due towards purchase of
capital goods, etc.
Due date shall be the date by when a buyer should make payment to the supplier as per
terms agreed upon between the buyer and supplier. In case if the due date is neither
agreed in writing nor oral, then the disclosure needs to be prepared from the transaction
date. Transaction date shall be the date on which the liability is recognised in the books of
accounts as per the requirement of applicable standards. A dispute is a matter of facts and
circumstances of the case. However, dispute means disagreement between two parties
demonstrated by some positive evidence which supports or corroborates the fact of
disagreement. Reference is given to the term “Dispute” as defined under the Insolvency
and Bankruptcy Code, 2016.
11. Current Borrowings - Loans payable on demand should be treated as part of current
borrowings. Current borrowings will include all loans payable within a period of 12 months
from the date of the loan. In the case of current borrowings, the period and the amount of
defaults existing as at the date of the Balance Sheet should be disclosed (item-wise).
To provide relevant information to the users of the financial statements regarding total
amount of liability under the respective category of noncurrent borrowings, Companies shall
provide the amount of non-current as well as current portion for each of the respective
category of non-current borrowings either by way of a note or a schedule or a cross-
reference, as appropriate. This shall be in addition to Ind AS Schedule III requirements for
presenting ‘current maturities of long-term borrowings’ under current borrowings.
12. Other Current Liabilities - Trade Deposits and Security Deposits, which do not meet the
definition of financial liabilities, should be classified as ‘Others’ grouped under this head.
Others may also include liabilities in the nature of statutory dues such as Withholding taxes,
Service Tax, VAT, Excise Duty, Goods and Services Tax (GST), etc.
13. Contingent Liabilities and Commitments - A contingent liability in respect of guarantees
arises when a company issue guarantees to another person on behalf of a third party e.g.
when it undertakes to guarantee the loan given to a subsidiary or to another company or
gives a guarantee that another company will perform its contractual obligations. However,
 1.422.42 FINANCIAL REPORTING

where a company undertakes to perform its own obligations, and for this purpose issues,
what is called a "guarantee", it does not represent a contingent liability and it is misleading
to show such items as contingent liabilities in the Balance Sheet. For various reasons, it
is customary for guarantees to be issued by Bankers e.g. for payment of insurance
premium, deferred payments to foreign suppliers, letters of credit, etc. For this purpose,
the company issues a "counter-guarantee" to its Bankers. Such "counter-guarantee" is not
really a guarantee at all, but is an undertaking to perform what is in any event the obligation
of the company, namely, to pay the insurance premium when demanded or to make
deferred payments when due. Hence, such performance guarantees and counter
guarantees should not be disclosed as contingent liabilities.
14. Revenue from Operations and other operating income- Indirect taxes such as Sales tax,
Goods and Services tax, etc. are generally collected from the customer on behalf of the
government in majority of the cases. However, this may not hold true in all cases and it is
possible that a company may be acting as principal rather than as an agent in collecting
these taxes. Whether revenue should be presented gross or net of taxes should depend
on whether the company is acting as a principal and hence, is responsible for paying tax
on its own account or, whether it is acting as an agent i.e. simply collecting and paying tax
on behalf of government authorities. If the entity is the principal, then revenue should also
be grossed up for the tax billed to the customer and the tax payable should be shown as
an expense. However, in cases, where a company collects such taxes only as an agent,
revenue should be presented net of taxes.
The term “other operating revenue” is not defined. This would include Revenue arising
from a company’s operating activities, i.e., either its principal or ancillary revenue-
generating activities, but which is not revenue arising from sale of products or rendering of
services. Whether a particular income constitutes “other operating revenue” or “other
income” is to be decided based on the facts of each case and detailed understanding of
the company’s activities.
15. Exceptional Items - The term ‘Exceptional items’ is neither defined in Ind AS Schedule III
nor in Ind AS. However, Ind AS 1 has reference to such items. Ind AS 1 states that
disclosing the components of financial performance assists users in understanding the
financial performance achieved and in making projections of future financial performance.
An entity considers factors including materiality and the nature and function of the items of
income and expense. It indicates circumstances that would give rise to the separate
disclosures of items of income and expenses and include:
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.43 1.43

(a) Write-downs of inventories to net realisable value or of property, plant and

equipment to recoverable amount, as well as reversals of such write-downs;

(b) restructurings of the activities of an entity and reversals of any provisions for the
costs of restructuring;
(c) disposals of items of property, plant and equipment;

(d) disposals of investments;

(e) discontinued operations;
(f) litigation settlements; and

(g) other reversals of provisions.

SUMMARY
♦ Accounting Standards is an essential building block in the economics financial reporting
world. These Accounting Standards provide principles and rules that must be followed to
ensure accuracy, consistency and comparability of financial statements
♦ Prior to introduction of Ind AS, ASB has issued various AS to deal with various reporting
matters which were known as AS and were applicable to companies and also non-corporate
entities.

♦ To enable free flow of capital across jurisdiction without increasing cost and complexity of
compliances along with need to provide comprehensive guidance to deal with rising
complexities of business and financial world, the need to have Global Accounting Standards
have strongly emerged, leading to rise of IFRS.
♦ In response to commitment to G20, MCA has notified IFRS converged Standards i.e. Ind
AS phase wise for India Corporates in 2015, which eventually got extended to NBFCs.

♦ MCA and ICAI had worked extensively together to align Statutory provisions not in
cognisant with Ind AS to ease the implementation challenges for the companies.
Schedule III revision, extensive guidance note dealing with practical application thereof,
amendment in listing regulations by SEBI, continuous guidance on key matters by ITFG are some
of the many initiatives which helped companies to transition to Ind AS smoothly.
 1.442.44 FINANCIAL REPORTING

TEST YOUR KNOWLEDGE

Question
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:

1. 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.
2. 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.

Answer
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.
 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS 1.45 1.45

♦ 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.
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.