Indian Accounting Standard & IFRS Unit 1

CHAPTER - 1
Indian Accounting Standard & IFRS

Meaning of Accounting standards

As per ICAI ‘ Accounting standards are written documents, policies, procedures
issued by expert accounting body or by the government covering the aspects of
recognition, measurement, presentation and disclosure of accounting transactions in
the financial statement.

Accounting standards in India

In India, Accounting standard board was established by ICAI in April 1977. The
Accounting Standard Board formulates the Accounting Standards and these are then
issued by ICAI. The ICAI has so far issued 32 AS.

Need For Accounting Standards

 Comparison between two firms is possible if both of them maintain the same
principle or otherwise proper comparison is not possible.
 The firms are not allowed to maintain and present their accounts according to
their own wish as manipulation of accounts is possible. This can be avoided only
when there is some fixed standards for the preparation of financial statements.
 The Accounting standards recognize the principle of equity for different
users of accounting information that is creditors, shareholders, government etc.,
Thus the purpose of accounting standards is to have uniformity in
formulating financial statements and help in proper comparison of accounting
information to different users. Thus it helps in maintaining fairness, consistency,
transparency and reliability of accounting information to satisfy the different
users.

Benefits of Accounting Standards

1] Attains Uniformity in Accounting

Accounting Standards provides rules for standard treatment and recording of transactions.
They even have a standard format for financial statements. These are steps in achieving
uniformity in accounting methods.
Indian Accounting Standard & IFRS Unit 1

2] Improves Reliability of Financial Statements

There are many stakeholders of a company and they rely on the financial statements for
their information. Many of these stakeholders base their decisions on the data provided by
these financial statements. Then there are also potential investors who make their
investment decisions based on such financial statements.

So it is essential these statements present a true and fair picture of the financial situation of
the company. The Accounting Standards (AS) ensure this. They make sure the statements
are reliable and trustworthy.

3] Prevents Frauds and Accounting Manipulations

Accounting Standards (AS) lay down the accounting principles and methodologies that all
entities must follow. One outcome of this is that the management of an entity cannot
manipulate with financial data. Following these standards is not optional, it is
compulsory.

So these standards make it difficult for the management to misrepresent any financial
information. It even makes it harder for them to commit any frauds.

4] Assists Auditors

Now the accounting standards lay down all the accounting policies, rules, regulations, etc
in a written format. These policies have to be followed. So if an auditor checks that the
policies have been correctly followed he can be assured that the financial statements are
true and fair.

5] Comparability

This is another major objective of accounting standards. Since all entities of the country
follow the same set of standards their financial accounts become comparable to some
extent. The users of the financial statements can analyze and compare the financial
performances of various companies before taking any decisions.

Also, two statements of the same company from different years can be compared. This
will show the growth curve of the company to the users.
Indian Accounting Standard & IFRS Unit 1

Limitations of Accounting standards

1. Difficulty between Choosing Alternatives :There are alternatives for certain
accounting treatments or valuations. Like for example, stocks can be valued by LIFO,
FIFO, weighted average method, etc. So choosing between these alternatives is a tough
decision for the management. The AS does not provide guidelines for the appropriate
choice.

2. Brings Inflexibility and Rigidity : All companies are required to fit themselves into
guidelines of accounting standards. Every companies goes through different situations
and have different financial transactions. Sometimes it becomes difficult for them to
follow the same guidelines.

3. Involves high costs : Implementing accounting standards might be costly. Company

need to change their procedures, upgrade their systems and provide their employee’s
training accordingly. Companies needs to monitor whether employees are correctly
following standards. All these activities require large costs for bringing changes.

4. Time Consuming : Implementation of accounting standards requires many steps to be

followed to prepare financial report. It makes the process of preparing financial statements
complex and time consuming.

Meaning of IFRS
IFRS is a set of International Accounting Standards issued by International
Accounting Standards Board (IASB) to provide a common global language for
business affairs so that company accounts are understandable and comparable across
international boundaries.
IFRS is the common language of financial reporting through which global
companies communicate with global investors rather than country having a different
set of accounting standards applied differently to different countries.

NOTE :
 International accounting standard Committee (IASC) came into existence on 29th
June, 1973. IASC issued 41 International Accounting standards). IASC was
replaced by International Accounting Standard Board (IASB) in April 2001.

 IASB has issued 17 IFRS and earlier IASC has issued 41 IAS. This means 17
IFRS issued by IASB and 41 IAS issued by IASC are part of IFRS.
Indian Accounting Standard & IFRS Unit 1

ADOPTION & CONVERGENCE OF IFRS

Adoption of IFRS means the country adopting IFRS will be implementing IFRS in the
format as issued by IASB and would be 100 % compliant of IFRS.
Convergence with IFRS means the Accounting Standard Board (ASB) of the country
applying IFRS will work together with IASB to develop high Quality accounting
standards for its own use which are compatible with IFRS.

Convergence of IFRS as Ind AS

India was following Accounting standards(AS) prior to convergence with Indian
Accounting Standards (Ind AS). India has now two set of accounting standards i.e.,
the existing AS and Ind AS converged with IFRS.
ICAI has issued 41 Ind AS.

Roadmap or Process of Implementation of IND AS in India

Voluntary adoption
Companies may voluntarily adopt Ind AS for accounting periods beginning on or after
01-04-2015. however, once if they have chosen this path they cannot switch back to
the older accounting standards.
Mandatory adoption
The following companies will have to adopt IND AS for financial statements in the
stages below
Stage - 1 : Accounting periods beginning on or after 1 April, 2016:
 Companies listed on any stock exchange in India or outside India (listed
companies) and having net worth of Rs. 500 crore or more.
 Unlisted companies having a net worth of Rs. 500 crore or more.
 Holding, subsidiary or joint venture of the companies covered above.

Stage - 2 Accounting periods beginning on or after 1 April, 2017:

 Listed companies having net worth of less than Rs. 500 crore.
 Unlisted companies having net worth of Rs. 250 crore or more but less than Rs.
500 crore.
 Holding, subsidiary, joint venture or associate companies of the listed
and unlisted companies covered above.
Indian Accounting Standard & IFRS Unit 1

Stage - 3: Accounting periods beginning on or after 1 April, 2018:

 Listed NBFC’s having net worth of Rs. 500 crore or more.
 Unlisted NBFC’s having a net worth of Rs. 500 crore or more.
 Holding, subsidiary or joint venture of the companies covered above.

Stage - 4 Accounting periods beginning on or after 1 April, 2019:

 Listed NBFC’s having net worth of less than Rs. 500 crore.
 Unlisted NBFC’s having net worth of Rs. 250 crore or more but less than Rs.
500 crore.
 Holding, subsidiary, joint venture or associate companies of the listed
and unlisted companies covered above.

Companies not covered under the rule for implementation of IND AS

 Insurance companies, banking companies is not required to apply IND AS either
voluntarily or mandatorily.
 Small and Medium enterprises unlisted whose net worth is less than 250 crores.
 Overseas subsidiary, joint venture of Indian Companies is not required to prepare
its stand alone financial statements as per IND AS. However, these entities will
still have to report their IND AS statement or numbers for their Indian Parent
Company to prepare consolidated financial statements.

List of IFRS, IAS and IND AS

Ind 101 (IFRS 1) : First Time Adoption of Indian Accounting Standards
AS
Ind 102 (IFRS 2) : Share Based Payments
AS
Ind 103 (IFRS 3) : Business Combinations
AS
Ind 104 (IFRS 4) : Insurance Contracts
AS
Ind 105 (IFRS 5) : Non-Current Assets Held for Sale & Discontinued
AS Operations
Ind 106 (IFRS 6) : Exploration and Evaluation of Mineral Resources
AS
Ind 107 (IFRS 7) : Financial Instruments: Disclosures
AS
Indian Accounting Standard & IFRS Unit 1

Ind 108 (IFRS 8) : Operating Segments

AS
Ind 109 (IFRS 9) : Financial Instruments
AS
Ind 110 (IFRS 10) : Consolidated Financial Statements
AS
Ind 111 (IFRS 11) : Joint Agreements
AS
Ind 112 (IFRS 12) : Disclosure of Interests in Other Entities
AS
Ind 113 (IFRS 13) : Fair Value Measurement
AS
Ind 114 (IFRS 14) : Regulatory Deferral Accounts
AS
Ind 115 (IFRS 15) : Revenue from Contracts with Customers
AS
Ind 116 IFRS 16 : Leases
AS
Ind 117 (IFRS 17 : Insurance Contracts
AS
Ind 1 IAS 1 : Presentation of financial statements
AS
Ind 2 IAS 2 : Inventories
AS
Ind 7 IAS 7 : statement of cash flows
AS
Ind 8 IAS 8 : accounting policies, changes in accounting estimates
AS and errors.
Ind 10 IAS 10 : events after the reporting period
AS
Ind 11 (IAS 11) : Construction Contracts
AS
Ind 12 (IAS 12) : Income Taxes
AS
Ind 16 (IAS 16) : Property, Plant & Equipment
AS
Ind 18 (IAS 18) : Revenue
AS
Ind 19 (IAS 19) : Employee Benefits
AS
Ind 20 (IAS 20) : Government Grants & Government Assistance
AS
Ind 21 (IAS 21) : The Effects of Changes in Foreign Exchange Rates
AS
Ind 23 (IAS 23) : Borrowing Costs
AS
Ind 24 (IAS 24) : Related Parties
AS
Ind 27 (IAS 27) : Consolidated and Separate Financial Statements
Indian Accounting Standard & IFRS Unit 1

AS
Ind 28 (IAS 28) : Investments in Associates
AS
Ind 29 (IAS 29) : Financial Reporting in Hyper inflationary Economics
AS
Ind 31 (IAS 31) : Interests in Joint Ventures
AS
Ind 32 (IAS 32) : Financial Instruments: Presentation
AS
Ind 33 (IAS 33) : Earnings Per Share
AS
Ind 34 (IAS 34) : Interim Financial Reporting
AS
Ind 36 (IAS 36) : Impairment of Assets
AS
Ind 37 (IAS 37) : Provisions, Contingent Liabilities and Contingent
AS Assets
Ind 38 (IAS 38) : Intangible Assets
AS
Ind 39 (IAS 39) : Financial Instruments: Recognition and Measurement
AS
Ind 40 (IAS 40) : Investment Property
AS
Ind 41 (IAS 41) : Agriculture
AS

OPPORTUNITIES FOR INDIAN COMPANIES IN THE

IMPLEMENTATION OF IND AS
1. Easier Global Comparability - Across the Globe firms are using IFRS to report
their financial statements with the adoption of IFRS by Indian firms, the
comparison of two becomes easier.
2. Better reach to global capital markets - Indian firms are expanding and they
are setting branches in other country and also they are acquiring firms across the
globe. For this they need funds at cheaper cost which is available in foreign
capital market. With the adoption of IFRS Indian firms can have an easy access
to the global capital markets for funds.
3. Consistency in Financial Reports - IFRS allows a multinational company to
apply common accounting standards with its subsidiaries world wide and this
improves the quality of reporting.
4. Avoids multiple reporting - Convergence with IFRS will remove multiple
reporting as the same set of financial statement can be used for reporting at the
entity level and at the consolidated level.
5. Reflects true value of Acquisition - As per the older accounting standards
business combinations were recorded at carrying values rather than fair value of
Indian Accounting Standard & IFRS Unit 1

net asset in the acquirer’s books. IFRS will overcome this as it is mandatory to
record the value of net assets taken over in a business combination at fair value.
6. Bench marking with Global peers - Adoption of IFRS will facilitate companies
to set target based on global business rather than the domestic one’s.

Challenges or Problems faced by India in the implementation of IND

AS
1. Awareness of IFRS - The awareness about IFRS is still not there among the
stakeholders like creditors, investors etc., bring a complete awareness of this
standards is a difficult task.
2. Difference in existing AS and IND AS - Adoption of IFRS means the entire set of
financial statements would undergo a drastic change. It would be a challenge to bring
awareness about IFRS and its impact among the users of financial statements.
3. Use of fair value as measurement - IFRS uses fair value to measure many
elements in the financial statements. The use of fair value accounting can bring a lot
of instability to the financial statement. India which has been preparing its financial
statement on historical cost basis will have a tough time while shifting to fair value
accounting.
4. Lack of training - Professional accountants are required to ensure successful
convergence of IFRS. India lacks training facility to train such a large group. India
does not have fully trained professionals to carry out this task of convergence with
IFRS.
5. Amendment to the existing laws of taxation - Existing laws provide guidelines
on the preparation of financial statements in India and they have to be amended to
ensure smooth convergence of IFRS. IFRS affects most of the elements in the
financial statement because of which the tax liability will also change. Hence
sufficient changes should be made to the tax laws to ensure successful implementation
of IND AS.

Procedure for Issuing an Accounting Standard by Accounting

Standard Board
Broadly, the following procedure is adopted for formulating Accounting Standards:


First, the ASB will identify areas where the formulation of accounting standards
may be needed

 Then the ASB will constitute study groups and panels to discuss and study the
topic at hand. Such panels will prepare a draft of the standards. The draft normally
includes the definition of important terms, the objective of the standard, its scope,
Indian Accounting Standard & IFRS Unit 1

measurement principles and the representation of said data in

the financial statements.

 The ASB then carries out deliberations of the said draft of the standard. If
necessary changes and revisions are made.

 Then this preliminary draft is circulated to all concerned authorities. This will
generally include the members of the ICAI, and any other concerned authority
like the Department of Company Affairs (DCA), the SEBI, the CBDT, Standing
Conference of Public Enterprises (SCPE), Comptroller and Auditor General of
India etc. These members and departments are invited to give their comments.

 Then the ASB arranges meetings with these representatives to discuss their
views and concerns about the draft and its provisions

 The exposure draft is then finalized and presented to the public for their review
and comments

 The comments by the public on the exposure draft will be reviewed. Then a
final draft will be prepared for the review and consideration of the ICAI

 The Council of the ICAI will then review and consider the final draft of the
standard. If necessary they may suggest a few modifications.

 Finally, the Accounting Standard is issued. In the case of standard for

non-corporate entities, the ICAI will issue the standard. And if the relevant subject
relates to a corporate entity the Central Government will issue the standard.