INDIAN ACCOUNTING STANDARDS (IND-AS)
What is it?
Indian Accounting Standards-IND-AS govern the accounting and recording of financial transactions as well as the presentation of statements such as profit and loss account and balance sheet of a company. For long, there has been a heated debate about Indian companies moving to the globally accepted International Financial Reporting Standards (IFRS) for their accounts.
But firms have resisted this shift, stating that this will lead too many changes in the capture and reporting of their numbers. Ind AS has been evolved as a compromise formula that tries to harmonize Indian accounting rules with the IFRS.
Why is it important?
Accounting standards allow for a more “apples to apples” comparability of a company’s financial position. They are meant to protect investors from fraudulent schemes. Ind AS will not just change the way companies present their numbers, but may also bump up or knock down the profits/losses of firms. Here are a few instances.
- Under the existing rules, incentives, discounts or rebates given to customers by a firm can be shown as part of advertising, sales promotion or marketing expenses, which figure in the costs. But under Ind AS, these will have to be deducted from sales (revenues).
- Excise duties which are currently netted off from revenues to show ‘net sales’, will have to be shunted under ‘expenses’ under Ind AS.
- Intangible assets such as goodwill had to be amortized, or written off as expenses over a period of time until now. Ind AS treats such items as having an indefinite life and hence they need not be amortized. This can lift the profits of firms which carry sizeable goodwill on their books.
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Ind AS advocates the ‘fair value’ method of accounting. For example, currently, investments by a company in government securities or mutual funds are shown at the lower of cost and fair value (market value). Under Ind AS, these will have to necessarily be captured at fair value.
For firms which have legacy or undervalued investments, this revaluation can expand the balance sheet size.
The new Ind AS also promises clearer disclosures to investors in certain cases. So far companies reported their segment-wise performance based on a broad product/service grouping or even geographical segments (within India, Outside India). But Ind AS requires that segments reported to investors are the same as the firm uses for the purpose of assessing performance and allocating resources.
Why should I care?
If you are an avid investor in shares, the financials of many of the companies whose stocks you hold will look very different, starting this quarter. Higher disclosure requirements contained in Ind AS can help you make more informed decisions about its investment worthiness.
More importantly, in the coming quarterly results, compliance with Ind AS rules could lead to blips in profits earned by listed firms, due to a change in the method of accounting. As it may take some time for analysts to get used to the new format, expect some confusion about the numbers. Markets could even beat down stocks whose earnings don’t meet expectations.
Lists of Ind AS issued by the MCA
A. Ind AS issued under Companies (Ind AS) Rules 2015
|Ind AS 101 – First-time Adoption of Indian Accounting Standards|
|Ind AS 102 – Share-based Payment|
|Ind AS 103 – Business Combinations|
|Ind AS 104 – Insurance Contracts|
|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|
|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 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 17 – Leases|
|Ind AS 19 – Employee Benefits|
|Ind AS 20 – Accounting for Gov. Grants and Disclosure of Govt. 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|
|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|
B. Ind AS issued under Companies (Ind AS) (Amendment) Rules 2016
|Ind AS 11 – Construction Contracts|
|Ind AS 18 – Revenue|
It is to be conclude that IND-AS or Indian Accounting standards are those accounting principles which will become mandatory for companies to be followed for a better view of financial statements. We will discuss each and every IND-AS in our other posts.
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Geetika Goyal (Team Itslyf)
INDIAN ACCOUNTING STANDARDS-IND-AS
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