Applicability of IND AS

Companies (Indian Accounting Standards (Ind AS)) Rules 2015 Notified by the Ministry of Corporate Affairs (MCA), which makes financial reporting in India turn a new leaf. This makes the accounting period 2016–17 Ind AS adoption phase-wise. These standards were later improved upon by the other subsequent changes in the years 2016, 2017, and 2018, which accommodated the dynamic nature of the financial law. Ind AS is targeted at improving the financial reporting by the companies in India through global availability. As a result, it is inherent in the nature of the IFRS. This became important considering the fact that Indian companies are increasingly turning towards international operations. It became imperative that the reporting needs of these companies be in alignment with foreign standards.

Stages of the adoption process

The Ministry of Corporate Affairs (MCA) in India has embarked on a strategic journey for the convergence of Indian Accounting Standards (Ind AS) with the current accounting standards. The phased convergence, as notified by the MCA, lays down a structured approach towards the adoption of Ind AS by the companies operating in India. The criteria-based adoption process clearly defines the net worth and listing status of companies as the criteria for this process. Below, let’s examine each stage in more detail:

Phase I

IND AS must be applied to all businesses starting on April 1, 2016, given that

1. Is the company listed or unlisted?
2. Its net worth is at least Rs. 500 crore.

The net worth for the preceding three fiscal years (2013–14, 2014–15, and 2015–16) will be examined.

Phase II

IND AS must be applied to all businesses starting on April 1, 2017, given that 1.As of March 31, 2016, the firm is either listed or in the process of being listed. 2.Its net worth (for any of the periods stated below) is more than or equal to Rs. 250 crore but less than Rs. 500 crore. The net worth of the preceding four fiscal years (2014–14, 2014–15, 2015–16, and 2016–17) will be examined.

Phase III

As of April 1, 2018, all banks, NBFCs, and insurance businesses must comply with IND AS. Whose:

• As of April 1, 2018, net worth is greater than or equivalent to INR 500 crore.

With effect from April 1, 2018, the Insurance Regulatory and Development Authority (IRDA) of India will announce a distinct set of IND AS for banks and insurance companies. NBFCs comprise venture capitalists, stock brokers, core investment businesses, and so forth. The last three fiscal years’ net worth will be examined (2015-16, 2016-17, and 2017-18).

Phase IV

As of April 1, 2019, all non-bank financial companies (NBFCs) having a net value of at least INR 250 crore but less than INR 500 crore are required to comply with IND AS.

 Net Worth Estimation

For the purpose of adopting Indian Accounting Standards (Ind AS), an assessment of the company’s net worth is done based on the stand-alone accounts as of March 31, 2014, or the first audited period ending after that date. Add the paid-up share capital and reserves from the profit and securities premium account. Deduct there from the accumulated losses, deferred expenditures, and miscellaneous expenditures not written off. Only capital reserves from promoters’ contributions and government grants received can be included. Reserves from asset revaluation and the write-back of depreciation cannot be included.

Adoption is done voluntarily.

For accounting periods starting on April 1, 2015, companies have the option to voluntarily include IND AS in their reports. For periods ending on March 31, 2015, or after, such firms are required to provide a comparison report in which IND AS has been included to provide a comparable perspective. A corporation cannot, however, switch to reporting under earlier legislation after it has begun reporting under the IND AS.

Clarification from SEBI

On or after April 1, 2016, SEBI released a clarification about the applicability of the Indian Accounting Standards (IND AS) and the disclosures that must be included in the offer documents for all issuer businesses whose documents were submitted with SEBI. Issuer firms are generally required by SEBI to provide financial disclosures for the five fiscal years that immediately precede the year in which the offer document is filed, while maintaining consistent accounting practices for each of the fiscal years. When issuing businesses file an offer document, they should emphasise these factors:

• All of their filed financial statements up until March 31, 2017, may have been prepared using Indian GAAP.
• If disclosures are to be made for the three financial years that immediately preceded the relevant financial year, they must be prepared in accordance with IND AS principles between April 1, 2017 and March 31, 2018. For the remaining two financial years, Indian GAAP may be used.
• Disclosures for the last three fiscal years that must be made immediately before the relevant fiscal year must be made in accordance with IND AS guidelines between April 1, 2018, and March 31, 2019. Disclosures for the final two fiscal years may be made in accordance with Indian GAAP.
• Disclosures for the four financial years immediately prior to the relevant financial year must be made in accordance with IND AS principles between April 1, 2019 and March 31, 2020. Disclosures for the one remaining financial year may be made in accordance with Indian GAAP.
• Disclosures for each of the preceding five financial years must be submitted in accordance with the IND AS guidelines starting on April 1, 2020, or later.

 Additionally, SEBI has given issuer firms the option to voluntarily submit financial statements under IND AS for each of the five fiscal years. Issuer firms that are releasing rights issues are not covered by this clarification.

Questions to Understand your ability

Ques1: When did companies with a net worth of Rs. 500 crore or more have to start using Ind AS?

1. April 1, 2015
2. April 1, 2016
3. April 1, 2017
4. April 1, 2018

Ques2: In Phase II, which companies need to switch to Ind AS?

1. Companies having net worth more than Rs.500 crores
2. listed or ready to listed companies with having net worth of 250 to 500 crores.
3. All banks and NBFCs
4. All companies irrespective of their net worth

Ques3: What’s the net worth requirement for banks, NBFCs, and insurance companies to adopt Ind AS in Phase III?

1. Above Rs. 250 crores
2. Above Rs. 500 crores
3. Above Rs. 1000 crore
4. No specific amount needed

Ques4: When do NBFCs with net worth between Rs. 250 crore and Rs. 500 crores need to start using Ind AS?

1. April 1, 2017
2. April 1, 2018
3. April 1, 2019
4. April 1, 2020

Ques5: What does SEBI require for financial disclosures in offer documents from April 1, 2020?

1. Use Indian GAAP for all years
2. Use Ind AS for the last five years
3. Use Ind AS for the most recent year only
4. Use either Indian GAAP or Ind AS

Conclusion

Adoption of Indian Accounting Standards (Ind AS) by the Ministry of Corporate Affairs (MCA) during the year 2015 remains one of the most transformative changes in the financial reporting landscape in India. The subsequent amendments made in 2016, 2017, and 2018 underline the emerging regulatory framework. Ind AS aligns Indian reporting practices with global standards, highly necessary as India is witnessing the internationalization of Indian companies. The adoption is phased in based on net worth and listing status, thereby making the transition orderly, which enhances comparability and reliability in financial reporting.