The Indian Accounting Standards also known as Ind AS and are structured in line with the International Financial Reporting Standards (IFRS). The nomenclature for the naming and numbering of Ind AS is same as that of IFRS.
Overall, the accounting changes introduced by Ind AS are positive for foreign firms operating in India. Implementation of the new principals will align a company’s reporting more closely with best practices in their home country, allowing for enhanced transparency that will help investors and stakeholders better understand a business’s financial situation.
With Ind As compliance being mandatory for specified companies, there is a limited amount of time for companies operating in India to prepare for Ind AS implementation. Businesses should firstly develop an outline of how the new standards will replace existing ones, and then look to embed Ind AS into their operational systems, train their financial teams, and ensure all company managers understand the new accounting principles.
These standards have introduced several changes in the way companies report financials, including how they account for income and expenditure and items in the balance sheet. Ind AS is different from the existing Indian GAAP framework in following key aspects:
- Fair valuation
- Substance over legal form
- Emphasis on the Balance Sheet
- New framework is principle based, rather than rule based.
How Ind AS is going to impact (Illustration):
The volume and breadth of differences between Indian GAAP and Ind AS is enormous. Further, its impact will vary by industry and for each company. Ind AS will cover every area comprising reported revenues, expenses, assets, liabilities and equity. In our view, companies will have to devote substantial amount of their time especially in the following areas while preparing for Ind AS adoption.
- Revenue recognition
- Financial Instruments
- Business Combination
Key steps to be followed in implementation of Ind AS:
- Preliminary impact assessment on financial statements of company– An initial assessment required to be done to identify standards which will have impact on financial statements in terms of recognition, measurement, disclosure or classification of items as per Ind AS in comparison of existing accounting standards.
- Key Ind AS standards with an impact on financial statements of company– A detail comparative presentation needs be prepared to assess its impact for each key Ind AS in restated balance sheet and income statement at conversion date.
The implementation of Ind AS is a major change process requiring substantial preparation and training effort for which the Company must establish a project team and dedicated considerable resources.
Ind-AS-101: First time Adoption of Indian Accounting Standards:
The standard setting out how to adopt Ind-AS for the first time – first time adoption rules, exemptions and options.
Full retrospective application of Ind AS in preparation of opening Ind-AS Balance Sheet as at the date of transition leads to the followings:
- Recognize assets and liabilities as required by Ind AS.
- Reclassify assets, liabilities or components of equity in accordance with Ind AS.
- Measure all assets and liabilities in accordance with Ind AS.
- Consider mandatory and optional exemptions from retrospective application.
First time adoption of Ind AS involves the following:
- Selection of appropriate options as per Ind AS 101, which contains the transition provisions for an entity to adopt Ind AS for the first time.
- Preparation of opening balance sheet as at under Ind AS.
- Preparation of financial statements under Ind AS from starting of adopting FY.
Exceptions to the retrospective application of other Ind-AS:
This Ind AS prohibits retrospective application of some aspects of other Ind ASs. These exceptions are set out in paragraphs 14–17 and Appendix B.
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