What Are Accounting Standards and Why Do They Matter?

Accounting standards are essential guidelines set by regulatory bodies to ensure consistency and transparency in financial reporting. Indian Accounting Standards (Ind AS) align with international norms, specifically the IFRS, to enhance the accuracy and comparability of financial statements. Developed by the Ministry of Corporate Affairs (MCA), Ind AS applies in phases based on company size and net worth, ensuring businesses adopt globally accepted practices while considering Indian regulatory requirements.

What are accounting standards?

Accounting standards are the guidelines issued by certified accounting bodies or by the government or other regulatory agency dealing with the aspects of identification, evaluation, management, presentation, and declaration of accounting transactions in financial statements.

What are Indian Accounting Standards (Ind AS)?

Indian Accounting Standards (Ind AS) are the standards that are used by certain Indian companies that provide assurance regarding the alignment of financial statements with international standards. Ind AS are merged with International Financial Reporting Standards (IFRS) by the Central Government of India. These standards are formed with the assistance and guidance of the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) and also by the guidance of the National Financial Authority (NFRA). ASB was formed in 1977, and it manages the formulation as well as the applicability of Ind AS, making them the main accounting guidelines that Indian businesses use.

List of Indian Accounting Standards (Ind AS List)

We have included the main set of Indian Accounting Standards in the table.

Applicability of Indian Accounting Standards

An extensive summary of the applicability of Indian Accounting Standards (IND AS) is provided below:

Phase-Wise Adoption of IND AS:

To bring Indian Accounting Standards (IND AS) closer to the current accounting standards, the Ministry of Corporate Affairs (MCA) has adopted a phased approach. Businesses of all sizes and complexity levels may move smoothly thanks to this staged adoption.

Phase I (Effective from 1st April 2016)

• Mandatory for: Firms, both listed and unlisted, having a net value of at least ₹500 crore (as determined for the fiscal years 2013–14, 2014–15, and 2015–16).

Phase II (Effective from 1st April 2017)

• Mandatory for: Companies with a net value of between ₹250 crore and ₹500 crore (estimated for the fiscal years 2013–14, 2014–15, 2015–16, and 2016–17) that are listed or in the process of listing (as of March 31, 2016).

Phase III (Effective from 1st April 2018)

• Mandatory for: Banks, insurance firms, and non-banking financial businesses (NBFCs) with a net value of at least ₹500 crore (as determined for the fiscal years 2015–16, 2016–17, and 2017–18).

Note: A distinct set of IND AS for banks and insurance businesses will be announced by the Insurance Regulatory and Development Authority of India (IRDA).

Phase IV (Effective from 1st April 2019)

• Mandatory for: NBFCs between ₹250 crore and ₹500 crore in net value (estimated for the fiscal years 2015–16, 2016–17, and 2017–18).

Important Note:

• Regardless of their net worth, a company's subsidiaries, holding companies, affiliated firms, and joint ventures must all implement IND AS if it becomes subject to it.

• For standalone financial accounts, Indian firms operating abroad may still employ their jurisdictional accounting rules. For consolidated financial reporting, these businesses must, nevertheless, provide their Indian parent firm with IND AS-adjusted statistics.

Voluntary Adoption of IND AS:

For their financial reporting periods starting on or after April 1, 2015, companies have the option to voluntarily adopt Ind AS. A company that chooses to voluntarily adopt Ind AS must also provide a comparative report for the periods ending March 31, 2015, or later, in order to clearly compare the new and old accounting standards. However, a business cannot go back to the old accounting rules after it has switched to Ind AS.

Difference between Ind AS and IFRS

Some of the key distinctions between IND AS and IFRS are listed below.

Questions to Understand your Ability

What’s the primary reason for adopting Indian Accounting Standards (Ind AS)?

A) To provide clear financial statements for investors
B) To make financial statements match international standards
C) To help companies pay less tax
D) To outline company ownership rules

Answer: B) To make financial statements match international standards
Why: Ind AS helps Indian companies align their financial reporting with global standards (IFRS), making them more transparent and consistent.

Who’s in charge of creating and applying Ind AS?

A) ICAI (Institute of Chartered Accountants of India)
B) Ministry of Corporate Affairs (MCA)
C) National Financial Authority (NFRA)
D) Accounting Standards Board (ASB)

Answer: B) Ministry of Corporate Affairs (MCA)
Why: MCA sets the rules for adopting Ind AS in India and ensures they’re in line with international standards.

How does India roll out Ind AS?

A) Based on the size of the company’s team
B) According to the company’s net worth
C) Based on the company’s market share
D) Based on a company’s revenue growth

Answer: B) According to the company’s net worth
Why: Ind AS adoption happens in phases depending on a company’s net worth, starting with the largest companies and moving to smaller ones.

Who's required to adopt Ind AS as of 1st April 2019?

A) Every listed company in India
B) Companies with net worth between ₹250 crore and ₹500 crore
C) Only multinational companies
D) Companies with net worth below ₹250 crore

Answer: B) Companies with net worth between ₹250 crore and ₹500 crore
Why: From 1st April 2019, Ind AS became mandatory for NBFCs (Non-Banking Financial Companies) with net worth between ₹250 crore and ₹500 crore.

What’s the big difference between Ind AS and IFRS?

A) Ind AS is mandatory everywhere, while IFRS is optional
B) Ind AS is only for India, while IFRS is used globally
C) Ind AS is created by the IASB (International Accounting Standards Board)
D) Ind AS is optional, but IFRS forces companies to follow it

Answer: B) Ind AS is only for India, while IFRS is used globally
Why: Ind AS is India's version of IFRS, made specifically for Indian businesses, while IFRS is followed in over 140 countries worldwide.

Conclusion

Indian Accounting Standards (Ind AS) align financial reporting with international norms, ensuring consistency and transparency. Developed by the Ministry of Corporate Affairs (MCA) and based on IFRS, these standards apply to companies based on their net worth and are implemented in phases. While Ind AS adopts global principles, it also considers Indian regulations, ensuring that businesses comply with both international and national financial reporting requirements, enhancing reliability and comparability of financial statements.