Indian Accounting Standards: Overview and Applicability

Indian Accounting Standards (Ind AS) are the accounting framework that certain companies in India must use to prepare and present their financial statements. Aligned with the International Financial Reporting Standards (IFRS), Ind AS improves transparency, consistency and global comparability of financial reporting, making it easier for investors, lenders and regulators to assess a company's financial performance.

However, Ind AS does not apply to every business. Its applicability depends on factors such as a company's net worth, listing status and the nature of the entity, with mandatory implementation introduced in phases from the financial year (FY) 2016-17.

What are Indian Accounting Standards?

Ind AS are a set of accounting standards notified by the Ministry of Corporate Affairs (MCA) under the Companies (Indian Accounting Standards) Rules, 2015. They were formulated by the Institute of Chartered Accountants of India (ICAI) in close alignment with the IFRS issued by the International Accounting Standards Board (IASB), while incorporating a few India-specific carve-outs where global requirements do not suit the country's regulatory or economic environment.

Ind AS principles prescribe how companies should recognise, measure, present and disclose financial information across areas such as revenue, financial instruments, leases, business combinations, consolidated financial statements and fair value measurement. This standardised framework promotes consistent financial reporting and enhances the comparability of financial statements across companies.

What are the commonly used Indian Accounting Standards (Ind AS)

Each Ind AS addresses a specific aspect of financial reporting. The table below summarises some of the most widely used standards and where they are commonly applied:

Ind AS	What It Covers	Who Commonly Uses It
Ind AS 1	Presentation of financial statements	All Ind AS-compliant entities
Ind AS 2	Valuation and accounting of inventories	Manufacturing, trading and retail businesses
Ind AS 7	Cash flow statements	All entities preparing financial statements
Ind AS 8	Accounting policies, changes in accounting estimates and errors	All Ind AS-compliant entities
Ind AS 10	Events occurring after the reporting period	All entities during financial statement preparation
Ind AS 12	Accounting for income taxes, including deferred tax	Companies subject to corporate taxation
Ind AS 16	Prescribe the accounting treatment for property, plant and equipment	Asset-intensive businesses such as manufacturing and infrastructure
Ind AS 19	Accounting treatment for Employee benefits such as gratuity and leave encashment	Businesses with employees receiving long-term benefits
Ind AS 21	Accounting treatment for foreign currency transactions, foreign operations and translation into the presentation currency	Companies with foreign currency transactions
Ind AS 23	Accounting treatment for recognising borrowing costs	Businesses constructing qualifying assets
Ind AS 32	Presentation of financial instruments	Companies issuing or holding financial instruments
Ind AS 36	Ensure assets are not recorded above their recoverable value	Businesses assessing asset recoverability
Ind AS 37	Provisions, contingent liabilities and contingent assets	Businesses with legal obligations or uncertain liabilities
Ind AS 38	Accounting for intangible assets that are not dealt with specifically in another Ind AS	Technology, pharmaceutical and brand-driven companies
Ind AS 109	Establishes principles for reporting financial assets and liabilities to help users assess future cash flows	Banks, NBFCs and companies with financial assets or liabilities
Ind AS 115	Establishes principles for reporting revenue and cash flows from customer contracts	Businesses selling goods or services under customer contracts
Ind AS 116	Introduces a single lessee accounting model requiring recognition of assets and liabilities for leases exceeding 12 months	Businesses with leased offices, equipment or vehicles

Which companies must follow Ind AS?

Ind AS is mandatory for specified companies incorporated under the Companies Act, 2013. It also applies to banking companies, insurance companies and non-banking financial companies (NBFCs). However, separate implementation roadmaps have been issued by the MCA and the Reserve Bank of India (RBI) for these sectors.

The following entities are required to comply with Ind AS:

Listed companies and their subsidiaries, associates and joint ventures.
Unlisted companies that meet the net worth thresholds prescribed by the MCA.
Holding companies, subsidiaries, associates and joint ventures of any company already required to follow Ind AS.

Companies that do not fall within these categories may continue to follow the Accounting Standards (AS) notified under the Companies (Accounting Standards) Rules, 2006, unless they become subject to Ind AS in the future.

What are the net worth and turnover thresholds?

For companies other than banks, insurance companies and NBFCs, mandatory Ind AS adoption is based primarily on net worth, as prescribed by the MCA. The implementation was introduced in phases, as summarised below:

Phase	Net worth threshold	Other condition
Phase I	Net worth ≥ ₹500 crore	Listed or to be listed
Phase II	Net worth ≥ ₹250 crore and < ₹500 crore	Unlisted companies

Phase

Applies from

Companies covered

Phase I

FY 2016-17 (accounting periods beginning on or after 1 April 2016)

(a) Listed companies, or those in the process of listing (in India or abroad), with net worth ≥ ₹500 crore

(b) Unlisted companies with net worth ≥ ₹500 crore

Phase II

FY 2017-18 (accounting periods beginning on or after 1 April 2017)

(a) All remaining listed companies, or those in the process of listing, with net worth < ₹500 crore

(b) Unlisted companies with net worth ≥ ₹250 crore but < ₹500 crore

Conclusion

Ind AS provides a consistent framework for preparing and presenting financial statements in line with globally recognised accounting practices. Since applicability depends on factors such as net worth, listing status and group relationships, businesses should carefully review the requirements to determine whether Ind AS applies to them.

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