Indian Accounting Standard : Meaning, Types, Evolution, Phases

Meaning Of Indian Accounting Standard

Accounting standards have evolved over a long period. Accounting standards are the set of procedures and level of quality a business should maintain during an action. It contains all the practices that are followed to maintain a systematic order in recording the financial transactions of the business. There are different accounting standards followed across the globe.

Types Of Accounting Standard

One of the most eminent accounting standards known to us is U.S. GAAP Accounting Standards. Let us now discuss the different accounting standards across the globe.

1. Globally Accepted Accounting Policies
   • Set of accounting standards accepted for preparing financial statements
   • Principle issued by the Financial Accounting Standards Board (FASB)
   • Public companies in the United States must follow GAAP when they prepare their financial statements
2. International Financial Reporting Standards (IFRS)
   • Act as the guideline for non-U.S. GAAP companies reporting financial statements
   • Earlier known as International Accounting Standard (IAS)

The next question is what is the accounting standard followed in India? Does India have separate standards to be followed?

In this article, we will discuss in detail the Indian Accounting Standard (Ind-AS)

Indian Accounting Standard; At A Glance

If each firm followed different accounting procedures it would have been very difficult to evaluate the firm’s financial position. To avoid this accounting standards are set. In India

Indian Accounting Standard (Ind-AS) as the name suggests is the accounting policy adopted by the countries in India. These policies are supervised by the Accounting Standards Board.

These standards act as a level of quality that should be possessed by Indian firms.

Evolution Of Indian Accounting Standard

The Institute of Chartered Accountants of India (ICAI) is the eminent accounting body presiding in India which regulates the policies in the country. It constituted the Accounting Standards Board (ASB) in 1977. The Indian Accounting Standards which were issued by the central government in consultation with the National Advisory Committee on Accounting Standards (NACAS) are controlled and regulated by the ASB. The Indian standards were framed by keeping International Financial Reporting Standards (IFRSs) in keep. IFRS is a globally accepted accounting standard. It acts as a basis on which the Indian Accounting Standard is formulated. Even though ICAI is the supreme regulatory body ASB stands acts as an individual body and takes the decisions regarding corporate affairs.

The necessity of accounting standards was pointed out by the Ministry of Corporate Affairs in the 2016-17 reporting year, even though the initial implementation year was 2011.

The next question is whether the implementation was done right away after the realization that there is a need for accounting standards. How was Ind-AS adopted? Let us study it in detail.

Phases Of Adoption Of Indian Accounting Standard

The adoption of the Indian Accounting Standard by the Ministry of Corporate Affairs was in 4 phases. This gives us the idea of all industries mandatorily and voluntarily apply to the Indian Accounting Standards. Once they adapt themselves to the Ind-AS they cannot revert to the old accounting method. The phases of adoption are as follows:

PHASE I

From 1^st April 2016, this phase includes the mandatory applicability of the Indian Accounting Standard to the following companies.

1. Listed Companies (companies whose securities are listed on a recognized stock exchange) or unlisted companies.
2. The Net worth of the company is more than ₹ 500 crores
3. This phase excludes all banking companies, Insurance companies and NBFCs

To calculate the net assets, the company’s financial statements for the previous 3 years that is 2013-14, 2014-15, and 2015-16 are audited.

PHASE II

From 1^st April 2017, the companies stated below are mandatorily applicable to Indian accounting standards. In this case, the next fiscal year is taken into consideration.

1. Listed companies (whose securities are listed on a recognized stock exchange – as of March 31, 2016) or companies in the process of being listed.
2. Companies that have a net worth of more than Rs. 250 crores but less than Rs.500 crores.
3. Banking companies, Insurance companies and NBFCs are excluded

 The net assets shall be computed for the previous four financial years (i.e., 2013-14,2014-15,2015-16 & 2016-17)

PHASE III

From 1^st April 2018, it is mandatorily applicable to all banking companies, insurance companies and NBFCs

1. Companies having a net worth of more than Rs. 500 crores
2. According to the Insurance Regulatory and Development Authority of India (IRDAI), there is a separate notification to meet the insurers’ and net asset requirements.

The net worth shall be computed for the past three financial years (i.e., 2015-16,2016-17 & 2017-18)

PHASE IV

From 1^st April 2019, NBFCs’ mandatory applicability whose:

1. Net worth greater than or equal to 250 crores

Even though the 4 phases are vaguely discussed let us get deep into certain points we must remember when we check the applicability of Indian Accounting Standards.

1. When a company becomes applicable under Ind-AS all its holding companies, subsidiaries, associative companies, and joint ventures are also applicable under Ind-AS.
2. If the controlling company is a foreign company separate accounting standards are applied according to its nature.
3. Ind-AS is applied mainly to material items.
4. Ind-AS can be applied to all financial statement preparations whether consolidated or standalone.
5. The net worth is calculated based on a standalone financial statement as the net worth of a single company in the continuous fiscal years is taken into consideration.

Significance And Objectives Of Ind-AS

Now we know the applicability of Accounting Standards in Indian firms. But we need to know why Indian Accounting Standards are adopted.

1. Indian accounting standard provides transparency to all the financial activities undertaken by the companies
2. It acts as a medium of comparison between the globally recognized practices and the practices that are ideal for domestic growth.
3. It acts as a tool to lift the Indian firm into a global standard by providing a unique and uniform system of accounting for all companies. It eliminates all the frauds and confusion regarding the final statements.
4. There is a higher level of reliability for the financial statements provided by the firms that complied with the accounting standard

These are the main reasons why Ind-AS was set up.

Need For Indian Accounting Standard

Complying with accounting standards has been termed a necessity in most financial institutions in India.

1. Uniformity in accounting system:
   • There is consistency among the accounting procedures followed irrespective of the period and place of business.
   • Everything is systematically recorded financial statements are recorded in a well-standardized manner.
2. Aids to comparability:
   • As uniform systems are followed comparisons between different organizations are simple and accurate.
   • Reviewing financial statements and identification of problems is easier.
3. No room for frauds:
   • There is a systematic framework of policies to be followed hence provision for manipulation is least.
   • Everything is recorded and no fraudulent activities can take place without getting caught.
4. Analysing management performance:
   • It acts as a guide for the management to formulate policies according to the need.
   • Management can be broken down into its highest potential by comparing the previous results and forecasting the future with the standards available to them
5. Simple and accurate:
   • As well-defined policies and projections are laid out the accounting procedure will be simple and free of ambiguity.
   • The financial figures obtained will be accurate to the extent of the policies followed by them.

Every aspect has a negative impact lying within them. Let us now check whether there are any limitations regarding Indian Accounting Standards:

1. Time-consuming:
   • Identifying the most suitable standard and preparing statements according to those principles is highly time-consuming and requires high expertise.
   • Expertise requires higher pay which increases the working cost of the company
2.  Inflexibility:
   • In case of any change in the policies according to the change in trend amendments must be passed.
   • This not only requires time but also shows the rigidity of the framework.
3. Lack of alternative:
   • If any one standard does not seem to be accurate there is not much of a choice of alternative among the prescribed standards.

After briefly discussing the essence of the Indian Accounting Standard let us now move on to the different accounting standards that come under Ind-AS.

List Of Indian Accounting Standards

Indian Accounting standards consist of 40 standards. Ind-AS is practised by CAs, tax practitioners and those who prepare the financial statements of a company. Accounting Standards undergo amendment from time to time to their relevance in the present scenario.

In this section, we will understand what are the different Ind-AS and what are its objectives. Each accounting standard is set up to act as a standard of any 1 accounting aspect. The following table has the list of standards along with its objective.

SL. NO	IND-AS	NAME OF ACCOUNTING STANDARD	OBJECTIVE
1	Ind AS 101	First-time adoption of Ind AS	Construct financial reports according to the standards set up by the accounting board.
2	Ind AS 102	Share-Based payments	Ensures fair value measurement under the goods or services received or acquired in a share-based payment transaction.
3	Ind AS 103	Business Combination	Exercise control over all the accounting affairs within different business entities under the same registered person.
4	Ind AS 104	Insurance Contracts	The standard in which the financial detailing should be done by the insurer.
5	Ind AS 105	Non-Current Assets Held for Sale and Discontinued Operations	It helps in computing the value of the assets held up for sale or disposal.
6	Ind AS 106	Exploration for and Evaluation of Mineral Resources	Helps in financial reporting for investigation and assessment of mineral resources.
7	Ind AS 107	Financial Instruments: Disclosures	To disclose risks related to financial instruments and the policies for managing such risks.
8	Ind AS 108	Operating Segments	It engages in segment reporting and the operations and monetary impacts of the operations are stated where it arises.
9	Ind AS 109	Financial Instruments	Provides guidelines for reporting the financial instruments.
10	Ind AS 110	Consolidated Financial Statements	To help the companies in preparing consolidated statements if they have a subsidiary or parent company.
11	Ind AS 111	Joint Arrangements	Aid in reporting the financial statements of the entities in the joint arrangement.
12	Ind AS 112	Disclosure of Interests in Other Entities	Disclosure of the financial reporting of entities to its stakeholders.
13	Ind AS 113	Fair Value Measurement	Disclose and measure the fair value of the reasonable worth of the entity.
14	Ind AS 114	Regulatory Deferral Accounts	To specify the financial reporting requirements for regulatory deferral account
15	Ind AS 115	Revenue from Contracts with Customers	It mainly specifies the accounting treatment of revenues arising from the contractual party. Applicable from April 2018
16	Ind AS 116	Leases	To ensure that the parties to the contract provide relevant information regarding the lease transactions. Applicable from April 2019
17	Ind AS 1	Presentation of Financial Statements	Disclosure of the financial statement fairly and truly.
18	Ind AS 2	Inventories	Estimation of stock and the set-off expenses regarding them.
19	Ind AS 7	Statement of Cash Flows	Shows the inflow and outflow of cash.
20	Ind AS 8	Accounting Policies, Changes in Accounting Estimates and Errors	Helps in selecting, and modifying the accounting policies and the disclosure of changes.
21	Ind AS 10	Events after Reporting Period	Manages the changes in events after reporting the final statements
22	Ind AS 11	Construction Contracts [Omitted by the Companies (Indian Accounting Standards) Amendment Rules, 2018]	Deals with the accounting treatment of the revenues and costs associated with construction contracts
23	Ind AS 12	Income Taxes	Helps in calculating the income tax
24	Ind AS 16	Property, Plant and Equipment [PPE]	Prescribes the accounting treatment for property, plant, and equipment
25	Ind AS 19	Employee Benefits	Policies that are followed for different schemes that benefit the employees.
26	Ind AS 20	Accounting for Government Grants and Disclosure of Government Assistance	Aid to accounting and disclosure of matters related to the government.
27	Ind AS 21	The Effects of Changes in Foreign Exchange Rates	Disclosure of the change of functional currency along with the reason and date of the change.
28	Ind AS 23	Borrowing Costs	Deals with the capitalisation of borrowing costs that are directly linked with the acquisition, construction, or production of a qualifying asset as part of the cost of that asset
29	Ind AS 24	Related Party Disclosures	Disclosure of all the associations, ventures etc that are done by the parent company.
30	Ind AS 27	Separate Financial Statements	A separate financial statement is required by the different subsidiaries of the company (non-consolidated financial statements). This came into effect from the 2011 amendment.
31	Ind AS 28	Investments in Associates and Joint Ventures	To prescribe the accounting and set out the requirements for the application of the equity method while accounting for investments in associates and joint ventures.
32	Ind AS 29	Financial Reporting in Hyperinflationary Economies	To ensure the standard and provide meaningful information in the economy where reporting is done in hyperinflationary currency.
33	Ind AS 32	Financial Instruments: Presentation	Presentation of financial instruments as equity of liability.
34	Ind AS 33	Earnings per Share	Sets a standard for assurance and presentation per share.
35	Ind AS 34	Interim Financial Reporting	Ensures that the entity applies the same accounting policies while preparing the interim financial reports.
36	Ind AS 36	Impairment of Assets	To ensure that the carrying value of the asset is not more than the recoverable value of the asset.
37	Ind AS 37	Provisions, Contingent Liabilities and Contingent Assets	To make sure there is appropriate recognition and information regarding the provisions and contingencies.
38	Ind AS 38	Intangible Assets	The intangible assets are to be disclosed in the balance sheet as it provides a monetary benefit to the firm.
39	Ind AS 40	Investment Property	This states the prerequisites and accounting procedures of the investment held by the owner.
40	Ind AS 41	Agriculture	It explains the treatment of biological assets.

Conclusion

Indian Accounting Standard has played a vital role in uplifting the standards of Indian companies to the global level. It is a bridge between different accounting policies all over the world. The adoption has increased the standard of the companies and there is upliftment in the economy of India. We can conclude that when the policies are well defined and the accounts are transparent there is a higher chance of success for the firm as we know that everything turns out to be the best when it is well defined.