Finance & Accounting

Everything about Indian Accounting Standards (Ind AS)

Indian Accounting Standards (Ind AS) are standard protocols adopted by the Indian companies mentioned under Section 133 of the Companies Act of 2013^[1] with the aim of aligning Indian accounting standards with international ones. Implementation of Indian accounting standards in an appropriate manner is necessary for improving credibility and for making better financial decisions. This article deals with the implementation of Indian accounting standards (Ind AS) and everything related to it.

What are Indian Accounting Standards

Accounting standards standardize the entire accounting procedure of the economy. They are developed to harmonize and align Indian accounting standards with international accounting standards and reporting. All Indian companies follow the same accounting standards for reporting to avoid any inconsistencies and mishaps. Accounting standards govern the manner and provide a pre-defined specific protocol for how the preparation and presentation of financial statements.

There are many core objectives for introducing Indian accounting standards. These core objectives are given below:-

• Ind AS was brought with the aim of introducing more transparency of annual financial statements in company accounts.
• It is important for Indian companies to adopt these measures in order to specify and implement internationally recognised best practices.
• Implementing standarised accounting systems eliminates the chances of confusions and fraud, thus providing consistency.
• The Indian accounting standards are very simplified and precise in nature, and because of their simplified nature, they can be understood greatly by anyone in the world.
• Indian accounting standards are specifically designed in such a way that they are able to match the specific global accountancy requirements.
• Another core objective of the accountant standard is to improve and increase the credibility and reliability of financial statements.

Importance

The implementation of accounting standards is crucial for several reasons. These reasons are given below:-

These are some of the importance of Ind AS.

• The implementation is important from the compliance perspective. The Ministry of Corporate Affairs (MCA) has made mandatory implementation of Ind AS for the companies so that the companies do not have to face penalties and legal consequences.
• Implementation of Ind AS compel a company to become more transparent and credible. This overall enhances the confidence of investors, stakeholders and regulators in the financial statements of companies.
• Indian accounting standards are as par with global standards and are designed in such a way as can be easily interpreted and understood globally. This, in turn increases the chances of companies who seek to attract foreign investors and expand their operations and market internationally.
• The Ind AS provides more relevant and reliable financial information to investors, lenders and stakeholders. This helps them in making more informed and rational decisions which can lead to better investment decisions and increased investors’ confidence.
• Indian accounting standards can help companies in better management of the company’s financial operations, and it also helps in better monitoring of the company’s performance, thus leading to an increase in the company’s performance, and improved governance leading to an overall reduction in financial scandals, frauds and mishaps.

How to Implement Indian Accounting Standards

The Ministry of Corporate Affairs in 2016 issued a roadmap which includes a strategic plan regarding implementation of Ind AS by Non-Banking Financial Companies. NBFCs will be required to comply with these standards in a phased manner from accounting periods beginning on or after 1st of April of 2018 for the first phase and 1st of April 2019 for the second phase. These phases are described in great details below:-

PHASE-I

Phase 1 starts from 1st of April 2018 onwards and ends on or after 31st of March 2018.

• This phase includes NBFCs or Non-Banking Financial Companies having net worth of Rs 500 crores or more in the first phase and
• Other companies such as holding, subsidiary, joint venture companies and all are already covered under the roadmap issued by the Ministry of Corporate in February 2015.

PHASE-II

Phase II starts from 1st of April 2019 onwards and ends no or after 31st to March 2019.

• Phase II includes all the companies whose equity or debt securities are listed or under procedure of being listed in any stock exchange in India or outside India. Also this phase includes companies having the net worth of lesser than Rs 500 crores.
• NBFCs or Non-Banking Finance Companies that are unlisted having net worth of Rs 250 crores or more but lesser than the Rs 500 crores.
• Holding, subsidiary and joint venture companies other than those companies which are already covered under the road map are also required to comply with the Ind AS.

Non-Banking Finance Companies having net worth lower than Rs 250 crores are not covered in any of the above-mentioned phases. These companies will continue to comply with the existing standards.

Benefits of Implementing Indian Accounting Standards

There are several benefits of implementing Ind AS. These benefits are given below:-

• These standards provide reliability to the financial statements of organisations and companies and promote transparency in companies.
• Ind AS are universal in nature. They set similar standarised criteria for all the accounting processes taking place in all the companies, thus providing uniformity.
• Accounting process is hectic and arduous. Having pre-specified uniform accounting standards makes accounting process easy and simpler, thus eliminating any sort of intricacies in the accounting system.
• Standarised accounting principles help in eliminating financial frauds and mishaps by ensuring transparency in the accounting system and making people accountable for their misdeeds.
• Accounting standards have significantly improved the correlation of various financial reports. It has made the comparability of two standards quite easier. Also, Ind AS are easier to understand and can be interpreted by anyone globally.

Conclusion

To conclude, it can be said that the Ind AS is very crucial for companies who want a thorough and in-depth understanding of the new standards and changes in accounting policies, practices and reporting requirements. These standards are as par with International standards, which in turn increases the financial reporting and thus eliminates the chances of fraud and misconduct.

Also Read: Comprehensive Understanding of Ind AS (Indian Accounting Standards)