The Non-Banking Financial Companies (NBFCs) adopted the Indian Accounting Standard (Ind AS) for the first time with the beginning of the accounting year 2018. Where, NBFCs are required to adopt Ind AS implementation road map issued by the Ministry of Corporate Affairs (MCA) on 30 March 2016 in a phased manner from accounting periods beginning on or after 1 April 2018. Let’s discuss more about IND AS guidelines for NBFC for the prepration of financial statement;
NOTE: As per IND AS comprise 391 accounting standards that are largely converged with International Financial Reporting Standards (IFRS) which have been issued by the MCA.
Additionally, to maintain convergence with IFRS, each year MCA issues annual amendments to Ind AS by incorporating amendments which are issued by International Accounting Standards Board (IASB). The implementation of amendments is expected to have a pervasive impact on the financial services sector, not only in terms of accounting changes but also on several aspects of their business. The implementation of these financial instrument standards is expected to affect almost all line-items in the financial statements of the NBFCs.
Background and Roadmap of IND AS Guidelines for NBFC
The initial plan of MCA was to implement Ind AS for banks, insurance companies and NBFCs from 1 April 2018 onwards. Earlier in this year, Ind AS implementation date has been deferred for banks by one year for insurance entities by two years. Certain NBFCs are required to implement Ind AS in phase I from 1 April 2018 and others in phase II from 1 April 2019, as mentioned below –
The MCA’s notification covers all NBFCs as defined in clause (f) of Section 45-I of the Reserve Bank of India Act, 1934, and includes
Housing Finance Companies (HFCs),
Merchant Banking Companies,
Micro Finance Companies,
Mutual Benefit Companies,
Venture Capital Fund Companies,
A stockbroker or Sub-Broker Companies,
Nidhi Companies, Chit Companies,
Securitization and Reconstruction Companies,
Mortgage Guarantee Companies,
Pension Fund Companies,
Asset Management Companies and
Core Investment Companies.
NBFCs would be
required to prepare both consolidated and separate financial statements based
on Ind AS in two phases.
Phase I, for accounting periods beginning from 1 April 2018 onwards, with comparatives for the periods ending on or after 31 March 2018
NBFCs having a net
worth of INR500 crore or more, and
In case of NBFCs holding,
subsidiary, joint venture or associate companies, other than those companies
already covered under the road map for companies issued by MCA in February
Phase II, for accounting periods beginning from 1 April 2019 onwards with comparatives for the periods ending on or after 31 March 2019 –
When the Equity
and/or debt securities of NBFCs are listed or are in the process of listing on
any stock exchange in India or outside India and having a net worth of less
than INR500 crore.
NBFCs that are
unlisted companies, having a net worth of INR250 crore or more but less than
In case of NBFCs Holding,
subsidiary, joint venture or associate companies of the above class of
companies, other than those already covered under the road map for companies
issued by MCA in February 2015.
When NBFCs net
worth is below INR 250 crore and is not covered in Phase I or II will continue
to comply with the existing accounting standards in the Indian GAAP. In that
case, the net worth is to be calculated following the separate financial
statements of the NBFC as on 31 March 2016 or the first audited financial
statements ending after that date.
What are the general instructions for the preparation of financial statements as per AS Guidelines for NBFC?
Every Non-Banking Financial Company to which Indian Accounting Standards apply shall prepare its financial statements following this Schedule or with such modification as may be required under certain circumstances.
NOTE: Here NBFCs refers to Non-Banking Financial company as defined in the Companies (Indian Accounting Standards) (Amendment) Rules, 2016
regulator issueAct, Regulations, Guidelines or Circulars as per the
requirements from time to time including Indian Accounting Standards (Ind AS)
as applicable to the NBFCs and if in case it requires any change in the
disclosure including addition, amendment, substitution or deletion in the head
or sub-head or any changes inter se, in the financial statements or statements,
shall be made under this Schedule shall stand modified accordingly.
NOTE: Except the option of presenting assets and liabilities in accordance with current, non-current classification as provided by relevant IND Accounting Standard
Unless required to be disclosed on the face of the Financial Statements, Additional disclosures specified in the Indian Accounting Standards shall be made in the Notes or by way of additional statement or statements.
The narrative description and information in addition to the notes shall be presented in the financial statements where the description required about the items that do not qualify for recognition in the statement.
The total income of the NBFC appearing in the Financial statement shall be rounded off as mentioned below-
Income Rounding Off
Less than one hundred crore rupees to the nearest hundreds, thousands, lakhs or millions, or decimals thereof.
One hundred crore rupees or more to the nearest, lakhs, millions or crores, or decimals thereof
All ‘material’ items shall be disclosed in the Financial Statements and materiality depends on the size or nature of the item or a combination of both, to be judged in the particular circumstances.
Considering the operations performed by the NBFCs, NBFCs while preparing financial statements may change the order of presentation of line items on the face of financial statements or order of line items within the schedules in order of liquidity.
The impact of IND
Accounting Standard is that there is an increase in revenue from operations,
finance cost and employee cost under Ind AS in comparison to the erstwhile
Indian GAAP while there is a fall in profit after tax. Further, the
implementation of these financial instrument standards is expected to affect
almost all line-items in the financial statements of the NBFCs.
Priyanka Bajpayee has done Masters in International Business Law and well versed in content writing covering the area of legal and finance. Also, she has practical experience of almost 1.5 years in Legal compliance and secretarial work.