Origination of Ind AS
19 December 2017
Origination of Ind AS and its Convergence with IFRS
Over the years, there have been many changes in the Indian Accounting System. Off late, now and then, we keep hearing about new Accounting standards, rollout of GST among others.
Indian corporate are in the process of transitioning to a new set of 39 accounting standards called the Indian Accounting Standards (Ind AS) which closely converges with the International Financial Reporting Standards (IFRS). Initially, adoption of Ind AS will be challenging but over a period of time, this will bring more transparency, improved quality of financial statements and enhanced comparability of the financial statements at a global level.
The new accounting standard will bring various fundamental changes. The utmost focus is on fair value accounting. Ind AS is based on the principle of Fair Value Measurement (FVM), distinguishing it from the antiquated Indian GAAP. Fair value of certain assets and liabilities of a business is a prerequisite for the adoption of Ind AS.
Standards such as Ind AS 113 - FVM, Ind AS 103 – Business Combinations, Ind AS 38 – Intangible Assets, Ind AS 16 - Property, Plant and Equipment, Ind AS 40 – Investment Property, Ind AS 36 – Impairment of Assets, Ind AS 102 – Share-based Payment and Ind AS 109 - Financial Instruments establishes a framework for the measurement of assets and liabilities for financial reporting purposes, using fair value (FV) as their guiding principle.
The following companies needs to comply with Ind AS for the accounting periods beginning on or after 1st April 2017:
· All the companies whose equity and/or debt securities are listed on any stock exchange in or outside India or are in the process of any listing
· Unlisted companies having net worth between INR 250 crore to INR 500 crore
· Holding, subsidiary, JV or associate companies of the listed or unlisted companies stated above
o The Insurance companies, Banking companies and Non-banking finance companies
o Companies whose securities are listed or are in the process of being listed on SME exchange
o Overseas subsidiaries, associates, joint ventures of an Indian company are not required to prepare its stand-alone financial statements as per the Ind AS. Thus, they many prepare their standalone financial statements in accordance with its jurisdictional requirements.
o However, beginning on or after the 1st April 2018, NBFC’s having net worth of INR 500 crore or more and holding, subsidiary, joint venture or associate companies of before mentioned companies need to comply with Ind AS.
o And beginning on or after the 1st April 2019, NBFC’s
§ NBFC’s whose equity and/or debt securities are listed or are in the process of listing on any stock exchange in or outside India and having net worth of less than INR 500 crore
§ NBFC’s, that are unlisted companies, having net worth between INR250 crore to INR 500 crore
§ Holding, subsidiary, JV or associate companies of the listed or unlisted companies stated above
Why is it important?
Ind AS helps to establish a single framework for measuring fair value for financial reporting. It provides guidance on - valuation techniques, inputs to valuation techniques (i.e. fair value hierarchy), concepts such as highest and best use, most advantageous market and principal market and fair value disclosures.
Higher disclosure requirements contained in Ind AS will help an avid investor to take more informed decisions regarding the investment.
Also, with increased scrutiny from the regulators and investors, management and auditors needs to ensure that all the financial statements are technically correct and complies with the principles of Ind AS.
In the next article, we will discuss in detail about FVM (Ind AS 113).
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