Appliacblity of INDAS

1. What is IND AS?

IND AS (Indian Accounting Standards) are accounting norms notified by the Ministry of Corporate Affairs (MCA), harmonised with International Financial Reporting Standards (IFRS). These standards are designed to bring Indian financial reporting practices in line with global standards, enhancing transparency, investor confidence, and comparability.

2. Legal Framework and Notification

The legal backing for IND AS comes from the Companies (Indian Accounting Standards) Rules, 2015, notified under the Companies Act, 2013. The rules lay out which companies must comply, and from when. These rules are applicable to certain companies in a phased manner, based on their net worth, listing status, and sector.

3. Phase-Wise Applicability of IND AS

Phase I (From 1 April 2016)

•All companies (listed or unlisted) with net worth ≥ INR 500 crore.
•Includes holding, subsidiary, associate and joint venture companies of such companies.

Phase II (From 1 April 2017)

• Companies (listed or in process of listing) with net worth between INR 250 crore and INR 500 crore.
• Group companies of such entities also come under IND AS.

Phase III & IV: For NBFCs, Banks, and Insurance Companies

• NBFCs with net worth ≥ INR 500 crore: from 1 April 2018.
• NBFCs with net worth between INR 250 crore and INR 500 crore: from 1 April 2019.
• Banks and Insurance Companies: subject to sector-specific notifications from RBI and IRDAI.

4. Voluntary Adoption

From 1 April 2015, any company, irrespective of net worth, can opt to adopt IND AS voluntarily. However, once adopted, reverting back to previous Indian GAAP is not allowed.

5. How is Net Worth Calculated? (Section 2(57) of Companies Act, 2013)

Net worth is calculated as:

Paid-up Share Capital + Reserves and Surplus - Accumulated Losses - Deferred Expenditure - Miscellaneous Expenditure - Revaluation Reserves

Net worth is to be determined based on the audited standalone financial statements of the company for the immediately preceding financial year.

6. Applicability to Group Entities

Once a parent company falls under IND AS, its holding, subsidiary, associate, and joint ventures are also mandatorily required to follow IND AS, to ensure uniformity in consolidated financial statements.

7. Key Standards under IND AS

Some of the major Indian Accounting Standards include:

• IND AS 1: Presentation of Financial Statements
• IND AS 7: Statement of Cash Flows
• IND AS 16: Property, Plant and Equipment
• IND AS 110: Consolidated Financial Statements
• IND AS 115: Revenue from Contracts with Customers
• IND AS 116: Leases

First-time adoption is governed by IND AS 101, which outlines how companies should transition from previous GAAP.

8. Transition Process: Step-by-Step

1.Identify the year of applicability based on net worth.
2.Calculate net worth using audited standalone financials.
3.Prepare comparative financials for the previous year as per IND AS.
4.Ensure compliance with disclosure requirements, fair valuation, impairment testing, and other IND AS principles.

9. Non-Compliance Consequences

Failure to comply with IND AS when applicable can attract severe penalties:

• Penalties under the Companies Act (can range from INR 1 lakh to INR 25 lakh).
• Regulatory issues with SEBI (for listed companies).
• Audit qualifications and reputational damage.

10. Sector-Specific Notes

• NBFCs: Must follow IND AS as per Phase III & IV roadmap. Cannot voluntarily adopt.
• Banks and Insurance: Transition subject to respective regulator (RBI, IRDAI).
• LLPs and Partnerships: Not covered under IND AS Rules, but may adopt voluntarily for group consolidation.

11. Practical Tips for Companies

• Start IND AS planning at least 6–12 months in advance.
• Train finance teams and upgrade accounting software.
• Seek professional advisory for transition planning.
• Reassess loan covenants, revenue contracts, and depreciation policies.

12. Benefits of IND AS Adoption

• Better access to international capital markets.
• Enhanced investor and stakeholder confidence.
• Uniform reporting across group entities.
• Alignment with global best practices.

13. Final Summary

IND AS is a significant step toward internationalising India’s financial reporting. Companies must track their net worth and group structure carefully to ensure compliance. Voluntary adopters must prepare to stay on IND AS permanently. With the right preparation and expert support, the transition to IND AS can offer long-term strategic benefits.