Overview of Indian Accounting Standards
Accounting is known as the art of recording the exchanges in a manner to assist the perusers with showing up at the decisions or reaching a financial decision about the entity. This becomes fundamental that it ought to be joined into some normalized rules which are for the most part known to account for approaches.
Indian Accounting Standard is the Accounting standard taken on by organizations in India and given under the oversight of the Accounting Standards Board which was composed as a body in the year 1977.
The concocting of these strategies permits different organizations to adjust their accounting standards to repair for their own benefit. Standards are acquainted with quenching all disarrays, and these should have been set by the perceived accounting bodies. This idea repaired the way for the development of Accounting Standards. The Accounting Standards in India are given by the Institute of Chartered Accountants of India (ICAI).
Objectives of the Indian Accounting System
There are many objectives of an Indian Accounting system. We will discuss each and every point under IAS and understand its importance.
This way, the global scope of Indian companies is expanded and they have a wider
platform to perform on.
This way the Indian companies can imply their rates and demands according to the global rates.
This way the company accounts and the annual financial statements are transparent.
It is easy and can be understood by companies worldwide.
It lets us have a single framework for a single accounting framework.
Indian Accounting System: Benefits
As we already know that without benefits, nobody will try to pursue an accounting system like this. There are many benefits gained while following the Indian Accounting System, let us discuss all of them in detail.
International Base - This lets the business have an international base and platform for companies to perform.
Harmonization - This lets the companies harmonize their rules.
Compliance - Increase compliance in companies.
Global Acceptance - Globally reaches other companies and benefits them. This also gives global or international recognition.
Indian Accounting Standards List
Indian Accounting Standards Applicability
The Indian Accounting Standards are followed by all the companies. They shall follow Ind AS either Voluntarily or Mandatorily. When a company follows the Indian AS, either mandatory or voluntarily, it cannot return to its old method of Accounting.
Mandatory Applicability
Companies with a Net worth of not less than 500 crores are required to follow Ind AS.
Mandatory Applicability from Accounting Period beginning on or after 1 April 2017
By every Listed Company.
Also, by the Unlisted Companies with a Net worth which is greater than or equal to Rs. 250 crores but less than Rs. 500 crores
Indian Accounting Standards Summary
Every functioning body that operates, needs a defined guideline so as to maintain the procedure and the standards of the operations of its own business. The rules make the policies common for organizations that operate in similar fields.
FAQs on Indian Accounting Standards: Overview and Benefits
1. What exactly are Indian Accounting Standards (Ind AS)?
Indian Accounting Standards, commonly known as Ind AS, are a set of accounting principles and rules issued by the Accounting Standards Board (ASB) of India. They are converged with the International Financial Reporting Standards (IFRS) to make Indian financial statements more globally comparable. These standards dictate how different types of transactions and events should be recognised, measured, presented, and disclosed in a company's financial statements.
2. What are the main benefits of adopting Ind AS for a company?
Adopting Ind AS offers several significant benefits that improve the quality and utility of financial reporting. The key advantages include:
- Enhanced Comparability: Financial statements become easily comparable with those of global peers, which helps attract foreign investment.
- Increased Transparency: Ind AS requires more detailed disclosures, leading to greater transparency and building stakeholder confidence.
- Better Access to Capital: Companies compliant with these global standards find it easier to raise capital from international markets.
- Improved Reliability: The standards ensure a more faithful representation of a company's financial position and performance, making the data more reliable for decision-making.
3. What is the primary objective of the Accounting Standards Board (ASB) in India?
The primary objective of the Accounting Standards Board (ASB), which operates under the Institute of Chartered Accountants of India (ICAI), is to formulate and issue accounting standards in India. Its goal is to harmonise the diverse accounting policies and practices used by different enterprises to ensure that financial statements are consistent, transparent, and comparable, thereby enhancing the overall quality of financial reporting in the country.
4. Which types of companies are required to follow Indian Accounting Standards (Ind AS)?
The applicability of Ind AS is implemented in a phased manner as notified by the Ministry of Corporate Affairs (MCA). Generally, it is mandatory for:
- All companies listed or in the process of being listed on any stock exchange in India.
- Unlisted companies with a net worth of ₹250 crore or more.
- Holding companies, subsidiary companies, joint ventures, and associate companies of the above.
Other companies can also adopt Ind AS voluntarily.
5. How do Indian Accounting Standards (Ind AS) differ from the older Accounting Standards (AS)?
The most fundamental difference is their underlying philosophy. Ind AS are principle-based, requiring companies to apply professional judgement to reflect the economic substance of transactions. In contrast, the older Accounting Standards (AS) were largely rule-based, providing more rigid guidelines. Another key difference is that Ind AS extensively uses the concept of 'fair value' for measuring assets and liabilities, whereas AS primarily relied on the historical cost principle.
6. Why was it necessary for India to create Ind AS instead of directly adopting IFRS?
India chose to converge with IFRS rather than adopting it directly to address country-specific economic and legal scenarios. This approach, known as 'carve-out' and 'carve-in', allowed the ASB to modify certain IFRS principles that were not suitable for the Indian context. For example, some changes were made to align the standards with the requirements of the Indian Companies Act, 2013, ensuring a smoother transition and relevance to the local business environment.
7. What are some common examples of how Ind AS improves financial reporting for an investor?
For an investor, Ind AS provides a clearer and more comprehensive view of a company's health. For instance, under Ind AS 116 (Leases), companies must show most lease liabilities on their balance sheet, revealing hidden debt that was previously off-balance-sheet. Similarly, Ind AS 109 (Financial Instruments) requires a more forward-looking approach to recognising credit losses, giving investors an earlier warning of potential risks in a company's loan portfolio.
8. Beyond compliance, how can adopting Ind AS strategically help a business in its operations?
Strategically, adopting Ind AS moves accounting from a mere compliance function to a value-creation tool. The detailed and fair-value-based data helps management make better-informed decisions about resource allocation and performance measurement. It improves internal controls and risk management processes. Furthermore, having IFRS-converged accounts enhances a company's credibility during cross-border mergers and acquisitions, simplifying the due diligence process and potentially leading to better valuation.
