Ind AS – New Accounting Rules for Companies
As per the new Accounting Standards in India (Ind AS), for companies having a net worth of Rs 500 crore or more it is mandatory to adopt the Indian Accounting Standards from April 1, 2016.
In the 2009 G-20 summit, India had committed to take required steps to “restore the momentum of growth in the developing world” with the convergence of Indian Accounting Standards (Ind AS) with International Financial Reporting Standards (IFRS). After which the Ministry of Corporate Affairs devised a road map to implement the convergence of Indian Accounting Standards with International Financial Reporting Standards from April 2011.
It was meant for all Indian companies; however the insurance, banking and non-banking finance companies were exempted. The step taken was unsuccessful because of a few glitches like unresolved taxes but the FY 15 Budget had once again proposed to adopt the Ind AS. The Honorable Minister for Finance also clarified that the dates of implementation of the particular regulators for banks and insurance companies will be notified separately. A separate notification for standardized tax computation in accord with the budget will also happen on a set date.
The execution of new accounting standards in India will happen in two phases:
Phase I applicable from April 1, 2016 onwards
- It is obligatory for all companies either listed or unlisted, having a net worth of more than Rs 500 crore to apply Ind AS.
- It is also applicable for all the holding joint ventures, associates or subsidiaries of such companies.
Phase II applicable from April 1, 2017 onwards
- Any company whose debt or equity securities has been listed or is going to be listed within India or outside — having a net worth of less than Rs 500 crore.
- Unlisted companies whose net worth is more than Rs 250 Crore but less than Rs 500 crore.
- Holding, subsidiaries, joint ventures or associates of such companies also need to apply Ind AS.
The net worth of a company has to be calculated in agreement to the company’s stand-alone financial statement as on March 31, 2014 or the audited financial statements which are first for accounting period after March 31,2014.
There could be either positive or negative impact on the net income and net worth of the companies because of the areas like taxes, financial instruments and revenue recognition. Furthermore there could also be an impact on arrangements with lenders, vendors, customers, internal control systems and changes to IT system. More than 350 companies from BSE 500 are predicted to migrate from FY17. Besides delivering more disclosures application of Ind AS will also bring material changes to return ratios and operating metrics of companies.
For Accounting Practice