“Unlock the complexities of Accounting Standards, Ind AS, and IFRS with our comprehensive overview. Navigate the global standards shaping financial reporting and understand the significance of IFRS in today’s interconnected markets. Delve into the Conceptual Framework, Recognition, Measurement, Presentation, and Disclosure principles. Stay informed about the adoption and convergence of Ind AS in India. Explore the latest amendments and modifications to Indian Accounting Standards.”
Accounting Standards
Accounting standard put together provides a frame work of norms as to recognition, measurement and disclosure on the part of all enterprises that follow them to ensure comparability and depiction of true and fair view of the financial statements.
I. Global standards for global markets
Modern economies rely on cross-border transactions and the free flow of international capital. More than a third of all financial transactions occur across borders, and that number is expected to grow.
Investors seek diversification and investment opportunities across the world, while companies raise capital, undertake transactions or have international operations and subsidiaries in multiple countries.
In the past, such cross-border activities were complicated by different countries maintaining their own sets of national accounting standards. This patchwork of accounting requirements often added cost, complexity and ultimately risk both to companies preparing financial statements and investors and others using those financial statements to make economic decisions.
Applying national accounting standards meant amounts reported in financial statements might be calculated on a different basis. Unpicking this complexity involved studying the minutiae of national accounting standards, because even a small difference in requirements could have a major impact on a company’s reported financial performance and financial position—for example, a company may recognize profits under one set of national accounting standards and losses under another.
II. IFRS Introduction
IFRS Standards are set by the International Accounting Standards Board (Board) and are used Primarily by publicly accountable companies—those listed on a stock exchange and by financial
Institutions, such as banks. Authoritative interpretations of the Standards, which provide further guidance on how to apply them, are developed by the IFRS Interpretations Committee and called IFRIC Interpretations.
Standards set by the Board’s predecessor body, the International Accounting Standards Committee, are called IAS Standards. These Standards have the same status as the IFRS Standards. Authoritative interpretations of those Standards, developed by the Standing Interpretations Committee, are called SIC Interpretations.
The Board has also developed the IFRS for SMEs Standard, which is used by small and medium-sized companies without public accountability.
III. International Accounting Standards Board (IASB).
The International Accounting Board is an independent, privately-funded accounting standard setter based in London. Contributors include major accounting firms, private financial institutions, industrial companies throughout the world, central and development banks, and other international and professional organizations.
IV. IFRS Means
1. Conceptual Framework.
2. International Accounting Standards.
3. IFRS.
4. SIC Interpretations (Standard Interpretation Committee).
5. IFRIC Interpretations (International Financial Reporting
Interpretations Committee)
6. Practice Statements.
7. Back Pages.
V. Features of IFRS.
IFRSs are now mandated for use by more than 140 countries, including the European Union and by more than two-thirds of the G20 nations. The G20 and other international organizations including the World Bank, IMF, Basel Committee etc. have consistently supported the work of the IASB and its mission of global accounting standards.
The characteristics of IFRS are
A. These are global accounting standards.
B. These standards are ‘principle based’, and not ‘rule-based’.
C. IFRS are developed and maintained by the IASB.
D. These are issued with the intention of applying these standards across the globe on a consistent basis.
E. It ensures high quality transparent reporting that would ensure comparability among the entities across the globe.
F. Every standard has a specific structure to ensure uniformity and facilitate reading, interpretation and application. They are: Introduction, Standards, Basis of Conclusion (BC),
Implementation Guidelines (IG), Illustrative Examples (IE), and Dissenting Opinions of board members.
Benefits of IFRS
1. Benefits to economy.
2. Benefits to investors.
3. Benefits to Industry.
4. Benefits to Accounting Professionals.
VI. A complete set of financial statements comprises in IFRS
(a) a statement of financial position as at the end of the period;
(b) a statement of profit or loss and other comprehensive income for the period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising significant accounting policies and other explanatory information;
VII. Conceptual Framework
A conceptual framework, in the field we are concerned with, is a statement of generally accepted theoretical principles which form the frame of reference for financial reporting .These theoretical principles provide the basis for the development of new accounting standards and the evaluation of those already in existence .Where an agreed framework exists, the standard –setting body acts
as an architect or designer ,rather than a fire-fighter ,building accounting rules on the foundation of sound ,agreed basic principles . Conceptual Framework can also bolster standard setter against political pressure from various lobby groups and interested parties.
Lack of Conceptual Framework.
i. Producing contradictions and inconsistencies in basic concepts
ii. in USA another problem apparent
—-The large number of highly detailed standards produced by the FASB has created a financial reporting environment governed by specific rules rather than general principles.
VIII. IFRS Conceptual Framework.
The IASB Framework for the preparation and presentation of Financial Statements was produced in 1989 and is gradually being replaced by the new Conceptual Framework for Financial reporting .Following are the latest chapters included in it.
Chapter 1—The objective of general purpose financial reporting.
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity. Those decisions involve decisions about:
(a) buying, selling or holding equity and debt instruments;
(b) providing or settling loans and other forms of credit; or
(c) exercising rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources.
Chapter 2—Qualitative characteristics of useful financial information
Two fundamental qualitative characteristics are relevance, materiality and faithful representation
1. Relevance.
> Difference in decisions
> Predictive value
> Confirmatory value.
2. Materiality
Materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report.
3. Faithful Representation
> numbers and words
> complete
> neutral
> free from error
Enhancing Qualitative Characteristics
1. Comparability
> Consistency
> Disclosure of accounting policies.
2. Verifiability
independent observers can verify
3. Timeliness
> information available to decision –makers in time to be capable of influencing their decisions
4. Understandability
> Classifying, characterizing and presenting information clearly and concisely makes it understandable.
Chapter 3—Financial Statements and the Reporting Entity.
The objective of financial statements is to provide financial information about the reporting entity’s assets, liabilities, equity, income and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows to the reporting entity and in assessing management’s stewardship of the entity’s economic resources.
Going Concern
The entity is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the necessity of liquidation or of curtailing materially the scale of operations.
Chapter 4—The Elements of Financial Statements.
The elements of financial statements defined in the Conceptual Framework are:
(a) Assets, liabilities and equity, which relate to a reporting entity’s financial position; and
(b) Income and expenses, which relate to a reporting entity’s financial performance.
Asset
A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.
Liability
A present obligation of the entity to transfer an economic resource as a result of past events. An obligation is a duty or responsibility that the entity has no practical ability to avoid.
Equity
The residual interest in the assets of the entity after deducting all its liabilities.
Income
Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims
Expenses
Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
Chapter 5—Recognition and De-recognition.
This chapter discusses criteria for including assets and liabilities in financial statements (recognition) and guidance when to remove them (de-recognition).
Recognition.
The process of capturing for inclusion in the statement of financial position or the statement(s) of financial performance an item that meets the definition of an asset, a liability, equity, income or expenses.
Recognition is appropriate if it results in both relevant information about assets, liabilities, equity, income and expenses and a faithful representation of those items, because the aim is to provide information that is useful to investors, lenders and other creditors.
Cost constraint
Cost constrains recognition decisions, just as it constrains other financial reporting decisions.
De-recognition
The removal of all or part of a recognized asset or liability from an entity’s statement of financial position
De-recognition normally occurs
For an asset
When the entity loses control of all or part of the recognized asset
For a liability
When the entity no longer has a present obligation for all or part of the recognized liability.
Chapter 6—Measurement.
This chapter describes various measurement bases and discusses factors to be considered when selecting a measurement basis.
Measurement Bases
i. Historical Cost
Historical cost measures provide monetary information about assets, liabilities and related income and expenses, using information derived, at least in part, from the price of the transaction or other event that gave rise to them. Unlike current value, historical cost does not reflect changes in values, except to the extent that those changes relate to impairment of an asset or a liability becoming onerous.
ii. Current Cost
Current value measures provide monetary information about assets, liabilities and related income and expenses, using information updated to reflect conditions at the measurement date.
Current value measurement bases include:
(a) fair value
(b) value in use for assets and fulfilment value for liabilities ; and
(c) current cost
Chapter 7—Presentation and disclosure
Presentation and disclosure objectives and principles
To facilitate effective communication of information in financial statements, when developing presentation and disclosure requirements in Standards a balance is needed between:
(a) giving entities the flexibility to provide relevant information that faithfully represents the entity’s assets, liabilities, equity, income and expenses; and
(b) requiring information that is comparable, both from period to period for a reporting entity and in a single reporting period across entities
Chapter 8—Concepts of capital and Capital maintenance
IX. IFRS Standards.
Following are the important IFRS Standards.
A.IFRS
IFRS 1 First-time Adoption of International Financial Reporting Standards
IFRS 2Share-based Payment
IFRS 3 Business Combinations.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements.
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
IFRS 14 Regulatory Deferral Account.
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases.
IFRS 17 Insurance Contracts
B. IAS
1. IAS-1.Presentation of Financial Statements
2. IAS-2.Inventories
3. IAS-7.Statement of Cash Flows
4. IAS-8.Accounting Policies, Changes in Accounting Estimates and Errors
5. IAS-10.Events after the Reporting Period
6. IAS-12.Income Taxes
7. IAS-16. Property, Plant and equipment.
8. IAS-19.Empolyee Benefits.
9 .IAS -20.Accounting for Government Grants and Disclosures of Government Assistance.
10. IAS-21.The Effects of Changes in Foreign Exchange Rates
11. IAS -23.Borrowing Costs.
12. IAS -24.Related –Party Disclosures.
13. IAS-26.Accounting and Reporting by Retirement Benefit Plans
14. IAS -27.Separate Financial Statements
15. IAS-28.Investments in Associates and joint Ventures
16. IAS-29.Financial Reporting in Hyperinflationary Economies
17. IAS -32.Financiial Instruments: Presentation
18. IAS-33.Earnings per Share
19. IAS -34.Interim Financial Reporting
20. IAS-36.Impairment of Assets
21. IAS-37.Provisions, Contingent Liabilities, and Contingent Assets
22 .IAS -38.Intangible Assets
23 .IAS- 39.Financial Instruments, Recognition and Measurements
24 .IAS-40.Investment Property
25. IAS -41. Agriculture
X. Accounting Standards in India
1. Accounting Standards (AS).
2. Indian Accounting Standards (IND AS)
3. International Financial Reporting Standards (IFRS).
Companies Act 2013
As per section 133 of Companies Act 2013, the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after recommendations made by the National Financial Reporting Authority
IFRS Adoption /IFRS Convergence
“IFRS adoption” means adoption of international financial reporting standards as it is ,i.e,intoto.” IFRS convergence” means accounting standards of a country converged with IFRS, i.e, Indian accounting standards more or less in line with the IFRS, In short, convergence means to achieve harmony with IFRS. The inception of the idea of convergence of Indian GAAP with IFRS was made by India’s commitment in G20 to align Indian accounting Standards with IFRS .ICAI has decided to converge its Accounting Standards with IFRS for accounting periods commencing on or after 1 April 2011 in a Phased manner as envisaged the roadmap to IFRS formulated by MCA Ind AS has become applicable in following phases:
> The Companies (Indian Accounting Standards) Rules, 2015 (and subsequent amendments to the Rules) made Ind AS applicable to the companies as specified below, leaving AS [as per the Companies (Indian Accounting Standards) Rules, 2006] applicable to other companies.
On 1st April 2016 — Mandatory Basis.
> (a) Companies listed/ in the process of listing on Stock Exchanges in India or Outside India having net worth of more than INR 5 Billion
> (b) Unlisted Companies having net worth of more than INR 5 Billion
> (c) Parent, Subsidiary, Associate and Joint Venture of above.
On 1st April 2017— Mandatory Basis [In addition to A]
> (a) All companies which are listed/ or in the process of listing inside or outside India on Stock Exchanges not covered in Phase One (other than companies listed on SME Exchanges)
> (b) Unlisted companies having net worth of less than INR 5 Billion and more than 2.5 Billion
> (c) Parent, Subsidiary, Associate and Joint Venture of above.
On 1st April 2018 — Mandatory Basis.
> (a) NBFCs having a net worth of `500 crore or more
> (b) Holding, subsidiary, joint venture or associate companies of the above, other than those
> (c) Companies already covered under the corporate roadmap announced by MCA.
On 1st April 2019 — Mandatory Basis [In addition to C] (Postponed date not yet decided)
> (a) NBFCs whose equity and/or debt securities 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 `500 crores
> (b) NBFCs that are unlisted companies, having a net worth of `250 crore or more but less than `500 crores
> (c) Holding, subsidiary, joint venture or associate companies of the above, other than those companies already covered under the corporate roadmap announced by MCA.
On 1st April 2019 – Mandatory Basis — (It stands deferred till further notice)
> (a) Scheduled commercial Banks , excluding RRBs
> (b) India term-lending refinancing institution i.e. Exim bank, NABARD etc. (c) Holding, subsidiary, joint venture or associate companies of scheduled commercial banks
On 1st April 2020 — Mandatory Basis.
> (a) Insurers/insurance companies
> (b) Holding, subsidiary, joint venture or associate companies of the above, other than those companies already covered under the corporate roadmap announced by MCA.
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> As Amended by Companies (Indian Accounting Standards) Second Amendment Rules 2019.
Present Status: IRDAI has appointed an expert committee to study about the implementation of Ind AS in insurance sector.
Companies listed on SME Exchange not required to apply Ind AS.
Conceptual Framework for financial Reporting under Ind AS
ICAI has developed Conceptual Framework for financial Reporting under Ind AS corresponding to IASB’s Conceptual Framework 2018.
Ind AS
Ind AS 101 First Time Adoption of Indian Accounting Standards
Ind AS 102 Share- based Payment
Ind AS 103 Business Combinations
Ind AS 104 Insurance Contracts
Ind AS 105 Non-Current Assets Held for sale and Discontinued Operations
Ind AS 106 Exploration for and Evaluation of Mineral Resources
Ind AS 107 Financial instruments Disclosures
Ind AS 108 Operating Segments
Ind AS 109 Financial Instruments
Ind AS 110 Consolidated Financial statements
Ind AS 111 Joint Arrangements
Ind AS 112 Disclosure of Interests in other Entities
Ind AS 113 Fair value Measurement
Ind AS 114 Regulatory Deferral Accounts
Ind AS 115 Revenue from contracts with customers
Ind AS 116 Leases
Ind AS 117 Insurance Contracts.
Ind AS1Presentation of Financial Statements
Ind AS 2.Inventories
Ind AS 7.Statement of Cash Flows
Ind AS 8. Accounting Policies, Changes in Accounting Estimates and Errors.
Ind AS10.Events after the Reporting Period.
Ind AS 12.Income Taxes
Ind AS 16.Property, Plant and Equipment.
Ind AS-19.Employee Benefits.
Ind AS -20.Accounting for Government Grants and Disclosure of Government Assistance
Ind AS-21.The Effects of changes in Foreign Exchange Rates
Ind AS-23 .Borrowing Costs
Ind AS-24.Related Party Disclosures
Ind AS-27. Separate Financial Statements
Ind AS -28.Investments in Associates
Ind AS-32.Financial Instruments: Presentation
Ind AS-33 Earnings per Share
Ind AS-34.Interim Financial Reporting
Ind AS-36.Impairment of Assets
Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets
IndAS 38 Intangible Assets
Ind AS 40 Investment Property
.Ind AS 41 Agriculture
Indian Accounting Standards have been modified as per the following rules.(From 2015 to 2022).
(Source: https://www.icai.org/post.html?post_id=12125)
The latest amendment is as follows.
Companies (Indian Accounting Standards) Amendment Rules, 2023.
End Notes.
1. https://www.ifrs.org/
2. https://www.mca.gov.in/content/mca/global/en/home.html.
3.https://www.icai.org/post.html?post_id=12125.
(Republished with amendments)
Author Bio
I am an I C A I Final Student & The Articles are helpful to me.With Warm Regards Sir