CA Mayank Parekh

With accounting having become the global language of business, the convergence with International Financial Reporting Standard (‘IFRS’) is the need of the hour as an economic imperative for India.

The Finance Minister Shri Arun Jaitley announced in his maiden Budget speech that Indian Accounting Standards Converged with IFRS are to be adopted in India from next Financial Year (‘FY’) (i.e. FY 2015-16) on a voluntary basis and mandatorily a year later (i.e. FY 2016-17), much in line with the roadmap submitted by the Institute of Chartered Accountant of India (‘ICAI’) to the Government.

Finally, the Ministry of Corporate Affairs (‘MCA’) has notified roadmap for applicability of much awaited Indian Accounting Standards (‘Ind AS’) for compliance by the class of companies specified in the said roadmap. The Notification dated 16 February 2015 has been uploaded on www.mca.gov.in along with the 39 Ind AS.

Companies which are not required to follow Ind AS shall continue to comply with Accounting Standards (‘AS’) as prescribed in Companies (Accounting Standards) Rules, 2006 [i.e. Rules notified by the Central Government, in consultation with National Advisory Committee on Accounting Standards (‘NACAS’) established under sub-section (1) of section 210A of the Companies Act, 1956].

Summary of the Companies (Indian Accounting Standard) Rules, 2015 (‘the Rules’) notified is provided below:

Applicability of Ind AS:

The Companies and their Auditors shall comply with the Ind AS specified in the Annexure to the Rules in preparation of their Financial Statements (‘FS’) and Audit respectively, in the following manner:

1. Voluntary adoption (for FY 2015-16):

Any company may comply with the Ind AS for FS for accounting periods beginning on or after 1st April 2015, with the comparatives for the periods ending on 31st March 2015, or thereafter.

This option is also available to companies whose securities are listed or are in the process of being listed on Small and Medium Enterprises (‘SME’) exchange. (Refer note for more information on SME exchange)

2. Mandatory adoption:

(i) From FY 2016-17: Companies satisfying following criteria are required to comply with the Ind AS for or the accounting periods beginning on or after 1st April 2016, with the comparatives for the periods ending on 31st March 2016, or thereafter.

a) Companies whose Equity or Debt Securities are listed or are in the process of being listed on any stock exchange in India or outside India and having Net Worth (‘NW’) of Rs 500 crore or more.

b) Unlisted Companies (i.e. other than those mentioned in (a) above) having NW of Rs 500 crore or more.

c) Holding, Subsidiary, Joint Venture/ Associate Companies of Companies covered in (a) and (b) above.

(ii) From FY 2017-18: Companies satisfying following criteria are required to comply with the Ind AS for or the accounting periods beginning on or after 1st April 2017, with the comparatives for the periods ending on 31st March 2017, or thereafter

a) Companies whose Equity or Debt Securities are listed or are in the process of being listed on any stock exchange in India or outside India and having NW of less than Rs 500 crore.

b) Unlisted Companies having NW of Rs 250 crore or more but less than Rs 500 crore.

c) Holding, Subsidiary, Joint Venture/ Associate Companies of Companies covered in (a) and (b) above.

Ind AS once required to be complied with in accordance with these rules, shall apply to both standalone financial statements (‘SFS’) and consolidated financial statements (‘CFS’).

Companies preparing FS applying the Ind AS for the accounting period beginning on 1st April 2016 shall apply the Ind AS effective for the FY ending on 31st March 2017.

Any company opting to apply the Ind AS voluntarily as specified above for its FS shall prepare its FS as per the Ind AS consistently and such companies shall not be required to prepare another set of FS in accordance with AS specified in the Companies (Accounting Standards) Rules, 2006.

Once a company starts following the Ind AS either voluntarily or mandatorily on the basis of criteria specified above, it shall be required to follow the Ind AS for all the subsequent FS even if any of the criteria specified in this rule does not subsequently apply to it.

Applicability in case of Companies having subsidiary, associate, joint venture or other similar entities:

Indian companies:

Indian companies having overseas subsidiary, associate, joint venture and other similar entities of an Indian company may prepare its SFS in accordance with the requirements of the specific jurisdiction.

Provided that such Indian company shall prepare its CFS in accordance with the Ind AS either voluntarily or mandatorily if it meets the criteria as specified above.

Foreign companies:

Indian company which is a subsidiary, associate, joint venture and other similar entities of a foreign company shall prepare its FS in accordance with Ind AS either voluntarily or mandatorily if it meets the criteria as specified above.

Computation of NW:

NW shall be calculated in accordance with the SFS of the company as on 31st March 2014 or the first audited FS for accounting period which ends after 31st March 2014.

Companies incorporated after 31st March 2014 or an existing company falling under any of thresholds specified above for the first time after 31st March 2014 – Companies shall apply Ind AS from the immediate next accounting year (i.e. FY 2015-16) in the manner specified above, based on the NW calculated on the basis of the first audited FS ending after 31st March 2014 (i.e. FS of FY 2014-15) in respect of which it meets the thresholds specified above.

Illustration:

  1. Companies meeting threshold for the first time as on 31st March 2017 shall apply Ind AS for the FY 2017-18 onwards.
  2. Companies meeting threshold for the first time as on 31st March 2018 shall apply Ind AS for the FY 2018-19 onwards and so on.

Exemptions:

The Insurance Companies, Banking Companies and Non-Banking Finance Companies (‘NBFC’) shall not be required to apply Ind AS for preparation of their FS either voluntarily or mandatorily as specified above.

Validity/ enforceability of Ind AS in case of contrary laws:

Ind AS, which are specified, are intended to be in conformity with the provisions of applicable laws. However, if due to subsequent amendments in the law, a particular Ind AS is found to be not in conformity with such law, the provisions of the said law shall prevail and the FS shall be prepared in conformity with such law.

Note: The SME platform of the Exchange is intended for small and medium sized companies with high growth potential. The SME platform of the Exchange shall be open for SMEs whose post issue paid up capital shall be less than or equal to Rs.25 crores. The platform is expected to offer a new and alternate asset class to informed investors having longer investment horizon. The platform shall allow new, early stage ventures and small quality companies to raise much needed growth capital as they grow, mature and transit to the Exchanges’ main board.

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Category : Company Law (3868)
Type : Articles (16937)
Tags : ICAI (2600) Indian Accounting Standard (198)

0 responses to “Applicability of Indian Accounting Standards (Ind AS)”

  1. Manas Arora says:

    Hi.!

    Please confirm that, since the above road map is not applicable to the NBFC and hence when the Ind AS will be applicable to NBFC?

    Is there any roadmap being defined for the NBFC’s??

    Please reply as soon as possible.

    Regards

  2. Jagjeet Singh says:

    As IND AS is not applicable to NBFC, Insurance and Banking companies but what if a company other than these three having a subsidiary which is a banking company. At the time of Consolidation we need to follow the uniform accounting policies. The roadmap of IND AS exempt these three class of companies from its applicability so my question is do we need to convert the financial statements of the subsidiary company also at the time of consolidation as per IND AS.

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