In this article, Lakshmi C.M pursuing M.A, in Business Law from NUJS, Kolkata discusses Implementation of Indian Accounting Standards (Ind-AS).

Indian Accounting Standards (Ind-AS)

The Ministry of Corporate Affairs (MCA) by way of notification dated February 16, 2015 notified the Companies (Indian Accounting Standards) Rules, 2015 effective 1^st of April 2015 in pursuance of the provisions of Section 133 read with Section 469 of the Companies Act, 2013 and Section 210A (1) of the Companies Act, 1956 providing roadmap for implementation of Ind-AS, which stipulates the implementation of Ind-AS in a phased manner beginning from the Accounting period 2016-17 (MCA Roadmap). Subsequently, the MCA notified the Companies (Indian Accounting Standards) (Amendment) Rules, 2016 to amend the 2015 Rules. These standards are issued in consultation with the National Advisory Committee on Accounting Standards.

The Indian Accounting Standards also known as Ind-AS are modelled on the International Financial Reporting Standards (IFRS). The nomenclature for the naming and numbering of Ind-AS is same as that of IFRS.

These standards have introduced several changes in the way companies report financials, including how they account for income and expenditure and items in the balance sheet. In effect the impact becomes visible on the profit and loss account and on the balance sheet will be visible later. Ind-AS is different from the existing Indian GAAP framework in three key aspects i.e. Fair valuation; Substance over legal form; Emphasis on the Balance Sheet. Also, the new framework is principle based, rather than rule based.

Applicability of Ind-AS

The provisions of the Ind-AS are made applicable as per the notifications issued by the MCA. As per the notification of the Ministry of Corporate Affairs, the applicability of IND-AS shall be in phased manner – Phase I & Phase II.

Phase I

Ind-AS shall be mandatorily applicable to the following companies for periods beginning on or after 1 April 2016, with comparative figures for the period ending 31 March 2016 or thereafter:

• Companies 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 net worth of 500 crore INR or more.
• Companies having net worth of 500 crore INR or more other than those covered above.
• Holding, subsidiary, joint venture or associate companies of companies covered above.

Phase II

Ind-AS shall be mandatorily applicable to the following companies for periods beginning on or after 1 April 2017, with comparative figures for the period ending 31 March 2017 or thereafter:

• Companies whose equity and/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 of less than rupees 500 Crore.
• Unlisted companies other than those covered in Phase I and Phase II whose net worth are more than 250 crore INR but less than 500 crore INR.
• Holding, subsidiary, joint venture or associate companies of the above companies.

Voluntary adoption

Companies can voluntarily adopt Ind-AS for accounting periods beginning on or after April 01, 2015 with comparatives for period ending 31 March 2015 or thereafter. However, once they have started reporting as per the IND-AS, they cannot revert.

Clarifications

The MCA had vide its notification clarified many questions, some of which have been defined below:

Net worth

• It has been clarified that net worth will be determined based on the standalone accounts of the company as on 31 March 2014 or the first audited period ending after that date.
• Net worth has been defined to have the same meaning as per section 2(57) of the Companies Act, 2013. It is the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

Standalone and consolidated financial statements

• The provisions of Ind-AS shall apply to both consolidated and stand-alone financial statements of a company covered by the roadmap. Hence, companies need not have to maintain dual accounting systems.

Foreign operations

• In the case of overseas subsidiary, associate or joint venture of an Indian Company, the preparation of stand-alone financial statements need not be as per the Ind-AS, and instead, may continue with its jurisdictional requirements. However, these entities will still have to report their Ind-AS adjusted numbers for their Indian parent company to prepare consolidated Ind-AS accounts.

Applicability to insurance, banking companies

• Insurance and banking companies shall not be required to apply Ind-AS either voluntarily or mandatorily. However, if these entities are subsidiaries, joint venture or associates of a parent company covered by the roadmap, they shall report Ind-AS adjusted numbers for the parent company to prepare consolidated Ind-AS accounts.

Early adoption of standards

• The two of the most significant standards, ie., revenue recognition and financial instruments have been notified and India will be one of the first countries to mandatorily adopt these standards from April 01, 2015 while the rest of the world will follow from 2017. These two standards will have a significant effect on entities, impacting not only their financial results but also on other organisational and business changes.

Others

• The rules specify that in case of conflict between Ind-AS and a law, the provisions of the law shall prevail and the financial statements shall be prepared in conformity with it.

Applicability of IND-AS provisions for Listed Companies

In addition to the MCA Rules notified by the MCA, the listed companies shall be governed by the provisions of the SEBI as well. SEBI vide its Circular dated July 05, 2016 issued revised formats under Annexure to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 detailing the format of the financial results. To facilitate smooth transition of during the implementation of the provisions, SEBI issued the following relaxations to the rules for both the phases:

For the first 2 quarters ending June 30 & Sep 30, 2016 –

• the timeline for submission of results in the new format was extended by one month
• the results of the corresponding quarter in the previous year shall be provided, but the same need not be subject to audit or limited review
• for the quarter ending June 30, 2016, the results for the preceding quarter and the previous year ended March 31, 2016 are not mandatorily to be provided in the Ind-AS provisions.
• for the quarter ending Sep 30, 2016, financial results and Balance Sheet for the previous year ended March 31, 2016 is not mandatory and if provided voluntarily they need not be subject to limited review or audit. In cases, where the results are not subject to limited review or audit, the same may be disclosed prominently.
• For listed entities to which Ind-AS Rules are applicable in subsequent phases, the relaxation as mentioned above shall mutatis-mutandis apply during their corresponding first year of Ind-AS implementation

While adopting Ind-AS for the first time, the financial results shall include a reconciliation of its equity and net profit/loss, to enable the investors to understand the material adjustments to the Balance Sheet and Statement of Profit and Loss because of transition from the previous Indian GAAP to Ind-AS.

SEBI has clarified vide its Circular dated March 31, 2016 that for the companies seeking listing of securities, the applicability of Ind-AS shall be applicable as per the threshold limits provided by MCA. To align with the disclosure requirements for financial document the changes have been incorporated in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. The offer document issued by the issuer companies shall disclose the financials as per the requirements of the MCA Roadmap.

Implementation of Ind-AS for Non-Banking Finance Companies

The MCA on March 30, 2016 notified the Companies (Indian Accounting Standards) (Amendment) Rules, 2016, which includes a road map for implementation of Indian Accounting Standards (Ind AS) by Non-Banking Financial Companies (NBFCs) (NBFC road map). NBFCs will be required to comply with Ind AS in a phased manner, from accounting periods beginning on or after 1 April 2018 for the first phase and 1 April 2019 for the second phase.

Phase I

From April 01, 2018, onwards, with comparative figures for the periods ending on or after 31 March 2018:

• NBFCs having net worth of INR500 crores or more, and
• The holding, subsidiary, joint venture or associate companies of the above, other than those companies already covered under the road map for companies issued by MCA (corporate road map) in February 2015.

Phase II

From April 01, 2019, onwards with comparatives for the periods ending on or after 31 March 2019:

• 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 net worth of less than INR500 crore.
• NBFCs that are unlisted companies, having net worth of INR250 crores or more but less than INR500 crore.
• Holding, subsidiary, joint venture or associate companies of the above class of companies, other than those already covered by the road map for companies issued by MCA (corporate road map) in February 2015.

NBFCs with a net worth below INR250 crores and not covered in Phase I or II will continue to comply with the existing accounting standards.

Conclusion

With the world becoming a global village and with the liberalisation and globalisation of the economy it is imperative the disclosures and reporting of companies are made in line with that the International Regulations. The MCA had come a long way with the introduction of e-filing and the XBRL filing of financial results. With the introduction of Companies Act, 2013, many sweeping changes have brought into the system which will help in ease of doing business and thwart the fraudulent web of activities hitherto followed by many companies. The reporting under the Ind-AS makes the financials easily comparable with the financials of the peers globally. Once the provisions of the Ind-AS becomes applicable or it voluntarily adopted, it shall be followed for the subsequent years even if the criteria as per the Rules are not applicable. Though the transition has serious implications on the financial reporting, it paves way for better standards and governance.