On 16th February, 2015, the Ministry of Corporate Affairs (MCA) has notified Companies (Indian Accounting Standard) Rules, 2015 for applicability of Indian Accounting Standards (Ind AS) which shall come into force w.e.f 01st April, 2015. Indian Accounting Standards are a set of accounting standards notified by the MCA, which are converged with the International Financial Reporting Standards (IFRS). The Ind AS are named and numbered in the same way as corresponding IFRS. The purpose of the article is to provide guidance about the applicability of Ind AS on Indian Companies.
APPLICABILITY OF INDIAN ACCOUNTING STANDARDS (RULE 3)
The Indian Accounting Standards (Ind AS) are applicable on the companies as defined in Rule 4 of the Companies (Indian Accounting Standard) Rules, 2015. The Companies (Accounting Standards) Rules, 2006 shall be the Accounting Standards (Existing AS) applicable to companies other than classes of companies specified in rule 4. A company which follows the Ind AS specified in rule 4 of the Companies (Indian Accounting Standard) Rules, 2015 shall follow such standards only. A company which follows accounting standards specified in the Companies (Accounting Standards) Rules, 2006 shall follow such accounting standards (Existing AS) only and not follow Indian Accounting Standards (Ind AS).
OBLIGATION TO COMPLY WITH INDIAN ACCOUNTING STANDARDS (RULE 4)
The companies and their auditors shall comply with the Indian Accounting Standards (Ind AS) in preparation of their financial statements and audit respectively.
1. The following class of companies shall comply with the Ind AS for the accounting periods beginning on or after 1st April, 2016, with the comparatives for the period ending 31st March, 2016 or thereafter:-.
- any company having net worth of Rs. 500 crore (rupees five hundred crore) or more;
2. The following class of companies shall comply with the Ind AS for the accounting periods beginning on or after 1st April, 2017, with the comparatives for the periods ending on 31st March, 2017, or thereafter, namely:-
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 of less than Rs. 500 crore (rupees five hundred crore);
b. unlisted companies having net worth of Rs. 250 crore (rupees two hundred and fifty crore) or more but less than Rs. 500 crore (rupees five hundred crore).
The above class of companies shall also include holding, subsidiaries, associates or joint ventures.
Companies whose securities are listed or are in the process of being listed on SME exchange will not be required to apply Ind-AS. Such companies can continue applying Existing AS, unless they choose to apply Ind-AS on voluntary basis.
3. Overseas subsidiary, associate, joint venture and other similar entities of an Indian company may prepare its standalone financial statements in accordance with the requirements of the specific jurisdiction provided that such Indian company shall prepare its consolidated financial statements in accordance with the Indian Accounting Standards (Ind AS) either voluntarily or mandatorily if it meets the applicability criteria as specified above.
4. Indian company which is a subsidiary, associate, joint venture and other similar entities of a foreign company shall prepare its financial statements in accordance with the Indian Accounting Standards (Ind AS) either voluntarily or mandatorily if it meets the applicability criteria as specified above.
5. Any company opting to apply the Ind AS voluntarily for its financial statements shall prepare its financial statements as per the Ind AS consistently. Once the Ind AS are applied voluntarily, it shall be irrevocable and such companies shall not be required to prepare another set of financial statements in accordance with Companies (Accounting Standards) Rules, 2006.
6. Once a company starts following the Ind AS either voluntarily or mandatorily, it shall be required to follow the Ind AS for all the subsequent financial statements even if any of the applicability criteria specified does not subsequently apply to it.
Vide Notification dated 30th March, 2016, the Ministry of Corporate Affairs requires Non-Banking Financial Companies (NBFCs), Scheduled Commercial Banks (except RRBs), Banking Companies and Insurance Companies to comply with Ind AS in the following manner:
1. The following NBFCs shall comply with the Indian Accounting Standards (Ind AS) for accounting periods beginning on or after 1st April, 2018, with the comparatives for the period ending 31st March, 2018, or thereafter-
- NBFCs having net worth of Rs. 500 crore (rupees five hundred crore) or more.
2. The following NBFCs shall comply with the Indian Accounting Standards (Ind AS) for accounting periods beginning on or after 1st April, 2019, with the comparatives for the period ending 31st March, 2019, or thereafter-
a. NBFCs 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 of less than Rs. 500 crore (rupees five hundred crore);
b. unlisted NBFCs having net worth of Rs. 250 crore (rupees two hundred and fifty crore) or more but less than Rs. 500 crore (rupees five hundred crore);
c. holding, subsidiary, joint venture or associate companies of NBFCs covered under item (a) and (b).
3. The scheduled commercial banks (except RRBs) and their holding, subsidiary, joint venture or associate companies would be required to prepare their Ind AS based financial statements for the periods beginning from 1st April, 2018 onwards with comparatives for the period ending 31 march, 2018 or thereafter.
For the purpose of calculation “net worth”, the net worth shall be computed in accordance with the stand-alone financial statements of the company or NBFCs as on 31st March, 2014 or 31st March, 2016, as the case may be or the first audited financial statements for accounting period which ends after that date. The companies or NBFCs which are not in existence on 31st March, 2014 or 31st March, 2016, as the case may, or an existing company or NBFC falling under any of Ind AS applicability thresholds for the first time after 31st March, 2014 or 31st March, 2016, as the case may, the net worth shall be calculated on the basis of the first audited financial statements ending after that date in respect of which it meets the Ind AS applicability thresholds. For example, the company meeting threshold for first time as on 31st March, 2017 shall apply Ind-AS from financial year 2017-18 onwards. The net worth shall be computed as per Section 2(57) of the Companies Act, 2013. The section defines the term as follows:
“Net Worth means 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.”
4. The Banking Companies and Insurance Companies shall apply the Ind AS as notified by Reserve Bank of India (RBI) and Insurance Regulatory Development Authority (IRDA) respectively. An insurer or insurance company shall however, provide Ind AS compliant financial statement data for the purpose of preparation of consolidated financial statements as required by its parent or investor or venturer, as required by parent or investor or venture to comply with the requirement of the rules.​
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