Indian Accounting Standards (Ind AS) are largely converged with International Financial Reporting Standards (IFRS) but contain specific "carve-outs" (deviations) to suit India's unique legal and economic landscape, making them more rule-based compared to the principle-based IFRS. Key differences include variations in financial instrument recognition, specific exemptions for lease accounting, unique treatments for foreign exchange fluctuations, and prescribed presentation formats under Indian law.
Whereas IFRS was drafted to become a truly international standard, IND AS is incorporating amendments necessary because of the existing tax statutes and related regulatory provisions of India. For example, the accounting treatment of leases and financial instruments could be different due to local legal requirements.
IAS covers only specific accounting issues, while IFRS is a more comprehensive set of accounting standards that covers all aspects of financial reporting. IAS and IFRS are sets of accounting standards that provide guidelines for financial reporting.
IFRS (IFRS 10): A single control model is used for consolidation, with all subsidiaries consolidated, including SPEs (Special Purpose Entities). Ind AS (Ind AS 110): Follows a similar model but with additional requirements for joint ventures and associates as per Indian law.
As per IND AS 115, such a company can treat customers' payment as revenue only after the completion of the year. However, IFRS 15 requires such a company to recognise customers' payment as revenue over the time of contractual service period.
The core principle of Ind AS 115, Revenue from contracts with customers, requires an entity to recognise revenue when it satisfies a performance obligation by transferring control of a promised good or service to the customer.
IND AS 116 is in substance fully convergent with IFRS 16 and contains similar principles and requirements for lease accounting and reporting by a lessee. This new model is supposed to be based on the principle of substance over form.
India has early adopted IFRS 9, Financial Instruments by notifying the corresponding Ind AS 109, Financial Instruments. Ind AS 109 is aligned with IFRS 9. The measurement principles contained in Ind AS 109 vary significantly as compared to accounting requirements prescribed under existing Indian GAAP.
The four core financial statements are the Balance Sheet (snapshot of assets, liabilities, equity), the Income Statement (revenues, expenses, profit over time), the Cash Flow Statement (cash inflows/outflows over time), and the Statement of Shareholders' Equity (changes in owner investment over time), all crucial for understanding a company's financial health.
IFRS 9 replaced IAS 39 in January 2018 because it was too complex, inconsistent, and impractical in a modern financial world. Accountants, regulators, and financial institutions often call IAS 39 one of the most confusing standards ever written.
GAAP tends to be more rules-based, while IFRS tends to be more principles-based. Under GAAP, companies may have industry-specific rules and guidelines to follow, while IFRS has principles that require judgment and interpretation to determine how they are to be applied in a given situation.
The four pillars of IFRS S1 and S2 are governance, strategy, risk management and metrics and targets.
IFRS 18 replaces IAS 1 and responds to investors' demand for better information about companies' financial performance. New requirements include: new categories and subtotals in the statement of profit or loss, disclosure of MPMs and enhanced requirements for grouping information.
Carve-outs refer to deviations from IFRS that are incorporated into Ind AS to address unique Indian conditions. These modifications are necessary to ensure the standards are practical and relevant for Indian entities.
In India, companies primarily use Indian GAAP (Generally Accepted Accounting Principles) for their financial reporting. However, listed companies and certain entities are transitioning to International Financial Reporting Standards (IFRS) as part of India's efforts to align with global accounting practices.
IFRS 3 excludes from its scope common control business combinations. Ind AS 103 requires business combinations of entities or businesses under common control to be mandatorily accounted using the pooling of interest method.
The three main financial statements are the Income Statement (profitability over time), the Balance Sheet (assets, liabilities, equity at a point in time), and the Cash Flow Statement (cash movement from operations, investing, and financing activities), which together provide a comprehensive view of a company's financial health and performance.
The three main types of finance are Personal Finance, managing individual money; Corporate Finance, managing business capital; and Public Finance, managing government budgets and fiscal policy, all focusing on how money flows, is saved, invested, and spent by different entities.
There are three pillars to IFRS 9 – classification and measurement, impairment and hedge accounting. Although corporates may see some change in the first two areas, the hedge accounting changes are the ones that are likely to have the biggest impact.
ISO standards cover a wide range of industries and are recognized worldwide. Unlike the ISI mark, which is specific to India, ISO standards are international in scope. Organizations that adopt ISO standards demonstrate their commitment to meeting globally recognized benchmarks for quality, safety, and efficiency.
The main difference between IAS and IFRS is that IAS was the predecessor framework to IFRS and was more rules-based and prescriptive. IFRS, the later framework, is more responsive, broader, and adaptable to the needs of modern financial reporting.
Transparency: The introduction of IFRS 16 was aimed at increasing the transparency and accuracy of financial reporting. By requiring companies to recognize all leases on their balance sheets, the new standard ensures that financial statements provide a more accurate picture of a company's financial position.
The 90% rule in leasing is an accounting guideline for classifying leases, stating that if the present value (PV) of a lessee's minimum lease payments equals or exceeds 90% of the leased asset's fair market value (FMV), the lease should be treated as a finance lease (or capital lease) rather than an operating lease, reflecting essentially a purchase for accounting purposes. This rule helps determine if the lease transfers substantially all the risks and rewards of ownership, requiring balance sheet recognition of the asset and liability.