All You Need to Know about Indian Accounting Standards

If you are a business owner, you are probably familiar with accounting. You have to manage the daily transactions that are part of your business, and record them in a ledger both for your own reference and for legal purposes. Your ledgers may be scrutinised by banks if you apply for a loan to expand your, or by the government tax agencies for taxation purposes.

As such, it is important for a business owner to be familiar with the concept of accounting standards. “What are accounting standards?” you may ask. Well, here is a handy guide for you. Read on to know more.

What are Accounting Standards?

Accounting standards are principles laid down by an official regulatory body to govern the principles for the recognition, measurement, presentation, and disclosures of information by businesses in their financial statements. This ensures that accounting practices across the board for businesses are standardised to ensure ease of auditing. It also ensures a standard and streamlined process of accounting for the benefit of accountants. This makes financial records and documents more reliable and comparable. Accounting Standards are an important aspect of Accounting Policies.

In India, accounting standards and all types of accounting policies are regulated by the Institute of Chartered Accountants of India or the ICAI.

On 21st April 1977, the ICAI set up the Accounting Standards Board (ASB) to systemise and coordinate the different and varied accounting policies practised in India. The ICAI is also a member of various international accounting bodies, like the International Accounting Standards Body, and the International Federation of Accountants; and had to consider both internationally accepted standards of accounting and local laws and regulations.

Accounting Standards Types

There are different types of accounting standards that are classified and enforced, depending on the subject matter.

• Disclosure Standard: These standards govern the rules for externally reporting your financial documents. They require that the accounting methods that were used in preparing financial reports and the assumptions that were made in the process must be explicitly disclosed.
• Presentation Standards: These accounting standards specify the form and type of accounting information that a financial document must present.
• Content Standards: These standards govern and specify what accounting information exactly must be disclosed by the accountants filing the financial documents. These are further classified into -

(1) Disclosure Content Standards, delineating the type of content disclosed.

(2) Specific Content Standards, delineating the specific manner in which the content is disclosed.

(3) Conceptual Content standards, that are based on compliance standards of individual companies, private standards set by accounting bodies or standards set by governments or other regulatory bodies.

What are Indian Accounting Standards?

Indian Accounting Standards, or Ind AS, are laid down by The Institute of Chartered Accountants of India (ICAI). These standards mainly govern the accounting practices of large businesses and corporations.

There are different types of Accounting Policies for non-corporates.

The ICAI also prescribes a set of Accounting Standards for Small and Medium Entities (SMEs), which are small and medium scale businesses that have a more modest net worth, hence don’t come under the purview of the Ind AS.

List of Accounting Standards in India

The following is the list of Accounting Standards in India, or Ind AS, as listed on the website (http://www.mca.gov.in/MinistryV2/Stand.html) of the Ministry of Corporate Affairs:

Ind AS 101 First-time adoption of Ind AS

Ind AS 102 Share-Based payments

Ind AS 103 Business Combination

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 1 Presentation of Financial Statements

Ind AS 2 Inventories Accounting

Ind AS 7 Statement of Cash Flows

Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Ind AS 10 Events after Reporting Period

Ind AS 11 Construction Contracts

Ind AS 12 Income Taxes

Ind AS 16 Property, Plant and Equipment

Ind AS 17 Leases

Ind AS 18 Revenue

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 and Joint Ventures

Ind AS 29 Financial Reporting in Hyperinflationary Economies

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

Ind AS 38 Intangible Assets

Ind AS 40 Investment Property

Ind AS 41 Agriculture

Applicability of Indian Accounting Standards

The latest Indian Accounting Standards were adopted in four phases between April 2016 and April 2019.

• The accounting standards were mandatorily applied to all listed and unlisted companies with a net worth of more than INR 500 Crore in April 2016. The net worth was calculated for three previous Financial Years, that is for 2013-14, 2014-15, and 2015-16. This was Phase 1 of the applicability of Ind AS.
• In Phase 2, the standards were mandatorily applied to all companies that were either listed, or in the process of being listed, and had a net worth either greater or equal to INR 250 Crores, but less than INR 500 Crores. Phase 2 was implemented from 1st April 2017.
• In Phase 3, the accounting standards were applied to all Banks, NBFCs, and Insurance Companies whose net worth was over INR 500 Crores, starting 1st April 2018. The IRDA (Insurance Regulatory and Development Authority) notified a separate set of Ind AS for Banks and Insurance Companies.
• Phase 4 involved applying Ind AS to all NBFCs whose net worth was either more or equal to INR 250 Crores, but less than 500 Crores. This phase took off on 1st April 2019.

If a particular company comes under the purview of the Ind AS, then the same accounting standards automatically get applied to all of its subsidiaries, holding companies, joint ventures, and any associated companies. In this case, even if the individual subsidiary does not qualify the net worth requirements for the applicability of the Indian Accounting Standards, the standards will apply to them.

Also Read:

1) Advantages and Disadvantages of Income Tax in India
2) What Are The Provisions Of Advance Tax In India?
3) How to define Unique Selling Propositions?
4) How Small Businesses Pay Taxes?
5) OkCredit: Simple, Paperless & Secure solution for businesses

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FAQs

Q. What is Accounting?

Ans. Accounting is the process by which businesses record their financial transactions, assets, and liabilities, including credit and debit statements, taxes, overheads, etc. Accounting is an important aspect of running a business. From small businesses, like Kirana stores that may be using quick digital apps like OkCredit to keep a tally of their accounts, to large corporations with big accounting departments, accounting is crucial to any business.

Q. What is ICAI?

Ans. The Institute of Chartered Accountants is a professional body that governs accounting practices in India. It was established by an Act of Parliament, The Chartered Accountants Act, 1949. It regulates Chartered Accountancy in India and ensures it remains in line with international standards while also following local laws and regulations. The Institute of Chartered Accountants of India also holds examinations and oversees the training and licensing of new Chartered Accountants.

Q. Why is it important to follow Accounting Standards?

Ans. Accounting standards ensure that your ledgers are readable, reliable, and comparable. This makes it easy for auditors to go through your financial statements and spot inconsistencies and makes fudging of accounts more difficult. It also ensures proper disclosure of relevant financial information to prevent deception.

Q. Is it important for all businesses including small businesses to follow Indian Accounting Standards?

Ans. The Indian Accounting Standards, or Ind AS, apply to large businesses, corporations, banks, Insurance companies, and NFBCs that have a net worth of INR 250 Crores, or more. For Small and Medium Enterprises (SMEs), the ICAI has a different set of Accounting Standards governed by the Accounting Standards Board.