What are Indian Accounting Standards?
Indian accounting standards are essentially guidelines that prescribe the principles to be adhered to in the accounting system. They represent the rules and regulations that must be followed when recording accounting and financial transactions, and they govern how financial statements are prepared and presented within a company.
The Institute of Chartered Accountants in India is responsible for creating and issuing these accounting standards, which are subsequently adhered to by accountants working in all registered companies throughout the country. As previously mentioned, these accounting standards play a crucial role in facilitating the accurate preparation and presentation of financial statements.
Overview of Indian Accounting Standards
Now that we understood what is Indian Accounting Standards let’s look at the overview for the same. Accounting is commonly known as the process of recording financial transactions in a manner that helps readers make informed decisions and reach conclusions about a business entity’s financial status. It is essential for accounting to follow standardized rules and principles recognized in the field.
In India, companies adopt Indian Accounting Standards, which are regulated by the Accounting Standards Board established in 1977. These standards allow companies to tailor their accounting practices to suit their specific needs while ensuring consistency and clarity. The aim of implementing these standards is to eliminate confusion and establish guidelines set by reputable accounting bodies. The responsibility for issuing Accounting Standards in India lies with the Institute of Chartered Accountants of India (ICAI).
Objectives of the Indian Accounting System
Every mission is driven by a purpose and similarly, accounting standards serve specific goals. Let’s explore the objectives of accounting standards to gain a profound understanding of their underlying purpose.
- The primary goal of Indian accounting standards is to enhance the transparency and comprehensibility of annual financial statements within corporate financial reporting.
- Encourage Indian companies to embrace these standards for the implementation of globally acknowledged best practices.
- Implementing a unified and organized accounting system applicable to all companies, thereby eliminating confusion and preventing fraudulent activities.
- The simplicity of Indian accounting standards makes them universally comprehensible and applicable on a global scale.
- Numerous worldwide mandates exist, and Indian accounting standards are formulated to align with these global requisites.
- Enhance the trustworthiness of the financial statements.
Indian Accounting System: Benefits
It is a well-established fact that an accounting system of this nature would not be pursued without its associated advantages. There exist numerous benefits that arise from adhering to the Indian Accounting System, and we will now delve into a comprehensive examination of each of these advantages.
Provides Reliability to Financial Statements
Financial statements play a crucial role in acquiring information about organizations. Investors and various stakeholders depend on these statements to gather information. These individuals make significant decisions based solely on this data.
Hence, ensuring the accuracy and fairness of these financial statements is essential. Accounting standards comprehensively regulate these financial reports. Accounting principles ensure the authenticity and reliability of these statements.
Uniformity in Accounting System
Accounting standards contribute to achieving uniformity across the entire field of accounting, representing a notable advantage of these guidelines. Accounting standards establish consistent rules and principles for handling accounting transactions.
This means that all businesses uniformly record transactions. E.g. An accounting standard governs the complete process of accounting for depreciation. All companies will adhere to AS-6 for matters related to depreciation. This approach ensures uniformity throughout the entire national and global accounting framework.
Report of Management Performance
Accounting standards simplify the process of determining managerial responsibilities. They streamline the assessment of the performance of the management team and facilitate the provision of recommendations.
These standards aid in evaluating management’s effectiveness in ensuring the firm’s solvency, enhancing the company’s profits, and fulfilling various other crucial roles.
They direct the management to adopt specific accounting standards and their approach. Consistently adhering to the same approach is essential to prevent any confusion.
Accounting Easy & Simple
Operating within the broader framework of the Indian accounting system, data holds notable advantages through accounting standards. These standards provide uniform directives for every accounting transaction, simplifying the entire accounting process.
A consistent and standardized procedure is adhered to, aiding users in straightforward comprehension and averting any confusion.
Say Goodbye to Fraudulent
Accounting standards play a vital role in preventing fraudulent activities within the accounting system. Frauds and any manipulation of accounting information can have adverse consequences for the organization.
Accounting norms establish a range of accounting principles and regulations. These norms oversee the entire accounting process. Adherence to these standards is not optional; rather, it is mandatory.
This makes it nearly impossible for management to distort or manipulate financial data. Engaging in fraudulent activities also becomes more challenging for them.
Provides Assistance to Auditors
The Indian accounting standards facilitate auditors in fulfilling their responsibilities during audits. It streamlines their tasks and simplifies their role. Accounting Standards have established a range of instructions, regulations, and principles to be adhered to by companies in their accounting practices.
These standards and guidelines are mandatory for every organization to follow. They oversee the entire process of formulating and presenting financial regulations. Therefore, if the auditor ensures the company’s compliance with accounting standards, they can easily verify the fairness and authenticity of all financial standards.
Accounting standards have enhanced the comparability of diverse financial statements. It becomes straightforward to compare financial reports between two companies. If two companies adopt distinct accounting systems and formats, making comparisons between them becomes quite challenging.
For instance, if one company employs the LIFO method for inventory accounting while another company uses the FIFO method, comparison becomes complicated due to the differing approaches. Accounting standards assist in addressing this issue.
Indian Accounting Standards List
We have compiled an essential list of Indian accounting standards that emerging businesses should be well-versed in. Pay heed! To foster your profound insights and comprehension, we have included the purpose of each accounting standard.
Ind AS 1 – Financial Statement Presentation
Objective: This standard establishes fundamental guidelines for the presentation of financial statements, principles for their arrangement, and essential content requirements to ensure uniformity.
Ind AS 2 – Inventory Accounting
Objective: This standard addresses inventory accounting, encompassing inventory valuation, cost inclusions and exclusions, and disclosure mandates, among other aspects.
Ind AS 7 – Cash Flow Statement
Objective: This standard governs the inflow and outflow of cash over a period, derived from operational, financing, and investing endeavours. It further portrays any transformation in the cash and cash equivalents of an entity.
Ind AS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
Objective: This standard mandates the selection and alteration of accounting methodologies as well as the treatment and disclosure of accounting applications and discrepancies.
Ind AS 10 – Post-Reporting Period Events
Objective: This standard addresses evolving or persistent occurrences transpiring after the reporting phase.
Ind AS 11 Construction Contracts
Objective: It manages any changing or unchanging occasion happening after reports.
Ind AS 12 – Income Taxes
Objective: This standard guides the treatment of income tax in financial records. The central challenge in depicting yearly levies involves delineating both prevailing and forthcoming tax obligations.
Ind AS 16 – Property, Plant and Equipment
Objective: This standard prescribes the financial handling of Property, Plant, and Equipment (PPE), including asset recognition, assessment of their carrying values and the recognition of depreciation charges and impairment losses tied to them.
Ind AS 17 – Leases
Objective: This standard proposes suitable accounting provisions and guidelines catering to lessees and lessors.
Ind AS 19 – Employee Benefits
Objective: This standard proffers accounting and disclosure mandates concerning employee benefits.
Ind AS 20 – Accounting for Government Grants and Disclosure of Government Assistance
Objective: This standard is employed for the portrayal and revelation of government grants, encompassing diverse categories of governmental support.
Ind AS 21 – Effects of Changes in Foreign Exchange Rates
Objective: This standard facilitates comprehending the integration of foreign currency transactions and overseas operations within a company’s financial statements, as well as the conversion of financial statements into a reporting currency.
Ind AS 23 – Borrowing Costs
Objective: This standard mandates that borrowing costs linked to eligible assets should be incorporated within those assets. It also provides guidelines on which interest expenses can be capitalized, the criteria for capitalization and the periods for commencing and ceasing capitalization of borrowing costs.
Ind AS 24 – Related Party Disclosures
Objective: This standard ensures that a company’s financial statements encompass essential disclosures to draw attention to the potential impact of related parties, transactions and outstanding balances on its financial position and profit or loss.
Ind AS 28 – Investments in Associates and Joint Ventures
Objective: This standard sanctions the portrayal of affiliations with associates and delineates requisites for employing the equity method in depicting interests in associates and joint ventures.
Ind AS 29 – Financial Reporting in Hyperinflationary Economies
Objective: This standard furnishes a comprehensive delineation of attributes signifying a hyperinflationary economy, alongside the depiction of operating outcomes and financial status.
Ind AS 32 – Financial Instruments: Presentation
Objective: This standard establishes guidelines for the presentation of financial instruments as either liabilities or equity and for offsetting financial assets and financial liabilities.
Ind AS 33 – Earnings per Share
Objective: This standard provides criteria for calculating and presenting earnings per share figures.
Ind AS 34 – Interim Financial Reporting
Objective: This standard facilitates the determination of the essential components of an interim financial report and outlines principles for recognition and measurement within comprehensive or condensed financial statements during a specific period.
Ind AS 36 – Impairment of Assets
Objective: This standard prescribes methodologies employed to ensure that an entity’s carrying value remains within its recoverable amount, fostering prudent financial evaluation.
Ind AS 37 – Provisions, Contingent Liabilities and Contingent Assets
Objective: This standard ensures precise recognition principles and assessment methods are employed for provisions, contingent liabilities and potential assets, with pertinent disclosures in the footnotes, empowering stakeholders to grasp their essence, timing, and magnitude.
Ind AS 38 – Intangible Assets
Objective: This standard prescribes accounting approaches for intangible assets, outlining requisites for intangible asset recognition and stipulating methods for quantifying carrying amounts attributed to intangible resources.
Ind AS 40 – Investment Property
Objective: This standard provides the financial handling guidelines for investment property and associated disclosure mandates.
Ind AS 101 – First-time Adoption of Ind AS
Objective: Its principal aim is to craft inaugural financial statements in compliance with Ind AS, featuring robust, comprehensible, and cost-effective information, forming a fitting baseline for Ind AS accounting initiation.
Ind AS 102 – Share-Based Payments
Objective: This standard oversees the accounting of equity-settled payment transactions, portraying the influence of such remuneration on an entity’s profit and loss and financial statements.
Ind AS 103 – Business Combination
Objective: Applicable to transactions or events qualifying as a business combination, this standard enhances the significance, credibility and uniformity of information furnished by a reporting entity within its financial statements concerning a business amalgamation and its assets.
Ind AS 104 – Insurance Contracts
Objective: This standard delineates financial portrayal protocols for insurance outlays carried out by an insurer entity.
Ind AS 105 – Non-Current Assets Held for Sale and Discontinued Operations
Objective: This standard establishes guidelines for portraying assets earmarked for sale and divulging halted undertakings.
Ind AS 106 – Exploration for and Evaluation of Mineral Resources
Objective: This standard outlines financial depiction practices concerning the probing and evaluation of mineral resources.
Ind AS 107 – Financial Instruments: Disclosures
Objective: This mandates entities to furnish disclosures about financial instruments, fostering an assessment of the significance of financial instruments for an entity’s financial position and performance, along with the character and extent of risks stemming from financial instruments, both during the reporting period and at its conclusion. Additionally, it highlights how the entity manages said risks.
Ind AS 108 – Operating Segments
Objective: This standard imparts information to empower users of its financial statements to discern the character and financial ramifications of the business undertakings it engages in, as well as the financial circumstances within which it operates.
Ind AS 109 – Financial Instruments
Objective: This standard formulates guidelines for the financial portrayal of financial assets and liabilities that will furnish pertinent and valuable insights to financial statement users, enabling them to appraise the magnitudes, temporal aspects and uncertainties encompassing an entity’s forthcoming cash flows.
Ind AS 110 – Consolidated Financial Statements
Objective: This standard establishes guidelines for structuring financial statements in scenarios where a company exercises command over one or more distinct entities.
Ind AS 111 – Joint Arrangements
Objective: This standard formulates guidelines for financial portrayal applicable to enterprises engaged in collaborative arrangements under shared control.
Ind AS 112 – Disclosure of Interests in Other Entities
Objective: This standard necessitates entities to divulge information that empowers financial statement users to discern the nature of risk and the ramifications of these interests.
Ind AS 113 – Fair Value Measurement
Objective: This standard defines fair value, establishes a framework for gauging fair value, and mandates disclosures concerning fair value assessments. This valuation directive applies whenever another Ind AS necessitates or permits the utilization of fair value.
Ind AS 114 – Regulatory Deferral Accounts
Objective: This standard outlines stipulations for financial statement stipulations regarding adjustments in regulatory deferral accounts, occurring when a company offers services and goods to clients at a charge or rate subject to regulatory control.
Ind AS 115 – Revenue from Contracts with Customers
Objective: This standard establishes principles that entities will employ to present valuable insights to financial statement users regarding the magnitude, timing and uncertainty of revenue and gains deriving from customer contracts.
Firms having a net worth of at least 500 crores must adhere to Ind AS.
Compulsory compliance starts from the commencement of the accounting period on or after 1 April 2017.
This requirement applies to every company that is listed. Additionally, it pertains to unlisted companies with a net worth ranging from Rs. 250 crores to less than Rs. 500 crores.
Indian Accounting Standards Summary
Every operational entity requires well-defined guidelines to uphold its processes and operational standards. These rules establish uniform policies for businesses operating within the same industry. To learn in-depth about accounting standards consider taking a Certificate Course in Finance Accounting and Taxation from EduBridge.
FAQs on Indian Accounting Standards
Which companies are required to adopt Indian accounting standards?
Listed companies and their subsidiaries, joint ventures, and associates must adopt Indian Accounting Standards (Ind AS). Unlisted companies exceeding defined net worth thresholds are also mandated to follow Ind AS. Banks, specific Non-Banking Financial Companies (NBFCs) and insurance companies adhere to regulatory guidelines. Entities falling outside these groups have the option to voluntarily adopt Ind AS. It’s important to stay updated with the latest regulations set by the Ministry of Corporate Affairs (MCA) and other relevant authorities.
How many Indian accounting standards are there in India?
The Institute of Chartered Accountants of India (ICAI) has issued a total of 41 published accounting standards as of 2023.
What is the purpose of implementing Indian accounting standards?
The implementation of Indian Accounting Standards aims to enhance financial reporting transparency, comparability and accuracy across various companies in India. These standards align with international practices, improving the quality of financial statements and enabling better decision-making by stakeholders such as investors, creditors, regulators and the public. Indian Accounting Standards also promote accountability, integrity and a better understanding of an organization’s financial performance, contributing to a healthier and more reliable financial reporting ecosystem in the country.
Who issues Accounting Standards in India?
Accounting Standards in India are issued by the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI). The ASB is responsible for formulating and issuing Accounting Standards, including the converged Indian Accounting Standards (Ind AS) that align with International Financial Reporting Standards (IFRS). These standards guide various accounting and financial reporting matters to ensure consistency, transparency, and comparability in financial statements across different companies and industries in India.
What is the IFRS in Indian Accounting Standards?
IFRS (International Financial Reporting Standards) is a globally recognized set of accounting standards maintained by the IASB (International Accounting Standards Board). In the context of Indian Accounting Standards (Ind AS), “converged with IFRS” means that Indian Accounting Standards are developed to align with or closely resemble IFRS. This convergence ensures consistency, transparency, and comparability in financial reporting, facilitating global operations and enhancing the quality of financial statements for analysis by investors and stakeholders across different countries.
Is Indian Accounting Standards GAAP or IFRS?
Indian Accounting Standards (Ind AS) are based on and converged with International Financial Reporting Standards (IFRS), not on Generally Accepted Accounting Principles (GAAP). The adoption of Ind AS in India aims to align the country’s accounting standards with global best practices, promoting consistency, transparency, and comparability in financial reporting. While Ind AS are closely related to IFRS, they may also consider local legal and regulatory requirements. Before the adoption of Ind AS, India followed its own set of accounting standards known as Indian Generally Accepted Accounting Principles (Indian GAAP).
What is GAAP?
GAAP or Generally Accepted Accounting Principles, is a standardized set of accounting rules, practices, and guidelines used globally to prepare and present financial statements. It ensures consistent, transparent and reliable financial reporting, aiding stakeholders in making informed decisions about an organization’s financial health and performance.