The new Indian Accounting Standards have replaced the existing
standards since 1 April, which in turn affect the accounting
processes of companies operating in the country. Outlined below is
what companies need to do differently to keep up with play.
India is the world's largest democracy and a significant
player on the global stage. According to the World Bank's latest Global Economic
Prospects report, the nation's economy is expected to grow
at 7.6% in the fiscal year 2016/17, and will be the fastest growing
economy in the world in the next three years. Part of this growth
comes from streamlining business procedures, tax regimes and
accommodative monetary policy with the new Indian Accounting Standards (Ind-AS) being
a step in the same direction.
To improve India's ranking on corporate governance and
transparency in financial reporting, the Ministry of Corporate
Affairs (MCA) is implementing changes to align Indian financial
reporting with global standards, such as the International
Financial Reporting Standards (IFRS). At present, 39 standards have
been identified, with further changes expected to take place
through a phased process. New changes will occur on a yearly basis,
from 1 April 2016 onwards.
Below are the three main standards every business in India
should pay attention to:
1.Revenue, recognition and measurement under accounting standard
This standard outlines when to recognise revenue from the sale
of goods, rendering of services, and for interest, royalties and
dividends. Essentially, revenue is determined by an agreement
between the seller and buyer of the asset and is recognised on
satisfaction of pre-determined conditions including transfer of
control of goods.
2.Income and taxes under (IndAS 12)
It requires an entity to account for the tax consequences of
transactions and other events in the same way that it accounts for
the transactions and other events themselves. For example, when a
transaction or event is recognised as either a profit or a loss,
tax replicates this.
It prescribes the accounting for property, plant and equipment
and the changes in these investments with the objective to enable
users of financial statements to discern information about their
entities' investments. This includes details on component
accounting, periodic review of depreciation methodology, residual
value and treatment of repair costs.
Indian entities are required to adopt these new standards in two
Phase 1 begins on or after 1 April
2016 for listed or non-listed companies with a net worth of INR 500
crore or more.
Phase 2 begins on or after 1 April
2017 for all listed companies and unlisted companies with a net
worth of INR 250 crore or more.
The IndAS also applies to holding companies, subsidiaries, joint
ventures and associate companies for the above phases. Once
applied, the IndAS is required to be followed for both stand-alone
financials and consolidated statements.
Given the IndAS highlights "substance" over
"form" as well as enhances financial governance, it is
important for companies to stay abreast of the changes as they
filter through in a phased approach.
Talk to us
Our experts in India are closely monitoring developments with
the new accounting standards and can assist you with local
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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