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Introduction
The Ministry of Corporate Affairs ("MCA") on August 13, 2025, issued the Companies (Indian Accounting Standards) Second Amendment Rules, 2025 ("Amendment Rules, 2025"). This amendment, effective immediately upon publication, fine-tunes several Indian Accounting Standards ("Ind AS") to align with global best practices, such as International Financial Reporting Standards ("IFRS"), to enhance transparency and tackle emerging challenges like global tax reforms and supply chain financing. These changes could reshape balance sheets, cash flow statements, and tax strategies for businesses. The message for CFOs, Controllers and Audit Committees is clear: compliance strategies must be rethought before the financial year 2025 – 2026 reporting cycles.
Context and Rationale Behind the Amendment
The Companies (Indian Accounting Standards) Rules, 2015 ("2015 Rules"), establish a framework for Indian companies to adopt Ind AS in alignment with IFRS. These rules mandate using Ind AS for financial reporting by specified classes of companies based on net worth, listing status and entity type (e.g., holding/subsidiary companies). The initial rollout phased adoption started on April 01, 2016, for large listed/unlisted companies with a net worth of INR 500 Crore (Indian Rupees Five Hundred Crore only) or more. The 2015 Rules, while foundational, lacked detailed guidance and disclosure in key emerging areas such as liability classification, supplier finance arrangements ("SFAs"), international tax reforms and alignment with the latest IFRS. The Amendment Rules, 2025, refine this framework to address emerging global and domestic opportunities.
The Big Shifts: Amendments and Their Impacts at a Glance
The amendments introduce significant changes across multiple standards, with the most substantial impacts on liability classification, supplier finance disclosures and international tax reporting requirements. The following table summarises a comparative analysis of pre- and post-amendment provisions and their business impact:
|
Particulars (Ind AS) |
Pre-Amendment |
Post-Amendment |
Impact |
|
Ind AS 1 – Presentation of Financial Statements |
Liabilities were classified mainly by contract terms, with unclear treatment of covenant breaches and grace periods. |
Detailed guidance for classifying liabilities: - Rights to defer settlement for 12 (twelve) months or must exist at the reporting date. - Loan covenants before the reporting date affect classification (even if tested later). - Covenant breaches at reporting date are current liabilities unless waived before financial statement approval. - Classification is not based on management's intent. - Additional disclosures about covenants and risks are required. |
The amendment can prevent "window dressing" in liability classification. Banks, infrastructure companies, and leveraged corporates must closely monitor covenant testing dates; more liabilities may shift to the current category. It is effective for periods beginning on or after April 1, 2026. |
|
Ind AS 10 – Events After Reporting |
Used the word "provision" in the covenant breach example. |
Changed to "covenant"; breaches fixed post year-end are non-adjusting. |
The change aligns with Ind AS 1. It is effective for periods beginning on or after April 1, 2026. |
|
Ind AS 7 & Ind AS 107 – Supplier Finance Arrangements |
No explicit or detailed disclosure required on reverse factoring, payables finance, or supply chain finance. |
Introduces new disclosures on SFA: - Supplier: must disclose SFA terms & conditions and early payment details. - Financier: must disclose the carrying amount of liabilities financed under SFA and the portion already settled with suppliers. - Companies: must disclose payment due dates vs. normal trade payables, and non-cash changes (e.g., FX, business combinations). |
SFAs (reverse factoring, payables finance) often hide actual leverage/liquidity risk. CFOs must track SFAs and provide quantitative and qualitative details; auditors must verify completeness. Retrospectively effective from April 01, 2025. |
|
Ind AS 12 – Pillar Two Organisation for Economic Co-operation and Development ("OECD") Tax |
Required entities to recognise and disclose deferred tax assets/liabilities for all income taxes, based on temporary differences between book and tax bases. There were no specific exemptions or disclosures for global tax reforms like Pillar Two. |
New paragraphs inserted: - Scope and Temporary Exception: Applies Ind AS 12 to Pillar Two taxes but provides an exception- entities shall not recognise or disclose deferred tax assets/liabilities related to these taxes. - Enhanced Disclosures: Entities must disclose use of the deferred tax exception, Pillar Two tax expense, and known/estimated exposures—or state if not estimable with progress updates. |
The global minimum tax (GMT) initiative, championed by the OECD under Pillar Two, ensures 15 per cent (fifteen per cent) corporate tax. Indian subsidiaries of MNCs must provide risk disclosures, adding a compliance burden. Applicable immediately and retrospectively from April 1, 2025; interim disclosures not needed until March 31, 2026. |
|
Ind AS 28 – Investments in Associates and Joint Ventures |
Included a temporary IFRS 9 exemption (Financial Instruments) to certain financial assets held by associates or joint ventures ("JVs") in the context of insurance contracts. |
Removes the exemption and reference to IFRS 17's pending status and focuses on excluding Ind AS 28, which dealt with IFRS 9 relief for associates/JVs in insurance contexts. |
Insurance companies or groups with insurance-related JVs/associates (e.g., holding companies in the financial sector) must fully apply Ind AS 109 to their financial assets, potentially increasing complexity in fair value or impairment assessments. This requirement is practical retrospectively from April 1, 2025. |
|
Ind AS 32 – Financial Instruments Presentation / Ind AS 108 – Operating Segments / Ind AS 109 – Financial Instruments |
Structural references. |
Editorial Changes. |
Editorial fix. No accounting change. |
|
Ind AS 101 – First Time Adoption |
Earlier rules had minor IFRS 11 wording changes without explicit land/building lease transition relief. |
This bill provides transitional relief under Ind AS 116, allowing lease classification using transition-date facts for land and building leases to be classified as finance/operating leases. |
Aligns with IFRS transitional provisions and avoids reassessment burden. Companies adopting Ind AS for the first time (especially real estate and infrastructure) get relief in lease classification at transition. Effective retrospectively from April 01, 2025. |
|
Ind AS 115 – Revenue from Contracts with Customers |
References to "Ind AS 17", "Ind AS 18", "This Appendix A". |
Cross-references updated: Ind AS 17 → Ind AS 116 Ind AS 18 → Ind AS 115 Appendix A → Appendix D |
Editorial changes. |
Practical Considerations for Businesses: How to Adapt to New Accounting Practices
The MCA amendments are not just technical adjustments; they have real implications for reporting, compliance and stakeholder trust. Companies must actively prepare their finance and governance frameworks before the effective dates. Outlined below are some suggested next steps for businesses:
- Review of Loan Agreements: Assess all debts, covenants, and their testing dates relative to reporting periods.
- Map Supply Chain Financing: Identify all supplier finance arrangements and establish disclosure processes.
- Assess Exposure: Audit your liabilities and supply chains, evaluate the potential impact of Pillar Two taxes, and prepare required disclosures.
- Update Controls and Documentation: Enhance documentation and integrate new disclosure fields into enterprise resource planning ("ERP") and consolidation tools.
- Brief Board & Audit Committees: Explain implications for balance sheet, ratios and compliance.
- Communicate with Investors: Manage expectations on liability shifts and transparency.
- Train Finance Teams and Update Policies: Refresh accounting manuals, controls and audit checklists.
Conclusion: Embracing Change for Strategic Advantage
These amendments are more than accounting refinements; they redefine how companies present debt, working capital and tax exposures, directly influencing balance sheets, ratios and investor perception.
For CFOs, the focus shifts to re-evaluating liability classifications, which could impact debt covenants, borrowing costs, and investor perceptions of financial health. Missteps here might trigger covenant breaches or inflated current liabilities, eroding liquidity ratios and market confidence. Carillion's collapse in 2018 remains a stark reminder. While its 2016 accounts showed GBP 148 Million (Great British Pound One Hundred Forty-Eight Million only) in loans and overdrafts, another GBP 498 Million (Great British Pound Four Hundred Ninety-Eight Million only) of supplier finance sat hidden under "other creditors," invisible to investors as debt. The new Ind AS requirements directly address such risks by mandating clearer liability and SCF disclosures, ensuring stakeholders see the true financial picture.
Auditors, meanwhile, must ramp up scrutiny on disclosures, especially around supplier finance arrangements and Pillar Two taxes, to ensure audit trails are robust and defensible. With retrospective application in some cases, early adoption could unlock competitive edges, like better credit terms or tax optimisation. Early adoption, strong governance and transparent communication will be the differentiators between firms that merely comply and those that gain trust and resilience.
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.
