Indian Accounting Standards (Ind AS): Complete Guide for Businesses

The Big Shift

When Reliance Industries released its first Ind AS financial statements, the numbers looked completely different from the previous year.

Net worth changed by thousands of crores. Profit figures shifted. New line items appeared.

Nothing had actually changed in the business. Only the accounting rules changed.

This is what happens when a company moves from IGAAP (Indian GAAP) to Ind AS (Indian Accounting Standards). Same business, different numbers, different story.

Understanding Ind AS is now essential for every finance professional, investor, and business owner in India.

What are Indian Accounting Standards?

Definition

Indian Accounting Standards (Ind AS) are a set of accounting standards converged with International Financial Reporting Standards (IFRS), notified by the Ministry of Corporate Affairs and mandatory for specified companies in India.

The Journey

Regulatory Framework

Ind AS Applicability

Who Must Follow Ind AS?

Phase I (From 1st April 2016):

• Listed companies with net worth ≥ ₹500 crore
• Unlisted companies with net worth ≥ ₹500 crore
• Their holding, subsidiary, JV, and associate companies

Phase II (From 1st April 2017):

• Listed companies with net worth < ₹500 crore
• Unlisted companies with net worth ≥ ₹250 crore
• Their holding, subsidiary, JV, and associate companies

Voluntary Adoption:

• Any company can voluntarily adopt Ind AS
• Once adopted, cannot revert to IGAAP

Who is Exempt?

Key Ind AS Standards

Overview of Important Standards

Major Ind AS Standards Explained

Ind AS 1: Presentation of Financial Statements

Key Requirements:

New Concept: OCI (Other Comprehensive Income)

Items that bypass P&L but affect equity:

• Revaluation gains on property
• Actuarial gains/losses on defined benefit plans
• Foreign currency translation differences
• Fair value changes on certain investments

P&L Format:

Revenue
(-) Cost of materials
(-) Employee benefits
(-) Depreciation
(-) Other expenses
= Profit before tax
(-) Tax expense
= Profit for the year

Other Comprehensive Income:
Items that may be reclassified to P&L
Items that will not be reclassified
= Total Comprehensive Income

Ind AS 2: Inventories

Measurement:

Inventory Value = Lower of (Cost, Net Realizable Value)

Cost Methods Allowed:

• FIFO (First In, First Out)
• Weighted Average

Not Allowed:

• LIFO (Last In, First Out) - explicitly prohibited

Example:

Ind AS 16: Property, Plant and Equipment

Key Changes from Old AS 10:

Component Accounting Example:

Aircraft (₹500 Cr):

Without Component: ₹500 Cr / 25 years = ₹20 Cr (understated depreciation)

Ind AS 109: Financial Instruments

Most Complex Standard - Key Concepts:

Classification of Financial Assets:

Expected Credit Loss (ECL):

Old approach: Recognize loss when incurred New approach: Recognize expected loss upfront

Example: Trade Receivables

Ind AS 115: Revenue from Contracts with Customers

Five-Step Model:

Key Changes:

Ind AS 116: Leases

Biggest Change: Operating leases now on balance sheet.

Old Treatment (Operating Lease):

• Asset: Not on balance sheet
• Liability: Not on balance sheet
• P&L: Rent expense

Ind AS 116 Treatment:

• Asset: Right-of-Use Asset (on balance sheet)
• Liability: Lease Liability (on balance sheet)
• P&L: Depreciation + Interest (front-loaded)

Example: 5-year lease, ₹1L monthly rent

Year 1 Impact:

Old: Rent expense = ₹12 lakhs

Ind AS 116:
Depreciation (₹46.95L / 5) = ₹9.39 lakhs
Interest (10% on liability) = ₹4.70 lakhs
Total expense = ₹14.09 lakhs (higher in early years!)

Impact on Financial Statements:

• Balance sheet: Assets and Liabilities increase
• D/E ratio: Worsens
• EBITDA: Improves (no rent, only depreciation)
• Net profit: Lower initially, higher later

Ind AS vs IGAAP: Key Differences

Summary of Major Differences

First-Time Adoption (Ind AS 101)

Key Exemptions Available:

Transition Process:

Practical Impact Analysis

Impact on Key Metrics

Real-World Example

Hypothetical Company Transition:

Industry-Specific Impacts

Real Estate

Telecom

Banks and NBFCs

Manufacturing

Ind AS Compliance Checklist

For CFOs and Finance Teams

Annual Compliance:

• Update accounting policies for amendments
• Review new contracts for revenue impact
• Assess financial instruments classification
• Calculate Expected Credit Loss
• Review lease arrangements
• Ensure proper disclosures
• Get auditor sign-off

Quarterly Review:

• Interim financial statements per Ind AS 34
• ECL provision adequacy
• Fair value updates
• Related party disclosures

Documentation Required

Common Mistakes in Ind AS Implementation

Mistake 1: Ignoring Component Accounting

Error: Depreciating entire building as one asset Impact: Understated depreciation Solution: Identify significant components with different lives

Mistake 2: ECL Calculation Errors

Error: Using only historical data for ECL Impact: Understated provisions Solution: Include forward-looking information

Mistake 3: Lease Classification Errors

Error: Treating short-term leases without proper assessment Impact: Misstated balance sheet Solution: Evaluate each lease arrangement

Mistake 4: Revenue Recognition Timing

Error: Recognizing revenue before performance obligation satisfied Impact: Overstated revenue Solution: Apply five-step model strictly

Mistake 5: Inadequate Disclosures

Error: Not providing all required disclosures Impact: Audit qualifications Solution: Use disclosure checklists

Resources for Ind AS

Official Sources

Learning Resources

Disclaimer

This guide is for educational purposes. Ind AS requirements are complex and subject to frequent updates. Actual accounting treatment depends on specific facts and circumstances. Consult a qualified Chartered Accountant for compliance matters.

Summary

Key takeaways about Ind AS:

1. Mandatory: For companies with net worth ≥ ₹250 crore
2. Converged with IFRS: Global comparability
3. Major changes: Revenue, leases, financial instruments
4. Fair value focus: More estimates and judgments
5. Enhanced disclosures: Greater transparency
6. Continuous updates: Stay current with amendments

Ind AS is not just an accounting change—it’s a fundamental shift in how financial performance is measured and reported.

Social Media Posts

LinkedIn: “When Reliance first reported under Ind AS, net worth changed by thousands of crores. Profit figures shifted. New line items appeared.

Same business. Different numbers. Different story.

Major Ind AS impacts: • Leases: Now on balance sheet (D/E worsens) • Revenue: Performance obligation model • ECL: Provision losses upfront • Fair value: Extensively used

If you’re investing in Indian stocks, understanding Ind AS is essential. The numbers you see are shaped by these standards.

#IndAS #AccountingStandards #FinancialReporting”

Twitter/X: “Ind AS 116 (Leases) impact:

Before: Operating leases = Rent expense only After:

• Asset ↑ (Right-of-Use)
• Liability ↑ (Lease obligation)
• D/E ratio worsens
• EBITDA improves

Same lease. Different numbers.

Always check if company recently adopted Ind AS before comparing metrics year-on-year.

#IndAS #AccountingStandards”

Instagram: “Why do company numbers suddenly change? 📊

It’s called Ind AS transition!

BEFORE (Old IGAAP): 🏠 Rented office = Just rent expense 📊 Debt on balance sheet = Only loans

AFTER (Ind AS): 🏠 Rented office = Asset + Liability on books 📊 Debt = Loans + Lease obligations

RESULT: • Assets increase ↑ • Liabilities increase ↑ • D/E ratio worsens • EBITDA improves (no rent!) • Net profit changes

Same business. Different rules. Different picture.

Always compare apples to apples! 🍎

#IndAS #AccountingChanges”