16 Indian Accounting Standards and IFRS
16.1 Why Accounting Standards?
Without a common rulebook, two firms could report the same economic event very differently — making comparison meaningless. Accounting standards are written rules issued by an authoritative body that prescribe how transactions and balances are to be recognised, measured, presented and disclosed in financial statements.
Their three working purposes (icai2024?):
- Comparability across firms and across periods.
- Reliability through reduction of accounting choice.
- Transparency through prescribed disclosure.
16.2 The Standard-Setters
TipStandard-Setters at International and National Level
| Body | Established | Headquarters | Output |
|---|---|---|---|
| IASC — International Accounting Standards Committee | 1973 | London | International Accounting Standards (IAS 1–41) |
| IASB — International Accounting Standards Board | 2001 (replaced IASC) | London | International Financial Reporting Standards (IFRS) |
| IFRS Foundation | 2001 | London | Trustees overseeing IASB and ISSB |
| FASB — Financial Accounting Standards Board | 1973 | Connecticut, USA | US GAAP |
| ICAI — Institute of Chartered Accountants of India | 1949 | New Delhi | AS (Indian GAAP) and Ind-AS |
| NFRA — National Financial Reporting Authority | 2018 (Sec. 132 of the 2013 Act) | New Delhi | Recommends standards; oversees auditors of large companies |
| ASB — Accounting Standards Board (under ICAI) | 1977 | New Delhi | Drafts standards for ICAI |
In India, the Accounting Standards Board of the ICAI prepares the standards; the NFRA recommends them to the Central Government, which notifies them under the Companies Act, 2013.
16.3 Indian GAAP, Ind-AS and IFRS
A reader will encounter three sets of standards.
TipIndian GAAP (AS) vs Ind-AS vs IFRS
| Dimension | Indian GAAP (AS) | Ind-AS | IFRS |
|---|---|---|---|
| Issuing authority | ICAI; notified by MCA under Companies (Accounting Standards) Rules, 2021 | ICAI; notified under Companies (Indian Accounting Standards) Rules, 2015 | IASB |
| Approach | Rules-based | Principles-based, converged with IFRS | Principles-based |
| Numbering | AS-1 to AS-29 | Ind-AS 1, 2, 7, 8, … (mirrors IFRS numbers) | IAS 1–41 + IFRS 1–19 |
| Status in India | Continues for entities not covered by Ind-AS | Mandatory for specified companies | Reference framework |
| Fair value | Limited | Extensive | Extensive |
| Convergence vs Adoption | n.a. | Converged (with carve-outs) | Adopted by 140+ countries |
The Indian decision was convergence, not adoption — Ind-AS mirrors IFRS but with a small set of carve-outs and carve-ins to fit Indian conditions and law.
16.4 Roadmap of Ind-AS Implementation
The Companies (Indian Accounting Standards) Rules, 2015 phased Ind-AS in by size and listing status (mca2015?).
TipInd-AS Applicability Roadmap
| Phase | Effective from | Applicability |
|---|---|---|
| Voluntary | FY 2015–16 | Any company could adopt early |
| Phase I | FY 2016–17 | Listed and unlisted companies with net worth ≥ ₹500 crore |
| Phase II | FY 2017–18 | All listed companies; unlisted with net worth ≥ ₹250 crore |
| Banks and NBFCs | Originally FY 2018–19, since deferred | Banks deferred; NBFCs Phase I FY 2018–19 (net worth ≥ ₹500 cr) |
| Insurance companies | Originally FY 2020–21, since deferred | Awaiting IRDAI roadmap |
The roadmap explicitly excluded small and medium-sized companies from Ind-AS. They continue to follow Companies (Accounting Standards) Rules, 2021 (the AS framework).
16.5 Major Ind-AS / IFRS Standards
The candidate is expected to recognise — at the least — the title and scope of the following standards.
TipMajor Ind-AS / IFRS — Title and Scope
| Standard | Title | Scope |
|---|---|---|
| Ind-AS 1 / IAS 1 | Presentation of Financial Statements | Format, going concern, consistency, materiality |
| Ind-AS 2 / IAS 2 | Inventories | Lower of cost and net realisable value; FIFO/weighted-average only |
| Ind-AS 7 / IAS 7 | Statement of Cash Flows | Operating, Investing, Financing |
| Ind-AS 8 / IAS 8 | Accounting Policies, Changes in Estimates and Errors | Retrospective application |
| Ind-AS 10 / IAS 10 | Events after the Reporting Period | Adjusting vs non-adjusting |
| Ind-AS 12 / IAS 12 | Income Taxes | Current and deferred tax |
| Ind-AS 16 / IAS 16 | Property, Plant and Equipment | Cost or revaluation model; depreciation |
| Ind-AS 19 / IAS 19 | Employee Benefits | Short-term, post-employment, termination benefits |
| Ind-AS 20 / IAS 20 | Government Grants | Income approach generally required |
| Ind-AS 21 / IAS 21 | The Effects of Changes in Foreign Exchange Rates | Functional vs presentation currency |
| Ind-AS 23 / IAS 23 | Borrowing Costs | Capitalisation of qualifying assets |
| Ind-AS 33 / IAS 33 | Earnings per Share | Basic and diluted EPS |
| Ind-AS 36 / IAS 36 | Impairment of Assets | Recoverable amount = higher of FV less costs and value in use |
| Ind-AS 37 / IAS 37 | Provisions, Contingent Liabilities and Contingent Assets | Probable + reliable measurement |
| Ind-AS 38 / IAS 38 | Intangible Assets | Recognition, useful life, amortisation |
| Ind-AS 109 / IFRS 9 | Financial Instruments | Classification, measurement, ECL impairment |
| Ind-AS 110 / IFRS 10 | Consolidated Financial Statements | Single control model |
| Ind-AS 113 / IFRS 13 | Fair Value Measurement | Three-level fair value hierarchy |
| Ind-AS 115 / IFRS 15 | Revenue from Contracts with Customers | Five-step model |
| Ind-AS 116 / IFRS 16 | Leases | All leases on balance sheet for lessee (right-of-use asset + lease liability) |
16.5.1 Five-step revenue model under Ind-AS 115
Ind-AS 115 (mirroring IFRS 15) replaces several earlier revenue standards with a single model:
TipInd-AS 115 — Five-Step Revenue Recognition Model
| Step | Action |
|---|---|
| 1 | Identify the contract with the customer |
| 2 | Identify the performance obligations in the contract |
| 3 | Determine the transaction price |
| 4 | Allocate the transaction price to the performance obligations |
| 5 | Recognise revenue when (or as) each performance obligation is satisfied |
16.5.2 Lease recognition under Ind-AS 116
Ind-AS 116 (effective FY 2019–20) ended the operating lease vs finance lease distinction for the lessee. Almost every lease now sits on the lessee’s balance sheet as a right-of-use asset and a corresponding lease liability. This brought operating-lease commitments — particularly in airlines and retail — onto the balance sheet for the first time.
16.5.3 Three-level fair-value hierarchy under Ind-AS 113
TipThree Levels of the Fair-Value Hierarchy
| Level | Input | Example |
|---|---|---|
| Level 1 | Quoted prices in active markets for identical assets | Listed equity shares |
| Level 2 | Observable inputs other than Level 1 | Interest-rate-swap valued from yield curves |
| Level 3 | Unobservable inputs | Privately held start-up; complex derivatives |
16.6 Ind-AS vs IFRS — Major Carve-outs
A carve-out is a deviation Ind-AS makes from the corresponding IFRS — usually to align with Indian law or to reduce volatility. The most-cited carve-outs:
- Ind-AS 21 — exchange differences on long-term foreign-currency monetary items can be deferred and amortised, an option not available under IAS 21.
- Ind-AS 28 / 110 — uniform accounting policies for the parent and the equity-accounted associate can be set aside in practical impossibility — a relaxation not present in IFRS.
- Ind-AS 32 / 109 — financial instruments with conversion features in foreign currency: India treats certain such instruments as equity that IFRS would treat as a liability, to suit Indian capital-market practice.
16.7 Convergence vs Adoption
TipConvergence vs Adoption
| Approach | Meaning | Example |
|---|---|---|
| Convergence | National standards are aligned with IFRS but retain local modifications | India (Ind-AS) |
| Adoption | The country adopts IFRS as issued by the IASB without modification | EU listed companies, Australia |
| Endorsement | A regional process that approves IFRS for use, with limited carve-outs | EU endorsement mechanism |
16.8 NFRA — National Financial Reporting Authority
Section 132 of the Companies Act, 2013 created the National Financial Reporting Authority, operationalised in 2018. NFRA’s three functions are:
- Recommend accounting and auditing standards to the Central Government.
- Monitor compliance with these standards.
- Oversee the audit profession for large public-interest entities (listed companies, banks, insurance companies, large unlisted entities), with power to investigate misconduct and impose penalties — a role earlier carried out solely by the ICAI Disciplinary Committee.
16.9 Exam-Pattern MCQs
Q 01
Which of the following is not a function of accounting standards?
View solution
Correct Option: B
Standards reduce but do not eliminate judgement; estimates of useful life, impairment, ECL still require professional judgement.
Q 02
Match the standard-setting body with its location and output:
| Body | Location / Output | ||
| (i) | IASB | (a) | New Delhi; recommends standards and oversees large-company auditors |
| (ii) | FASB | (b) | London; issues IFRS |
| (iii) | ICAI ASB | (c) | Connecticut; issues US GAAP |
| (iv) | NFRA | (d) | New Delhi; drafts AS and Ind-AS |
View solution
Correct Option: A
Q 03
A company has net worth of ₹600 crore as at 31 March 2016 and is unlisted. From which financial year does Ind-AS apply mandatorily?
View solution
Correct Option: B
Phase I covered listed and unlisted companies with net worth ≥ ₹500 crore from FY 2016–17.
Q 04
Match the Ind-AS with its scope:
| Standard | Scope | ||
| (i) | Ind-AS 115 | (a) | Single control model for consolidation |
| (ii) | Ind-AS 116 | (b) | Five-step revenue-recognition model |
| (iii) | Ind-AS 110 | (c) | Three-level fair-value hierarchy |
| (iv) | Ind-AS 113 | (d) | Right-of-use asset and lease liability for lessee |
View solution
Correct Option: A
Q 05
Which of the following best describes the Indian approach to IFRS?
View solution
Correct Option: B
India follows convergence — Ind-AS mirrors IFRS but retains a few carve-outs.
Q 06
Arrange the steps of the Ind-AS 115 / IFRS 15 revenue-recognition model: (i) Determine the transaction price (ii) Identify the contract (iii) Recognise revenue when each performance obligation is satisfied (iv) Allocate the transaction price to performance obligations (v) Identify the performance obligations
View solution
Correct Option: A
Contract → Performance obligations → Transaction price → Allocation → Recognition.
Q 07
Match the input level under Ind-AS 113 with its example:
| Level | Example | ||
| (i) | Level 1 | (a) | Privately held start-up valued by management |
| (ii) | Level 2 | (b) | Listed equity shares of an active stock |
| (iii) | Level 3 | (c) | Interest-rate swap valued from observable yield curves |
View solution
Correct Option: A
Q 08
Match the institution with its statutory anchor:
| Institution | Anchor | ||
| (i) | NFRA | (a) | Companies (Indian Accounting Standards) Rules, 2015 |
| (ii) | Ind-AS | (b) | Section 132 of the Companies Act, 2013 |
| (iii) | AS (Indian GAAP) | (c) | IFRS Foundation Constitution |
| (iv) | IASB | (d) | Companies (Accounting Standards) Rules, 2021 |
View solution
Correct Option: A
ImportantQuick recall
- Standards exist for comparability, reliability, transparency.
- International: IASC (1973) → IASB (2001) → IFRS. India: ICAI ASB drafts; NFRA recommends; MCA notifies.
- Three sets in India: Indian GAAP (AS), Ind-AS, IFRS.
- India’s path: convergence, not adoption — Ind-AS mirrors IFRS with carve-outs.
- Ind-AS roadmap: voluntary 2015–16; Phase I 2016–17 (NW ≥ ₹500 cr); Phase II 2017–18 (all listed; unlisted NW ≥ ₹250 cr); banks deferred; insurance pending.
- Mark these standards: Ind-AS 1, 2, 7, 16, 19, 36, 38, 109, 110, 113, 115, 116.
- Ind-AS 115 five-step model: Contract → Performance obligations → Transaction price → Allocation → Recognition.
- Ind-AS 116 brought all leases (lessee) on balance sheet — right-of-use asset + lease liability.
- Ind-AS 113 fair-value levels: Level 1 quoted, Level 2 observable, Level 3 unobservable.
- NFRA under Sec. 132 (2018-): standards + audit oversight for large entities.