Which companies must follow Ind AS?

What are Indian Accounting Standards?

Indian Accounting Standards, or Ind AS, are the accounting standards notified under section 133 of the Companies Act, 2013 and specified in the annexure to the Companies (Indian Accounting Standards) Rules, 2015. Rule 3 makes those standards the accounting standards for the classes of companies in rule 4. They are the IFRS-converged standards. A company outside rule 4 does not apply this annexure.

The standards themselves sit in the annexure, standard by standard. Ind AS 101 is the first-time adoption standard. A company that is applying Ind AS for the first time follows that standard for the opening balance sheet and the comparatives. The text of each standard is on the Ind AS reader.

Which companies must follow Ind AS?

Rule 4(1) splits mandatory adoption into two company phases, then a later NBFC phase. Voluntary adoption has been open since accounting periods beginning on or after 1 April 2015, under clause (i), for a company and its holding company, subsidiary, joint venture or associate.

Each phase also pulls in the holding company, subsidiary, joint venture or associate of a covered company. A small subsidiary does not stay off Ind AS because its own net worth is under ₹250 crore, if its parent is covered. Comparatives are required for the preceding period: 31 March 2016 for the first phase, 31 March 2017 for the second.

Who is outside the mandatory list?

The proviso to rule 4(1) leaves out a company whose securities are listed, or are in the process of being listed, on an SME exchange as referred to in Chapter XB of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, or on the institutional trading platform without an initial public offering under Chapter XC of those regulations. Clause (i), the voluntary clause, still applies to that company. The rule still cites the 2009 regulations for that carve-out. Read the proviso before you treat an SME listing as a main-board listing.

How is Ind AS net worth worked out?

Rule 2(1)(f) gives net worth the meaning in section 2(57). That is the aggregate of paid-up share capital and all reserves created out of profits and the securities premium account, and the debit or credit balance of the profit and loss account, after deducting accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet. Reserves created out of revaluation of assets, write-back of depreciation and amalgamation are left out.

For companies in clauses (i) to (iii), rule 4(2) calculates that figure from the standalone financial statements as on 31 March 2014, or the first audited financial statements for a period ending after that date. A company that did not exist on 31 March 2014, or that crosses a threshold for the first time after that date, uses the first audited statements ending after that date in which it meets the threshold.

When do NBFCs follow Ind AS?

NBFCs are not in the 2016 and 2017 company phases. Rule 4(1)(iv), inserted by G.S.R. 365(E) dated 30 March 2016, gives them a later roadmap. An NBFC with net worth of ₹500 crore or more applies Ind AS for accounting periods beginning on or after 1 April 2018, with comparatives for the period ending 31 March 2018. So does its holding company, subsidiary, joint venture or associate, if not already covered by the company phases.

The next NBFC step is 1 April 2019. It covers an NBFC whose equity or debt securities are listed, or are in the process of listing, and whose net worth is below ₹500 crore. It also covers an unlisted NBFC with net worth of ₹250 crore or more but below ₹500 crore, and the holding company, subsidiary, joint venture or associate of either, if not already covered. NBFC net worth under rule 4(2A) is taken from standalone statements as on 31 March 2016, or the first audited statements after that date. A first crossing at a year end means Ind AS from the immediate next accounting year. The rule's illustration says a first crossing on 31 March 2019 meant Ind AS for 2019-20.

What about a bank's subsidiary?

Rule 4(1)(v) is a separate sentence. The holding company, subsidiary, joint venture or associate of a scheduled commercial bank, excluding a regional rural bank, prepares Ind AS financial statements for accounting periods beginning on or after 1 April 2018, with comparatives for the period ending 31 March 2018. That clause does not put the bank itself on the company list or the NBFC list.

Can a company leave Ind AS later?

No. Rule 4(9) says that once a company starts following Ind AS on the criteria in rule 4(1), it follows Ind AS for every later set of financial statements even if a criterion stops applying. A drop in net worth does not switch the company back.

Voluntary adoption is the same in one direction. Rule 4(7) says a company that opts in prepares its financial statements under Ind AS consistently. Rule 4(8) says that opt-in is irrevocable. The company does not keep a second set under the accounting standards that apply to companies outside rule 4.

Rule 4(3) also says the annexure standards, once required, apply to both standalone and consolidated financial statements. Rule 4(5) lets an overseas subsidiary, associate or joint venture keep local standalone statements. The Indian parent that meets rule 4(1) still consolidates under Ind AS. Rule 4(6) puts an Indian subsidiary of a foreign company on Ind AS if that Indian company itself meets rule 4(1).

What applies if Ind AS does not?

A company that is outside rule 4, and has not opted in, follows the accounting standards specified in the Companies (Accounting Standards) Rules, 2021. Rule 4 of those rules is the obligation. Those are the standards for the companies Ind AS does not cover. They are not a lighter version of Ind AS.

Section 129 still requires the financial statements to give a true and fair view and to comply with the accounting standards notified under section 133. Which set that is, Ind AS or the 2021 standards, is a rule 4 question, not a presentation question. A change to the roadmap shows up as an MCA notification. Track it on the MCA updates feed before you treat a net-worth printout from an old phase as the current test.