Understanding the Transition to Indian Accounting Standards (IND AS) in India

The Indian Accounting Standards (IND AS) have fundamentally transformed the landscape of accounting practices in India since their introduction in 2016. While these new standards became applicable on April 1, 2016, for listed companies and certain other classes of companies, their scope has continued to expand, eventually making them mandatory for a wide array of businesses.

The Introduction of IND AS in India

Following the introduction of IND AS in India, it was initially limited to listed companies and some other categories of companies. Subsequently, in phases, the applicability was extended to other companies, promoting the adoption of more international and transparent accounting practices.

The Demise of Old Accounting Standards

With the advent of IND AS, the old accounting standards, known as Generally Accepted Accounting Principles (GAAP) in India, are gradually becoming obsolete for those entities that have transitioned to IND AS. Small and medium enterprises (SMEs) and other unorganised sector businesses that have not opted for IND AS during the transition phase are still relying on the old standards. However, these entities are expected to eventually transition to IND AS or continue adopting the GAAP voluntarily as an alternative.

While certain sectors, such as banking, insurance, and non-banking financial institutions (NBFCs), will continue to use their previous GAAP for the fiscal year 2017-18, the migration to IND AS is ongoing and expected to be complete by 2019.

Phased Implementation of IND AS

The phased implementation of IND AS in India has been meticulously planned to ensure a smooth transition. For all listed companies, the transition to IND AS by April 1, 2016, was mandatory. Smaller unlisted companies that did not opt for IND AS during the transition phase continue to use GAAP.

Companies with a net worth of Rs. 500 crores or more as of March 31, 2016, were required to adopt IND AS for the fiscal year 2016-17. Their financial statements would follow a retrospective approach, implying that adjustments would be made to previous years' financial data. This mandatory phase (Phase-1) was followed by another phase (Phase-2) in which unlisted companies with a net worth of Rs. 250 crores or more as of March 31, 2017, were compelled to change their financial reporting to IND AS.

Banking, insurance, and NBFC sectors faced a slightly different timeline. Scheduled commercial banks and insurance companies were required to adopt IND AS for the fiscal year 2018-19, while NBFCs with a net worth of Rs. 500 crores or more as of March 31, 2017, had to follow IND AS for the fiscal year 2018-19, with a retrospective applicability starting from April 1, 2017. For all other NBFCs with a net worth of Rs. 250 crores or more as of March 31, 2018, the transition to IND AS for the fiscal year 2019-20 was mandated as of April 1, 2018.

An important consideration is that, if IND AS is mandatory for a company, then its subsidiaries, associates, and joint ventures must also compulsorily convert to IND AS financial reporting, ensuring consistency throughout the corporate structure.

Conclusion

The transition from old GAAP to the new IND AS standards in India is a significant step forward in aligning accounting practices with international standards. While some businesses are still using the old standards, the trend is clearly towards IND AS adoption. As the financial year 2019-20 approaches, businesses should be prepared to fully integrate IND AS into their accounting practices.

As an SEOer, creating quality content like this ensures your website or blog is well-optimized for search, helping users easily find the information they need regarding the applicability of IND AS and the changes from old GAAP.