Accounting Standards

Accounting standards fallowed In India

There are several aoccunting standards followed in India, The major standards followed  are, authored by ICAI, and US GAAP. The US GAAP  stadards  were followed by entities having Business Interests in US. However with the global convergence towards IFRS standards, India has moved from ICAI standards to Ind AS  which are authored keeping in mind the IFRS standards. As per the guide lines all the listed entities have to follow the Ind AS, where as unlisted companies can still follow the ICAI AS.

The Institute of Chartered Accountants of India (ICAI)  Accounting Standards (AS)

The Institute of Chartered Accountants of India (ICAI) has issued 35 accounting standards (AS) that provide guidance on various accounting topics. These standards are intended to ensure consistency and transparency in financial reporting in India. The following is a list of the 35 accounting standards issued by ICAI and their significance:

1. AS 1 - Disclosure of Accounting Policies: This standard sets out the principles for the disclosure of accounting policies in financial statements. It requires companies to disclose their significant accounting policies, and to follow consistent accounting policies from one period to the next.

2. AS 2 - Valuation of Inventories: This standard provides guidance on the valuation of inventories, including the methods of cost determination and the treatment of overheads. It ensures that inventories are valued correctly and consistently across different periods.

3. AS 3 - Cash Flow Statements: This standard sets out the requirements for the preparation and presentation of cash flow statements. It requires companies to present a cash flow statement that reflects the changes in cash and cash equivalents during the period.

4. AS 4 - Contingencies and Events Occurring After the Balance Sheet Date: This standard deals with the treatment of contingencies and events that occur after the balance sheet date but before the financial statements are approved for issue. It ensures that the financial statements reflect all material events that have occurred up to the date of their approval.

5. AS 5 - Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies: This standard provides guidance on the treatment of prior period items and changes in accounting policies. It ensures that changes in accounting policies are properly disclosed and that prior period items are correctly accounted for.

6. AS 6 - Depreciation Accounting: This standard provides guidance on the accounting treatment of depreciation, including the methods of depreciation and the useful lives of assets. It ensures that assets are depreciated consistently and correctly across different periods.

7. AS 7 - Construction Contracts: This standard provides guidance on the accounting treatment of revenue and costs related to construction contracts. It ensures that revenue and costs are recognized appropriately over the duration of the contract.

8. AS 8 - Accounting for Research and Development: This standard provides guidance on the accounting treatment of research and development costs. It ensures that research and development costs are recognized appropriately and that the benefits of such costs are properly accounted for.

9. AS 9 - Revenue Recognition: This standard provides guidance on the recognition of revenue from the sale of goods and the rendering of services. It ensures that revenue is recognized appropriately and consistently across different periods.

10. AS 10 - Accounting for Fixed Assets: This standard provides guidance on the accounting treatment of fixed assets, including the recognition, measurement, and depreciation of such assets. It ensures that fixed assets are accounted for consistently and correctly across different periods.

11. AS 11 - The Effects of Changes in Foreign Exchange Rates: This standard provides guidance on the accounting treatment of foreign currency transactions and the translation of financial statements of foreign operations. It ensures that foreign currency transactions are accounted for appropriately and that financial statements of foreign operations are correctly translated.

12. AS 12 - Accounting for Government Grants: This standard provides guidance on the accounting treatment of government grants. It ensures that government grants are accounted for appropriately and that the benefits of such grants are properly accounted for.

13. AS 13 - Accounting for Investments: This standard provides guidance on the accounting treatment of investments, including the recognition, measurement, and disclosure of such investments. It ensures that investments are accounted for consistently and correctly across different periods.

14. AS 14 - Accounting for Amalgamations: This standard provides guidance on the accounting treatment of amalgamations, including mergers and acquisitions. It ensures that the financial statements of the merged or acquired entity are correctly consolidated

15. AS 15 - Employee Benefits: This standard provides guidance on the accounting treatment of employee benefits, including defined benefit plans, defined contribution plans, and other post-employment benefits. It ensures that employee benefits are accounted for appropriately and that the costs of such benefits are recognized correctly.

16. AS 16 - Borrowing Costs: This standard provides guidance on the accounting treatment of borrowing costs, including the recognition, measurement, and disclosure of such costs. It ensures that borrowing costs are accounted for consistently and correctly across different periods.

17. AS 17 - Segment Reporting: This standard provides guidance on the disclosure of financial information by segments. It ensures that companies provide information about the performance of their business segments and the risks associated with each segment.

18. AS 18 - Related Party Disclosures: This standard provides guidance on the disclosure of transactions with related parties. It ensures that companies disclose their relationships with related parties and the transactions entered into with them.

19. AS 19 - Leases: This standard provides guidance on the accounting treatment of leases, including the recognition, measurement, and disclosure of lease transactions. It ensures that leases are accounted for consistently and correctly across different periods.

20. AS 20 - Earnings per Share: This standard provides guidance on the calculation and disclosure of earnings per share. It ensures that companies calculate earnings per share consistently and correctly and provide appropriate disclosures.

21. AS 21 - Consolidated Financial Statements: This standard provides guidance on the preparation and presentation of consolidated financial statements. It ensures that the financial statements of subsidiary companies are correctly consolidated into the financial statements of the parent company.

22. AS 22 - Accounting for Taxes on Income: This standard provides guidance on the accounting treatment of taxes on income. It ensures that taxes on income are accounted for appropriately and that the tax effects of transactions are correctly recognized.

23. AS 23 - Accounting for Investments in Associates in Consolidated Financial Statements: This standard provides guidance on the accounting treatment of investments in associates in consolidated financial statements. It ensures that the financial statements of associates are correctly consolidated into the financial statements of the parent company.

24. AS 24 - Discontinuing Operations: This standard provides guidance on the accounting treatment of discontinuing operations. It ensures that the costs and revenues associated with discontinuing operations are correctly recognized and that appropriate disclosures are made.

25. AS 25 - Interim Financial Reporting: This standard provides guidance on the preparation and presentation of interim financial statements. It ensures that companies provide timely and relevant information to stakeholders about their financial performance.

26. AS 26 - Intangible Assets: This standard provides guidance on the accounting treatment of intangible assets, including the recognition, measurement, and disclosure of such assets. It ensures that intangible assets are accounted for consistently and correctly across different periods.

27. AS 27 - Financial Reporting of Interests in Joint Ventures: This standard provides guidance on the accounting treatment of interests in joint ventures. It ensures that the financial statements of joint ventures are correctly accounted for and disclosed.

28. AS 28 - Impairment of Assets: This standard provides guidance on the accounting treatment of impairment of assets, including the recognition, measurement, and disclosure of impairment losses. It ensures that assets are assessed for impairment correctly and that impairment losses are recognized appropriately.

29. AS 29 - Provisions, Contingent Liabilities, and Contingent Assets: This standard provides guidance on the accounting treatment of provisions, contingent liabilities, and contingent assets. It ensures that provisions and contingent liabilities are accounted for appropriately and that contingent assets are disclosed correctly.

30. AS 30 - Financial Instruments: Recognition and Measurement: This standard provides guidance on the accounting treatment of financial instruments, including the recognition, measurement, and disclosure of such instruments. It ensures that financial instruments are accounted for consistently and correctly across different periods.

31. AS 31 - Financial Instruments: Presentation: This standard provides guidance on the presentation of financial instruments in financial statements. It ensures that companies present financial instruments correctly and that relevant disclosures are made.

32. AS 32 - Financial Instruments: Disclosures: This standard provides guidance on the disclosure of information related to financial instruments. It ensures that companies disclose relevant information about their financial instruments to stakeholders.

33. AS 33 - Earnings per Share: This standard provides guidance on the calculation and disclosure of earnings per share for companies listed on a stock exchange. It ensures that listed companies calculate earnings per share consistently and correctly and provide appropriate disclosures.

34. AS 34 - Interim Financial Reporting: This standard provides guidance on the preparation and presentation of interim financial statements for companies listed on a stock exchange. It ensures that listed companies provide timely and relevant information to stakeholders about their financial performance.

35. AS 35 - Discontinuing Operations: This standard provides guidance on the accounting treatment of discontinuing operations for companies listed on a stock exchange. It ensures that the costs and revenues associated with discontinuing operations are correctly recognized and that appropriate disclosures are made.

Overall, the ICAI accounting standards provide guidance on various aspects of accounting and financial reporting to ensure that financial statements are prepared in a consistent and transparent manner. These standards are important for companies to follow as they help to ensure that financial statements are reliable, comparable, and useful to stakeholders in making informed decisions. Compliance with these standards also helps companies to maintain credibility and gain the trust of investors, lenders, and other stakeholders.

 Indian Accounting Standards (Ind AS)

Indian Accounting Standards (Ind AS) are a set of accounting standards and principles that have been converged with the International Financial Reporting Standards (IFRS) to improve financial reporting and provide greater transparency and comparability of financial statements across different jurisdictions. The Ind AS have been designed to bring about uniformity and consistency in financial reporting and to ensure that companies provide more relevant and reliable information to investors, lenders, and other stakeholders.

The implementation of Ind AS in India has been undertaken in a phased manner. In 2016, the Ministry of Corporate Affairs (MCA) notified that certain classes of companies would be required to adopt Ind AS for their financial reporting from April 1, 2016, onwards. These included companies listed on stock exchanges in India, companies with a net worth of INR 500 crores or more, and holding, subsidiary, joint venture or associate companies of such companies. Subsequently, the implementation of Ind AS has been extended to cover more companies in a phased manner.

The road map for implementation of Ind AS in India is as follows:

• Phase I: This phase began on April 1, 2016, and covered companies listed on stock exchanges in India, companies with a net worth of INR 500 crores or more, and holding, subsidiary, joint venture or associate companies of such companies.

• Phase II: This phase began on April 1, 2017, and covered companies with a net worth between INR 250 crores and INR 500 crores.

• Phase III: This phase began on April 1, 2018, and covered companies with a net worth between INR 100 crores and INR 250 crores.

• Phase IV: This phase began on April 1, 2019, and covered companies with a net worth less than INR 100 crores.

The implementation of Ind AS has been a significant development in the Indian accounting landscape and has brought about several changes in financial reporting requirements. It has led to increased transparency and comparability of financial statements, which has helped investors and other stakeholders make more informed decisions. Overall, the adoption of Ind AS is expected to improve the quality of financial reporting in India and bring it closer to global standards.  MCA announces every year the applicability of IAS Standards. Latest applicable standards can be accessed from MCA site

There are 39 Indian Accounting Standards (Ind AS) that have been issued by the Institute of Chartered Accountants of India (ICAI). These standards are based on the International Financial Reporting Standards (IFRS) and are designed to bring greater transparency, consistency, and comparability in financial reporting by companies in India.

The significance of Ind AS can be summarized as follows:

1. Global integration: The adoption of Ind AS brings India in line with global accounting practices and facilitates the integration of Indian businesses with the global economy. This enhances the ability of Indian companies to access global capital markets, improves their competitiveness, and attracts foreign investment.

2. Improved financial reporting: Ind AS provides a more robust and transparent framework for financial reporting, which helps companies provide more reliable and accurate financial information to stakeholders. This, in turn, enhances investor confidence, protects the interests of shareholders, and improves the quality of decision-making.

3. Greater comparability: Ind AS promotes the use of a common set of accounting standards, which makes it easier to compare financial information across companies and sectors. This enhances transparency, reduces information asymmetry, and helps investors and other stakeholders to make better-informed decisions.

4. Improved corporate governance: Ind AS improves corporate governance by requiring companies to adopt better accounting practices, which enhances the accuracy and completeness of financial information. This, in turn, promotes accountability, transparency, and ethical behavior, which are essential for sustainable business practices.

5. Better risk management: Ind AS promotes better risk management by requiring companies to report financial information that reflects the true financial position and performance of the company. This enables companies to identify potential risks and take corrective action in a timely manner.

Overall, the adoption of Ind AS represents a significant step towards bringing Indian accounting standards in line with global best practices. This will enhance transparency, comparability, and reliability of financial reporting by Indian companies, which will improve investor confidence and strengthen the Indian economy.

Here is a brief overview of the 39 Indian Accounting Standards (Ind AS) and their significance:

1. Ind AS 101 - First-time adoption of Ind AS: Provides guidance on the transition to Ind AS from previous accounting standards.

2. Ind AS 102 - Share-based payments: Provides guidance on accounting for share-based payments.

3. Ind AS 103 - Business combinations: Provides guidance on accounting for business combinations.

4. Ind AS 104 - Insurance contracts: Provides guidance on accounting for insurance contracts.

5. Ind AS 105 - Non-current assets held for sale and discontinued operations: Provides guidance on accounting for non-current assets held for sale and discontinued operations.

6. Ind AS 106 - Exploration for and evaluation of mineral resources: Provides guidance on accounting for exploration and evaluation activities in the extractive industries.

7. Ind AS 107 - Financial instruments: Disclosures: Provides guidance on disclosures related to financial instruments.

8. Ind AS 108 - Operating segments: Provides guidance on reporting operating segments in financial statements.

9. Ind AS 109 - Financial instruments: Provides guidance on accounting for financial instruments.

10. Ind AS 110 - Consolidated financial statements: Provides guidance on the preparation of consolidated financial statements.

11. Ind AS 111 - Joint arrangements: Provides guidance on accounting for joint arrangements.

12. Ind AS 112 - Disclosure of interests in other entities: Provides guidance on disclosure of interests in subsidiaries, joint ventures, associates, and unconsolidated structured entities.

13. Ind AS 113 - Fair value measurement: Provides guidance on measuring fair value for financial assets and liabilities.

14. Ind AS 114 - Regulatory deferral accounts: Provides guidance on accounting for regulatory deferral accounts.

15. Ind AS 115 - Revenue from contracts with customers: Provides guidance on accounting for revenue from contracts with customers.

16. Ind AS 116 - Leases: Provides guidance on accounting for leases.

17. Ind AS 1 - Presentation of financial statements: Provides guidance on the presentation of financial statements.

18. Ind AS 2 - Inventories: Provides guidance on accounting for inventories.

19. Ind AS 7 - Statement of cash flows: Provides guidance on preparing a statement of cash flows.

20. Ind AS 8 - Accounting policies, changes in accounting estimates and errors: Provides guidance on selecting and applying accounting policies and accounting for changes in accounting policies and errors.

21. Ind AS 10 - Events after the reporting period: Provides guidance on accounting for events after the reporting period.

22. Ind AS 12 - Income taxes: Provides guidance on accounting for income taxes.

23. Ind AS 16 - Property, plant and equipment: Provides guidance on accounting for property, plant, and equipment.

24. Ind AS 17 - Leases: Provides guidance on accounting for leases.

25. Ind AS 19 - Employee benefits: Provides guidance on accounting for employee benefits.

26. Ind AS 20 - Accounting for government grants and disclosure of government assistance: Provides guidance on accounting for government grants and disclosure of government assistance.

27. Ind AS 21 - The effects of changes in foreign exchange rates: Provides guidance on accounting for foreign currency transactions and translations.

28. Ind AS 23 - Borrowing costs: Provides guidance on accounting for borrowing costs.

29. Ind AS 24 - Related party disclosures: Provides guidance on disclosure of related party relationships and transactions.

30. Ind AS 27 - Separate financial statements: Provides guidance on preparation of separate financial statements.

31. Ind AS 28 - Investments in associates and joint ventures: Provides guidance on accounting for investments in associates and joint ventures.

32. Ind AS 32 to 39 cover a wide range of topics related to financial reporting and accounting for specific types of transactions, assets, and liabilities.

33. Ind AS 32 provides guidance on the presentation of financial instruments, including how to classify financial instruments as debt, equity, or a combination of both.

34. Ind AS 33 provides guidance on the calculation and presentation of earnings per share, which is an important financial metric used by investors to evaluate the performance of a company.

35. Ind AS 34 provides guidance on preparation of interim financial reports, which are important for stakeholders to stay up-to-date with a company's financial performance.

36. Ind AS 36 provides guidance on accounting for impairment of assets, which is important to ensure that assets are not overstated on the balance sheet and to accurately reflect their true value.

37. Ind AS 37 provides guidance on accounting for provisions, contingent liabilities, and contingent assets, which are important for companies to properly account for potential future obligations or benefits.

38. Ind AS 38 provides guidance on accounting for intangible assets, which are increasingly important in the modern economy where companies may have significant investments in things like patents, trademarks, and goodwill.

39. Ind AS 39: Financial Instruments - Recognition and Measurement - This standard provides guidance on the recognition, measurement, and derecognition of financial assets, financial liabilities, and derivatives. It lays down the principles for the classification of financial instruments based on their nature and the entity's business model for managing them. The significance of Ind AS 39 lies in providing clear guidance on accounting treatment for complex financial instruments, helping companies to report their financial instruments at fair value, and providing investors with more accurate information about an entity's financial performance.

40. Ind AS 40: Investment Property - This standard applies to entities that own or lease investment property. It provides guidance on the recognition, measurement, presentation, and disclosure of investment property. The significance of Ind AS 40 lies in providing clear guidance on the accounting treatment for investment properties, helping companies to report their investment properties at fair value, and providing investors with more accurate information about an entity's financial performance.

41. Ind AS 41: Agriculture - This standard provides guidance on the accounting treatment for biological assets (living plants and animals) and agricultural produce (harvested produce from biological assets). It lays down the principles for the measurement of biological assets and agricultural produce and the recognition of agricultural produce as an asset when harvested. The significance of Ind AS 41 lies in providing clear guidance on the accounting treatment for agriculture-related activities, helping companies to accurately measure and report their biological assets and agricultural produce, and providing investors with more accurate information about an entity's financial performance.

The Indian Accounting Standards (Ind AS) are a set of accounting standards issued by the Institute of Chartered Accountants of India (ICAI) in accordance with the Companies Act, 2013. Ind AS is based on the International Financial Reporting Standards (IFRS) and is designed to bring greater transparency, consistency, and comparability in financial reporting by companies in India.

The significance of Ind AS:

1.     Global integration: The adoption of Ind AS brings India in line with global accounting practices and facilitates the integration of Indian businesses with the global economy. This enhances the ability of Indian companies to access global capital markets, improves their competitiveness, and attracts foreign investment.

2.     Improved financial reporting: Ind AS provides a more robust and transparent framework for financial reporting, which helps companies provide more reliable and accurate financial information to stakeholders. This, in turn, enhances investor confidence, protects the interests of shareholders, and improves the quality of decision-making.

3.     Greater comparability: Ind AS promotes the use of a common set of accounting standards, which makes it easier to compare financial information across companies and sectors. This enhances transparency, reduces information asymmetry, and helps investors and other stakeholders to make better-informed decisions.

4.     Improved corporate governance: Ind AS improves corporate governance by requiring companies to adopt better accounting practices, which enhances the accuracy and completeness of financial information. This, in turn, promotes accountability, transparency, and ethical behaviour, which are essential for sustainable business practices.

5.     Better risk management: Ind AS promotes better risk management by requiring companies to report financial information that reflects the true financial position and performance of the company. This enables companies to identify potential risks and take corrective action in a timely manner.

Overall, the adoption of Ind AS represents a significant step towards bringing Indian accounting standards in line with global best practices. This will enhance transparency, comparability, and reliability of financial reporting by Indian companies, which will improve investor confidence and strengthen the Indian economy.

 US GAAP

US GAAP stands for United States Generally Accepted Accounting Principles. It is a set of accounting principles, standards, and procedures that companies in the United States follow for their financial reporting. The Securities and Exchange Commission (SEC) requires publicly traded companies in the United States to follow US GAAP guidelines in preparing their financial statements. Private companies and non-US companies may also choose to follow US GAAP voluntarily for their financial reporting.

US GAAP provides a uniform and standardized approach to financial reporting, which ensures consistency and comparability of financial statements across different companies and industries. It helps investors and other stakeholders to understand and compare the financial performance and position of companies. US GAAP guidelines cover a wide range of accounting topics such as revenue recognition, inventory valuation, depreciation, impairment, and financial statement presentation.

US GAAP is important because it provides a common language for financial reporting that is widely accepted and understood in the United States. It helps to ensure that companies provide reliable and accurate financial information to investors and other stakeholders, which is critical for making informed investment and credit decisions. US GAAP also helps to maintain the integrity and transparency of financial reporting, which is essential for the functioning of capital markets.

In addition, US GAAP is recognized as one of the most rigorous and comprehensive accounting standards in the world. Companies that follow US GAAP are viewed as having high-quality financial reporting practices and are often perceived as being more trustworthy and reliable. This can help companies to attract investors, raise capital, and build credibility with stakeholders.

Overall, US GAAP accounting is important because it provides a standardized and reliable approach to financial reporting that is widely accepted and recognized in the United States. It helps to ensure that companies provide transparent and accurate financial information, which is essential for making informed investment and credit decisions.

IFRS and US GAAP

IFRS (International Financial Reporting Standards) and US GAAP (United States Generally Accepted Accounting Principles) are two sets of accounting standards used for financial reporting. While there are many similarities between the two, there are also some key differences.

1.     Applicability: IFRS is used in many countries around the world, while US GAAP is used only in the United States.

2.     Rule-based vs. principle-based: US GAAP is considered to be more rule-based, with detailed rules and guidelines for different accounting transactions. IFRS, on the other hand, is more principle-based, with general principles that companies must follow and apply to their specific circumstances.

3.     Approach to revenue recognition: IFRS and US GAAP have different approaches to revenue recognition. Under IFRS, revenue is recognized when it is earned, while under US GAAP, revenue is recognized when it is realized or realizable and earned.

4.     Inventory costing: IFRS allows companies to use either the first-in, first-out (FIFO) or weighted average cost methods for inventory costing, while US GAAP requires companies to use the FIFO or specific identification method.

5.     Financial statement presentation: IFRS and US GAAP have different requirements for the presentation of financial statements. For example, IFRS requires companies to present a statement of comprehensive income, while US GAAP allows companies to present either a single statement of comprehensive income or two separate statements for net income and other comprehensive income.

6.     Tax reporting: IFRS does not address tax reporting, while US GAAP has specific guidelines for the recognition and measurement of income taxes.

7.     Leases: IFRS and US GAAP have different requirements for the recognition and measurement of lease transactions.

Overall, the key difference between IFRS and US GAAP is the approach to accounting. IFRS is principle-based, while US GAAP is more rule-based. Companies that operate in multiple jurisdictions or have global ambitions may need to understand and apply both sets of standards to ensure compliance with local laws and regulations.

Do the Financial world moving towards IFRS adoption

Yes, the financial world is moving towards IFRS adoption. IFRS (International Financial Reporting Standards) is becoming increasingly popular among companies around the world as a global financial reporting language. The IFRS Foundation, the organization responsible for setting and promoting IFRS standards, reports that over 120 countries currently require or permit the use of IFRS for financial reporting. Some of the largest capital markets in the world, including Europe, Canada, and Australia, have already adopted IFRS as their primary accounting standards.

There are several reasons why the financial world is moving towards IFRS adoption. First, the global economy has become increasingly interconnected, and many companies now operate across multiple jurisdictions. A common set of accounting standards makes it easier for these companies to prepare financial statements that are comparable and understandable across different markets.

Second, IFRS is viewed as a more principles-based accounting system than other accounting standards, such as US GAAP. This approach provides companies with more flexibility in how they apply the standards to their specific circumstances. This is especially important for companies operating in rapidly changing industries, where traditional accounting rules may not always apply.

Third, IFRS is believed to be more transparent and consistent in financial reporting, which helps to build investor confidence and promotes investment. The adoption of IFRS standards can also reduce the cost of capital for companies by increasing transparency and providing a common language for financial reporting.

Overall, the adoption of IFRS by the financial world is a response to the need for a common set of accounting standards that can be used across different jurisdictions. As more countries adopt IFRS, it is likely to become the dominant global accounting standard, which will help to create more transparency, comparability, and consistency in financial reporting.