Difference Between IND AS and IFRS

The robust framework governing accounting and financial reporting in India ensures that financial data remains transparent, consistent and comparable. The lending regulatory environment is predominantly by the Companies Act of 2013 and standards by the Institute of Chartered Accountants of India (ICAI), which are converged with International Financial Reporting Standards (IFRS) by way of adopting Indian Accounting Standards (Ind AS). This means that the standards will now be applicable in publicly listed companies, big private companies, and some public sector projects, whereby they ensure that they are on par with the best global practices.

At times, such dual-layer accommodating standards are devoted to global requirements and local applicability so that financial statements can be recognised globally and make sense in the hands of an Indian business. Indeed, accounting rules in India are a perfect reflection of the changing economy; most of them are subject to frequent changes like emerging trends, upcoming technologies and stakeholder expectations within the nation. It is the appropriate form to sustain financial reporting and the confidence that Indians’ increasing markets raise investors.

What is IND AS?

Ind AS are the accounting standards framed by the Ministry of Corporate Affairs by virtue of the Companies Act, 2013, and are entirely based on International Financial Reporting Standards developed by the International Accounting Standards Board. The actual point of these Indian accounting standards is to bring about uniformity and transparency in India within the international frameworks of best practices.

In short, Ind AS supersedes earlier Accounting Standards (AS) from the ambit of application in some categories of businesses: publicly listed companies, large companies and certain public sector entities. Ind AS is based on principles and is towards the economic substance of the transaction as opposed to its legal form, ensuring that the numbers in the book of accounts reflect the economic condition of an organisation.

The rollout of Ind AS is being conducted in tranches. First, the columned ones are ultra-large entities, i.e., companies and banks. Then, the major unlisted entities are followed according to threshold criteria. Smaller entities may adopt Ind AS on a voluntary basis to pursue a global standard. Ind AS is one big step towards bettering the image and increasing the international competitiveness of Indian business through closing gaps between Indian and worldwide accounting practices.

The Ind AS mainly aim at:

1. Global Alignment: Ind AS makes Indian accounting practices more like International Financial Reporting Standards (IFRS) for increased comparability of financial statements at an international level so that they might increase foreign investment and global expansion for Indian companies.
2. Clarity and Consistency: Ind AS has provided principles which will help to have uniform and comparable financial reporting among various sectors and entities, promoting the understanding of stakeholders.
3. Enhanced Trust: Overall high quality and reliable financial reporting under Ind AS will give greater confidence to investors as it will make financial statements much clearer comparative and truly represent the economic condition.
4. World Competition: Ind AS allows India to be competitive in a globalised economy, thus allowing Indian businesses to operate with an edge compared to others worldwide, as it provides compliance with international financial standards.
5. Informed Decision Making: Ind AS gives financial information that helps the management, investors, and other stakeholders make educated decisions.
6. Less Accounting Divergence: Ind AS reduces the difference between Indian GAAP and IFRS. This is of concern to the multinational companies that operate in India.
7. Improving Corporate Governance: Ind AS improves the integrity and reliability of financial statements, which eventually leads to enhanced compliance with legal and ethical standards.
8. Uniform Accounting Scheme Across Various Industries: Ind AS provides a standardised way of presenting financial statements for different types of industries.

What is IFRS?

The International Accounting Standards Board is responsible for framing the International Financial Reporting Standards, which are a well accepted common framework for accounting principles and practices worldwide. IFRS prescribes the preparation and presentation of financial statements so that different jurisdictions have the same standard for measurement, transparency, and comparability.

More than 140 national jurisdictions, some of which are economies of importance, have already adopted IFRS and replaced their local accounting standards in constructing an integrated and coherent global accounting framework. This is a principle-based standards framework that focuses on the economic substance of the transaction instead of its legal form and hence ensures that the financial statements reflect the true and fair state and performances of the entity.

IFRS standards range from IFRS 1 to IFRS 17, including the old IAS that are still applicable, and incorporate interpretations of the IFRS Interpretations Committee. The application of IFRS is for a number of entities, including publicly traded companies, multinational organisations, and those wishing to invest or obtain funds beyond their local space.

Countries that adopted IFRS include the European Union, Australia, Canada, South Africa, and others; the USA still uses local standards, such as US GAAP, but accepts and allows international filers to report in IFRS. It creates a global accounting environment that establishes financial stability, reduces uncertainties in reporting and promotes economic growth, making it a relevant standard in the contemporary financial landscape.

The objectives of IFRS include:

1. The IFRS aims to standardise accounting practices globally. By adopting a single set of standards, companies operating in different jurisdictions can prepare financial statements that are comparable, thus reducing the differences in reporting.
2. IFRS increases transparency and consistency in financial reporting by requiring full disclosures and uniform treatment of related transactions. This guarantees that stakeholders such as investors and regulators can be confident of the precision of information disclosed by financial statements.
3. IFRS helps to bring uniformity, hence allowing for the comparability of financial statements across different countries. This uniformity is helpful in international corporations, investors, and analysts alike as it improves decision-making activities and promotes international investment.
4. Facilitating Global Capital Markets: The standardization of accounting language by IFRS would bring about a level playing field for businesses worldwide. This simplifies the process of companies getting international funding and also allows investors to make better judgments regarding opportunities in foreign markets.
5. Enhanced financial reporting: As IFRS places significant attention on fair-value measurement to ascertain the best-reflected conditions in current markets, higher accuracy and utility of financial statements are realized with better information access for stakeholders. It enhances the value of information conveyed to the end-users.
6. For multinational corporations, the adoption of IFRS reduces financial reporting costs as there would be no necessity to prepare different sets of financial statements with respect to diversified jurisdictions.
7. IFRS promotes economic integration because the companies of various countries can present their financial performance in a uniform manner.
8. The quality financial reporting that IFRS requires builds investor confidence due to a more clarified interpretation of a company’s performance while reducing instances of financial deception.
9. IFRS supports the ethical behaviour of companies by making them disclose their operations in a straightforward manner and showing an accurate picture of their financial circumstances.

IND AS vs IFRS

Indian accounting standards are more or less in line with the International Financial Reporting Standards (IFRS); however, India is different in some aspects related to some specific regulatory, legal and economic contexts. Still, this helps make Ind AS more relevant to Indian business practice by accepting that it does not deviate from international standards.

A holistic comparison is as follows below:

1. Background and Usage

• IFRS is derived by the IASB; it is used worldwide for a financial report in over 140 nations, mainly dealing with companies or enterprises that are listed publicly and are multinational corporations and foreign investors.
• Indian Accounting Standards, introduced by the Ministry of Corporate Affairs (MCA), is a version of IFRS that is necessitated by the needs of Indian requirements, regulatory and economic. Ind AS is relevant for listed companies, significant unlisted companies and entities that fall under certain categories within India.

2. Principles vs. Rules

• With a principle that ‘substance over form’ tends to be a problem-orientated nature for interpretive flexibility, IFRS is with a principle rather than a rule.
• Ind AS is based on principles similar to those of IFRS, although it makes use of many rules, guidances, and standards to resolve the unique legal and regulatory issues found in India.

3. Conceptual Differences

Some of the most significant conceptual differences between Ind AS and IFRS are:

• Present Value of Liabilities: With respect to IFRS, the present value accounting relates to all liabilities. This would not depend on the extent to which the discounting has to be applied. Conversely, with Ind AS, discounting is not necessary, considering that discounting has an inconsequential effect which would coincide with the nature of Indian business.
• Other comprehensive income (OCI): IFRS has some reclassification adjustments, such as the transfer of OCI to profit or loss. On the other hand, Ind AS has some limitations for recycling in specific situations, particularly with regard to gains and losses on equity instruments classified as fair value through OCI.
• Fair Value Measurement: Fair value is often applied under IFRS to both financial and non-financial assets and liabilities. Ind AS describes, with limited exceptions, agricultural commodities and financial assets that comply with Indian laws and prescribe fair value principles.

4. Legal and Regulatory Adjustments

• As far as IFRS is concerned, they do not relate to the legal stipulations made in any specific country and are accepted per se in various jurisdictions.
• Ind AS adapts its standards to conform to Indian laws, which include the Companies Act of 2013, the Income Tax Act of 1961, and also regulations by SEBI, RBI and IRDA. For example, Ind AS mentions that the dividends declared after the reporting date shall not be accounted for as a liability.

5. Implementation Timelines

• In case of IFRS, new standards are implemented around the world effective on dates designated by the IASB.
• For Ind AS, the Indian government adopts standards in phases, allowing for a gradual implementation process for companies, especially smaller and non-international businesses.

6. Currency and Functionality Differences

• IFRS requires that financial statements be prepared in functional currency.
• Procedures for conversion to the functional currency under Ind AS outline the accounting treatment of operations in India as part of India’s economy.

7. Industry-specific Overlays

• IFRS employs a uniform framework for accounting and reporting, irrespective of any change in domestic laws and includes the fair value for bearer plants and agricultural produce.
• Ind AS considers the modifications and changes, if any, due to the local regulations, and unlike IFRS, it excludes fair value for agricultural produce and bearer plants.

Conclusion

In a nutshell, although Ind AS comes from the same cloth as IFRS, it is still blended with some modifications, amendments and supplements based on India’s specific requirements imposed by its own regulatory, legal and economic landscape. The purpose of Ind AS is to generate international comparability with revelation and practicality for Indian enterprises. Two are towards transparency, consistency and reliability in financial statements but with some customised variations.

IFRS gives one single basis, the same to all the companies across the globe, while Ind AS takes shape according to India’s unique legal, regulatory, and economic characteristics. Such versions make Ind AS fairly practicable for Indian enterprises yet in step with international standards. Balancing International harmonisation and local relevance, it accommodates the entry of Indian business into the global competition from the domestic regulatory perspective. The move could be mutually reinforcing with significant contributions toward building confidence and bolstering investor confidence and economic development.

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