IND AS Applicability

TL;DR

IND AS (Indian Accounting Standards) are a set of accounting standards converged with IFRS, notified by the Indian government. Their applicability depends on a company's net worth, listing status, and industry. Understanding these thresholds is crucial for compliance and will determine which accounting framework you need to follow.

1. The Mental Model

Think of IND AS as a special club for financial reporting. Not every company is big enough or meets the criteria to join this club. You need to know the entry requirements to figure out if your company needs to use these specific, globally-aligned rules for preparing its financial statements.

2. The Core Material

IND AS refers to Indian Accounting Standards, which are largely converged with International Financial Reporting Standards (IFRS). The Ministry of Corporate Affairs (MCA) notifies these standards under Section 133 of the Companies Act, 2013. The goal is to align Indian accounting practices with global best practices, making financial statements more comparable internationally.

The applicability of IND AS is phased and depends on specific criteria related to net worth, listing status, and financial year. It's a "once IND AS, always IND AS" rule, meaning if an entity becomes subject to IND AS, it generally continues to follow them even if it later falls below the initial thresholds.

2.1 Applicability Phases

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IND AS applicability is generally divided into two broad phases for companies:

1. Phase I (Voluntary & Mandatory from FY 2016-17):

   • Voluntary Adoption: Any company can choose to adopt IND AS for accounting periods beginning on or after April 1, 2015.
   • Mandatory for Specific Companies:
     • Listed companies (and companies in the process of listing) on stock exchanges in India or outside India.
     • Unlisted companies with a net worth of ₹500 Crore or more.
     • Holding, Subsidiary, Joint Venture, or Associate companies of the above.
       (Applicable from April 1, 2016, with comparative figures for FY 2015-16).

2. Phase II (Mandatory from FY 2017-18):

   • Mandatory for Specific Companies:
     • All listed companies (and companies in the process of listing) on stock exchanges in India or outside India, not covered in Phase I.
     • Unlisted companies with a net worth of ₹250 Crore or more but less than ₹500 Crore.
     • Holding, Subsidiary, Joint Venture, or Associate companies of the above.
       (Applicable from April 1, 2017, with comparative figures for FY 2016-17).

2.2 Applicability for Banks, NBFCs, and Insurance Companies

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Specific dates apply to these sectors:

• Banks & NBFCs:
  • Scheduled Commercial Banks (excluding RRBs): Mandatory from April 1, 2018.
  • NBFCs (other than those covered below):
    • Net worth of ₹500 Crore or more: Mandatory from April 1, 2018.
    • Net worth of ₹250 Crore or more but less than ₹500 Crore: Mandatory from April 1, 2019.
    • Listed NBFCs: Mandatory irrespective of net worth, from the respective dates above.
• Insurance Companies: Mandatory from April 1, 2018.

Here's a diagram summarizing the general company applicability:

graph TD
    A["Is the Company listed or in process of listing?"] -->|Yes| B["Applicable from FY 2016-17 if net worth >= ₹500 Cr OR FY 2017-18 if net worth < ₹500 Cr"]
    A -->|No| C["Is the Company unlisted?"]
    C -->|Yes, Unlisted| D["What is the Net Worth?"]
    D -->|Net Worth >= ₹500 Cr| E["Applicable from FY 2016-17"]
    D -->|Net Worth >= ₹250 Cr but < ₹500 Cr| F["Applicable from FY 2017-18"]
    D -->|Net Worth < ₹250 Cr| G["IND AS not applicable (continue with AS)"]
    B --> H["Holdings, Subsidiaries, JVs, Associates also apply IND AS from same date"]
    E --> H
    F --> H

2.3 Key Considerations:

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• Net Worth Calculation: Net worth is determined based on the standalone financial statements as on March 31, 2014, or the first audited financial statements for accounting periods ending after that date. It excludes reserves created from revaluation of assets and actuarial gains/losses on defined benefit plans.
• Holding/Subsidiary/JV/Associate Companies: If a company's holding, subsidiary, joint venture, or associate company is required to follow IND AS, that company also has to follow IND AS from the same given date. This ensures consistency within a group.
• Once IND AS, Always IND AS: Once a company adopts IND AS (voluntarily or mandatorily), it cannot revert to previous Indian Accounting Standards (AS).
• Companies Exempt: Companies incorporated under Section 8 of the Companies Act, and those operating in sectors specifically notified by the MCA (e.g., certain government companies, specific startups for a limited period), may have different applicability or exemptions.

3. Worked Example

Let's consider a few companies nearing March 31, 2017, and determine their IND AS applicability:

• Company A: An unlisted public company. Its standalone net worth as of March 31, 2016, was ₹600 Crore.

  • Decision: Company A falls under Phase I, as its net worth is ≥ ₹500 Crore. It will mandatorily apply IND AS from the financial year beginning April 1, 2016 (i.e., FY 2016-17).

• Company B: A wholly-owned subsidiary of Company A (from the above example).

  • Decision: Even if Company B's own net worth is less than ₹250 Crore, since its holding company (Company A) is applying IND AS from FY 2016-17, Company B must also apply IND AS from the same date (FY 2016-17) due to the holding-subsidiary relationship rule.

• Company C: An unlisted private limited company. Its standalone net worth as of March 31, 2016, was ₹350 Crore.

  • Decision: Company C's net worth is between ₹250 Crore and ₹500 Crore. It falls under Phase II. It will mandatorily apply IND AS from the financial year beginning April 1, 2017 (i.e., FY 2017-18).

• Company D: A newly listed company. It completes its listing formalities on September 15, 2017. Its net worth as of March 31, 2017, was ₹150 Crore.

  • Decision: Being a listed company (or in the process of listing), it automatically enters the IND AS framework. Since its listing occurred and it wasn't covered in Phase I, it would align with Phase II applicability. It would apply IND AS from the financial year beginning April 1, 2017 (FY 2017-18).

4. Key Takeaways

• IND AS are notified by the MCA and largely converged with IFRS to enhance global comparability.
• Applicability is phased based on net worth thresholds and listing status of companies.
• Net worth for applicability is generally calculated on standalone financials and has specific exclusions.
• If a company's holding, subsidiary, JV, or associate needs to apply IND AS, that company also must.
• Once a company adopts IND AS, it must continue to follow them ("Once IND AS, Always IND AS").
• Specific applicability dates apply for Banks, NBFCs, and Insurance Companies.

Common Mistakes to Avoid:

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• Not considering the "holding/subsidiary" rule for applicability; it's a critical cascade effect.
• Using the most recent net worth figure instead of the specified cutoff date net worth for initial determination.
• Confusing IND AS with previous Indian Accounting Standards (AS) applicability thresholds.
• Overlooking the specific rules for financial institutions like banks and NBFCs.

5. Now Try It

Determine the IND AS applicability for "Global Innovations Pvt. Ltd." Assume it's an unlisted company.
Its standalone net worth as of March 31, 2014, was ₹400 Crore.
Its standalone net worth as of March 31, 2016, was ₹480 Crore.
And its standalone net worth as of March 31, 2017, was ₹550 Crore.

What success looks like: You should clearly state from which financial year (e.g., FY 2016-17 or FY 2017-18) Global Innovations Pvt. Ltd. would be required to apply IND AS, and explain your reasoning based on the thresholds.