Essential Differences Between IFRS and IND AS

Differences Between IFRS and IND AS

Differences Between IFRS and IND AS: nternational Financial Reporting Standards (IFRS) and Indian Accounting Standards (IND AS) are the most widely adopted accounting standards worldwide. 

The similarities and differences between these two standards can be challenging to understand. This blog will discuss the critical differences between IFRS and IND AS, the advantages and disadvantages of these standards, and the benefits and challenges of convergence between IFRS and IND AS.

On this page

• Overview
• Critical differences
• Implementation of IFRS and INDAS in India
•  AICPA IFRS certificate Program
• ACCA Diploma in IFRS program

Introduction to IFRS and IND AS

IFRS is a set of international accounting standards that are used by most countries around the world. It helps companies and organizations to report their financial performance and position accurately and consistently. IFRS are established by the International Accounting Standards Board (IASB). 

The IASB has developed a set of standards known as International Financial Reporting Standards (IFRS).

IND AS are the Indian version of IFRS. They are based on the framework of the International Financial Reporting Standards. 

The IND AS framework was developed in 2011 to bring the Indian accounting standards in line with the International Financial Reporting Standards. The Reserve Bank of India (RBI) and the Ministry of Corporate Affairs (MCA) are the two bodies responsible for implementing the IND AS. 

Critical differences between IFRS and IND AS

However, there are some critical differences between the two:

1. History

   • IFRS: Established in 2001, IFRS evolved from the International Accounting Standards (IAS), developed by the International Accounting Standards Committee (IASC) since the 1980s. It reflects decades of convergence efforts to create globally accepted accounting standards.
   • IND AS: Introduced in India in 2016, IND AS represents the convergence of Indian accounting standards with IFRS to meet global financial reporting benchmarks while catering to local regulatory and economic conditions.

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   2. Scope

   • IFRS: Widely used across 140+ countries, IFRS is a global standard for financial reporting. It is mandatory for listed companies in regions like the European Union, Asia, and Latin America.
   • IND AS: Applicable only in India, IND AS is mandatory for listed companies and large and medium-sized unlisted companies.

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   3. Issuing Body

   • IFRS: Issued by the International Accounting Standards Board (IASB), a global organization dedicated to developing international accounting standards.
   • IND AS: Issued by the Institute of Chartered Accountants of India (ICAI), under the supervision of the Ministry of Corporate Affairs.

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   4. Implementation

   • IFRS: Mandatory for listed companies in many countries worldwide, ensuring consistency in global financial reporting.
   • IND AS: Mandated in India for listed companies, as well as large and medium-sized private entities, with smaller companies still following the old Indian GAAP.

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   5. Differences in Standards

   • Joint Ventures: IND AS includes additional guidance for accounting for joint ventures, emphasizing control and significant influence.
   • Construction Contracts: IND AS provides detailed guidance on revenue recognition for long-term contracts, whereas IFRS adopts a broader revenue recognition framework under IFRS 15.
   • Financial Instruments: IND AS incorporates specific adjustments to align with Indian market practices, making its treatment of financial instruments slightly different from IFRS.

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   6. Level of Detail

   • IFRS: More principles-based, offering broad frameworks with less specific guidance. Practitioners must exercise professional judgment to apply the principles effectively.
   • IND AS: More detailed, providing specific guidance on complex transactions to reduce ambiguity, making it easier for practitioners to apply.

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   7. Ongoing Development

   • IFRS: Continuously developed by the IASB, with new standards and amendments issued regularly to reflect changes in global business practices and needs.
   • IND AS: Similarly, the ICAI updates IND AS to align with IFRS while incorporating local regulatory and market-specific requirements.

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   8. Convergence with IFRS

   IND AS is largely based on IFRS, with efforts to reduce differences between the two. While convergence is not yet complete, ICAI and IASB continue to collaborate to ensure that IND AS aligns more closely with IFRS in the future.

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   9. Tax Implications

   • IFRS: Does not address tax reporting directly, focusing solely on financial reporting standards.
   • IND AS: Provides additional guidance to address taxation differences within the Indian context, particularly under the Income Tax Act.

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   10. Disclosure Requirements

   • IFRS: Requires extensive disclosures to ensure transparency, which can sometimes be seen as burdensome for smaller entities.
   • IND AS: Balances detailed disclosures with Indian legal and regulatory requirements, reducing unnecessary complexity for entities within India.

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   11. Cultural and Economic Context

   • IFRS: Developed with a global perspective, often focusing on markets with more advanced financial ecosystems.
   • IND AS: Tailored to India’s economic and legal framework, ensuring relevance for Indian companies while maintaining global compatibility.

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   12. Practical Challenges in Adoption

   • IFRS: Companies transitioning to IFRS may face challenges in applying principles due to limited guidance, particularly for unique or complex transactions.
   • IND AS: While more detailed, transitioning from old Indian GAAP to IND AS required significant investment in training and system updates.

Examples of differences between IFRS and IND AS

Here are two examples of case studies that illustrate the differences between International Financial Reporting Standards (IFRS) and Indian Accounting Standards (IND AS):

Case study 1: Financial instruments

Company X is a listed company that prepares its financial statements per IND AS. The company holds a bond investment classified as available for sale under IND AS 109 "Financial Instruments". The bond has a fair value of INR 100 and a carrying value of INR 90. The bond's fair value decreases to INR 80 due to a decline in market interest rates.

Under IND AS 109, the company must recognize a decline in the bond's fair value in other comprehensive income (OCI) unless the decline is due to credit risk. As the decline in the bond's fair value is not due to credit risk, the company recognizes the decline in OCI.

However, under IFRS 9 "Financial Instruments", the company would be required to recognize the decline in the bond's fair value in profit or loss, as the bond has been classified as available for sale.

Also Read IFRS 9 Interview questions

Case study 2: Revenue

Company Z is a listed company that prepares its financial statements per IND AS. The company enters into a contract to provide consulting services to a customer for a fee of INR 1,000. The services are expected to be completed within one year.

Under IND AS 115 "Revenue from Contracts with Customers", the company must recognize revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer. In this case, the company recognizes revenue of INR 1,000 when the consulting services are completed.

However, under IFRS 15, "Revenue from Contracts with Customers", the company would be required to recognize revenue over time if the customer derives value from the consulting services as they are performed. The company would need to determine the appropriate method for measuring the progress of the performance obligation and allocate the fee to the periods in which the services are performed.

Also Read IFRS 15 Interview questions

Implementation of IFRS and IND AS in India

2005:

• IFRS was introduced in India to prepare consolidated financial statements for listed companies.

2011:

• Select companies required to adopt IFRS for standalone financial statements.

2015:

• IND AS was notified by the Ministry of Corporate Affairs (MCA) of all listed companies and specific entities.
• Effective for accounting periods starting April 1, 2016.

2016:

• IND AS becomes mandatory for:
  • Listed companies.
  • Unlisted companies with a net worth of ₹500 crore or more.

2018:

• Expanded scope of IND AS to include:
  • Unlisted public companies with a net worth of ₹500 crore or more.
  • Private companies with a net worth of ₹250 crore or more.

2018-2019:

• Banks: Scheduled commercial banks were slated for IND AS adoption, but the RBI deferred it indefinitely due to pending legislative changes.
• Insurance Companies: IRDAI deferred IND AS adoption due to industry preparedness concerns.

2019:

• IND AS 116 (Leases) introduced, mandating new lease accounting standards for financial periods beginning April 1, 2019.

Current Status

• IND AS is mandatory for listed companies, large unlisted public companies, and private entities meeting the net worth criteria.
• IFRS continues to guide Indian standards, with ongoing convergence efforts by the ICAI.
• Banks and insurance companies are yet to adopt IND AS pending regulatory directions.

This phased implementation reflects India’s commitment to aligning with global accounting standards while addressing local industry challenges.

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Benefits of Convergence to IFRS and IND AS

Convergence to International Financial Reporting Standards (IFRS) and Indian Accounting Standards (IND AS) can benefit companies and the financial reporting system. Some of the potential benefits of convergence to IFRS and IND AS are as follows:

1. Improved comparability: Convergence to a single set of global accounting standards can improve the comparability of financial statements across companies and countries. This can make it easier for investors, creditors, and other stakeholders to understand and compare the financial performance of different companies.
2. Increased transparency: Convergence to IFRS and IND AS can increase the transparency of financial statements, as the standards require companies to disclose more information about their financial performance and position. This can improve the quality of financial reporting and make it easier for stakeholders to assess a company's financial health.
3. Reduced compliance costs: Convergence to a single set of standards can reduce compliance costs for companies, as they only need to follow one rather than multiple standards. This can save time and resources for companies and make it easier for them to prepare their financial statements.
4. Improved investor confidence: Convergence to IFRS and IND AS can improve investor confidence in the financial reporting system, as the standards are widely recognized and respected globally. This can encourage more investment in a company and increase the credibility of the financial statements.

Challenges in Convergence to IFRS and IND AS

Convergence to International Financial Reporting Standards (IFRS) and Indian Accounting Standards (IND AS) can present several challenges for companies. Some of the potential challenges of convergence to IFRS and IND AS are as follows:

1. Cost: Converging to a new set of accounting standards can be costly for companies, as they may need to change their financial reporting systems and processes and hire additional staff or seek external advice.
2. Time: Converging to a new set of standards can be time-consuming for companies, as they may need to invest significant time and resources in understanding and to implement the new standards.
3. Complexity: Some of the IFRS and IND AS standards can be complex and may require companies to make significant judgments when preparing their financial statements. This can increase the risk of errors and may require companies to seek additional guidance or external advice.
4. Change management: Converging to a new set of standards can be a significant change for companies and may require them to adapt to new ways of working. This can be a challenge for companies and may require them to invest in change management and training to ensure a smooth transition.
5. Stakeholder resistance: Converging to a new set of standards can be disruptive for companies and may be met with resistance from some stakeholders. This can be particularly challenging for companies with many stakeholders, such as listed companies.

Summing up

In conclusion, IFRS and IND AS are the world's most widely adopted accounting standards. The two standards have several key differences, such as the scope and approach taken, the disclosure requirements, and the accounting policies—the implementation of IFRS and IND AS can be a complex and challenging process.

However, there are several benefits to convergence to IFRS and IND AS, such as promoting consistency and comparability of financial statements, reducing the cost of complying with accounting standards, and reducing the risk of misreporting financial information. 

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