Essential Differences Between IFRS and IND AS

International 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 had existed since 2001 and is the result of a convergence process that started in the 1980s when the International Accounting Standards Committee (IASC) was formed. IND AS was introduced in India in 2016 as part of a broader effort to converge Indian accounting standards with IFRS.
2. Scope: IFRS are global accounting standards that are used in more than 140 countries around the world. On the other hand, IND AS are Indian accounting standards only applicable in India.
3. Issuing body: IFRS are issued by the International Accounting Standards Board (IASB), while IND AS are issued by the Institute of Chartered Accountants of India (ICAI).
4. Implementation: IFRS is mandatory for listed companies in many countries worldwide, including the European Union and many countries in Asia and Latin America. IND AS is mandatory in India for listed companies and large and medium-sized companies.
5. Differences in the standards: While IFRS and IND AS are based on similar principles, there are some differences between the two standards. For example, IND AS includes additional guidance on joint ventures, construction contracts, and financial instruments, which are not covered in IFRS.
6. Ongoing development: IFRS and IND AS are subject to ongoing development and revision. The International Accounting Standards Board (IASB), responsible for developing IFRS, regularly issues new standards and amendments to existing standards. Similarly, the Institute of Chartered Accountants of India (ICAI), responsible for developing IND AS, regularly issues new standards and amendments.
7. Level of detail: IFRS tends to be more principles-based and provides less detailed guidance than IND AS. This can make it more challenging to apply IFRS in practice, as practitioners may need to use their judgment to interpret the principles and apply them to specific situations.
8. Convergence with IFRS: IND AS is based on IFRS, but there are some differences between the two standards. The ICAI has been working to converge IND AS with IFRS, and the two standards are expected to converge mainly in the future.

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

In India, the adoption of International Financial Reporting Standards (IFRS) and Indian Accounting Standards (IND AS) has been a gradual process.

IFRS was first introduced in India in 2005 to prepare consolidated financial statements of listed companies. In 2011, the Ministry of Corporate Affairs (MCA) notified certain companies to adopt IFRS for their standalone financial statements. The adoption of IFRS was gradually expanded to include more companies in subsequent years. 

In 2015, the MCA notified all listed companies and certain other companies to adopt IND AS for their financial statements for accounting periods beginning on or after April 1, 2016. IND AS is based on IFRS but includes certain modifications and adaptations to suit the specific needs of the Indian business environment.

In 2018, the MCA further expanded the adoption of IND AS to include unlisted public companies with a net worth of INR 500 crore or more and all private companies with a net worth of INR 250 crore or more.

Adopting IFRS and IND AS in India has been gradual, with the standards being introduced for different categories of companies at different times. Companies need to understand and comply with the relevant accounting standards that apply to their business.

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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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