The Reserve Bank of India (RBI) has again postponed the application of the Indian Accounting Standards (Ind AS) by financial institutions. This decision comes as result of ongoing legislative amendments that are yet to be finalized. The process to shift towards Ind AS began in 2006 and was initiated by the Institute of Chartered Accountants of India (ICAI), with the larger aim of enhancing the acceptability and clarity of financial statements of Indian corporates on a global level.
Origins and Purpose of Ind AS
The reason for the introduction of the Ind AS was to align India’s financial reporting standards with the globally accepted International Financial Reporting Standards (IFRS). To make this changeover successful, the Accounting Standards Board (ASB) of the ICAI developed the Ind AS according to the guidelines of the IFRS. In 2015, the Ministry of Corporate Affairs (MCA) released the Companies (Indian Accounting Standard) Rules 2015, highlighting the applicability and adoption of Ind AS.
Initial Implementation Plan Deferred
According to the initial plan proposed by the MCA, the Ind AS were to be implemented for banks, insurance companies, and Non-Banking Financial Companies (NBFCs) from April 1, 2018. However, RBI deferred the implementation of Ind AS for banks by one year in April 2018. On March 22, 2019, RBI once again postponed the enforcement of Ind AS by banks until further notice.
Reason for Deferral
The justification given for the delay in the application of Ind AS is that certain legislative changes to the Third Schedule to the Banking Regulation Act 1949 are currently under review by the government. It is anticipated that these alterations will aid in adapting the current format of financial statements to meet the requirements of Ind AS.
What are Indian Accounting Standards (Ind AS)?
Indian Accounting Standards (Ind AS) are a set of accounting standards that regulate the recording and reporting of financial transactions. They also dictate how financial statements such as profit and loss account and balance sheet should be presented by a company.
The standards were framed by the Accounting Standards Board (ASB), formed in 1977. The ASB is a committee under ICAI and comprises representatives from government departments, academic institutions, other professional bodies like ICAI, and representative members from ASSOCHAM, CII, FICCI, among others. The Ind AS are named and numbered similarly to the International Financial Reporting Standards (IFRS).
About International Financial Reporting Standards (IFRS)
International Financial Reporting Standards (IFRS) are accounting guidelines issued by the International Accounting Standards Board (IASB). The IFRS aims to establish a common accounting language to enhance transparency in the presentation of financial information. The IASB, an independent body formed in 2001, succeeded the International Accounting Standards Committee (IASC), which was initially tasked with establishing international accounting standards. The IASB is based in London.
Some Facts about Ind AS and IFRS
| Fact | Details |
|---|---|
| Initiation of Ind AS | 2006 |
| Initial planned implementation | April 1, 2018 |
| Current status of implementation | Deferred until further notice |
| Formation of IASB | 2001 |
Final Thoughts
The implementation of Ind AS is a major step towards global alignment of Indian financial reporting. The deferral by RBI is temporary and meant to allow time for necessary legislative adjustments. The Ind AS, when implemented, is expected to significantly improve the transparency and acceptability of financial statements of Indian corporates internationally.