The Ministry of Corporate Affairs (MCA) has issued a notification dated 16th February, 2015 announcing the Companies (Indian Accounting Standards) Rules, 2015 for phase-wise revised roadmap for adoption and applicability of all 39 Indian Accounting Standards (Ind AS) for companies other than Banking companies, Insurance Companies and NBFCs.
Rule 4 of the Companies (Indian Accounting Standards) Rules, 2015 has specified the classes of companies which shall comply with the Ind AS in preparation of their financial statements and auditors of such companies while preparing their audit report. Financial Statements shall have same meaning as defined in clause (40) of Section 2 of the Companies Act, 2013.
The application of Ind AS is mainly based on the listing status and net worth of a company. As per the roadmap for implementation of Ind AS, all listed companies (except companies listed on SME exchanges) and companies having a net worth of ₹250 crore or more shall be required to adopt Ind AS.
Phase-I: Obligation to Comply with Ind AS from 1st April, 2016
In accordance with clause (ii) of sub- rule (1) of Rule 4 of the Companies (Indian Accounting Standards) Rules, 2015, the following companies shall comply with Ind AS w.e.f. April 2016:
(a) Companies listed/in process of listing on Stock Exchanges in India or Outside India having net worth of ₹500 crore or more;
(b) Unlisted Companies having net worth ≥ ₹500 crore;
(c) Holding (Parent), subsidiary, joint venture or associate companies of above.
Therefore, Ind AS will first apply to all companies (Listed or Unlisted) having net worth of ₹500 crore or more for the accounting periods beginning on or after 1st April, 2016. In other words, the companies meeting the above threshold for the first time as on 31st March, 2017 shall apply Ind AS for the financial year 2017-18 onwards.
Phase-II: Mandatory Compliance of Ind AS from 1st April, 2017
Clause (iii) of sub- rule (1) of Rule 4 of the Companies (Indian Accounting Standards) Rules, 2015 states that the following companies shall comply with Ind AS for the accounting periods beginning on or after 1st April, 2017:
(a) Companies listed/in process of listing on Stock Exchanges in India or Outside India having net worth of less than ₹500 crore;
(b) Unlisted companies having net worth of ≥ ₹250 crore but < ₹500 crore;
(c) Holding, Subsidiary, Associate and J.V. of Above.
Thus, from April 2017 Ind AS shall apply to all listed companies irrespective of their net whereas the unlisted companies shall be required to comply with Ind AS only if their net worth is equal to or exceeding ₹250 crore. In other words, the companies meeting the above threshold for the first time as on 31st March, 2018 shall apply Ind AS for the financial year 2018-19 onwards.
Note that the comparative information i.e. comparative figures for the preceding accounting period is required in both phase for the period ending 31st March 2016/2017 or thereafter. You should also note that the Rule do not mention the net worth criteria for holding, subsidiary, joint venture or associate companies and therefore even smaller companies in this category will be covered for the purpose of applicability of Ind AS.
Net worth of Companies for the purpose of Ind AS
The term Net Worth shall have the meaning assigned to it in clause (57) of Section 2 of the Companies Act, 2013. For the purposes of calculation of net worth of companies, the following principles shall apply, namely:-
(a) The net worth shall be calculated in accordance with
i) the stand-alone financial statements of the company as on 31st March, 2014; or
ii) the first audited financial statements for accounting period which ends after 31st March, 2014;
(b) for companies falling under any of thresholds specified in Phase I and II above for the first time after 31st March, 2014, the net worth shall be calculated on the basis of the first audited financial statements ending after that date in respect of which it meets the thresholds.
Companies not covered in the Rule for application of Ind AS
The following companies are not required to prepare their financial statements in accordance with Ind AS:
i) The Insurance Companies, Banking Companies and Non-Banking Finance Companies.
ii) Companies whose securities are listed or are in the process of being listed on SME exchange.
SME Exchange shall have the same meaning as assigned to it in Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.
iii) Overseas subsidiaries, associates, joint ventures of an Indian company is not required to prepare its stand-alone financial statements as per the Ind AS. Thus, they may prepare their standalone financial statements in accordance with its jurisdictional requirements.
However, it is apparent from the above fact that these entities will still have to report their Ind AS adjusted numbers for their Indian parent company to prepare consolidated Ind AS accounts.
Once a company starts following the Indian Accounting Standards (Ind AS) on the basis of specified criteria, it shall be required to follow the Ind AS for all the subsequent financial statements even if any of the criteria specified in this rule does not subsequently apply to it. However, the companies which are not required to follow Ind AS shall comply with the Accounting Standards (AS) as specified to the Companies (Accounting Standards) Rules, 2006.