The IND AS is a new accounting standard that is intended to facilitate cross-border money flows, global listing, and improved comparability of financial statements.
The objective of this accounting standard is to enhance investor comparisons, eliminate the risk of financial misjudgment, and facilitate greater transparency and accountability in the capital market.
The new standard also aims to simplify the preparation and presentation of consolidated IND AS accounts, which is the preferred method of reporting financial data for insurance companies.
Indian Accounting Standards (Ind AS)
Under the new standard, all companies listed on public exchanges will have to prepare their financial statements using Ind-AS. This will require certain adjustments to the way they present their numbers.
Some companies may have trouble adjusting to the new format, resulting in blips in their earnings. The new rules are designed to prevent these types of blemishes and allow investors to see more accurately what the company has achieved. This is important for the financial health of any company.
The implementation of Ind AS will change how companies present their financial results. Some companies will be able to bump up their profits while knocking down their losses.
For example, if the company offers a discount or rebate to customers, it will show that as an advertising expense.
For example, the incentives and discounts that companies offer their customers will be shown as part of marketing and sales promotion expenses. Other costs will be shifted under expenses, such as excise duties.
According to MCA’s notification, the IFRS rules will be applicable to all scheduled commercial banks, excluding Regional Rural Banks, and All-India Term-leading Refinancing Institutions (ATRIs).
These companies will have to either follow the Ind-AS rules or risk facing financial penalties. The latter is more likely, because of the uncertainty that these new accounting standards may cause. While the new standards are meant to improve transparency, they aren’t a requirement.
The Ind AS will have several implications for companies. The change will result in blips in the profits of listed companies, as analysts are not yet used to this new format. As a result, it will also make it harder for firms to raise funds.
However, the new accounting standard will not impact NBFCs with lower net worths. But it will affect the way a company reports its financial information. If the changes are implemented as required, then they will affect the value of a company.
The Ind-AS will have two phases. The first phase includes NBFCs with a net worth of Rs500 crore. The second phase includes all holding companies, joint ventures, and associate companies, as well as NBFCs covered under a corporate roadmap.
In both phases, the company will have to report in Ind-AS for the period beginning 1 April 2018 and the comparative financial statements for the period ending 31st March 2018.
New Accounting Standard
The new accounting standard is mandatory for all Non-Banking Finance Companies, with a minimum net worth of Rs500 crore. The regulations also apply to NBFCs that have a net worth of Rs500 crore or more.
Ind AS will have to prepare comparative financial statements every quarter based on the new accounting standards. Ind-AS has the potential to make NBFCs more competitive. The new standard will make it easier for companies to increase profitability.
Ind-AS will only be applicable for certain categories of companies. Those that are listed on an SME exchange will be exempted from the rule. Ind-AS will not be applicable for companies with a Net worth less than Rs5 million.
For a large firm, Ind-AS will not change anything. Therefore, any company that wants to maintain a competitive advantage must adopt Ind-AS. If you’re preparing a company for an IPO, it will be a good idea to read the IPO disclosures.
Conclusion
While the Ind AS has the potential to boost profits, it will also make it difficult for companies to maintain profitability. This is because the new rules will require companies to make periodic changes to their accounting systems.
The result is that the new rules will create more blips in profits for some companies and punish others that have poorer earnings. So, while it’s important for listed companies to adopt Ind AS, there are many concerns related to the new regulations.
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