Ind AS vs. IFRS: What Sets Indian and International Accounting Standards Apart?

At Suvit, we often find ourselves in deep discussions about the challenges businesses face when navigating accounting standards.

Recently, during one of our brainstorming sessions, the topic of Ind AS versus IFRS came up. It’s a subject that many of our clients, partners, and colleagues have questions about.

We realized that the differences between these two sets of standards can be a bit confusing, especially for those who are new to the financial world or are expanding their businesses internationally.

That’s why we decided to write this blog—to break down these differences in a way that’s easy to understand, practical, and relevant for Indian businesses.

Breaking Down Indian Accounting Standards (Ind AS): What You Need to Know

Indian Accounting Standards, or Ind AS, are a set of accounting standards developed by the Ministry of Corporate Affairs (MCA) in India. They are largely converged with IFRS, which means they’re designed to be similar but still have some India-specific modifications.

Ind AS is mandatory for certain companies in India, especially those that are listed on the stock exchange, have a large turnover, or are part of specific sectors like insurance or banking. It aims to bring Indian financial reporting closer to global standards while considering local conditions.

Getting Familiar with International Financial Reporting Standards (IFRS)

IFRS, on the other hand, is a globally recognized set of accounting standards developed by the International Accounting Standards Board (IASB). These standards are used in over 140 countries, including many European nations, Canada, and Australia.

The goal of IFRS is to ensure that financial statements are consistent, transparent, and comparable across the globe. This makes it easier for investors, regulators, and other stakeholders to understand and compare financial statements from companies in different countries.

Ind AS vs. IFRS: How Do They Really Differ?

Although Ind AS is based on IFRS, there are some significant differences between the two. Here are the most notable ones:

1. Structure and Format of Financial Statements

• Ind AS: In India, the format and structure of financial statements are slightly different. For instance, the balance sheet is called the "Statement of Financial Position." Additionally, Ind AS requires a more detailed breakdown of items on the financial statements.

• IFRS: IFRS allows more flexibility in the presentation of financial statements. The emphasis is more on the principles rather than the format, allowing companies to present their financial information in a way that best reflects their financial position.

2. Revenue Recognition

• Ind AS: Revenue recognition under Ind AS is similar to IFRS but with some differences. For example, under Ind AS 115, revenue from contracts with customers is recognized when control of the goods or services is transferred to the customer. However, there are specific guidelines related to certain industries like real estate that differ from IFRS.

• IFRS: IFRS 15, which also deals with revenue from contracts with customers, emphasizes recognizing revenue when control passes to the customer. However, IFRS has broader guidance that applies universally without the specific exceptions seen in Ind AS.

3. Treatment of Property, Plant, and Equipment (PPE)

• Ind AS: Under Ind AS 16, companies can either use the cost model or the revaluation model for valuing PPE. The revaluation model is used less frequently in India, and when it is used, it requires regular revaluations.

• IFRS: IFRS 16 also allows for both the cost and revaluation models. However, globally, companies using IFRS tend to favor the revaluation model, especially for assets that appreciate over time like real estate.

4. Financial Instruments

• Ind AS: Ind AS 109 deals with financial instruments. It’s very similar to IFRS 9 but includes additional guidance for companies in India. For example, there are more detailed rules for recognizing and measuring financial assets and liabilities.

• IFRS: IFRS 9 is the global standard for financial instruments. It provides a framework for the classification, measurement, and recognition of financial assets and liabilities. The focus is on fair value measurement.

5. Consolidation of Financial Statements

• Ind AS: Ind AS 110 requires companies to consolidate financial statements of all subsidiaries, similar to IFRS 10. However, there are some differences in how control is defined, especially concerning potential voting rights and protective rights.

• IFRS: IFRS 10 defines control more broadly, focusing on the power to control financial and operating policies. The concept of control under IFRS can lead to more entities being consolidated compared to Ind AS.

6. Leases

• Ind AS: Ind AS 116, which deals with leases, is almost identical to IFRS 16. Both standards require lessees to recognize nearly all leases on the balance sheet as assets and liabilities. However, Ind AS provides additional guidance for specific lease types common in India.

• IFRS: IFRS 16 also requires leases to be recognized on the balance sheet, significantly changing the accounting treatment of leases globally. The standard applies uniformly across different countries and industries.

Also Read: How to Account for Leases under Ind AS 116

7. Employee Benefits

• Ind AS: Ind AS 19 deals with employee benefits and is closely aligned with IFRS. However, Ind AS includes additional disclosures and guidelines tailored to Indian companies, particularly concerning gratuity and leave encashment.

• IFRS: IFRS 19 covers employee benefits comprehensively but doesn’t have the specific adaptations found in Ind AS. The focus is more on pension schemes and other long-term benefits common in Western countries.

8. Investment Property

• Ind AS: Ind AS 40 specifically deals with investment property, providing detailed guidance on how to account for such properties. Land and buildings held for capital appreciation or to generate rental income are considered investment property. Under Ind AS, these properties are initially measured at cost and subsequently measured either using the cost model or the fair value model.

• IFRS: IFRS, through IAS 40, also addresses investment property but does not have a separate standard for it. Instead, investment properties are included under the general framework for property, plant, and equipment. The key difference lies in the presentation and measurement options, where IFRS emphasizes fair value more strongly.

9. Presentation of Financial Statements

• Ind AS: Ind AS prohibits the presentation of extraordinary items in the financial statements. This means that all items of income and expense are included in the profit or loss for the period, regardless of their nature.

• IFRS: IFRS allows for the presentation of extraordinary items under certain conditions, though it’s generally discouraged. This flexibility means companies under IFRS might present their financial statements differently, potentially impacting comparability.

10. Earnings Per Share (EPS)

• Ind AS: Ind AS 33 provides specific guidelines on the calculation and presentation of Earnings Per Share (EPS). It requires companies to present both basic and diluted EPS on the face of the income statement.

• IFRS: IFRS also covers EPS under IAS 33, but there are subtle differences, especially when it comes to complex financial instruments like convertible bonds or share options. These differences can affect how EPS is calculated and presented.

11. Related Party Disclosures

• Ind AS: Ind AS 24 mandates detailed disclosures regarding related party transactions, including the identification of related parties, the nature of the relationship, and the details of transactions. It also requires disclosures of key management personnel compensation.

• IFRS: IFRS, through IAS 24, requires similar disclosures, but the level of detail and specific disclosure requirements can vary. This might lead to more or less information being presented in the financial statements.

12. Statement of Changes in Equity

• Ind AS: Ind AS requires a detailed presentation of the Statement of Changes in Equity, including the reconciliation of each component of equity, such as share capital, reserves, and retained earnings.

• IFRS: Under IFRS, the Statement of Changes in Equity is also required but might be presented with slight differences, especially in how certain items are classified or disclosed.

13. Business Combinations

• Ind AS: Ind AS 103 provides guidelines on business combinations, focusing on the acquisition method. It includes detailed instructions on the treatment of goodwill and the recognition of intangible assets.

• IFRS: IFRS 3 deals with business combinations in a similar way but has differences in how intangible assets are recognized and measured. For instance, IFRS may require more intangibles to be recognized separately from goodwill.

14. Interim Financial Reporting

• Ind AS: Ind AS 34 governs the preparation of interim financial reports. It lays out specific guidelines on how to recognize and measure items in these interim reports, ensuring consistency with annual financial statements.

• IFRS: IFRS also covers interim financial reporting under IAS 34, with similar objectives. However, the recognition and measurement principles can differ slightly, impacting how interim results are reported.

15. Government Grants

• Ind AS: Ind AS 20 provides detailed guidance on accounting for government grants and assistance. It includes specific rules on how to recognize and present these grants in financial statements, focusing on matching the grant with the related expense.

• IFRS: Under IAS 20, IFRS also addresses government grants, but the recognition criteria and presentation might differ. IFRS emphasizes the accrual method, where grants are recognized when there is reasonable assurance that the entity will comply with the conditions attached to the grant.

Why Do These Accounting Differences Even Matter?

Understanding these differences is important for Indian companies, especially those looking to attract foreign investment or expand globally. Financial statements prepared under Ind AS may not be directly comparable with those prepared under IFRS, which could impact investors’ perceptions and decisions.

Moreover, companies that operate internationally or have foreign subsidiaries may need to prepare dual financial statements—one under Ind AS and another under IFRS. This adds complexity to financial reporting and requires a deep understanding of both sets of standards.

Making the Switch: Transitioning Between Ind AS and IFRS

For companies transitioning from one standard to another, the process can be challenging. It involves not just changing how financial statements are prepared but also retraining staff, updating software, and potentially restating previous financials.

Companies that are adopting Ind AS for the first time often need to make significant adjustments to their accounting policies, especially in areas like revenue recognition, financial instruments, and consolidation. Similarly, transitioning to IFRS from Ind AS requires careful planning and execution.

Also Read: How to Withdraw a Trademark in India: A Step-by-Step Guide

Converging Standards, But with Unique Differences

While Ind AS and IFRS are converging, differences remain, driven by the unique economic, regulatory, and cultural landscape of India. For Indian companies, understanding these differences is not just a matter of compliance but also a strategic necessity.

Whether you’re an accountant, a financial analyst, or a business owner, being aware of these nuances helps you navigate the complex world of financial reporting with confidence.

It also positions your company to meet both local and global standards, ensuring transparency and comparability in your financial statements.

If you’re navigating the complexities of these standards and looking for a solution to streamline your accounting processes, why not give Suvit a try? Suvit is designed to ease the lives of Chartered Accountants (CAs) and financial professionals by automating and simplifying accounting tasks.

Experience how Suvit can transform your accounting practices. Try it for free and see how it can make your financial reporting more efficient and less stressful.