Understanding the Key Differences Between Ind AS and IFRS for Indian Businesses

In today’s interconnected global economy, standardized accounting is the bedrock of financial transparency and trust. Clear, comparable financial statements build investor confidence, streamline cross-border transactions, and foster business growth. For any Indian enterprise with global ambitions, understanding the language of international finance is non-negotiable. This brings us to two critical sets of standards: IFRS and Ind AS. This blog will demystify the key differences between Ind AS and IFRS, providing a clear roadmap for business owners, investors, and accountants. While Indian Accounting Standards (Ind AS) are designed to be in harmony with International Financial Reporting Standards (IFRS), certain crucial distinctions exist. A solid grasp of these nuances is essential for accurate financial reporting and compliance in India, making understanding Ind AS and IFRS differences a practical necessity.

What are IFRS and Ind AS? A Quick Overview

Before diving into the specifics, it’s important to understand what these two acronyms represent and the roles they play in the financial world. They are the rulebooks that dictate how companies prepare and present their financial statements.

IFRS: The Global Accounting Language

IFRS, which stands for International Financial Reporting Standards, is a single set of high-quality, globally accepted accounting standards. Developed and maintained by the London-based International Accounting Standards Board (IASB), their primary goal is to create a common language for business finance. This uniformity ensures that a company’s accounts are understandable and, more importantly, comparable across international boundaries. When a business in India and another in Germany both report using IFRS, an investor can more easily assess and compare their performance. With adoption in over 140 countries, IFRS is truly the benchmark for financial reporting worldwide.

Ind AS: India’s Answer to Global Standards

Ind AS, or Indian Accounting Standards, are India’s own set of accounting principles converged with IFRS. They are issued by the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) and are notified by the Ministry of Corporate Affairs (MCA). India chose not to adopt IFRS verbatim but to converge its standards with them. This strategic decision was made to align Indian financial reporting with global best practices while simultaneously addressing unique economic conditions, legal frameworks, and business environments specific to the country. These modifications, known as “carve-outs” or “carve-ins,” are the primary source of the differences between Ind AS and IFRS India.

A Detailed Comparison: Ind AS vs IFRS Key Differences

While Ind AS is over 95% the same as IFRS, the remaining differences, or carve-outs, are significant and can have a material impact on financial statements. For anyone involved in financial reporting in India, understanding these distinctions is vital. This section breaks down the most significant Ind AS vs IFRS key differences to provide clarity on where the standards diverge. Here are the key differences between Ind AS and IFRS that you need to know.

1. Presentation of the Balance Sheet (Statement of Financial Position)

One of the most immediate visual differences lies in the structure of the Balance Sheet.

• IFRS: Offers flexibility. Companies reporting under IFRS can choose how to present their assets and liabilities. They can list them in order of liquidity (from most liquid to least liquid) or follow a current/non-current classification, depending on what provides the most relevant and reliable information for their users.
• Ind AS: Is prescriptive and rigid. Ind AS mandates a specific format for the Balance Sheet as laid out in Schedule III of the Companies Act, 2013. This format requires a strict classification of items into ‘Non-Current’ and ‘Current’ for both assets and liabilities.

Impact: This requirement makes Indian balance sheets highly uniform and easily comparable across different companies within the country. However, it removes the flexibility that IFRS provides, which might be more suitable for certain industries globally.

2. Treatment of Investment Property

This is a major point of divergence, particularly for companies in the real estate and investment sectors.

• IFRS (IAS 40): Allows entities a choice of accounting policy for their investment properties (property held to earn rentals or for capital appreciation). They can use either the ‘cost model’ (carrying the property at its historical cost less accumulated depreciation and impairment losses) or the ‘fair value model’ (revaluing the property to its current market value at each reporting date, with changes in fair value recognized in the profit and loss account).
• Ind AS (Ind AS 40): Only permits the ‘cost model’. The fair value model is explicitly disallowed for accounting for investment properties. Companies must carry these assets at cost and depreciate them over their useful life.

Impact: This carve-out can lead to a significant difference in the reported value of assets and the net income of a company. An Indian real estate company’s balance sheet might show properties at a much lower value compared to an identical international peer that uses the fair value model under IFRS.

3. Accounting for Government Grants

How companies account for financial assistance received from the government also differs.

• IFRS (IAS 20): Provides two options for presenting grants related to assets. The company can either set up the grant as deferred income and recognize it in the profit or loss over the asset’s useful life, or it can deduct the grant from the carrying amount of the asset, which results in a lower depreciation charge.
• Ind AS (Ind AS 20): While largely similar to IFRS, Ind AS contains specific guidance for a scenario common in India. If a grant is in the nature of a promoter’s contribution (i.e., given to help the business set up in a specific area), it must be credited directly to the capital reserve and is not recognized in profit or loss. This is a carve-out designed to reflect the substance of such transactions in the Indian context.

4. Revenue from Contracts with Customers

The standards for recognizing revenue are now largely harmonized, but historical differences are worth noting.

• IFRS (IFRS 15): Provides a single, comprehensive five-step framework for recognizing revenue from contracts with customers, which has been adopted globally.
• Ind AS (Ind AS 115): Is converged with IFRS 15. The principles are now almost identical. However, when India adopted the standard, there were differences in the effective date and some transitional reliefs provided to Indian companies to ease the implementation process. For ongoing financial reporting, the differences are minimal, but when analyzing financial statements from the transition period, these differences might be relevant.

5. Lease Accounting (Post IFRS 16 / Ind AS 116)

The new lease accounting standards require most leases to be brought onto the balance sheet, but Ind AS offers some practical reliefs.

• IFRS (IFRS 16): Mandates that lessees recognize a ‘right-of-use’ asset and a corresponding lease liability for almost all lease contracts.
• Ind AS (Ind AS 116): Is converged with IFRS 16 but provides certain practical exemptions that are not available under IFRS. For instance, Ind AS 116 allows companies to not remeasure the lease liability for changes in lease payments that are linked to inflation or a benchmark interest rate. Instead, these variations can be recognized in the profit or loss account as they occur.

Impact: This exemption simplifies the accounting process for many Indian companies, as it avoids the complexity of frequently remeasuring lease liabilities due to changes in indices or rates.

Why This Comparison of Ind AS and IFRS Matters for Indian Businesses

Understanding these distinctions is more than an academic exercise; it has real-world implications for businesses of all sizes, investors, and finance professionals.

• Relevance for SMBs: Even if a small or medium-sized business does not currently fall under the mandatory Ind AS net, awareness is crucial. As the business grows, it may cross the threshold for applicability. Furthermore, if the company seeks foreign investment or deals with large corporate clients who comply with Ind AS, aligning its accounting practices can make it a more attractive partner.
• Investor Confidence: For salaried individuals who invest in the stock market, understanding these differences is key to making informed decisions. It allows for a more accurate comparison of Ind AS and IFRS for Indian businesses against their global competitors. Knowing that an Indian company values its property at cost while a foreign one uses fair value helps explain potential variations in their balance sheets.
• Compliance & Reporting: For companies where Ind AS is mandatory, strict adherence to its specific rules and carve-outs is a legal requirement. Misinterpreting the standards can lead to inaccurate financial statements, qualified audit reports, and penalties from regulatory bodies like SEBI and the MCA. The key differences between Ind AS and IFRS for accountants are particularly critical for ensuring compliant reporting.
• M&A and Global Operations: For Indian businesses looking to expand overseas, acquire a foreign company, or be acquired, a deep understanding of both Ind AS and IFRS is vital. It facilitates a smoother due diligence process, helps in accurately valuing target companies, and simplifies the integration of financial reporting systems post-acquisition.

Who Must Comply with Ind AS in India?

The Ministry of Corporate Affairs (MCA) has implemented Ind AS in a phased manner to ensure a smooth transition. The mandatory applicability generally covers the following entities:

• All Listed Companies: Every company whose equity or debt securities are listed on any stock exchange in India, along with their holding companies, subsidiaries, associates, and joint ventures.
• Unlisted Companies: Unlisted companies that meet the following criteria:
  • Having a net worth of ₹250 crore or more but less than ₹500 crore (as of March 31, 2017).
  • All companies with a net worth of ₹500 crore or more (as of March 31, 2016).
• Banks, NBFCs, and Insurance Companies: These have their own specific thresholds and timelines for Ind AS implementation.

Actionable Tip: Businesses should regularly monitor their net worth at the end of each financial year. Once you cross the ₹250 crore threshold, you will be required to comply with Ind AS from the following financial year. For the latest notifications and circulars, it is always best to refer to the official MCA website.

For detailed and updated information, please visit the Ministry of Corporate Affairs.

Conclusion: Navigating Ind AS and IFRS with Confidence

To summarize, while Ind AS represents India’s successful convergence with global accounting standards, it is not a carbon copy of IFRS. The standards are largely aligned, but the “carve-outs” create critical distinctions in key areas like balance sheet presentation, investment property valuation, and government grant accounting. These differences were thoughtfully created to suit India’s unique legal and economic landscape.

Ultimately, understanding the key differences between Ind AS and IFRS is a practical necessity for ambitious Indian businesses, diligent accountants, and savvy investors. It empowers stakeholders to read between the lines of financial statements, ensure regulatory compliance, and make strategic decisions with a clear, global perspective.

Feeling overwhelmed by accounting standards? Whether you’re preparing for Ind AS transition or need expert accounting services, TaxRobo is here to help. Contact our financial experts today for a consultation.

Frequently Asked Questions (FAQs)

1. Is Ind AS exactly the same as IFRS?

No. Ind AS is “converged” with IFRS, not a direct adoption. This means it is based on IFRS but includes certain “carve-outs” (differences) and “carve-ins” (additions) to better suit the Indian economic and legal environment.

2. Why didn’t India just adopt IFRS directly?

India chose a convergence path to address specific national circumstances. For example, the rigid format of the Balance Sheet is tied to the Companies Act, 2013, which would have conflicted with the flexibility offered by IFRS. Carve-outs were made to ensure a smoother transition, align with existing Indian laws, and address unique local business practices.

3. Which companies in India need to follow Ind AS?

Mandatory compliance applies to all listed companies and unlisted companies having a net worth of ₹250 crore or more. Banks, Non-Banking Financial Companies (NBFCs), and insurance companies also have specific applicability thresholds and implementation dates.

4. As a small business owner, can I choose to follow Ind AS voluntarily?

Yes, Indian companies can voluntarily adopt Ind AS even if they do not meet the mandatory thresholds. This can be a strategic move if the company plans to seek foreign investment, list on a stock exchange in the future, or wants to align its financial reporting with global best practices to enhance credibility with international stakeholders.