Introduction to Accounting Standards

Accounting Standards are authoritative principles and guidelines that govern the preparation and presentation of financial statements. They ensure consistency, comparability, reliability, and transparency in financial reporting, enabling stakeholders (investors, regulators, creditors, and management) to make informed economic decisions. These standards address recognition, measurement, presentation, and disclosure of financial transactions and events.

• Purpose: To standardize accounting practices, reduce manipulation, and enhance global comparability. In India, they are crucial for compliance under the Companies Act, 2013, and for regulatory bodies like PFRDA, RBI, SEBI, etc., where accurate financial reporting impacts oversight of pension funds, banks, and markets.
• Evolution: Originated from national needs but converged globally post-2000s due to internationalization of business.
• Relevance to Exams (UPSC/BPSC/State PCS/PFRDA/RBI/NABARD/SEBI): This topic tests understanding of financial reporting frameworks, especially in economic and regulatory contexts. Questions often involve application to scenarios like pension fund valuations (PFRDA) or foreign investments (RBI).

Overview of IFRS

International Financial Reporting Standards (IFRS) are issued by the International Accounting Standards Board (IASB), part of the IFRS Foundation. They provide a global language for financial reporting, adopted by over 140 countries.

• Key Features: Principle-based (focus on substance over form), emphasizing fair presentation and professional judgment.
• Structure: Includes IFRS (new standards post-2001), IAS (older standards), IFRIC/SIC interpretations.
• Applicability: Mandatory for listed companies in the EU; voluntary or partial in others.
• Recent Developments (as of July 2025): The IASB issued IFRS 18 Presentation and Disclosure in Financial Statements in early 2025, effective from January 1, 2027, replacing IAS 1. It introduces subtotals in income statements (e.g., operating profit) and enhances disaggregation for better transparency.kpmg.com Amendments to IFRS 9 and IFRS 7 for power purchase agreements were issued in March 2025, addressing renewable energy contracts.iasplus.com Exposure Draft for amendments to IFRS S2 (Industry-based Guidance) was published in July 2025 by the ISSB.ifrs.org

Overview of Ind AS

Indian Accounting Standards (Ind AS) are notified by the Ministry of Corporate Affairs (MCA) under the Companies (Indian Accounting Standards) Rules, 2015, and are substantially converged with IFRS. They apply to listed companies, large unlisted entities (net worth > INR 250 crore), and their subsidiaries/holding companies from FY 2016-17 onwards (phased implementation).

• Key Features: Converged with IFRS but with carve-outs to suit Indian laws (e.g., no fair value option for certain items due to tax implications).
• Authority: Accounting Standards Board (ASB) of ICAI formulates; MCA notifies; NFRA oversees compliance.
• Applicability: Mandatory for NBFCs, banks (from FY 2018-19), and insurance companies (from FY 2021-22). SMEs use AS or Ind AS optionally.
• Recent Developments (as of July 2025): The NFRA approved major amendments to Ind AS 109 (Financial Instruments) on July 10, 2025, enhancing impairment models and classification for better financial reporting.cfo.economictimes.indiatimes.com Indian Accounting Standards Amendment Rules 2025 amended Ind AS 7 (Statement of Cash Flows), Ind AS 12 (Income Taxes), and Ind AS 21 (Effects of Changes in Foreign Exchange Rates), aligning with global changes.efiletax.in MCA amended Ind AS 21 in June 2025 to address lack of exchangeability of currencies, similar to IAS 21 amendments.assets.kpmg.com No adoption of IFRS 18 yet; expected post-2027.

Differences and Carve-Outs Between Ind AS and IFRS

While converged, Ind AS has modifications:

• Carve-Outs: E.g., Ind AS 101 (First-time Adoption) allows exemptions not in IFRS; Ind AS 40 (Investment Property) mandates cost model if fair value unreliable (IFRS allows choice).
• Key Differences: Ind AS prohibits revaluation model for PPE in some cases; deferred tax on undistributed profits not recognized if control exists (unlike IFRS).
• Reasons: Alignment with Indian tax laws, Companies Act, and economic conditions.
• Convergence Status: Over 95% aligned; ongoing updates via NFRA/MCA.

Aspect	IFRS	Ind AS
Issuing Body	IASB	MCA (based on ICAI recommendations)
Basis	Principle-based	Principle-based with Indian adaptations
Applicability	Global (voluntary/mandatory per jurisdiction)	Specific Indian entities (listed/large companies)
Recent Example	IFRS 18 (2025 issuance)	Amendments to Ind AS 109 (July 2025)

Detailed Coverage of Key Topics

1. Depreciation (Ind AS 16 / IAS 16 – Property, Plant and Equipment)

Depreciation allocates the cost of tangible assets over their useful life, reflecting wear and tear or obsolescence.

• Recognition: PPE recognized if future economic benefits probable and cost measurable reliably. Includes purchase price, import duties, non-refundable taxes, site preparation, and dismantling costs.
• Measurement: Initially at cost; subsequently at cost model (cost less depreciation/impairment) or revaluation model (fair value, if reliable).
• Depreciation Methods: Straight-line, diminishing balance, units of production. Based on useful life (reviewed annually) and residual value.
• Key Requirements: Depreciate components separately if significant (component accounting). No depreciation on land (unless finite life, e.g., mines).
• Differences: Ind AS allows revaluation but with restrictions; IFRS more flexible.
• Recent Amendments: None specific as of 2025, but aligns with overall PPE updates.
• Exam Tip: Calculate depreciation in scenarios, e.g., for pension fund assets under PFRDA.

Example: Machine cost INR 10,00,000, useful life 5 years, residual value INR 1,00,000. Straight-line depreciation = (10,00,000 – 1,00,000)/5 = INR 1,80,000/year.

2. Inventories (Ind AS 2 / IAS 2 – Inventories)

Inventories are assets held for sale, in production, or as materials/supplies.

• Recognition and Measurement: At lower of cost and net realizable value (NRV). Cost includes purchase, conversion, and other costs to bring to present location/condition.
• Cost Formulas: FIFO, Weighted Average (LIFO prohibited under both Ind AS/IFRS).
• NRV: Selling price less completion/selling costs. Write-down if NRV < cost; reversal if NRV increases.
• Scope: Applies to all inventories except work-in-progress under construction contracts (Ind AS 115), biological assets (Ind AS 41), financial instruments (Ind AS 109).
• Differences: Minimal; both prohibit LIFO.
• Recent Amendments: No major changes in 2025.
• Exam Tip: Focus on inventory valuation impacts on profit (e.g., during inflation, FIFO vs. Weighted Average).

Example: Goods cost INR 500/unit, NRV INR 450/unit. Write-down to INR 450; if NRV rises to INR 520, reverse up to original cost.

3. Revenue Recognition (Ind AS 115 / IFRS 15 – Revenue from Contracts with Customers)

A five-step model for recognizing revenue from customer contracts.

• Steps:
  1. Identify contract (enforceable rights/obligations).
  2. Identify performance obligations (distinct goods/services).
  3. Determine transaction price (consider variable consideration, discounts, time value).
  4. Allocate price to obligations (based on standalone selling prices).
  5. Recognize revenue when/as control transfers (point-in-time or over-time).
• Key Concepts: Control transfer (ability to direct use/benefits). Variable consideration estimated (expected value/most likely).
• Scope: All contracts except leases (Ind AS 116), insurance (Ind AS 104), financial instruments (Ind AS 109).
• Differences: Ind AS has guidance on service concession arrangements; IFRS similar.
• Recent Amendments: Minor clarifications; no major in 2025.
• Exam Tip: Apply to scenarios like software sales or long-term contracts in regulatory exams.

Example: Contract for goods INR 1,00,000, discount 10%. Transaction price INR 90,000; recognize on delivery if point-in-time.

4. Fixed Assets (Ind AS 16 and Ind AS 38 / IAS 16 and IAS 38)

Fixed assets include tangible (PPE) and intangible assets.

• Ind AS 16 (PPE): As above for depreciation. Recognition threshold: Probable benefits, reliable measurement.
• Ind AS 38 (Intangible Assets): Recognized if identifiable, controllable, benefits probable. Cost model or revaluation (rare). Amortize over useful life (finite); test impairment if indefinite.
• Key Requirements: Research costs expensed; development capitalized if criteria met (e.g., technical feasibility). No capitalization of internally generated brands/goodwill.
• Differences: Ind AS mandates amortization for finite-life intangibles; IFRS allows indefinite life without amortization (impairment only).
• Recent Amendments: None specific.
• Exam Tip: Distinguish capitalization vs. expensing in R&D for financial sector entities.

Example: Software development cost INR 5,00,000 (development phase). Capitalize and amortize over 3 years.

5. Foreign Exchange Transactions (Ind AS 21 / IAS 21 – The Effects of Changes in Foreign Exchange Rates)

Addresses accounting for foreign currency transactions and operations.

• Functional vs. Presentation Currency: Functional is primary economic environment; presentation for reporting.
• Initial Recognition: At spot rate on transaction date.
• Subsequent Measurement: Monetary items at closing rate (exchange differences to P&L); non-monetary at historical rate.
• Foreign Operations: Translate assets/liabilities at closing rate, income/expenses at average rate; differences to OCI.
• Differences: Ind AS allows capitalization of exchange differences on long-term foreign currency loans (carve-out); IFRS recognizes in P&L.
• Recent Amendments: MCA amended Ind AS 21 in June 2025 for lack of exchangeability (e.g., in hyperinflationary economies), requiring estimation methods.assets.kpmg.com Amendment Rules 2025 also updated Ind AS 21.efiletax.in
• Exam Tip: Calculate forex gains/losses; relevant for RBI/SEBI exams on international transactions.

Example: Purchase USD 1,000 at INR 80 (spot). Year-end rate INR 82. Monetary payable: Loss INR 2,000 to P&L.

6. Investments (Ind AS 109, 27, 28, 40 / IFRS 9, IAS 27, 28, 40)

Covers classification, measurement, and accounting for investments.

• Ind AS 109 (Financial Instruments): Classify as FVPL (fair value through P&L), FVOCI (through OCI), or amortized cost. Impairment via expected credit loss (ECL) model.
• Ind AS 27 (Separate Financial Statements): Investments in subsidiaries/associates at cost, FVPL, or equity method.
• Ind AS 28 (Investments in Associates/JVs): Equity method (share of profits/losses).
• Ind AS 40 (Investment Property): Property for rental/ capital appreciation. Cost or fair value model; transfers from PPE if use changes.
• Differences: Ind AS carve-out for certain equity instruments at cost if fair value unreliable.
• Recent Amendments: NFRA approved amendments to Ind AS 109 in July 2025 for enhanced classification and impairment.cfo.economictimes.indiatimes.com IFRS 9 amended for power purchase in 2025.iasplus.com
• Exam Tip: Focus on ECL for banks (RBI/NABARD); fair value impacts on pension investments (PFRDA).

Example: Debt investment at amortized cost: INR 1,00,000, interest 5%. Year-end ECL provision if credit risk increases.

Conclusion

Accounting Standards under Ind AS/IFRS ensure robust financial reporting, vital for India’s integration into global markets. Stay updated via MCA/IASB websites. For exams, practice numericals and link to regulatory implications.

30 MCQs on Accounting Standards (with Reference to Ind AS/IFRS)

MCQ 1

Question: What is the primary purpose of Accounting Standards?
A) To maximize profits
B) To ensure consistency and transparency in financial reporting
C) To handle tax filings only
D) To manage HR policies

Correct Answer: B
Explanation: Accounting Standards standardize practices for reliable, comparable financial statements, aiding stakeholders in decision-making.

MCQ 2

Question: Which body issues IFRS?
A) ICAI
B) IASB
C) MCA
D) NFRA

Correct Answer: B
Explanation: The International Accounting Standards Board (IASB) issues IFRS for global financial reporting.

MCQ 3

Question: Ind AS are notified under which Act in India?
A) Income Tax Act, 1961
B) Companies Act, 2013
C) SEBI Act, 1992
D) RBI Act, 1934

Correct Answer: B
Explanation: MCA notifies Ind AS under Section 133 of the Companies Act, 2013.

MCQ 4

Question: What is a key feature of IFRS?
A) Rule-based only
B) Principle-based with professional judgment
C) Applicable only to SMEs
D) Ignores fair presentation

Correct Answer: B
Explanation: IFRS emphasizes substance over form and professional judgment for fair presentation.

MCQ 5

Question: Which new IFRS was issued in 2025?
A) IFRS 17
B) IFRS 18
C) IFRS 9
D) IFRS 15

Correct Answer: B
Explanation: IFRS 18 on Presentation and Disclosure, effective 2027, introduces income statement subtotals.

MCQ 6

Question: What recent amendment was made to Ind AS 21 in June 2025?
A) Revenue model changes
B) Addressing lack of exchangeability
C) Inventory valuation
D) Depreciation methods

Correct Answer: B
Explanation: MCA amended Ind AS 21 for currencies lacking exchangeability, requiring estimation techniques.

MCQ 7

Question: Under Ind AS 16, depreciation is allocated based on:
A) Market value only
B) Useful life and residual value
C) Purchase date alone
D) Inflation rates

Correct Answer: B
Explanation: Depreciation reflects systematic allocation over useful life after deducting residual value.

MCQ 8

Question: Which cost formula is prohibited under Ind AS 2?
A) FIFO
B) Weighted Average
C) LIFO
D) Specific Identification

Correct Answer: C
Explanation: LIFO is not allowed as it may distort current costs in income statements.

MCQ 9

Question: The five-step model for revenue is under:
A) Ind AS 2
B) Ind AS 115
C) Ind AS 16
D) Ind AS 21

Correct Answer: B
Explanation: Ind AS 115 provides the framework for recognizing revenue when control transfers.

MCQ 10

Question: In Ind AS 38, research costs are:
A) Capitalized
B) Expensed
C) Deferred
D) Ignored

Correct Answer: B
Explanation: Research costs are expensed as incurred; development costs capitalized if criteria met.

MCQ 11

Question: Foreign exchange differences on monetary items go to:
A) OCI always
B) P&L
C) Equity
D) Reserves

Correct Answer: B
Explanation: Under Ind AS 21, they are recognized in profit or loss, except for certain hedges.

MCQ 12

Question: Investments in associates under Ind AS 28 use:
A) Cost method
B) Equity method
C) Fair value method
D) Amortized cost

Correct Answer: B
Explanation: The equity method adjusts for share of profits/losses post-acquisition.

MCQ 13

Question: A carve-out in Ind AS vs. IFRS is in:
A) Revenue recognition
B) Exchange differences on long-term loans
C) Inventory costing
D) Depreciation methods

Correct Answer: B
Explanation: Ind AS allows capitalization; IFRS recognizes in P&L.

MCQ 14

Question: NFRA approved amendments to which Ind AS in July 2025?
A) Ind AS 16
B) Ind AS 109
C) Ind AS 2
D) Ind AS 115

Correct Answer: B
Explanation: Amendments to Ind AS 109 enhanced financial instrument reporting.

MCQ 15

Question: NRV under Ind AS 2 is:
A) Cost plus profit
B) Selling price less completion costs
C) Historical cost
D) Replacement cost

Correct Answer: B
Explanation: Net Realizable Value ensures inventories are not overstated.

MCQ 16

Question: Component accounting is required in:
A) Ind AS 21
B) Ind AS 16
C) Ind AS 40
D) Ind AS 27

Correct Answer: B
Explanation: Significant parts of PPE are depreciated separately.

MCQ 17

Question: Variable consideration in revenue is estimated using:
A) Historical cost
B) Expected value or most likely amount
C) Fair value only
D) Ignoring discounts

Correct Answer: B
Explanation: Ind AS 115 requires constrained estimates for reliability.

MCQ 18

Question: Intangible assets with indefinite life under Ind AS 38:
A) Are amortized
B) Tested for impairment annually
C) Expensed immediately
D) Revalued monthly

Correct Answer: B
Explanation: No amortization; annual impairment testing required.

MCQ 19

Question: Functional currency under Ind AS 21 is:
A) INR always in India
B) Primary economic environment currency
C) Presentation currency
D) Foreign currency

Correct Answer: B
Explanation: It reflects the entity’s operating environment.

MCQ 20

Question: ECL model is in:
A) Ind AS 2
B) Ind AS 109
C) Ind AS 115
D) Ind AS 38

Correct Answer: B
Explanation: Expected Credit Loss for impairment of financial assets.

MCQ 21

Question: Investment property under Ind AS 40 can be measured at:
A) Cost or fair value
B) Cost only
C) Fair value only
D) Historical cost less impairment

Correct Answer: A
Explanation: Choice between cost model and fair value model.

MCQ 22

Question: Amendments to IFRS 9 in 2025 relate to:
A) Power purchase agreements
B) Inventory valuation
C) Depreciation
D) Revenue steps

Correct Answer: A
Explanation: Addresses accounting for renewable energy contracts.

MCQ 23

Question: Which standard replaces IAS 1 under IFRS?
A) IFRS 15
B) IFRS 18
C) IFRS 9
D) IAS 21

Correct Answer: B
Explanation: IFRS 18 enhances presentation and disclosure.

MCQ 24

Question: In Ind AS 115, revenue is recognized when:
A) Cash is received
B) Control transfers
C) Contract is signed
D) Goods are produced

Correct Answer: B
Explanation: Focus on customer obtaining control of goods/services.

MCQ 25

Question: Revaluation model is allowed in:
A) Ind AS 2
B) Ind AS 16
C) Ind AS 21
D) Ind AS 109

Correct Answer: B
Explanation: For PPE, if fair value can be measured reliably.

MCQ 26

Question: Translation of foreign operations uses:
A) Historical rates for all items
B) Closing rates for assets/liabilities
C) Average rates for equity
D) Spot rates only

Correct Answer: B
Explanation: Income/expenses at average; differences to OCI under Ind AS 21.

MCQ 27

Question: Separate financial statements under Ind AS 27 measure subsidiaries at:
A) Equity method only
B) Cost, FVPL, or equity method
C) Amortized cost
D) NRV

Correct Answer: B
Explanation: Flexibility in measurement for separate statements.

MCQ 28

Question: Which Ind AS was amended under 2025 Rules for cash flows?
A) Ind AS 7
B) Ind AS 40
C) Ind AS 38
D) Ind AS 28

Correct Answer: A
Explanation: Indian Accounting Standards Amendment Rules 2025 updated Ind AS 7.

MCQ 29

Question: Write-downs in inventories are reversed if:
A) Cost increases
B) NRV increases
C) Useful life extends
D) Depreciation changes

Correct Answer: B
Explanation: Up to original cost under Ind AS 2.

MCQ 30

Question: Carve-out in Ind AS 40 is:
A) Mandatory fair value
B) Cost model if fair value unreliable
C) LIFO allowed
D) No revaluation

Correct Answer: B
Explanation: Unlike IFRS, Ind AS mandates cost in unreliable fair value cases.