What accounting standards do

Accounting standards are authoritative principles for recognition, measurement, presentation and disclosure in financial statements. The point is not “more profit.” It is consistency, comparability, reliability and a true and fair view so that investors, regulators, creditors and trustees can read one set of numbers against another.

In India they sit under Section 133 of the Companies Act, 2013. Financial statements themselves are Section 129, Schedule III. Quality oversight of standards and audits for listed and large companies is NFRA (Section 132).

Three layers in India

• Principle-based: IFRS and Ind AS emphasise substance over form and professional judgement.
• Once Ind AS, always Ind AS: crossing the threshold is a one-way door. A later fall in net worth does not send the company back to AS.
• SME-exchange listed companies stay off the mandatory Ind AS roadmap unless another trigger hits.

Overview of IFRS

IFRS is the set of standards issued by the IASB. Older standards issued by the IASC keep the IAS label (IAS 2, IAS 16, IAS 21). Newer standards take the IFRS label (IFRS 9, 15, 16, 17, 18). Interpretations come from IFRIC / SIC.

Adopted, in full or in large part, in 140-plus jurisdictions. The EU requires IFRS for listed group accounts. The United States still uses US GAAP; it has not switched.

Ind AS roadmap

Notified by MCA on 16 February 2015. Phased, not a single Big Bang.

Net worth follows Section 2(57) of the Companies Act: paid-up share capital + all reserves created out of profits and securities-premium, less accumulated losses, deferred-expenditure and miscellaneous expenditure not written off. Revaluation reserve is not a free gift in this computation.

Ind AS versus IFRS — carve-outs that get asked

Ind AS is converged, not identical. MCA keeps a short list of India-specific modifications so that the standards talk to the Companies Act and Indian tax reality.

Alignment is routinely described as “over 95%.” That phrase is fine in a two-marker. Do not pretend the two books are interchangeable in a consolidation question involving an Indian subsidiary of a foreign IFRS parent.

High-yield standards

1. Property, plant and equipment — Ind AS 16 / IAS 16

• Recognise when future economic benefits are probable and cost is reliably measurable. Cost includes purchase price, non-refundable taxes, site preparation and dismantling obligations.
• Subsequent measurement: cost model or revaluation model (if fair value is reliably measurable). Revaluation surplus goes to OCI, not to a casual P&L credit.
• Depreciate depreciable amount (cost / revalued amount minus residual value) over useful life. Methods: straight-line, diminishing balance, units of production. Review life and residual value at least annually.
• Component accounting: a significant part with a different life is depreciated separately. Land is not depreciated unless it has a finite life (a mine, a landfill).

2. Inventories — Ind AS 2 / IAS 2

• Measure at the lower of cost and net realisable value.
• Cost = purchase + conversion + other costs to bring the item to its present location and condition.
• Formulas allowed: FIFO, weighted average, specific identification. LIFO is prohibited under both Ind AS and IFRS.
• NRV = estimated selling price minus costs of completion and sale. Write down when NRV < cost; reverse the write-down if NRV recovers, but not above original cost.
• Out of scope: construction work covered by Ind AS 115, biological assets (Ind AS 41), financial instruments (Ind AS 109).

3. Revenue from contracts with customers — Ind AS 115 / IFRS 15

Five steps. Memorise them in order.

1. Identify the contract.
2. Identify the performance obligations (distinct goods or services).
3. Determine the transaction price (including variable consideration, discounts, significant financing).
4. Allocate the price to the obligations on relative stand-alone selling prices.
5. Recognise revenue when (or as) control transfers — at a point in time, or over time.

Variable consideration is estimated using expected value or most-likely amount, then constrained. Scope excludes leases (Ind AS 116), insurance contracts and financial instruments.

4. Intangible assets — Ind AS 38 / IAS 38

• Recognise if identifiable, controlled, and future benefits are probable.
• Research is expensed. Development is capitalised only when the six technical-feasibility / intention / ability / resource / reliable-measure tests are met.
• Internally generated brands, mastheads and goodwill are not capitalised.
• Finite-life intangibles are amortised. Indefinite-life intangibles are not amortised; they are tested for impairment at least annually (Ind AS 36).

5. Foreign exchange — Ind AS 21 / IAS 21

• Functional currency = currency of the primary economic environment. Presentation currency is a reporting choice.
• Spot rate on the transaction date for initial recognition.
• Monetary items at the closing rate; exchange difference to P&L.
• Non-monetary items carried at historical cost stay at the historical rate.
• A foreign operation: assets and liabilities at closing rate, income and expenses at the average (or actual) rate, difference to OCI.
• Carve-out already noted: exchange differences on certain long-term foreign-currency borrowings can be capitalised under Ind AS, not dumped into P&L as IFRS would require.
• 2025 amendment: lack of exchangeability — estimate the spot rate when a currency cannot actually be exchanged.

6. Investments and financial instruments

• Ind AS 109 / IFRS 9: classification into amortised cost, FVTPL or FVOCI. Impairment uses the expected credit loss (ECL) model — a gift for any bank / NBFC / pension-portfolio question.
• Ind AS 27: in separate financial statements, subsidiaries / associates / JVs at cost, FVTPL or equity method.
• Ind AS 28: associates and joint ventures in consolidated statements — equity method.
• Ind AS 40: investment property (held for rent or capital appreciation) — cost model or fair-value model.
• Ind AS 110: control-based consolidation, not merely a 51% shareholding test.

Number map worth drilling

Quick revision sheet

Related CrackTarget notes sit under Paper 08 — Accountancy, Auditing and Insurance on the EPFO APFC hub.

30 Questions Test

Single-best-answer items drawn from the same syllabus as the source page, tightened for APFC / PFRDA pitch.