Ind AS vs IFRS vs Indian GAAP
Intuition
Accounting standards are the rulebook companies follow when preparing financial statements. The rules dictate when revenue is recognised, how assets are valued, and how liabilities are disclosed. Different rulebooks can produce materially different profit and balance sheet numbers from identical underlying transactions.
India has gone through three regimes: old Indian GAAP (pre-2016), Ind AS (Indian Accounting Standards, effective for large listed companies from FY17), and the continued use of old GAAP by smaller companies. Ind AS is substantially converged with IFRS (International Financial Reporting Standards) but with specific carve-outs tailored to the Indian context.
For an analyst, this matters because comparing a company's FY2015 financials (Indian GAAP) with FY2020 financials (Ind AS) requires adjustment. Some ratios, especially leverage and profit, can shift significantly upon transition.
Mechanics
Key differences: Ind AS vs Old Indian GAAP
| Area | Old Indian GAAP | Ind AS |
|---|---|---|
| Leases | Only finance leases on balance sheet | All leases ≥ 12 months capitalised (Ind AS 116) |
| Revenue | Completed contract / % completion | Five-step model (Ind AS 115) |
| Financial instruments | Cost or lower of cost and NRV | Fair value through P&L or OCI (Ind AS 109) |
| Goodwill | Amortised over useful life | No amortisation; annual impairment test |
| ESOPs | Not always expensed | Mandatory fair value expensing (Ind AS 102) |
| Deferred tax | Timing differences only | Temporary differences (broader) |
Ind AS vs IFRS Carve-outs:
- Ind AS allows deferral of foreign exchange fluctuations on long-term liabilities to be capitalised into asset cost in certain cases (carve-out from IAS 21)
- Some IFRS standards have been issued but Ind AS equivalents not yet notified (e.g., IFRS 17 on insurance contracts has a pending Ind AS equivalent)
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