Decoding Indian Accounting Standard (Ind AS) - 1

What are the objectives of implementing Ind AS 1?

Primarily this Ind AS objectifies the preparation and presentation of General purpose Financial Statement for profit oriented entities (Can also be applied by not-for -profit entities after certain amendments).

General purpose Financial Statements are issued by companies to facilitate the decision making of their stakeholders. It includes a balance sheet, income statement, statement of changes in equity, statement of cash flows & notes comprising significant policies and other explanatory information. Companies use these statements as a form of financial reporting to communicate company’s performance with the stakeholders of the organization.

• This standard is not applicable on interim financial statements (Ind AS 34 is applicable) except its para 15-35 (Refer in Role of Ind AS 1 Para).
• This Ind AS is applicable equally to all entities (crossing the applicability criteria) including those that prepare consolidated financial statements (Ind AS 110) and separate financial statements (Ind AS 27).

This Ind AS mandates all companies to present the financial statements along with its comparison with financial statements of previous period and also specifies the structure of financial statements, Minimum information that has to be disclosed and the disclosures of relevant accounting policies.

Relevance of Ind AS 1

As the name suggests “Presentation of Financial Statements”, it gives out the guidance on how the ideal financial statements should look like, material items, for the general stakeholders, should be conveniently reachable and no ambiguity is caused while interpreting the financial statements.

What role Ind AS 1 play in accounting framework?

It prescribes the basis for presentation of financial statements to ensure comparability both with own financial statements of previous periods and with financial statements of other entities

Whereas all other Ind AS set out recognition, measurement and disclosure requirement of specific transactions and events.

It also describes the general features every financial statement shall consist-

• True & Fair View*
• Going Concern*
• Accrual Basis of Accounting*
• Offsetting*
• Consistency*
• Frequency of reporting
• Comparability

*Crux of Para 15-35 of bare act

However, the format is not provided under the Ind AS (Schedule III has to be followed) but it has provided the list of minimum line items that has to be presented under each component of financial statements (Refer Key Paragraph section).

In case of dispute between Ind AS & Schedule III

General Instructions of Schedule III specified in 1^st point - “Where compliance with the requirements of the Act including Accounting Standards as applicable to the companies require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head or sub-head or any changes, inter se, in the financial statements or statements forming part thereof, the same shall be made and the requirements of this Schedule shall stand modified accordingly”.

After interpreting the above statement, it is very clear that in case of any dispute between the Ind AS and Schedule III, Ind AS shall prevail.

This statement can also confirmed by interpreting 2^nd point - which clearly depicts that the requirements of Schedule III are in addition to that of requirements specified in accounting standards and not in substitution of the same.

What are the basic points that has to be kept in mind while implementing this Ind AS?

• It prescribes the complete set of financial statements but the format of the financial statement is prescribed under Section 129 of Companies Act, 2013 where format of various divisions under the name of Schedule III, according to the applicability, shall be followed (as depicted in afore-mentioned chart).
• An explicit and unreserved statement regarding the compliance with all the applicable Ind AS shall be included in the notes except in case where management departs from the requirement(s) of Ind AS. [Para 16]
• Inappropriate accounting policies can’t be rectified by either disclosure, notes or explanatory statement. [Para 18]
• Any item of income & expense is prohibited to be shown as “Extraordinary Item” in the statement of Profit & loss or in notes. [Para 87]
• Deferred Tax Asset/Liability shall be classified as non-current.
• This Ind AS specifies three conditions in which along with two balance sheets, third balance sheet shall also be presented, meaning balance sheets to be prepared as at:
• a) The end of current period;
• b) The end of previous period; and
• c) The beginning of the previous period. [Para 40]

An entity shall present a third balance sheet as at the beginning of the preceding period in addition to the minimum comparative financial statements if:

• First time adoption of Ind AS;
• Rectifying the prior period errors; and
• Any change in accounting policies that will have impact retrospectively.

This is the end of Part 1 of Ind AS 1, in next part we will cover the key paragraphs, paragraphs specifying disclosures and the carve outs to conclude our Ind AS 1. Adieu!

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