Jun 23, 2023

Indian Accounting Standards for Real Estate

by Godrej Properties Limited

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Common standards of financial reporting and accounting ensure transparency in financial practices in line with global best practices. The Indian Accounting Standards provide this harmonisation of accounting practices for companies in India. Let’s look at the benefits and challenges of Indian Accounting Standards for real estate companies.

What are Indian Accounting Standards?

The Indian Accounting Standards, popularly called Ind AS, is a set of minimum standards that a company should follow to maintain or disclose in its accounting records and financial statements. Ind AS is based on the International Financial Reporting Standards (IFRS) and is mandated by the Ministry of Corporate Affairs (MCA). 
 

Companies operating in India follow Ind AS guided by the autonomous body called Accounting Standards Board. Additionally, a number of academic and professional bodies govern the applicability of Ind AS such as ICAI (Institute of Chartered Accountants of India), SEBI (Securities Exchange Board of India), and CII (Confederation of Indian Industry), among others.

Ind AS - Application and Phases

Through the legislation called Companies (Indian Accounting Standards (IND AS)) Rules 2015, the Indian government mandated that companies in India follow a list of Ind AS from the financial year 2016-17 in a phased manner as follows:

  • Phase 1 - Listed companies with a net worth of more than Rs. 500 Cr.
  • Phase 2 - Companies in the process of being listed with a net worth of more than Rs. 250 Cr. but less than Rs. 500 Cr.
  • Phase 3 - Banks, insurance companies, and NBFCs who are listed or in the process of being listed, with a net worth of more than Rs. 500 Cr.
  • Phase 4 - All NBFCs with a net worth of more than Rs. 250 Cr. but less than Rs. 500 Cr.

Benefits of Following Ind AS

Some of the benefits of adopting Ind AS for real estate companies include

Compatibility: A company’s accounts are compatible with another’s when both of all of them follow common accounting practices.

Global Acceptance and Expansion: Ind AS is based on international financial standards which make it globally recognised and accepted. This enables companies to expand their business globally due to common practices.

Measuring Project Costs: Ind AS prescribes accounting treatment for project costs, construction costs, development activities, etc which are specific to real estate companies. Ind AS 10 for example guides depreciation accounting.

Leasing Arrangements: Ind AS 116 Leases is particularly useful for real estate companies as many of them have operations related to financial or operating leases.

Disclosures: Real estate companies can seek Ind AS guidance on mandatory disclosures regarding accounting policies, revenue recognition methods, etc.

Finally, real estate companies should consult professional accountants to ensure compliance with Ind AS.

 

Frequently Asked Questions

1. What accounting practices must real estate companies follow?

Answer: Ind AS applies to all types of companies in India that meet requirements, including real estate companies.

2. Who oversees Ind AS?

Answer: The Accounting Standards Board (ASB) issues and guides the application of Ind AS.

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