Ind AS Amendment Rules 2025: Navigating Key Changes in Indian Accounting Standards

Ind AS Amendment Rules 2025: Navigating Key Changes in Indian Accounting Standards

The Ministry of Corporate Affairs (MCA) has introduced significant amendments to Indian Accounting Standards through two key notifications in 2025, marking a substantial shift in financial reporting requirements for Indian companies. These amendments reflect India's commitment to aligning with global accounting practices while addressing specific domestic concerns.

Background and Reasons for Amendment

The Ind AS Amendment Rules 2025 were necessitated by evolving global financial reporting challenges and the need for enhanced transparency in financial statements. The International Accounting Standards Board (IASB) identified gaps in existing standards, particularly around currency exchangeability issues in volatile economic environments and the lack of adequate disclosure requirements for supplier finance arrangements, which had become increasingly common in corporate financing strategies.

The amendments address three critical areas: foreign currency translation complexities arising from government-imposed currency controls, enhanced transparency requirements for supplier finance arrangements that impact cash flow analysis, and clarification of liability classification criteria to ensure consistent application across entities.

Effective Dates and Implementation Timeline

·        First Amendment Rules (May 7, 2025)

The Companies (Indian Accounting Standards) Amendment Rules, 2025 became effective for annual periods beginning on or after April 1, 2025, primarily focusing on Ind AS 21 amendments related to non-exchangeable currencies.

·        Second Amendment Rules (August 13, 2025)

The Companies (Indian Accounting Standards) Second Amendment Rules, 2025, introducing comprehensive changes across multiple standards including supplier finance arrangements and liability classification requirements.

List of Standards Amended

The 2025 amendments impact multiple Ind AS standards with varying degrees of modification, as listed below:

• Ind AS 12 (Income Taxes):

The amendment introduces a specific exception for entities to not recognize or disclose deferred tax assets and liabilities related to OECD's Pillar Two global minimum tax rules, including Qualified Domestic Minimum Top-up Taxes (QDMTTs). Instead, entities must provide enhanced qualitative and quantitative disclosures about their exposure to top-up taxes, separate reporting of current tax expenses arising from Pillar Two legislation, and explicit disclosure that they have applied this deferred tax exception.

• Ind AS 101 (First-time Adoption):

Entities adopting Ind AS in severe hyperinflation scenarios must now disclose detailed explanations of how and why their functional currency became (or ceased to be) hyperinflationary when using fair value as deemed cost. The amendment also incorporates references to the new currency exchangeability provisions of Ind AS 21, ensuring consistency in functional currency determination for first-time adopters

• Ind AS 115 (Revenue Recognition):

The amendment primarily involves technical updates to cross-references, replacing outdated references to superseded standards Ind AS 17 and 18 with current standards Ind AS 116 (Leases) and Ind AS 115 itself.

• Ind AS 116 (Leases):

The amendment provides enhanced transitional reliefs for entities adopting Ind AS 116, particularly for lease arrangements involving both land and building components where entities can use transition date facts and circumstances to assess classification.

The following amendments are explained in separate section: Major Changes explained:

• Ind AS 21 (Foreign Exchange Effects) - Currency exchangeability guidance
• Ind AS 1 (Presentation of Financial Statements) - Current/non-current liability classification
• Ind AS 7 (Statement of Cash Flows) - Supplier finance arrangement disclosures
• Ind AS 10 (Events After Reporting Period) - Covenant terminology updates
• Ind AS 107 (Financial Instruments Disclosures) - Enhanced supplier finance disclosures

Major Changes Explained

(A) Ind AS 21: Currency Non-Exchangeability Framework

The amendment to Ind AS 21 introduces a comprehensive framework for handling situations where currencies cannot be exchanged due to government restrictions, economic instability, or hyperinflation. This addresses a significant gap in the previous standard that only covered temporary lack of exchangeability.

Two-Step Assessment Process:

Step 1: Assessing Exchangeability - An entity must determine whether a currency can be exchanged considering the timeframe required, the entity's ability (not intention) to obtain the other currency, available market mechanisms, the specific purpose of exchange, and whether only limited amounts can be obtained.

Step 2: Estimating Exchange Rate - When exchangeability is lacking, entities must estimate the spot exchange rate using either an observable exchange rate without adjustment, observable rates for other purposes, the first subsequent exchange rate when exchangeability is restored, or other estimation techniques.

Enhanced Disclosure Requirements include identification of the non-exchangeable currency with reasons, description of affected transactions and carrying amounts of related assets and liabilities, the spot exchange rate used and methodology for estimation, and qualitative information about the impact on financial performance.

(B) Current vs Non-Current Liability Classification

The amendments to Ind AS 1 provide crucial clarification on liability classification, addressing confusion around covenant breaches and settlement rights. The key principle emphasizes that classification depends on the entity's right to defer settlement existing with substance at the reporting date, not necessarily being unconditional.

Covenant Breach Treatment:

• If breached on or before the reporting date → liability classified as current
• If breach waived before the reporting date → liability remains non-current
• If waiver obtained after reporting date but before financial statement approval → Ind AS carve-out allows non-current classification for FY 2025-26 only

Future Implementation Change: From April 1, 2026, the Ind AS carve-out will be removed, requiring current classification for post-reporting date waivers, bringing India fully in line with IFRS requirements.

Enhanced Disclosure Requirements now mandate detailed information about covenant compliance risks, potential breaches, and the entity's ability to meet future covenant tests, providing investors with better insight into liquidity risks.

(C) Supplier Finance Arrangements

The amendments to Ind AS 7 and Ind AS 107 introduce comprehensive disclosure requirements for supplier finance arrangements (also known as supply chain finance or reverse factoring), responding to investor demands for greater transparency in these increasingly common financing structures.

Mandatory Disclosures under Ind AS 7:

• Terms and conditions of all supplier finance arrangements including payment terms, interest rates, and key commercial provisions
• Carrying amounts of financial liabilities that are part of supplier finance arrangements and their balance sheet line item presentation
• Financed amounts showing liabilities where suppliers have already received payment from finance providers
• Payment due date ranges comparing supplier finance liabilities with comparable trade payables not part of such arrangements
• Non-cash changes including business combination effects and foreign currency impacts

Risk Disclosure Requirements under Ind AS 107:

• Liquidity risk management strategies specifically related to supplier finance arrangements
• Concentration risks when arrangements involve few finance providers
• Terms modification effects showing how supplier finance changes normal payment terms with suppliers

Financial Impact Considerations: These arrangements may require separate balance sheet presentation or reclassification, potentially affecting key financial ratios including current ratio, debt-equity ratio, and working capital metrics, thereby providing investors with clearer insight into the entity's true liquidity position and financing dependencies.

Implementation Challenges and Practical Considerations

Companies must invest in system upgrades and process modifications to capture the granular data required for new disclosure requirements, particularly for supplier finance arrangements where historical data may not be readily available. The enhanced covenant disclosure requirements necessitate closer coordination between finance and legal teams to accurately assess and report compliance risks.

The currency exchangeability assessment requires entities with foreign operations to develop robust evaluation frameworks and maintain detailed documentation of exchange rate estimation methodologies, especially in volatile economic environments.

Conclusion

The Ind AS Amendment Rules 2025 represent a significant step toward enhanced financial reporting transparency and global alignment, addressing critical gaps in foreign currency accounting, liability presentation, and financing arrangement disclosures. While implementation may pose initial challenges, these amendments will ultimately provide stakeholders with more comprehensive and reliable financial information for informed decision-making.

Companies should prioritize early preparation, system enhancements, and staff training to ensure smooth compliance with these enhanced requirements, particularly given the immediate effective dates and the potential impact on financial statement presentation and key performance metrics.