Ind AS 101 First time Adoption of Indian Accounting Standards (Ind AS) Applicability and Exemptions

Are you a business or company in India planning to implement Indian Accounting Standards (Ind AS) for the first time?

Transitioning from Indian GAAP to Ind AS is a significant milestone that involves more than just a change in accounting policies. It impacts financial reporting, systems, processes, and stakeholder communication.

Ind AS 101, First-time Adoption of Indian Accounting Standards, provides the framework that companies must follow when adopting Ind AS for the first time. It sets out the principles, exemptions, and disclosures required to ensure a smooth and transparent transition while maintaining comparability and reliability of financial statements.

This guide explains the scope, applicability, mandatory requirements, exemptions, challenges, and best practices related to Ind AS 101, helping businesses understand their compliance obligations and prepare confidently for first-time adoption.

Table of Contents

 What are the Indian accounting standards?

Indian Accounting Standards (Ind AS) are rules that tell companies how to prepare and present their financial statements so that accounts are clear, correct, and comparable.

Ind AS are largely converged with International Financial Reporting Standards (IFRS), ensuring greater transparency, consistency, and global comparability of financial information. And in this, Ind AS 101 is one of the Indian Accounting Standards (Ind AS) notified by the Ministry of Corporate Affairs (MCA).

Which companies are required to adopt Ind AS 101? (Applicability of Ind AS 101)

Ind AS 101 is applicable to:

  1. Companies that have never prepared financial statements under Ind AS earlier, and now it is called as the company’s first financial statements prepared under Ind AS.
  2. Even if a company previously mentioned Ind AS in some form but did not fully comply with all Ind AS, it is still considered a first-time adopter and must apply Ind AS 101.
  3. All interim (periodic) financial reports prepared during the year of first adoption.
    For example, if a company prepares Ind AS financial statements for the year ending 31 March 2022 and also prepares quarterly results during that year, Ind AS 101 must be followed for each quarter as well.

Ind AS 101 does not apply to:

  • Changes in accounting policies made by a company that is already following Ind AS

When is a foreign company required to adopt Ind AS 101?

A foreign company looking to set up in India must apply Ind AS 101 when it is required to prepare Ind AS financial statements in India, such as:

  1. Foreign company listed in India
    • If a foreign company has equity or debt listed on an Indian stock exchange, it must follow Ind AS
    • On first-time adoption, Ind AS 101 becomes mandatory
  2. A foreign company having an Indian subsidiary
    • If the Indian subsidiary prepares Ind AS financial statements, then
    • For consolidation purposes, Ind AS 101 applies at the first-time adoption stage
  3. Foreign company voluntarily adopting Ind AS
    • If a foreign company chooses to adopt Ind AS for Indian reporting
    • Ind AS 101 must be applied in the first year

Who is required to adopt IND AS 101 as per the law?

As per law, Ind AS is mandatory for the following companies based on the prescribed thresholds, else they may attract penalties.

  1. All Listed companies
  2. Unlisted companies whose net worth is equal to or more than ₹250 crores

However, these companies can voluntarily adopt Ind AS if they wish

Ind AS first-time adopter checklist

Following are the key requirements that you need to ensure while opting for Ind AS for the first time:

  • When you adopt Ind AS, you usually have to prepare past financial figures as if Ind AS had been used from the beginning.
  • In some cases, Ind AS does not allow changes to past figures if doing so would require using information that was not known at that time.
  • Ind AS 101 requires you to clearly explain the impact of transition to stakeholders, how moving from Indian GAAP to Ind AS affected:
    • Financial position
    • Financial performance
    • Cash flows

Key details required for Ind AS 101

Details Explanations
Reconciliation of equity

 
  • Show the difference between equity as per old GAAP and equity as per Ind AS
  • At the transition date and the end of the last old GAAP period
Reconciliation of total comprehensive income

 
  • Explain how profit / total income changed after moving to Ind AS
Explanation of major adjustments

 
  • Clearly explain the important changes made to
    • Balance Sheet
    • Profit & Loss Statement
    • Cash Flow Statement (if any)
  Impairment losses

 
  • If impairment loss is recognized or reversed for the first time, give proper details as required earlier
Use of exemptions

 

  Companies must disclose which exemptions they used and provide a brief description of how the transition affected their financial reporting.

Exceptions and Exemptions from Applying Ind AS 101

There are mandatory exceptions in the law that prevent the company from using hindsight or restating certain past transactions.

These ensure that first-time adoption reflects a realistic and consistent starting point under Ind AS. Let’s understand these exceptions in detail:

 

Exceptions Details
Estimates

 
  • Estimates made under Ind AS at the date of transition must be consistent with estimates made under previous GAAP.
  • New estimates cannot be created unless there is objective evidence that the earlier estimates were wrong.
Derecognition of Financial Assets and Financial Liabilities

 
  • Financial assets and liabilities that were derecognised under previous GAAP before the transition date cannot be recognised again under Ind AS.
  • Similarly, items not derecognised earlier cannot be derecognised retrospectively.
  • Voluntary Exemption includes

 
  • Under Ind AS 101, voluntary exemptions are optional choices a company can use when moving from previous GAAP to Ind AS. They help simplify the transition, reduce complexity, and align accounts with Ind AS more easily.
  • Share-based payments
    The company is not required to apply Ind AS 102 to shares granted before the transition date
  • It is optional
  • Fair value as deemed cost
  • For Property, Plant and Equipment (PPE), the company can take the fair value as the cost on the transition date
  • No need to calculate the old historical cost again
  • Cumulative translation differences
  • Foreign currency differences can be reset to zero on the transition date
  • No need to calculate past differences
  • Compound financial instruments
  • The company does not split instruments into debt and equity
  • Applicable if the liability part is already settled before the transition date
Optional Exemptions:

 

 A company gets an optional exemption for Business Combinations

What this means:

  • The company does not have to apply Ind AS 103 (Business Combinations) to mergers or acquisitions that happened before the transition date
  • It can continue using the old accounting (Previous GAAP) for those past business combinations

Important point:

  • If the company chooses to restate even one past business combination as per Ind AS 103, then all later business combinations must also be restated

When this Exemption is used:

  • No change in the classification of the business combination done earlier
  • If earlier accounting used the pooling of interest method (as per AS 14) (combining two companies by adding their assets and liabilities at their existing book values), the same asset and liability values are carried forward
  • The same acquirer identified under previous GAAP will continue, even if Ind AS 103 would have treated it differently (for example, reverse acquisition)

Ind AS Compliance Requirements

Ind AS compliance requirements mean that the company must prepare its financial statements in accordance with the applicable Indian Accounting Standards and the Companies Act, 2013. The company is required to properly record, measure, present, and disclose all financial information and follow the prescribed Schedule III format. This helps ensure that the financial statements are clear, comparable, and reliable for management, investors, lenders, auditors, and regulators.

No. Area of Compliance Implications and Responsibilities for the Company
1 Overall Ind AS Compliance Responsibility Once Ind AS is applicable, the company must fully comply with all applicable Ind AS and include an explicit statement of Ind AS compliance in the financial statements. Selective or partial application of standards is not permitted, and financial statements must present a true and fair view.
2 Complete Set of Financial Statements The company must prepare a complete set of Ind AS financial

statements comprising Balance Sheet, Statement of Profit and Loss, Statement of Changes in Equity, Statement of Cash Flows, and Notes to Accounts, along with comparative information for the previous period.
3 First-time Adoption – Ind AS 101 On first-time adoption, the company must transition from previous GAAP to Ind AS as if Ind AS had always been applied, subject to mandatory exceptions and optional exemptions. Reconciliations of equity and profit/loss between previous GAAP and Ind AS must be prepared and disclosed.
4 Schedule III (Division II) Compliance Ind AS financial statements must also comply with Division II of Schedule III of the Companies Act, 2013, including prescribed formats, classifications, and additional disclosures. Ind AS requirements and Schedule III must be complied with simultaneously.
5 Key Accounting Areas Requiring Judgement The company must ensure correct application and documentation for complex areas such as fair value measurement, financial instruments (ECL), revenue recognition, leases, employee benefits, and related party transactions, supported by appropriate data and valuations.
6 Disclosure-Intensive Reporting Requirements Ind AS requires extensive disclosures, including significant accounting policies, key judgments and estimates, financial risk disclosures, fair value hierarchy, and reconciliations. Use of  Ind AS Disclosure Checklist is critical to ensure completeness.
7 Systems, Processes, and Internal Controls The company must align its accounting systems, ERP, and internal controls with Ind AS requirements to capture necessary data, maintain audit trails, and support consistent application. Weak systems increase compliance and audit risk.
8 Audit and Regulatory Implications Ind AS compliance is closely scrutinized by auditors and regulators. Any non-compliance may result in audit qualifications, emphasis of matter, regulatory penalties, or issues in filings with ROC or stock exchanges (for listed entities).
9 Ongoing and Continuous Compliance Ind AS compliance is an ongoing process, requiring continuous monitoring of amendments, periodic reassessment of estimates and valuations, consistent application of accounting policies, and timely updates to disclosures each reporting period.

 Ind AS 101 Adoption Challenges for First-time Adopters

Ind AS 101 explains how a company should adopt Indian Accounting Standards for the first time. When a company moves from old accounting rules (previous GAAP) to Ind AS, it faces many difficulties.

This change does not affect only accounting but also impacts company systems, processes, valuation of assets and liabilities, and financial reporting. The company has to recalculate opening balances, follow new measurement rules, and give detailed explanations and disclosures. Because Ind AS is different from previous GAAP, companies need to use judgment, estimates, and extra effort, which also increases cost and time. Therefore, the first-time adoption of Ind AS becomes a challenging task for companies.

  • Companies may find it difficult to identify which events happened after the reporting date but before approval of financial statements.
  • Understanding whether an event requires changes in figures (adjusting) or only disclosure (non-adjusting) can be confusing for first-time adopters.
  • Earlier accounting systems may not have tracked post-reporting events properly, making it hard to gather accurate information.
  • Ind AS requires more detailed disclosures compared to previous standards, which may be new and challenging.
  • Management and accounting staff may not be fully familiar with Ind AS concepts, leading to errors or omissions
  • First-time adoption often involves more discussions and adjustments with auditors, which can delay finalization.
  • The major challenge is the complexity of retrospective application. Companies must review all their historical transactions and apply Ind-AS principles to determine how these transactions should have been recorded. This process can be time-consuming and require significant resources.

Ind AS Disclosures Reconciliation

Ind AS disclosures and reconciliations show how the company’s financial numbers have changed after applying Ind AS. They clearly explain the differences between earlier accounting figures and Ind AS figures, so users can easily understand the impact on profit, equity, and cash flows. This helps everyone clearly understand the company’s financial position and results

No. Area Implications and Responsibilities for the Company
1 Objective of Disclosures & Reconciliations The company must explain the financial impact of Ind AS adoption and ongoing application, ensuring transparency on changes in equity, profit or loss, and cash flows, and enabling users to understand differences from previous GAAP.
2 Equity Reconciliation (Ind AS 101) The company is required to reconcile equity from previous GAAP to Ind AS at the date of transition and at the end of the last reporting period under previous GAAP, clearly identifying and quantifying each Ind AS adjustment.
3 Profit or Loss Reconciliation The company must present a reconciliation of profit or loss between previous GAAP and Ind AS, explaining material adjustments arising from changes in recognition, measurement, or classification under Ind AS.
4 Cash Flow Reconciliation Where cash flow statements were prepared under previous GAAP, the company must explain material differences in cash flow classification or presentation under Ind AS and disclose significant reclassifications, if any.
5 Disclosure of Transition Adjustments For each material adjustment, the company must disclose the nature of the adjustment, the relevant Ind AS applied, the reason for change, and the quantitative impact on equity or profit or loss.
6 Exemptions and Exceptions under Ind AS 101 The company must disclose optional exemptions elected and mandatory exceptions applied on first-time adoption, along with the rationale for such choices, to support transparency and audit acceptance.
7 Ongoing Ind AS Disclosure Requirements The company must continue to disclose significant accounting policies, key judgments and estimates, fair value methodologies, financial risk exposures, and related party information in each reporting period.
8 Presentation and Documentation The company must ensure reconciliations and disclosures are clearly presented, internally consistent, properly documented, and aligned with Schedule III (Division II) and  Ind AS Disclosure Checklist.
9 Audit and Regulatory Significance Ind AS disclosures and reconciliations are subject to close audit and regulatory scrutiny; any deficiencies may lead to audit qualifications, regulatory observations, or compliance issues

Professionals’ Tips for Businesses for Adopting INDAS 101

Here are some practical tips shared by experienced accountants and chartered accountants for the first-time adoption of Ind AS 101.

These best practices help companies smoothly transition from previous GAAP to Ind AS, ensure compliance with Ind AS requirements, maintain accuracy in financial statements, and build a strong and reliable financial reporting framework.

Engage qualified Ind AS professionals: First-time adoption is effective only when handled by experienced and certified professionals familiar with Ind AS requirements

Use suitable accounting systems and software: Choose accounting software that can handle Ind AS adjustments, reconciliations, and disclosures, rather than overly complex systems.

Conduct regular reviews and transition meetings: Hold periodic meetings to track progress, resolve issues, and review Ind AS adjustments.

Maintain proper documentation and internal controls: Keep clear records for transition adjustments, estimates, exemptions used, and judgments applied.

Use Ind AS information for decision-making: Ind AS data should support management decisions, not just statutory compliance.

Review system suitability regularly:Periodically assess whether current systems and processes are adequate as Ind AS reporting requirements evolve.

Conclusion 

Adopting Ind AS 101 is a major change in accounting. It needs careful planning, professional judgment, and good systems to ensure accurate reporting. Although it may take time and cost initially, it brings benefits like better transparency, easier comparison, and stronger credibility with investors and regulators. With proper support, businesses can transition smoothly and use Ind AS financial information to make informed decisions and support growth.

How can Mercurius help?

At Mercurius, our team helps businesses with Ind AS 101 and first-time adoption. We handle financial statements, reconciliations, and disclosures, and provide advisory, transition, compliance, and reporting services on an hourly, fixed, or retainer basis.

We also support bookkeeping, auditing, taxation, virtual CFO services, and financial statement preparation under Ind AS. For help with adopting Ind AS or managing your accounts, contact Mercurius for expert support.