How to Gain Practical Experience in IND AS Financial Statements?

The Indian Accounting Standards (IND AS) are crucial for anyone pursuing a career in finance and accounting in India. As businesses move towards greater transparency and global harmonisation of accounting standards, mastering IND AS becomes essential for finance professionals. Whether you’re a fresher preparing for interviews or a seasoned professional looking to gain hands-on experience, understanding how IND AS financial statements are prepared and applied is vital.

In this article, we will walk you through how to gain practical experience with IND AS financial statements and offer guidance on applying your knowledge in real-world scenarios. By following the steps outlined below, you will be able to develop a strong understanding of IND AS, enabling you to excel in your career or interviews.

Why is Mastering IND AS Financial Statements Important?

IND AS financial statements are prepared in accordance with standards that ensure consistency and comparability of financial reporting. With the Indian economy evolving and the globalisation of business practices, it’s crucial for professionals in the finance and accounting sectors to be adept at handling these financial statements.

For finance professionals, mastering IND AS not only prepares them for interviews but also equips them with the tools needed to provide strategic insights into a company’s financial position. These standards include important guidelines on lease accounting (IND AS 16), revenue recognition (IND AS 115), impairment of assets, and borrowing costs, among others.

In this context, it’s not just about memorising rules, but understanding how to apply them in practice. Let’s dive into how you can gain hands-on experience in IND AS financial statements.

Step-by-Step Guide to Gaining Practical Experience in IND AS Financial Statements

Step 1: Download Big 4 Illustrative Financial Statements

The first step in mastering IND AS is familiarising yourself with how the standards are applied in real financial statements. The best resources for this are the illustrative financial statements published by the Big 4 accounting firms — KPMG, PwC, Deloitte, and EY. These statements are designed to showcase the practical application of IND AS standards and are an excellent starting point for learning.

Where to Download:

• KPMG: You can download KPMG’s IND AS illustrative financial statements, updated regularly (such as for March 2023).
  
• PwC: Similarly, PwC offers downloadable samples that provide insight into IND AS compliance.

By reviewing these illustrative financial statements, you will see how each IND AS is implemented in different sections, including the balance sheet, income statement, and cash flow statement. These samples will give you a clear idea of how adjustments and disclosures are handled, preparing you to tackle similar scenarios in real-world financial statements.

Step 2: Download Annual Returns of Listed Companies

Once you’ve reviewed the illustrative financial statements, it’s time to move on to real-world examples. You can start by downloading the annual returns of listed companies in India. Choose companies from industries such as manufacturing, services, or trading, as these sectors tend to have simpler financials, making it easier to understand their reporting under IND AS.

Avoid initially diving into companies from complex sectors like construction, which involve intricate financial reporting due to project-based accounting and other unique factors. Listed companies are a good source of practical information since they are required to comply with all relevant accounting standards, including IND AS.

Where to Download: You can access these annual reports from websites like Screener.in, where you can find financial statements of companies listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Step 3: Read the Accounting Policies Section

The accounting policies section of the financial statement is crucial for understanding how a company has implemented IND AS. In this section, the company outlines its approach to various accounting treatments — from recognising revenue to valuing assets and liabilities.

Start by reading through this section carefully. It will provide a solid foundation for your understanding of how the company applies IND AS in its day-to-day accounting processes. By examining the accounting policies, you will be able to identify which IND AS standards the company is adhering to and how they are applied in specific circumstances.

Step 4: Review Notes to Accounts in Detail

Once you’ve read through the accounting policies, the next step is to dive into the Notes to Accounts section. This is where companies provide further details on specific line items in the financial statements, explaining the accounting treatment of various items.

The Notes to Accounts will explain how the company has handled various adjustments, such as depreciation, revenue recognition, impairment of assets, and more. It will also highlight the key estimates and judgments made by the company, providing a more detailed understanding of the financial statements.

Why It’s Important: The Notes to Accounts section bridges the gap between accounting policies and the actual financial numbers. By reading through this section, you will gain a deeper understanding of how the company applies its accounting policies in practice.

Step 5: Refer to Big 4 Illustrative Financial Statements Again

Now that you’ve familiarised yourself with the Notes to Accounts, it’s time to go back to the Big 4 illustrative financial statements. Cross-reference the real-world examples you have studied with the illustrative examples to verify the application of IND AS.

For instance, if you come across a specific revenue recognition treatment or lease adjustment in the real company’s financials, check how the Big 4 firms have handled similar situations in their illustrative statements. This comparison will help you solidify your understanding and allow you to spot any differences in application.

This step helps you align the theoretical aspects of IND AS with practical implementation, which is crucial for mastering the standards.

Step 6: Final Review and Practical Application

After going through these steps, take time to review the entire financial statement again. This final review is important to cement your knowledge. Look at the financial statements holistically — understand how the balance sheet, profit and loss statement, and cash flow statement all come together, and how IND AS has shaped these figures.

Practical Application: The more you practise preparing financial statements under IND AS, the more proficient you will become. As you progress, try applying the steps you’ve learned to the financial statements of multiple companies. By repeating this process across different industries and company types, you’ll gain the necessary experience to handle even complex financial scenarios.

Why Focus on Common Adjustments in IND AS?

In the early stages of learning IND AS, it’s important to focus on the most common adjustments that are applicable across most companies. These adjustments include:

1. IND AS 16 – Leases: Accounting for leases, whether operating or finance leases, is one of the most important aspects of IND AS. The lease accounting standard has undergone significant changes under IND AS, and understanding its application is crucial for any finance professional.
2. IND AS 115 – Revenue Recognition: The 5-step model in IND AS 115 governs how revenue should be recognised in different scenarios. Understanding its application across various industries is vital.
3. Impairment of Assets: Recognising impairment losses on assets and measuring their recoverable amounts is another important adjustment.
4. Borrowing Costs: This includes capitalising borrowing costs for qualifying assets under IND AS.

By focusing on these common adjustments, you can quickly gain a practical understanding of how most companies prepare their financial statements under IND AS.

How long will it take to master IND AS financial statements?

Mastering IND AS financial statements requires consistent practice. You can start feeling confident within a few weeks by following the steps outlined in this article. Repetition is key to deepening your understanding.

Final Thoughts

Gaining practical experience in IND AS financial statements is essential for excelling in the finance and accounting sectors. By following the steps outlined in this article — from downloading Big 4 illustrative financial statements to reviewing annual returns of listed companies — you can build a solid understanding of IND AS and apply it effectively in your career.