The new accounting standard for revenue recognition help in "improved disclosures" as well as reduce the scope for interpretations on various areas, according to chartered accountants' apex body ICAI.
Ind AS (Indian Accounting Standard) 115 pertaining to revenue recognition is effective from today.
The Institute of Chartered Accountants of India (ICAI) said the new revenue standard brings in a comprehensive and robust framework for recognition, measurement and disclosure of revenue.
"Ind AS 115, based on IFRS 15 Revenue for Contracts with Customers, is the culmination of IFRS and US GAAP (Generally Accepted Accounting Principles) convergence project. Information about revenue is very important and is used to assess a company's financial performance and position and to compare that company with other companies," the institute said in a statement.
The objective of Ind AS 115 is to establish the principles that an entity should apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer, according to a notification issued by the Corporate Affairs Ministry.
Once it is in force, the other two standards Ind AS 18 and 11, which are related to revenue and construction contracts, would be withdrawn.
The ICAI said that Ind AS 115 would improve comparability of revenue across entities, industries, global capital markets and would require "more improved disclosures to help investors and analysts better understand entity's revenue".
The standard prescribes only one underlying principle for revenue recognition -- transfer of control over goods/ services -- and replaces the 'fair value' concept with 'transactions price', which is better suited for measurement of revenue, ICAI said.
It also reduces "interpretations/ guidance by bringing in clarity in areas such as multiple element contracts/bundled products, licensing, royalties for intellectual properties, financing components, variable consideration", the statement added.
ICAI President Naveen N D Gupta said the institute is committed to enhance the quality of financial reporting in India. "ICAI strongly believes remaining converged with IFRS Standards at all times will enable Indian entities to raise funds at globally competitive rates by eliminating country specific discount phenomena...," he added.
Ind AS is converged with International Financial Reporting Standards (IFRS).
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