[Opinion] Transitioning from IGAAP to Ind AS | The Definitive Guide to Ind AS Transition

Himesh Dilip Gajjar – [2026] 182 taxmann.com 856 (Article)

1. Introduction

The transition from Indian Generally Accepted Accounting Principles (IGAAP) to Indian Accounting Standards (Ind AS) is driven by the need for convergence with International Financial Reporting Standards (IFRS), aiming to enhance the transparency, global comparability, and credibility of financial statements prepared by Indian corporates. However, viewing this transition solely as a compliance exercise to meet regulatory mandates is a critical misstep. It is, in fact, a strategic business imperative with far-reaching implications. A meticulously planned and flawlessly executed transition is paramount as it serves not only to meet the requirements of the Companies Act, 2013 and notifications by the Ministry of Corporate Affairs (MCA) but also to minimise business disruptions, avoid the substantial costs and reputational damage associated with errors and subsequent restatements, and maintain the trust of investors, lenders, and other stakeholders.

The adoption of Ind AS profoundly impacts key financial metrics, which can, in turn, affect critical areas such as compliance with debt covenants, computation of Minimum Alternate Tax (MAT), and the determination of distributable profits under Section 123 of the Companies Act, 2013. These are not mere accounting adjustments; they have tangible economic consequences. Ind AS, with its principle-based approach and emphasis on reflecting the economic substance of transactions (often through fair value measurements), can provide management with a much richer and more realistic understanding of the company’s performance and financial position. The author’s experience from numerous transitions suggests that entities that embed this strategic view into their transition process achieve more sustainable and beneficial long-term outcomes.

This article aims to offer an exhaustive practical analysis of this transition. It talks about the conceptual divergences between the old and new frameworks, and scrutinises the Indian Accounting Standards, which have driven the most significant quantitative impacts.

2. The Paradigm Shift

Indian GAAP was predominantly a rule-based framework. It relied heavily on the legal form of transactions and historical cost. If a company bought a piece of land 20 years ago, it sat on the balance sheet at that 20-year-old price, ignoring decades of appreciation. If a financial instrument was legally structured as equity (e.g., Preference Shares), it was recorded as Share Capital, even if it carried a mandatory redemption clause that economically made it debt.

Now, Ind AS, converged with IFRS, introduced a principle-based framework centered on “Substance over Form”. This shift places an immense burden on professional judgment. Now, the accountant can no longer merely look at the contract’s title; they must deconstruct its terms to understand the economic reality.

Economic Substance – Under Ind AS 32, a preference share that must be redeemed is a liability, not equity. This seemingly academic distinction can radically alter a company’s Debt-to-Equity ratio, triggering covenant breaches in loan agreements.
Fair Value – The move from Historical Cost to Fair Value (Ind AS 113) forces companies to reflect the current market value of assets and liabilities. This brings the balance sheet closer to economic reality but introduces significant volatility in the Statement of Profit and Loss (P&L), as mark-to-market gains and losses fluctuate with market sentiment.

The driving force behind Ind AS was not academic purity but economic necessity. In the early 2000s, as Indian conglomerates like Tata, Reliance, and Infosys began acquiring global assets and listing on foreign exchanges, the limitations of IGAAP became a bottleneck. International investors found it difficult to benchmark Indian companies against their global peers. An Indian steelmaker’s EBITDA calculated under IGAAP was not comparable to a European rival’s EBITDA under IFRS.

Adopting Ind AS was a strategic move to unlock global capital. Foreign Direct Investment (FDI) relies on trust, and by aligning with IFRS, the accounting language used in over 140 jurisdictions, India reduced the “translation risk” for foreign investors.

3. The Conceptual Framework

The transition from IGAAP to Ind AS required unlearning decades of “matching concepts” and “prudence” as defined in the old world. The new framework rests on 3 pillars: