Ind AS 20 and Typical Government Schemes in India – Part 1
Tejas Chandulal Shah, Chartered Accountant
Indian Accounting Standard - 20 (‘Ind-AS 20’ or ‘the Standard’) prescribes guidance on accounting for and disclosure of government grants and government assistance.
Ind-AS 20 is based on IAS-20, which IASB adopted in 2001 based on draft/standard issued in 1983. As Ind-AS 20 is based on IAS-20, a standard issued before the issuance of the earlier Conceptual Framework, due to legacy reasons, IAS-20 has some inconsistency with the Conceptual Framework and for which a project was initiated in 2003. However, the said project has been deferred since then due to various reasons. Since 2006, there has been no further update on the alignment of IAS-20 with the Conceptual Framework. Alignment of IAS-20 (equally applies to Ind-AS 20) with the Conceptual Framework is under consideration (as the project is deferred and not discarded) mainly on the following counts:
a) Recognition of grant as deferred credit when the entity has no outstanding obligation, and
b) Options available with the entity which reduce the comparability of financial statements and understate assets controlled by the entity.
In this current discussion, we will not discuss IASB’s work on the same as such, however, we will discuss some divergence and issues arising from the pendency of this project.
The Standard requires that the government grant/assistance be accounted for and/ or disclosed to ensure that the user of the financial statement can appreciate the impact of such a grant/ benefit/ assistance on the financial performance as well as future resource generation capabilities of the entity. This also helps the financial statement user while comparing the results of the entity availing such benefits/ assistance with the results of other entities in similar industries but not availing such benefits.
Government refers to government, government agencies and similar bodies, whether local, national or international.
Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance for the purpose of this Standard does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in development areas or the imposition of trading constraints on competitors.
Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future complian