Interpreting Guarantees Under Ind As: Determining The Correct Standard By Contract Term

Companies frequently provide guarantees on the obligations of other entities, for example bank loan of a joint venture (JV), performance under a contract of a subsidiary, or payment obligations of an associate. These guarantees can take many forms such as financial guarantees, performance guarantees, credit guarantees, and there has been significant diversity in how these are accounted for. Some entities treated guarantees as mere contingent liabilities with disclosure only, while others recognized liabilities at fair value under Ind AS 109, Financial Instruments. This divergence arose due to ambiguity over which Indian Accounting Standard (Ind AS) applies to a given guarantee.

A recent agenda decision by the IFRS Interpretations Committee (IFRIC) in April 2025 dealing with analogous IFRS standards has provided much needed clarity on the accounting treatment for issued guarantees. Although issued under IFRS, this guidance is relevant for interpreting Ind AS. In this article, the authors discuss the types of guarantees commonly seen, the diversity in practice, the clarifying guidance, and the conclusion reached.

TYPES OF GUARANTEES AND COMMON SCENARIOS

Guarantees can be issued in many forms and for various purposes, such as:

(i) Financial Guarantees: These involve an