MCA amends Indian Accounting Standard (Ind AS) – Classification of current liabilities and disclosure of supplier finance arrangements
MCA vide Notification No. G.S.R. 549(E) dated 13.08.2025 has notified the Companies (Indian Accounting Standards) Second Amendment Rules, 2025. The amendments shall come to effect from 19/08/2025.
Indian Accounting Standards (Ind AS) are notified by the Ministry of Corporate Affairs (MCA) and are based on IFRS (International Financial Reporting Standards). They are applicable in a phased manner, mainly to companies and certain other entities
The following Accounting Standards have been amended:
Indian Accounting Standard (Ind AS) 1 – Presentation of Financial Statements. Amendment has been made in relation to classification of current liabilities.
It has been provided that an entity shall classify a liability as current when it does not have the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period.
The “right to defer settlement for at least twelve months” has been explained as under:
Paragraph 72A – An entity’s right to defer settlement of a liability for at least twelve months after the reporting period must have substance and, as illustrated in paragraphs 72B–73 and 75 hereinbelow, must exist at the end of the reporting period.
Paragraph 72B – An entity’s right to defer settlement of a liability arising from a loan arrangement for at least twelve months after the reporting period may be subject to the entity complying with conditions specified in that loan arrangement (hereafter referred to as ‘covenants’). For the purposes of applying paragraph 69(d), such covenants:
(a) affect whether that right exists at the end of the reporting period—as illustrated in paragraphs 74–75—if an entity is required to comply with the covenant on or before the end of the reporting period. Such a covenant affects whether the right exists at the end of the reporting period even if compliance with the covenant is assessed only after the reporting period (for example, a covenant based on the entity’s balance sheet at the end of the reporting period but assessed for compliance only after the reporting period):
(b) do not affect whether that right exists at the end of the reporting period if an entity is required to comply with the covenant only after the reporting period (for example, a covenant based on the entity’s balance sheet six months after the end of the reporting period).
Paragraph 73 – If an entity has the right, at the end of the reporting period, to roll over an obligation for at least twelve months after the reporting period under an existing loan facility, it classifies the obligation as noncurrent, even if it would otherwise be due within a shorter period. If the entity has no such right, the entity does not consider the potential to refinance the obligation and classifies the obligation as current.
Paragraph 74 – Where there is a breach of a material covenant of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, the entity does not classify the liability as current, if the lender agreed, after the reporting period and before the approval of the financial statements for issue, not to demand payment as a consequence of the breach. However, in such circumstances, the entity shall disclose information as per paragraphs 18 and 19 of Ind AS 107 for each breach.
Paragraph 75A – Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least twelve months after the reporting period. If a liability meets the criteria in paragraph 69 for classification as non-current, it is classified as non-current even if management intends or expects the entity to settle the liability within twelve months after the reporting period, or even if the entity settles the liability between the end of the reporting period and the date the financial statements are approved for issue. However, in either of those circumstances, the entity may need to disclose information about the timing of settlement to enable users of its financial statements to understand the impact of the liability on the entity’s balance sheet.
The term “Settlement” has been defined as under:
Paragraph 76A – For the purpose of classifying a liability as current or non-current, settlement refers to a transfer to the counterparty that results in the extinguishment of the liability. The transfer could be of:
(a) cash or other economic resources—for example, goods or services; or (b) the entity’s own equity instruments, unless paragraph 76B applies.
Paragraph 76B – Terms of a liability that could, at the option of the counterparty, result in its settlement by the transfer of the entity’s own equity instruments do not affect its classification as current or noncurrent if, applying Ind AS 32 Financial Instruments: Presentation, the entity classifies the option as an equity instrument, recognising it separately from the liability as an equity component of a compound financial instrument.
Paragraph 76ZA – In applying paragraphs 69–75 related to classification of current liabilities, an entity might classify liabilities arising from loan arrangements as non-current when the entity’s right to defer settlement of those liabilities is subject to the entity complying with covenants within twelve months after the reporting period. In such situations, the entity shall disclose information in the notes that enables users of financial statements to understand the risk that the liabilities could become repayable within twelve months after the reporting period, including:
(a) information about the covenants (including the nature of the covenants and when the entity is required to comply with them) and the carrying amount of related liabilities. (b) facts and circumstances, if any, that indicate the entity may have difficulty complying with the covenants—for example, the entity having acted during or after the reporting period to avoid or mitigate a potential breach. Such facts and circumstances could also include the fact that the entity would not have complied with the covenants if they were to be assessed for compliance based on the entity’s circumstances at the end of the reporting period.
Paragraph 139U related to classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants has also been substituted.
Indian Accounting Standard (Ind AS) 7 – Statement of Cash Flow. Amendments have been made for disclosure related to “Supplier finance arrangements”.
Supplier finance arrangements have been defined as are characterised by one or more finance providers offering to pay amounts an entity owes its suppliers and the entity agreeing to pay according to the terms and conditions of the arrangements at the same date as, or a date later than, suppliers are paid. These arrangements provide the entity with extended payment terms, or the entity’s suppliers with early payment terms, compared to the related invoice payment due date. Supplier finance arrangements are often referred to as supply chain finance, payables finance or reverse factoring arrangements. Arrangements that are solely credit enhancements for the entity (for example, financial guarantees including letters of credit used as guarantees) or instruments used by the entity to settle directly with a supplier the amounts owed (for example, credit cards) are not supplier finance arrangements.
It has been provided that an entity shall disclose information about its supplier finance arrangements that enables users of financial statements to assess the effects of those arrangements on the entity’s liabilities and cash flows and on the entity’s exposure to liquidity risk.
Indian Accounting Standard (Ind AS) 12 – Income Taxes
This Standard applies to income taxes arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development (OECD), including tax law that implements qualified domestic minimum top-up taxes described in those rules. Such tax law, and the income taxes arising from it, are hereafter referred to as ‘Pillar Two legislation’ and ‘Pillar Two income taxes’. As an exception to the requirements in this Standard, an entity shall neither recognise nor disclose information about deferred tax assets and liabilities related to Pillar Two income taxes.”
Apart from the above, the following IndAs have also been amended:
Indian Accounting Standard (Ind AS) 28
Indian Accounting Standard (Ind AS) 32
Indian Accounting Standard (Ind AS) 101
Indian Accounting Standard (Ind AS) 107
Indian Accounting Standard (Ind AS) 108
Indian Accounting Standard (Ind AS) 109
Indian Accounting Standard (Ind AS) 115
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