Ind AS Amendments for FY 2025–26 | Key Audit Considerations

Editorial Team – [2026] 184 taxmann.com 235 (Article)

1. Introduction

The financial year 2025–26 brings notable developments in the financial reporting framework for entities applying Indian Accounting Standards (Ind AS). The Ministry of Corporate Affairs (MCA), through the Companies (Indian Accounting Standards) Second Amendment Rules, 2025, has introduced amendments to several standards.

Among the changes, certain amendments are particularly significant from a financial reporting and audit perspective. These include the revised guidance on classification of liabilities containing covenants under Ind AS 1, enhanced disclosure requirements relating to supplier finance arrangements under Ind AS 7 and Ind AS 107, and the accounting implications arising from the OECD Pillar Two global minimum tax framework under Ind AS 12.

Additionally, the introduction of the New Labour Codes is expected to have a considerable impact on employee benefit obligations, as the revised definition of wages may increase liabilities related to gratuity and other long-term employee benefits.

In light of these developments, auditors will need to place greater emphasis on evaluating compliance with loan covenants, understanding supplier financing arrangements, assessing potential tax exposures, and reviewing employee benefit valuations while auditing financial statements for the financial year 2025–26.

Let us understand each amendment applicable from the financial year 2025-26 in detail.

2. Amendment to Ind AS 1 – Classification of liabilities as Current or Non-Current

The amendment to Ind AS 1 clarifies that the classification of a liability as current or non-current is determined based on the entity’s right to defer settlement of the liability for at least twelve months after the reporting period, replacing the earlier concept of an “unconditional right”.

The right to defer settlement must exist and have substantive effect as at the reporting date. Such a right may also be subject to compliance with conditions or covenants specified in the loan arrangement. Accordingly, even where the right to defer settlement is conditional, the liability can still be classified as non-current, provided the entity complies with the specified conditions as at the reporting date.

The amendment further clarifies that the classification of liabilities is not affected by management’s intention or expectation to settle the liability within twelve months after the reporting period. Similarly, if the liability is settled after the reporting period but before the approval of the financial statements, the classification remains unchanged. If the entity had the right to defer settlement as at the reporting date, the liability shall continue to be presented as non-current, although appropriate disclosures may be required to inform users about the timing of settlement.

The amendment also addresses situations involving breach of loan covenants. Where an entity breaches a covenant of a long-term borrowing on or before the reporting date and, as a result, the liability becomes payable on demand, the liability must be classified as current. This classification applies even if the lender subsequently agrees, after the reporting period but before approval of the financial statements, not to demand repayment, since the entity did not have the right to defer settlement as at the reporting date.

Overall, the amendment reinforces that the classification of liabilities depends on the rights available to the entity at the reporting date, rather than management’s intentions or events occurring after the reporting period.

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2. Amendment to Ind AS 7 – Disclosure of Supplier Finance Arrangements

The amendment to Ind AS 7 introduces new disclosure requirements relating to supplier finance arrangements to enhance transparency about their impact on an entity’s liabilities, cash flows and liquidity risk exposure.

Supplier finance arrangements generally involve one or more finance providers paying the amounts owed by an entity to its suppliers, while the entity settles the payment with the finance provider at the same date as, or later than, the date on which the supplier is paid. Such arrangements may provide the entity with extended payment terms or enable suppliers to receive early payment. These arrangements are commonly referred to as supply chain finance, payables finance or reverse factoring. However, arrangements that merely provide credit enhancement (such as financial guarantees or letters of credit) or instruments used to settle payments directly with suppliers (such as credit cards) are not considered supplier finance arrangements.

To enable users of financial statements to assess the impact of these arrangements, entities are required to provide aggregated disclosures about their supplier finance arrangements. These disclosures include the key terms and conditions of the arrangements, such as extended payment terms or any security or guarantees provided. Where arrangements have dissimilar terms, the entity must disclose them separately.

Entities must also disclose information about the carrying amounts of financial liabilities that form part of supplier finance arrangements, including the relevant balance sheet line items, both at the beginning and end of the reporting period. In addition, entities must disclose the portion of those liabilities for which suppliers have already been paid by the finance providers, as well as the range of payment due dates for such liabilities and comparable trade payables that are not part of supplier finance arrangements. Where payment terms vary widely, additional explanations or stratified ranges should be provided.

Further, entities are required to disclose the nature and impact of non-cash changes in the carrying amounts of such liabilities during the reporting period. Examples include changes arising from business combinations, foreign exchange movements or other transactions that do not involve cash flows.

Overall, the amendment seeks to improve the visibility of supplier finance arrangements and their implications for working capital management and liquidity risk, thereby enabling users of financial statements to better understand the entity’s financing structure.

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