Accounting standards – Comparative Accounting standards – Comparative study study

Accounting standards – Comparative Accounting standards – Comparative

study study



Financial statements

– Indian GAAP: Balance sheet, Profit and loss account and Cash flows statement* (*only in case of listed companies). Comparative financial statements of previous period necessary

– US GAAP: Balance sheet, Income statement, Statement of stockholders’ equity and statement of cash flows. Balance sheet for two years and Income statement, Statement of stockholders’

equity and Cash flows statement for three years* (*two years for non-listed companies)

– IAS: Balance sheet, Income statement, Statement of changes in equity, cash flows statement and accounting policies and notes.

Comparative information for previous period necessary

Accounting standards – Comparative study Accounting standards – Comparative study

 Accrual concept

– AS 1 and Sec. 209(3)(b) of the Companies Act, 1956

– US GAAP SFAC 6

– IAS 1

 Going concern assumption

– AS 1

– US GAAP APB 13, SAS 59

– IAS 1

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 Materiality

– AS 1

– US GAAP SFAC 2

– IAS 1

 Consistency

– AS 1

– US GAAP SFAC 2

– IAS 1

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 Accounting changes – Indian GAAP

– Change in an accounting policy permitted only if



Change required by any statute



For compliance with any other AS



Results into a more meaningful presentation

– AS 5 requires disclosure of change, if impact material

– Impact of change to be reported in the period of change

Accounting standards – Comparative study Accounting standards – Comparative study

 Accounting changes – US GAAP

– Change in principle, estimate or reporting enterprise

– Cumulative effect of a change in principle to be included in net income of the period of change net of tax effects after extraordinary items except certain types of changes

– Proforma effect of retroactive application of principle to be shown on the face of income statement

– A change in accounting estimate shall be reported in the current period or both current and future periods

– Correction of an error is not an accounting change.

Should be reported as a prior period adjustment

Accounting standards – Comparative study Accounting standards – Comparative study

 Accounting changes – IAS

– A change in accounting policy is to be applied retroactively unless amount is indeterminable

– Opening retained earnings adjusted for cumulative effect and comparative information is restated

– A change in accounting estimate is reported in the current period or both current and future periods

– Correction of a fundamental error that relates to prior

periods should be reported by adjusting the opening

balance of retained earnings. Comparative information

Accounting standards – Comparative study Accounting standards – Comparative study

 Inventories

– Indian GAAP



Cost or net realisable value (NRV) whichever lower



Cost determination – FIFO or weighted average

– IAS



Cost or NRV whichever lower



Cost determination methods includes LIFO also

however, simultaneous disclosure of lower of NRV

or FIFO/weighted average/current cost required

Accounting standards – Comparative study Accounting standards – Comparative study

 Inventories (contd…)

– Lower of cost or market

– Items like precious metals having a fixed monetary value with no substantial cost of marketing may be valued at such monetary value

– Agricultural, mineral and other products, the units of

which are interchangeable and have an immediate

marketability at quoted price may be valued at stated

sales prices less costs to sell

Accounting standards – Comparative study Accounting standards – Comparative study



Research and development

– Indian GAAP



R&D costs may be deferred if certain criteria are satisfied such as identification of clearly defined product or process, demonstration of technical feasibility study, marketability of the product or service etc.

– US GAAP



Benchmark treatment is that all R&D expenses are charged to income when incurred

– IAS



Research costs to be charged when incurred, development

costs may be recognised as intangible asset if certain criteria

are satisfied

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

Property plant and equipment – Indian GAAP

– Carried at historic cost less depreciation or at revalued amount

– Foreign exchange gains and losses adjusted to carrying value if relate to the funds borrowed for acquisition of assets

– Upward revaluation possible

– Assets retired from active use and held for disposal are stated at the lower of net book value or net realisable value and are disclosed separately

– If revalued, entire class of an asset shall be revalued and the basis of revaluation to be disclosed

– Depreciation at rates specified in Sch. XIV or at higher rates

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 Property plant and equipment – US GAAP

– No specific pronouncement

– Upward revaluation not permitted in any case

– Foreign exchange gains or losses on funds borrowed for acquisition of assets to be charged to income

– No depreciation rates specified, to be determined on the

basis of estimated useful life

Accounting standards – Comparative study Accounting standards – Comparative study

 Property plant and equipment – IAS

– Upward revaluation possible

– Exchange losses on settlement of foreign currency liabilities to be charged to income (can be adjusted to carrying amount of related asset only in certain circumstances as an alternate treatment)

– No depreciation rates specified, to be determined on the

basis of estimated useful life

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

Interest capitalisation

– Definition of qualifying asset as per all GAAPs are same except that the US GAAP also includes investments accounted for by using the equity method when the investee has activities in progress to commence its planned principal production provided it uses the funds to acquire qualifying assets

– Indian GAAP disclosure: accounting policy adopted for borrowing costs and amount of interest capitalised

– US GAAP disclosure: Interest capitalised. No specific requirement to disclose accounting policy

– IAS disclosure: In addition to Indian GAAP requirements, the

capitalisation rate used to determine the borrowing costs shall

also be disclosed

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 Segment information

– Applicability

– Business segment, geographical segment and operating segment

– Unit or division producing products consumed internally

– Accounting policies/principles used to disclose segment information

– Reporting formats

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 Segment information (contd…) – Indian GAAP disclosure



Total cost incurred to acquire segment assets, depreciation and amortisation, provisions and unrealised exchange gains/losses to be disclosed for each reportable segment



Changes in accounting polices having material effect on segment information and description of nature of change



Reconciliations between the information for reportable segments and the aggregate amount in the enterprise FSs.



Types of products and services included in each reported

business segment and composition of each reported

geographical segment

Accounting standards – Comparative study Accounting standards – Comparative study

 Segment information (contd…)

– US GAAP disclosure (in addition to what is required as per Indian GAAP)



An enterprise shall report interest revenue and interest expense separately for each reportable segment. (Indian GAAP leaves this requirement voluntary)



The amount of investment in equity method investees



Total expenditures for additions to long-lived assets other than

financial instruments, long-term customer relationships of a

financial institution, mortgage and other servicing rights,

deferred policy acquisition costs, and deferred tax assets

Accounting standards – Comparative study Accounting standards – Comparative study

 Segment information (contd…)

– IAS Disclosure (in addition to what is required as per Indian GAAP)



Share of profit or loss of equity and JV investments



The basis of inter-segment pricing

Accounting standards – Comparative study Accounting standards – Comparative study

 Related party disclosures

– No major difference between Indian GAAP and IAS

– Indian GAAP also requires to disclose provision for doubtful debts due from RPs and any write off or write back during the period

– US GAAP excludes other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business from the purview of RP transactions

– AS 18 does not require disclosure of transactions that would

conflict the duties of confidentiality under an agreement or a

statute. No such provision is stipulated in US GAAP or in

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 Leases

– Applicability

– Classification of leases from the stand point of the lessor and the lessee



Indian GAAP : Operating and Finance lease



US GAAP : Operating and Capital lease from the stand point of the lessee – Sales-type, Direct financing, Leveraged and Operating lease from the stand point of the lessor



IAS : Operating and Finance lease

Accounting standards – Comparative study Accounting standards – Comparative study

 Leases (contd…)

– Following criteria are additionally specified in US GAAP which, if not met, the lease can only be classified as an operating lease (from the stand point of the lessor)



Collectibility of the minimum lease payments is reasonably predictable



No important uncertainties surround the amount of

unreimbursable costs yet to be incurred by the lessor

under the lease

Accounting standards – Comparative study Accounting standards – Comparative study

 Earnings per share – Indian GAAP

– AS 20 applicable to companies whose equity shares and potential equity shares are listed

– Basic and Diluted EPS to be disclosed with equal prominence for all periods, on the face of Profit and loss account

– To be disclosed separately for each class of equity shareholders having different right to share profit

– Shares issued during the reporting period as

consideration in an amalgamation are treated as issued

at the beginning of the period

Accounting standards – Comparative study Accounting standards – Comparative study

 Earnings per share – Indian GAAP (contd…)

– Bonus issue: Restatement of prior year EPS

– Basic and diluted EPS need not be adjusted for effects of fundamental errors and changes resulting from accounting policies

– Nominal value of shares along with EPS also required (not required as per US GAAP and IAS)

– Anti-dilutive securities are ignored for the purpose of

calculation of diluted EPS by all GAAP

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 Earnings per share – US GAAP

– Requires to disclose reconciliation of the numerator and denominator of the basic EPS to to the numerator and denominator of the diluted EPS

– Treasury stock method to be applied to check the dilutive effects of options and warrants

– Shares issued in a business combination to be

considered from the date of combination

Accounting standards – Comparative study Accounting standards – Comparative study

 Earnings per share – IAS

– Applicable to public companies only

– Equal prominence of basic and diluted EPS disclosure on the face of Income statement for all periods presented

– To be disclosed for each class of common shareholders having different dividend rights

– Numerator is calculated net of minority interest and

preference dividends

Accounting standards – Comparative study Accounting standards – Comparative study

 Earnings per share – IAS (contd…)

– To see if potential equity shares are dilutive or not, preference dividend, items of discontinued operations and extra ordinary items and effects of errors and changes in accounting policies excluded

– Treasury stock method used for options and warrants

– Shares issued upon a business combination to be

considered from the date of combination

Accounting standards – Comparative study Accounting standards – Comparative study



Consolidation – Indian GAAP

– Mandatory for only listed companies

– Consolidated FSs include Consolidated Balance sheet, Consolidated Profit and loss account and notes thereto

– Consolidated cash flows necessary only if parent presents its own cash flows statement

– Cost of investment to parent eliminated

– Any excess of cost over parent’s portion in subsidiary’s equity on the date of investment to be recognised as goodwill. No specific guidance available at present to treat this goodwill, impairment test still necessary

– Negative goodwill to be treated as Capital reserve in the

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

Consolidation – Indian GAAP (contd…)

–

In case of step-acquisition, the CFSs are prepared from the date when the investee becomes subsidiary (IAS at par)

–

Parent’s portion of equity in a subsidiary

–

Cessation of a subsidiary, Investment to be accounted for as per AS 13 unless it becomes an associate, results of operations to be disclosed in the CFSs until the date of cessation (IAS at par)

–

In parent’s separate FSs, investment in subsidiary to be accounted for as per AS 13

–

Different accounting year followed by subsidiary (Gap not more than 6 months, 3 for US GAAP and IAS)

–

Minority interest disclosure

–

Uniform accounting policies to be followed to the extent possible or else

the fact that different policies followed to be stated

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 Consolidation – US GAAP

– Different accounting year followed by parent and subsidiary

– Consolidation policy to be disclosed

– Income taxes paid on inter company profits on assets remaining within the group are deferred or the inter company profits to be eliminated are appropriately reduced

– Step acquisition, no change compared to Indian GAAP

– Acquisition during the year, period of CFSs, two

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 Consolidation – US GAAP (contd…)

– Disposal of investment in subsidiary during the year:

Omit the details of operations of subsidiary from CFSs, parent’s share in equity till the date of disposal to be shown separately

– Excess of losses applicable to MI in excess of

subsidiary’s equity capital is charged against majority

interest (same as Indian GAAP unless MI has agreed to

make good the losses)

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 Consolidation – IAS

– Uniform accounting policies to be followed to the extent practicable else the fact that different accounting policies followed should be stated

– If a Special Purpose Entity (SPE) is controlled by an

entity, SPE is consolidated with that entity

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

Taxes on income

– Applicability

– Methodology



Income statement approach



Asset and liability approach



Balance sheet liability approach

– Recognition of deferred tax asset



Reasonable certainty



Virtual certainty



Valuation allowance

– Tax rates

– Disclosure

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 Stock-based compensation