Indian GAAP , IFRS & US GAAP

a comparison

A Presentation by:
Rajeev Talwar, FCA,MBA

IGAAP, IFRS & US GAAP Comparison

Presentation topics

Conceptual framework
Balance Sheet
Income Statement

IGAAP, IFRS & US GAAP Comparison

Conceptual Framework
1. Conceptual frameworks define the fundamental accounting
principle
p p and theories for formulation of accountingg standards. They
y
also decide : Elements of Financial statements,qualitative
characteristics, fundamental assumptions , other concepts etc.

2. Framework statements have been issued in IGAAP and IFRS . In US

GAAP, Statement of Financial Accounting Concepts (SFAC) act as
framework statement which are detailed and rule oriented .

3. Framework assist in- Standard Setting process, interpretation and

application of Accounting standards, harmonisation with other
standards enabling Auditors in forming an opinion wherever there are
standards,
no standard or standards are silent etc.

IGAAP, IFRS & US GAAP Comparison

Conceptual Framework ..Indian
Indian GAAP
• ICAI framework statement was issued in July 2000. This is NOT an
Accountingg standard in itself and does not override any
y AS.
• Users identified as - Investors, Lenders, suppliers, Customers,
Employees, Government and Public.

• Underlying
U d l i Assumptions-
A ti A
Accrual
l basis,
b i Going
G i Concern,
C
Consistency,

• Qualitative characteristics- Understandability, Relevance, Reliability,

Comparability , true and fair view.
• Elements of FS- Assets, Liabilities, equity, performance, income,
expenses, Capital maintenance adjustments. Also defines the
guidelines for recognition of elements of Financial statements.
• Outlines the measurement criteria for elements of Financial
statements including Historical Cost, Current cost , Realisable Value
• Lays down concept of Financial and operating Capital and their
maintenance
IGAAP, IFRS & US GAAP Comparison
Conceptual framework.Indian
framework Indian GAAP..
GAAP
• ICAI is working on project to harmonise IGAAP with IFRS . New
Accounting standards are on the anvil for Financial instruments,
instruments
Share based payments, Retirement benefit Plans, Agriculture,
Insurance etc.

• Adoption of Accounting standards issued by ASB is made compulsory

for Indian Companies as per Companies Act,

• GAAP announced by ASB of ICAI.

ICAI Till date 29 AS announced
announced, and
effective 28 GAAP, after withdrawal of AS 8 on R&D. Several guidance
notes also issued which members are required to follow. GAAP also
pronounced by SEBI, Listing agreement and statutes like Companies
Act, RBI Act, Banking Act, IRDA Act , Electricity Act etc.

• Enterprises have been classified in 3 categories for application of

Accounting standards: Level 1,
1 Level 2 and Level 3

IGAAP, IFRS & US GAAP Comparison

Conceptual Framework ..IFRS
IFRS
• IFRS framework was issued in April, 1989. This Framework deals with
Objective of Financial statement, Qualititative characteristics, elements
of financial statement, Concept of Capital and capital maintenance.

• Qualitative characteristics- Understandability,

Understandability Relevance,
Relevance materiality
materiality,
Reliability, faithful representation, substance over form, neutrality,
prudence, completeness, Comparability and true and fair view

• Measurement
M criteria
i i includes
i l d PV in
i addition
ddi i to Historical
Hi i l Cost,
C
Current cost and Realisable Value

• Concept of Financial and Physical Capital as well their maintenance

enunciated in framework which have also been incorporated in IGAAP.

• IFRS is required or permitted for use in over 90 Countries for

Financial reporting,
reporting EU has recently mandated application of IFRS for all
listed Companies affecting over 7000 companies .
IGAAP, IFRS & US GAAP Comparison
Conceptual Framework ..US
US GAAP
Under US GAAP, detailed framework for pronouncing accounting
standards are contained in SFAC- Statement of Financial Accounting
g
Concepts .Total seven SFAC have been issued, out of which SFAC-3 is
replaced.

SFAC forms the basis of pronouncement of FAS.

FAS SFAC is not
authoritative GAAP, but can be used if no GAAP exists. There are 6
SFAC in force on Objective , Quality Characteristics, Recognition and
measurement, Elements and Cash flow.

GAAP /SFAC pronouncement are made by FASB which is not an

accounting Body like ICAI. AICPA does not pronounce GAAP.

Over 150 FAS announced till date, many of which are amendment /
replacement.

Separate Accounting Board for Government Companies called GASB.

IGAAP, IFRS & US GAAP Comparison

US GAAP Hierarchy

SFAC

GASB FAS & FIN,

FIN APB
Opinion, ARB Bulletin

FASB Tech Bulletin, AICPA

guides, SOP (AICPA)

AICPA AcSEC Practice Bulletins( FASB Cleared)

, FASB EIFT Consensus
C Positions
P iti

AICPA Accounting interpretation, FASB Q&A,

other
th Industry
I d t literature
lit t and
dPPractices
ti

IGAAP, IFRS & US GAAP Comparison

Conceptual Framework ..Comparison
Comparison
• Historical Costing – IGAAP and IFRS permits revaluation in contrast to
Historical Cost convention
convention, while US GAAP does not permit
revaluation. Only securities and derivatives can be valued at Fair Value
under IFRS and US GAAP.

• True & Fair View: Under IFRS and IGAAP framework , there is an
assumption that adoption of IFRS /IGAAP leads to a true and fair
presentation, there is no such assumption under US GAAP.

• Prudence Vs Rules: There is a common allegation against US GAAP,

that they are rule oriented and based on specific cases. However this is
not true, as FAS are also more detailed and lay down detailed principles
f application.
for li ti No
N such h allegation
ll ti isi leveled
l l d against
i t IGAAP andd IFRS.
IFRS

• Comparative Position : under IGAAP and IFRS, comparative financial

figures are to be provided for one previous years, whereas under
USGAAP (SEC requirement for listed companies ) comparatives are to
be provided for two previous years except for Balance Sheet.
IGAAP, IFRS & US GAAP Comparison
Conceptual Framework ..comparison
comparison
• Over-riding of Standards – IFRS permits that a company may withhold
application of IFRS in extremely rare situation
situation, where it is felt that
application of IFRS would defeat the very objective of Financial
reporting. Disclosure must be made for reason for override. No such
override is g
generally
y permitted under IGAAP and US GAAP.

• Reporting Elements : IFRS prescribes the minimum structure and

content of financial statement including Statement of Changes in equity
(in addition to Balance sheet, Income statement, Cash flow statement ,
notes comprising significant accounting Policy and other explanatory
notes) Under US GAAP in addition to statement of changes in Equity
notes). Equity,
Statement of Comprehensive Income is required.
Both of these statements are NOT required under IGAAP.

IGAAP, IFRS & US GAAP Comparison

Balance Sheet
Sheet……..IGAAP.
IGAAP
• Balance sheet is required under the GAAPs to give disclosure about
assets and Liabilities and as a p
primary
y financial statement .

• Format : IGAAP provides two format of Balance Sheet- Horizontal and

Vertical format ( Part I of schedule VI to the Companies Act, 1956)

• IGAAP does not prescribe any current and non current classification.
It rather lists out line items in increasing order of liquidity as sources
and application of funds.

• Vertical format requires details of each item in separate schedule, read

with notes.

• Additional disclosures include no of shares held by Holding co as well

as the ultimate holding co, aggregate value of quoted investments, their
market value,, amount of guarantee
g given
g by
y the Company
p y on behalf of
directors etc.

IGAAP, IFRS & US GAAP Comparison

Balance Sheet
Sheet……...IFRS
IFRS (IAS1)
• IFRS does not prescribe any format, but stipulates minimum line
items like PPE, Investment pproperty,
p y Intangible
g assets, Financial assets,
Biological assets, inventory, receivables etc. Additional line items,
subheadings and subtotals shall be presented on the face of BS if
relevant. The order of presentation within the group or otherwise in not
mandatory.
mandatory

• An organisation has an option to adopt Current or Non current

classification of assets and liabilities . Deferred Tax Assets not to be
shown as Current assets,
assets if Current /non current classification adopted
adopted.
( IAS 1.53 )
• While many items of disclosure are common, the following items must
g
be disclosed on the face of balance sheet : Biological assets,, Tax
Liability, Minority Interest etc (IAS 1.66 )
• IFRS permits an enterprise to disclose any long term interest bearing
liability due for settlement within 12 months,as long term liability’ if the
same is likely to be refinanced and can be supported by adequate
documentary evidence.
IGAAP, IFRS & US GAAP Comparison
Balance Sheet……...US
Sheet US GAAP
• US GAAP also does not prescribe any format , but Rule S-X of SEC
stipulates for listed companies minimum line items to be disclosed
either on face of Balance sheet or Notes to Accounts like Current Assets
( Cash and cash items, marketable securities, allowance for Bad debts,
prepaid expenses, other current assets) and Non Current Assets on
assett side
id andd currentt and
d non currentt liabilities
li biliti on liabilities
li biliti side.
id

• While many items of disclosure are common, the following items must
be disclosed like Unearned Income, Securities of related parties,
Minority Interest in consolidated subsidiaries, non current indebtedness
to related parties.

IGAAP, IFRS & US GAAP Comparison

Balance Sheet
Sheet……..comparison
comparison
• Format : IGAAP provides two formats of Balance Sheet- Horizontal
and Vertical format and order of presentation as well . IFRS and
USGAAP do not prescribe any format ,

• Order of line items: Under US GAAP,

GAAP items in assets and liabilities are
presented in decreasing order of liquidity, whereas under IFRS (if
Current and non current order followed ) and IGAAP, line items are
presented in increasing order of liquidity.

• Consolidation : Under IGAAP and IFRS consolidation of Financial

statements of subsidiaries is not compulsory until it is required under
some other law or regulation, whereas under US GAAP consolidation of
results of Subsidiaries and Variable interest entity (FIN 46R) is
compulsory. A VIE is an entity in which the organisation does not hold
majority interest but is responsible to provide necessary funding
support.
IGAAP, IFRS & US GAAP Comparison
Income statement……...IGAAP
statement IGAAP
• Under Indian GAAP no format is prescribed , but minimum line items
have been specified
p in Part II of schedule VI to Companies
p Act, 1956
including Aggregate Turnover, Gross Service revenue for Commission
paid to Sole selling agent, Brokerage and discount on sales,
depreciation, consumption of stores and spare parts, power and fuel,
rent repairs
rent, repairs, rates and taxes etc
etc.

• Indian GAAP requires disclosure of several additional information by

wayy of notes like Licensed and installed capacity,
p y, actual production
p
details, details of imports, forex earnings and outgo, Net Profit
computation u/s 349 etc.

• Any item of expenditure which exceeds 1% of total revenue or Rs

5000/- whichever is higher should be shown as a distinct items and
should not be clubbed as Misc expenses.

• Requires separate disclosure of exceptional and non recurring items.

IGAAP, IFRS & US GAAP Comparison

Income statement
statement……... IFRS
• IFRS does not prescribe any standard format for income statement
but p
prescribes minimum disclosure includes revenue, finance costs,
share of post tax results of JV and associates using equity method,
pre tax gain/loss on asset disposal, discontinued operation tax
charge, and Net profit or loss etc.

• Under IFRS , the reporting entity has an option to prepare income

statement either by nature of expenses or by Function (Cost of sales
method ) (IAS 1.84)

• Under IFRS , Income is defined as Revenue and gains and expenses

are defined to include losses and are decreases in economic activity
that result in decrease in equity.
q y

• Additional disclosure under IFRS include amount of dividend and

DPS declared or proposed (IAS 1.95) , Share in profit /loss of associates
under
d equity
it method,
th d profit/loss
fit/l attributable
tt ib t bl to
t minority
i it interest
i t t (IAS
1.82) .
IGAAP, IFRS & US GAAP Comparison
Income statement……...US
statement US GAAP
• Under US GAAP as well there is no prescribed format, SEC guidelines
Rule S-X
S X prescribe minimum line items to be shown on the face of
income statement. SEC rules also suggest 2 alternatives a) a single
step format where expenses are classified by function and b) a Multiple
step format where Cost of sales is deducted from Sales .

• Income can be classified as from net sale of tangible products,

operating revenue of public utilities, rentals ,services & other revenue.
Revenue from any class which is less than 10% of total revenue can be
clubbed with other class.
• Costs and exp include cost of tangible goods sold, operating exp of
public utility, exp relating to rental income, Selling general and admn
exp,Provisions .

• Non operating income like dividend, interest on securities, net profit

on securities, misc income as well as non operating exp like loss on
securities, misc income ,deductions can be shown in notes to accounts

IGAAP, IFRS & US GAAP Comparison

Income statement……... Comparison
• Change in accounting policy : Under IGAAP effect for change in
accounting policy is given with prospective effect , if the same is material.
Only in case of change in method of depreciation,
depreciation the same has to be
applied with retrospective effect. Other disclosures required like need for
change etc

• IFRS requires
i retroactive
t ti application
li ti ffor th
the earliest
li t period
i d practical
ti l and
d
adjustment of opening retained earning. Exemption given for prospective
application, if resulting adjustment are not reasonably determinable

• US GAAP – 1) requires prospective application of change in accounting policy

and proforma disclosure of effect on income before extraordinary items on the
face of income statement as separate section.
US GAAP -2) 2) In
I case off specific
ifi situations
it ti like
lik change
h from
f LIFO method
th d off
valuation of stock,accounting for long term construction contract, change from/
to full cost method in extractive Industry and Change in depreciation Policy,
retrospective application required to restate opening retained earning. Effect of
changes on income before extraordinary items, net income and EPS should be
disclosed for all periods on the face of Income statement in the period of change.
IGAAP, IFRS & US GAAP Comparison
Income statement……... Comparison
Prior period items :
• IGAAP (AS 5.15,19) requires separate disclosure of prior period in the
currentt financial
fi i l statement
t t t either
ith as partt off currentt years results
lt or as an
alternative approach after determination of current net profit or loss.
No restatement of retained earnings are required.however complete
disclos re of prior period and its impact on financial statements sho
disclosure should
ld
be disclosed.
• US GAAP (FAS 16) also mandates retrospective application of error and
i
requires restatement
t t t off comparative
ti opening
i balance
b l with
ith suitable
it bl
footnote disclosure.
• IFRS requires that a prior period item/error should be corrected by
retrospective effect by restatement of opening balance of assets,
liabilities or equities for the earliest period practicable. Entity should
also disclose nature of error and the amount of correction for each
financial line item.
item IFRS also requires that such disclosure should not
be repeated in subsequent period.
IGAAP, IFRS & US GAAP Comparison
Income statement
statement……... Comparison
• Discounting : IFRS provides that where the inflow of cash is
significantly
g y deferred without interest, discounting
g is needed. US GAAP
also permits discounting in certain cases, while there is no concept of
discounting under IGAAP.

e suas e e
• Persuasive evidence:
de ce US G
GAAP requires
equ es aavailability
a ab ty o of a pe
persuasive
suas e
evidence for revenue recognition with several elements while there is
no such requirement in IGAAP and IFRS .

• Consolidation : US GAAP mandates consolidation of results of

subsidiaries and VIEs, whereas IGAAP and IFRS do not mandate
consolidation as such except as required under law.

• Others :There are significant differences in the 3 GAAP on

measurement and disclosure of various heads of Income and
Expenditure including forex losses, extinguishment of debts, Employee
benefits, ESOP, Dividend Tax, Loss on investments etc. leading to
reconciliation issues between IGAAP results vis a vis IFRS and
USGAAP.
IGAAP, IFRS & US GAAP Comparison
SUMMARY
• Conceptual framework: While IGAAP and IFRS have conceptual
framework statement, US GAAP has SFAC. Broadly y similar p
principles
p
except Revaluation , True and fair view override, comparative financial
statements, statement of changes in equity and comprehensive income.

• Balance
B l sheet
h t : Indian
I di GAAP provides
id 2 formats
f t off Balance
B l sheet
h t
presentation and minimum line items to be shown on the face of
balance sheet. IFRS and US GAAP do not provide any format, but
gg
suggest minimum line items. Liquidity
q y order differs in Indian GAAP vis
a vis USGAAP and IFRS.

• Income statement : No format suggested in the 3 GAAP but minimum

line items suggested.difference in definition of Income, expenses,
treatment of change in accounting Policy, prior period items and
miscellaneous items leading to reconciliation issues.

IGAAP, IFRS & US GAAP Comparison

Thank you

IGAAP, IFRS & US GAAP Comparison