Accounting standards Comparative study

1
Accounting standards Comparative 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

2
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

3
Accounting standards Comparative study

• Materiality
• AS 1
• US GAAP SFAC 2
• IAS 1
• Consistency
• AS 1
• US GAAP SFAC 2
• IAS 1

4
Accounting standards Comparative study

• 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

5
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

6
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 should be restated unless
  impracticable

7
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

8
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

9
Accounting standards Comparative study

• Research and development
• Indian GAAP
• RD 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 RD 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

10
Accounting standards Comparative study

• 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

11
Accounting standards Comparative study

• 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

12
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

13
Accounting standards Comparative study

• 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

14
Accounting standards Comparative study

• 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
• Change in structure of internal organisation

15
Accounting standards Comparative study

• 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

16
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

17
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

18
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 IAS

19
Accounting standards Comparative study

• 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

20
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

21
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

22
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

23
Accounting standards Comparative study

• 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

24
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

25
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

26
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 parents portion in
  subsidiarys 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 consolidated accounts

27
Accounting standards Comparative study

• Consolidation Indian GAAP (contd)
• In case of step-acquisition, the CFSs are
  prepared from the date when the investee becomes
  subsidiary (IAS at par)
• Parents 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 parents 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

28
Accounting standards Comparative study

• 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
  methods permitted

29
Accounting standards Comparative study

• Consolidation US GAAP (contd)
• Disposal of investment in subsidiary during the
  year Omit the details of operations of
  subsidiary from CFSs, parents share in equity
  till the date of disposal to be shown separately
• Excess of losses applicable to MI in excess of
  subsidiarys equity capital is charged against
  majority interest (same as Indian GAAP unless MI
  has agreed to make good the losses)

30
Accounting standards Comparative study

• 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

31
Accounting standards Comparative study

• 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

32
Accounting standards Comparative study

• Stock-based compensation