51 Igaap Irfs Comparison

8/6/2019 51 Igaap Irfs Comparison

1/22

Indian GAAP , IFRS & US GAAP

a comparison

A Presentation by:

Rajeev Talwar, FCA,MBA

IGAAP, IFRS & US GAAP Comparison


2/22

Balance SheetIncome Statement



3/22

1. Conceptual frameworks define the fundamental accounting

principle and theories for formulation of accounting standards. They

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

,

no standard or standards are silent etc.



4/22

.. ICAI framework statement was issued in July 2000. This is NOT an

Accounting standard in itself and does not override any AS.

Users identified as - Investors, Lenders, suppliers, Customers,

Employees, Government and Public.

n er y ng ssump ons- ccrua as s, o ng oncern,

Consistency,

Qualitative characteristics- Understandability, Relevance, Reliability,

Elements of FS- Assets, Liabilities, equity, performance, income,

expenses, Capital maintenance adjustments. Also defines the

Comparability , true and fair view.

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


5/22


6/22

.. 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.

- , , ,

Reliability, faithful representation, substance over form, neutrality,

prudence, completeness, Comparability and true and fair view

Concept of Financial and Physical Capital as well their maintenance

easurement cr ter a nc u es n a t on to stor ca ost,

Current cost and Realisable Value

enunciated in framework which have also been incorporated in IGAAP.

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


,

listed Companies affecting over 7000 companies .


7/22

..Under US GAAP, detailed framework for pronouncing accounting

standards are contained in SFAC- Statement of Financial Accounting

Concepts .Total seven SFAC have been issued, out of which SFAC-3 is

replaced.

.

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.


8/22

,

Opinion, ARB Bulletin

FASB Tech Bulletin, AICPA

guides, SOP (AICPA)

AICPA AcSEC Practice Bulletins( FASB Cleared)

, onsensus os ons

AICPA Accounting interpretation, FASB Q&A,


o er n us ry era ure an rac ces


9/22

.. Historical Costing IGAAP and IFRS permits revaluation in contrast to

,

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 principlesor app ca on. o suc a ega on s eve e aga ns an .

Comparative Position : under IGAAP and IFRS, comparative financial

fi ures are to be rovided for one revious ears whereas under


USGAAP (SEC requirement for listed companies ) comparatives are tobe provided for two previous years except for Balance Sheet.


10/22

.. Over-riding of Standards IFRS permits that a company may withhold

,

application of IFRS would defeat the very objective of Financial

reporting. Disclosure must be made for reason for override. No such

override is generally 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

. ,Statement of Comprehensive Income is required.

Both of these statements are NOT required under IGAAP.



11/22

.. . Balance sheet is required under the GAAPs to give disclosure about

assets and Liabilities and as a primary financial statement .

Format : IGAAP provides two format of Balance Sheet- Horizontal andVertical 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 sourcesand 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 uarantee iven b the Com an on behalf of


directors etc.


12/22

... IFRS does not prescribe any format, but stipulates minimum line

items like PPE, Investment property, Intangible assets, Financial assets,

Biological assets, inventory, receivables etc. Additional line items,

subheadings and subtotals shall be presented on the face of BS ifrelevant. The order of presentation within the group or otherwise in not

.

An organisation has an option to adopt Current or Non current

classification of assets and liabilities . Deferred Tax Assets not to be

While many items of disclosure are common, the following items must

be disclosed on the face of balance sheet : Biolo ical assets Tax

, .

( IAS 1.53 )

IFRS permits an enterprise to disclose any long term interest bearing

liability due for settlement within 12 months,as long term liability if the

Liability, Minority Interest etc (IAS 1.66 )


same is likely to be refinanced and can be supported by adequatedocumentary evidence.


13/22

... US GAAP also does not prescribe any format , but Rule S-X of SEC

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

asse s e an curren an non curren a es on a es s e.

While man items of disclosure are common the followin items must

be disclosed like Unearned Income, Securities of related parties,

Minority Interest in consolidated subsidiaries, non current indebtedness

to related parties.



14/22

.. Format : IGAAP provides two formats of Balance Sheet- Horizontal

.

USGAAP do not prescribe any format ,

,

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 undersome 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


support.


15/22

... Under Indian GAAP no format is prescribed , but minimum line items

have been specified in Part II of schedule VI to Companies 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,

, , .

Indian GAAP requires disclosure of several additional information bywa of notes like Licensed and installed ca acit actual roduction

details, details of imports, forex earnings and outgo, Net Profit

computation u/s 349 etc.

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.


16/22

... IFRS does not prescribe any standard format for income statement

but 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 taxcharge, 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.

Additional disclosure under IFRS include amount of dividend and

DPS declared or proposed (IAS 1.95) , Share in profit /loss of associates


un er equ y me o , pro oss a r u a e o m nor y n eres1.82) .


17/22

... Under US GAAP as well there is no prescribed format, SEC guidelines

-

income statement. SEC rules also suggest 2 alternatives a) a single

step format where expenses are classified by function and b) a Multiplestep 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

Costs and exp include cost of tangible goods sold, operating exp of

public utility, exp relating to rental income, Selling general and admn

clubbed with other class.

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

on securities misc income as well as non o eratin ex like loss on

exp,Provisions .


securities, misc income ,deductions can be shown in notes to accounts


18/22

Change in accounting policy : Under IGAAP effect for change in

accounting policy is given with prospective effect , if the same is material.

,

applied with retrospective effect. Other disclosures required like need for

change etc

requ res re roac ve app ca on or e ear es per o prac ca an

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.

- n case o spec c s ua ons e c ange rom me o o

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 bedisclosed for all periods on the face of Income statement in the period of change.


19/22

Prior period items :

IGAAP (AS 5.15,19) requires separate disclosure of prior period in the

curren nanc a s a emen e er as par o curren years resu s or as an

alternative approach after determination of current net profit or loss.

No restatement of retained earnings are required.however complete

sc osure o pr or per o an s mpac on nanc a s a emen s s ou

be disclosed.

US GAAP (FAS 16) also mandates retrospective application of error and

IFRS requires that a prior period item/error should be corrected by

requ res res a emen o compara ve open ng a ance w su a e

footnote disclosure.

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


.

be repeated in subsequent period.


20/22

...

Discounting : IFRS provides that where the inflow of cash is

significantly deferred without interest, discounting is needed. US GAAP

also permits discounting in certain cases, while there is no concept of

discounting under IGAAP.

Persuasive evidence: US GAAP re uires availabilit of a ersuasive

evidence for revenue recognition with several elements while there is

no such requirement in IGAAP and IFRS .

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


reconciliation issues between IGAAP results vis a vis IFRS andUSGAAP.


21/22

Conceptual framework: While IGAAP and IFRS have conceptual

framework statement, US GAAP has SFAC. Broadly similar principles

except Revaluation , True and fair view override, comparative financial

statements, statement of changes in equity and comprehensive income.

a ance s ee : n an prov es orma s o a ance s ee

presentation and minimum line items to be shown on the face of

balance sheet. IFRS and US GAAP do not provide any format, butsu est minimum line items. Li uidit order differs in Indian GAAP vis

a vis USGAAP and IFRS.

Income statement : No format suggested in the 3 GAAP but minimumline items suggested.difference in definition of Income, expenses,

treatment of change in accounting Policy, prior period items and

miscellaneous items leading to reconciliation issues.



22/22


Documents

51 Igaap Irfs Comparison