Accounting Standards - Comparative Study

8/4/2019 Accounting Standards - Comparative Study

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Accounting standardsAccounting standards Comparative studyComparative 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


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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


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Accounting changes US GAAP

Change in principle, estimate or reporting enterprise

Cumulative effect of a change in principle to beincluded in net income of the period of change net oftax effects after extraordinary items except certain typesof 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


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Accounting changes IAS

A change in accounting policy is to be appliedretroactively unless amount is indeterminable

Opening retained earnings adjusted for cumulativeeffect and comparative information is restated

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

Correction of a fundamental error that relates to priorperiods should be reported by adjusting the openingbalance of retained earnings. Comparative informationshould be restated unless impracticable


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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 alsohowever, simultaneous disclosure of lower of NRV

or FIFO/weighted average/current cost required


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Inventories (contd)

Lower of cost or market

Items like precious metals having a fixed monetaryvalue 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 immediatemarketability at quoted price may be valued at stated

sales prices less costs to sell


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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 ofthe product or service etc.

US GAAP

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

IAS

Research costs to be charged when incurred, developmentcosts may be recognised as intangible asset if certain criteriaare 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


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Property plant and equipment IAS

Upward revaluation possible

Exchange losses on settlement of foreign currencyliabilities 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 thebasis of estimated useful life


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Interest capitalisation

Definition of qualifying asset as per all GAAPs are same exceptthat 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 productionprovided it uses the funds to acquire qualifying assets

Indian GAAP disclosure: accounting policy adopted forborrowing costs and amount of interest capitalised

US GAAP disclosure: Interest capitalised. No specificrequirement to disclose accounting policy

IAS disclosure: In addition to Indian GAAP requirements, thecapitalisation rate used to determine the borrowing costs shallalso be disclosed


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Segment information

Applicability

Business segment, geographical segment andoperating segment

Unit or division producing products consumedinternally

Accounting policies/ principles used to disclose

segment information

Reporting formats

Change in structure of internal organisation


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Segment information (contd)

Indian GAAP disclosure

Total cost incurred to acquire segment assets, depreciation

and amortisation, provisions and unrealised exchangegains/losses to be disclosed for each reportable segment

Changes in accounting polices having material effect onsegment 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 reportedgeographical segment


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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


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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


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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 duringthe period

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

AS 18 does not require disclosure of transactions that wouldconflict the duties of confidentiality under an agreement or astatute. No such provision is stipulated in US GAAP or inIAS


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Leases

Applicability

Classification of leases from the stand point of thelessor and the lessee

Indian GAAP : Operating and Finance lease

US GAAP : Operating and Capital lease from the

stand point of the lessee Sales-type, Directfinancing, Leveraged and Operating lease from the

stand point of the lessor

IAS : Operating and Finance lease


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Leases (contd)

Following criteria are additionally specified in US

GAAP which, if not met, the lease can only beclassified 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


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Earnings per share Indian GAAP

AS 20 applicable to companies whose equity shares andpotential equity shares are listed

Basic and Diluted EPS to be disclosed with equalprominence for all periods, on the face of Profit andloss 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 issuedat the beginning of the period


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Earnings per share Indian GAAP (contd)

Bonus issue: Restatement of prior year EPS

Basic and diluted EPS need not be adjusted for effectsof 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 anddenominator 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


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Earnings per share IAS

Applicable to public companies only

Equal prominence of basic and diluted EPS disclosureon 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


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Earnings per share IAS (contd)

To see if potential equity shares are dilutive or not,

preference dividend, items of discontinued operationsand 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


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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 onthe date of investment to be recognised as goodwill. No specificguidance available at present to treat this goodwill, impairment teststill necessary

Negative goodwill to be treated as Capital reserve in theconsolidated accounts


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Consolidation Indian GAAP (contd)

In case of step-acquisition, the CFSs are prepared from the datewhen 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 bedisclosed in the CFSs until the date of cessation (IAS at par)

In parents separate FSs, investment in subsidiary to be accountedfor as per AS 13

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

Minority interest disclosure

Uniform accounting policies to be followed to the extent possibleor else the fact that different policies followed to be stated


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Consolidation US GAAP

Different accounting year followed by parent andsubsidiary

Consolidation policy to be disclosed

Income taxes paid on inter company profits on assetsremaining within the group are deferred or the intercompany profits to be eliminated are appropriately

reduced Step acquisition, no change compared to Indian GAAP

Acquisition during the year, period of CFSs, twomethods permitted


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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,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)


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Consolidation IAS

Uniform accounting policies to be followed to the

extent practicable else the fact that different accountingpolicies 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

Documents

Accounting Standards - Comparative Study