indian gaap, ifrs, us gaap ion

8/4/2019 Indian Gaap, Ifrs, Us Gaap ion

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IGAAP, IFRS & US GAAP Comparison

Indian GAAP , IFRS & US GAAP

a comparison

A Presentation by:

Sanjoy Banka, FCA,FCS

Reliance infocomm Limited,Kolkata


2/22


Presentation topics

Conceptual framework

Balance Sheet

Income Statement


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Conceptual Framework

2. Framework statements have been issued in IGAAP and IFRS . In USGAAP, Statement of Financial Accounting Concepts (SFAC) act asframework statement which are detailed and rule oriented .

1. Conceptual frameworks define the fundamental accountingprinciple and theories for formulation of accounting standards. Theyalso decide : Elements of Financial statements,qualitativecharacteristics, fundamental assumptions , other concepts etc.

3. Framework assist in- Standard Setting process, interpretation andapplication of Accounting standards, harmonisation with otherstandards, enabling Auditors in forming an opinion wherever there areno standard or standards are silent etc.


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Conceptual Framework ..Indian GAAP

Underlying Assumptions- Accrual basis, Going Concern,

Consistency,

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

expenses, Capital maintenance adjustments. Also defines theguidelines for recognition of elements of Financial statements.

Qualitative characteristics- Understandability, Relevance, Reliability,Comparability , true and fair view.

ICAI framework statement was issued in July 2000. This is NOT anAccounting standard in itself and does not override any AS.

Users identified as - Investors, Lenders, suppliers, Customers,Employees, Government and Public.

Outlines the measurement criteria for elements of Financialstatements including Historical Cost, Current cost , Realisable Value

Lays down concept of Financial and operating Capital and their

maintenance


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Conceptual framework.Indian GAAP..

ICAI is working on project to harmonise IGAAP with IFRS . NewAccounting standards are on the anvil for Financial instruments,Share based payments, Retirement benefit Plans, Agriculture,Insurance etc.

GAAP announced by ASB of ICAI. Till date 29 AS announced, andeffective 28 GAAP, after withdrawal of AS 8 on R&D. Several guidancenotes also issued which members are required to follow. GAAP also

pronounced by SEBI, Listing agreement and statutes like CompaniesAct, RBI Act, Banking Act, IRDA Act , Electricity Act etc.

Enterprises have been classified in 3 categories for application ofAccounting standards: Level 1, Level 2 and Level 3

Adoption of Accounting standards issued by ASB is made compulsoryfor Indian Companies as per Companies Act,


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Conceptual Framework ..IFRS

Concept of Financial and Physical Capital as well their maintenanceenunciated in framework which have also been incorporated in IGAAP.

IFRS framework was issued in April, 1989. This Framework deals withObjective of Financial statement, Qualititative characteristics, elementsof financial statement, Concept of Capital and capital maintenance.

Qualitative characteristics- Understandability, Relevance, materiality,

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

Measurement criteria includes PV in addition to Historical Cost,Current cost and Realisable Value

IFRS is required or permitted for use in over 90 Countries forFinancial reporting, EU has recently mandated application of IFRS for alllisted Companies affecting over 7000 companies .


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Conceptual Framework ..US GAAP

SFAC forms the basis of pronouncement of FAS. SFAC is not

authoritative GAAP, but can be used if no GAAP exists. There are 6SFAC in force on Objective , Quality Characteristics, Recognition andmeasurement, Elements and Cash flow.

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

Separate Accounting Board for Government Companies called GASB.

GAAP /SFAC pronouncement are made by FASB which is not anaccounting Body like ICAI. AICPA does not pronounce GAAP.

Under US GAAP, detailed framework for pronouncing accountingstandards are contained in SFAC- Statement of Financial AccountingConcepts .Total seven SFAC have been issued, out of which SFAC-3 isreplaced.


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US GAAP Hierarchy

FAS & FIN, APB

Opinion, ARB Bulletin

FASB Tech Bulletin, AICPAguides, SOP (AICPA)

AICPA AcSEC Practice Bulletins( FASB Cleared)

, FASB EIFT Consensus Positions

AICPA Accounting interpretation, FASB Q&A,

other Industry literature and Practices

GASB

SFAC


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Conceptual Framework ..Comparison

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

Historical Costing IGAAP and IFRS permits revaluation in contrast toHistorical Cost convention, while US GAAP does not permitrevaluation. Only securities and derivatives can be valued at Fair Valueunder IFRS and 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 isnot true, as FAS are also more detailed and lay down detailed principlesfor application. No such allegation is leveled against IGAAP and IFRS.

Comparative Position : under IGAAP and IFRS, comparative financialfigures are to be provided for one previous years, whereas underUSGAAP (SEC requirement for listed companies ) comparatives are to

be provided for two previous years except for Balance Sheet.


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Conceptual Framework ..comparison

Reporting Elements : IFRS prescribes the minimum structure andcontent 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,Statement of Comprehensive Income is required.

Both of these statements are NOT required under IGAAP.

Over-riding of Standards IFRS permits that a company may withholdapplication of IFRS in extremely rare situation, where it is felt thatapplication of IFRS would defeat the very objective of Financialreporting. Disclosure must be made for reason for override. No suchoverride is generally permitted under IGAAP and US GAAP.


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Balance Sheet..IGAAP.

Balance sheet is required under the GAAPs to give disclosure aboutassets 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, readwith notes.

Additional disclosures include no of shares held by Holding co as wellas the ultimate holding co, aggregate value of quoted investments, theirmarket value, amount of guarantee given by the Company on behalf ofdirectors etc.


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Balance Sheet...IFRS (IAS1)

IFRS does not prescribe any format, but stipulates minimum lineitems 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 notmandatory.

IFRS permits an enterprise to disclose any long term interest bearingliability due for settlement within 12 months,as long term liability if the

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

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

be disclosed on the face of balance sheet : Biological assets, TaxLiability, Minority Interest etc (IAS 1.66 )

An organisation has an option to adopt Current or Non currentclassification of assets and liabilities . Deferred Tax Assets not to beshown as Current assets, if Current /non current classification adopted.( IAS 1.53 )


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Balance Sheet...US GAAP

US GAAP also does not prescribe any format , but Rule S-X of SECstipulates for listed companies minimum line items to be disclosedeither 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 onasset side and current and non current liabilities on liabilities side.

While many items of disclosure are common, the following items mustbe disclosed like Unearned Income, Securities of related parties,Minority Interest in consolidated subsidiaries, non current indebtednessto related parties.


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Balance Sheet..comparison

Format : IGAAP provides two formats of Balance Sheet- Horizontaland Vertical format and order of presentation as well . IFRS andUSGAAP do not prescribe any format ,

Order of line items: Under US GAAP, items in assets and liabilities are

presented in decreasing order of liquidity, whereas under IFRS (ifCurrent and non current order followed ) and IGAAP, line items arepresented 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 ofresults of Subsidiaries and Variable interest entity (FIN 46R) iscompulsory. A VIE is an entity in which the organisation does not holdmajority interest but is responsible to provide necessary fundingsupport.


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Income statement...IGAAP

Under Indian GAAP no format is prescribed , but minimum line itemshave been specified in Part II of schedule VI to Companies Act, 1956including Aggregate Turnover, Gross Service revenue for Commissionpaid to Sole selling agent, Brokerage and discount on sales,depreciation, consumption of stores and spare parts, power and fuel,rent, repairs, rates and taxes etc.

Any item of expenditure which exceeds 1% of total revenue or Rs5000/- whichever is higher should be shown as a distinct items andshould not be clubbed as Misc expenses.

Indian GAAP requires disclosure of several additional information byway of notes like Licensed and installed capacity, actual productiondetails, details of imports, forex earnings and outgo, Net Profitcomputation u/s 349 etc.

Requires separate disclosure of exceptional and non recurring items.


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Income statement... IFRS

Under IFRS , the reporting entity has an option to prepare incomestatement either by nature of expenses or by Function (Cost of salesmethod )(IAS 1.84)

Under IFRS , Income is defined as Revenue and gains and expensesare defined to include losses and are decreases in economic activity

that result in decrease in equity.

IFRS does not prescribe any standard format for income statementbut 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.

Additional disclosure under IFRS include amount of dividend andDPS declared or proposed (IAS 1.95) , Share in profit /loss of associatesunder equity method, profit/loss attributable to minority interest (IAS1.82) .


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Income statement...US GAAP

Non operating income like dividend, interest on securities, net profiton securities, misc income as well as non operating exp like loss onsecurities, misc income ,deductions can be shown in notes to accounts

Under US GAAP as well there is no prescribed format, SEC guidelinesRule S-X prescribe minimum line items to be shown on the face ofincome statement. SEC rules also suggest 2 alternatives a) a singlestep format where expenses are classified by function and b) a Multiplestep format where Cost of sales is deducted from Sales .

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

public utility, exp relating to rental income, Selling general and admnexp,Provisions .

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 beclubbed with other class.


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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, the same has to beapplied with retrospective effect. Other disclosures required like need forchange etc

IFRS requires retroactive application for the earliest period practical and

adjustment of opening retained earning. Exemption given for prospectiveapplication, if resulting adjustment are not reasonably determinable

US GAAP 1) requires prospective application of change in accounting policyand proforma disclosure of effect on income before extraordinary items on theface of income statement as separate section.

US GAAP -2) In case of specific situations like change from LIFO method ofvaluation 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 ofchanges 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.


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Income statement... ComparisonPrior period items :

IGAAP (AS 5.15,19) requires separate disclosure of prior period in thecurrent financial statement either as part of current years results or as analternative approach after determination of current net profit or loss.

No restatement of retained earnings are required.however completedisclosure of prior period and its impact on financial statements should

be disclosed.

IFRS requires that a prior period item/error should be corrected byretrospective effect by restatement of opening balance of assets,liabilities or equities for the earliest period practicable. Entity shouldalso disclose nature of error and the amount of correction for eachfinancial line item. IFRS also requires that such disclosure should not

be repeated in subsequent period.

US GAAP (FAS 16) also mandates retrospective application of error andrequires restatement of comparative opening balance with suitable

footnote disclosure.


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Income statement... Comparison

Discounting : IFRS provides that where the inflow of cash issignificantly deferred without interest, discounting is needed. US GAAPalso permits discounting in certain cases, while there is no concept ofdiscounting under IGAAP.

Persuasive evidence: US GAAP requires availability of a persuasive

evidence for revenue recognition with several elements while there isno such requirement in IGAAP and IFRS .

Consolidation : US GAAP mandates consolidation of results ofsubsidiaries and VIEs, whereas IGAAP and IFRS do not mandateconsolidation as such except as required under law.

Others :There are significant differences in the 3 GAAP onmeasurement and disclosure of various heads of Income andExpenditure including forex losses, extinguishment of debts, Employeebenefits, ESOP, Dividend Tax, Loss on investments etc. leading toreconciliation issues between IGAAP results vis a vis IFRS and

USGAAP.


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SUMMARY

Conceptual framework: While IGAAP and IFRS have conceptualframework statement, US GAAP has SFAC. Broadly similar principlesexcept Revaluation , True and fair view override, comparative financialstatements, statement of changes in equity and comprehensive income.

Balance sheet : Indian GAAP provides 2 formats of Balance sheet

presentation and minimum line items to be shown on the face ofbalance sheet. IFRS and US GAAP do not provide any format, butsuggest minimum line items. Liquidity order differs in Indian GAAP visa 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 andmiscellaneous items leading to reconciliation issues.


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indian gaap, ifrs, us gaap ion

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