INDIAN ACCOUNTING STANDARDS

PARADIGM SHIFT IN THE ECONOMIC ENVIRONMENT IN INDIA DURING THE LAST FEW YEARS LED TO INCREASING ATTENTION BEING DEVOTED TO ACCOUNTING STANDARDS. CROSS BORDER RAISING OF HUGE AMOUNT OF CAPITAL HAS GENERATED CONSIDERABLE INTEREST IN GAAP.

 THE INSTITUTE OF CA OF INDIA HAS TAKEN A LEAD ROLE BY ESTABLISHING ACCOUNTING STANDARD BOARD MORE THAN 25 YEARS AGO TO FALL IN LINE WITH THE INTERNATIONAL AND NATIONAL EXPECTATIONS.

RATIONALE OF ACCOUNTING STANDARDS

HARMONISE DIFFERENT ACCOUNTING POLICIES AND PRACTICES IN USE IN A COUNTRY. TRUE AND FAIR VIEW OF FINANCIAL POSITION BENCHMARKING OF ACCOUNTING ACCURACY IS POSSIBLE.

 IN 1973 INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE WAS ESTABLISHED. IT IS RECONSTITUTED AS INTERNATIONAL ACCOUNTING STANDARDS BOARD. PRESENT STATUS OF ACCOUNTING STANDARDS IN INDIA IS IN HARMONIZATION WITH INTERNATIONAL ACCOUNTING STANDARD. OF THE 41 ISSUED SO FAR 28 ARE IN FORCE[1 TO 7 AND 9 TO 29]

 THEY INCLUDE VALUATION PRACTICE, CASH FLOW STATEMENT, CONTINGENCIES AND EVENTS OCCURING AFTER THE BS DATE, DEPRECIATION ACCOUNTING, BORROWING COST ETC. COMPLIANCE IS COMPULSORY. WHEN THEY DONOT COMPLY WITH ACCOUNTING STANDARD SUCH COMPANIES SHALL DISCLOSE; THE DEVIATION FROM ACCOUNTING STANDARD, THE REASON FOR SUCH DEVIATION AND FINANCIAL EFFECT , IF ANY, DUE TO SUCH DEVIATION.

COMPARISION OF ACCOUNTING STANDARDS IN INDIA AND US

INDIA
1] UNDERLYING ASSUMPTIONS CONSERVATISM. ANTICIPATE NO PROFIT AND PROVIDE FOR ALL POSSIBLE LOSSES. 2]PRUDENCE VS RULES ICAI HAS STRUCTURED ACCOUNTING STANDARDS BASED ON INTERNATIONAL ACCOUNTING STANDARDS WHICH EMPLOY CONCEPTS AND PRUDENCE.

UNITED STATES 1] CONSERVATISM IS NOT CONSIDERED.

US GAAP ARE RULE ORIENTED. ACCOUNTING STANDARDS PROVIDE A GENERAL FRAMEWORK.

 3] FORMAT/ PRESENTATION OF FINANCIAL STATEMENTS UNDER INDIAN GAAP, FINANCIAL STATEMENTS ARE PREPARED IN ACCORDANCE WITH REQUIREMENTS OF COMPANIES ACT 1956.

UNDER US GAAP , FINANCIAL STATEMENTS ARE NOT REQUIRED TO BE PREPARED UNDER ANY SPECIFIC FORMAT AS LONG AS THEY COMPLY WITH DISCLOSURE NORMS.

 4] CONSOLIDATION OF SUBSIDIARIES UNDER INDIAN GAAP CONSOLIDATION OF ACCOUNTS IS NOT MANDATORY. 5] CASH FLOW STATEMENT AS-3. INCLUSION OF CASHFLOW STATEMENT IS MANDATORY FOR COMPANIES.

UNDER US GAAP CONSOLIDATION OF RESULTS OF SUBSIDIARY COMPANIES IS MANDATORY CASH FLOW STATEMENT FOR 3 YEARS IS MANDATORY IRRESPECTIVE WHETHER THE COMPANY IS LISTED OR NOT..

 6]AS-13 INVESTMENTS ARE CLASSIFIED AS CURRENT AND LONG TERM.

INVESTMENTS ARE REQUIRED TO BE SEGREGATED IN 3 CATEGORIES HELD TO MATURITY, TRADING SECURITY AND AVAILABLE FOR SALES SECURITY AND FURTHER SEGREGATED AS CURRENT OR NONCURRENT ON INDIVIDUAL BASIS.

 7] DEPRECIATION DEPRECIATION PROVIDED BASED ON THE RATES PRESCRIBED BY THE COMPANIES ACT 1956. HIGHER DEPRECIATION CAN BE PROVIDED. CANNOT BE PROVIDED AT A LOWER RATE.

DEPRECIATION HAS TO BE PROVIDED OVER THE ESTIMATD USEFUL LIFE OF THE ASSET, THUS MAKING THE ACCOUNTING MORE REALISTIC AND PROVIDING SUFFICIENT FUNDS FOR REPLACEMENT WHEN ASSET BECOMES OBSOLETE AND FULLY WORN OUT.

 8] FOREIGN CURRENCY TRANSACTIONS: AS-2 FOREX TRANSACTIONS ARE RECORDED AT THE RATE PREVALENT ON THE TRANSACTION DATE. EXCHANGE RATE DIFFERENCE ARISING ON PAYMENTS OR REALISATIONS ARE TREATED AS P/L IN THE INCOME STATEMENT. EXCHANGE FLUCTUATIONS ON LIABILITIES INCURED FOR FIXED ASSETS CAN BE CAPITALIZED.

GAINS AND LOSSES ON FOREIGN CURRENCY TRANSACTIONS ARE GENERALLY INCLUDED IN DETERMINING NET INCOME FOR THE PERIOD IN WHICH EXCHANGE RATES CHANGE. CAPITALISATION IS NOT ALLOWED. AVERAGE MONTHLY EXCHANGE RATE IS USED.

9]EXPENDITURE DURING CONSTRUCTION PERIOD

ALL INCIDENTAL EXPENSES ON CONSTRUCTION OF ASSET DURING PROJECT STAGE ARE ACCUMULATED AND ALLOCATED TO THE COST OF ASSET ON COMPLETION OF PROJECT.

EXPENDITURE IS DIVIDED INTO TWO HEADS DIRECT AND INDIRECT. WHILE DIRECT EXPENDITURE IS ACCUMULATED AND ALLOCATED TO THE COST OF ASSET, INDIRECT EXPENDITURE IS CHARGED TO THE REVENUE.

 10] REVALUATION OF RESERVES. UNDER GAAP IF AN ENTREPRISE NEEDS TO REVALUE ITS ASSETS DUE TO INCREASE IN COST OF REPLACEMENT AND PROVIDE FOR SUCH INCREASED COST OF REPLACEMENT THEN THE ASSET CAN BE REVALUED UPWARD AND THE UNREALISED GAIN ON SUCH REVALUATION CAN BE CREDITED TO REVALUATION RESERVES.

US GAAP DOES NOT ALLOW REVALUING UPWARD PROPERTY, PLANT AND EQUIPMENT OR INVESTMENT.

12] LONG TERM DEBTS

UNDER INDIAN GAAP, THERE IS NO SUCH REQUIREMENT AND HENCE THE INTEREST ACCRUED ON SUCH LONG TERM DEBT IS NOT TAKEN AS CURRENT LIABILITY. 13] GOOD WILL: UNDER INDIAN GAAP GOODWILL IS CAPITALIZED AND CHARGED TO EARNINGS OVER 5 TO 10 YEAR PERIOD. UNDER US GAAP THE CURRENT PORTION OF LONG TERM DEBT IS CLASSIFIED AS CURENT LIABILITY. UNDER US GAAP GOODWILL AND INTANGIBLE ASSETS THAT HAVE INDEFINATE USEFUL LIVES ARE NOT AMORTIZED BUT THEY ARE TESTED AT LEAST ANNUALLY FOR THE IMPAIRMENT, WITH ESTIMATION OF FAIR VALUE.

 14] CAPITAL ISSUE EXPENSES UNDER INDIAN GAAP CAPITAL ISSUE EXPENSES CAN BE AMORTIZED OR WRITTEN OFF AGAINST RESERVES.

15] PROPOSED DIVIDEND UNDER INDIAN GAAP, DIVIDENDS ARE ACCOUNTED FOR THE YEAR TO WHICH THEY RELATE.

UNDER US GAAP CAPITAL ISSUE EXPENSES ARE REQUIRED TO BE WRITTEN OFF WHEN INCURRED AGAINST PROCEEDS OF CAPITAL. . UNDER US GAAP DIVIDENDS ARE REDUCED FROM THE RESERVES IN THE YEAR THEY ARE DECLARED BY THE BOARD.

 16] INVESTMENT IN ASSOCIATED COMPANIES: UNDER INDIAN GAAP INVESTMENT IN ASSOCIATE CO IS INITIALLY RECORDED AT COST USING THE EQUITY METHOD.

17] PREOPERATIVE EXPENSES: UNDER INDIAN GAAP PRELIMINARY EXPENSES AND PROJECT RELATED EXPENSES ARE ALLOWED TO BE CAPITALIZED.

UNDER US GAAP INVESTMENTS IN ASSOCIATES ARE ACCOUNTED UNDER EQUITY METHOD IN GROUP ACCOUNTS BUT WOULD BE HELD AT COST IN THE INVESTORS OWN ACCOUNT. UNDER US GAAP, THE CONCEPT OF PRE OPERATIVE EXPENSES ITSELF DOES NOT EXIST. P&L ACCOUNT IS REQUIRED TO BE PREPARED.

 18] EMPLOYEE BEFEFITS: UNDER INDIAN GAAP PROVISION FOR LEAVE ENCASHMENT IS ACCOUNTED ON ACTUAL VALUATION.VOLUNTARY RETIREMENTAMORTIZED OVER 60 MONTHS.

UNDER US GAAP PROVISION FOR LEAVE ENCASHMENT IS ACCOUNTED ON ACTUAL BASIS. VRS TO BE CHARGED IN THE SAME YEAR.

 19] EXTINGUISHMENT OF DEBT: UNDER INDIAN GAAP DEBT EXTINGUISHMENT PREMIUMS ARE ADJUSTED AGAINST SECURITIES PREMIUM ACCOUNT.

US GAAP- EARLY EXTINGUISHMENT OF DEBT IS EXPENSED AS INCURRED.