GAAP Comparison

Objectives of Financial
reporting
Useful to present to potential investors and creditors
and other users in making rational investment, credit,
and other financial decisions
Helpful to present to potential investors and creditors
and other users in assessing the amounts, timing, and
uncertainty of prospective cash receipts about
economic resources, the claims to those resources,
and the changes in them
Helpful for making financial decisions
Helpful in making long-term decisions
Helpful in improving the performance of the business
Useful in maintaining records

Concept of Accounting
Standard
A principle that guides and standardizes accounting
practices.
The Generally Accepted Accounting Principles (GAAP)
are a group of accounting standards that are widely
accepted as appropriate to the field of accounting.
Accounting standards are necessary so that financial
statements are meaningful across a wide variety of
businesses; otherwise, the accounting rules of different
companies would make comparative analysis almost
impossible.

 An accounting standard is a
guideline for financial accounting,
such as how a firm prepares and
presents its business income and
expense, assets and liabilities. The
Generally Accepted Accounting
Principles is comprised of a large
group of individual accounting
standards.

GAAP for UK

Since 2005 listed groups in the UK have been required to prepare their
consolidated financial statements in accordance withInternational
Financial Reporting Standards (IFRSs). Almost all other groups and
companies have a choice.
They can choose to follow IFRSs or UK GAAP. Small companies (as
defined by the Companies Act 2006) have an additional option of
following the Financial Reporting Standard for Smaller Entities(FRSSE).
But, for periods beginning on or after 1 January 2015, three new
Financial Reporting Standards (FRS 100,101and102) will come into
force, bringing with them a number of new options for all UK entities
and groups.
Although these new standards are not yet mandatorily effective, they
have all been published andare available for early adoption,
something which a number of companies have taking advantage of.
Even for those not early-adopting, the transition date to the new
standards (being the beginning of the comparative period) will occur
during 2014, so theimpact of transition and on financial reporting is
somethingthat all companies should already be considering.

 The three new FRSs have been

developed by the Accounting
Standards Board (ASB', the
predecessor of what is now the
Accounting Council of the FRC) to
replaceOld UK GAAPand introduce
an IFRS-based reduced disclosure
framework for certain entities.The
introduction of FRS 102 also makes
some consequential changes to the

FRS 100
It sets out a proposed framework
that would apply to all UK entities
preparing financial statements that
are intended to give a true and fair
view other than where an entity is
required or chooses to prepare its
financial statements in accordance
with IFRSs or the FRSSE

FRS 101
FRS 101 is a proposed reduced
disclosure framework for qualifying
entities preparing their financial
statements in accordance with IFRSs

FRS 102
contains the text of a comprehensive
proposed accounting standard based
upon the International Financial
Reporting Standard for Small and
Medium-sized Entities, this would
replace current UK GAAP

FRS 103
In addition to the above three standards,
theFinancial Reporting Council(FRC)
issued another standard,FRS
103Insurance Contractsin March 2014.
FRS 103 contains specific accounting
requirements for that have insurance
contracts (including reinsurance
contracts) and are applying FRS 102 The
Financial Reporting Standard applicable in
the UK and Republic of Ireland.

Small company
Achieves maximum any two criteria
Aggregate turnover 6.5m.
Aggregate balance sheet total 3.26m.
Aggregate number of employees 50.

A parent company only qualifies as small

if the group it heads is a small group.
Where the period is not a year the
figures are to be adjusted
proportionately

UK GAAP vs. FRS 102 Vs

IFRS
Goodwill five year default for amortisation under FRS 102
versus twenty years under UK GAAP.
Goodwill no amortisation under IFRS, annual impairment
test instead. Negative goodwill not capitalised under IFRS
(BUT will be if IFRS is followed with FRS 101).

Tangible fixed
lives, residual
Tangible fixed
lives, residual

assets formal reviews of useful economic

values and depreciation methods required
assets formal reviews of useful economic
values and depreciation methods required.

 Deferred tax timing differences plus approach under

FRS 102.
Deferred tax balance sheet/temporary difference
approach under IFRS.
Holiday pay accrual must be recognised under FRS 102.
Holiday pay accrual must be recognised under IFRS.
Leases spread incentives over entire lease term under
FRS 102
Leases spread incentives over entire lease term under
IFRS.

 Financial instruments simplified form of IAS 39/IFRS 9

(or policy choice to adopt IAS 39).
Financial instruments recognition of derivatives under
IFRS (only recognised under UK GAAP if FRS 26 adopted).
Business combinations potential recognition of more
intangibles, merger accounting not permitted (other than
for those under common control).
Business combinations potential recognition of more
intangibles, all transaction costs expensed, merger
accounting not permitted (other than for those under
common control).

 Pensions group plans are not

treated as multi employer schemes
under FRS 102 must be on one
company balance sheet
Pensions group plans are not
treated as multi-employer schemes
under IFRS, must be on one company
balance sheet.

Overview of Significant Differences

between International Financial
Reporting Standards (IFRS) and Indian
GAAP

Differences with respect to:

Conceptual Accounting Framework
Content of Financial Statements
Accounting Differences

Accounting Framework

Historical cost
IFRS:
Historical cost, but intangible assets, property plant and
equipment (PPE) and investment property may be
revalued. Derivatives, biological assets and most
securities must be revalued.
Indian GAAP:
Historical cost, but fixed assets, other than intangibles,
may be revalued.

First-time adoption of accounting frameworks

IFRS:
Full retrospective application of all IFRSs effective at the
reporting date for an entitys first IFRS financial statements,
with some optional exemptions and limited mandatory
exceptions.
Indian GAAP:
The accounting standard on Disclosure of Accounting Policies
addresses the issue of adoption of accounting policies. Also,
particular standards specify the transitional treatment upon the
first-time application of those standards

Content of FINANCIAL STATEMENTS

Contents of financial statements
IFRS:
Two years balance sheets, income statements, cash-flow
statements, changes in equity, accounting policies and notes.
Indian GAAP:
Two years balance sheets, profit and loss accounts, accounting
policies and notes. Listed entities are required to give their
consolidated financial statements and the related notes along
with the standalone financial statements. (Financial Statements
should also include cash flow statements in certain cases)

FINANCIAL STATEMENTS- Balance

Sheet
IFRS:
Does not prescribe a particular format; an entity uses a liquidity
presentation of assets and liabilities, instead of a current/noncurrent presentation, only when a liquidity presentation
provides more relevant and reliable information. Certain items
must be presented on the face of the balance sheet
Indian GAAP:
The Indian Companies Act and other industry-specific laws like
banking, insurance, etc. specify respective formats

Income Statements
IFRS
Does not prescribe a particular format. However, expenditure must
be presented in one of two formats (function or nature). Certain
items must be presented on the face of the income statement.
Indian GAAP
The Indian Companies Act does not prescribe a particular format.
The Company law and accounting standards however, prescribes
certain disclosure norms for income and expenditures. For certain
industries, industry specific laws specify formats.

Reporting currency
IFRS:
Requires the measurement of profit using the functional
currency. Entities may, however, present financial statements
in a different currency.
Indian GAAP:
Schedule VI to the Companies Act, 1956 specifies Indian
Rupees as the reporting currency.

 Statement of changes in shareholders equity

IFRS:
Statement showing capital transactions with owners, the
movement in accumulated profit and a reconciliation of all other
components of equity. The statement must be presented as a
primary statement.
Indian GAAP:
Changes in shareholders equity are disclosed by way of a
schedule.

 Statement of recognised gains and losses / Other

comprehensive income
IFRS:
Give a statement of recognised gains and losses either as a
separate primary statement or highlight it separately in the
primary statement of changes in shareholders equity
Indian GAAP:
Not prescribed

Accounting Differences IFRS and

Indian GAAP
Special purposes entities (SPEs)
Consolidate where the substance of
the relationship indicates control.
No specific guidance.

 Non-consolidation of subsidiaries
Dissimilar activities or temporary
control are not a justification for nonconsolidation.
Only if acquired and held for resale
or there are severe long-term
restrictions to transfer funds to the
parent.

 Business combinations
All business combinations are acquisitions.
No comprehensive accounting standard on business
combinations. All business combinations are
acquisition; however, required use of pooling of
interests method in certain amalgamations [when all
the specified conditions are met].
To summarize: On consolidation, for an entity acquired and
held as an investment: treated as acquisition.
On amalgamation of an entity, either uniting of interests or
acquisition.
On business acquisition (i.e. assets and liabilities only)
treated as acquisition.

 Acquired intangible assets

Capitalise if recognition criteria are met; intangible
assets must be amortised over useful life.
Intangibles assigned an indefinite useful life must
not be amortised but reviewed annually for
impairment. Revaluations are permitted in rare
circumstances.
Capitalise if recognition criteria are met; intangible
assets must be amortised over useful life with a
presumption of not exceeding 10 years.
Revaluations not permitted.

 Uniting of interests method

Prohibited.
Required for certain amalgamations
when all the specified conditions are
met, else accounted under the
purchase method.

 Property, plant and equipment

Use historical cost or revalued amounts.
Regular valuations of entire classes of assets
are required when revaluation option is
chosen.
Use historical cost. Revaluations are
permitted, however, no requirement on
frequency of revaluation. On revaluation, an
entire class of assets is revalued, or selection
of assets is made on a systematic basis.

 Depreciation
Allocated on a systematic basis to each
accounting period over the useful life
of the asset.
Similar to IFRS, except where the
useful life is shorter than that
envisaged under the Companies Act or
the relevant statute, the depreciation
is computed by applying a higher rate.

 Deferred income taxes

Use full provision method (some exceptions) driven
by balance sheet temporary differences. Recognise
deferred tax assets if recovery is probable.
Recognise tax effect of timing difference as
deferred tax asset or liability. Recognise deferred
tax assets (a) for entities with tax losses carry
forward, if realisation is virtually certain, whereas
(b) for entities with no tax losses carry forward, if
realisation is reasonably certain. A number of other
specific differences.

 Convertible debt
Account for convertible debt on split
basis, allocating proceeds between
equity and debt
Convertible debt is recognised as a
liability based on legal form without
any split.

 Functional currency
Currency of primary economic
environment in which entity
operates.
Does not define functional currency.

 Depreciation
Allocated on a systematic basis to each
accounting period over the useful life of the
asset.
Depreciation is provided based on the
useful lives of assets or the minimum rates
prescribed by the Indian Companies Act,
whichever is higher. Asset lives are not
prescribed by the Companies Act, but can
be derived from the depreciation rates.

 Capitalisation of borrowing
costs
Permitted, but not required for
qualifying assets.
Compulsory when relates to the
construction of certain assets.

 Foreign exchange fluctuation

Under IAS such gains or losses are required
to be expensed
Indian GAAP requires that any profit/loss
arising on the restatement of foreign
exchange liabilities incurred for the
acquisition of imported fixed assets as a
result of change in exchange rates is
capitalized as part of the original cost of
the assets.

 Impairment of long lived assets

IAS require that assets be reviewed
for impairment and impairment
losses recognized in the accounts
Indian GAAP also has adopted the
provisions of IFRS with effect from
1.4 2004 for listed companies and
commercial enterprise with a
turnover > 50 crores

 Leasehold Land
Disclosed as prepaid assets and
accounting treatment is similar to
operating leases.
Disclosed as a part of fixed assets.

Investments
Investments:
IFRS:
Depends on the classification of investment if held to maturity or
loan or receivable, then carry at amortised cost, otherwise at fair
value.
Unrealised gains/losses on fair value through profit or loss
classification (including trading securities) recognised in the income
statement and on available-for-sale investments recognised in
equity.**

Indian GAAP:
Carry long-term investments at cost (with provision for other than
temporary diminution in value). Current investments carried at lower
of cost or fair value determined on individual basis or by category of
investment but not on overall (or global) basis. Specific guidance
exists for banking industry.

**There is an option in IFRS to classify any financial asset at fair value

through profit or loss. Changes in fair values in respect of such
securities are recognized in the income statement. It must be noted
that it is an irrevocable option to classify a financial asset at fair

Derivatives and other financial instruments - Measurement of derivative

instruments and hedging activities

IFRS:
Measure derivatives and hedge instrument at fair value. Recognise
the changes in fair value in the income statement, except for
effective cash flow hedges, where the changes are deferred in
equity until effect of the underlying transaction is recognised in
the income statement.
Gains / losses on hedge instrument used to hedge forecast
transaction, included in the cost of asset/liability (basis
adjustment).
Indian GAAP:
No comprehensive guidelines currently. Accounting treatment for
forward contracts and equity index and equity stock futures and
option is prescribed. Guidance prescribed for banking companies.

US GAAP

GAAP Setters
United States Securities and Exchange
Commission(SEC)
American Institute of Certified Public
Accountants(AICPA)
Financial Accounting Standards
Board(FASB)
Government Accounting Standard Board

SEC
The SEC was created as a result of
theGreat Depression. 1929
The SEC encouraged the establishment of
private standard-setting bodies through
theAICPAand later theFASB, believing
that the private sector had the proper
knowledge, resources, and talents. The
SEC works closely with various private
organizations setting GAAP, but does not
set GAAP itself.

AICPA
In 1939, urged by the SEC, the AICPA appointed
theCommittee on Accounting Procedure(CAP).
During the years 1939 to 1959 CAP issued 51 Accounting
Research Bulletins that dealt with a variety of timely
accounting problems.
However, this problem-by-problem approach failed to develop
the much needed structured body of accounting principles.
In 1959, the AICPA created theAccounting Principles
Board(APB), whose mission it was to develop an overall
conceptual framework.
It issued 31 opinionsand was dissolved in 1973 for lack of
productivity and failure to act promptly.
After the creation of theFASB, the AICPA established
theAccounting Standards Executive Committee(AcSEC).

It publishes:
Audit and Accounting Guidelines, which
summarizes the accounting practices of specific
industries (e.g. casinos, colleges, airlines, etc.) and
provides specific guidance on matters not
addressed by FASB or GASB.
Statements of Position, which provides guidance
on financial reporting topics until the FASB or GASB
sets standards on the issue.
Practice Bulletins, which indicate the AcSEC's
views on narrow financial reporting issues not
considered by the FASB or the GASB.

FASB
1973, Wheat Committee, replaced APB Composed of three organisations
The Financial Accounting Foundation (FAF,
it selects members of the FASB, funds and
oversees their activities)
The Financial Accounting Standards
Advisory Council (FASAC),
The major operating organization in this
structure the Financial Accounting
Standards Board (FASB).

GASB
Created in 1984, the GASB addresses state and local
government reporting issues. Its structure is similar to that
of the FASB's.

Other influential organizations(e.g., American

Accounting Association, Institute of Management
Accountants, Financial Executives Institute)
Other influential organizationsThe
Government Finance Officer's Association (GFOA)
also influences financial policies for governments.
Disagreements between the GFOA and GASB are
rare, but can continue for many years.

To achieve basic objectives and

implement fundamental qualities
GAAP has four basic assumptions,
four basic principles, and four basic
constraints.

Assumptions
Business Entity
Going Concern
Monetary Unit
principle:
Time-period
principle

Principles
Historical
costprinciple
Revenue
Recognition
Matching
Full Disclosure

Constraints
Objectivity
Materiality
Consistency
Conservatism

168 Accounting standards

Statement No. 1 - Disclosure of Foreign Currency
Translation Information
Statement No. 2 - Accounting for Research and
Development Costs
Statement No. 13 - Accounting for Leases
Statement No. 16 - Prior Period Adjustments
Statement No. 28 - Accounting for Sales with
Leasebacksan amendment of FASB Statement
No. 13
Statement No. 35 Accounting and Reporting by
Defined Benefit Pension Plans

 Statement No.
Obligations
Statement No.
Statement No.
Statement No.
Arrangements

47 Disclosure of Long-Term
52 Foreign Currency Translation
57 Related Party Disclosures
68 Research and Development

Difference between US GAAP

and IFRS

Thankyou