Professional Documents
Culture Documents
a comparison
A Presentation by: Sanjoy Banka, FCA,FCS Reliance infocomm Limited,Kolkata
Presentation topics
Conceptual Framework
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 standards, enabling Auditors in forming an opinion wherever there are no standard or standards are silent etc.
Users identified as - Investors, Lenders, suppliers, Customers, Employees, Government and Public.
Underlying Assumptions- Accrual basis, Going Concern, Consistency, Qualitative characteristics- Understandability, Relevance, Reliability, Comparability , true and fair view. Elements of FS- Assets, Liabilities, equity, performance, income, expenses, Capital maintenance adjustments. Also defines the 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
IGAAP, IFRS & US GAAP Comparison
Over 150 FAS announced till date, many of which are amendment / replacement.
Separate Accounting Board for Government Companies called GASB.
IGAAP, IFRS & US GAAP Comparison
US GAAP Hierarchy
SFAC GASB
FAS & FIN, APB Opinion, ARB Bulletin FASB Tech Bulletin, AICPA guides, SOP (AICPA)
AICPA AcSEC Practice Bulletins( FASB Cleared) , FASB EIFT Consensus Positions
AICPA Accounting interpretation, FASB Q&A, other Industry literature and Practices
IGAAP, IFRS & US GAAP Comparison
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 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.
Balance Sheet..IGAAP.
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 and Vertical 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 sources and 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 guarantee given by the Company on behalf of directors etc.
IGAAP, IFRS & US GAAP Comparison
While many items of disclosure are common, the following items must be disclosed like Unearned Income, Securities of related parties, Minority Interest in consolidated subsidiaries, non current indebtedness to related parties.
Balance Sheet..comparison
Format : IGAAP provides two formats of Balance Sheet- Horizontal and Vertical format and order of presentation as well . IFRS and USGAAP 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 (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 under some 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 majority interest but is responsible to provide necessary funding support.
IGAAP, IFRS & US GAAP Comparison
Income statement...IGAAP
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, rent, repairs, rates and taxes etc. Indian GAAP requires disclosure of several additional information by way of notes like Licensed and installed capacity, actual production details, details of imports, forex earnings and outgo, Net Profit computation u/s 349 etc. Any item of expenditure which exceeds 1% of total revenue or Rs 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.
IGAAP, IFRS & US GAAP Comparison
US GAAP (FAS 16) also mandates retrospective application of error and requires restatement of comparative opening balance with suitable
footnote disclosure. IFRS requires that a prior period item/error should be corrected by 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 financial line item. IFRS also requires that such disclosure should not be repeated in subsequent period.
IGAAP, IFRS & US GAAP Comparison
SUMMARY
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. Balance sheet : Indian GAAP provides 2 formats of Balance sheet presentation and minimum line items to be shown on the face of balance sheet. IFRS and US GAAP do not provide any format, but suggest minimum line items. Liquidity order differs in Indian GAAP vis a vis USGAAP and IFRS. Income statement : No format suggested in the 3 GAAP but minimum line items suggested.difference in definition of Income, expenses, treatment of change in accounting Policy, prior period items and miscellaneous items leading to reconciliation issues.
Thank you