Management Accounting

Internal Component 1

INDIAN GAAP

Roll No- 1177

 INDEX

S. No PARTICULARS

1. Introduction

2. Contents

3. Conclusion

4. Bibliography
Introduction:

GAAP - INDIAN AND INTERNATIONAL

GAAP stands for Generally Accepted Accounting Procedures, and it is a set of

rules that govern the accounting practices of a firm. GAAP are a common set of
accounting principles, standards and procedures that companies must follow when
drawing up their annual accounts. It is a combination of authoritative standards (set
by the agencies in charge) and the generally accepted ways to record and report
accounting information. GAAP improves the transparency and coherence of
financial information to a greater extent.

There is no global GAAP- it varies from region to region. For example the US
GAAP may differ from the UK GAAP and the Indian GAAP. The Indian GAAP is
established by the Ministry of Corporate Affairs (MCA), which is a government
ministry in charge of administering and enforcing several corporate acts in India,
such as the Companies Act 2013.

Some important characteristics of the Indian GAAP include,

● True and fair override is not permitted
● No concept of functional or presentation currency.
● Major repair and overhaul expenditure are treated as expenses.
● Historical cost is used but property, plant and equipment may be revalued to
fair value.
● Revenue is measured by the charges made to the customers or clients for
goods supplied or services rendered by them and by the charges and rewards
arising from the use of resources by them.
● When it comes to presentation of joint ventures, a proportional consolidation
method is used.
● All intangible assets are amortized over useful life with a rebuttable
presumption of not exceeding 10 years.

Comparisons between Indian GAAP and US GAAP

The Indian GAAP has been extremely relevant and essential in the recording of
financial information in the country. However, it is important to note the various
differences between IN-GAAP and US GAAP.

Firstly, in Indian GAAP, organisations meeting the conditions to qualify as Small

and Medium Sized Enterprise (SMEs) have certain exemptions when it comes to
complying with the accounting standards but in US GAAP there are no
exemptions in following the US GAAP requirements except certain relaxations for
non-public companies. The accounting standards may have different dates of
implementation for public entities and non-public entities. Hence it can be deduced
that India is trying to make business easier for small organisations.

Secondly,in Indian GAAP intra-entity profits and losses are recognised in the
entity’s financial statements only to the extent of unrelated investors’ interests in
the investee. But in US GAAP however, intra-entity profits and losses shall be
eliminated until realized by the investor or investee.

Furthermore, in India, unused tax credits carried forward are considered as

prepaid tax assets provided the definition of asset is satisfied on a continuing
basis, whereas in the US, unused tax credits carried forward are considered as
deferred tax assets

In India, projected unit credit method is used to perform actuarial valuations. All
actuarial gains and loss are recognised immediately in profit or loss. In the US, the
actuarial method used depends on the type of plan. Immediate recognition in other
comprehensive income is not permitted , however an entity may adopt policy of
immediate recognition in income statement; corridor method is also permitted.

Sometimes there is no specific guidance in the Indian GAAP, for example when it
comes to share-based payments to non-employees. During these times there is no
possible solution that can be followed. The US GAAP states that equity-settled
share based payment transactions with non-employees are accounted for based on
the fair value of the consideration received or the fair value of the equity-based
instruments issued, whichever is more reliably measurable.
EMERGENCE OF IFRS AND ALIGNMENT THROUGH IND AS

These differences are a few amongst many others. It is important to remember that
this is just the comparison between the GAAP of two countries. Every country has
their own GAAP so comparison of financial information between firms from two
countries is virtually impossible. This also makes interpretation of accounts of a
firm extremely difficult. It is for this reason that the IFRS came into existence.

The IFRS started as an endeavor to orchestrate bookkeeping over the European

Union, yet the estimation of harmonization rapidly made the idea appealing the
world over. They are sometimes called by the first name of International
Accounting Standards (IAS). The IAS were issued in the vicinity of 1973 and 2001
by the Board of the International Accounting Standards Committee (IASC). On
April 1, 2001, the new IASB assumed control over the obligation regarding setting
International Accounting Standards from the IASC. Amid its first gathering the
new Board received existing IAS and Standing Interpretations Committee
standards (SICs). The IASB has kept on creating standards calling the new
standards the IFRS. Currently over 120 countries in the world use the IFRS as their
primary GAAP.

In India’s bid to move towards convergence of their accounting standards with the
IFRS, the Indian Accounting Standards (Ind-AS) have been introduced. It is issued
under the supervision and control of Accounting Standards Board (ASB). ASB
itself is a body under the Institute of Chartered Accountants of India (ICAI), and it
consists of representatives from government department, academicians, other
professional bodies other than ICAI- representatives from ASSOCHAM, CII,
FICCI, etc. Ind-AS are named and numbered in accordance with the IFRS. The
National Advisory Committee on Accounting Standards (NACAS) prescribed
these guidelines to the Ministry of Corporate Affairs (MCA). It then became the
MCA’s job to elucidate in detail the accounting standards applicable for
organizations in India.
According to the rules set by the MCA, companies had a choice to voluntarily
adopt Ind-AS for financial statements for accounting periods beginning on or after
1 April 2015, with the comparatives for the periods ending 31 March 2015 or
thereafter. It was also made clear that once a firm opted to choose Ind-AS, it had to
use those same standards for all subsequent financial statements. However from 1
April 2016 onwards, it became mandatory for:

● Companies whose equity and/or debt security are listed or are in the process
of listing in any stock exchange in India or outside India (listed companies)
and having a net worth of Rs 500 crores or more.
● Unlisted companies having a net worth of Rs 500 crores or more
● Holdings, subsidiaries, joint ventures or associate companies of any of the
companies mentioned above

From 1 April 2017, it became mandatory for

● Listed companies having a net worth of less than Rs 500 crores.
● Unlisted companies having a net worth of more than Rs 250 crores but less
than Rs 500 crores.
● Holdings, subsidiaries, joint ventures or associate companies of any of the
companies mentioned above

Conclusion:

It is quite obvious that the Indian GAAP is now being replaced by the Indian
equivalent of the IFRS, the Ind-AS. With all of the new changes it may
revolutionize the way financial information is recorded in India. When the first
results came out under the regime of Ind-AS, the major Indian companies reported
a drop in earnings. it is clear that net benefit and Earnings before Interest, Tax,
Depreciation and Amortization (EBITDA) have seen a decrease under Ind-AS,
demonstrating that there in an effect on the fundamental business performance
measures, with some costs showing an increase under Ind-AS for particular
organizations, thus affecting profitability. But most companies used their one-time
exemption and choices to increase their net worth, as the recognition of financial
instruments came into play. Some would debate the Indian GAAP was better in
many ways but overall it can be believed that the introduction of Ind-AS and the
alignment with IFRS will lead to a more uniformed way of accounting in India.
BIBLIOGRAPHY

● Parekh, M., Shah, K., Rachh, K., & Saraf, A. (2014, June). Drawing a
parallel: Comparison between Indian GAAP, IFRS and US GAAP.
● PWC. (2017, July). IFRS, US GAAP, Ind AS and Indian GAAP Similarities
and differences.
● Deloitte. (2015, February 26). Indian GAAP, IFRS and Ind AS A
Comparison.
● Ray, S. (2012). Indian GAAP and its convergence to IFRS: Empirical
evidence from India. Advances in Applied Economics and Finance, 2(1),
257-276.
● Kantayya, R., & Panduranga, V. (2017). A Comparative Study of Balance
Sheets Prepared under Indian GAAP and IFRS with Special Reference to
Select IT Companies. Europe, 44, 29.
● Narayanaswamy, R. (1996). Voluntary US GAAP disclosure in India: The
case of infosys technologies limited. Journal of International Financial
Management & Accounting, 7(2), 137-166.
● Grant Thornton. (2015). Comparing Indian GAAP and Ind AS - Valuation
perspective.
● Rode, S. V. (2012, February). IFRS Vs Indian Gaap - Some Key Differences.
● Value on shores. (n.d.). Fair Valuation Perspective on Indian GAAP and Ind
AS.
● Muniraju, M., & R, G. S. (2016, April). A study on the impact of
International Financial Reporting Standards Convergence on Indian
Corporate Sector.