GAAP, IAS, Indian

Accounting Standard, IFRS

GAAP
The primary objective of financial accounting
and reporting is to provide information useful
for making investment and lending decisions.
Rules that govern accounting are called
Generally Accepted Accounting Principles
(GAAP)
GAAP is a term that applies to broad
concepts or guidelines and detailed practices
in accounting, including all the conventions,
rules and procedures that make up accepted
accounting practices at a given time.

 Definition as per Wikipedia :

Generally Accepted Accounting Principles
(GAAP) refer to the standard framework
of guidelines for financial accounting
used in any given jurisdiction; generally
known as accounting standards. GAAP
includes the standards, conventions, and
rules accountants follow in recording and
summarizing, and in the preparation of
financial statements.

 Accounting Principles are the rules of

action or the methods and procedures
of accounting commonly adopted
while recording business transactions.
Accounting Principles are general
decision rules derived from objectives
and concepts of accounting which
govern the development of accounting
techniques.

 Accounting principles are divided into

two
Accounting Concepts
Accounting Conventions

Accounting Concepts
These
are
basic
assumptions
or
fundamental proposition concerning the
economic,
political
and
sociological
environment in which accounting must
operate.

1. Business Entity Concept

2. Going Concern Concept
3. Money Measurement Concept
4. Double Entry Concept
5. Accounting Period Concept
6. Cost Concept
7. Realisation Concept
8. Matching of Cost and Revenue Concept
9. Accrual Concept
10.Reliability Concept

 Accounting Conventions
Accounting conventions are traditions
and
customs
which
guide
the
accountant
while
preparing
the
accounting statements.
1.Convention
2.Convention
3.Convention
4.Convention

of
of
of
of

full disclosure
conservatism
consistency
materiality

US - GAAP
The SEC has historically charged the private
sector with establishing and maintaining
financial accounting and reporting standards.
Accordingly,
Financial
Accounting
Standards Board (FASB) was established
in 1973 to carry out these functions on the
behalf of the SEC.
FASB is composed of seven full-time
members appointed for five years by the
Financial Accounting Foundation (FAF), a
parent organization.

 FASB formulates accounting standards

through the issuance of Statements of
Financial Accounting Standards (SFAS).
These statements make up the body of
accounting rules known as the Generally
Accepted
Accounting
Principles
(GAAP).
While FASB is independent, with close
relations with the SEC, its decisions are
influenced by a variety of entities like
corporations, academia, Govt & IRS,
American Institute of Certified Public
Accountants (AICPA), Investors & fin
Institutions, Accounting firms, etc.

International Accounting
Regulation
In 1973, the International Accounting
Standards Committee (IASC) was
founded by accountancy bodies in
Australia, Canada, France, Germany,
Ireland, Japan, Mexico, the Netherlands,
the United Kingdom, and the United
States, with the goal of developing
global accounting standards.

 In 2001, the IASC was replaced by the

International Accounting Standards
Board (IASB), an independent entity
based in London, in order to oversee the
continued
convergence
of
global
accounting standards.
IASB comprises 14 board members
appointed by the Trustees of the IASC
Foundation, a parent organization.
IASB has the sole responsibility of
developing International Financial
Reporting Standards (IFRS).

 In 2002, FASB and IASB agreed to

work
together
toward
the
convergence of U.S. GAAP and
IFRS. Since then, there has been a
convergence of these two sets of
accounting standards.

Introduction - IFRS
IFRS relate to a set of financial
accounting reporting systems including
specifications and framework developed
by ISAB, an independent accounting
standards development body, based at
London, UK, that is intended to be
followed globally for preparation of
corporate financial statements.

 SEC
(Securities
and
Exchange
Commission, US), FASB (Financial
Accounting Standards Body, US) and
ISAB
are
working
towards
implementation and adoption of IFRS
worldwide.
FASB, in particular, is focusing on
convergence of GAAP (Generally
Accepted Accounting Principles) and
IFRS.

Objective - IFRS
Primary objective of IFRS, as also
recommended by SEC (Securities and
Exchange Commission), US, is to bring
businesses worldwide to follow globally
acceptable common set of financial
accounting reporting standards which
can not only enable cross national
business offerings but also impart much
needed transparency in financial data
disclosure.

Composition - IFRS
IFRS
mainly
comprise
International
Financial Reporting Standards issues after
2001 as recommended and developed by
IASB.
Besides that, IFRS also include International
Accounting Standards issued between 1973
and 2001 by IASC (International Accounting
Standard Committee) and interpretations
derived from IFRIC (International Financial
Interpretation Committee).

Advantages - IFRS
Eliminate multiple reporting
More cross border transactions
Reduced cost of capital and better access
to global capital markets
Better comparability and transparency of
business performance and activities
Provides
impetus to cross
border
acquisitions
An IFRS balance sheet will be closer to
economic value (fin instru and invest
properties to be recorded at fair value)

Challenges - IFRS
Changes in the regulatory environment
Lack of trained and experienced
resources
Business performance measurement
and educating investors and Boards
Greater
complexity
in
financial
reporting process
Significant one time cost

IFRS Indian Original Plan

Plans for converging
The Ministry of Corporate Affairs (MCA) a
part of the Government of India had in
January 2010 announced a multi-phase plan
for transition beginning April 1, 2011 to the
new Converged Indian Accounting Standards
Indian version of IFRS, referred to as Ind
AS,
The MCA has finalized thirty-five Ind AS in
February 2011.
The actual date of application of these Ind
AS is yet to be notified.

 These
standards
will
need
to
be
incorporated in to law by amendments to
the Companies Act which is yet to happen
While these standards are similar to IFRS a
few additional exemptions / changes have
been made to some of them which may
result in differences between IFRS and Ind
AS for some companies.
Until the applicability of Ind AS is clarified,
the original application date of April 1,
2011 is in question and companies must
continue to report under Indian GAAP.

 ORIGINAL
change)

TRANSITION

PLAN

(subject

to

Phase I (Companies moving from April 1,

2011)
Companies on the BSE Sensex 30 and NSE Nifty 50
Companies having listed securities outside of India
Companies having net worth in excess of Rs. 1000
crores (USD 222 million approx) as computed on
March 31, 2009, computed based on stand alone
entity financial statements as per original Indian
GAAP.
Insurance companies are scheduled to transition
on April 1, 2012.

 Phase II (Companies moving from April

1, 2013)
Companies with net worth in excess of Rs.
500 crores (USD 111 million approx).
Non Banking finance companies (NBFC) on
the NSE Nifty 50 or BSE Sensex 30, non
listed NBFC with net worth above Rs. 1000
crores (USD 222 million approx)
Commercial banks and urban co-operative
banks with net worth above Rs. 300 crores
(USD 67 million approx)

 Phase III (Companies moving from April

1, 2014)
Listed companies having net worth of Rs.
500 crores (USD 109 million approx) or less.
Urban co-operative banks having a net
worth in excess of Rs. 200 crores (USD 44
million approx) but not exceeding Rs.300
crore (USD 67 million approx)

Revised Implementation
Deadlines
On 2 January 2015, the Press Information
Bureau, Government of India, Ministry of
Corporate Affairs (MCA) issued a note outlining
the various phases in which Indian Accounting
Standards converged with IFRS (Ind AS) is
proposed to be implemented in India, for
Companies other than Banking Companies,
Insurance Companies and NBFCs.

Voluntary Adoption
Companies can voluntarily adopt Ind AS for
accounting periods beginning on or after 1 April
2015 with comparatives for period ending 31
March 2015 or thereafter. However, once they
have chosen this path, they cannot switch back .

 Mandatory Applicability
Phase I
Ind AS will be mandatorily applicable to the
following companies for periods beginning on
or after 1 April 2016, with comparatives for
the period ending 31 March 2016 or
thereafter:
Companies whose equity and/or debt securities
are listed or are in the process of listing on any
stock exchange in India or outside India and
having net worth of 500 crore INR or more.
Companies having net worth of 500 crore INR or
more other than those covered above.
Holding, subsidiary, joint venture or associate
companies of companies covered above.

 Phase II
Ind AS will be mandatorily applicable to the
following companies for periods beginning on
or after 1 April 2017, with comparatives for
the period ending 31 March 2017 or
thereafter:
Companies whose equity and/or debt securities
are listed or are in the process of being listed on
any stock exchange in India or outside India and
having net worth of less than rupees 500 Crore.
Unlisted companies other than those covered in
Phase I and Phase II whose net worth are more
than 250 crore INR but less than 500 crore INR.
Holding, subsidiary, joint venture or associate
companies of above companies.

Converged Indian Accounting

Standards
These are the converged Indian Accounting
Standards (Ind ASs) hosted by MCA on its
website. The date on which these will come
into force is yet to be notified.
1. Ind AS. 1.
Framework
for
the
Preparation
and
Presentation of Financial Statements in
accordance with Indian Accounting Standards
2. Ind AS 101
First-time Adoption of Indian Accounting
Standards

3. Ind AS 102
Share based Payment
4. Ind AS 103
Business Combinations
5. Ind AS 104
Insurance Contracts
6. Ind AS 105
Non current Assets Held for Sale and
Discontinued Operations
7. Ind AS 106
Exploration for and Evaluation of
Mineral
Resources

8. Ind AS 107
Financial Instruments: Disclosures
9.Ind AS 108
Operating Segments
10. Ind AS 1
Presentation of Financial Statements
11. Ind AS 2
Inventories
12. Ind AS 7
Statement of Cash Flows 1
13. Ind AS 8
Accounting Policies, Changes in Accounting
Estimates and Errors

14. Ind AS 10
Events after the Reporting Period
15. Ind AS 11
Construction Contracts
16. Ind AS 12
Income Taxes
17. Ind AS 16
Property, Plant and Equipment
18. Ind AS 17
Leases
19. Ind AS 18
Revenue

20. Ind AS 19
Employee Benefits
21. Ind AS 20
Accounting for Government Grants and
Disclosure of Government Assistance
22. Ind AS 21
The Effects of Changes in Foreign Exchange
Rates
23. Ind AS 23
Borrowing Costs
24. Ind AS 24
Related Party Disclosures
25. Ind AS 27
Consolidated
and
Separate
Financial
Statements

26. Ind AS 28
Investments in Associates
27. Ind AS 29
Financial Reporting in Hyperinflationary
Economies
28. Ind AS 31
Interests in Joint Ventures
29. Ind AS 32
Financial Instruments: Presentation
30. Ind AS 33
Earnings per Share

31. Ind AS 34
Interim Financial Reporting
32. Ind AS 36
Impairment of Assets
33. Ind AS 37
Provisions, Contingent Liabilities and Assets
34. Ind AS 38
Intangible Assets
35. Ind AS 39
Financial Instruments: Recognition and
Measurement
36. Ind AS 40
Investment Property