IFRS AND US GAAP

Chapter 1 International Accounting Standards Board

Topics covered:

 The structure of IASB

 Vision and mission of IASB.
 The standard setting process.
 Adoption or convergence of IFRS in countries around the world.

 Meaning of Accounting Standard

Accounting standards refer to a set of guidelines and rules established by regulatory bodies or
professional organizations that govern how financial statements should be prepared and
presented. These standards ensure consistency, comparability, and transparency in financial
reporting across different organizations and industries.

Accounting standards cover various aspects of financial reporting, including recognition,

measurement, presentation, and disclosure of assets, liabilities, income, expenses, and equity.
They provide guidelines on how to value assets and liabilities, determine revenue and
expenses, and disclose relevant information in the financial statements and accompanying
notes.

These standards are typically issued by recognized standard-setting bodies, such as the
International Accounting Standards Board (IASB). International Financial Reporting
Standards (IFRS) are a widely accepted set of accounting standards used in many countries,
including India.
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 History and development of Accounting Standard

GAAP
(Generally Accepted Accounting Principles)

National GAAP International GAAP

1977
1977
Indian GAAP 1973
US Accounting Standard
(Accounting Standards International Accounting Standards
Board) (related to US only)
(by International Accounting
Standards Board [IASB])

2011
Indian Accounting Standards (Ind-AS)
(in line with IFRS) 2001
International Financial
Reporting Standards (IFRS)
Mandatory Application
Voluntary Application
Updated provisions of
1/4/2015 International Accounting
Phase I: 1/4/2016
Standards
Phase II: 1/4/2018

 Generally accepted accounting principles

o Generally accepted accounting principles or commonly known as GAAP, are

rules and guidelines that help companies preparing financial statements. Many
companies publish their annual financial statements in order to get public finance
from shareholders or largely through loan from financial institutes. It is broadly
categorized into National GAAP and International GAAP.

 1973: International Accounting Standards

o First time implemented internationally accepted accounting standards. Applied in
European Union.
 1977: US-GAAP (Generally Accepted Accounting Principles)
o America came up with the national GAAP only applied to the countries limited to US.
 2011: Indian AS (Accounting Standard)
o Indian Accounting Standard in line with IFRS came into effect from 1 st April 2011

 National GAAP

o Means the set of rules and regulations for maintaining financial information
within boundaries of a country.
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Chapter 1 International Accounting Standards Board

 International GAAP

o Moreover International GAAP is set of generally accepted rules and regulations to

maintain financial information around globe. US GAAP or US Generally
Accepted Accounting Principles is an exception of IFRS.

 International Accounting Standards (IAS)

o In year 1973 International Accounting Standards Committee (IASC) was formed

in London.

o It was established with the goal of harmonizing the international reporting

practices.

o It created a set of global accounting standards and named it International

Accounting Standards (IAS) that gained acceptance in countries all around the
world across time.

o The International Accounting Standards Board (IASB), took over IASC on April
1, 2001. The IASB adopted the existing IAS framework, which it developed
further into International Financial Reporting Standards (IFRS).

 International Financial Reporting Standards (IFRS)

o IFRS is the updated version of IAS.

o The International Accounting Standards Board (IASB) issues the International

Financial Reporting Standards, or IFRS.

o IFRS are set of updated accounting standards which can be accepted globally for
accounting practices of company.

o They are a standardized manner of describing a company's financial performance

and situation, allowing financial statements to be understood and compared across
borders.

o More than 140 countries accepted IFRS Standards, and many more allow them,
including South Korea, Brazil, the European Union, India, Hong Kong, Australia,
Malaysia, Pakistan, Russia and others.
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 Indian Accounting Standards

o The Indian Accounting Standard (abbreviated as Ind.-AS) is an accounting

standard in line with IFRS which is used by Indian firms.

o Ind. AS is issued under the authority of the Accounting Standards Board (ASB),
which was established in 1977.

o India converged with IFRS standards and made suitable changes in the existing
Accounting Standards of Indian.

o ASB is a committee of the Institute of Chartered Accountants of India (ICAI) that

includes representatives from government departments, academicians, and other
professional groups such as ICAI, ASSOCHAM, CII, FICCI, and others.

o The ICAI is a non-profit organization established by an act of parliament. On 1st

April, 2011 the Indian Accounting Standards (Ind-AS) are in line with the IFRS
framework were implemented.

o This will be implemented to enterprises on voluntarily basis from the financial

year 2015-16 and on a mandatory basis from the financial year 2016-17.
[Presently running late from dead line].

 Vision and Mission of IASB

**Vision of the IASB**:

The IASB's vision is a forward-looking statement that outlines its aspirations for the
global financial reporting landscape. As of my last knowledge update in September 2021,
the IASB's vision is:

"**A single set of high-quality, understandable, enforceable and globally accepted

financial reporting standards based upon clearly articulated principles.**"

This vision emphasizes several key elements:

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Chapter 1 International Accounting Standards Board

1. **Single Set of Standards**: The IASB aims to establish one comprehensive set of
accounting standards that can be applied consistently across the globe. This promotes
consistency and comparability in financial reporting.

2. **High Quality**: The standards developed by the IASB are expected to be of the
highest quality, ensuring that financial statements provide reliable and relevant
information to users.

3. **Understandable**: The standards should be clear and understandable to a wide

range of stakeholders, including investors, analysts, regulators, and preparers of financial
statements.

4. **Enforceable**: The IASB seeks to create standards that can be effectively enforced,
ensuring compliance and accountability in financial reporting.

5. **Globally Accepted**: The standards should be accepted and recognized worldwide,

facilitating cross-border investment and enhancing the transparency of global capital
markets.

6. **Principle-Based**: The vision implies a preference for principles-based standards,

which are based on fundamental accounting principles and provide a conceptual
framework for preparing financial statements.

**Mission of the IASB**:

The mission of the IASB is a statement of its fundamental purpose and the approach it
takes to achieve its vision. As of my last knowledge update in September 2021, the
IASB's mission is:

"**To develop IFRS Standards that bring transparency, accountability and efficiency to
financial markets around the world. Our work serves the public interest by fostering trust,
growth and long-term financial stability in the global economy.**"

This mission statement outlines several critical elements:

1. **Developing IFRS Standards**: The primary function of the IASB is to develop and
issue IFRS, which are designed to enhance transparency, comparability, and relevance of
financial reporting.
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2. **Transparency and Accountability**: IFRS are intended to increase transparency in
financial markets, allowing stakeholders to make informed decisions. They also promote
accountability among preparers of financial statements.

3. **Efficiency in Financial Markets**: IFRS aim to streamline financial reporting,

making it more efficient for both preparers and users of financial information.

4. **Serving the Public Interest**: The IASB operates in the broader public interest,
working to ensure that financial reporting benefits society as a whole.

5. **Fostering Trust, Growth, and Stability**: IFRS are seen as instrumental in building
trust in financial reporting, fostering economic growth, and contributing to the long-term
stability of the global economy.

 Accounting Standard Setting procedure for AS in India

### International Accounting Standard Board (IASB):

The International Accounting Standards Board (IASB) is a committee formed by

the Institute of Chartered Accountants of India (ICAI). Its primary purpose is to
develop and recommend accounting standards in India. These standards provide
guidelines on how financial transactions and events should be accounted for and
presented in the financial statements.

**Role of IASB**:

1. **Standard Setting**: IASB is responsible for setting accounting standards that are in
line with the international accounting principles, ensuring consistency and comparability
of financial statements.

2. **Review and Revision**: It periodically reviews the existing accounting standards

and revises them if necessary to keep them up-to-date with evolving business practices
and international standards.
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3. **Guidance Notes**: IASB issues guidance notes to provide additional clarification on
specific accounting issues that may not be covered in the accounting standards.

4. **Interpretations**: It helps in interpreting the accounting standards and providing

guidance on their application.

5. **Stakeholder Consultation**: IASB often seeks feedback and opinions from

stakeholders, including businesses, professionals, and regulatory authorities, in the
process of developing or revising accounting standards.

### Procedure for Issuing Accounting Standards (AS) in India:

1. **Identification of Need**:

The process typically starts with recognizing the need for a new accounting
standard or a revision of an existing one. This need may arise due to changes in
business practices, emerging industries, or updates in international accounting
standards.

2. **Formation of a Study Group**:

ASB forms a study group consisting of experts in accounting, finance, and related
fields. This group is tasked with conducting research, studying international
standards, and preparing a draft accounting standard.

3. **Drafting of the Standard**:

The study group drafts the accounting standard, taking into consideration the
specific needs and practices of the Indian business environment. They also ensure
alignment with international accounting principles.

4. **Exposure Draft**:

The draft accounting standard is then published as an "Exposure Draft" to seek

public comments and feedback. This allows stakeholders, including businesses,
professionals, and regulators, to provide their input.
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5. **Consideration of Feedback**:

ASB carefully considers the feedback received during the exposure period. They
analyze the comments and make necessary revisions to the draft accounting
standard.

6. **Finalization and Recommendation**:

After incorporating feedback, the final version of the accounting standard is

prepared. ASB then recommends this standard to the Council of ICAI for
approval.

7. **Approval by the Council**:

The Council of ICAI, which is the governing body, reviews and approves the
recommended accounting standard. Once approved, it becomes an official
accounting standard.

8. **Publication and Implementation**:

The approved accounting standard is published and disseminated to all

stakeholders. Entities are required to apply the standard in their financial reporting
as per the effective date specified by ICAI.

9. **Monitoring and Review**:

ASB continuously monitors the application and effectiveness of the accounting

standards. If needed, revisions or interpretations may be made in response to
changing business practices or emerging issues.
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This process ensures that accounting standards in India are developed through a
systematic and inclusive approach, taking into account the needs and perspectives of
various stakeholders in the financial reporting ecosystem.

 Convergence and Adoption of IFRS

 Adopt IFRS : Completely adopt the whole structure of IFRS in own country

 Converge IFRS: Converge the IFRS structure in the fundamental structure of

financial reporting standards in own country.

o Convergence of Accounting Standards:

Convergence refers to the process of narrowing the differences between accounting

standards used in different countries or regions. The goal of convergence is to
develop a common set of high-quality accounting standards that can be universally
applied across the globe. This helps to enhance comparability, transparency, and
consistency in financial reporting.

o Adoption of IFSR:
Adoption of IFRS refers to the process by which a country, jurisdiction, or entity
formally incorporates and mandates the use of International Financial Reporting
Standards issued by the International Accounting Standards Board (IASB).