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  • GAAP differences Comparison of GAAP requirements under IAS, US, UK and India

    SUBJECT IAS US GAAP UK GAAP INDIAN GAAP Accounting framework Contents of Financial statements

    Two years balance sheets, income, recognised gains and losses and cash flow statements, changes in equity, accounting policies and notes.

    Similar to IAS, except three years required by SEC for all statements except balance sheet.

    Similar to IAS Two years balance sheets, profit and loss account, accounting policies and notes. Only companies listed on Indian stock exchanges and non-listed enterprises whose turnover exceeds Rs. 500 million are required to furnish cash flow statements.

    Truue and fair view override

    In rare cases, override standards to give true and fair view.

    No override of standards permitted.

    Similar to IAS No override of standards permitted.

    Accounting convention Historical cost, but some assets may be revalued.

    No revaluations except some securities and derivatives at fair value.

    Comparable to IAS Historical cost, but fixed assets, other than intangibles, may be revalued.

    Changes in accounting policies

    Either restate comparatives and prior year opening retained earnings or include effects (net of taxes) in current year income statement and provide proforma comparatives in the notes. Disclosure: Disclosure is required of the reasons for and the effect of the change.

    Generally include effect (net of taxes) in current year income statement after extraordinary items. Disclose proforma comparatives. Retrospective adjustments for specific items. Disclosure: Cumulative effect of change

    on the amount of retained earnings at the beginning of the period in which the change is made.

    Effect of change on income

    Restate comparatives and prior year opening retained earnings. Disclosure: Effect of the change on current period results.

    Include effect in the income statement of the period in which the change is made. Disclosure: Impact of and adjustments

    resulting from the change, if material, is to be shown in the financial statements of the period in which the change is made.

    If the effect of the change cannot be estimated that fact is to be disclosed.

    A change that has no

  • GAAP differences Comparison of GAAP requirements under IAS, US, UK and India

    SUBJECT IAS US GAAP UK GAAP INDIAN GAAP before extraordinary items and on net income (and related per share amounts).

    Income before extraordinary items and net income computed on pro forma basis on the face of the income statement for all periods presented as if the new policy had been applied during all periods.

    material effect in the current period but is reasonably expected to have material effect in later periods is to be appropriately disclosed in the period in which change is adopted.

    Correction of fundamental errors

    Either restate comparatives or include effect in current year income statement with proforma comparatives in the notes.

    Restate comparatives. Adjustments required to be made to previously issued financial statements.

    Similar to US GAAP Include effect in current year income statement.

    Reporting currency Requires measurement of profit using the measurement currency, however entities may present financial statements in different currency.

    Uses a functional currency. Does not specify the concept of a presentation currency.

    In practice it is rare for entities not to use sterling.

    In practice it is rare for entities not to use local currency.

    Balance sheet format Does not prescribe a particular format, however certain items must be presented on the face of the balance sheet.

    Similar to IAS, items presented on the face of the balance sheet are generally presented in decreasing order of liquidity.

    Company law specifies various formats. Items presented are similar to IAS, except shareholders funds are required to be analysed into equity and non-equity elements.

    Company law specifies various formats.

    Income statement format

    Does not prescribe a particular format, however expenditure must be presented in one of

    Present as either a single step or multiple step format. Expenditure must be presented by function.

    Company law specifies four alternative formats.

    Does not prescribe a particular format, however prescribes certain disclosure norms for

  • GAAP differences Comparison of GAAP requirements under IAS, US, UK and India

    SUBJECT IAS US GAAP UK GAAP INDIAN GAAP two formats (function or nature). Certain items must be presented on the face of the income statement.

    income and expenditures.

    Cash flow statement - formats and method

    Standard headings, but flexibility over their contents. Use direct or indirect method.

    Similar headings to IAS, but more specific guidance given for items to include in each. Use direct or indirect method.

    More standard headings than IAS. Use direct or indirect method.

    Standard headings, using direct or indirect method, prescribed for all listed companies and companies with turnover in excess of Rs 500 million.

    Cash flow statements - definition of cash and cash equivalents

    Cash includes overdrafts and cash equivalents with short-term maturities (less than 3 months).

    Cash excludes overdrafts but includes cash equivalents with short-term maturities.

    Cash includes overdrafts but excludes cash equivalents.

    Cash includes cash in hand and deposits repayable on demand. Cash equivalents are short term, highly liquid investments that are readily convertible to cash (normally 3 months or less). Bank borrowings are generally considered to be financing activities.

    Changes in accounting estimates

    Account for in income statement in the current and future periods, as appropriate.

    Similar to IAS.

    Similar to IAS Comparable to IAS.

    Group Reporting Definition of subsidiary Based on voting control or

    power to exercise dominant influence.

    Controlling interest through majority ownership of voting shares. Recent proposals similar to IAS.

    Similar to IAS Controlling interest through majority of voting shares or control of board of directors.

    Exclusion of subsidiaries from consolidation

    Only if severe long-term restrictions or acquired and held for re-sale in the near

    Comparable to IAS. If control is likely to be

    temporary or if it does not rest

    Similar to IAS Comparable to IAS.

  • GAAP differences Comparison of GAAP requirements under IAS, US, UK and India

    SUBJECT IAS US GAAP UK GAAP INDIAN GAAP future; dissimilar activities is not a justification.

    with the majority owner. Significant doubts as to the

    parents ability to control. Definition of associate Based on significant influence:

    presumed if 20% interest or participation in entitys affairs.

    Broadly comparable to IAS. Requires evidence of exercise of significant influence

    An associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. Significant influence is the power to participate in the financial and/or operating policy decisions of the investee but not control over those policies. As regards share ownership, if an investor holds, directly or indirectly through subsidiary(ies), 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly through subsidiary(ies), less than 20% of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly

  • GAAP differences Comparison of GAAP requirements under IAS, US, UK and India

    SUBJECT IAS US GAAP UK GAAP INDIAN GAAP demonstrated.

    Presentation of associate results

    Use equity method. Show share of profits and losses. The equity method is a method of accounting whereby the investment is initially recorded at cost, identifying any goodwill/capital reserve arising at the time of acquisition. The carrying amount of the investment is adjusted thereafter for the post acquisition change in the investors share of net assets of the investee. The consolidated statement of profit and loss reflects the investors share of the results of operations of the investee.

    Use equity method. Show share of post-tax result.

    Use expanded equity method. Share of operating profit, exceptional items and tax shown separately.

    Use equity method. Show share of profits and losses.

    Disclosures about significant associates

    Following disclosures to be made: List and description of

    Associates including proportion of ownership and proportion of voting power (if different from proportion of ownership)

    Method used to account for such investments.

    Investments in associates

    Give detailed information on significant associates assets, liabilities and results.

    Similar to US GAAP. Following disclosures to be made in Consolidated Financial statements: Reasons for not applying

    the equity method of accounting for investments in associates.

    Goodwill/Capital reserve arising on acquisition of an associate. (included in carrying amount but

  • GAAP differences Comparison of GAAP requirements under IAS, US, UK and India

    SUBJECT IAS US GAAP UK GAAP INDIAN GAAP accounted for using the equity method classified as long-term investments

    The investors share of the profits or losses of such in