This document provides an overview of key differences between Indian GAAP and US GAAP. It defines GAAP as the common set of accounting principles, standards and procedures used to compile financial statements. Some major differences discussed include underlying assumptions, financial statement presentation formats, treatment of investments, consolidation of subsidiaries, accounting for foreign currency transactions, and accounting for expenses such as depreciation, pre-operating expenses, and employee benefits. The document also explains some accounting concepts and terms referenced in discussing the differences between Indian and US GAAP.

1. PRESENTED
BY
NEETU.P.S
PGDBM
‘B’ SEC

2. WHAT IS GAAP?
• International convention of
good accounting practices.
• The rules that govern
accounting are called ‘GAAP’.

3. DEFINITION: The common set of accounting principles,
standards and procedures that companies use
to compile their financial statements. GAAP
are a combination of authorities standards
[set by policy boards] and simply the
commonly accepted ways of recording and
reporting accounting information.

4. IN GENERAL…….
 GAAP is a term that applies to the broad
concepts or guidelines and detailed practices
in accounting including all the conventions,
rules and procedures that make up accepted
accounting practice at a given time.

5. GAAP WAS ESTABLISHED BY Securities
and exchange
commission [SEC]
 Financial accounting standards
board [FASB]
 Governmental accounting
standards board [GASB]

6. GAAP PROVIDES…
 A fair financial image of the company
 With different information
-Revenue recognition
-Balance sheet item classification
-o/s share measurements

7. 3 Main categories of GAAP:
 Assets- An asset is an item of value
owned by a company.
 Liabilities- In accounting, liabilities are
obligations of the company, to transfer
something of value to another party.
 Equity- It is the owners value in an asset
or group of assets.

8. DIFFERENCE BETWEEN INDIANGAAP
AND US GAAP

9. What is underlying assumption?
• Underlying assumptions are the basic
foundation that underlies generally accepted
accounting principles

10. MAJOR DIFFERENCES
UNDERLYING
ASSUMPTIONS
• Financial statements
are prepared in
accordance with the
principle of
conservatism‘Anticipate no profits
& provide for all
possible losses’
• Conservatism is not
considered ,if it leads
to deliberate &
consistent
understatements

11. FORMAT/PRESENTATION OF
FINANCIAL STATEMENTS
• Financial statements
are prepared in
accordance with the
presentation
requirements of
schedule VI to the
companies act, 1956
•
Financial statements
are not required to
be prepared under
any specific format
as long as they
comply with the
disclosure
requirements

12. CASH FLOW STATEMENT
• Cash flow statement in
financial statements is
mandatory only for
listed companies[AS-3]
• Cash flow statement is
mandatory for 3yearscurrent year & 2
immediate preceding
years irrespective of
whether the company is
listed/not[AS-95]

13. DEPRECIATION
• Depreciation is
provided based on rates
prescribed by the
companies
act,1956.Higher
depreciation provision
based on estimated
useful life of the assets
is permitted
• Depreciation has to be
provided over the
estimated useful life of
the asset , thus making
the accounting more
realistic & providing
sufficient funds for
replacement when the
asset becomes obsolete
& fully worn out

14. What is long term debt?
• Long term debt are loans & financial
obligations lasting over one year. Such
obligations would include company’s bond
issues or long term leases that have been
capitalized on a firm’s balance sheet.

15. LONG TERM DEBTS
• There is no such
requirement &
hence the interest
accrued long term
debt is not taken as
current liability
• The current portion
of long term debt is
classified as current
liability

16.  Subsidiary company- A company controlled
by holding company i:e the company holding
more than 51% of shares.
Consolidation- It refers to the
aggregation[collection] of financial statements
of a group company as consolidated financial
statements.

17. CONSOLIDATION OF SUBSIDIARY
ACCOUNTS
• Consolidation of
accounts of subsidiary
companies is not
mandatory[AS-21]
• Consolidation of results
of subsidiary companies
is mandatory, hence
eliminating material,
inter company
transactions & giving a
true picture of the
operations &
profitability [AS-94]

18. INVESTMENTS
• Investments are
classified as current &
long term. Current
investments are carried
out in financial
statements at lower
cost & fair value, but
not on an overall basis
• Investments are
required to be
segregated in 3
categories i:e held to
maturity security,
trading security &
available for sales
security

19. What is prudence?
• It is a good judgement or wisdom gained by
experience & knowledge, expressed in a
realistic & frugal attitude. It is not the same as
grave caution or wariness concerned only with
preserving status quo[existing state of affairs].
If there is no real cause for fear, prudence lies
in avoiding excessive deliberations & in the
readiness to sacrifice today’s gain for
tomorrow’s greater gain.

20. PRUDENCE Vs RULES
• ICAI has been
• The rules are less
structuring based on
descriptive & their
IAS, to employ
application is based
concepts & prudence
on prudence
as the principle of
contrast

21. What is foreign currency transactions?
• A foreign currency transaction gain or loss is
produced from redeeming receivables/payables
that are fixed in terms of amounts of foreign
currency received/paid. Gain or loss results from
changes in exchange rates between the
functional currency and the foreign currency in
which the transaction is denominated. Foreign
transaction gains or losses are typically included
in the income statement for the period in which
the exchange rate changes.

22. FOREIGN CURRENCY TRANSACTIONS
• Exchange
• Capitalization of
fluctuations on
exchange fluctuation
liabilities incurred for
arising from
fixed assets can be
liabilities incurred for
capitalized[AS-11]
acquiring fixed
assets does not
exist[AS-52]

23. EXPENDITURE DURING
CONSTRUCTION PERIOD
• All incidental
expenditure on
construction of assets
during project stage are
accumulated &
allocated to the cost of
asset
• Such expenses are
divided into 2 heads
direct & indirect. While
direct expense is
accumulated &
allocated to the cost of
asset, indirect are
charged to revenue[AS7]

24. RESEARCH & DEVELOPMENT
EXPENDITURE
• R&D to be charged to
P/L, except equipment
& machinery which are
capitalized &
depreciated[AS-8]
• All R&D costs are
expenses except
intangible assets
purchased from others
& tangible assets that
have alternative future
uses which are
capitalized &
depreciated[AS-2]

25. What is revaluation reserve?
• An accounting term used when a company
has to enter a line item on their balance sheet
due to a revaluation performed on an asset,
this line item is used when the revaluation
finds the current & probable future value of
the asset is higher than the recorded historic
cost of the same asset.

26. REVALUATION RESERVE
• The asset can be
revalued upward &
unrealized gain can
be credited to
revaluation reserve
• Does not allow
revaluing upward
property, plant &
equipment/investme
nt

27.  Extraordinary items- The gain or loss resulting
from a transactions or event that is both
unusual in nature & infrequent in occurrence.
Prior period items- It refer to the effects of
errors & omissions in the preparation of
financial statements of one or more prior
years whether it includes all failure of
accounting in prior years.

28. EXTRAORDINARY ITEMS & PRIOR
PERIOD ITEMS
• Extraordinary &
prior period items
are disclosed
without netting off
for tax effects[AS-5]
• Adjustments for tax
effects are required
to be made while
reporting the prior
period items[AS-16

29. GOODWILL
• Goodwill is
capitalized &
charged to earnings
over 5-10yrs period
• Goodwill &
intangible assets are
amortized, but they
are tested at least
annually for
impairment[AS-142]

30. What is capital expense?
• Capital expenses are payments by a business
for fixed assets, like buildings & equipments.
Capital expenses are not used for ordinary day
to day operating expenses of a business, like
rent, utilities & insurance.

31. CAPITAL ISSUE EXPENSES
•
Capital issue
expenses are
required to be
written off against
proceeds of capitals
• Capital issue
expenses can be
amortized or written
off against reserves

32. PROPOSED DIVIDEND
• Dividends declared
are accounted for in
the year to which
they relate
• Dividends are
reduced from
reserves in the year
they are declared &
will be charged to
P/L above the line

33. INVESTMENTS IN ASSOCIATED
COMPANIES
• Investments in
associate companies is
initially recorded at
cost, identifying
goodwill/capital reserve
arising at the time of
acquisition[AS-23]
• Investments in
associates are
accounted under equity
method in group
accounts but would be
held at cost in the
investor’s own A/c[AS115]

34. PREOPERATIVE EXPENSES
• Direct revenue
expenses like
preliminary &
indirect like
incidental, are
allowed to be
capitalized
• Expenses have to be
charged to revenue
& assets are
capitalized as a
normal
organization[AS-7]

35. EMPLOYEE BENEFITS
• Provision for
• Provision for leave
leave encashment
encashment is not
is accounted
usually based on
based on actuarial
actuarial valuation
valuation

36. LOSS ON EXTINGUISHMENT OF DEBT
• Debt
extinguishment
premiums are
adjusted against
securities
premium A/c
• Premiums for
early
extinguishment of
debt are expended
as incurred

37. THANK YOU