The document provides an overview of key concepts in financial accounting including: - The meaning and objectives of financial accounting - The advantages and limitations of financial accounting - Accounting principles like the accounting equation, concepts, and conventions - International accounting standards set by the IASB - Users of accounting information both internal and external to a business

1. Babu Banarasi Das University, Lucknow
School of Management
Accounting and Financial Analysis
(MBA4103)
Module-I
Lt. Shubham Pratap Singh
Assistant Professor,
School of Management,
BBD University 1

2. Meaning of Financial Accounting
• Accounting is a business language which elucidates the various
kinds of transactions during the given period of time.
• Accounting is broadly classified into three different functions viz.
1. Recording 2. Classifying and 3. Summarizing
• Accounting is used by business entities for keeping records of their
monetary or financial transactions.
• A businessman who has invested money in his business would like
to know whether his business is making a profit or incurring a loss,
the position of his assets and liabilities and whether his capital in
the business has increased or decreased during a particular period.
2

3. Definition of Financial Accounting
The definition given by the American Institute of Certified Public
Accountants (‘AICPA’) clearly brings out the meaning of accounting.
According to it, accounting is “the art of recording, classifying and
summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financial
character and interpreting the results thereof”.
The definition brings out the following as attributes of accounting :
• Accounting is an art
• It involves recording, classifying and summarizing
• It records transactions in terms of money
• It records only those transactions and events which are of financial
character
• It is the art of interpreting the results of operations
3

4. Objectives of Financial Accounting
• To maintain the systematic records of the business
• To ascertain the profit or loss of the business
• To present the financial position of the business
• To provide the financial information to the various users
• Facilitating rational decision making
4

5. Advantages of Financial Accounting
• Maintenance of Business Records
• Preparation of Financial Statements
• Comparison of Results
• Decision Making
• Helpful in Legal Matters
• Provides information to Interested Parties
• Helps in Taxation Matters
• Valuation of Business
• Helpful in the determination of financial results and presentation
of financial position
5

6. Limitations of Financial Accounting
• Accounting information is expressed in terms of money
• Financial statements are affected by personal judgment of the
accountants
• Conflict between accounting principles
• Financial statements do not reflect the right picture of the business
• Fixed assets are recorded at the original cost
• Money as a measurement unit changes in value
6

7. Users of Accounting Information
There are two types of persons interested in financial
statements: (1) Internal users, and (2) External users
1. Internal Users:
• Shareholders
• Management
• Employees
• Trade Unions etc.
7

8. Continued…
2. External Users:
• Investors
• Creditors, Lenders of Money etc.
• Government
• Taxation Authorities
• Stock Exchanges
• Customers/Consumers
• Reseachers
8

9. Meaning of Accounting Principles
• Accounting is often called the language of business through which a
business house communicates with the outside world.
• In order to make this language intelligible and commonly understood by
all, it is necessary that it should be based on certain uniform
scientifically laid down standards. These standards are termed as
accounting principles.
• Accounting principles refer to the rules and actions adopted by the
accountants globally for recording accounting transactions.
• These are classified into two categories:
– Accounting Concepts
– Accounting Conventions
9

10. Accounting Concepts
• Accounting concepts are defined as basic assumptions on the basis of which
financial statements of a business entity are prepared.
• They are used as a foundation for formulating various methods and
procedures for recording and presenting the business transactions.
10

11. Accounting Conventions
• The term ‘convention’ denotes custom or tradition or practice based on general
agreement between the accounting bodies which guide the accountant while
preparing the financial statements.
• It is a guide to the selection or application of a procedure.
• In fact financial statements, namely, the profit and loss account and balance sheet
are prepared according to the accounting conventions.
11

12. Accounting Concepts
• Business Entity Concept
• Money Measurement Concept
• Going Concern Concept
• Cost Concept
• Revenue Matching Concept
• Realisation Concept
• Accrual Concept
• Accounting Period Concept
• Dual Aspect Concept
12

13. Business Entity Concept
• The business and its owner(s) are two separate existence entity.
• Any private and personal incomes and expenses of the owner(s) should not
be treated as the incomes and expenses of the business.
• According to this concept, business is treated as an entity separate from its
owners.
• It is treated to have a distinct accounting entity which controls the resources
of the concern and is accountable thereof.
• Accounts are kept for a business entity as distinguished from the person(s)
owning it.
• All transactions of the business are recorded in the books of the business
from the point of view of the business.
13

14. Money Measurement Concept
• Money measurement concept holds that accounting is a measurement and
communication process of the activities of the firm that are measurable in
monetary terms.
• Thus, only such transactions and events which can be interpreted in terms of
money are recorded.
• Events which cannot be expressed in money terms do not find place in the
books of account though they may be very important for the business.
• Examples: Market conditions, technological changes and the efficiency of
management would not be disclosed in the accounts.
14

15. Going Concern Concept
• Business transactions are recorded on the assumption that the business will
continue for a long-time.
• There is neither the intention nor the necessity to liquidate the particular
business venture in the foreseeable future.
• Financial statements should be prepared on a going concern basis unless
management either intends to liquidate the enterprise or to cease trading, or
has no realistic alternative but to do so.
• Transactions are recorded in such a manner that the benefits likely to accrue
in future from money spent now or the future consequences of the events
occurring now are also taken into consideration.
15

16. Cost Concept
• According to cost concept, the various assets acquired by a concern or firm
should be recorded on the basis of the actual amounts involved or spent.
• This amount or cost will be the basis for all subsequent accounting for the assets.
• The cost concept does not mean that the assets will always be shown at cost.
The fixed asset will be recorded at cost at the time of its purchase but it may
systematically be reduced in its value by charging depreciation.
• Example: The cost of fixed assets is recorded at the date of acquisition cost. The
acquisition cost includes all expenditure made to prepare the asset for its
intended use. It included the invoice price of the assets, freight charges,
insurance or installation costs
16

17. Revenue Matching Concept
• This concept is based on accounting period concept. In order to determine
the profit earned or loss suffered by the business in a particular defined
accounting period, it is necessary that expenses of the period should be
matched with the revenues of that period.
• The term ‘matching’ means appropriate association of related revenues and
expenses.
• Therefore, income made by the business during a period can be ascertained
only when the revenue earned during a period is compared with the
expenditure incurred for earning that revenue.
17

18. Realisation Concept
• According to this concept, revenue is considered as being earned on the date at
which it is realized i.e. on the date when the property in goods passes to the buyer
and he becomes legally liable to pay.
• The revenue is recognised only when a sale is made. Unless money has been
realised i.e., cash has been received or a legal obligation to pay has been assumed
by the customer, no sale can be said to have taken place and no profit can be said to
have arisen.
18

19. Accrual Concept
• Every transaction and event affects, one or more or all the three aspects viz., assets,
liabilities and capital.
• Normally all transactions are settled in cash but even if cash settlement has not
taken place, it is proper to record the transaction or the event concerned into the
books.
• Business transactions are recorded when they occur and not when the related
payments are received or made.
• This concept is called accrual basis of accounting and it is fundamental to the
usefulness of financial accounting information.
19

20. Accounting Period Concept
• It is customary that the life of the business is divided into appropriate parts or
segments for analyzing the results shown by the business.
• Each part or segment so divided is known as an accounting period.
• It is an interval of time at the end of which the income or revenue statement and
balance sheet are prepared in order to show the results of operations and changes
in the resources which have occurred since the previous statements have been
prepared.
• Normally, the accounting period consists of twelve months.
20

21. Dual Aspect Concept
• Dual aspect principle is the basis for Double Entry System of book-keeping. All
business transactions recorded in accounts have two aspects - receiving benefit and
giving benefit. For example, when a business acquires an asset (receiving of benefit)
it must pay cash (giving of benefit).
• This concept is based on double entry book-keeping which means that accounting
system is set up in such a way that a record is made of the two aspects of each
transaction that affects the records.
• The recognition of the two aspects to every transaction is known as dual aspect
concept.
21

22. Accounting Conventions
• Convention of Consistency
• Convention of Full Disclosure
• Convention of Conservatism
• Convention of Materiality
22

23. Convention of Consistency
• The consistency convention implies that the accounting practices should
remain the same from one year to another.
• The results of different years will be comparable only when accounting rules
are continuously adhered to from year to year.
– Companies should choose the most suitable accounting methods and
treatments, and consistently apply them in every period.
– Changes are permitted only when the new method is considered better and
can reflect the true and fair view of the financial position of the company.
• The rationale behind this principle is that frequent changes in accounting
treatment would make the financial statements unreliable to the persons
who use them.
23

24. Convention of Full Disclosure
• The disclosure of all significant information is one of the important
accounting conventions.
• Apart from statutory requirements good accounting practice also
demands all significant information should be fully and fairly
disclosed in the financial statements.
• It implies that accounts should be prepared in such a way that all
material information is clearly disclosed to the reader.
• The term disclosure does not imply that all information that any one
could desire is to be included in accounting statements.
• The term only implies that there is a sufficient disclosure of
information which is of material in trust to proprietors, present and
potential creditors and investors.
• The idea behind this convention is that any body who want to study
the financial statements should not be mislead. He should be able to
make a free judgment.
24

25. Convention of Conservatism
• This convention means a caution approach or policy of "play safe".
• This convention ensures that uncertainties and risks inherent in
business transactions should be given a proper consideration. If there
is a possibility of loss, it should be taken into account at the earliest.
• On the other hand, a prospect of profit should be ignored up to the
time it does not materialize. On account of this reason, the
accountants follow the rule 'anticipate no profit but provide for all
possible losses'.
• On account of this convention, the inventory is valued 'at cost or
market price whichever is less.' The effect of the above is that in case
market price has gone down then provide for the 'anticipated loss'
but if the market price has gone up then ignore the 'anticipated
profits.' Similarly a provision is made for possible bad and doubtful
debt out of current year's profits. 25

26. Convention of Materiality
• According to the convention of materiality, accountants should report only what
is material and ignore insignificant details while preparing the final accounts.
• The decision whether the transaction is material or not should be made by the
accountant on the basis of professional experience and judgment.
• This is because otherwise accounting will be unnecessarily over burden with
minute details. There is no formula in making a distinction between material and
immaterial events.
• It is a matter of judgment and it is left to the accountant for taking a decision. It
should be noted that an item material for one concern may be immaterial for
another. Similarly, an item material in one year may not be material in the next
year.
26

27. Accounting Equation
• The accounting equation states that a company's total assets are equal to
the sum of its liabilities and its shareholders' equity.
• This straightforward relationship between assets, liabilities, and equity is
considered to be the foundation of the double-entry accounting system.
• The accounting equation ensures that the balance sheet remains balanced.
That is, each entry made on the debit side has a corresponding entry (or
coverage) on the credit side.
• Assets represent the valuable resources controlled by the company. The
liabilities represent their obligations.
• Both liabilities and shareholders' equity represent how the assets of a
company are financed.
• Financing through debt shows as a liability, while financing through issuing
equity shares appears in shareholders' equity. 27

28. Accounting Equation Formula and Calculation
Assets = Liabilities + Owner’s Equity (Capital)
• The balance sheet holds the elements that contribute to the
accounting equation:
• Locate the company's total assets on the balance sheet for the
period.
• Total all liabilities, which should be a separate listing on the
balance sheet.
• Locate total shareholder's equity and add the number to total
liabilities.
• Total assets will equal the sum of liabilities and total equity. 28

29. Accounting Principles and Standards
• Accounting principles are the rules and guidelines that companies and
other bodies must follow when reporting financial data.
• These rules make it easier to examine financial data by standardizing the
terms and methods that accountants must use.
• The ultimate goal of any set of accounting principles is to ensure that a
company's financial statements are complete, consistent, and comparable.
• This makes it easier for investors to analyze and extract useful information
from the company's financial statements, including trend data over a
period of time.
• It also facilitates the comparison of financial information across different
companies.
• Accounting principles also help mitigate accounting fraud by increasing
transparency and allowing red flags to be identified. 29

30. International Accounting Standards
• International Accounting Standards (IAS) are older accounting standards issued
by the International Accounting Standards Board (IASB), an independent
international standard-setting body based in London. The IAS were replaced in
2001 by International Financial Reporting Standards (IFRS).
• International Accounting Standards (IAS) were the first international accounting
standards that were issued by the International Accounting Standards
Committee (IASC), formed in 1973. The goal then, as it remains today, was to
make it easier to compare businesses around the world, increase transparency
and trust in financial reporting, and foster global trade and investment.
• Globally comparable accounting standards promote transparency, accountability,
and efficiency in financial markets around the world. This enables investors and
other market participants to make informed economic decisions about
investment opportunities and risks and improves capital allocation.
• Universal standards also significantly reduce reporting and regulatory costs,
especially for companies with international operations and subsidiaries in
multiple countries.
30

31. Continued…
• International Accounting Standards (IASs) were issued by the
antecedent International Accounting Standards Council (IASC),
and endorsed and amended by the International Accounting
Standards Board (IASB). The IASB will also reissue standards in
this series where it considers it appropriate.
• IAS 1 Presentation of Financial Statements
• IAS 2 Inventories
• IAS 3 Consolidated Financial Statements
(Superseded in 1989 by IAS 27 and IAS 28)
• IAS 4 Depreciation Accounting
(Withdrawn in 1999) 31

32. Continued…
• IAS 5 Information to Be Disclosed in Financial Statements (Superseded by IAS 1
effective 1 July 1998)
• IAS 6 Accounting Responses to Changing Prices (Superseded by IAS 15, which
was withdrawn December 2003)
• IAS 7 Statement of Cash Flows
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• IAS 9 Accounting for Research and Development Activities (Superseded by IAS 38
effective 1 July 1999)
• IAS 10 Events After the Reporting Period
• IAS 11 Construction Contracts (Superseded by IFRS 15 as of 1 January 2017)
• IAS 12 Income Taxes
• IAS 13Presentation of Current Assets and Current Liabilities (Superseded by IAS 1
effective 1 July 1998)
• IAS 14 Segment Reporting (Superseded by IFRS 8 effective 1 January 2009)
• IAS 15 Information Reflecting the Effects of Changing Prices (Withdrawn
December 2003) 32

33. Continued…
• IAS 16 Property, Plant and Equipment
• IAS 17 Leases (Superseded by IFRS 16 effective 1 January 2019)
• IAS 18 Revenue (Superseded by IFRS 15 effective 1 January 2017)
• IAS 19 Employee Benefits (1998) (Superseded by IAS 19 (2011)
effective 1 January 2013)
• IAS 19 Employee Benefits (2011)
• IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance
• IAS 21 The Effects of Changes in Foreign Exchange Rates
• IAS 22 Business Combinations (Superseded by IFRS 3 effective 31
March 2004)
• IAS 23 Borrowing Costs
• IAS 24 Related Party Disclosures 33

34. Continued…
• IAS 25 Accounting for Investments (Superseded by IAS 39 and IAS 40
effective 2001)
• IAS 26 Accounting and Reporting by Retirement Benefit Plans
• IAS 27 Separate Financial Statements (2011)
• IAS 27 Consolidated and Separate Financial Statements (Superseded by
IFRS 10, IFRS 12 and IAS 27 (2011) effective 1 January 2013)
• IAS 28 Investments in Associates and Joint Ventures (2011)
• IAS 28 Investments in Associates (Superseded by IAS 28 (2011) and IFRS 12
effective 1 January 2013)
• IAS 29 Financial Reporting in Hyperinflationary Economies
• IAS 30 Disclosures in the Financial Statements of Banks and Similar
Financial Institutions (Superseded by IFRS 7 effective 1 January 2007)
• IAS 31 Interests In Joint Ventures (Superseded by IFRS 11 and IFRS 12
effective 1 January 2013)
• IAS 32 Financial Instruments: Presentation 34

35. Continued…
• IAS 33 Earnings Per Share
• IAS 34 Interim Financial Reporting
• IAS 35 Discontinuing Operations (Superseded by IFRS 5
effective 1 January 2005)
• IAS 36 Impairment of Assets
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets
• IAS 38 Intangible Assets
• IAS 39 Financial Instruments: Recognition and Measurement
(Superseded by IFRS 9 where IFRS 9 is applied)
• IAS 40 Investment Property
• IAS 41 Agriculture 35

36. Indian Accounting Standards
• In India, the Accounting Standards for non-corporate entities including
Small and Medium sized Enterprises (SMEs), are issued by the Accounting
Standards Board (ASB) of ICAI, to establish uniform standards for
preparation of financial statements, in accordance with the Indian GAAP
(Generally Accepted Accounting Practices), for better understanding of the
users. However, in the case of Corporate entities, the Accounting Standards
notified by the MCA are applicable.
• It may be noted that MCA also issues the Accounting Standards for
companies, based on recommendations made by the ICAI. Accordingly
MCA notifies such Accounting Standards vide Companies (Accounting
Standards) Rules and amendments thereto, applicable for companies
including Small and Medium sized Companies to whom Indian Accounting
Standards (Ind AS) are not applicable.
36

37. Continued…
List of ICAI’s Mandatory Accounting Standards (AS-1 to AS-29)
• AS-1: Disclosure of Accounting Policies deals with the disclosure of significant
accounting policies followed in preparing and presenting financial statements, by
way of a separate statement/ notes forming part of such financial statements, to
facilitate meaningful comparison of financial statements of different enterprises/
periods.
• AS-2: Valuation of Inventories deals with the determination of value at which
inventories are carried in the financial statements, including the ascertainment
of cost of inventories and any write-down thereof to net realisable value.
• AS-3: Cash Flow Statements deals with the provision of information about the
historical changes in cash and cash equivalents of an enterprise by means of a
Cash Flow Statement which classifies cash flows during the period from
operating, investing and financing activities.
• AS-4: Contingencies and Events Occurring After Balance Sheet Date deals with
the treatment of contingencies and events occurring after the balance sheet
date.
37

38. Continued…
• AS-5: Net profit or Loss for the period, Prior Period Items and Changes in
Accounting Policies This Standard should be applied by an enterprise in
presenting profit or loss from ordinary activities, extraordinary items and
prior period items in the Statement of Profit and Loss, in accounting for
changes in accounting estimates, and in disclosure of changes in
accounting policies.
• AS-7: Construction Contracts This Standard prescribes the accounting for
construction contracts in the financial statements of contractors.
• AS-9: Revenue Recognition This Standard deals with the bases for
recognition of revenue in the Statement of Profit and Loss of an enterprise.
The Standard is concerned with the recognition of revenue arising in the
course of the ordinary activities of the enterprise from: a) Sale of goods; b)
Rendering of services; and c) Interest, royalties and dividends.
• AS-10: Property, Plant and Equipment The objective of this Standard is to
prescribe the accounting treatment for property, plant and equipment
(PPE). 38

39. Continued…
• AS-11: The Effects of Changes in Foreign Exchange Rates lays down principles of
accounting for foreign currency transactions and foreign operations, i.e., which
exchange rate to use and how to recognise in the financial statements the
financial effect of changes in exchange rates.
• AS-12: Government Grants This Standard deals with accounting for government
grants. Government grants are sometimes called by other names such as
subsidies, cash incentives, duty drawbacks, etc.
• AS-13: Accounting for Investments This Standard deals with accounting for
investments in the financial statements of enterprises and related disclosure
requirements.
• AS-14: Accounting for Amalgamations This Standard deals with accounting for
amalgamations and the treatment of any resultant goodwill or reserves.
• AS-15: Employee Benefits The objective of this Standard is to prescribe the
accounting treatment and disclosure for employee benefits in the books of
employer except employee share-based payments. It does not deal with
accounting and reporting by employee benefit plans.
39

40. Continued…
• AS-16: Borrowing Costs This Standard should be applied in accounting for borrowing costs.
This Standard does not deal with the actual or imputed cost of owners’ equity, including
preference share capital not classified as a liability.
• AS-17: Segment Reporting The objective of this Standard is to establish principles for
reporting financial information, about the different types of segments/ products and services
an enterprise produces and the different geographical areas in which it operates.
• AS-18: Related Party Disclosures This Standard should be applied in reporting related party
relationships and transactions between a reporting enterprise and its related parties. The
requirements of this Standard apply to the financial statements of each reporting enterprise
and also to consolidated financial statements presented by a holding company.
• AS-19: Leases The objective of this Standard is to prescribe, for lessees and lessors, the
appropriate accounting policies and disclosures in relation to finance leases and operating
leases.
• AS-20: Earnings Per Share prescribes principles for the determination and presentation of
earnings per share which will improve comparison of performance among different
enterprises for the same period and among different accounting periods for the same
enterprise.
40

41. Continued…
• AS-21: Consolidated Financial Statements The objective of this Standard is to lay down
principles and procedures for preparation and presentation of consolidated financial
statements. These statements are intended to present financial information about a parent and
its subsidiary(ies) as a single economic entity to show the economic resources controlled by the
group, obligations of the group and results the group achieves with its resources.
• AS-22: Accounting for Taxes on Income The objective of this Standard is to prescribe accounting
treatment of taxes on income since the taxable income may be significantly different from the
accounting income due to many reasons, posing problems in matching of taxes against revenue
for a period.
• AS-23: Accounting for Investments in Associates This Standard should be applied in accounting
for investments in associates in the preparation and presentation of consolidated Financial
Statements (CFS) by an investor.
• AS-24: Discontinuing Operations The objective of AS 24 is to establish principles for reporting
information about discontinuing operations, thereby enhancing the ability of users of financial
statements to make projections of an enterprise’s cash flows, earnings generating capacity, and
financial position by segregating information about discontinuing operations from information
about continuing operations. AS 24 applies to all discontinuing operations of an enterprise. 41

42. Continued…
• AS-25: Interim Financial Reporting This Standard applies if an entity is required or
elects to publish an interim financial report. The objective of AS 25 is to prescribe
the minimum content of an interim financial report and to prescribe the principles
for recognition and measurement in complete or condensed financial statements for
an interim period.
• AS-26: Intangible Assets prescribes the accounting treatment for intangible assets
(i.e. identifiable non-monetary asset, without physical substance, held for use in the
production or supply of goods or services, for rental to others, or for administrative
purposes).
• AS-27: Financial Reporting of Interests in Joint Ventures The objective of AS 27 is to
set out principles and procedures for accounting for interests in joint ventures and
reporting of joint venture assets, liabilities, income and expenses in the financial
statements of venturers and investors.
42

43. Continued…
• AS-28: Impairment of Assets The objective of AS 28 is to prescribe the procedures
that an enterprise applies to ensure that its assets are carried at no more than their
recoverable amount. The asset is described as impaired if its carrying amount
exceeds the amount to be recovered through use or sale of the asset and AS 28
requires the enterprise to recognise an impairment loss in such cases. It should be
noted that AS 28 deals with impairment of all assets unless specifically excluded
from the scope of the Standard.
• AS-29: Provisions, Contingent Liabilities and Contingent Assets The objective of AS
29 is to ensure that appropriate recognition criteria and measurement bases are
applied to provisions and contingent liabilities and that sufficient information is
disclosed in the notes to the financial statements to enable users to understand
their nature, timing and amount. The objective of this Standard is also to lay down
appropriate accounting for contingent assets.
43

44. International Financial Reporting Standards (IFRS)
• International Financial Reporting Standards (IFRS) are a set of
accounting standards that govern how particular types of
transactions and events should be reported in financial
statements.
• They were developed and are maintained by the International
Accounting Standards Board (IASB). The IASB’s objective is that
the standards be applied on a globally consistent basis to
provide investors and other users of financial statements with
the ability to compare the financial performance of publicly
listed companies on a like-for-like basis with their international
peers. 44

45. Continued…
• International Financial Reporting Standards (IFRS) were created to bring consistency
and integrity to accounting standards and practices, regardless of the company or
the country.
• They were issued by the London-based International Accounting Standards Board
(IASB) and address record keeping, account reporting, and other aspects of financial
reporting.
• The IFRS system replaced the International Accounting Standards (IAS) in 2001.
• IFRS fosters greater corporate transparency.
• IFRS is not used by all countries; for example, the U.S. uses generally accepted
accounting principles (GAAP).
• IFRS specify in detail how companies must maintain their records and report their
expenses and income. They were established to create a common accounting
language that could be understood globally by investors, auditors, government
regulators, and other interested parties. 45

46. US GAAP: Generally Accepted Accounting
Principles
• Generally Accepted Accounting Principles (GAAP or US GAAP) are a
collection of commonly-followed accounting rules and standards
for financial reporting.
• Generally accepted accounting principles (GAAP) refer to a
common set of accounting rules, standards, and procedures issued
by the Financial Accounting Standards Board (FASB). Public
companies in the U.S. must follow GAAP when their accountants
compile their financial statements.
• GAAP is merely a set of standards. Although its principles work to
improve the transparency in financial statements, they do not
provide any guarantee that a company's financial statements are
free from errors or omissions that are intended to mislead
investors.
46

47. Continued…
• GAAP is the set of accounting rules set forth by the FASB that U.S. companies must
follow when putting together financial statements.
• GAAP aims to improve the clarity, consistency, and comparability of the
communication of financial information.
• GAAP may be contrasted with pro forma accounting, which is a non-GAAP financial
reporting method.
• The ultimate goal of GAAP is to ensure a company's financial statements are
complete, consistent, and comparable.
• GAAP is used mainly in the U.S., while most other jurisdictions use the IFRS
standards.
• GAAP is a combination of authoritative standards (set by policy boards) and the
commonly accepted ways of recording and reporting accounting information. GAAP
aims to improve the clarity, consistency, and comparability of the communication of
financial information. 47

48. Difference between IFRS and IND AS
• IFRS stands for International Financial Reporting Standards, It is
prepared by the IASB (International Accounting Standards
Board). It is used in around 144 countries and is regarded as
one of the most popular accounting standards.
• IND AS is also known as Indian Accounting Standards or Indian
version of IFRS. Indian AS or IND AS is used in the context of
Indian companies.
• Let us look at some of the points of difference between the
IFRS and IND AS.
48

49. Continued…
Basis of
Difference
IFRS IND AS
Definition IFRS stands for International
Financial Reporting Standards, it is
an internationally recognised
accounting standard
IND AS stands for Indian Accounting
Standards, it is also known as India
specific version of IFRS
Developed by IASB (International Accounting
Standards Board)
MCA (Ministry of Corporate Affairs)
Followed by 144 countries across the world Followed only in India
Disclosure Companies complying with IFRS
have to disclose as a note that the
financial statements comply with
IFRS
Such a disclosure is not mandatory for
companies complying with Indian
Accounting Standards or IND AS
49

50. Continued…
Basis of
Difference
IFRS IND AS
Financial
Statement
Components
It includes the following:
1. Statement of financial position
2. Statement of profit and loss
3. Statement of changes in equity
for the period
4. Statement of cash flows for the
period
It includes the following:
1. Balance Sheet
2. Profit and loss account
3. Cash flow statement
4. Statement of changes in equity
5. Notes to financial statements
6. Disclosure of accounting policies
Balance Sheet
Format
Companies complying with IFRS
need have specific guidelines for
preparing balance sheet with assets
and liabilities to be classified as
current and non-current
Companies complying with IND AS need
have no such requirements for balance
sheet format, but the guidelines are
defined for presenting balance sheet
50

51. Difference between Indian GAAP and US GAAP
• The major differences between Indian GAAP (Generally
Accepted Accounting Principles) and US GAAP (United States
Generally Accepted Accounting Principles) are as follows −
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52. Continued…
Indian GAAP US GAAP
Financial statements are prepared in
accordance with the principle of
conservatism.
Conservatism is recognised as and when it is
realised/realizable/earned.
Financial statements are prepared with
presentation requirements of schedule VI of
companies ACT, 1956.
No specific format is required.
Only listed companies are mandated for
cash flow statements.
Both listed and unlisted companies are required
to prepare cash flow statements.
Provides prescribed depreciation rates
(schedule XVI of companies Act, 1956).
No particular depreciation rates are provided.
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53. Continued…
Indian GAAP US GAAP
No requirement is provided for a
portion of long term debt.
Current portion of long term debts is
categorised as current liability.
Preparation of financial statements for
subsidiary companies is not mandatory.
Preparation of consolidated financial
statements are mandatory.
Investments are classified as current
investments, long term investments and
investment property.
Investments are classified as held to
maturity, trading security and available for
sale.
Allows revaluation of assets. Revaluation of assets is not allowed.
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54. Thank You.
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