In: Accounting
Q 17
1. (CO A) What are some of the major differences between iGAAP and U.S. GAAP? Explain in detail.
There are several significant differences between Indian GAAP (iGAAP) and US GAAP. US GAAP follows stringent accounting treatment and disclosure norms, while Indian GAAP has relaxed requirements in many cases. Differences between two are discussed below:
1. Underlying assumptions: Financial statements, under iGAAP, are prepared using the principle of conservatism which means “Anticipate no profits and provide for all possible losses”, under iGAAP. While, conservatism is not considered, under U.S. GAAP, if it leads to deliberate and consistent understatements.
2. Format/ Presentation of financial statements: Financial statements, under iGAAP, should be prepared according to the presentation requirements of Schedule VI to the Companies Act, 1956. No specific format is required for the preparation of financial statements under U.S. GAAP. Only they comply with the disclosure requirements of US GAAP.
3. Cash flow statement: Cash Flow statement in financial statements is compulsory for listed companies and for companies whose turnover exceeds ?50 crore. While, under US GAAP, it is compulsory for all companies to prepare cash flow statements for 3 years – current year and 2 immediate preceding years.
4. Investments: Under iGAAP, Investments have two categories: Current and Long term. While, under U.S. GAAP, Investments are classified in 3 categories: held to Maturity Security , Trading Security and Available for sales Security. These are further classified as Current or Non current on Individual basis.
5. Capital issue expenses: capital issue expense are amortized against reserves, under iGAAP. While, under U.S GAAP, capital issue expenses are written off against proceeds of capitals.
6. Long term debts : under iGAAP the current portfolio of long term debt is not classified as current liability, whereas it is classified as current liability under U.S GAAP.