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The Difference Between The US

PGP GAAP and Indian Accounting



The flexibilities offered by a choice of
accounting treatments distinctly
diminish, and even distort the
comparability of relevant information in
the financial statements.
Pressures on the accounting profession
to establish uniform accounting
standards, led to evolution of
International Accounting Standards
The US GAAP is established by the
Financial Accounting Standard
Board (FASB) and American
Institute of Certified Public
Accountants (AICPA). Failure to
comply with the standards is
reported in the external auditors
 The financial statements include three reports
1. Balance Sheet. 2. Income Statement, and
3. Funds Flow Statement (not required in India).

The Financial Accounting , Management

Accounting, and Income Tax Accounting are
essentially separate processes in the United
GAAP provides the principle for Financial
Accounting, Management Accounting and the
IRS for tax accounting purpose
Globalized environment
Indian companies like Infosys and HDFC
who have sought NASDAQ listing have
already appreciated the wisdom in
restating their accounts as per US
 It will not be long before other Indian
companies are also forced to follow suit.
In such situations the US GAAP will
provide the best benchmark for greater
transparency and disclosure.
The following abbreviations are used
in the text to represent accounting
and auditing principles.
APB – Accounting Principles Board
ARB - Accounting Research Bulletin
ASR - Accounting Series Release
FAS –Financial accounting
FIN – FASB interpretation
Though there is basic similarity
in accounting principles
throughout the world, Indian
Accounting Standards differ in
some respects from US GAAP.
The US GAAP has nearly 100
accounting standards as
compared to 15 in India
The essential differences
The theme of the difference or the
inherent superiority of the US
GAAP over the Indian accounting
standards needs to be evaluated on
the following four parameters:
1. Reporting Versus Disclosure
2. Form Versus Substance
3. Accounting Versus Analysis
4. Globalization Versus
Major differences between US
 No specific format is required for
the preparation of financial
statement, as long as they comply
with the disclosure requirements
of US accounting standards.
• Consolidation of group company
accounts is compulsory
• Deferred tax assets or liabilities
should be booked using the
asset–liability approach
Major differences between US
 3.Disclosure of earnings per share data
is compulsory
 4.Revaluation of assets is not
 5.Depreciation is over the useful
economic lives of assets. Depreciation
and profit/loss on sale is based on
historical costs
 6.Investments in own shares are
permitted. It is shown as a reduction
from shareholders equity
Major differences between US
 7.Research and development costs are
expenses as incurred
 8.Related party transactions
disclosures are stringent and require
descriptions of nature of relationships
and control, transactions, amounts
involved and amounts due.
 9.Good will is treated as any other
intangible asset, and is capitalized and
amortized . Then carry forward period
is 40 years
Major differences between US
10.The concept of pre-operative
expenses does not exits.
11.Current and long-term components of
assets and liabilities should be
disclosed separately. Current
component normally refers to one year
of the period of the operating cycle.
12.Segmental reporting is mandatory for
SEC registered companies
Major differences between US
13.Exchange gain/loss is taken to the
income statement. The concept of
capitalization of exchange fluctuation
arising from foreign currency liabilities
incurred for acquiring fixed assets does
not exit.
14.Impairment evaluation is compulsory
for all assets. Impairment loss is
recognized on the basis of the fair value
of the asset
Major differences between US
15.Cash flow statement is
16.Financial leases are to be
17.Mandatory fair values are
ascertained based on certain
specific principles for items, such
as loans, current assets, current
liabilities, etc
Contra entries
If a transaction affects both cash
account and bank account in the
opposite sides, the entry for recording
the transaction is called a contra entry.
 Entries which are made on both sides of
the cashbook are called contra entries.
For contra entries no posting is required
because the double entry is completed
in the cashbook itself.
Contra entries
For example, cash deposited into bank
and cash withdrawn from bank affect
cash and bank account only. Both
aspects of these transactions recorded
in cash column and bank column of the
cashbook respectively.
No ledger posting is required, because
both aspects of the transaction are
recorded in the cashbook itself. This fact
is indicated in the cashbook by writing
‘C’ in L.F column.
Want to Relieve the Stress, Do this
My wife and I were happy for twenty
years. Then we met. Rodney Dangerfield
US actor & comedian (1921 - 2004)
A word of encouragement during a
failure is worth more than an hour of
praise after success. Anonymous
Common sense is not so
common. Jessica Truman
Appear weak when you are
strong, and strong when you are
Sun Tzu