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Difference Between Indian GAAP and US GAAP

January 12, 2011 Posted by Andrew

Indian GAAP vs US GAAP

Accounting is an important part of every enterprise, be it small or big. Where ever in the world one trades accounting has to be proper and according to the guidelines set by the government of that place. Basic principles of accounting are same everywhere but there are some differences in it depending on the requirements of the local governing body. GAAP is the term that is universally given to the financial accounting. GAAP is an acronym for Generally Accepted Accounting Principles. GAAP is the terminology used for the preparation of financial statements that are to be submitted, giving details of all the transactions made during a financial year. These financial statements are prepared keeping in mind the accounting laws of the country in which business is being carried out. The basics of Indian and US GAAP are same but there are some differences that should be known to a person having business interests in these two countries.

Indian GAAP

In India, it is the statements issued by Institute of Chartered Accountants of India (ICAI) that form the standards when it comes to Indian GAAP. These standards have to be followed by companies when they come out with their financial statements. Since 1973, the International Accounting Standards Committee (IASC) has suggested 32 accounting standards and it has been observed that India is lagging behind in accepting these standards as norms in accounting. To bring about a harmony in Indian GAAP and the accounting standards in the rest of the world is a challenging task and there has been significant progress in the last few years in this regard.

‘Provide for all losses and anticipate no profits’ is the basic underlying assumption in Indian accounting.

US GAAP

The generally accepted accounting principles or the US GAAP are set of rules that are made use of when preparing financial statements of companies and individuals in United States. In US, government does not set any standards of accounting at it believes that those working in the field have a better understanding of the subject and will come up with corrections wherever required. Currently, it is the statements issued by FASB (Financial Accounting Standards Board) that are accepted as norms by the accounting firms in the country. The provisions in US GAAP are somewhat different from the International Financial Reporting Standards (IFRS).

Difference between Indian and US GAAP

Though Indian accounting has undergone a sea of changes in the last few decades, there are still big differences in Indian GAPP and US GAPP which have often been reported by the US media. With many MNC operating in India and adopting Indian GAPP, they are able to escape by showing fewer profits. Let us see the major differences in the two accounting systems.

• The manner of presenting financial statements in both is different. In Indian GAPP, these are prepared in accordance with schedule VI of the companies Act, 1956, whereas in US GAPP, these are not prepared under any specific format.

• In Indian GAAP, Cash Flow statement is mandatory only for companies whose shares are listed in stock exchanges. Thus companies that are not listed escape this provision. In US GAAP, it is mandatory for every company to present its Cash Flow statement whether it is listed in the stock exchange or not.

• Depreciation in Indian GAPP is calculated according to rates prescribed in the Companies Act of 1956. But in US, depreciation depends on the useful life of the asset.

• In US, the current portion of any long term debt is taken as current liability, while in Indian GAPP, there is no such requirement and hence the interest accrued on this long term debt is not taken as current liability.

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Filed Under: Accounting Tagged With: Accounting Principles, FASB, financial statement, GAPP, ICAI, IFRS

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