Difference between US GAAP and Indian Accounting Standards

Summary

This video compares the key differences between US GAAP and Indian Accounting Standards (Ind AS), exploring the accounting procedures, principles, and rules followed in each. Key contrasts include the principle of conservatism, financial statement preparation, valuation of investments, consolidation of subsidiaries, and revenue recognition. The video also highlights differences in treatment of goodwill, plant assets, and intangible assets. Ultimately, companies must adhere to the standards prescribed in their respective countries, ensuring transparency and consistency in financial reporting.

Takeaways

• 😀 US GAAP and Indian Accounting Standards (Ind AS) are distinct sets of financial reporting rules followed by companies in the United States and India, respectively.
• 😀 US GAAP is a comprehensive set of accounting standards developed by the Financial Accounting Standards Board (FASB), while Ind AS is issued by India's central government under the supervision of the Accounting Standards Board and the Institute of Chartered Accountants of India.
• 😀 A key difference is the principle of conservatism: US GAAP does not follow it, while Ind AS requires the recognition of all possible losses in financial statements.
• 😀 In terms of financial statement presentation, US GAAP arranges assets in decreasing order of liquidity, whereas Ind AS follows the format prescribed by Schedule III of the Companies Act, 2013.
• 😀 For investment valuation, Ind AS values current investments at the lower of cost or fair value, while US GAAP values long-term investments at market value.
• 😀 Under Ind AS, consolidation of subsidiaries is not mandatory, but if done, it must comply with Accounting Standard 21; whereas under US GAAP, consolidation is mandatory for all subsidiaries.
• 😀 Goodwill impairment differs between the two standards: Ind AS uses a one-step impairment model, while US GAAP uses a two-step model.
• 😀 Both systems use a five-factor model for revenue recognition, but US GAAP emphasizes the transfer of control, while Ind AS focuses on the transfer of risk and reward.
• 😀 US GAAP does not allow revaluation of plant, property, and equipment, while Ind AS permits revaluation.
• 😀 When dealing with intangible assets, Ind AS requires amortization over a period not exceeding 10 years, while US GAAP amortizes assets with limited useful lives and reviews those with indefinite lives for impairment.

Q & A

What are the primary accounting standards followed in the US and India?

In the US, the primary accounting standard is US GAAP (Generally Accepted Accounting Principles), while in India, the standard is Indian Accounting Standards (Ind AS).

What is the purpose of accounting standards in a country?

Accounting standards ensure consistency, transparency, and help in preventing misrepresentation and fraud in financial reporting.

How does the principle of conservatism differ between US GAAP and Ind AS?

US GAAP does not follow the principle of conservatism, whereas Ind AS mandates the recording of all possible losses in financial statements, even if not yet realized.

How are financial statements prepared differently under US GAAP and Ind AS?

Under Ind AS, financial statements must follow the prescribed format of Schedule III of the Companies Act 2013. In contrast, US GAAP requires companies to list assets in decreasing order of liquidity.

How are investments valued differently under US GAAP and Ind AS?

Ind AS requires current investments to be recorded at the lower of cost or fair value, while US GAAP often requires long-term investments to be valued at market value.

What is the difference in the consolidation of subsidiaries under US GAAP and Ind AS?

Under Ind AS, the consolidation of subsidiary accounts is not mandatory, but if done, Accounting Standard 21 must be followed. In contrast, US GAAP mandates the consolidation of subsidiary accounts.

How does goodwill impairment differ under US GAAP and Ind AS?

Ind AS uses a one-step impairment model for goodwill, whereas US GAAP follows a two-step impairment model to first estimate the fair value and then measure the impairment amount.

What are the key differences in revenue recognition between US GAAP and Ind AS?

Both US GAAP and Ind AS use a five-step model for revenue recognition. However, US GAAP focuses on the transfer of control of goods/services, while Ind AS emphasizes the transfer of risks and rewards of ownership.

How are plant, property, and equipment (PPE) treated differently under US GAAP and Ind AS?

Ind AS allows for the revaluation of plant, property, and equipment, while US GAAP does not permit the revaluation of these assets.

What is the treatment of intangible assets under US GAAP compared to Ind AS?

Ind AS requires intangible assets to be amortized over their useful life (with a maximum of 10 years). Under US GAAP, intangible assets with indefinite useful lives are not amortized but are reviewed annually for impairment.