There are many GAAP differences, but here, we are going to share some major differences between Indian GAAP and the US GAAP.
Main Differences In Accounting In Two Countries
Basis of Differences | INDIAN GAAP | US GAAP |
Financial statements Cash flow statements | Under Indian GAAP, Financial statements are prepared as per the principle of conservatism. It means that the company entity should follow “Anticipate no profits and provide for all possible losses.” Further, financial statements format should be according to the Schedule VI to the Companies Act, 1956 and other regulatory authorities such as insurance, electricity, and banking. Under Indian GAAP, preparation of cash flow statements is mandatory for the companies whose shares are listed on recognized stock exchanges and Certain enterprises whose turnover for the accounting period exceeds Rs. 50 crore.
| Under US GAAP, conservatism is not considered. Entities can either prepare a classified or non-classified balance sheet. Items on the balance sheet are generally presented in decreasing order of liquidity. US GAAP, every company (whether listed or not) is mandatory to furnish the cash flow statements for 3 years, i.e., the current year and 2 immediately preceding years. |
Consolidation of subsidiary companies | According to the Indian GAAP, the Consolidation of Accounts of subsidiary companies is not mandatory. However, if an enterprise presents their consolidated financial statements, they have to comply with AS 21.
| As per the US GAAP, Consolidation of results of Subsidiary Companies is mandatory. Consequently, it eliminates intercompany transactions and provides a company’s fair picture of the operations and profitability of the business group. |
Depreciation | Depreciation is allocated to a systematic basis for each accounting period over the useful life of the assets. However, if the useful life is shorter as per the Companies act, the depreciation is calculated by applying higher rates. | Allocated to systematic basis to each accounting period over the useful life of the assets. |
Intangible assets | The treatment of intangible assets shall be: Capitalization: If recognition criteria are met Amortization: All intangibles are amortized over the useful life within a rebuttable presumption of not exceeding 10 years. Revaluations: Revaluations are not allowed.
| The treatment of intangible assets shall be: Capitalization: If recognition criteria are met Amortization: Amortised over the useful life Intangibles assigned an indefinite useful life are not amortized but reviewed at least annually for impairment Revaluations: Revaluations are not allowed. |
Property, Plant and Equipment | Historical cost is used Revaluations are allowed. Further, an entire class of assets is revalued, or the selection of assets is made systematically. | Historical cost is used Revaluations are not allowed |
Valuation of Investments | Under Indian GAAP, It requires current investments to be carried at the lower of cost and fair value and long-term investments at cost. Further, the aggregate market values of quoted long-term investments are required only to be disclosed, not adjusted. | US GAAP allows, and in some cases requires, long-term investments to be marked to market. |
Correction of Prior period items | Restatement is not required, i.e., the effect of correction is included in the current year income statement with separate disclosure. | Restatement is required, i.e., if the error occurred earlier, then the opening balances of assets, liabilities, and equity for the earliest prior period presented are restated. |
Foreign currency transaction differences | As per AS 11, it requires the capitalization of exchange differences arising on repayment of liabilities incurred to acquire fixed assets. It is mandatory ever after the asset is put to use. | US GAAP does not allow such foreign currency transaction differences to be capitalized. |
Employee benefits | Under Indian GAAP, provision for leave encashment is accounted on the basis of Actuarial valuation. The compensation paid to the employees who opt for the voluntary retirement scheme, can be amortized over 60 months. | Under US GAAP, provision for leave encashment is accounted on actual basis. The compensation paid to the employees who opt for the voluntary retirement scheme, is to be charged in the year in which the employees accept the offer. |
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