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.