Overview of Significant Differences between International Financial
Reporting Standards (IFRS) and Indian GAAP
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TOPICS COVERED IN OUR SESSION
Differences with respect to:
Conceptual
Content
Accounting Framework
of Financial Statements
Accounting
Differences
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ACCOUNTING FRAMEWORK
Historical cost
IFRS:
Historical cost, but intangible assets, property plant and equipment (PPE) and
investment property may be revalued. Derivatives, biological assets and most
securities must be revalued.
Indian GAAP:
Historical cost, but fixed assets, other than intangibles, may be revalued.
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ACCOUNTING FRAMEWORK
First-time adoption of accounting frameworks
IFRS:
Full retrospective application of all IFRS’s effective at the reporting date for
an entity’s first IFRS financial statements, with some optional exemptions and
limited mandatory exceptions.
Indian GAAP:
The accounting standard on Disclosure of Accounting Policies addresses the
issue of adoption of accounting policies. Also, particular standards specify the
transitional treatment upon the first-time application of those standards
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FINANCIAL STATEMENTS
Contents of financial statements
IFRS:
Two years’ balance sheets, income statements, cash-flow statements,
changes in equity, accounting policies and notes.
Indian GAAP:
Two years’ balance sheets, profit and loss accounts, accounting policies and
notes. Listed entities are required to give their consolidated financial
statements and the related notes along with the standalone financial
statements. (Financial Statements should also include cash flow statements
in certain cases)
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FINANCIAL STATEMENTS- Balance Sheet
IFRS:
Does not prescribe a particular format; an entity uses a liquidity presentation
of assets and liabilities, instead of a current/non-current presentation, only
when a liquidity presentation provides more relevant and reliable information.
Certain items must be presented on the face of the balance sheet
Indian GAAP:
The Indian Companies Act and other industry-specific laws like banking,
insurance, etc. specify respective formats
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FINANCIAL STATEMENTS
Income Statements
IFRS
Does not prescribe a particular format. However, expenditure must be presented in
one of two formats (function or nature). Certain items must be presented on the face
of the income statement.
Indian GAAP
The Indian Companies Act does not prescribe a particular format. The Company law
and accounting standards however, prescribes certain disclosure norms for income
and expenditures. For certain industries, industry specific laws specify formats.
Reporting currency
IFRS:
Requires the measurement of profit using the functional currency. Entities may,
however, present financial statements in a different currency.
Indian GAAP:
Schedule VI to the Companies Act, 1956 specifies Indian Rupees as the reporting
currency.
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FINANCIAL STATEMENTS

Statement of changes in shareholders’ equity
IFRS:
Statement showing capital transactions with owners, the movement in
accumulated profit and a reconciliation of all other components of equity. The
statement must be presented as a primary statement.
Indian GAAP:
Changes in shareholders’ equity are disclosed by way of a schedule.

Statement of recognised gains and losses / Other comprehensive income
IFRS:
Give a statement of recognised gains and losses either as a separate primary
statement or highlight it separately in the primary statement of changes in
shareholder’s equity
Indian GAAP:
Not prescribed
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Accounting Differences
Subject
IFRS
Indian GAAP
Special purposes entities
(SPEs)
Consolidate
where
the
substance of the relationship
indicates control.
No specific guidance.
Non-consolidation
subsidiaries
Business combinations
of Dissimilar activities or temporary Only if acquired and held for
control are not a justification for
non-consolidation.
resale or there are severe longterm restrictions to transfer funds
to the parent.
All business combinations are
acquisitions.
No comprehensive accounting
standard on business
combinations. All business
combinations are acquisition;
however, required use of pooling
of interests method in certain
amalgamations [when all the
specified conditions are met]. To
summarize: On consolidation, for
an entity acquired and held as an
investment: treated as acquisition.
On amalgamation of an entity,
either uniting of interests or
acquisition. On business
acquisition (i.e. assets and
liabilities only) treated as
acquisition.
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Accounting Differences
Subject
Uniting
method
IFRS
of
interests Prohibited.
Indian GAAP
Required
for
certain
amalgamations when all the
specified conditions are met, else
accounted under the purchase
method.
Capitalise if recognition criteria
are met; intangible assets must
be amortised over useful life.
Intangibles
assigned
an
indefinite useful life must not be
amortised but reviewed annually
for impairment. Revaluations are
permitted in rare circumstances.
Capitalise if recognition criteria
are met; intangible assets must be
amortised over useful life with a
rebuttable presumption of not
exceeding 10 years.
Property, plant and
equipment
Use historical cost or revalued
amounts. Regular valuations of
entire classes of assets are
required when revaluation option
is chosen.
Use historical cost. Revaluations
are permitted, however, no
requirement on frequency of
revaluation. On revaluation, an
entire class of assets is revalued,
or selection of assets is made on
a systematic basis.
Depreciation
Allocated on a systematic basis
to each accounting period over
the useful life of the asset.
Similar to IFRS, except where the
useful life is shorter than that
envisaged under the Companies
Act or the relevant statute, the
depreciation is computed by
applying a higher rate.
Acquired intangible
assets
Revaluations not permitted.
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Accounting Differences
Subject
IFRS
Indian GAAP
Deferred income taxes
Use full provision method (some
exceptions) driven by balance
sheet temporary differences.
Recognise deferred tax assets if
recovery is probable.
Recognise tax effect of timing
difference as deferred tax asset or
liability. Recognise deferred tax
assets (a) for entities with tax
losses carry forward, if realisation
is virtually certain, whereas (b) for
entities with no tax losses carry
forward,
if
realisation
is
reasonably certain. A number of
other specific differences.
Fringe benefits tax
Included as part of related
expense (fringe benefit) which
gives rise to incurrence of the
tax.
Disclosed as a separate item after
profit before tax on the face of the
income statement.
Convertible debt
Account for convertible debt on
split basis, allocating proceeds
between equity and debt
Convertible debt is recognised as
a liability based on legal form
without any split.
Functional currency
Currency of primary economic
environment in which entity
operates.
Does
not
currency.
define
functional
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Accounting Differences
Subject
IFRS
Indian GAAP
Compensated absences
Provision on actual cost to the
company basis
Provision
valuation
Preliminary expenses
Charged to income statement.
Deferred and written off over the
period of 5 years.
loans Origination Cost
Origination cost is amortized
Charged
account
Financial
liabilities
classification
- Mandatory redeemable
preference shares are classified
as liabilities.
based
to
on
Profit
actuarial
and
loss
All
preference
shares
are
classified as shareholders’ funds.
Employee
benefits
- Must use the projected unit Provision in the accounts is
Pension costs defined credit method to determine normally made on the basis of
benefit obligation
actuarial valuation – no specific
benefit plans
method is prescribed
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Accounting Differences Contd……
Subject
IFRS
Indian GAAP
Depreciation
Allocated on a systematic basis
to each accounting period over
the useful life of the asset.
Depreciation is provided based on the useful
lives of assets or the minimum rates
prescribed by the Indian Companies Act,
whichever is higher. Asset lives are not
prescribed by the Companies Act, but can be
derived from the depreciation rates.
Capitalisation of Permitted, but not required for Compulsory when relates to the construction
qualifying assets.
of certain assets.
borrowing costs
Foreign exchange Under IAS such gains or losses Indian GAAP requires that any profit/loss
are required to be expensed
arising on the restatement of foreign
fluctuation
exchange liabilities incurred for the acquisition
of imported fixed assets as a result of change
in exchange rates is capitalized as part of the
original cost of the assets.
Impairment
of IAS require that assets be Indian GAAP also has adopted the provisions
reviewed for impairment and of IFRS with effect from 1.4 2004 for listed
long lived assets
Leasehold Land
impairment losses recognized in
the accounts
companies and commercial enterprise with a
turnover > 50 crores
Disclosed as prepaid assets and
accounting treatment is similar
to operating leases.
Disclosed as a part of fixed assets.
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Accounting Differences Contd….
Subject
IFRS
Indian GAAP
Changes
accounting
policies
in Restate comparatives and prior- Include effect in the income statement
Correction
fundamental
errors
of Restatement of comparatives is Include effect in the current year
year opening retained earnings.
of the period in which the change is
made except as specified in certain
standards where the change resulting
from adoption of the standard has to be
adjusted against opening retained
earnings.
mandatory.
income statement
disclosure
with
Deferred Taxes
Use full provision method (some
exceptions), driven by balance
sheet temporary differences.
Recognise deferred tax assets if
recovery is probable.
Deferred tax assets and liabilities
should be recognised for all timing
differences subject to consideration of
prudence in respect of deferred tax
assets.
Lease Accounting
Has been in place for a much
longer time.
Applicable since 2001
Asset Retirement Obligations that are legally No such guidance available.
enforceable and unavoidable, and
Obligation (ARO)
are associated with the retirement
of tangible long-lived assets, be
recorded as liabilities when those
obligations are incurred and
recorded at fair value.
appropriate
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Accounting Differences - Investments
Investments:

IFRS:
Depends on the classification of investment – if held to maturity or loan or
receivable, then carry at amortised cost, otherwise at fair value. Unrealised
gains/losses on fair value through profit or loss classification (including trading
securities) recognised in the income statement and on available-for-sale
investments recognised in equity.**

Indian GAAP:
Carry long-term investments at cost (with provision for other than temporary
diminution in value). Current investments carried at lower of cost or fair value
determined on individual basis or by category of investment but not on overall
(or global) basis. Specific guidance exists for banking industry.
**There is an option in IFRS to classify any financial asset ‘at fair value through
profit or loss’. Changes in fair values in respect of such securities are recognized
in the income statement. It must be noted that it is an irrevocable option to
classify a financial asset at fair value through profit or loss.
Derivatives and other financial instruments - Measurement of
derivative instruments and hedging activities
IFRS:
Measure derivatives and hedge instrument at fair value. Recognise the
changes in fair value in the income statement, except for effective cash flow
hedges, where the changes are deferred in equity until effect of the
underlying transaction is recognised in the income statement.
Gains / losses on hedge instrument used to hedge forecast transaction,
included in the cost of asset/liability (basis adjustment).
Indian GAAP:
No comprehensive guidelines currently. Accounting treatment for forward
contracts and equity index and equity stock futures and option is prescribed.
Guidance prescribed for banking companies.
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