accounting differences ifrs 'vs' gaap

8/3/2019 Accounting Differences IFRS 'vs' GAAP

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Accounting DifferencesSubject IFRS Indian GAAP

Special purposes

entities (SPEs)

Consolidate where the

substance of therelationship indicates

control.

No specific guidance.

Non-consolidation of

subsidiaries

Dissimilar activities or

temporary control are not a

justification for non-consolidation.

Only if acquired and held for resale or

there are severe long-term restrictions to

transfer funds to the parent.

Business

combinations

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 [whenall 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 onl treated as


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Subject IFRS Indian GAAP

Uniting of interests method

Prohibited. Required for certain

amalgamations when all the

specified conditions are met, else

accounted under the purchase

method.

Acquired intangible assets 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.

Revaluations not permitted.

Property, plant and

equipment

Use historical cost or revalued

amounts. Regular valuations of

entire classes of assets are

required when revaluationoption is chosen.

Use historical cost. Revaluations

are permitted, however, no

requirement on frequency of

revaluation. On revaluation, anentire 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 CompaniesAct or the relevant statute, the


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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 realisationis 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.


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Compensated absences Provision on actual cost to

the company basis

Provision based on actuarial

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 to Profit and loss

account

Financial liabilities -

classification

Mandatory redeemable

preference shares are

classified as liabilities.

All preference shares are

classified as shareholders

funds.

Employee benefits -Pension costs defined

benefit plans

Must use the projectedunit credit method to

determine benefit

obligation

Provision in the accounts isnormally made on the basis

of actuarial valuation no

specific method is

prescribed


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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

borrowing costs

Permitted, but not required for

qualifying assets.

Compulsory when relates to the

construction of certain assets.

Foreign exchange

fluctuation

Under IAS such gains or losses

are required to be expensed

Indian GAAP requires that any profit/loss

arising on the restatement of foreign

exchange liabilities incurred for theacquisition 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 long

lived assets

IAS require that assets be

reviewed for impairment andimpairment losses recognized

in the accounts

Indian GAAP also has adopted the

provisions of IFRS with effect from 1.42004 for listed companies and commercial

enterprise with a turnover > 50 crores

Leasehold Land Disclosed as prepaid

assets and accounting

treatment is similar to

operating leases.

Disclosed as a part of fixed assets.


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Changes in

accounting policies

Restate comparatives and prior-year

opening retained earnings.

Include effect in the income statement

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 beadjusted against opening retained

earnings.

Correction of

fundamental errors

Restatement of comparatives is

mandatory.

Include effect in the current year income

statement with appropriate disclosure

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

Obligation (ARO)

Obligations that are legally

enforceable and unavoidable, and

are associated with the retirement of

tangible long-lived assets, be

recorded as liabilities when those

obligations are incurred and

recorded at fair value.

No such guidance available.

accounting differences ifrs 'vs' gaap

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