Prof.

Shubhra Aanand
 As other fields of human activities as Law,
Medicine etc.
 It was not a chance response.
 It was a pragmatic response to a specific
world need.
 It was practiced without a uniform
methodology or any form of theory till 19th
centaury.
 More comprehensive accounting
information system in the 20th centaury.
 New era of accounting.
 Double Entry Book-Keeping
 Enterprise Accounting
 Government Accounting
 Cost and Management Accounting
 Social Accounting
 “It is an art of recording, classifying, and
summarizing in a significant manner and in
terms of money transaction and events
which in part at least of a financial
character, and interpreting results thereof.”
AICPA(1941)
 “Accounting is a process of identifying,
measuring and communicating economic
information to permit informed judgments
and decisions by users of the information.”
AAA(1966)
 “Accounting is a service activity, its function
is to provide quantitative information,
primarily financial in nature and about the
economic activities that is intended to be
useful in making economic decisions.”
AICPA (1970)
 Managers and Management
 Users with direct financial interest
 Users with indirect financial interest
 Profit and Loss Accounts
 Balance Sheet
 Statement of Changes in Financial Position

(SCFP)
 Accounting Postulates
Basic assumption which are generally
accepted as self evident truth.
 Accounting Concepts

The conceptual guidelines for application

in the financial accounting process.
 Accounting Principles

These are man made and have evolved

 Nature
 Primary Users of Information
 Accounting method
 Unit of measurement
 Time span
 Nature
 Primary users of information
 Accounting methods
 Accounting principles
 Unit of measurement
 Time span
 Purpose of Reporting
 Nature of Data
 Use of disciplines
 Entity postulate
 Going concern postulate
 Money measurement postulate
 Accounting period postulate
 Cost Principle
 Dual Aspect Principle
 Accrual Principle
 Conservatism Principle
 Matching Principle
 Consistency Principle
 Materiality Principle
 Full- Disclosure Principle
 Financial Accounting follows a set of ground
rules or accounting principles in presenting
financial information which are known as
generally accepted accounting principles.
 Written statements issued from time to time

by institutions of accounting professions.

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 Particulars Indian GAAP US GAAP IFRS
1. Revenue Revenues are recognized when all Industry specific revenue recognition Revenues are recognized when all
Recognition significant risks and rewards of guidelines. Could be different from significant risks and rewards of
ownership are transferred or on a what I-GAAP has recognized. ownership are transferred.
percentage of completion basis. No
detailed industry specific guidelines.

2. Balance sheet Conforms to statute and captions Balance sheet captions are Balance sheet captions are
are presented in order of liquidity presented in the inverse order of
in the following order : starting with the most liquid assets, liquidity i.e.illiquid items appear
--Equity and reserves cash. earlier.Requires disclosure of either
--Debt Also requires disclosure of changes in equity or changes in
--Fixed assets movements in stockholders’ equity, equity other than those arising from
--Investments including the number of shares capital transactions with owners and
--Net current assets outstanding for all years presented. distribution of owners.
--Deferred expenditure and
--Accumulated losses
Required only for the current year
with the prior year comparatives.

3. Correction of Include effect in current year income Restate comparatives.Adjustments Include cumulative effect in current
fundamental errors Statement. required to be made topreviously year income statement.
issued financial statements. For material items, restate
comparatives.

4.Derivative and other No definitive standard yet. New Gains/losses on hedges of foreign Similar to US GAAP. Except,
financial instrument- standard on financial instruments: entity investments recognized in ineffectiveness of non-derivatives
Measurement of hedges Recognition and Measurement is equity. All hedge ineffectiveness recognized in equity.
of foreign entity presently under formulation. recognize in the income statement.
investments. Gains/losses held in equity must be
transferred to the income statement
on disposal of investment.

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 Particulars Indian GAAP US GAAP IFRS

5. Comprehensive income No standards, not required. Unrealized gains/losses on Option to present a statement that
investment and Foreign currency shows all changes or only those
translation disclosed as a separate changes in equity
component of equity. that did not arise from capital
transactions with owners or
distributions to owners.

6. Derivatives and other No definitive standard yet. New Measure derivatives and hedge Similar to US GAAP. Gains/losses
financial Standard on financial instruments: instrument at fair value: recognize on hedge instrument used to hedge
instruments – Recognition and Measurement is changes in fair value in income forecast transaction, included in the
measurement of presently under formulation. statement except for effective cash cost of asset/liability ( basis
derivative instruments flow hedges, defer in equity adjustment ).
and hedging activities. until effect of the underlying
transaction is recognized in the
income statement.
Gains/losses on hedge instrument
used to hedge forecast transaction,
included in cost of asset/liability.

7. Business Combinations Restricts the use of pooling of Only accounted for by the purchase Business combinations under IFRS
interest method to circumstances method. Several differences can should be accounted for as an
which meet the criteria listed for an arise in terms of date of acquisition (purchase method).
amalgamation in the nature of a combination, calculation Where an acquirer cannot be
merger. In all other cases, the Of share value to use for purchase identified then the pooling of
purchase method is used. price, especially if the I-GAAP
method is ‘amalgamation’. interests method should be adopted.

8. Cash Flow Statement Mandatory only for listed Mandatory for all entities. Mandatory for all entities.
companies and companies meeting
certain turnover conditions.

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 Particulars Indian GAAP US GAAP IFRS
9. Property, Plant and Use historical costs or revalued amounts. Revaluations not permitted. Tested for Use historical cost or revalued amounts. .
Equipment On revaluation, an entire class of assets is impairment whenever events or changes On revaluation, an entire class of assets is
revalued, or selection of assets for in circumstances indicate that its carrying revalued.
revaluation is made on a systematic basis. amount may not be recoverable.
No current restriction on frequency of
valuation.

10. Share Issue Expenses May be accounted for as deferred Expenses are written off when incurred There is no specific requirement under
expenses and amortized. against proceeds of capital. IFRS.

11. Dividends Dividends are reflected in the financial Dividends are accounted for when Dividends are classified as a financial
statements of the year to which they approved by the Board/shareholders. If liability and are reported in the income
Relate even if proposed or approved after the approval is after the year end, the statement as an expense. If dividends are
the year end. dividend is not considered as a declared subsequent to the balance sheet
subsequent event to adjust the financials. date, it is not recognized as a liability.

12. Leases Similar to US GAAP but, no quantitative Leases are classified as capital and Similar to US except that the criteria for
thresholds defined. operating leases as per certain criteria. distinguishing between capital and
Capital leases are included under revenue leases is different.
property, plant and equipment of the
lessor. Lease rentals on operating leases
are expensed as incurred. Quantitative
thresholds have been defined.

13. Prior period adjustments Prior period items are separately disclosed Correction of an error in previously issued Prior period errors are generally corrected
in the current statement of Profit financial statement is recognized by in the current financial statements.
and Loss together with their nature and restating previously issued financial However, where the error is of such
amount in a manner that their impact on statements. significance that the prior period financial
current profit and loss can be perceived. statements cannot be considered to have
been reliable at the date of their issue, the
error should be corrected by adjusting the
opening retained earnings.

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 Particulars Indian GAAP US GAAP IFRS
14. Accounting for Foreign Exchange differences on foreign currency All exchange differences are included in All exchange differences are included in
Currency Transactions transactions are recognized in the determining net income for the determining net income for the
profit and loss account with the exception period in which differences arise. period in which differences arise.
that exchange differences related to the
acquisition of fixed assets adjusted to the
carrying cost of the relevant fixed asset.

15. Goodwill Goodwill is capitalized and tested for Goodwill is not amortized but goodwill is Goodwill is amortized to expense on a
impairment annually. Except for goodwill to be tested for impairment annually. systematic basis over its useful life with a
from amalgamation, which is amortized maximum of twenty years. The straight
over 3-5 years. line method should be adopted unless the
use of any other method can be justified.

16. Negative Goodwill (i.e. the Negative goodwill is credited to the Negative goodwill is allocated to reduce Negative goodwill that relates to
excess of the fair value capital reserve account, which is a proportionately the value assigned to expectations of future losses and
of net assets acquired over component of stockholders’ equity. non-current assets. Any remaining excess expenses should be recognized as income
the aggregate purchase Is considered to be extraordinary gain. when the future losses and expenses are
consideration) recognized. Where it does not relate to
identifiable future losses and expenses, an
amount not exceeding the fair values of
the acquired identifiable non-monetary
Assets should be recognized as income on
a systematic basis over the remaining
weighted average useful life of such assets
and the balance, if any immediately
charged to income.

17. Related parties Determined by ability to control or to Related parties are determined based on Similar to US GAAP except that the
exercise significant influence over common ownership and control. existence of related parties are to be
the other party. Detailed disclosure Disclosure required of all material related disclosed even if there are no transactions
required of all material related party party transactions, in particular, the during the period.
transactions. Mandatory for listed nature of relationship involved, a
companies and companies meeting description of the transactions, the
certain turnover threshold. amounts of the transactions, the amounts
of the transactions for the financial year
and the amount due from or to related
parties at the end of the financial year.

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 Particulars Indian GAAP US GAAP IFRS

18.Pension / Gratuity / Post Required to be mandatorily To be provided for and funded To be provided for and funded
Retirement Benefits provided Based on either actuarial based on acturial valuation. based on acturial valuation.
valuation or Contribution to a Significant disclosure Significant disclosure
defined plan. Follows AS- requirements exist. Acturial requirements exist. Acturial
15, Acturial gain/losses are gains/losses are amortized. gains/losses are amortized.
recognized immediately.

19. Stock Options to Non- No specific guidance Complex guidance with respect to Disclosures required but, no
Employees measurement date and timing of guidance on recognition and
recognition of expense. measurement.

20. Balance sheet Does not need segregation of current Segregation necessary. Disclosed only as part of the
and non-current portions of assets footnotes.
and liabilities.
.

21. Stock based SEBI requires compensation cost to US GAAP had similar rules as what Compensation costs to be
Compensation be recognized based on intrinsic SEBI later required. However, there disclosed. Recognition of
value or fair value. Not mandatory is new standard effective 2005, compensation costs is not
for un-listed companies. which requires fair value to be mandatory.
expensed for all options.

22. Investment and Only unrealized depreciation on AFS Both appreciation and depreciation ( Similar to US GAAP. Except option
Marketable Securities. ( Available-For-Sale ) securities is if unrealized ) is recognized as Other to recognize gains/losses in AFS e
recognized in the income statement. Comprehensive Income. Separate either income statement or equity.
standard for treatment of cost of However, the selection is a one-time
development of computer software. option. No guideline under IFRS.

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 Particulars Indian GAAP US GAAP IFRS

23. Segment Information Specific requirements govern the Disclose revenues, profits and Largely similar to US GAAP
format and content of a reportable assets identified by product and requirements however, mandatory
segment and the basis of geographically of each reportable only for listed companies. Segment
identification of a reportable segment. Segments based on liabilities are also to be shown.
segment. The information for information reviewed by CODM
disclosure is to be prepared in (Chief Operating Decision Maker)
conformity with the accounting
standards used for the company as
a whole.

24. JV ( Jointly controlled Allows proportionate consolidation Generally only uses Equity method Allows either Equity method or
assets or corporation ) of accounting except certain proportionate consolidation.
specified industries such as Oil and
Gas.

25. Research and Deferred where technical or Research costs can be capitalized Deferred where technical or
development commercial feasibility is established and amortized as intangible assets in commercial feasibility is established
costs and the enterprise has adequate the following cases: and the enterprise has adequate
resources to enable the product or Research costs related to activities resources to enable the product or
process to be marketed. conducted for others, costs unique to process to be marketed.
extractive industries and cost of
intangibles which have alternative
future uses. All other costs are
Charged to expense as and when
incurred.

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