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Research notes

Indian GAAP

Key Differences Between US GAAP and Indian GAAP

  1. Framework and Standard Setting Bodies:
    • US GAAP (Generally Accepted Accounting Principles): Established by the Financial Accounting Standards Board (FASB) and overseen by the Securities and Exchange Commission (SEC).
    • Indian GAAP: Governed by the Institute of Chartered Accountants of India (ICAI) and regulated by the Ministry of Corporate Affairs (MCA).
  2. Accounting Standards Codification:
    • US GAAP: Uses the FASB Accounting Standards Codification (ASC) as the single source of authoritative nongovernmental US GAAP.
    • Indian GAAP: No single codification; standards are issued as separate Accounting Standards (AS) by the ICAI.
  3. Revenue Recognition:
    • US GAAP: Follows the ASC 606, “Revenue from Contracts with Customers,” which provides a five-step model for revenue recognition.
    • Indian GAAP: Revenue recognition is governed by AS 9, which has less detailed guidance compared to ASC 606.
  4. Financial Instruments:
    • US GAAP: ASC 825 and ASC 815 provide comprehensive guidance on financial instruments and derivatives.
    • Indian GAAP: AS 30, 31, and 32 address financial instruments but are not as comprehensive or specific as US GAAP.
  5. Fair Value Measurement:
    • US GAAP: ASC 820 provides a single framework for measuring fair value and requires extensive disclosures.
    • Indian GAAP: AS 13 and AS 28 deal with fair value measurement, but the guidance and disclosure requirements are not as extensive as ASC 820.
  6. Leases:
    • US GAAP: ASC 842 requires lessees to recognize most leases on the balance sheet as right-of-use assets and lease liabilities.
    • Indian GAAP: AS 19 classifies leases as either operating or finance leases, with different treatment for each, similar to the older IAS 17.
  7. Consolidation:
    • US GAAP: ASC 810 provides detailed guidance on consolidation, including variable interest entities (VIEs).
    • Indian GAAP: AS 21, 23, and 27 provide guidance on consolidation, but the concept of VIEs is not explicitly addressed.
  8. Inventory Valuation:
    • US GAAP: Inventory is valued at the lower of cost or market (LCM), with market defined as current replacement cost.
    • Indian GAAP: Inventory is valued at the lower of cost or net realizable value (NRV), aligning more closely with IFRS.
  9. Impairment of Assets:
    • US GAAP: Impairment testing is conducted using a two-step process under ASC 360 for long-lived assets.
    • Indian GAAP: AS 28 uses a single-step approach for asset impairment testing, similar to IAS 36.
  10. Intangible Assets:
    • US GAAP: Intangible assets with indefinite lives are not amortized but tested annually for impairment.
    • Indian GAAP: Intangible assets are amortized over their useful lives and tested for impairment when there are indicators of impairment.
  11. Deferred Taxes:
    • US GAAP: Uses a comprehensive balance sheet approach (ASC 740) to recognize deferred tax assets and liabilities.
    • Indian GAAP: Uses a partial provision approach under AS 22, which can result in differences in deferred tax recognition.
  12. Segment Reporting:
    • US GAAP: ASC 280 requires disclosure of segment information based on the management approach.
    • Indian GAAP: AS 17 requires segment reporting but the requirements are less detailed compared to ASC 280.
  13. Presentation of Financial Statements:
    • US GAAP: Requires a specific format for the balance sheet, income statement, and statement of cash flows.
    • Indian GAAP: Provides guidelines for financial statement presentation but allows more flexibility in format compared to US GAAP.
  14. Earnings Per Share (EPS):
    • US GAAP: ASC 260 provides detailed guidance on the calculation of basic and diluted EPS.
    • Indian GAAP: AS 20 provides guidance on EPS calculation but with fewer specifics compared to ASC 260.
  15. Related Party Disclosures:
    • US GAAP: ASC 850 requires detailed disclosures about related party transactions and relationships.
    • Indian GAAP: AS 18 requires related party disclosures, but the requirements may be less extensive compared to US GAAP.

These key differences highlight the varying approaches and specificities between US GAAP and Indian GAAP, reflecting their unique regulatory environments and accounting philosophies.