Similarities and Differences - IFRS, US GAAP and Indian GAAP

New Delhi, 20 September, 2006 – Today, India is a vibrant market attracting foreign investors from all across the globe. At the same time, Indian companies are going global – accessing overseas capital markets and acquiring businesses. This desire to globalize and access the capital markets brings with it a need to comply with the diverse accounting, regulatory and corporate governance standards. There is an immediate need to understand these intricacies. PricewaterhouseCoopers (PwC) remains committed to lend professional support in this challenging environment and presents the second edition of its publication which provides the reader a broad understanding of the key similarities and differences between three accounting frameworks: IFRS, US GAAP and Indian GAAP. This is a quick reference guide for the CFOs and practitioners alike and also useful to the users of financial statements.

Explaining the dilemma of present day CFO, Sanjay Hegde, executive director, PricewaterhouseCoopers Pvt. Ltd. said, “In the present times a CFO of a company with global operations, constantly needs to think of consequences under more than one accounting framework, before taking a decision. Also, it becomes difficult for the investor community to understand financial results that vary substantially depending on the accounting and reporting framework used. It can cause investors to view the actual financial results of a company with suspicion, resulting in correspondingly adverse effect on investor confidence. There is a great desire amongst the standard setters to have a largely similar, if not single, accounting and reporting framework across the globe.”

Following the accounting frauds and the resultant corporate failures, the accounting fraternity in United States of America has shown less resistance to moving from its ‘rules based’ framework towards ‘principle-based’ standards such as International Financial Reporting Standards (IFRS). The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) are committed to converging IFRS and US GAAP since the Norwalk Accord of 2002. Preparers and others, including regulators, have called for convergence to simplify financial reporting and reduce the compliance burden for listed companies, especially those with a capital stock market listing in more than one jurisdiction.

As per Sanjay, “The Indian GAAP is broadly similar to IFRS in the sense that both are principle-based standards. However, there are many areas of differences in them. For example, currently there are no accounting standards in India on critical areas like business combinations, special purpose entities and financial instruments including derivatives.” He adds, “If convergence becomes a reality, there may be a global GAAP, and then there may not be the need to produce this publication. However, there is much to do before this becomes a reality.”

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