IFRS Vs Indian Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAPs) are a set of basic rules and procedures prescribed by the Institute of Chartered Accountants of India (ICAI) which have to be followed while preparing financial statements. These are the accounting principles, concepts, and conventions that ensure that financial reporting is transparent and consistent from one organization to another. The management and the auditors are bound by the Companies Act of 2013 to follow GAAPs.
IFRS are designed to serve as a common global language of business affairs so that accounts of various companies are understandable and comparable across international boundaries. National accounting standards prevailing in different countries are being replaced by these International Financial Reporting Standards.
International Financial Reporting Standards (IFRS) are a set of standards developed by the International Accounting Standard Board (IASB) stating how a particular transaction shall be treated or an event shall be reported in financial statements. The main differences between GAAP and IFRS are
Difference between GAAP and IFRS
|Basis||IFRS||Indian GAAP/ Accounting Standard|
|Scope||Nearly 120 countries or jurisdictions allow or require their domestic companies to comply with IFRS and 90 countries have fully adopted it.||It is followed by the Indian companies only and hence is very limited in scope.|
|Created by||International Accounting Standards Board (IASB) has developed it.||It was developed by the Ministry of Corporate Affairs (MCA).|
|Treatment of Depreciation||Since the value is revised every year so no depreciation is charged on the cost of assets but is valued on that date and the difference between opening and closing valuation is debited or credited to P&L A/c.||Depreciation is charged on the cost of the asset.|
|Recording of Assets and Liabilities||Assets and Liabilities are recorded at the fair value at the date of the Balance Sheet. This means that the values have to be revised every year.||Assets and Liabilities are recorded at their historical cost.|
|First-time Adoption||It gives very clear and lucid instructions on how to adopt these standards for the very first time.||No such instructions are given on the first-time adoption.|
|Disclosure requirements||Companies following IFRS have to give a note that their financial statements comply with IFRS.||No such note is to be given as it is presumed that the companies in India are complying with it.|
|Currency used in the presentation||Financial statements are normally expressed in the functional currency i.e. the currency of the economy in which the business entity operates but if not then it has to be converted using the exchange rates.||Financial statements are expressed in the Indian rupee hence no question of the exchange rates.|
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In today’s globalized environment, business does not operate in just one country rather they operate around the world. However, it must be emphasized that around the globe different countries follow different accounting standards. This leads to a need for a global set of standards commonly referred to as ‘International Financial Reporting Standards (IFRS)’. What are …