USGAAP, IFRS, IGAAP ASSOCHAM September 30, 2005

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USGAAP, IFRS, IGAAPASSOCHAMSeptember 30, 2005
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Accounting Principles Policies

• Imagine that you are a business owner and you
  take copies of your financial records (books)
  to four different accountants. You ask each one
  to calculate your profit for the year. A
  fortnight later they provide you with their
  answers.

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Accounting Principles Policies

• .. based on cash in your bank at end December
  compared to prior year, you pretty much break
  even in 2005.

.. after re-valuing all inventory at future
purchase price and, assuming a successful outcome
to ongoing litigation, you have a healthy profit
of xxx.
.. by the time I have written off all your old
inventory and overdue receivables and provided
for my fee, you incurred a significant loss
(xxx).
an interesting year 2005 .. how much would
you like your profit to be?
Need for guidance consistency.
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Accounting vsCooking
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Most Dreaded Accounting Document
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The Balance sheet
An innocent looking piece of paper often made to
appear unnecessarily complicated by clever
accountants and little understood by others.
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THE CORPORATE BIKINI
WHAT IT REVEALS IS INTERESTING BUT WHAT IT
CONCEALS IS MUCH MORE EXCITING
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Accounting

• Accounting is an art of recording, classifying,
  and summarising in a significant manner and in
  terms of money, transactions and events, which
  are in part at least of a financial character and
  interpreting the results thereof.
• American institute of CPA
• The process of identifying, measuring, and
  communicating economic information to permit
  informed judgements and decisions by users of
  the information.
• AAA
• The function of accounting is to provide
  quantifiable information, primarily financial in
  nature, about economic entities, that is intended
  to be useful in making economic decisions.
• Accounting Principles Board of AICPA

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Basic Accounting Concepts

• Business entity concept
• Money measurement concept
• Historical cost concept
• Revenue realisation concept.
• Accounting period
• Matching
• Going concern
• Accrual
• Conservativeness

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Methods of Accounting

• Accruals or mercantile basis
• Cash basis
• Hybrid system

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ISSUES

• Level of judgement.
• Consistency between time periods.
• Comparability between companies.
• Reliability of financial information.
• Risk of financial controls/ surprises.
• Need for Accounting Standards

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Accounting Standards

• Accounting standards codify the generally
  accepted accounting principles. They lay down
  the norms of accounting policies and practices by
  way of codes or guidelines to direct as to how
  the items appearing in the financial statements
  should be dealt with in the books of accounts and
  shown in the annual reports. They present the
  general principles to be put to application using
  professional judgement. They bring about
  uniformity of assumptions, rules and policies
  adopted in financial reporting and thus ensure
  consistency and comparability.

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Plethora of GAAPs

• US GAAP
• IFRS/ UK GAAP
• Indian GAAP
• Country specific accounting standards

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BURNING ISSUEHARMONISATION OF ACCOUNTING
STANDARDS OF VARIOUS COUNTRIES/ ECONOMIC REGIONS
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WHY

• Globalisation opening of economies/ tariff
  barriers
• GLOCAL companies/ MNCs
• Access to international capital markets
• Global listings/ overseas operations
• Need for global accounting fraternity to
  communicate in one language, without having to
  acquire newer skill sets

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WHAT DO WE DO

• Understand the prominent GAAPs/ structures
• Try and draw comparable Accounts
• Understand the differences Reason them out
• Build the Opinion
• Represent to the Institute
• Institute to take steps on harmonisation
• Represent to global bodies wherever we have a
  point
• Slow but Global Harmonisation is Possible

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STRUCTURE - IGAAP

• Accounting Standards are issued by the ASB of
  ICAI
• 29 Accounting Standards so far Effective 28
• Other governing statutes Companies Act/ SEBI
  guidelines/ Govt circulars
• Broadly IGAAP is close to IFRS

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STRUCTURE - USGAAP

• FASB designated body to issue accounting
  standards (FAS) in the private sector
• Recognised by SEC/ AICPA
• Various other bodies/ pronouncements/ hierarchy
  also exist
• Separate Accounting Standard Board for Govt.
  companies (GASB)

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STRUCTURE - IFRS

• International Financial Reporting Standards
  (IFRS) are issued by IASB from 2001 onwards
• Uptill 2000 International Accounting Standards
  Committee (IASC) would issue IAS.
• IASB adopted all the 41 IAS from 2001 onwards.
• EU has made it mandatory for all the listed
  companies on a European Stock exchange to use
  IFRS by 2005.
• Non compliance of IFRS may lead to delisting
• Various Countries are in the process of aligning
  their Accounting Standards to IFRS
• Steps towards harmonisation of USGAAP/ IFRS have
  been taken.

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VISION

• GLOBAL
• ACCOUNTING
• MARKET
• PLACE

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Reason for us to be here
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FORECASTING
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Forecasting

• Forecasting of Sales
• Forecasting of Costs

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Financial Controls
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Financial Controls
Financial Controls consist of a system of
internal controls which are established to ensure
that business objectives achieved, the business
is conducted in an orderly manner in compliance
with local law, records are accurate and reliable
and risks to assets are minimised.
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• THE END