DIFFERENCES BETWEEN INDIAN GAAP AND US GAAP

A FEW AND MAIN DIFFERENCES BETWEEN INDIAN GAAP AND US GAAP ARE STATED BELOW.

INDIA
FINANCIAL STATEMENTS Prepared in accordance with the presentation requirements of Schedule VI to the companies Act , 1956
USA
FINANCIAL STATEMENTS Not required to be prepared under any specific format as long as they complyWith the disclosure requirements of US Accounting Standards.

INDIA
EARNINGS PER SHARE (EPS) DATA
No disclosures requirements except those under Schedule VI ,Part IV to the companies act ,1956
USA
EARNINGS PER SHARE (EPS) DATA Disclosure is mandatory. This includes the EPS calculated using the weighted average shares outstanding (simple * complex capital structures method & the fully diluted EPS (considering the effect of warrants or options outstanding)

INDIA
FIXED ASSETS & DEPRICIATION Revaluation of assets permitted. Depreciation is based (usually) on rates set out in Schedule XIV to the Companies Act, 1956

USA
FIXED ASSETS & DEPRICIATION Revaluation of assets not permitted. Depreciation is over the useful economic lives of assets. Depreciation & profit/loss on sale is based on historical cost.

INDIA
INVESTMENT IN OWN SHARES Expressly prohibited
USA
INVESTMENT ON OWN SHARES Permitted, & is shown as a reduction from shareholder’s equity


INDIA

R & D Costs can be capitalized subject to the conditions of AS-8, Research & Development, issued by the Institute of Chartered Accountants of India

USA
R & D Costs are expenses as incurred

INDIA
RELATED PARTY TRANSACTIONS No specific disclosures required. Auditors have a duty to report certain transactions entered into by related parties as defined under the Companies Act, 1956.

USA
RELATED PARTY TRANSACTIONS Disclosures are stringent and require descriptions of nature of relationships and control, transactions, amounts involved and amounts due.

INDIA
GOODWILL No standard except for brief references in AS-10, Fixed Assets, and AS-14, Accounting For Amalgamation. Goodwill arising from amalgamation can be written off over five years

USA
GOODWILL Treated as any other intangible asset, and is capitalized and amortized. The maximum carry forward period is 40 years

INDIA
PRE-OPERATIVE EXPENCES Allowed to be deferred and written off over a period of 3-5 years or 10 years

USA
PRE-OPERATIVE EXPENCES Concept does not exist


INDIA
ASSETS & LIABILITIES No mandatory disclosure of current and long-term components EXCEPT AS FIXED ASSETS AND CURRENT ASSETS--SECURED,UNSECURED LOANS AND CURRENT LIABILITIES

USA
ASSETS & LIABILITIES Mandatory disclosures about current and long-term components separately. Current component normally refers to one year of the period of operating cycle

INDIA
FOREIGN EXCHANGE TRANSACTIONS Exchange fluctuations on liabilities incurred for fixed assets cant be capitalized

USA
FOREIGN EXCHANGE TRANSACTIONS Exchange gain/loss is taken to the income statement. the concept of capitalization of exchange fluctuations arising from foreign currency liabilities incurred for acquiring fixed assets does not exit

INDIA
SEGMENTAL REPORTING Requirement exists for disclosure of quantitative particulars only as prescribed in Schedule VI to the Companies Act , 1956

USA
SEGMENTAL REPORTING Mandatory for SEC-registered companies to report revenues and net income by geographic regions and products/business lines; report sales to outstanding receivables from major unaffiliated customers; report identifiable assetsBy geographical regions and product/business-lines.


INDIA
IMPAIRMENT EVALUATION : NOW INTRODUCED EARLIER No standards.

USA
IMPAIRMENT EVALUATION Mandatory for all assets. Future undercounted cash flows from use & disposal of all the assets are first compared to its carrying value to determine the impairment situation. Impairment loss is then recognized on the basis of the fair value of the asset. Disclosure of the facts and circumstances that lad to impairment is mandatory.

INDIA
FAIR VALUE DISCLOSURES Schedule VI (Directors to state expressly if, in their opinion, the current assets are not expected to realized their cost if they are sold)

USA
FAIR VALUE DISCLOSURES Mandatory fair values are ascertained based on certain specific principles for items, such as loans, current assets, current liabilities, loans etc

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CARO - Applicability

Applicability
The auditor is not required to report on issues included in CARO in respect of private limited companies, if they fulfill the following conditions:

• Private limited companies with the paid up capital and reserve not more than Rs 50 lacs and.
• Do not have outstanding loans exceeding Rs 25 lacs from any banks or financial institution and.
• Do not have a turnover exceeding Rs 5 crores at any point of time during the financial year.

It may however be noted that following classes of companies continue to be excluded from the applicability of CARO.

• A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949.
• An insurance company as defined in clause (21) of section 2 of the Companies Act, 1956.
• A Company licensed to operate under section 25 of the Companies Act, 1956.

CARO - New Issues Requiring Reporting

Disposal of Fixed Assets:

Following new requirements are added.
"If a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern."
This clause requires the auditor to comment:

• On the disposal of substantial part of fixed assets.
• Effect of such disposal on going concern assumption

Maintaining of proper Inventory Records:

Following new requirements are added:
"Whether the company is maintaining proper records of inventory."
This clause requires the auditor to comment whether the company is maintaining proper records of inventory, however, what is meant by "Proper Records" is not defined.

Internal Control:

Following new requirements are added:
"Whether there is a continuing failure to correct major weakness in the internal control system."
This clause requires the auditor to comment, whether he has observed any major weakness in system and the same has been corrected or not, in spite of many reminders to the management.

Statutory Dues:

Following new requirements are added:
"Is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth Tax,. Service Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor and also involves the amount and the forum where dispute is pending shall be mentioned."
This clause requires auditors to comment

• on the regularity of depositing undisputed statutory dues
• If not, the amount involved and the forum of the pending disputes.

Reporting of losses :

Following new requirements are added
"Whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year."
This clause requires auditor to report

• whether the accumulated losses at the end of the financial year are not less than 50% of its net worth; and
• whether the company has incurred cash losses during the period covered by the report and in the immediately preceding financial year covered by the report.

For this the auditor should compute the accumulated losses and the net worth to verify whether they are more than 50% at the end of the year.

Default in repayment of dues :

Following new requirements are added:
"Whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holder? If yes, the period and amount of default to be reported"
Under this clause the auditor is required to report

• On default in repayment of dues to the financial institutions, banks
• The period and amount involved.

Guarantee for loan given by companies:
Following new requirements are added :
"Whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company."
The clause requires the auditor to comment on the guarantee given by the company on loans taken by others including condition, of the guarantee and whether they are prejudicial to the interest of the company.

Report on the maintenance of adequate documents in granting the loans and advances :

Following new requirements are added:
"Whether adequate documents and records are maintained in case where the company has granted loans and advances on the basis of the security by way of pledge of shares, debentures and other securities if not the deficiencies to be pointed out."
Under this clause the auditor has to comment

• On the maintenance of the documents and records
• Verification of security, received against loans and advances.

Utilization of Loan Amount:

Following new requirements are added:
"Whether the term loans were applied for the purpose for which the loans were obtained"

Under this clause the auditor is to examine whether the term loans were used for the purpose for which they are obtained.

Procurement and application of funds:
Following new requirements are added:
"Whether the funds raised on short term basis have been used for long term investment ' if yes, the nature and amount is to be indicated."
Under this clause the auditor has to comment:

• On the source of funds, i.e. raised on short term basis
• Utilization of the funds on long-term investment.

Preferential allotment of shares:

Following new requirements are added:
"Whether the company has made any preferential allotment of shares to the parties and companies covered in the Register maintained under section 301 of the Act and if so whether the price at which shares have been issued is prejudicial to the interest of the company."
This clause requires the auditor to report on preferential allotment of shares to the parties covered under section 301 of the act made by the companies and also the rice at which the hares have been issued, whether such issue prejudicial to the interest of the company.

Security/charge in respect of debentures:
Following new requirements are added:
"Whether the security or charge has been created in respect of debentures issued?"
Under this clause the auditor is required to comment:

• Whether the proper security or charge is created in respect of debentures issued.

End use of money:

Following new requirements are added:
"Whether the management has disclosed on the end use of money raised by the public issue and same has been verified".
Under this clause the auditor is required to report on the disclosure of the end use of the money by the management in the financial statements and also to verify it.

Fraud on or by the company:

Following new requirements are added:.
"Whether any fraud on or by the company has been noticed or reported during the year; if yes, the nature and the amount involved is to be indicated."
Under this clause the auditor is required to report

• On the fraud made on or by the company during the year.
• The amount and nature of the fraud.

CARO 2003

S. Clause Deals with From
No. CARO, 2003
1. 4 (i) (a) to (c) Fixed Assets No Change
2 4 (ii) (a) to (c) Inventory No Change
3 4 (iii) (a) to (g) Loans given to/taken from section 301 parties Amended
4 4 (iv) Internal control system Amended
5 4(v) (a) to (b) Section 301 Contracts/Arrangements Amended
6 4 (vi) Acceptance of Deposits from public Amended
7 4 (vii) Internal Audit System No Change
8 4 (viii) Maintenance of Cost Records No Change
9 4 (ix) (a) to (b) Undisputed & Disputed Statutory Dues Amended
10 4 (x) Incurrence of Cash Losses Amended
11 4 (xi) Repayment of dues to a financial institution … No Change
12 4 (xii) Records for loans and advances granted on security No Change
13 4 (xiii)(a) to (d) Compliance with special statute for chit funds/nidhi … Amended
14 4 (xiv) Records for dealing/trading in shares, securities … Amended
15 4 (xv) Guarantee given for loan taken by others No Change
16 4 (xvi) Application of Term Loans No Change
17 4 (xvii) Utilisation of short-term funds Amended
18 4 (xviii) Preferential allotment of shares to 301 parties No Change
19 4 (xix) Creation of security / charge for debentures issued Amended
20 4 (xx) Disclosure of end-use of money raised for public issues
by the management No change
21 4(xxi) Fraud on / by the company No Change