The London based group namely the International Accounting Standards Committee (IASC), responsible for developing International Accounting Standards, was established in June, 1973.
It is presently known as International Accounting Standards Board (IASB), The IASC comprises the professional accountancy bodies of over 75 countries (including the Institute of Chartered Accountants of India). Primarily, the IASC was established, in the public interest, to formulate and publish, International Accounting Standards to be followed in the presentation of financial statements. International Accounting Standards were issued to promote acceptance and observance of International Accounting Standards worldwide. The members of IASC have undertaken a responsibility to support the standards promulgated by IASC and to propagate those standards in their respective countries.
Between 1973 and 2001, the International Accounting Standards Committee (IASC) released International Accounting Standards.
Between 1997 and 1999, the IASC restructured their organisation, which resulted in formation of International Accounting Standards Board (IASB). These changes came into effect on 1st April, 2001. Subsequently, IASB issued statements about current and future standards; IASB publishes its Standards in a series of pronouncements called International Financial Reporting Standards (IFRS). However, IASB has not rejected the standards issued by the ISAC. Those pronouncements continue to be designated as “International Accounting Standards” (IAS).
INTERNATIONAL FINANCIAL REPORTING STANDARDS AS GLOBAL STANDARDS
The term International Financial Reporting Standards (IFRS) comprises IFRS issued by IASB; IAS issued by International Accounting Standards Committee (IASC); Interpretations issued by the Standard Interpretations Committee (SIC) and the IFRS Interpretations Committee of the IASB. International Financial Reporting Standards (IFRSs) are considered a “principles based” set of standards. In fact, they establish broad rules rather than dictating specific treatments. Every major nation is moving toward adopting them to some extent.
WHAT ARE INDIAN ACCOUNTING STANDARDS (IND AS)?
In India, the Institute of Chartered Accountants of India (ICAI) has worked towards convergence by considering the application of IFRS in Indian corporate environment of Indian Accounting Standards with Global Standards. Recognising the growing need of full convergence of Indian Accounting Standards with IFRS, ICAI constituted a Task Force to examine various issues involved. Full convergence involves adoption of IFRS in the same form as that issued by the IASB. While formulating the Accounting Standards, ICAI recognises the legal and other conditions prevailing in India and makes deviations from the corresponding IFRS. For convergence of Indian Accounting Standards with International Financial Reporting Standards (IFRS), the Accounting Standard Board in consultation with the Ministry of Corporate Affairs (MCA)), has decided that there will be two separate sets of Accounting Standards viz. (i) Indian Accounting Standards converged with the IFRS – standards which are being converged by eliminating the differences of the Indian Accounting Standards vis-à-vis IFRS (known as Ind AS) and (ii) Existing Notified Accounting Standards.
Indian Accounting Standards (Ind AS) are IFRS converged standards issued by the Central Government of India under the supervision and control of Accounting Standards Board (ASB) of ICAI and in consultation with National Advisory Committee on Accounting Standards (NACAS).
Ind AS are named and numbered in the same way as the corresponding International Financial Reporting Standards (IFRS).
The most important differences between IFRS and Indian GAAP are mentioned:
- IFRS is a much broader accounting standard in terms of scope and application. IFRS has been used by 110 countries already. Indian GAAP is quite narrow and is only applicable for the Indian
- For IFRS, the companies may need to prepare consolidated financial statements if they don’t fall under the exemption of IAS-27 (Para 10). As per Indian GAAP, a company doesn’t need to prepare consolidated statements.
- As per IFRS, the companies need to disclose as a note that they’re complying with the IFRS. But in the case of Indian GAAP, there’s no need to a statement disclosing that the company is complying with Indian GAAP.
- Revenue is always considered as the fair value of consideration receivable or received in the case of IFRS. As per Indian GAAP on the other hand, revenue is considered when the companies charge for products/services and also the benefits companies receive by using their resources.
- As per IFRS, if the company isn’t using the functional currency, then the assets and liabilities of the company would be converted by the exchange rate. On the other hand, Indian GAAP doesn’t require an exchange rate since it’s only applicable for Indian companies.
- There are many differences between IFRS and Indian GAAP. Let’s have a look at the chief differences between these two –
Basis for comparison between IFRS vs Indian GAAP
Meaning of the abbreviation
|International Financial Reporting Standards||The Indian version of Generally Accepted Accounting Principles|
|Developed by||International Accounting Standards Board (IASB)||Ministry of Corporate Affairs (MCA)|
|Disclosure||A company that is complying with IFRS needs to disclose as a note that their financial statements comply with the IFRS.||When a company is said to follow the Indian GAAP, it’s presumed that it’s complying with it and showing a true & fair view of its financial affairs.|
|Adopted by||Companies in 110+ countries have adopted IFRS. More and more countries are making the shift as well.||Indian GAAP is only adopted by Indian companies.|
|How to adopt it for the first time?||IFRS 1 provides clear instruction on how to adopt IFRS for the first time.||Indian GAAP doesn’t give any clear instruction on the first time adoption.|
|Usage of currency in the presentation||When the financial statements are not presented in the functional currency, then the assets and liabilities of the balance sheet are transmuted by the exchange rate.||There’s no question of using exchange rate since Indian GAAP is only used in the Indian context.|
|Consolidated Financial Statements||If the companies don’t come under the exemption criteria mentioned under IAS 27 (Para 10), the companies need to prepare consolidated financial statements.||As per the Indian GAAP, the companies should prepare individual financial statements. There’s no requirement of preparing consolidated statements.|
|What financial statements need to be prepared?||The companies following IFRS needs to prepare the balance sheet (statement of financial position) and the income statement (statement of comprehensive income).||
Indian companies following Indian GAAP needs to prepare the balance sheet, profit & loss account, and cash flow statement.
|How is revenue shown?||As per IFRS, the revenue is shown at the fair value of the money received or receivable.||
The money charged for the products/services to the customers and the rewards received by using the resources come under revenue as per Indian GAAP.