22 December 2007
US GAAP is US genrally accepted accounting practices. India GAAP is accounting procedured followed in India. Federal Accounting Standards are US GAAP. Accounting Standards of ICAI are India GAAP. These are to be followed for the purpose of preparing correct and sound financial statements. MNCs are required to reoncile statments prepared say under India GAAP with US GAAP.
22 December 2007
TO KNOW THE PURPOSE AND ORIGIN OF US AND INDIAN GAAP AND HOW TO USE AND IMPLEMENT THE SAME, ,ONE HAS TO UNDERSTAND THE GLOBAL BUSINESS SCENARIO AS EXPLAINED BELOW. Transparency is the latest corporate buzzword. As globalization spread, more and more Indian corporates are going abroad for funds and an increasing number of foreign investors are pouring their money into Indian capital markets. Now the need of the hour is an accounting language, which can be understood by the international investing community. A few Indian corporates have realized this and started working in this direction. And many more are expected to follow soon. When a company wants to raise funds in the global markets, or desires to get listed on stock exchanges abroad or invites foreign institutional investors to take part in its equity, it needs to comply with some international accounting standards while preparing its annual reports. There are two popular internationally recognized accounting standards, the US GAAP and the International accounting standards. Of these two the former is more acceptable to many. Hence, some Indian companies have voluntarily started preparing their accounts according to the US GAAP. Though their net profits according to US GAAP are lesser than those according to Indian standards, the companies are resorting to this route to maintain greater transparency. This will be in tune with the spirit of corporate governance and shareholder value. This display of transparency has also found favor with the markets despite the fall in the net profit. Other companies in the same business are now under pressure to prepare their accounts in accordance with international standards. For example Infosys is regarded as a company that has the best corporate principles. THE INITIAL PERIOD The origin of the generally accepted accounting principles (GAAP) can be traced to the 1929 us stock market crash when the accounting profession of USA realized the need to adopt a standardized set of principles for of accounting. The AIA (American Institute of Accountants, which now known as American Institute of Certified Public Accountants) was asked to draw up a uniform code of accounting principles to guide the profession. The enactment of the securities act of 1933, constituting the Securities Exchange Commission, was the second step towards laying down the generally accepted accounting principles. The AIA published a document titled auditing of corporate accounts, which outlined a proposal for generalized accounting principles.
THE DEVLELOPMENT PERIOD An Organization with research orientation called the Accounting Principles Board (APB) was formed in 1957 to spell out the fundamental accounting postulates in the United States. Since APB’ efforts in the standard setting process did not match the requirements, the wheat committee was appointed in 1971 to examine the problems of APB and to provide solutions. The committee’s findings resulted in the formation of the Financial Accounting Standards Board (FASB) in 1973. The constant support of the securities exchange commission (SEC) to the FASB pronouncements has lent considerable support to the general acceptance of its accounting policy statements. The United States took the lead in formulating the GAAP. The early years of standard setting in the United Kingdom, Australia, Canada and other countries by and large followed the trend set by the American standard setting bodies.
NEED FOR INDIAN COMPANIES TO CONFIRM TO US GAAP
In the past CEO’s had no compulsion to share information with their shareholders who either blindly bought into reputation and the major shareholders, besides the promoters, were the usually the financial institutions, who had taken their equity positions not out of choice, but as a result of government policy and did not consider it necessary to obtain detailed data.
With advent of foreign institutional investors (FII) and mutual funds, however, shareholders and investors needs for data have changed dramatically. As they compete for these institutions attention, corporates have no choice but to meet their demand for undistorted data. Simultaneously India Inc.’s rush into global market s for debt and equity has necessitated the disclosure of sufficient information to compete with global contenders for same capital. source: www.indbazaar.com/foreign exchange
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