Comparative Analysis Between US GAAP, Indian GAAP and IAS

69
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
Comparative Analysis Between US GAAP, Indian GAAP and IAS
A comparative analysis of accounting pronouncements under US GAAP, Indian GAAP and IAS is
presented in the table below. The analysis seeks to identify the significant areas of accounting, a
summary of the important applicable pronouncements under these three frameworks of reporting and a
comparison of the similarities and differences between these. In this analysis, US GAAP is taken as the
primary reporting framework and Indian GAAP and IAS pronouncements are compared alongside.
This is organized by principal accounting area. To enable ease of use, a topic-wise index is presented
first. This index identifies the accounting area under US GAAP together with the relevant accounting
pronouncements and the corresponding applicable pronouncement under Indian GAAP and IAS. A
comparison between US GAAP, Indian GAAP and IAS is then presented for each identified area.
Index
US GAAP
Indian GAAP
IAS
Accounting changes (Source: APB 20)
Changes in Accounting Policies
Changes in Accounting Policies
(Source: AS 5)
(Source: IAS 8)
Accounting policies (Source: APB 22)
Disclosure of Accounting Policies
Presentation of Financial Statements
(Source: AS 1)
(Source: IAS 1)
Adjustments to financial statements of
Prior period adjustments (Source:
Prior period adjustments (Source:
prior periods (Sources: FAS 16 and
AS 5)
IAS 8)
109, APB 9 and 20)
Balance sheet – classification and
No specific accounting
Presentation of Financial Statements
display (Sources: ARB 43, ch3A,
pronouncement
(Source: IAS 1)
APB 6 and 10, FAS 6, FIN 39 and 41)
Business Combinations (Sources:
Accounting for Amalgamations
Business Combinations (Source:
ARB 43, Ch 1A, ARB 51, APB 16,
(Source: AS 14)
IAS 22)
AIN-APB 16, FAS 10, 38, 72, 79, 87,
106, 109, 111, 121 and 135, FIN 4
and 9, FTB 85-5)
Capital stock (Sources: ARB 43, ch1A,
No specific accounting
Presentation of Financial Statements
ch1B and ch7B, APB 6, 9, 12, 14 and
pronouncement
(Source: IAS 1)
29, FAS 129)
Cash flow statements (Sources:
Cash flow statements (Sources: AS 3
Cash flow statements (Source: IAS 7)
FAS 95, 102, 104, 115 and 117)
and SEBI guidelines on cash flow
statements for listed companies)
Commitments: Long-term obligations
No corresponding accounting
No corresponding accounting
(Sources: FAS 47 and 129)
pronouncement
pronouncement
Compensation: Stock based (Sources:
SEBI (Employee Stock Option Scheme
No corresponding accounting
APB 25, AIN-APB 25, ARB 43, ch13B,
And Employee Stock Purchase
pronouncement
FAS 109, 123 and 128, FIN 28 and
Scheme) Guidelines, 1999.
FTB 97-1)
[applicable to listed companies only]
Compensation to Employees:
No specific accounting
No specific accounting pronouncement
Deferred Compensation Agreements
pronouncement
and Paid Absences [Sources: APB 12,
FAS 43, 106, 111, 112 and 123]
Comprehensive income (Source:
No corresponding accounting
Presentation of Financial Statements
FAS 130)
pronouncement
(Source: IAS 1)

---

70
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
Computer Software To Be Sold,
No corresponding accounting
No corresponding accounting
Leased or Otherwise Marketed
pronouncement
pronouncement
(Sources: FAS 2 and 86)
Consolidation (Sources: ARB 51,
No corresponding accounting
Consolidated Financial Statements and
FAS 13, 58, 94, 109 and 131)
pronouncement
Accounting for Investments in
Subsidiaries (Source: IAS 27)
Contingencies (Sources: FAS 5 and
Contingencies and Events Occurring
Events After the Balance Sheet Date
FIN 14)
After the Balance Sheet Date
(Source: IAS 10) and Contingent
(Sources: AS 4)
Liabilities (Source: IAS 37)
Costs of Computer Software
No corresponding accounting
No corresponding accounting
Developed or Obtained for Internal
pronouncement
pronouncement
Use (Source: SOP 98-1)
Debt: (Sources: APB 14, AIN-APB 26,
No corresponding accounting
No specific accounting pronouncement
FAS 15, 49, 84, 91, 114 and 121,
pronouncement
FTB 80-2 and 81-6)
Depreciation (Sources: ARB 43,
Depreciation Accounting (Source:
Depreciation Accounting (Source:
Ch9C, APB 6 and 12; FAS 92, 93, 109
AS 6 and SchVI, Part I)
IAS 4)
and 135)
Derivative Instruments and Hedging
No comparable accounting
Financial Instruments: Recognition
Activities (Source: FAS 133)
pronouncement. Guidance Note only
and Measurement (Source: IAS 39)
on Equity Futures Index for
derivatives
Development Stage Enterprises
GN, Treatment of Expenditure During
No corresponding accounting
(Source: APB 18, FAS 7 and 95,
Construction Period
pronouncement
FIN 7, SOP 98-5)
Earnings per Share (Source:
No comparable accounting
Earnings per share (Source: IAS 33)
FAS 128)
pronouncement. AS being issued by
January 2001.
Financial Instruments: Disclosure
Financial Instruments: Disclosure
Financial Instruments: Disclosure
(Sources: FAS 107, 112, 123, 125, 126
(Source: AS 11)
(Source: IAS 32)
and 133)
Financial Instruments: Servicing
No corresponding accounting
No corresponding accounting
(Source: FAS 125)
pronouncement
pronouncement
Financial Instruments: Transfers
No corresponding accounting
Financial Instruments: Transfers
(Sources: FAS 125 and 127)
pronouncement
(Sources: IAS 39)
Financial Statements: Comparative
No corresponding accounting
Financial Statements: Comparative
Financial Statements (Source:
pronouncement
Financial Statements (Source: IAS 1)
ARB 43, ch2A)
Foreign Currency Translation
Accounting for the Effects of Changes
Effects of Changes in Foreign
(Sources: FAS 52, 95, 104, 109, 130,
in Foreign Exchange Rates (AS 11)
Exchange Rates (AS 21)
133 and 135 and FIN 37)
Impairment (Sources: FAS 114, 115,
No corresponding accounting
Impairment of Assets (Source: IAS 36)
118, 121, 130, 133 and 135)
pronouncement
Income Statement Presentation
Prior Period and Extraordinary Items
Income Statement Presentation
(Sources: APB 9, 16 and 30, AIN-
and Changes in Accounting Policies
(Source: IAS 8 and 35)
APB 9, 16 and 30, FAS 4, 16, 44, 64,
(Source: AS 5). Specific standard on
101, 109, 121 and 128, FTB 85-6)
Discontinuing Operations already

---

71
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
undertaken by ASB.
Income taxes (Sources: APB 2, 4, 10
Income taxes (Source: GN,
Income taxes (Source: IAS 12)
and 23, AIN-APB 4, FAS 37, 60, 95,
Accounting for Taxes on Income) AS
109, 115, 123, 130 and 135, FTB 82-
under finalisation by ASB in
1)
December 2000.
Intangible assets (Sources: ARB 43,
No corresponding accounting
Intangible assets (Source: IAS 38)
Ch5, APB 9 and 17, AIN-APB 17,
pronouncement. AS 14 covers
FAS 44, 72, 109, 121 and 135, FIN 9,
goodwill and AS 10 covers Patents,
FTB 85-6)
etc.
Interest: Capitalization of Interest
AS - 16
Interest: Capitalization of Interest
Costs (Sources: FAS 34, 42, 58, 62, 87
Costs (Sources: IAS 23)
and 121, FIN 33)
Interest: Imputation of an Interest
No corresponding accounting
No corresponding accounting
Cost (Sources: APB 12 and 21, AIN-
pronouncement
pronouncement
APB 21, FAS 34 and 109)
Interim Financial Reporting (Sources:
No corresponding accounting
Interim Financial Reporting (Source:
APB 28, FAS 3, 16, 69, 95, 109, 128,
pronouncement
IAS 34)
130, 131 and 135, FIN 18, FTB 79-9;)
Inventory (Sources: ARB 43, Ch3A
Valuation of Inventories (Source:
Inventories (Source: IAS 2)
and 4, FAS 133)
AS 2)
Investments: Debt and Equity
Accounting for Investments (Source:
Accounting for Investments (Source:
Securities (Sources: ARB 43, FAS 91,
AS 13)
IAS 25)
115, 124, 125, 130, 133 and 135,
FTB 79-19 and 94-1)
Investments: Equity Method (Sources:
No corresponding accounting
Accounting for Investments in
APB 18, AIN-APB 18, FAS 58, 94,
pronouncement
Associates (Source: IAS 28) and
109, 115, 128 and 133, FIN 35,
Financial Reporting of Interests in
FTB 79-19)
Joint Ventures (Source: IAS 31)
Leases (Sources: FAS 13, 22, 23, 27,
AS-19 Accounting for Leases
Leases (Source: IAS 17)
28, 29, 91, 94, 98, 109 and 125,
FIN 19, 21, 23, 24, 26 and 27,
FTB 79-10, 79-12, 79-13, 79-14, 79-
15, 79-16(R), 85-3, 86-2 and 88-1)
Lending activities (Sources: FAS 91,
No corresponding accounting
No specific accounting pronouncement
115, 124, 125 and 133
pronouncement
Liabilities: Extinguishments (Sources:
No corresponding accounting
Liabilities: Extinguishments (Source:
APB 26, AIN-APB 26, FAS 4, 64, 84,
pronouncement
IAS 39)
111 and 125, FTB 80-1)
Non-monetary transactions (Sources:
No corresponding accounting
No specific accounting pronouncement
APB 29, FAS 109 and 123, FIN 30)
pronouncement
Pension costs (Sources: FAS 87, 88,
Accounting for Retirement Benefits in
Employee benefits (Source: IAS 19)
106, 109, 130, 132 and 135)
the Financial Statements of Employers
(Source: AS 15)
Postretirement Benefits Other Than
No specific accounting
No specific accounting pronouncement
Pensions (Sources: FAS 88, 106, 112,
pronouncement
132 and 135)
Property, Plant and Equipment
Accounting for Fixed Assets (AS 10)
Property, Plant and Equipment

---

72
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
(Source: ARB 43, Ch9B)
(IAS 16)
Related parties (Source: ARB 43,
AS-18
Related parties (Source: IAS 24)
Ch1A, FAS 57 and 109)
Research and Development (Sources:
Accounting for Research and
Intangible Assets (Source: IAS 38)
FAS 2 and 86; FIN 6)
Development (Source: AS 8)
Research and Development
No corresponding accounting
No corresponding accounting
Arrangements (Sources: FAS 68,
pronouncement
pronouncement
FTB 84-1)
Revenue Recognition (Sources:
Accounting for Construction
Construction Contracts (Source:
ARB 43, Ch1A, ARB 45, APB 10,
Contracts (Source: AS 7) and Revenue
IAS 11) and Revenue (Source: IAS 18)
FAS 48 and 111, FTB 90-1)
Recognition (Source: AS 9)
Segment Disclosures and Related
No corresponding accounting
Segment Reporting (Source: IAS 14)
Information (Sources: FAS 131,
pronouncement. ED recently issued
FTB 79-4 and 79-5)
by the ICAI
No corresponding accounting
Accounting for Government Grants
Accounting for Government Grants and
pronouncement
(Source: AS 12)
Disclosure of Government Assistance
(Source: IAS 20)
Accounting changes
US GAAP
Indian GAAP
IAS
Accounting changes are defined as a
Accounting policies are defined as the
A change in accounting policy is
change in (a) an accounting principle,
“specific accounting principles and the
treated retrospectively by restating all
(b) an accounting estimate, or (c) the
methods of applying those principles
prior periods presented and adjusting
reporting enterprise (which is a special
adopted by an enterprise in the
opening retained earnings
type of change in accounting principle.
preparation and presentation of
(benchmark).
The correction of an error in
financial statements”.
Changes in accounting policy are
previously issued financial statements
Changes in accounting policies are
made only if required by statute, or by
is not deemed to be an accounting
permitted only if the adoption of a
an accounting standard setting body,
change.
different accounting policy is required
or if the change will result in a more
A presumption in preparing financial
by statute or for compliance with an
appropriate presentation of events or
statements is that an accounting
accounting standard or if it is
transactions in the financial statements
principle once adopted should not be
considered that the change would
of the enterprise.
changed in accounting for events and
result in a more appropriate
Changes in accounting policies are
transactions of a similar type. That
presentation of the financial statements
applied retrospectively unless the
presumption may be overcome only if
of the enterprise.
amount of any resulting adjustment
the enterprise justifies the use of an
The following are not considered as
that relates to prior periods is not
alternative acceptable accounting
changes in accounting policies:
reasonably determinable. Resulting
principle on the basis that it is
adjustments are reported as an
preferable.
Adoption of an accounting policy
adjustment to the opening balance of
for events or transactions that
The cumulative effect of a change in an
retained earnings. Comparative
differ in substance from previously
accounting principle shall be included
information is restated unless it is
occurring events or transactions,
in net income of the period of the
impracticable to do so.
e.g., introduction of a formal
change and presented in the income
retirement gratuity scheme by an
Changes in accounting policy are
statement net of related tax effects after
employer in place of ad hoc ex-
applied prospectively when the amount
extraordinary items. This does not
gratia payments to employees on
of the adjustment to the opening
apply to changes in certain specified
retirement; and
balance of retained earnings required
accounting principles that are made by
above cannot be reasonably
retroactive restatement.
Adoption of a new accounting
determined.
policy for events or transactions

---

73
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
that did not occur previously or
that were immaterial.
A change in accounting estimate is
AS 5 requires the disclosure of any
Allowed alternative treatment
accounted for in the period of change if
change in an accounting policy that
Changes in accounting policy are
the change affects that period only or
has a material effect. The impact of,
applied retrospectively unless the
in the period of change and future
and the adjustments resulting from,
amount of any resulting adjustment
periods if the change affects both.
such change, if material, should be
that relates to prior periods is not
Restating amounts reported in
shown in the financial statements of the
reasonably determinable. Any
financial statements of prior periods or
period in which such change is made,
resulting adjustments are included in
reporting pro forma amounts for prior
to reflect the effect of such change.
the determination of the net profit or
periods is not permitted.
Where the effect of such change is not
loss for the current period.
The nature of and justification for a
ascertainable, wholly or in part, that
Comparative information is presented
change in accounting principle and its
fact should be indicated. A change
as reported in the financial statements
effect on income is disclosed in the
made to an accounting policy that has
of the prior period. Additional pro
financial statements of the period in
no material effect on the financial
forma comparative information is
which the change is made. The
statements for the current period but is
presented unless it is impracticable to
justification for the change should
reasonably expected to have a material
do so.
explain clearly why the newly adopted
effect in later periods, should be
Disclosure is required of the reasons
accounting principle is preferable.
appropriately disclosed in the period in
for and effect and accounting treatment
which the change is adopted.
Changes in accounting principle
of the change.
generally require the following
A change in accounting estimate is
disclosures:
reflected prospectively. The nature and
Financial statements for prior
effect of the change should be
periods included for comparative
disclosed, even if the effect will only be
purposes shall be presented as
significant in a future period. If the
previously reported;
effect cannot be quantified, that fact
should be disclosed.
The cumulative effect of changing
to a new accounting principle on
Effects of a change in an accounting
the amount of retained earnings at
estimate are included in the
the beginning of the period in
determination of net profit or loss in:
which the change is made shall be
the period of the change, if the
included in net income of the
change affects that period only; or
period of the change;
the period of the change and future
The effect of adopting the new
periods, if the change affects both.
accounting principle on income
before extraordinary items and on
A correction of a fundamental error is
net income (and on the related per
treated as a prior period adjustment
share amounts) of the period of the
(benchmark treatment) or recognized
change shall be disclosed; and
in current profit or loss (allowed
alternative treatment). The nature and
Income before extraordinary items
effect of the change in the current and
and net income computed on a pro
prior periods should be disclosed.
forma basis shall be shown on the
face of the income statements for
all periods presented as if the
newly adopted accounting
principle had been applied during
all periods affected.

---

74
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
Accounting policies
US GAAP
Indian GAAP
IAS
Accounting policies are the specific
Accounting policies are defined as the
IAS 1 defines overall considerations
accounting principles and the methods
“specific accounting principles and the
for financial statements including:
of applying those principles that are
methods of applying those principles
Fair presentation;
judged by the management of the
adopted by an enterprise in the
Accounting policies;
enterprise to be the most appropriate
preparation and presentation of
Going concern;
in the circumstance to present fairly
financial statements”.
Accrual basis of accounting;
financial position, and results of
AS 1 states that there is no single list of
Consistency of presentation;
operations in accordance with GAAP
accounting policies applicable to all
Materiality and aggregation;
and that accordingly are adopted for
circumstances. Differing circumstances
Offsetting; and
preparing financial statements.
in which enterprises operate in a
Comparative information.
(APB 22, ¶6)
situation of diverse and complex
IAS 1 also prescribes the minimum
When financial statements are issued
economic activity make alternative
structure and content, including
purporting to present fairly financial
accounting principles and methods of
certain information required on the
position, changes in financial position,
applying those principles acceptable.
face of the financial statements:
and results of operations in
The choice of appropriate accounting
accordance with generally accepted
Balance sheet (current/non-current
principles and the methods of applying
accounting principles, a description of
distinction is not required);
those principles in the specific
all significant accounting policies of
circumstances of each enterprise calls
Income statement (operating/non-
the reporting entity should be included
for considerable judgement by the
operating separation is required);
as an integral part of the financial
management of the enterprise.
statements. (APB 22, ¶8)
Cash flow statement (IAS 7 sets
The following are examples of the
out the details); and
Disclosure of accounting policies
areas in which different accounting
should identify and describe the
Statement showing changes in
policies may be adopted by different
accounting principles followed by the
equity.
enterprises.
reporting entity and the methods of
IAS 1 also requires entities to disclose
applying those principles. In
Methods of depreciation, depletion
the significant accounting policies
particular, it should encompass those
and amortization;
adopted in the preparation and
accounting principles and methods that
Conversion or translation of
involve any of the following:
presentation of their financial
foreign currency items;
statements.
Valuation of inventories;
Selection from existing acceptable
Treatment of goodwill;
alternatives;
Valuation of investments;
Principles and methods peculiar to
Accounting for retirement benefits;
the industry in which the reporting
Recognition of profit on long-term
entity operates; and
contracts;
Valuation of fixed assets; and
Unusual or innovative applications
Treatment of contingent liabilities.
of generally accepted accounting
principles [and principles and
methods peculiar to the industry in
which the reporting entity
operates]. (APB 22, ¶12)
The primary considerations governing
the selection and application of
accounting policies are:
Prudence: In view of the uncertainty
attached to future events, profits are
not anticipated but recognized only
when realized though not necessarily
in cash. Provisions are made for all
known liabilities and losses even

---

75
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
though the amount cannot be
determined with certainty and
represents only a best estimate in the
light of available information.
Substance over form: Accounting
treatment and presentation in financial
statements of transactions and events
are governed by their substance and
not merely the legal form.
Materiality: Financial statements
should disclose all "material" items,
i.e. items the knowledge of which might
influence the decisions of the user of
the financial statements.
The disclosure of significant
accounting policies forms a part of the
financial statements. All significant
accounting policies adopted in the
preparation and presentation of
financial statements are normally
disclosed in one place.
If the fundamental accounting
assumptions, viz. going concern,
consistency and accrual are followed
in the preparation and presentation of
financial statements, specific
disclosure is not required. If a
fundamental accounting assumption is
not followed, that fact should be
disclosed.

---

76
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
Adjustments to financial statements of prior periods
US GAAP
Indian GAAP
IAS
Adjustments are required to be made to
Prior period items are “income or
Please refer to commentary under
previously issued financial statements
expenses that arise in the current
“Accounting changes” above.
if there is a correction of an error in
period as a result of errors or
the financial statements of a prior
omissions in the preparation of the
period, a change in certain accounting
financial statements of one or more
principles, or an adjustment related to
prior periods”.
prior interim statements of the current
Prior period items do not include other
fiscal period or if an enterprise
adjustments necessitated by
realizes the income tax benefits of a
circumstances, which though related to
pre-acquisition loss carry-forward of a
prior periods, are determined in the
purchased subsidiary. All other
current period, e.g., arrears payable to
revenues, expenses, gains, and losses
workers as a result of revision of
recognized during a period shall be
wages with retrospective effect during
included in the net income of that
the current period.
period.
Errors in the preparation of the
All items of profit and loss recognized
financial statements of one or more
during a period, including accruals of
prior periods may be discovered in the
estimated losses from loss
current period. Errors may occur as a
contingencies, are included in the
result of mathematical mistakes,
determination of net income for that
mistakes in applying accounting
period. (FAS 16, ¶10)
policies, misinterpretation of facts, or
An item of profit and loss related to the
oversight.
correction of an error in the financial
Prior period items are generally
statements of a prior period is
infrequent in nature and can be
accounted for and reported as a prior
distinguished from changes in
period adjustment and excluded from
accounting estimates. Accounting
the determination of net income for the
estimates by their nature are
current period. (FAS 109, ¶288(n))
approximations that may need to be
Errors in financial statements result
revised, as additional information
from mathematical mistakes, mistakes
becomes known. For example, income
in the application of accounting
or expense recognized on the outcome
principles, or oversight or misuse of
of a contingency which previously
facts that existed at the time the
could not be estimated reliably does
financial statements were prepared.
not constitute a prior period item
(APB 20, ¶13)
The nature and amount of prior period
The nature of an error in previously
items should be separately disclosed in
issued financial statements is disclosed
the statement of profit and loss in a
in the period in which the error was
manner that their impact on the
discovered and corrected. (APB 20,
current profit or loss can be perceived.
¶37)

---

77
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
Balance sheet – classification and display
US GAAP
Indian GAAP
IAS
An enterprise preparing a classified
The balance sheet classification of
IAS 1 offers the alternative, based on
balance sheet should segregate current
assets and liabilities is determined by
the nature of the operations, whether
assets and current liabilities
the form and manner specified in
or not to present current and non-
separately. The current classification
SchVI, Part I. SchVI, Part I
current assets and current and non-
applies to those assets that are realized
determines the presentation of assets
current liabilities as separate
in cash, sold or consumed within one
and liabilities but does not discuss the
classifications on the face of the
year (or operating cycle, if longer),
factors that would determine
balance sheet or to present assets or
and those liabilities that are
classification of an element of financial
liabilities broadly in order of their
discharged by use of current assets or
statements as current or non-current.
liquidity.
the creation of other current liabilities
The term “current assets” is defined in
An asset is classified as a current asset
within one year (or operating cycle, if
the GN, “Terms Used in Financial
when it:
longer). The current liability
Statements”, as “cash and other assets
classification is also intended to
is expected to be realized in, or is
that are expected to be converted into
include obligations that, by their terms,
held for sale or consumption in,
cash or consumed in the production of
are due on demand or will be due on
the normal course of the
goods or rendering of services in the
demand within one year (or operating
enterprise’s operating cycle; or
normal course of business”.
cycle, if longer) from the balance sheet
is held primarily for trading
date, even though liquidation may not
This GN also defines “current
purposes or for the short term and
be expected within that period. This
liability” to mean “liability including
expected to be realized within
also includes long-term obligations
loans, deposits and bank overdraft(s)
twelve months of the balance sheet
that are or become callable by the
which falls due for payment in a
date; or
creditor either because the debtor's
relatively short period, normally not
violation of a provision of the debt
more than twelve months”.
is cash or a cash equivalent asset
agreement at the balance sheet date
that is not restricted in its use.
Indian companies generally offset tax
makes the obligation callable or
liabilities and advance taxes paid more
All other assets are classified as non-
because the violation, if not cured
as a matter of convention. The
current assets.
within a specified grace period, will
disclosure is presented in the schedule
make the obligation callable. Such
A liability is classified as a current
of “Loans and advances” (if advance
callable obligations are classified as
liability when it:
tax payments are greater than the tax
current liabilities unless one of the
liability) or in the schedule of “Current
following conditions is met:
is expected to be settled in the
liabilities and provisions” (if the tax
normal course of the enterprise’s
The creditor has waived or
liability is greater than the advance tax
operating cycle; or
subsequently lost the right to
payments).
demand repayment for more than
is due to be settled within twelve
one year (or operating cycle, if
months of the balance sheet date.
longer) from the balance sheet
All other liabilities are classified as
date.
non-current liabilities.
For long-term obligations
containing a grace period within
which the debtor may cure the
violation, it is probable that the
violation will be cured within that
period, thus preventing the
obligation from becoming callable.
Short-term obligations expected to be
Long-term interest bearing liabilities
refinanced on a long-term basis,
are classified as non-current even if
including those callable obligations
they are due to be settled within twelve
discussed above, shall be excluded
months of the balance sheet date if:
from current liabilities only if the
the original term was for a period
enterprise intends to refinance the
of more than twelve months;
obligation on a long-term basis and

---

78
Annexure IV
Comparison between USGAAP, Indian GAAP and IAS (as on April 2000)
has the demonstrated ability to
the enterprise intends to refinance
consummate the refinancing.
the obligation on a long term basis;
Notes:
and
Current assets are those assets that are
that intention is supported by an
reasonably expected to be realized in
agreement to refinance, or to
cash or sold or consumed during the
reschedule payments, which is
normal operating cycle of the business.
completed before the financial
(ARB 43, ch3A, ¶4)
statements are approved.
Current liabilities are those
Assets and liabilities are not offset
obligations whose liquidation is
except when offsetting is required or
reasonably expected to require the use
permitted by another standard.
of existing resources properly
A financial asset and a financial
classifiable as current assets or the
liability are offset and the net amount
creation of other current liabilities.
reported in the balance sheet when an
(ARB 43, ch3A, ¶7)
enterprise both:
Operating cycle is the average time
has a legally enforceable right to
intervening between the acquisition of
set off the recognized amounts;
materials or services and the final cash
and
realization [from the sale of products
or services. (ARB 43, ch3A, ¶5)
intends either to settle on a net
basis, or to realize the asset and
Short-term obligations are those
settle the liability simultaneously.
obligations that are scheduled to
(IAS 32, ¶33)
mature within one year after the date
of an enterprise's balance sheet or, for
Items of income and expense are not
those enterprises that use the operating
offset except when:
cycle concept of working capital,
an IAS requires or permits it; or
within an enterprise's operating cycle
that is longer than one year. (FAS 6,
gains, losses and related expenses
¶2)
arising from the same or similar
transactions and events are not
material.
The general principle of accounting is
that offsetting of assets and liabilities
in the balance sheet is improper except
when a right of setoff exists. (APB 10,
¶7(1))
Generally, a right of setoff is a debtor's
legal right, by contract or otherwise, to
discharge all or a portion of the debt
owed to another party by applying
against the debt an amount that the
other party owes to the debtor. A right
of setoff exists when all of the following
conditions are met:
Each of two parties owes the other
determinable amounts;
The reporting party has the right to
set off the amount owed with the
amount owed by the other party;
The reporting party intends to set

---