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What are the major objectives of INDIAN GAAP?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Sarath S asked almost 2 years ago

Hello, I am a CA Intermediate | CA IPCC student from Bangalore. I want to know about the major objectives of INDIAN GAAP. Sarath S

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Open uri20170510 32134 1uwcnoc?1494421631 Shubhangi Jain answered almost 2 years ago

AN AMERICAN business television channel with `glocalised' content ran a programme recently on the need for overseeing audit in the Indian context. An eminent bean counter came out with what may justifiably be described as the only original insight into anything generated by an Indian chartered accountant: That auditors only certify the financials of a client as true and fair...and not correct. That is a tough act to follow. And the July 20 observation by Mr Ashok Chandak, president of the Institute of Chartered Accountants of India (ICAI), that the country does not need an independent accounting oversight board like the one mooted in the US — as it already has in place a legal framework for dealing with errant auditors — seems vaguely amusing. Ask the auditors who signed off the balance-sheets of the hundreds of publicly held companies which have now `vanished.' Why should their work be subjected to oversight as long as they are not required to certify a client company's financials as "true". And then again, there is admittedly very little point in having an oversight body when we are yet to adopt several critical accounting standards. It is in this context that GAAP 2001 — an international survey conducted by some of the world's largest accountancy firms from 62 countries, including India, and made available free of charge by the International Forum on Accountancy Development (www.ifad.net) — assumes significance. However, before looking at some of the salient features of the survey, with particular reference to India, a brief introduction to the International Forum for Accountancy Development (IFAD) is in order. **It seek to achieve the following objectives:** Promote understanding by national governments of the value of transparent financial reporting in accordance with sound corporate governance; Assist in defining expectations as to how the accountancy profession (in both the public and private sectors) should carry out its responsibilities to support the public interest; Encourage governments to focus more directly on the needs of developing countries and economies in transition; Contribute to a common strategy and framework of reference for accountancy development; and Promote cooperation between governments, the accountancy and other professions, the international financial institutions, regulators, standard setters, and capital providers and issuers. How successful has IFAD been in achieving the above objectives? Well, according to GAAP 2001: Approximately a third of the countries surveyed are responding to the challenge of convergence with an active agenda and proposed changes to national requirements; Half of the countries reported significant differences between national and international standards, but have not implemented or proposed new standards to narrow the differences; and The quantity and significance of the differences make it clear that for many countries, convergence with International Accounting Standards (IAS) will be a major task and will require coordinated efforts in each country by the government, stock market regulators, those who prepare financial statements and those who use them, and standard setters. As for India, GAAP 2001 notes: "Indian requirements are mainly based on the Companies Act, 1956, on regulations of the Company Law Board and on the standards issued by the ICAI. In addition, listed companies must follow the rules, regulations and releases issued by the Securities and Exchange Board of India (SEBI)." The survey goes on to point out that Indian accounting may differ from that required by IAS because of the absence of specific accounting rules in the following areas: Accounting for associates; Accounting for joint ventures; the treatment of the cumulative exchange gains and losses on disposal of a foreign entity; the creation of provisions in the context of business combinations accounted for as acquisitions; the impairment of assets; the derecognition of financial assets; hedge accounting for derivatives; the treatment of lease incentives; discounting of provisions; and the methods to be used when accounting for employee benefit obligations. Further, there are no specific rules requiring disclosures of: A primary statement of changes in equity; the fair value of financial assets and liabilities, except for quoted investments; the fair value of investment properties; and discontinuing operations. Finally, there are various inconsistencies between Indian and IAS rules that could lead to differences for many enterprises in certain areas. For example, under Indian rules: the classification of business combinations as acquisitions or uniting of interest is not based on the ability to identify an acquirer; negative goodwill is treated as a capital reserve; trading available-for-sale and derivative financial assets are not recognised at fair value; trading and derivative liabilities are not recognised at fair value; exchange differences arising on foreign currency liabilities related to the purchase of fixed assets are used to adjust the fixed assets rather than being taken to income; certain research costs can be capitalised; investment properties can be carried at cost less permanent diminutions in value; certain expenditures on intangible items that are not assets can be deferred and amortised; revaluations of assets do not need to be kept up-to-date; the completed contract method may be used to recognise revenues on construction contracts; deferred tax is calculated on the basis of timing differences; provisions can be created when there is no obligation; proposed dividends are accrued; and an issuer's financial instruments are generally accounted for on the basis of their legal form and compound instruments are not split into liability and equity components.

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