Comparative Analysis of Accounting Standards: India & Australia

This report provides a comparative analysis of accounting standards in India and Australia, focusing on the differences between International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). It begins with an abstract summarizing the report's purpose of informing accountants, governments, and stakeholders about the varying accounting practices in the two countries. The report highlights the roles of the Australian Accounting Standards Board (AASB) and the Institute of Chartered Accountants of India (ICAI) in setting accounting standards, and it also explores the challenges and opportunities of harmonizing accounting standards between the two nations. The study uses a qualitative methodology to analyze the differences between IFRS and GAAP, and also uses the financial report of CARE Australia to provide practical examples of accounting standards in practice. The report addresses research questions about the major differences between IFRS and GAAP, and the possibility of harmonizing accounting standards between India and Australia.

Running Head: Accounting Research 1
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Abstract
The report makes an attempt to deliver useful information to accountants, governments and other
stakeholders by making comparisons between accounting standards in India and Australia.
Accounting standards are tools that are used to shape accounting practices of organizations so
that only reliable and accurate financial reports can be delivered. International Accounting
Standards Board is responsible for specifying all accounting standards that are used by
companies or nations both domestically and internationally. Some of the accounting standards
across the globe include; Australian Accounting Standards, International Financial Accounting
Standards and Generally Acceptable Accounting Principles among others. These accounting
standards are distinct in terms of operations and coverage due to the fact that some are used for
domestic purposes whilst others are for global purposes. The above differences in coverage and
operations are attributed for the differences in the accounting standards in India and Australia.
Unlike Australia, India has been slow to adoption of International Financial Accounting
Standards due to knowledge gaps among its accounting professionals and business owners which
contributes to the differences in accounting standards in the two nations. Most significantly these
differences can be addressed and harmonized by sharing of experience and ideas among
accounting professionals and business owners in India and Australia. The reports also explores
the differences between GAAP and IFRS as well as making use of qualitative methods to deliver
understanding about differences in accounting standards in India and Australia. Data was
collected from CARE Australia’s 2017 financial report to widen knowledge about practices,
policies and principles that organizations can use to prepare reliable and accurate financial
reports.

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Table of contents
Contents
Abstract............................................................................................................................................2
Table of contents..............................................................................................................................3
Introduction......................................................................................................................................3
Research Questions......................................................................................................................6
literature review.............................................................................................................................12
Accounting Standards of Australia and India............................................................................13
Differences of the Accounting Standard between Australia and India......................................14
Australia’s AASB 3 Business combination and India’s AS 14 Accounting..............................15
Australia’s AASB 5 Non-Current Assets held for sale and discontinued operations................15
Australia’s AASB 6 Exploration for and evaluation of mineral resources................................16
Australia’s AASB 7 Financial Instruments disclosures and India’s standard relating..............16
Australia’s AASB 101 Presentation of financial statements and India’s AS1 Disclosure........17
Australia’s AASB 138 Intangible assets (R&D) and India’s AS8 accounting..........................17
Australia’s AASB 141 Agriculture and India’s standard in relation.........................................18
Methodology..................................................................................................................................22
Data Analysis.................................................................................................................................23
Conclusion.....................................................................................................................................26
References......................................................................................................................................28
Appendices....................................................................................................................................36
Appendix A: CARE Australia's Statement of Comprehensive Income.....................................36
Appendix B: CARE Australia's Statement of Financial Position..............................................37
Appendix C: CARE Australia's Statement of Changes in Equity..............................................38
Appendix D: CARE Australia's Statement of Cash Flows........................................................39

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Introduction
The report will attempt to make comparisons of the accounting standards in India and
Australia through reviewing and documenting any literature concerning a nonprofit organization
that operates in both countries. Cooperative for Assistance and Relief Everywhere (CARE)
Australia will be the nonprofit organization that will be used for delivering analysis and
conclusions about the accounting standards in India and Australia (Dfat.gov.au, 2019).
Accounting standards generally refer to a set of procedure and doctrines that act as foundation
for all financial practices and policies that are used in accounting (Bhattacharyya, 2010).
Financial statements in form of balance sheet and income statements are the basic elements that
are considered during preparation and presentation of accounting standards by organizations.
Most significantly, the standards of accounting are not uniform due to the fact that they vary
from country to country (Frascanada.ca, 2019). These accounting standards keep varying across
the world due to differences in combinations of government regulators and private accounting
that is done by professionals in various countries. Harmonization and compliance to accounting
standards gives rise to a challenging element of failure by an organization to make use of various
accounting standards for a similar kind of business in a number of countries (Biondi and Lapsley,
2014). Due to the fact that this study focuses on the differences in accounting standards between
two countries, an additional burden on the expenses in the financial statement is created.
Over the past decades, the essence of practices of international accounting have been on a
high rise due to the desire to meet economic demands as a way of enhancing businesses that are
conducted across borders. Findings from the report will be essential for decision making
processes among regulators in capital markets, investors, governments as well as other
stakeholders who are concerned with information about financial management of organizations

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(Ball, 2012). In this regard, comparisons of accounting standards in India and Australia will help
to reveal that role of accounting in facilitating practices and policies of economic agents in a
country. As such, adverse effects associated with diversity among various nations that are
making use of accounting standards will likely be minimized by the findings of this report.
Comparisons between India and Australia will be facilitated by the fact that the two countries
have different accounting standards (Bamber and McMeeking, 2016). In regards to Australia, the
accounting standards are maintained by Australian Accounting Standards Board (AASB).
Australia has adopted a multiple of domestic standards from international accounting standards
as a way of facilitating accounting practices amongst its business sectors. Some of the adopted
standards include; AASB 1023 and AASB 1048 which cover accounting practices for contracts
involving general insurance and for making interpretations plus application of accounting
standards respectively (Camfferman and Zeff, 2015). These adopted accounting standards are
basically for domestic uses within Australia and thus they do not define the internationally
recognized accounting standards of Australia.
On the other hand, Institute of Chartered Accountant of India (ICAI) which was created
by act of Indian parliament is responsible for maintaining accounting standards in India. The
accounting standards of India are categorized under International Financial Accounting
Standards (IFRS) (Quraishi, 2016). IFRS is a body that consists of documents and policies which
offer doctrines for making measurements, presentations, disclosures as well as treatments of
accounting transactions in financial statements (Bhasin, 2016). Under the guidance of ICIA,
India has also formulated accounting standards that are used for domestic purposes that are
related to international accounting standards. India's domestic accounting principles have been
ineffective in that they have not helped companies to prepare and present financial statements

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that meet desirable accounting standards (Mishra and Mohanty, 2014). In this regard, India's
domestic accounting standards do not meet its economic and social needs due to long delays in
adoption of international accounting standards. India has also formulated banking and insurance
acts as guidelines for maintaining the books of account of banking and insurance firms
respectively (Chen, Ding and Xu, 2014). From the above discussion, it can be seen that Australia
and India have different domestic and international accounting standards which makes it feasible
to make comparisons between the two nations.
Just like any other report, this report on the comparisons of accounting standards in India
and Australia will be guided by the following research questions.
1. What are the major differences between IFRS and GAAP?
2. How to overcome the differences between the accounting standards adopted between the India
and Australia?
3. Is the harmonization possible between the accounting standards of India and Australia?
The above questions will be answered by making use of secondary research whereby relevant
information from various articles and journals will be used by the researcher. Also, any findings
from previous research works will be utilized by the researcher to ensure that all the above
research question are thoroughly and comprehensively answered. Most significantly, the research
will make use of qualitative approach in attempting to answer the above research questions.
Research Questions
1. What are the major differences between IFRS and GAAP?

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International Financial Reporting Standards (IFRS) is an accounting tool that is utilized by a
multiple of countries across the globe. There exist significant differences between IFRS and
Generally Accepted Accounting Principles (GAAP) especially during the implementation phases
in accounting practices. It is essential for accounting professionals and owners of businesses to
understand the differences between IFRS and GAAP so as to effectively manage their
organizations both domestically and internationally (Brown, Preiato and Tarca, 2014). Therefore,
the following is the discussion about the major differences between IFRS and GAAP as
accounting tools for organizations across the globe.
IFRS is an accounting standard that is accepted worldwide in that it is used in over 100
nations across the globe. On the contrary, GAAP is an accounting principle that is only used in
United States and consists of distinct principles of accounting as compared to those used across
other nations in the world. In this regard, it can be seen that IFRS is a feasible accounting tools
for investors who wish to undertake business across a number of countries across the globe.
However, making use of GAAP when executing an international business is quite complicated
which may not yield reliable accounting results (El-Gazzar, 2017). Additionally, approach used
to access processes of accounting is another vital difference between IFRS and GAAP. IFRS
takes into consideration the general patterns in the approach and is based on doctrine whilst
accessing processes of accounting. On the other hand, GAAP takes into consideration the
research involved in the selected approach and is always based on rules (Christensen, Lee and
Zeng, 2015). In this regard, there exist high prospects of making distinct interpretations about
similar situations that are related to tax when a business owner makes use of IFRS. Under
GAAP, there exist limited chances of making distinct interpretations about similar situations that

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are related to tax due to the fact that all transactions are executed according to specified set of
guidelines.
IFRS does not allow use of Last In, First Out (LIFO) technique for making valuations for
the inventory. In most case, LIFO does not indicate exact inventory flow which increases
chances of making reports that show low levels of income. On the other hand, GAAP makes it
possible for an organization to make use of LIFO for making valuations of its inventory. Under
GAAP, an organization can effectively record the flow of its inventory which makes it possible
for making accurate valuations (Hessayri, 2018). In addition, IFRS enables an organization to
capitalize its development costs provided a particular criterion is fulfilled. As such, an
organization that makes use of IFRS is able to determine depreciation on all fixed assets. On the
other hand, GAAP does not allow capitalization of development costs in that all costs must be
accounted for the particular period that they occur (Daske and Verdi, 2013). Furthermore, IFRS
allows inclusion of unusual elements into the income statement without any separation. Under
GAAP, all unusual elements are separated and indicated just below the net income part of an
organization's income statement.
A reversal to the inventory that has been written down is another element which depicts
the difference between IFRS and GAAP. In case of increases in the market value of an asset,
IFRS indicates the amount of inventory that has been written down can be reversed. On the
contrary, GAAP indicates that the amount of inventory that has been written down can never be
reversed in case the market value of an asset rises. In this regard, GAAP is sensitive to reversals
of the inventory whereby it does not depict positive shifts in the market of an asset (Geoff and
Swann, 2010). Additionally, IFRS considers whether a given asset will possess a long term
economic gain as an approach for evaluating its value. In other words, IFRS takes into

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consideration the likely future value of intangible assets like advertisement costs or research so
as to determine their present value. On the contrary, GAAP only takes into consideration the fair
market values of intangible assets without considering future prospects and values (Mora and
Walker, 2015). Furthermore, IFRS does not require a business owner to make distinction
between available categories of liabilities since all debts are looked at as non-current on an
organization's balance sheet (Gray and Kang, 2014). Under GAAP, debts are categorized as
either non-current liabilities which are debts paid after a period of 1 year or current liabilities
which are debts paid with 1 year after acquisition by an organization.
IFRS accounting allows a firm to make use of revaluation model to determine the value
of all its fixed assets like furniture, equipment and property. Revaluation model makes use of the
fair value of a fixed asset at the current date less any depreciation that has been accumulated. On
the contrary, GAAP allows a firm to make use of cost model to determine the value of its fixed
assets. Cost value is derived from consideration of the historical values of fixed assets less any
depreciation that has been accumulated (Mita and Wulandari, 2018). In regards to quality traits,
IFRS operates within an order of traits like reliability, relevance, understandability and
comparability whereby decisions cannot be based on a particular circumstance of the user. On
the contrary, GAAP also operates within the same traits only that all informed decisions are
dependent on particular circumstances of the user (Carnegie and O’Connell, 2014). Therefore, it
is essential for a business owner or a professional in accounting to understand all the above
discussed major differences between IFRS and GAAP so that a given firm can effectively
operate globally. However, organizations that are based in United States should always abide by
particular accounting restrictions even when they have an opportunity to operate their
undertakings globally.

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2. How to overcome the differences between the accounting standards adopted between the
India and Australia?
In order to overcome the differences of Australia’s AASB 3 Business combination and
India’s AS 14 Accounting for Amalgamation, large companies can make use of IFRS and small
companies can make use of adopted accounting standards in both countries. This is because large
companies tend to dominate the system of financial accounting reports in any given countries
which makes it essential for them to make use of IFRS. On the contrary, smaller companies have
their operations limited within the boundaries of a country and thus they should only make use of
adopted accounting standards. Moreover, adopted accounting standards either in Australia or
India is used to serve domestic purposes which does not necessarily define the overall accounting
policies of a nation. In addition, large firms are in most engaged in international business which
makes it necessary for them to make use of IFRS so as to meet the internationally recognized
accounting standards (Emily, 2012). More so, it is the adoption of IFRS practices by companies
that engage in global businesses that help to depict and define the kind of accounting practices of
a nation in question. As a result, if diversification and specialization is undertaken in regards to
accounting practices by large and small firms in both India and Australia will help to erase the
difference of business combinations and amalgamations. In the due course, all large companies
in India and Australia will be making use of IFRS as an accounting tool that is recognized
internationally and thus will help to ensure uniformity in financial reporting amongst the large
firms in both nations (Jorissen, Lybaert and van der Tas, 2014). On the other hand, both
countries have different domestic objective and thus they should utilize adopted accounting
standards for meeting their local objectives without necessarily affecting their international
accounting practices. For example, banking and insurance acts adopted by India should be

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limited for serving domestic purposes among its small entities whilst AASB 1023 should be
limited to serving general insurance contracts among small entities within Australia. From the
above discussion, there will be no significant differences between India and Australia in regards
to using of IFRS when large firms which are engaged in global businesses adopt IFRS
accounting practices.
Majority of the differences in accounting standards in India and Australia is due to the
fact that India has been engaged in making delays whilst adopting or implementing IFRS. The
delays have been attributed to the fact that India's accounting professional have not effectively
met the prerequisites of international accounting standards that require comprehensive
judgments, uniformity and integrity among firms. As such, the professionals and owners of
businesses always spend a lot of time in attempting to understand and implement the basic
requirements of international accounting standards (Kraal, Yapa and Joshi, 2015). These delays
have resulted into absence of some accounting practices in India and yet similar practices are
always in used in Australia. For example, the accounting standards for only non-current assets
that are possessed for discontinued undertakings and sales are existent in Australia and yet they
are still absent in India. Also, accounting standards evaluation and exploration of mineral
resources are existent in Australia and absent in India. In the due course, some accounting
practices are already operating in Australia whilst the same accounting practices are still at
introduction phase in India because of delays in implementation of IFRS (Nobes, 2011). For
example, accounting standards for disclosing financial instruments are already operating in
Australia and yet they are still being developed in India. The above discussions indicate why the
delays in adoption or implementation of IFRS by India are greatly contributing to the differences
between the two countries. In order to address the above discussed differences, India should

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avoid making delays whilst adopting or implementing IFRS in its accounting practices. Such a
factor will ensure that all accounting doctrines, practices and policies are uniformly implemented
across the two countries over a long period of time (Perramon and Amat, 2011). Therefore,
timely implementations and adoption of IFRS by India will help to address majority of the
differences in accounting standards in India and Australia.
3. Is the harmonization possible between the accounting standards of India and Australia?
Harmonization in accounting is an element which deteriorates options whilst retaining high
levels of flexibility in practices of accounting between companies or nations. Harmonization of
financial reporting systems has been viewed as a tool that helps to ensure uniformity in
accounting standards as a way of easing communication of information about financial
transactions across the world (Sharma, Joshi and Kansal, 2017). In the due course, only credible,
comparable and reliable financial information will be achieved once harmonization is undertaken
in financial reporting systems of nations or companies. In regards to India and Australia,
harmonization is possible between the accounting standards in the two countries due to the fact
that accounting practices in the two countries are similar in context. Whilst some of the
accounting practices are being implemented or in operation in Australia, similar accounting
practices are being adopted in India which makes it possible to establish harmonization between
the two nations’ accounting standards (Shukla, 2015). In this case, harmonization can take place
in form of accounting professionals and owners in India adopting accounting practices directly
from Australia as a way of enhancing uniformity in financial reporting in the two countries.
Currently, accounting standards in Australia allow disclosure of financial instruments and
noncurrent assets are held by a firm for sale and discontinued operations (Yu and Wahid, 2014).
On the other hand, India is making attempts to develop the above accounting standards in its