Comparative Analysis: US GAAP and Indian GAAP in Financial Reporting

This report provides a comparative analysis of United States Generally Accepted Accounting Principles (US GAAP) and Indian Generally Accepted Accounting Principles (Indian GAAP). It highlights key differences in financial reporting, including the format of financial statements, presentation of cash flow statements, depreciation methods, and the treatment of long-term debts. A significant focus is placed on the classification and realization of investments, contrasting the approaches of both GAAP systems. The report examines the limitations of Indian GAAP, using Reliance Industries Limited as a case study, and contrasts it with the advantages of US GAAP, exemplified by Amazon.com, Inc. The report concludes that US GAAP offers a more efficient approach to investment categorization, emphasizing the importance of segregating investments based on maturity periods and sales amounts. The study references relevant academic sources to support its findings.

FINANCE
U.S. AND INDIAN GAAP

INTRODUCTION
• United States of America and India uses Generally Accepted
Accounting Principles (GAAP).
• In some aspect Indian form of GAAP is different from United States
of American GAAP.
• Some of the notable differences that can be identified are format
of presenting the financial statements, presentation of cash flow
statement, depreciation, analyzing the long term debts,
presentation of consolidation of subsidiary accounts, realizing the
investments, research and development of expenditure and many
more.
• The most prominent one is the representation of investments in
the balance sheet of the company.

CONTEXT
• As per Indian Generally Accepted Accounting Principles (GAAP), the
realization of the investments is different in comparison to United
States of American Generally Accepted Accounting Principles.
• As per Indian GAAP accounting standard board investments are
mainly classified into three categories. They are as follows:
• Current Investments
• Long-term Investments
• Investment Property

CONTEXT
• As per United States of America accounting standards the
investments are being classified under three major heads. They are as
follows:
• Held to Maturity
• Trading Security
• Available for sale

ISSUES
• Identification of the investment as the short-term or long-term is one
of the most notable and prime issue that exist in Indian GAAP’s
investment recognition.
• Categorizing of the assets is one of the major problems that India’s
GAAP persists.
• Identification of the assets that are ready to sale can’t be recognized
by the standards of Indian GAAP accounting boards.

LIMITATIONS OF INDIAN
GAAP
• Reliance Industries Limited, which is an Indian public company
presented its investments in balance sheet using Indian GAAP
accounting standard.
• It is evident from the balance sheet that the identification of the
investments is cumbersome.
• In case of cash and cash equivalent, the company considered the item
as the short-term assets but the item can also be considered as the
long-term.

LIMITATIONS OF INDIAN GAAP
• In the annual report of Reliance Industries Limited, the loan amount
in the balance sheet considered as the short-term as well as long-
term investments.
• The identification and categorization of the loan’s identity is
cumbersome.
• Though Reliance Industries Limited followed the rules and regulations
of Indian GAAP accounting standards.

BALANCE SHEET OF RELIANCE
LIMITED

ADVANTAGES OF U.S. GAAP
• In U.S. GAAP accounting standard, the identification of investments
are made based on the maturity period and the sales of the asset.
• U.S. GAAP accounting standard can also be found to be useful as the
identification and categorizing of the investments much more
efficient.
• It is evident from the annual report of Amazon.com, Inc.

ADVANTAGES OF U.S. GAAP
• Realization of the cash and cash equivalent are considered by
Amazon.com, Inc under the heads of current assets.
• Realization of the loans are also considered depending on the
maturity period.
• The identification and categorizing of the investments are clearer
under U.S. GAAP accounting standard.

CONCLUSION
• The identification and categorizing of the investments in U.S. GAAP
accounting standard is much more efficient in comparison to the
Indian GAAP accounting standard. Indian GAAP accounting standard
should segregate the investments based on the maturity period and
amount of sale.

REFRENCE
• Evans, M. E., Houston, R. W., Peters, M. F., & Pratt, J. H. (2015). Reporting regulatory
environments and earnings management: US and non-US firms using US GAAP or
IFRS. The Accounting Review, 90(5), 1969-1994.
• MITTAL, M. (2018). INDIAN GAAP VS IFRS (Doctoral dissertation).
• Raghunatha, T., & Rajashekar, H. (2014). Indian Accounting Standards vs
International Financial Reporting Standards. SCMS Journal of Indian
Management, 11(3), 96.
• Tawiah, V., & Benjamin, M. (2015). Conservatism Analysis on Indian Generally
Accepted Accounting Principles (GAAP) and International Financial Reporting
Standards (IFRS). International Journal of Multidisciplinary Research and
Development, 2(5).
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