The key difference between IFRS vs Indian GAAP is that IFRS is the international accounting standards that provide guidance on how different transactions should be reported by the company in their financial statements which is used by many countries, whereas, Indian GAAP are the generally accepted accounting principles developed by Ministry of Corporate Affairs (MCA) and followed in India only.
Differences Between IFRS vs Indian GAAP
If you’re just starting out in accounting, it would be difficult for you to understand the differences between IFRS and Indian GAAP.
The full form of IFRS is the International Financial Reporting Standards. It was prepared and updated by the IASB (International Accounting Standards Board), a non-profit, independent organization. IFRS is used in 110 countries, and it’s one of the most popular accounting standards.
On the other hand, Indian GAAP is a set of accounting standards that are specifically designed for the Indian context. GAAPGAAPGenerally accepted accounting principles (GAAP) are the minimum standards and uniform guidelines for the accounting and reporting. These standards prohibit firms from engaging in unethical business activities and enable for a more accurate comparison of financial reports to investors. stands for Generally Accepted Accounting Principles. Most Indian companies follow Indian GAAP while preparing their accounting records.
When a company follows IFRS, it needs to provide disclosure in the form of a note that it is complying with the IFRS. But for Indian GAAP, the disclosure of the statementDisclosure Of The StatementDisclosure Statement is an official document that is part of a list of documents issued by a person, an organization, or the government and contains various key and relevant information in a non-technical language for the communication of contract terms to other parties or contractees, who are typically naive to jargons. isn’t mandatory. When a company is said to follow the Indian GAAP, it’s assumed that they’re complying with the Indian GAAP to portray the true and fair view of their financial affairs.
IFRS vs Indian GAAP Infographics
Key Differences Between IFRS vs. Indian GAAP
The most relevant differences between IFRS and Indian GAAP are mentioned –
- IFRS is a much broader accounting standard in terms of scope and application. IFRS has been used by 110 countries already. Indian GAAP is quite narrow and is only applicable for the Indian
- For IFRS, the companies may need to prepare consolidated financial statements if they don’t fall under the exemption of IAS-27 (Para 10). As per Indian GAAP, a company doesn’t need to prepare consolidated statements.
- As per IFRS, the companies need to disclose as a note that they’re complying with the IFRS. But in the case of Indian GAAP, there’s no need for a statement disclosing that the company is complying with Indian GAAP.
- Revenue is always considered as the fair value of the consideration receivable or received in the case of IFRS. As per Indian GAAP, on the other hand, revenue is considered when the companies charge for products/services and also the benefits companies receive by using their resources.
- As per IFRS, if the company isn’t functional currencyFunctional CurrencyThe term functional currency represents the currency of the location in which business operates primarily, earns a significant portion of revenue, and incurs the cost to generate such profits. In short, it is the home currency of that country where the corporate headquarter is situated., then the assets and liabilities of the company would be converted by the exchange rate. On the other hand, Indian GAAP doesn’t require an exchange rate since it’s only applicable for Indian companies.
Head to Head Comparison Between IFRS vs. Indian GAAP
There are many differences between IFRS and Indian GAAP. Let’s have a look at the chief differences between these two –
|Basis for comparison between IFRS vs. Indian GAAP||IFRS||Indian GAAP|
|Meaning of the abbreviation||International Financial Reporting Standards||The Indian version of Generally Accepted Accounting Principles|
|Developed by||International Accounting Standards Board (IASB)||Ministry of Corporate Affairs (MCA)|
|Disclosure||A company that is complying with IFRS needs to disclose as a note that its financial statements comply with the IFRS.||When a company is said to follow the Indian GAAP, it’s presumed that it’s complying with it and showing a true & fair view of its financial affairs.|
|Adopted by||Companies in 110+ countries have adopted IFRS. More and more countries are making the shift as well.||Indian GAAP is only adopted by Indian companies.|
|How to adapt it for the first time?||IFRS 1 provides clear instructions on how to adopt IFRS for the first time.||Indian GAAP doesn’t give any clear instructions on the first-time adoption.|
|Usage of currency in the presentation||When the financial statementsThe Financial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. are not presented in the functional currency, then the assets and liabilities of the balance sheet are transmuted by the exchange rate.||There’s no question of using the exchange rate since Indian GAAP is only used in the Indian context.|
|Consolidated Financial Statements||If the companies don’t come under the exemption criteria mentioned under IAS 27 (Para 10), the companies need to prepare consolidated financial statementsConsolidated Financial StatementsConsolidated Financial Statements are the financial statements of the overall group, which include all three key financial statements – income statement, cash flow statement, and balance sheet – and represent the sum total of its parents and all of its subsidiaries..||As per the Indian GAAP, the companies should prepare individual financial statements. There’s no requirement of preparing consolidated statements.|
|What financial statements need to be prepared?||The companies following IFRS needs to prepare the balance sheet (statement of financial position)(statement Of Financial Position)Statement of Financial Position represents the current financial status of an entity in terms of assets and liabilities. This statement is used by the stakeholders and shareholders as it affects their investing decisions. and the income statementThe Income StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements. (statement of comprehensive income).||Indian companies following Indian GAAP needs to prepare the balance sheetPrepare The Balance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company., profit & loss account, and cash flow statement.|
|How is the revenue shown?||As per IFRS, the revenue is shown at the fair value of the money received or receivable.||The money charged for the products/services to the customers and the rewards received by using the resources come under revenue as per Indian GAAP.|
Conclusion – IFRS vs. Indian GAAP
The most critical part of these two IFRS vs. Indian GAAP accounting standards is the context. In this context, we are using these to make a huge difference. Plus, by looking at these two IFRS vs. Indian GAAP, we get an idea about the benchmark each of these IFRS vs. Indian GAAP accounting standards has set for themselves.
What works in India may not work in other countries and vice-versa. That’s why the applicability of both of these IFRS vs. Indian GAAP standards stays relevant in respective contexts.
Video on IFRS vs. Indian GAAP
This has been a guide to the top differences between IFRS and Indian GAAP. Here we take the differences between the two with examples, infographics, and comparative table. You may also have a look at the following articles to learn more –