The Hindu Business Line : Connect to `connected thinking' on standards

WHEN money travels at the speed of electronic pulses on the wire, will it be right to confine your accounting knowledge to the country's borders? The answer is negative, and so spread your wings with the help of "IFRS, US, UK and Indian GAAP: A Comparison" from PricewaterhouseCoopers (www.pwc.com). "Businesses are global. Responsibility for ensuring that shareholders and stakeholders receive the information they require lies with all of us," write Rathin Datta and Sanjay Hegde in their foreword.

An elaborate tabular summary presents similarities and differences among the four standard regimes. Interestingly, the International Financial Reporting Standards (IFRS) do not prescribe a particular format for balance-sheet, but specify that certain items must be presented on the face of the balance sheet. The US GAAP too are similar to IFRS in this regard; presentation is generally "in the decreasing order of liquidity".

What is the reporting currency? For us, Schedule VI stipulates reporting to be in Indian rupees, but the US allows the use of "a functional currency", without being specific. You'd learn that `extraordinary items' are non-existent in the UK GAAP while in the US, "gain or loss from extinguishing debt must be classified as extraordinary." In the UK, "cash includes overdrafts but excludes cash equivalents", but in the US GAAP, "cash excludes overdrafts, but includes cash equivalents with short-term maturities."

On contingencies, while the IFRS require disclosure of "unrecognised possible losses and probable gains," Indian GAAP ignores contingent gains; they are neither recognised nor disclosed in financial statements. No question, therefore, of counting birds in the bush.

The book provides a `detailed comparative analysis' topic-wise. Thus, on `foreign entity in a hyperinflationary economy,' we have `no specific guidance', though the IFRS requires restatement to current purchasing power prior to translation into the reporting currency of the reporting entity, and the US GAAP talks of re-measuring "using the reporting currency as the functional currency".

Negative goodwill relating to expected future losses or expenses identified in the acquirer's plan for the acquisition should be recognised in the financial statements, says the IFRS. "Negative goodwill is presented as a negative asset, alongside positive goodwill." In the US, this is allocated pro-rata to assets; "any negative goodwill remaining is recognised as an extraordinary gain." UK too follows the IFRS on this. In India, however, the concept does not exist. "If the consideration is less than the value of net assets acquired, difference is termed as capital reserve. It is not amortised or taken to income statement," explains the book.

Get connected to `connected thinking'!

AS is where is

Dolphy D'Souza does not need any introduction to accountants. His contribution to AS literature has been continual, and the latest is the 2004 edition of "Indian Accounting Standards & GAAP", in two volumes, from Snow White Publication P Ltd (swp@vsnl.net). Most CAs would find the first volume to be useful for interpretation of issues and illustration of practical application; there is a liberal helping from the volumes of Expert Advisory Opinion of the ICAI, though one would have preferred Dolphy's own opinion instead. Text of standards and related pronouncements fills the second volume.

There is a perceptible attempt to value-add, as for example the discussion on `debt restructuring'. Here, Dolphy discusses the US GAAP: "The new effective interest rate shall be the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the payable." We have no AS on this, you'd learn, but the author provides the ICAI's opinion from "EAC, Vol XXI." The eagerness to cover the ground is evident throughout the volume; not so much the effort to get the ideas across. Which also explains the absence of an index for an important publication such as this.

A book on accounting standards where you can count on standard in the title rather than in the presentation.

BooksOfAccount@TheHindu.co.in

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