Bala Swaminathan, Partner, Bharat S Raut & Co, pointed out that like any other country, in India too, both the management and the auditors sign the company's P&L account and balance sheet. The auditors' report specifically states that the accounts give a true and fair view. He asked, "What does the management sign the accounts for?" Not one of the 200 chartered accountants present had an answer. Attention was invited to the financial statements of Infosys prepared in accordance with the US GAAP (page 125 of the annualreport). The report of the management clearly states that the management is responsible for preaparing the company's financial statements and related information that appears in the annual report. The management believes that the financial statements fairly reflect the form and substance of the company's transactions. In India, with managements confident of decline in the value of shares being temporary in nature despite the company being a BIFR case and thereby not complying with AS 13, how many will be able to provide such a statement? One wonders why the Code of Corporate Governance cannot include this basic requirement?

It is interesting to compare the requirements of FAS 115. The securities have to be classified into - trading securities (bought and held principally for the purpose of selling them in the short term), available for sale and held to maturity. Reedemable preference shares are classifed as debt and not as part of net worth as is the case in India. Investments in debt securities, which themanagement has positive intent and ability to hold to maturity - are classified as "held to maturity securities" (obviously equity cannot be held to maturity) and are reported at amortised cost. The key word here is "ability". A BIFR company cannot make such claim. The amortisation is done according to the constant yield method and not on a straight line method basis. An example will make things clear.

Example: Investment Date - January 01, 1991, Par Value - Rs 1,00,000, Coupon - 9%, Amount Invested - Rs 96,209 (price to yield 10 per cent), Maturity Date - December 31, 1995.

Swaminathan informed the gathering that in the US, the Securities Exchange Commission (SEC) just does not permit qualified accounts for listed companies and forces managements to re-write accounts. Managements need to have very convincing reasons to have qualified reports. Even the change in accounting policies is not allowed unless it results in better disclosures.NP Sarda, past president of the ICAI and Partner, PC Hansotia & Co andCC Choksey & Co, highlighted the difference in the treatment of revaluation of assets between the IAS and the Indian GAAP. In India, the assets are revalued and henceforth, are reduced only by the depreciation. IAS requires periodical review because of fair value and not on cost accounting. After a period of time, the amount shown in the balance-sheet will reflect neither the fair value nor the cost as on balance-sheet date and hence the need for periodical review.

Sanjay Hegde, Partner Lovelock & Lewes pointed out that AS-6 (Depreciation Accounting) clearly provides that the rate calculated by taking useful economic life as the criteria overrides rates of depreciation prescribed in Schedule XIV of the Companies Act which in any case are the base rates - can not be lower than that. Many companies, for the sake of convinience particularly in continous process plant industries go by the Schedule XIV rate ignoring the useful life of the assets. In the case of MNCs, this results in a peculiar situation. Thedepreciation provided in the books in India is less than the rate at which it is charged for consolidation with the parent company. He also pointed out that companies in India opt for inter-divisional sales to boost the topline (it is profit neutral) but in consolidation, the sale between holding and subsidiary company gets eliminated. One can't but wonder as to how many companies which have opted for presenting reconciliation with the US GAAP fall in this category.

Another interesting point of difference is that for US GAAP, to be treated as Cash and Cash Equivalents, the original maturity of the asset has to be for a period of less than three months. In India, KEC International has a qualification on the same issue. Impairment of assets is an issue of which ICAI is framing a standard. Under US GAAP the impairment loss is recognised in the revenue account based on the fair value.Market value, if active market exists or the sum of DCF. For example, any impairment in the value ofa stock exchange card (afixed asset),will have to be reflected in the P&L Account and no excuses are allowed. Reversals of impairment are not permitted. Bala Swaminathan pointed out that under the US GAAP, unlike as per AS 14 on Accounting for Amalgamations, pooling of interest method is not encouraged. In fact, a bill proposing that the method should not be allowed in any case is pending before the US congress. The simple reson being under the acquisition method, if the consideration paoid is more than the value of the net assets, it is reflected as Goodwill and if it is the other way round, the difference is treated as capital reserve. Under the pooling of interest method, the reserves of the transferor company are recorded by the transferee company at their existing carrying amount after adopting uniform accounting policies for the transferor and transferee company. It may be noted that HLL-BBLIL merger was in the nature of Pooling of Interest.US GAAP has no such concept as capital reserve. It is negative goodwill. The term"Extra-ordinary Items" is very rarely used under US GAAP. Early conversion of debt qualifies as one and the other being discontinued operations.

Predictably, the US GAAP is more stringent in revenue recognisation for long term contracts. In case of loss, the provision to be made is not restricted to the loss at that particular stage of completion but the foresseable loss has to be accounted for. The US GAAP also differs in the treatment of deferred tax from the IAS. The deferred tax assets (eg. carried forward loss) are recognised in the balance sheet at full value but reduced by Valuation Allowance. If based on available estimates, the probability is more than 50 per cent that DTA will not result in future tax benefit.

Another intersting feature of the US accounting treatment is that it is extremely market driven. It requires that developement costs be treated as expenses but seperate rules apply for software that is to be sold. Microsoft has opted not to capitalise it and has set a trend. One pointabout the IAS that needs special mention is that though in India, we do not have a standard on leasing, the guidance note issued by ICAI is at par with the best.

Emcee (with contributions from Urmik Chhaya)