NAME- SANA KHAN

PRN-18010224042
COURSE- BBA LLB
DIVISION –A

ACCOUNTS
ACCOUNTING PRINCIPLE AND CONVENTION
SUBMITTED TO
SYMBIOSIS LAW SCHOOL, NOIDA
IN
AUGUST 2018
UNDER THE GUIDANCE OF DR . MEENAKSHI KAUL .
Background:
India has derived its history of accounting principles from the manuscript s of chanakya which are
similar to the financial management of the book during the Maurayana period . Chanakya’s book
known as ARTHASHASHTHRA which has the details and the procedure of how to maintain the
accounting books for the sovereign state. Luca Pacioli (Lucas De Burgos), belonged to a commercial
family in Tibet valley , who has played a imperative role in the evolution of the accounting principles
in his first published work on double entry bookkeeping and begin a new era of in this field from Italy
.He is known as the father of accounting and bookkeeping. The concept of accounting has evolved
and is evolving which has brought uniformity and consistency and has enhanced its utility to various
users of accounting information .Today as per the definition of American Institute of Certified
Accountants “Accounting is the art of reporting, classification and summarizing in a significant
manner and in terms of money, transactions and events, which are, in part at least, of a financial
character and interpreting the results thereof”.

Introduction:
The researcher wants to have deep understanding on the accounting principles with its
concepts. The accounting principles are set of action and rules which are universally adopted
by the enterprise. Accounting is defined as the system of recording and summarizing business and
financial transactions and analyzing, verifying and reporting the results to end users of accounting.
Accounting generates information from accounting records which may be helpful to management in
planning, controlling and evaluations of performances and decision makings. Accounting helps all
the business in its management decision and serves as a tool for Indian and the US accounting
system.

A} Objectives

The objectives of the research paper are:

 To know the effectiveness of the Indian accounting system as that of the US accounting
system.
 To study the comparison the policies, principles and conventions of Indian and us accounting
system.
 To develop a basic understanding of the topic in layman’s language.
 To develop an interrelationship between Indian and us accounting principles and see
whether the combination of two can develop better system to record transactions.

B} Limitations

The limitations of this research paper are:

 The primary sources of information are not available.

  The inception and the evolution of both the concepts that is Indian and us are different
because of which there is difference in the basic structure of the concepts.
 The research paper can’t study each and every aspect of the comparision in us and Indian
accounting systems so, it is restricted on modern concepts only.
The traditional form of recording transaction vary in india and us which varied from person’s own
capacity because of which the accounts are biased.
CONCEPTUAL FRAMEWORK:
BASIS INDIAN GAAP
1) Underlying Assumptions Indian GAAP financial
statements are prepared in
accordance with the principle
of conservatism, which means
that “anticipate no profits and
provide for all possible losses.”
2) Format/Presentation of In Indian GAAP, financial
financial statements statements are prepared in
accordance with the
presentation requirements of
Schedule VI of the Companies
Act, 1956.
3) Cash Flow Statement Indian GAAP mandates cash
flow statement only for listed
companies and other
companies whose turnover for
the accounting period exceeds
RS. 50 crores. Thus, unlisted
companies escape the burden
of providing cash flow
statements as part of their
financial statements.
4) Depreciation Accounting In India, depreciation is
provided based on the rates
prescribed in Schedule XIV of
Companies Act, 1956.
However, the rates prescribed
in the schedule are minimum
rates and the company has an
option to provide depreciation
higher than that rate.
5) Long Term Debts In Indian GAAP, there is no
such requirement with regards
to principal portion of long
USA GAAP
US GAAP conservatism is not
considered –Revenue is
recognised as and when it is
earned or realised or
realisable.
US GAAP financial statements
are not required to be
prepared under any specific
format as long as they comply
with the disclosure
requirements of US GAAP.
There is no prescribed
presentation requirement.
In US GAAP, every company
whether listed or not is
required to prepare cash flow
statement for 3 years:
 Current year
 Two immediately
preceding years.
In US GAAP, depreciation is
provided over the use life of
the asset and there are no
specific rates mentioned there
in.
Under US GAAP, current
position of long term debt is
classified as current liability.
 term debts.
6) Consolidation of Not mandatory.
Subsidiary Accounts
7) Investments Classification is as follows:
1) Current Investment
2) Long term investments
3) Investment Property
Mandatory.
Classification is as follows:
1) Held to security
2) Trading security
3) Available for sale

General issue:
1. The difference in legal system of respective countries lead to ambiguity in the accounting
principle.

2. Stronger the financial statement of country , more no .of companies will be attracted.
3. The more harmonized accounting standard will be the better relation would be establishes
between the countries.

4. Accounting standards can’t overwrite the statues they are required to be framed with the
stipulated time

Literature review:
1. The author {T S GREHWAL, 2018} explains that the accounting principles depends upon
the three criteria :relevancy objectivity and feasibility.

2. In dealing with these differences, there has been some research to aid in the resolving of
issues that arise from the different reporting standards. For example, impairments reported
under U.S. GAAP are usually delayed or not reported at all due to the required two-step
process. In contrast, the IFRS usually over reports or overstates impairments by using fair
value. A study is to conducted to prepare how reporting is related to impairments related to
future performance of companies under the two different standards found that impairments
reported under IFRS are more informative of a company's future performance than under
U.S. GAAP.

3. {Coopers (2006),} In their research on the comparison of IFRS, they had discussed about
the convergence of the US GAAP and IFRS . The impact of such convergence on the Indian
accounting background. Debating on aligning Indian GAAP more closely and deeply to IFRS
by adopting as it is. The report mentions that effective corporate governance and ethics could
remain a myth in a world of divergent accounting and reporting frameworks.

3. {Shrivastava & Rawat (2015): The author had focused their study on the implications of
IFRS, process and procedure of adopting IFRS and its effect on Indian Corporate sector.
Their research work shows that the outcome of implementing IFRS would be very positive as
they would be able to reap and incur the benefits of global accounting standards, irrespective
of various challenges and its consequences involved in adopting IFRS in India.
4. {Rathore (2012)}: the author highlights the greater benefits and aspects that would
flow from harmonization that would be the comparability of international financial
information and promote flow of international investment. The author also mentions that
harmonization would save time and money that is currently being spent to consolidate
divergent financial information for complying with different rational laws and practices.

5 .{ Sharma (2013) : The author studied on the problems and challenges faced by Indian
corporate in the process of convergence of IFRS. He even suggests that there is a immediate
need to have a systematic system for its effectiveness.

6. (Angus O. Unegbu,2014) the researcher concludes that accounting subconsciously

developed from socio-economic and political needs of the society by researching down the
history and current events in business and economics. The inherent problems of
measurement, proportion, recording and coincidence of demand eased out by the introduction
of standard unit of measurement.

7. (Manish Kumar Agarwal, 2012): the author had pen down in his article that Indian GAAP
mirrors international GAAP in the key accounting principles for example: going concern,
consistency, accruals, prudence, substance over form and materiality. The most important
accounting differences at present are absence of consolidation and deferred tax accounting.

8. (Dr. H. Rajashekar and Raghunatha T, 2014): the author believes that Today the
entire world is considered as a single village, but still there is a lack of difference in
accounting practices that are disruptive to investors and others and it fails to bring fairness
and uniformity in accounting information. So, to bring uniformity in accounting system it is
necessary to adopt or converge with IFRS.
9. An important issue which debate and argued on accounting standard setting is the extent to
which certain longstanding attributes of financial reporting (such as conservatism, verifiability, and
the traditional revenue recognition model) should be included as part of the general purpose GAAP.
For example, is it desirable for the general purpose statements (under GAAP) to be ‘unbiased’ or
does it make more sense for GAAP to impose a certain amount of conditional conservatism in these
statements (e.g., Guay and Verrecchia, 2006)

10. (Ball, 2001; Watts ) The Research suggests that, because conditional conservatism is useful in
mitigating agency problems beyond debt contracting, including those between management and
stockholders, 2006; L Rowchowdhury, 2007aFond and), as well as in the tax and regulatory arenas
(Watts, 2003a), the most efficient GAAP solution is likely to impose a certain level of conditional
conservatism in general purpose financial statements, and that this is more efficient than making
conservative adjustments in multiple contracts with parties to the firm.

RESEARCH METHODOLOGY:

The case analysis is based on secondary sources of data which are qualitative in
nature and which has been compiled from journals, books, articles and websites
due to limited access of information.
HYPOTHESIS:

1) Are the accounting principles of India better than those of the US?
2)   Are the accounting principles of the US better than those of India?