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Unit 3: Introduction to US-GAAP

Accounting practice: The financial statements prepared by the business organization reflect the Notes
results of their operations during a specified period and also the state of financial affairs as at the
end of the financial year. These statements are used by the investors, lenders and others for their
decisions making. Generally Accepted Accounting Principles (GAAP) is an accounting term that
represents the conventions, rules and procedures and accepted accounting practices and includes
broad guidelines of general application and detailed practices and procedures. GAAP are the
ground rules for financial reporting. These principles provide the general framework in
determining what information is presented in the financial statements and how the information
is to be presented.

US Accounting practice: US GAAP refers to accounting principles, which are generally accepted
accounting practices in USA and were set in the year 1973. US Securities Exchange Commission
(SEC) is the authority to promulgate US GAAP. The principles have evolved from experience,
reason, custom, usage and practical necessity and are contained in different pronouncements
such as issued by the board of the Financial Accounting Standards Board (FASB) and American
Institute of Certified Public Accountants (AICPA). Over the years, the SEC has, for the most part,
relied on FASB for carrying out the standard setting process.
Need for adoption of US GAAP: With increasing cross-border dealings, more and more Indian
corporates and financial institutions are realizing the need of adopting internationally accepted
accounting standards with the objective of improving the quality of corporate governance.
Several well-known Indian Corporates such as Infosys Technologies and financial institutions
like ICICI Bank have adopted US GAAP in the recent years.
Advantages: The adoption of these norms gives to an Indian Corporate, a number of benefits
including enabling the corporate to raise funds at competitive rates from the US Capital market
and other international markets. Transparency in transactions and disclosure standards are
integral part of corporate governance in almost all organizations.

Self Assessment

Fill in the blanks:

11. Because of federal character of ................................ there are multiples accounting and other
bodies making accounting statements and pronouncements.

12. The ................................ follows a consultative process in the formulation of accounting
standards which ensures participation of all interest groups through Accounting Standards
Board (ASB).

13. The ICAI has issued ................................ Accounting Standards till date.
14. Financial Accounting Standard Board (FASB) is the main body which formulates the
................................
15. US GAAP refers to accounting principles, which are generally accepted accounting practices
in USA and were set in the year ................................

Task Discuss the role of US GAAP in India.

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