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US GAAP- Quick Learning module

Case Studies

GAAP World
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Case Studies

    There are significant differences between Indian GAAP and US GAAP.  US GAAP stipulate stringent accounting treatment as well as disclosure norms, whereas their Indian GAAP in many cases have relaxed requirements ( AS 18,17,AS 3). Similarly, there are several areas where no Accounting Standard have been issued by ICAI . These differences lead to wide variations when Financial Results of Indian Companies are computed under US GAAP and it is found that Profits computed under US GAAP are generally lower 

       In case of Infosys Limited, (HY ended Sep 2004 ) , the Net Profits computed in accordance with Indian GAAP were US$ 183 Million, and the corresponding figure under  US GAAP was US$ 180 Million .The overstatement was approx Rs 13.5 crores  under Indian GAAP which was primarily on account of Accounting for Stock Based compensation, Amortisation of Intangible assets, Deferred Taxes etc ).

         DR Reddy's Laboratories Ltd (DRL) registered a steep fall in net profit for the year ended March 31, 2001 under US GAAP . The net profit as per Indian GAAP was Rs 144.5 crore as against Rs 74.20 Crores under US GAAP . The overstatement under Indian GAAP for Rs 70.3 crores was primarily on account of non-cash expenses such as depreciation and amortisation, difference in the treatment of research and development expenses and also consolidation of subsidiary accounts.  Of the 11 subsidiaries of DRL, five had incurred losses, four posted profits and there were no figures available for two subsidiaries for the fiscal ended March 31, 2001

 The net profit of Corporation Bank and its subsidiaries under US GAAP for the year 2002-03 stood at Rs. 382.12 crore    against consolidated net profit of Rs. 415.99 crore registered under Indian GAAP .

ICICI Bank’s, consolidated profit after tax ( Year ended 31st march, 2003) under Indian GAAP was Rs. 1,152 crore (US$ 242 million), while US GAAP Accounts showed  a net loss of Rs. 798 crore (US$ 168 million).  . Surprisingly, the net worth as per US GAAP was higher at Rs. 9,221 crore (US$ 1,940 million), compared to the consolidated Indian GAAP net worth (Rs. 6,672 crore, or US$ 1,403 million).  A staggering difference of Rs 1950 crores , which  happened because under Indian GAAP, capital gains of Rs. 1,191 crore (US$ 250 million) on the sale of shares of ICICI Bank and provisions of Rs. 1,791 crore (US$ 377 million) were included as revenue in the profit and loss account. US GAAP requires the capital gains to be directly added to the net worth without being routed through the profit and loss account while provisions of Rs. 2,226 crore (US$ 468 million) were accounted for in the profit and loss account under US GAAP. Thus, while the US GAAP profit and loss account does not include the capital gains, it includes the full negative impact of the provisions.

In case of Reliance Industries Limited, ( FY ending March 2003) , The consolidated Net Profit after Tax under Indian GAAP was Rs 5169 Crores , whereas this figure computed under US GAAP was Rs 5006 Crores. The difference of Rs 163 crores was , inter alia, Loss on account of results of affiliates and subsidiaries ( Rs 163 Crores) , Loss on early extinguishment of Debt ( Rs 148 crores) , Lower charge of Depreciation ( Rs 160 Crore) etc.

       Interestingly, we also find that in some Indian Corporations, which follow stringent Accounting norms Profits under US GAAP are higher. For example, Union Bank of India reported higher net profits for 31st March 2003 and 31st March 2004, by 78.30% and 52.67% respectively under US GAAP.

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@ Copyright -Sanjoy Banka, FCA,FCS ( Calcutta, India)