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Global Accounting:
An Introduction

Financial Reporting Standards (IFRS) development main objective is to make
common the financial statements reporting. For example, U.S GAAP is different
from Indian GAAP likewise same with the other countries accounting standards. International
accounting community is trying to integrate the accounting standards same
across the globe and that is the current ongoing process. This IFRS will he
help the companies the to make similar financial information all over the
world, transparency in accounting information is improved, ensures that
investors receive the accurate information. International Accounting Standard
Board (IASB) has adopted IFRS first iteration in the year 2001 to serve the
feasible pathway to make accounting standards uniform globally. IFRS has been
adopted and accepted in over 100 countries.

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Need for the study

today’s scenario more than one third of the financial transactions happens
occurs over the border and it is expected to grow. Even in recent days we can
see more FDI, FII’s etc., has increasing in India.  Investors wants to diversify their portfolio
and wants to make use of profitable investments opportunities available all
over the world. Companies raise capitals, undergo transactions or running
international operations and maintaining subsidiaries in various countries. It has
been complicated to do transactions in capital markets in past years because
each countries follow their own national accounting standards. Companies
preparing separate financial statements for their international clients is
tedious work and it costs more them and decisions cannot be made accurately.
Each country maintains different accounting standards when they apply each one
will be calculated in each basis. Even minor change in the financial reports
will have greater impact for decision making-for example, a company may reports
profits under one set of standard and losses in another set which might be
different from others. Hence a common accounting standard in order to promote
quality financial standard and overcome the all issues.. This paper presents
the difference between the IFRS and IGAAP.

Importance of the

companies which are listed in Bombay stock Exchange (BSE), India are using
IGAPP accounting rules to report their companies financial report to regulators
and investors for Indian capital markets. Whereas the same companies are using
IFRS accounting standards by maintaining independent set of book s of accounts
for international investors, by submitting the financial reports form 20F to US
regulators i.e. Securities Exchange Commission (SEC). Companies like Infosys
ltd, Dr.Reddy’s ltd, Reliance Industries Limited (RIL),GAIL (India ltd), BPCL
etc., are few companies which are using IFRS accounting standards in India. The
remaining big companies in the BSE 50 list as well as from other indices are
also started implementing IFRS. This study explains the difference in IGAAP
accounting rules and IFRS accounting rules by conducting a research study on
GAIL India Ltd., financial report in order to analyses the difference between
them and its impact on the financial statements such as income statement and
balance sheet. This study also focused on mentioning the impact on ratios,
while adopting different accounting systems and their final results on
valuation of the firm and equity in global capital markets.

Objectives of the

To study the importance of the global
accounting standards.

To understand different accounting
standards by using financial reports.

To examine the global accounting standards
adopted in GAIL (India) Limited.


Implications of different accounting standards on GAIL
(India) Ltd. Financials:

In acceptance of the foreign movement
of capital, many companies have adopted or going to adopt a version of IFRS
issued by IASB. Usually companies present their financial reports according the
norms of the respective country financial standard. As a result, individuals
who has invested in the companies which are listed in different markets have to
adjust with the local financial statements based on different financial
language. This kind of country specific reporting creates confusion in the
minds of stakeholders especially when an investment is in the form of Foreign
Direct Investment (FDI), Foreign Institutional Investor (FII), Foreign
Portfolio Investor (FPI), Merger & Acquisitions (M) etc., To give an
example to report compensation in the area Property Plant Equipment (PPE) in
financial statements, USGAAP generally does not require the component of
depreciation whereas in IFRS separate component of PPE with different useful
lives to be recorded and its depreciation values has to be recorded separately.
For example if a building cost $10,00,000 in total and it has life of 40 yrs.
In USGAAP depreciation value will be calculated as ($10,00,000)/40 = $2,50,000.
Where as in IFRS the value is recognized as

















Depreciation value is calculated for
individual component.

Comparable Profitability Accounting Analysis of GAIL
(India) Ltd for 2015-2016:

GAIL reported the revenue from operations
as Rs. 55,563.85 crores in the year 2016 where as it is reported as Rs.
61,617.96 crores. There is a considerable decrease in the value this is because
under IFRS revenue recognition is done based on the specific criteria like sale
of goods, rendering services, interest, royalties etc., revenue from rendering
the services is reported at the time of completion of transaction at the
balance sheet date, interest revenue is recognized at the time asset’s
effective yield, royalties are recognized  on accrual basis etc., likewise each classification
recognized on each time which considerably reduced the amount in revenue from
operations in the year 2016 where as in the year 2015 it is recognized at the time
of completion of completion of service.

Similarly inventory
recognition is also having significant difference in IFRS method. Since LIFO is
not allowed under IFRS, LIFO firms have to convert their inventory into FIFO
terms in the footnotes of the financials. This difference is known as the LIFO
reserve, and is calculated between the COGS under LIFO and FIFO. The benefit in
doing this is an increase in the comparability of LIFO and FIFO firms. However,
since everything is moving towards IFRS, FIFO will be the standard moving forward.
This has an effect on the financials of a firm. In particular, during periods
of high inflation, a firm that uses LIFO will report higher COGS and lower
inventory as compared to a firm that uses FIFO. Higher cost of goods sold
results in lower profitability and lower profits results in lower income tax.
Lower profits will also result in lower equity for the firm, which affects
retained earnings in a negative way. In contrast, in a low inflationary
period, the effects mentioned are reversed. Something to keep in mind for
analysts converting LIFO firms to FIFO.

Comparable Balance
Sheet Accounting Analysis of GAIL (India) Ltd. 2015-2016:

sheet is a financial statement which gives the snapshot of the capital
structure of the firm for the particular point in time; the sources and
applications of funds of the company. On comparing the balance sheet of GAIL
(India) Ltd on the whole we can see there is considerable increase in asset
side. IGAAP mentions balance sheet has to be started with reporting share
capital as a starting point and non-current assets are reported first under
asset side.

IGAAP noncurrent assets reported Rs, 57,281.62 crores and under IFRS it is
reported as Rs. 58,154.30. There is difference of reporting in non-current
assets due to the accounting treatment of non-current investments under both of
the standards due to which, resulted in reporting of high non-current assets
balances in IFRS in comparison to IGAAP. And added to this good will on
consolidation is newly included in IFRS which is also a reason for showing high
non-current assets.

classifies financial instruments as liabilities or equities in accordance with
the substance. The preference shares which are mandatorily redeemable are
considered as liability where as preference dividend is considered as interest
cost. In IGAAP it is classified based on the form rather than substance. Because
of this reporting method IFRS shows companies as more geared and profits are
shown very less as result of treating the preferred dividends as interest cost.

Summary of balance
sheet analysis:

 The IFRS balance sheet in contrast with IGAAP reporting
higher amount in most the heads. IFRS accounting rules are aggressive in
reporting balance sheet transactions, where the same was conservative in preparing
the income statement. Hence balance sheet also reporting different accounting
numbers for various line items. These differences will impact on ratios
relating to balance sheet especially turnover ratios, leverage ratios and also
returns on assets and returns on equity.

Comparable Cash Flow
Statement Analysis of GAIL (India) Ltd, 2015-2016:

The most
important statements among the three financial statement is cash flow statement
at least from the valuations perspective. As the name suggests it is used to
track the cash flow of the company. There is slight change in accounting treatment
of the 3 heads in cash flow. Net income has to be reconciled in indirect method
only for IFRS whereas in IGAAP either direct or indirect can be used. And in
both the method cash flow statement has not affected that much only negligible
amount of changes.

A brief Analysis of
Other Companies across sectors in India:

The other
major companies across different sectors in India, are sing both IFRS and IGAAP
to report their financial statements differently for their investors. The list
of accounting difference is quite exhaustive and it influences on various accounting
ratios. There are numerous qualitative difference between IGAAP and IFRS i.e.
level of details and specificity in the standards. This difference manifests in
a number of ways, including more standards, more implementation guidance and
more bright line rules under IGAAP than under IFRS. Finally it results in to
the confusion in the minds of investors in understanding financial statements
by adopting different accounting standard by the companies.


 Hence, we require “a single global accounting”,
which can help to the investors in understanding financial statements better.
IFRS brings the efficiency to the market by internationally recognized set of
accounting standards which bring transparency, accountability and efficiency.
Though in initial stages of implementation has some problem it can be
rectified. Finally, Foreign Institutional Investors re playing a crucial role
on Indian Capital Markets. Hence this accounting standards play significant
role. It will be leading to attract more global capital from global investors
by educating the investors better by following IFRS as “a single global


(India) Ltd annual reports for the year 2014-2015 and 2015-2016.

GAAP, IFRS and Ind AS a comparison by Deloitte.

A Comparison
between IGAAP, IFRS and US GAAP by Price Waterhouse Cooper.