Accounting Systems of Different Banks Illustration

Banks in different countries use different accounting principles and practices due to the legal requirements of their home country. These legal requirements are based on cultural attitudes towards business, and the stage of development of their economies resulting in a diversity of accounting standards and regulations, which affects the preparation and presentation of financial statements. Further, many countries have a historical preference for certain accounting practices that have become deeply ingrained in their business culture, while others may have adopted international accounting standards as a means of attracting foreign investment or increasing comparability between businesses.

Banking companies and financial institutions across the world, while reporting the financial statement abide by the specific accounting regulations of their country of business. For example, Banks that have business activities in India have to adopt the Indian Accounting Standard (abbreviated as Ind-AS) while reporting the financial statement, similarly, the Generally Accepted Accounting Principles (GAAP)’ of the US are implemented by the companies in the United States. Therefore, if Indian-based companies plan to do business in the USA, they must abide by specific accounting regulations in the US, and report financial statements in US GAAP standards. This compels Indian-based companies doing business in the US to prepare one more financial statement to suit US rules and vice versa for US companies doing business in India. The International Financial Reporting Standards (IFRS) is the globally accepted accounting standard that’s used in many countries so that multinational companies can do hassle-free international business in those countries. India has not adopted IFRS Standards for reporting by domestic banks and other companies and is yet to formally commit to adopting IFRS Standards. However, the presentation and components of financial statements of Indian Accounting Standards (Ind AS) are based on and substantially converged with IFRS Standards. Ind-AS has been applied in a phased manner from April 1, 2016, beginning with companies whose net worth is equal to or exceeding Rs.500 crore. The listed companies and others with net worth equal to or over Rs.250 crore shall abide by implementing Ind AS from April 1, 2017. Ind AS became applicable to all SEBI-regulated entities, NBFCs, insurance companies, and all types of banks starting 1 April 2018. The phased implementation of Ind AS was done to give companies more time to transition and to consider their needs based on size, resources, and capabilities.

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