Bank of baroda

BANK OF BARODA
Subject
Indian GAAP
US GAAP
Loan origination fees/costs Loan origination fees and costs are taken to the
income statement in the year accrued/incurred.
Loan origination fees (net of loan origination costs)
are deferred and recognized as an adjustment to
yield over the life of the loan.
Consolidation and
investments in subsidiaries
In India, the reporting entity generally follows legal
form and is considered to be the legal entity rather
than a group.
Accordingly, there is no legal requirement to prepare
consolidated financial statements. In stand alone
financial statements, investments in subsidiaries, if
classified as held to maturity investments, are
accounted at cost less an allowance for permanent
impairments.
Accounting Standard (AS21) on “Consolidated
Financial Statements”, does not require consolidation,
but sets out the standards to be followed in the
event that consolidated financial statements are
presented or required by law or regulation. SEBI
requires listed companies/banks and those seeking
a listing to publish consolidated financial statements
in accordance with AS21 in addition to the separate
financial statements of the parent.
For the purposes of identifying the voting interests
held in an investee, direct interests and those indirect
interests held through a subsidiary are considered.
Unlisted entities with subsidiaries will continue to have
the option of not presenting consolidated financial
statements.
Under US GAAP, there is a presumption that
consolidated financial statements present more
meaningful financial information for a parent and
subsidiaries than separate financial statements of
the parent.
Accordingly, consolidation is required for entities
where the parent has majority financial control,
generally when it controls more than 50% of the
outstanding voting stock, except when control is
likely to be temporary or is impaired. Separate
financial statements of the parent only are not
presented.
Entities where the minority shareholder has
substantive participating rights overcome the
presumption that the majority shareholder controls
the entity thus precluding consolidation of the results
of that entity. In such cases, the equity method of
accounting applies.
Entities where the minority shareholder has
protective rights only are consolidated.
For the purposes of identifying the voting interests
held in an investee, all direct and indirect interests
are considered. Accordingly, certain investees may
be considered as subsidiaries to be consolidated
under US GAAP, which may be treated as equity
affiliates under Indian GAAP.
In January 2003, the FASB issued Interpretation
No. 46, “Consolidation of Variable Interest Entities”
an interpretation of Accounting Research Bulletin
(ARB) 51 that applies to variable interest entities
created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an
interest after that date. A variable interest entity to
be consolidated is one in which a party could face
risk of loss without having an equity interest, and
includes many entities that would previously have
remained off-balance sheet.
Investments in associates
or affiliates
Associate is an enterprise in which the investor has
significant influence and which is neither a subsidiary
nor a joint venture.
The equity method of accounting for investments in
associates is required by SEBI in consolidated
financial statements of listed companies/banks..
There is no requirement to apply the equity method
of accounting in the standalone financial statements
of the parent and the same are accounted for in the
same manner as other investments in the stand
alone financial statements of the parent.
The equity method is a method of accounting,
whereby the investment is intially recorded at cost,
identifying any goodwill or capital reserve arising at
Investments over which the investor can exert
significant influence, generally presumed when the
investor owns between 20% and 50% of the voting
stock, are required to be accounted for using the
equity method.
The equity method requires investors to record their
investment in the associate as a one-line asset
and reflect their share of the investee’s net income/
loss in their earnings. Dividends received reduce
the investment account.
This method is also followed for unconsolidated
subsidiaries.

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