Difference among Accounting Principle(会计准则的异同比较)

What Are the Differences Between Statutory Accounting Principles and GAAP

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[applicable area]SAP is specific to the insurance industry,while all companies must follow GAAP rules.

[purpose]SAP and GAAP operate on different accounting principles toprovide information that is used for different purposes.

 

Statutory accounting is built around what insurancecommissioners call a liquidation basis: The statutory financial report showsthe company's value and ability to pay its obligations if it were liquidated onthe day it filed the report. GAAP assumes that the company is a going concernthat will last at least another year.

 

SAP allows investors to know the worth of the company if itceased operations immediately.
GAAP allows investors to answer the question about the worth of a company inits future versus its actual present value.

 

[assetcaculation]The value of assets using SAP is lower than when using GAAP.

 

Because SAP statements are used to find the value of thecompany at the immediate present, the statementsdon't include many intangible and non-liquid assets. This includesitems such as furniture, supplies, tax credit and goodwill. GAAP, on the otherhand, allows companies to list these items under the assets category, whichtranslates to a higher value in terms of assets.

 

The matchingprinciple used by GAAP that matches revenues and expenses isn't followedin SAP filings. Thus, the netincome ratios as calculated by using the data from SAP and GAAP filingsare different for the same company and the same financial year.

 when a product is sold apart fromrecording the sales revenue, the company has to also record the cost of makingthe product as an expense. Though in actuality the expense may have occurredbefore the sale of the product, the matching principle allows a company to record this expense only when the sale ismade. In the case of insurance, an insurance company can record the expenseover the life of the policy using GAAP. So if the premium is due quarterly, theexpense related to the sale of the policy is divided to match the quarterlyearned premiums.
In the case of SAP, this principle is broken. So the insurance company has to record its expenses as they occur,irrespective of when the revenue is earned. So the entire expense related tothe policy is recorded when the sale is made, even though the premium may stillbe unearned.

 

Under statutory accounting, companies that handle shippinginsurance, for example,can't list"supplementary calls" -- clients obligated to pay more money --that haven't been billed yet. GAAP allows the same company to include revenuefrom the unbilled calls as long as it's due in the coming year and the companyhas a history of collecting on calls. This makes the company look better usingGAAP than statutory accounting.

 

 

U.S. GAAP Vs. Income Tax Accounting

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[Purpose]GAAPare used in financial reporting, whereas the Internal Revenue Code, the taxcode, is used in tax filing.

 

[incomebasis]GAAP and the tax code have different ways of recognizing revenuesand expenses, among other things. As a result, pretax income calculated usingGAAP and taxable income calculated using the tax code often are different.

Because of the different amounts in the income basis betweenGAAP reporting and tax filing, income tax expense reported for book purposesand income tax payable filed for tax purposes also will be different.

 

Financial reporting, or GAAP reporting, adopts the accrue-basis accounting for recording business transactions.For example, revenue is recognized when sales are madeeven if no cash is received at the time. In other words, GAAPallows sales on accounts to be recorded as revenue in the period they occurwith the accounts receivable recorded as a temporary asset. However, when theaccounts receivable is collected in later periods, thecash received cannot be again counted toward income.

 

Taxfiling based on the tax code uses cash-basis accounting for recordingbusiness transactions. In the case of sales, revenue is recognized only whencash is received. In other words, under tax accounting, companies record noaccounts receivable and simply don't recognize sales as revenue withoutreceiving cash payments. Therefore, revenue reported for tax purposes may belower than that reported for book purposes in some periods and higher in otherperiods, which results in an unequal income basis for calculating accruedincome tax expense and actual income tax payable

Income Tax Expense

·        Income tax expense is reported in the incomestatement for book purposes and maynot be the actual tax amount paidduring the period. Income tax expense consists of two components: current taxexpense and deferred tax expense or benefit. While the current tax expense isthe actual tax amount paid during the period, deferred tax expense is to bepaid in later periods. Depending on whether financial pretax income is largeror smaller than taxable income as a result of the different ways of accountingrecognition, income tax expense may be higher or lower than the current taxexpense.

Income Tax Payable

·        Income tax payable is reported as a liability onthe balance sheet for tax purposes and theactualamount of tax currently owed, also known as current tax expense. Income taxpayable is only one part of the total income tax expense, and the balance ofthe income tax expense is deferred, payable in later periods, and reported asdeferred tax liability on the balance sheet. It also is possible that income taxpayable is higher than income tax expense when taxable income is larger thanpretax income. Thus, the lower income tax expense is the result of a deferredtax benefit, which is reported as deferred tax asset on the balance sheet.