Application chasm of Accounting Standards in India


By

Dr. Vijay Pithadia
Asst. Professor
R.K. College of Business Management
Kasturbadham, Bhavnagar Road, Rajkot-360020 GJ
 


Abstract

Since accounting involving the wide range of economic activity laid towards the importance of accounting standards and value for it. The practices of accounting techniques and accounting standards having gaps in application i.e. wrong interpretation of words, based on non Indian environment, without consideration of Human Resource Accounting methods etc. The 10 standards out of 15 issued before 12 years and that time open market situation & economically global environment having its importance. After Globalization/1991 era creates wider approach among the accounting practices. It should require reviewing all accounting standards and requires high as per new era of globalization practices.

Key Words:

International Accounting Standards Committee, Institute of Chartered Accountants of India, interpretation of words, HRA

Availability of Data:

Quoted data and information are available from public sources, which are mentioned in references.

Introduction:

Since accounting involving the wide range of economic activity laid towards the importance of accounting standards and value for it. At global level there are 45 accounting standards established by the International Accounting Standards Committee [IASC] when in India, Institute of Chartered Accountants of India [ICAI] published 15 accounting standards. The practices of accounting techniques and accounting standards having gaps in application i.e. wrong interpretation of words, based on non Indian environment, without consideration of Human Resource Accounting methods etc. After globalization process it should requires high attention among accounting standards otherwise irrelevant practices creates more wide gaps among accounting practices. It requires harmonization with social environment and tradition of culture as well as government fiscal policy i.e. income tax structure, uniformity with global to national level accounting standards because growth of multinational corporations, management, production and marketing extended over more than one country as in the case with General Motors, Ford Motors, Uniliver, Philips etc.

Application chasm of Accounting Standards:

At global level IASC issued 45 accounting standards when national level ICAI issued only 15 accounting standards and therefore uniformity is very essential, because Z multinational firm adopted Y accounting standards but it may not included in the Indian level of accounting standards therefore it creates problem for assessment. The 10 standards out of 15 issued before 12 years and that time open market situation & economically global environment having its importance.

Another gap is wrong interpretation of words i.e. Revenue, Income, Profit, Interest etc. Average revenue concept applied e.g. if total revenue is Rs. 1000 and the number of units of output is 100, then average revenue is Rs. 10 but wrong interpretation of number of units suppose 50 then average revenue indicates Rs. 20 Thus it showed different in average revenue from Rs. 10 to Rs. 20.

Thirdly in India accounting standards is not based on the Indian culture and environment. It might be adopted as per western [USA/Europe] accounting standards and those might be relevant in respective countries. Indian accounting standards committee requires making some provision of cultural things in the accounting standards while review of all accounting standards.

Fourth gap is current accounting standard not consider Human Resource Accounting [HRA] methods. HRA would perhaps be the effective key to initiate charges to face the challenges. HRA put remarks exceed the cost to be incurred for any viable decision.

The pioneers in the field of HRA have advocated the different models. Some of them are cost based on following historical replacement or opportunity cost principle. Some are based on economic principles of value while other is based on psychosocial measures of organizational HR. Indian Accounting Standards not consider the HRA practices and therefore above provisions of HRA not serve for the purpose. It should requires involvement of HRA in tune with the retirement schedule of employee, provisions for likely exit due to death, usual increment in wages overtime, future wage revision etc.

Conclusion:

Application chasm of accounting standards in India becomes wider after adopting new global phenomena. Current practices of accounting standard gaps, indifference between actual and application i.e. wrong interpretation of words, not based on Indian environment, not consider HRA methods etc. After globalization process it should requires high attention among them other wise irreverence practice creates more wide gaps among accounting practices.

References:

[1] S. K. Bhattacharya and John Dearden, "Accounting for Management", Vikas Publishing House Pvt. Ltd., Mumbai

[2] James C. Van Horne," Fundamentals of Financial Management", Prentice Hall International Inc., London, 1977

[3] M. K. Kolay, "Measuring the Value of Organizational Human resources", The Chartered Accountant, February, 1996 Page No. 16-29

[4] Brummet R. L., E. G. Flamholtz and W. C. Pyle, "Human Resource Measurement A Challenge for Accountant", the Accounting Review, April 1968, Page No. 217-230

[5] S. L. Porwal & H. S. Porwal, "Need for Review of Accounting Standards", Indian Journal of Accounting, Volume No. 21, December 1994, Page No. 43-51
 


Dr. Vijay Pithadia
Asst. Professor
R.K. College of Business Management
Kasturbadham, Bhavnagar Road, Rajkot-360020 GJ
 

Source: E-mail July 17, 2007

         

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