global financial reporting

8/8/2019 Global Financial Reporting

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Unit 5


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Global Financial reporting


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Objectives ofAccounting in global

context To standardize Accounting methods , procedures,

and treatments.

Tolay down principles for preparation and

presentation offinancial statement uniformly.

To establish benchmark for evaluating the quality

ofearnings and reporting internationally.

To ensure that international communityofusers

offinancial statements get creditable financial

information.


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Efforts towards Global Harmonisaton

There are twobodies working for this concept.

International Accounting Standard Board(IASB)

Institute ofChartered Accountants ofIndia(ICAI)

International Financial Reporting Standards(IFRSs)

are issued by IASB.


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Difference between IAS/IFRS and

GAAP(Indian and U.S.)

There are so many dissimilarities in these threeaspects.

Contents ofFinancial Statements.

Cash and Cash equivalents. Classification ofAssets and liabilities

Classifications ofincomes and expenditure

Preparation ofcash flow statement

Spin off/carveOut Accounting

Fixed Assets


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Cont

Depreciation

Miscellaneous Expendeture

Revenue Recognisation:

Changes in policyor rule Intrime Financial reporting.

Post balance sheet events.

Contengenses

Earning per Share

Correction offundamental errors.


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Need for uniform Global Financial

Reporting.

Globlisation ofEconomies

Companies are collecting capitalfrom

overseas Investors invest money globally.

Harmonisation required in MNCs.

Incearsing corporate awareness

Corporates having future plans to raise capital

from oversees.


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Benefits and strength ofUS GAAP

Most developed economy.

Sets benchmark

Except the balance sheet other annualfinancial

statemnts are also requuired tobe submited Multi step income statement presentation as an

option.

Detailed Accounting Standards for Accounting ofspinoff, specific industries,etc.

Upward valuation ofanyfixed Asset is notpermissible.Deferral ofexpenses , exceptadvertisement is not permitted.


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Benefits

Wider aceptability among the investor

community.

Better international credit rating Internationalization ofcompanys brand.

Reduced cost ofcapital

Improved internal decision making process.

Improved financial discipline.


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Foreign Currency Accounting,


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When companies using different currencies

transact business, at least one ofthe

companies will have to translate aforeign

currency into its home currency. For sales

made in cash, this can be done at the time of

sale.


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Cont

When the sale is made on credit , the companywill have to recordan account receivable or account payable until the account issettled. During the interim, the relative values ofthe currenciescould change. The accounting treatment for such changes isgoverned by International Accounting Standard (IAS) 21 and U.S.

Financial Accounting Standard (FAS) 52. The treatment is the sameunder either method. At the time ofsale, the sale is recorded at the current exchange rate

and an equivalent value asset or liability is created.

Ifbalance sheets are prepared prior to collection, the asset or liabilitymust be restated to the then-current exchange rate value. The change

is recognized as an unrealized exchange rate gain/loss on the incomestatement.

When the account is collected, the asset or liability is removed andany previouslyunrecognized gain/loss is recognized on the incomestatement.


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Inflation Accounting,


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Cont

Inflation accounting is a term describing a rangeofaccounting systems designed to correctproblems arising from historical cost accounting

in the presence ofinflation. Inflation accountingis used in countries experiencing high inflation orhyperinflation. For example, in countriesexperiencing hyperinflation the International

Accounting Standards Board requires corporatefinancial statements tobe adjusted for changes inpurchasing power using a price index.


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Cont

Since the asset and liabilityare always presentedat fair value and changes flow through theincome statement, there is seldom need toadjust

the financial statements to examine the effect. High rates ofinflation can have an impact on the

value ofassets and liabilities. As a result, thereare specialaccounting rules related to translating

the results ofaforeign subsidiaryoperating in ahyperinflationary environment. In such cases, theforeign subsidiarys currency is irrelevant.


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Cont

Under U.S. GAAP, the parent company must

use the temporal method when translating

the financial results ofaforeign subsidiary

operating in a highly inflationary environment.

Under IAS, the foreign subsidiarys assets and

liabilities must first be adjusted for inflation.

The restated results are then translated atcurrent exchange rates.


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Human Resource Accounting,


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Men, materials, machines, moneyand methodsare the resources required

for an organization. These resources are broadly

classified into two categories,viz., animate andinanimate (human and physical) resources. Men,other wise known as the human resources, areconsidered tobe animate resources. Others,

namely, materials, machines, moneyandmethods are considered tobe inanimate orphysical resources.


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Human Resource Accounting is an attempt to

identifyand report investments made in

human resources ofan organization that are

presently not accounted for in conventional

accounting practice. Basically it is an

information system that tells the management

what changes over time are occurring to thehuman resources ofthe business.


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Importance of Human Resource

Accounting: Human Resource Accounting helps the management in the Employment, locating

and utilization ofhuman resources.

It helps in deciding the transfers, promotion, training and retrenchment ofhumanresources.

It provides abasis for planning ofphysicalassets vis--vis human resources.

It assists in evaluating the expenditure incurred for imparting further educationand training in employees in terms ofthe benefits derived by the firm.

It helps to identify the causes ofhigh labour turnover at various levels and takingpreventive measures to contain it.

It helps in locating the real cause for low return on investment, like improper orunder-utilization ofphysicalassets or human resource or both.

It helps in understanding and assessing the inner strength ofan organization and

helps the management to steer the companywell through most adverse andunfavourable circumstances.

It provides valuable information for persons interested in making long terminvestment in the firm.


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Limitations of Human Resource

Accounting:

There is no proper clear-cut and specific

procedure or guidelines for finding cost and

value ofhuman resources ofan organization.

The systems which are being adopted have

certain drawbacks.

The period ofexistence ofhuman resource is

uncertain and hence valuing them underuncertainty in future seems tobe unrealistic.


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As human resources are not capable ofbeingowned, retained and utilized, unlike the physicalassets, there is problem for the management to

treat them as assets in the strict sense. In spite ofall its significance and necessity, tax

laws do not recognize human beings as assets.

As far as our country is concerned human

resource accounting is stillat the developmentalstage. Much additional research is necessaryforits effective application.


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Environment Accounting,


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Environmentalaccounting is an important toolfor

understanding the role played by the natural

environment in the economy. Environmental

accounts provide datawhich highlight both thecontribution ofnatural resources to economic

well-being and the costs imposed by pollution or

resource degradation.

"Environmentalaccounting" - sometimes referred

toas "green accounting", "resource accounting"


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What Environmental Accounting Is -

And Is Not:

It is: a set ofaggregate national datalinkingthe environment to the economy, which willhave along-run impact on both economic and

environmental policy-making. It is not: valuation ofenvironmental goods or

services, social cost-benefit analysis ofprojects affecting the environment, ordisaggregated regionalor local dataabout theenvironment.


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Successfulwork on environmental

accounting depends on two crucial

factors:

First, it must be focused on answering important policyquestions. This ensures that the accounting workresponds toa real demand for policy guidance, and isnot driven simplybya desire tobuild databases.

Second, it must bring in the major players in the areasofenvironmental policy, economic policy, national

income accounting, and the development ofinformation systems on the environment, theeconomy, and the population. This ensures that peoplewho could either use or provide the data required willc

ooper

ate

with

and s

upp

ort the pr

oject.


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Responsibility Accounting.


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Meaning..

Responsibilityaccounting is a management

control system based on the principles of

delegating and locating responsibility. The

authority is delegated on responsibility centreand accounting for the responsibility centre.

Responsibilityaccounting is a system under which

managers are given decisions making authorityand responsibilityfor each activityoccurring

within a specific areaofthe company.


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Significance of Responsibility

Accounting

Easy Identification:

Motivational Benefits :

Data Availability :

Planning and Decision Making:

Delegation and Control:


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Principles of responsibility Accounting

The main features ofresponsibilityaccounting

are that it collects and reports planned and

actualaccounting information about the

inputs and outputs ofresponsibility

accounting.


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Objectives of Responsibility

Accounting

: Responsibilityaccounting is a method ofdividing theorganizational structure into various responsibility centersto measure their performance.

1. To determine the contribution that a division as a sub-

unit makes to the totalorganization. 2. To provide abasis for evaluating the qualityofthe

divisional managers performance. Responsibilityaccounting is used to measure the performance ofmanagers and it therefore, influence the way the managersbehave.

3. To motivate the divisional manager tooperate hisdivision in a manner consistent with the basic goals oftheorganization as awhole.


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Problems in Responsibility Accounting

Classification of costs

Inter-departmental Conflicts

Delay in Reporting

Overloading of Information

Complete Reliance will be deceptive


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Thank you

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