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Most of Countries in the world follow Two accounting principle that is local law relating to cooperate and other institution and secondary regulation of accounting Standard. Mostly it was look after by non government organisation. In year 1973 International accounting standard committee had an agreement with the leading accounting bodies and become important institution for setting an standard..
Between 1973-2001 It grows is authority and membership but in 2001It started setting accounting standard for the world institution. In year 1995 International accounting standard committee i.e. IASC had an agreement with international organisation of securities commission that IASC will developed and set accounting standard and these standard would use in the world and these agreement sign in year 2000 and after that it came into practises.
In year 2000 European commission decided that all the member state and listed company will follow international standard . From year 2005 onward it will follows the same standard. And similarly Australia and New Zealand will also follow the same standard. Due to this Accounting bodies will decrease their power or eventually become exist(Gowthorpe n.d.).
International accounting Standard committee was established in 1973 by professional accounting bodies from nine countries that is US, UK, Canada, Australia, France, Germany Japan, Mexico Netherland and UK. In Year 2001 Organisation was renamed as International Accounting Standard Board that is IASB.
First International Accounting standard was published in year 1975 that is IAS NO 1 Disclosure of accounting policies.
New Zealand and Bangladesh adopted IAS as their national standards.Australia, Hong Kong, Philippines, and Singapore's company's are follows International Accounting Standard .China, Laos, and Myanmar allow domestic companies to use IAS.,New Zealand, Japan, Australia, Hong Kong, Thailand, Pakistan, allow foreign companies to use International Accounting Standard for listing in their stock exchanges. (Bharathan 2005).
National Vs international standard.
For a global business scenario there is a major requirement of communication which is possible only if there is common language, as a person understanding only Hindi cannot interact with someone speaking English. As international trade is growing day by day there is a need to have a good communication technique, language understandable across the globe.
In accounting, there are accounting standards or policy documents which are norms to describe code of conduct as in, which transactions, events to be reported in financial statement or disclosure rules to prepare it. They provide important data to various users such as shareholders, suppliers, researchers and so on. By its help quality of financial report is improved, uniformity and consistency is established. They are issued by expert accounting organization.
Indian Accounting Standards (IAS), Accounting Standards Boards (ASB), Financial Accounting Standards Boards (FASB) of India, UK, USA respectively based on IASC
On 21 April 1977, In India, the Institute of Chartered Accountants of India (ICAI) constituted Accounting Standards Board (ASB) to formulate accounting standards.
In India accounting standard are set by Institute of chartered accountant of India. Institution of chartered accountant of India issue 32 accounting standard between 1973-2000.
As there are many accounting treatments in the accounting standards or harmony lack between government, standards setting body and regulatory agencies there are different accounting practices for same transaction.
Different accounting standards lead to problems such as evaluation of performance of companies due to which decision making process is hindered. To overcome, harmonization standards have been established.
There are many standard setting bodies which protect the local standards not allowing foreign bodies to take their place, Hence it is necessary to have their consent for international standards.
There are separate standards for different countries depending upon certain issues such as: legal structure; law and tax, government involvement, interaction with international market, sources of corporate finance.
Due to multiplicity of standards it is more costly, hard to report as two follow diverse standard, their report gives odd results.
Therefore there are international standards being established followed all over the world to reduce diversity and qualitative differences.(Bharathan 2005)
Influences which affect International Accounting
Early 1800 there is rapid development of cost accounting principle and practice and before that very less organization or business firm manage to classify these various cost. In 1494 Paciolin introduced book keeping concept which was used until nineteen century when it was little change. Cost accounting practice used by America Army during Civil war .They developed a cost accounting system which able to identify and classify all the cost and expenditure rated to men and material. Due to enormous cost incurred during the war the adequate accounting was demanded by US government of all expenditure incurred by all the military unit for pay roll, material supplier , food production , higher worker and other activities incurred cost. If proper detail and management of cost incurred by army the union would not have came out successfully from war efforts. These practice from earlier time are being continue and our showing beneficial result to identify classify and managed cost in today era also. Today accounting system is based on theories of cost accounting done by the US military in the eighteen century. In year 1700 accounting tax published in US have used the double keeping concept which was published in year 1494 by Paciolo in his book Summa text of 1494. In early seventeen century George Washington had ledger which contain cash account having debit on right side and credit on left side and he maintain control over various cash receipt and expense account and George Washington operate farming business with revenue of around 400000 pound.
According to John Palmer, there was a serious problem of cost identification in Washington. They had no explanation for the shortage of cost. Instead, they used to add a balancing amount for the loss. The only reason they could state for the huge shortage in cost was 'lost, stolen or not recorded'. According to Michael Chatfield, before 1885 no one felt a need for identification of cost. A very little amount of information is available for the period around 1870, as they did not publish much being afraid of the fact that their competitors would get to know about their practices. After the development of scientific management or managerialism .The principles of cost management were created. According to Hoskin and Macve , the pioneers of managerialism were graduates of the U.S. Military Academy at West Point. These educated officers joined private and public sectors as Managers and they introduced these innovative principles in the firms they served.
In 1817, Colonel Sylvanus Thayer was known as the father of the Military Academy. He was appointed Superintendent of West Point. He made major changes in West Point operations. Graduates of this period gave their significant support for construction of bridges, roads, railways etc. Thayer wanted the students to learn the mathematical, scientific and engineering disciples. He also enforced the examination and grading system. Thayer introduced a new accountability system that included numerous reports. This helped the students to learn and gain more knowledge and power and also developed the accounting to a great extent. Graduates of west point were placed at military institutions such as the Springfield Armory. This institution had one of the most significant accounting system . This was all because of their study at west point.
Springfield Army collected the cost data of the extensive product in order to get the target product price. These price were than compared to private contractor bids on government production jobs . This helped to reduce supplier overcharging to a great extent. The war department needed to show that the prices offered by the gov were less than that of the private contractor. According to the rules of the war department every individual was responsible for any loss or damage to the arms without any good reason. They were accounted for or charged for such losses. The armory also established unit labour costs for musket components in an order to find out the total cost of every musket.
Cost accounting practices were used by soldiers at two positions, one were the clerks and other were the regimental quartermasters. Their jobs included identification and classification of numerous costs related to the men and materials. A company included 100 men and a regiment included 10 companies i.e. 1000 men. Therefore it was very important to have the identification and management of cost. The clerks and quartermasters used three important reference texts which were taught to them by the west point, in order to produce accurate reports. These texts were used as guides.
There were certain cost principles that were established. They were as follows:
The first principle was that the clerks had to get statements for all the properties they receive. The second principle was that the clerks had to essentially get receipt for all the properties that they transfer to other unit. The third principle was that all the clerks were required to get certificates for all the lost and destroyed properties , which was signed by an officer of the company. The forth principle denied the clerks from mixing different properties on same report. the clerks had to do a lot of accounting. Like the company clothing book was one such document that had the record of all the clothing's issued to the soldiers. If any soldier issued more than a given amount , its additional cost was deducted from his salary.
Both the clerks as wall as quartermasters used a standard cost or budget. For example -The army used to pay the cost of certain limit of baggage like 125 pounds for general officers and 80 pound for captains . cost for any extra baggage had to be paid by the soldiers themselves. Such standard cost also used in case of forage and hay for horses and mules and even for stationary. The paper was measured in a unit called quires where 1 quire had 25 sheets or 1/20th of a rim(500 sheets). Not only this, standards were set even for the quarters for officers where they lived as well as for the amount of wood they used to heat there quarters.
Utilization of standard cost and such conservative allocation of resources helped a lot to control the costs.The most important aspect that required accounting was the payment of salary to the soldiers and the officers. Special pay roll statement also called as muster rolls were prepared by clerks that had all essential details required for salary evaluation. The pay department made a standard cost schedule that was used up to decide the wages for all the soldiers and officers. The muster rolls were prepared at the last day of February, April, June, August, October, and December. These rolls also had information about the deductions in the wages.
Thus to conclude, the cost accounting system during civil war was very efficient and effective for management of costs and utilization of resources. This system was considered to be an advanced system of accounting and is still referred today(Darwin et al. 2009).
As their various countries they have different legal system which can be categories into civil or roman law, common law.
Common law-was found in year 1988 in England .Common law have no stable rules, it is flexible, hence accountant form their own standard(G. N. Hill & K. T. Hill 2008).
Civil law system is important for government in which government have real power hence they are strict base on morality and justice.
Some countries follows both they are Scotland Israel south Africa , Philippines
Legal system establish rule for accounting and financial reporting for the companies and commercial call come under the legislative system of civil law. Accounting need to comply with the law applicable to the country , statuatory auditor perform official audit and certify the companies financial statement according to the law .In common law specific case required a particular answer rather than a general rule due to this common law is non legislative law . common law also has it effect on company law as in the early stage of the company. Most of the detail are not provided either in the early stages Company know how to preferred financial statement and published them Such kind of accounting to large extend is indepent from the law other difference include government issue, regulatory agencies and commission. Due to such difference one may find use of different accounting practise in different country(Nobes & Parker n.d.).
To deal with various organisation or communities .It is important to have communication, same language mediator. Similarly accounting is language meditator with words such as debit and credits or provides procedure to create or provides procedure to create financial data. Political and civil relativism- Every country has its own political and civil rule on which accounting depend
Economic and Demographic- As a above economic and demographic are different for countries and account concept rest on it different country to country
Economic and political environment is important for accounting reporting and disclosure to develop. As the level of growth and income goes higher on chart so does political and economic freedom leading to better disclosure and reporting. Similarly government expenditure ,export and import increase leads to better Government disclosure(Mcleay n.d.).
In every countries tax is very important. Taxation and Accounting is interrelated to each other that is without one second is probably impossible. Income Tax or Business Cooperate tax is largest income source for any country. Collection of tax is very important for every country. Companies follow accounting system for payable of tax that is using of booking Keeping and Accounting procedure, That make very easy and simple for the government for evaluation and collection of tax. Accounting system make an statement which an individual or company file their statement of income tax. In different countries they have different taxation rule and policies. In many countries accounting is done because of taxation and in these countries tax laws is often called as Company acts. Company act contain law containing business operation and activities. For example countries like Germany there is difference between Tax accounting and Financial accounting. In countries like UK, USA, Netherland their account are design for the measurement of investment decision. In these countries different accounting area have different commercial rule which work separately from tax rule(Nobes & Parker n.d.).
The importance of cultural and historical roots in accounting system is now being recognised increasable day by day. Although there was huge lack of attention for this in the past . In international literature theory has been proposed by Harrison and McKinnon (1986) proposed a methodological framework incorporating culture for analysing changes in corporate financial reporting regulation at the nation-specific level This framework Was use to understand the impact of culture and functioning of accounts. Which was also demonstrated using a Japan 's accounting system as analysis . Cultural helps one to understand the changes being caused due to the behavioural of cultural influence norms and values and groups within and across the social systems.
The influence of value in society on accounting system Can be displayed by process models. One can also show this influences in institution which may be legal, professional, cooperate education religion capital markets and other systems. These values like conservatism may or may not have impact on accounting this depends on the country and its external influences for example As per proposed by
Condon 1978 Contrasting US and Japenese approach to communication . American use 'I' Whereas Japenese use 'we', American Emphasis on logic, proof,linear organisation and Japenese emphasis on understanding connotation that may be called as cultural difference.
.Hofstede in 1984 tries to linked difference of culture in different organisation by obtaining 117000 questionnaire's from employees of 66 countries working in different MNC's.
Research showed Four major factors Showing the difference in nations Value that is Individualism , power distance, uncertainty avoidance, masculinity. Before identify the relation we need to understand the meaning of these four difference.
Individualism Vs Collectivism -The issue which come under this is the degree of independence which is be maintain in individuals relating them to take care of their families and themselves . It relate to the concept of I or We. Pg 44
Large Vs Small Power Distance - Issue which come under this how to handle people or members of the society having large power due to which they don't need to justify. Too people or member who have small power and demand for justification.
Strong Vs Weak Uncertainty avoidance - issue which come under this is how the society understands the point that time cannot be change and one cannot see what is hidden in the future. Similar to power distance the way of building the organisation as its consequence.
Masculinity Vs Feminity - issue which come under this is the way power or role are allocated to the sexes in the society.
Once these values were set it was easy to identify accounting values relating to the cultural of society at the level of accounting practice. Gray in 1988 suggested 4 accounting values using Hofstede study which are as follows
Professionalism vs Statuary control- This value shows the options exercised by the individual for his judgement and self-regulation with statutory control and legal requirement.
uniformity vs flexibility- Its shows uniformity in enforcing same practise for different companies For making the practises consistence for long period of time. Too allowing flexible rules for different companies under some special circumstances pg
Conservatism vs Optimism - It Shows the approach being taken by individual taking care of uncertainties being shown by the future to the optimism or risk taking approach. In Secrecy vs transparency It tells about disclosing the business information to the most closely involved management personnel to the public accountable or transparent approach(Gray & Tsakumis n.d.)
Cooperate Social Responsibility
Cooperates social responsibility encourage the organisation to work economically , socially, and environmentally. From the past recently decade Cooperate social responsibility have changed drastically .There are no rule or regulation of CSR which look after the Practise done by Cooperate companies. In globalised world concept of CSR evolved drastically. Importance to social welfare is a code given by King Hammurabi on 1700 BC. Now a days company are worried of issue like reserve of water and recycling of Energy. Before decade ago company does not give any importance to reserve or recycle of the energy. Now the company located their hub near the water and try to save millions of rupees to save the water in either recycle ways or treated water by using horticulture purpose in their campus.
With the Cooperate social responsibility of the company is very good than CSR also affect the reputation and brand of company. If benefit the sale of brand or the product. For Example Surf Save two bucket of water have benefit tremendously for company. In long run understanding of community become sustainable for cooperate house. In 2005 there is flood in Mumbai Hindustan unilever Limited donated 1.5 lakh soap to UNICEF and giving the message of washing hand with soap. ITC launched e-Choupals providing internet services to the villager. e-Choupals providing power of scale to small farmer. e-Choupals is changing live of over 3 million farmer living in 30000 village across six state in India.(Agrawal n.d.)
In every long term business ethics is very important for success. Cooperate issue in business ethics are related to particular company. Such as morality of decision action or character of an individual. Business Ethics have 4 approaches
Traditional approach basely derived from right and wrong . secondary Intuitive approach - Ethics are not only found by traditional approach but also come from behavioural exchange of the businessmen. Thirdly business required to think logically and have the capacity to think sensibly is called Rational Approach. In spiritual approach religious value give business men to think about alternative goals.
In Personal ethics one personal ethic belong within the organisation. During the last couple of year ethical concern gain his importance. As we know about the incident of Harshad Mehta has created awareness about ethical issue in the country. Corruption, insider trading, cheating small investor and misappropriation of account are the major issue faced. There is classic case of warranty law between Henningsen and Bloomfield motor. Mr Henningsen Purchase a new 1955 Plymouth plaza 6 sedan for use by his wife.
After ten days of delivery from Chrysler dealer in Bloomfield. Mrs Henningsen was driving car at a speed of 20 mile per hour on a smooth road suddenly she heard a voice and think that something crack under the hood and car become uncontrollable as wheel moved sharply to right side and she crashed into the wall. Insurer claim the accident and declarer that car is totally destroyed. Mr Henningsen has contract with Chrysler cooperation is that he would replace the detective part within 90 days or car driven 4000 mile whichever came first. Odometer recorded 468 mile till the accident. As agreement was there they have to replaced defective parts. Due to this Mr Henningsen file a suit against the company breach of contract. Buyer do not same bargaining power as a sell because during that period of time all the American automobile manufacture follows same standardisation form written in their association. Due to lack of competition buyer have to buy car in term of manufacturer and they don't give importance to warranty (Ghosh 2009).
In international accounting I have explain different Accounting standard, explain them, explain different influence which effect international accounting that is Cultural, historical, legal, taxation and Linguistic. I have include different pressure which effect Accounting that is environmental, Social and ethical.