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`Accounting excites me'
November, 09th 2006

To most people, accounting stirs up images that are far from exciting. Ashish K. Bhattacharyya may be an exception. "Accounting excites me," he writes in the preface to Indian Accounting Standards, from Tata McGraw-Hill (www.tatamcgrawhill.com). The tome, though daunting in size, is not cluttered with the text of Accounting Standards (ASs). A conscious decision to exclude material available in the public domain, says Bhattacharyya.

"Of late, the Indian GAAP (generally accepted accounting principles) has been converging to IFRS (International Financial Reporting Standard)," he writes. As a result of the convergence, there are `enormous challenges and opportunities'. To help the young professional keep pace with the global march of accounting, the author explains in detail IFRS where it corresponds to the Indian AS, as pronounced by the ICAI (Institute of Chartered Accountants of India). He also provides `a comparison between AS, IFRS and the US GAAP'.

For instance, in the chapter on `balance sheet presentation', one learns the varied approaches to `treasury stock'. Indian companies are not allowed to hold their own shares as investment, explains Bhattacharyya. "Therefore, the question of presentation of treasury stock in the balance sheet usually does not arise," he adds. International Accounting Standard (IAS) makes no specific mention of treasury stock, while the US GAAP requires companies to show treasury stock as `a deduction in the shareholder equity section'.

You can consider your knowledge of `income' to be anything but comprehensive, unless you know what `comprehensive income' is. This is a concept in the US GAAP, not Indian accounting. Comprehensive income or `clean surplus' reflects the changes in shareholders' equity arising from all transactions and events other than those with owners," elucidates the author. "Usually the `bottom line' of the income statement does not represent the clean surplus, because certain components of the comprehensive income bypass the income statement. Items that bypass the income statement are called `dirty surplus'."

Appendices at the end of chapters are of great value, and they contain audit checklists, and excerpts from published accounts (of both Indian and foreign companies). Tyson Food, for example, uses FIFO (first-in-first-out) to value `processed products, livestock and supplies', while Wal-Mart uses LIFO (last-in-first-out) to value inventories. Sears, Roebuck makes use of RIM (retail inventory margin) method `under LIFO cost flow assumption inherent in the RIM calculation'.

The final chapter on `financial instruments' instructs that the following minimum disclosure is required for periods ending on or after March 31, 2006: one, category-wise quantitative data about derivative instruments that are outstanding at the balance-sheet date; two, the purpose, viz. hedging or speculation, for which such derivative instruments have been acquired; and, three, forex exposures that are not hedged by a derivative.

Indispensable read for the Indian CA.

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