With the footprints of major business players spread the world over, it has become increasingly necessary that accounting, the language of business, is intelligible to a wider audience. Apt read in such a context is Globalisation of Accounting Standards, edited by Jayne M. Godfrey and Keryn Chalmers from Edward Elgar Publishing (www.e-elgar.com ).
First, the good news is that countries are working towards common standards governing disclosure of financial information. The year 2005 heralded a new era in financial reporting as many countries adopted IFRS (International Financial Reporting Standards) for the first time.
A definitive trigger for the effort towards uniformity came from IOSCO (the International Organisation of Securities Commission). In May 2000, it recommended that its members allow multinational companies to use international accounting standards for cross-border listings and capital raisings. IOSCOs impetus provided the political ammunition for the acceptance of international accounting standards in various countries, note the editors.
For instance, in India, some of the new accounting standards (issued since 2000) were born because of the pressure brought to bear on the Institute of Chartered Accountants of India (ICAI) by SEBI ( Securities and Exchange Board of India). In turn, SEBI was under pressure from the IOSCO to improve Indian accounting standards and bring them in line with the IASB (International Accounting Standards Board), writes R. Narayanaswamy of IIM-Bangalore in a chapter on the Indian scene, included in the concise compilation.
He is of the view that foreign financial institutions and listing in international stock exchanges are playing a major role in speeding the pace of raising Indian standards to international levels.
In the past, Indian accounting standards were tacitly influenced by tax considerations. The ASB was implicitly concerned with the effect of standards on reporting for income tax, despite the fact that shareholder reporting and tax reporting are different in India, as in other British Commonwealth jurisdictions.
Narayanaswamy cites leasing as an example. No accounting standard on leases was issued until 2001, even though there was a tax-driven leasing boom in the 1980s and early 1990s. The fear was that if leases were capitalised, tax authorities could refuse the benefit of capital allowances to lessors and lessees.
Over the years, however, income-tax rates have been steadily dropping; and, when drawing up disclosures, taxation is not as important as it used to be. As a result, we recognise that financial reporting should not be coloured by tax considerations, he says.