Accounting information is extremely vital in/and for all enterprises though it does have certain limitations.

Accounting is only one source of information and primarily provides information based on financial terms: Although this information is vital, decisions cannot be based solely on a monetary basis. Various decisions depend upon a diverse range of issues being considered. A unique combination of Quantitative as well as Qualitative factors should be considered to ensure an effective decision making process.

The historical perspective of financial accounting: In order to obtain a recent estimate of an entity’s financial performance, the corporate managers carefully scrutinize financial accounting information. In retrospect, this information is based on past performance. The information does provide clarity on the monetary issues but does not provide a definite insight into the strategic future; as the future holds various changes in terms of technology, economic situations as well as political scenarios etc. Such factors in relation to accounting are unpredictable. Therefore, a careful balance between historical accounting as well as the future forecasted outlook is required.

Historical cost accounting vs. underlying value in use: Some items loose their monetary value over a period of time, but under the financial accounting rules need to be included in financial reports. Though mentioned year after year in the books as monetary figures, the information may be unreliable due to the historical assumptions made on the item’s measurability criterion. For example, a machine in a textile factory is considered to have a useful life which extends over a period of ten years in monetary terms; however, after the period of ten years, the machine may still have the same value as prior years and contribute significantly to the overall operability of the factory.

Inability to reflect the true value of strategic management: Various factors such as goodwill and natural circumstances influence the operations of an enterprise; however, these elements are difficult to measure thus, leading to their unavoidable exclusion from financial reports. For example companies depend upon their shareholders, who in turn depend on the performance of the Chief Executive Officers. Although the CEOs may have been hired by the company based upon prior performance, their future performances are not reliably measurable as they may continually vary. In the initial stages, it may be impossible to measure whether the CEO’s presence will deter or appeal to the shareholders, which in turn will influence the profitability of the enterprise.

Measuring Volatility of external factors: Financial accounting information does not take into consideration volatile and ever increasing changes in the natural and commercial environment. Although scarcely measurable in monetary terms, their unstable nature may have adverse effects if included within the financial reports and have a volatile and cosmetic impact upon the earnings of the firm. For example, tariffs on trade, duties and other environmental issues can have significant short-term volatile effects on the organisation.

The effect of non-stable monetary unit: Based from region to region, accounting information is generated at all enterprises based on the assumption that the monetary unit is stable over a period of time. In the real world scenario, the unit fluctuates on a daily basis. Enterprises usually decide on a flat rate to calculate their financing and investing needs. However, this can have adverse impacts which cannot be communicated to shareholders, if the unit has high fluctuations. For example: Indonesia 1995 US$ 1 = RP 6000, 1997 US$ 1 = RP 12000, 1999 US$ 1 = RP 9000.

From the answer above, it is evident that certain limitations of accounting information have to be taken into consideration before enterprises use merely financial information to aid their decision making process.

Ethics is defined as that branch of philosophy concerned with the moral life and consisting of consideration of one’s ordinary actions, judgments and justification as a means of discovering what one ought to do and of determining what actions are morally good, acceptable, or right and what actions are unacceptable or wrong.

A manager within an organisation always faces a conflict of interest between short term profitability and long term sustainability of the entity. If the manager chooses to implement decisions that are beneficial to the entity in the long term, his behaviour is primarily considered to be ethical. However, the goal of achieving short-term profit maximization has been duly compromised. According to self-interest theory an individual seeks to maximize his/her personal utility whereby short-term profit maximization motives could be thought dominate managerial incentives.

Ethicists have developed two frameworks relevant to businesses. They are the Utilitarian and Deontology frameworks. Utilitarianism is defined as the moral correctness of an action based entirely on its consequences whereas Deontology defines moral correctness of an action through the underlying nature of its correctness. Deontology can be divided into two parts where one part considers that action itself is measured thus lying is always unacceptable, on the other hand, the other part considers the cumulative nature of action as well as the consequences and thereby deems that lying could be acceptable under certain circumstances.

Ethics within the scenario of businesses are largely determined by the frameworks outlined above. Business ethics have a large impact upon the global society as fraud and embezzlement can impose large dead-weight losses within the world economy. In Australia, business ethics are primarily defined by the Corporations Law and Accounting Professional Codes Of Conduct such as the ICAA which govern the professional behaviour of the relevant professional members.
Ethical rules for accountants are subtly more stringent than for normal business professionals. Under the assumption, that the ethical behaviour of accountants mirrors the behaviour of the company auditors, I seek to explain the underlying dilemma. The Chief Financial Officer works under the supervision of the Chief Executive Officer of the organisation. His/her primary responsibility is to ensure that the financial reports prepared under his supervision mirrors the true and fair view about the financial. operating and investing decisions of the entity. He is directly accountable to the shareholders for his actions. However, his actions are determined by the leadership of the CEO. If the CEO demands the CFO to incorrectly manipulate the financial reports of the organisation, the individual faces a dilemma. He has a dual sense of responsibility and an ethical situation arises whereby, he/she can either pursue his own self-interests (financial security) or disobey the commands of the CEO and report fairly to the share-holders. Thereby, following the correct spirit of ethical behaviour, his role entails reporting fairly to the shareholders and whistle blowing against the CEO.

The plan states that managers who have a short-term time horizon with an enterprise and have their bonuses based upon the short-term profitability of the enterprise will be motivated to pursue their personal agendas (wealth) rather than enhance the long-term sustainability of the enterprise. In deontology terms, there is a significant conflict of interest in terms of the ethical behaviour of the manager which could be compromised by the self-interests of the manager who might manipulate the true underlying profitability of the going-concern.

Accounting policies affect the reported figures which appear in the financial statements which affect the wealth of managers.

There are three economic consequences of accounting policy choice:
I. Compensations Plans: In this case the organisational bonus scheme is used to bring the interests of both the managers and the shareholders together. However an economic consequence of the bonus scheme is that managers may also be motivated to cosmetically increase reported profit by the appropriate selection of income-increasing accounting policies which might not mirror the true underlying increase in the reported profits of the entity.

II. Debt contracts: If an entity is approaching the limits of a clause in a debt contract, there are incentives for managers to select appropriate accounting policies which allow the company to avoid being in violation of the debt contract, by income-increasing accounting policies.

III. Political costs: refer to the costs imposed on a company via regulatory bodies. Political costs are hypothesized to be a function of size measured in terms of net profit, total assets or total sales. Political costs create incentives for managers of large organizations to select income-decreasing accounting policies in order to reduce political visibility.

Discuss what information you believe would be useful to the following group of report users:
I. Employees: The most essential information required by the employees is the information relating to the survival of the enterprise they work for as they earn their wages from the going-concern. Financial reports provide an insight for the employees to understand whether the enterprise is currently making profits or losses which in accordance can lead to fairer wage negotiations etc. Most importantly, it provides employees with an opportunity to assess their level of security with the enterprise.

II. Investors: Most importantly, financial reports provide investors with insight relating to the profitability and sustainability of the underlying entity. It also offers the investors a chance to compare itself to other enterprises in terms of monetary performance and divulge where certain changes can be made in order to gain competitive advantage. Investors may also base their decisions on selling or retaining their shares based on the past history of financial reports.

III. Regulators: Considering the regulator to be the government in this case, the most essential benefit to the government from financial reports is the levying of taxes for the enterprises. Apart from this, the government can also use the financial information to include in producing industry statistics. The information also assists the government in assessing the level of fair competition within the realm of a particular industry.

IV. Suppliers of goods and services: The financial reports assist the suppliers in determining whether the enterprise is going to remain in business. In some cases, suppliers have an outstanding debt from the enterprises and the reports provide insight as to whether the enterprises will be able to meet their debts. Based on the reports, suppliers can also decide the credit limits and time they are willing to offer to the enterprises etc.

V. Customers: Customers over a period of time become attached to certain products, which in turn leads them to keep up with the enterprises performance in monetary terms; whether the company is going to survive and be able to consistently supply their goods or services. These reports also provide the customers with an opportunity to assess the substitute goods/services in monetary terms, whereby the customer can assess the ultimate value for money good/service.

What are the main arguments of the article on “Financial Reporting of Cultural, Heritage, Scientific and Community Collections”?

Article Summary: This article attempts to inform the readers about the existing CHSCCs debate between the academics and the regulatory accounting bodies, namely the AASB and the FASB. It describes the nature of cultural, heritage as well as scientific collections and discusses the feasibility of recognizing these items as assets on the statements of financial positions for public sector entities.

The main arguments reported within the article are based primarily on the definition of assets as well as the perceived usefulness of financial information generated after the recognition of CHSCCs as assets, In order to outline the arguments, it is crucial to define assets as future “economic benefits controlled by the entity as a result of past transaction or other past events”.

Future economic benefits: The common characteristics possessed by all assets (economic resources) is service potential or future economic benefit, the scarce capacity to provide services or benefits to the entities that utilize them. CSHCCs although generally held for long periods of time and seldom sold, are assets that continue to provide economic benefits or service potential through their use. In a not-for-profit organization that service potential is used to provide desired goods or services to beneficiaries. Thereby, Carnegie and Wolnizer view that CHSCCs cannot be defined as assets because they do not embody financially quantifiable service potential as they do not generate net cash inflows either through regular activities of the entities in which they are held or by commercial exchange, does not hold true. This argument highlights the apparent misconception in Carnegie and Wolnizer’s argument that the existence of assets is not defined nearly by the unreliability of its measurement rather by the achievement of its objectives. The ASB and the PSASB in Australia strengthen this view by stating that the mere ability to generate net cash inflow is not critical in determining whether these CHSCCs embody future economic benefits and linking future economic benefits with net cash inflows, as Carnegie and Wolnizer do, would mean that most items held by not for profit entities would not qualify as assets.

Control: A museum, art gallery or library may choose to either impose charges or allow the free viewing of its collections; these choices do not affect the control of the CHSCCs by the entity. These choices do not affect the control of CHSCCs as such entities do not encompass full cost recovery and the entities inability to impose charges for the publics use of these assets does not compromise their control over CHSCCs. Thereby, Carnegie and Wolnizer’s arguments that museums, art galleries and libraries do not control their CHSCCs because of the restrictions on their use and disposal does not stand true. The inability to sell CHSCCs does not compromise the utility of the entity as their objectives are significantly different.

Past transactions and other past events: This argument is accepted by academics and regulators alike whereby this essential characteristic of an asset is satisfied by the CHSCCs.
Value-in use and value-in exchange: Exchangeability is not an essential characteristic of an asset because future economic benefits are not precluded by their inability to sever an asset from the entity, nor are they necessarily related to the existence of present disposal value (SAC 4). The disclosure of the value-in-use and value-in-exchange in terms of CHSCCs within the statement of financial position has a broader purpose than merely reporting to the external parties, solely on the solvency position of an entity. Therefore, Carnegie and Wolnizer’s argument that value in exchange is a collection of no consequence and thereby, the statement of financial position is a poor predictor of the solvency of an entity is negated.

Recognition criteria for assets: An important criterion for the recognition of assets on the statement of financial positions is the reliable determination of the cost. Carnegie and Wolnizer believe that CHSCCs fail this critical requirement and state that the historical costs and current costs of CHSCCs are irrelevant because historical or market values cannot be reliably determined for CHSCCs. However, this assertion that recognizing assets at such amounts is irrelevant, is an argument about the most relevant basis of measurement, not about the recognition. It is argued that this information is certainly better than no disclosure about these assets.

Usefulness of information: Information about CHSCCs controlled by public sector entities is necessary to make informed assessments about the allocation of scarce public funds, and any changes in the allocation of funds from period to period. The public has a definite beneficial interest in the recognition of CHSCCs because it is the public itself that provides the funds required by these entities to acquire assets and to fund operations. Thereby, Carnegie and Wolnizer’s argument that the reporting of CHSCCs is not economically useful can be carefully scrutinized.

Cost benefit considerations: The authors argue that Carnegie and Wolnizer’s estimate of the cost of valuing CHSCCs for the state library and national gallery is probably unjustified ($23.5 million). The authors estimate the cost to be closer to $450000 and state that the benefits are more difficult to identify and measure. CHSCCs benefits are hypothesized as generally outweighing the cost of the exercise which is in direct opposition of Carnegie and Wolnizer’s argument that the cost of requiring CHSCCs to be valued is prohibitive.

Recognition not generally accepted or practiced: The authors argue that current practice should not influence best practice for the future and thereby the survey results obtained by Carnegie and Wolnizer in support of their view that CHSCCs should not be recognised as assets is unjustified. Although, the recognition and measurement of CHSCCs is not generally accepted or practiced in Australia or the United States, survey results aside, this should not nearly lead to the acceptance of the argument that CHSCCs should not be recognised as it would be deemed as accepting the status quo.

Other arguments: Finally, the article outlines other reasons for the resistance to recognizing and measuring CHSCCs. These arguments include that the managers of an art museum might be able to effectively manage the collection to enhance their own personal status by pursuing the recognition of CHSCCs.

“As a general rule, public sector accounting should be totally different to private sector accounting.” Discuss.

Accounting information is determined primarily by the underlying financial structure of an entity. It can be assumed that the objectives of private entities and public entities are significantly different. The overall objective of private entities is the maximization of profits whereas the objective of most public entities is to fulfill the needs of its beneficiaries.

Furthermore, as public sector entities are non profit organizations, managers are not motivated to manipulate the true financial performance of the entities, to enhance their personal status for income benefits. On the other hand, the managers of private sector entities can be assumed to be motivated by self-interest theory, thereby, leading to the possible manipulation of the true financial performance of the entity. As the nature of these entities and the motivations for accounting policy choices are significantly different, I argue that the governing rules and regulations should be adjusted accordingly, to suit the differing objectives of the organizations.

Next Freire turns the “banking scenario” to a much larger scale. A scenario filled with world leaders. He then proceeds to say that oppressors like the “banking method” because the people “accept the passive role imposed on them,… they tend to simply adapt to the world as it is…” The classic method allows the oppressors to “brainwash” the public to keep them under control, since the people only know what they were taught. The way to reach the “real” truths has been left out of the “banking method.”, Creating a community of people who do not know how to think for themselves. Therefore, the oppressor does not have to worry about the people being in a state of disquiet or any revolutionary action. The people do not have the stimulation to rise up.

The solution to all this? Freire instead advocates the problem-posing method. The teacher and the student undertake the material on an equal and therefore, more productive level through the posing and solving of problems. Communication becomes vital to the whole learning process. Freire puts it as, “Only through communication can human life hold meaning.” To create free thinking, the lines are blurred between teacher and student and the roles are intertwined. The teacher is the guide on the students pursuit, yet “the teacher cannot think for his students, nor can he impose his thoughts on them.”

Freire is an excellent writer, whose work I honestly enjoyed reading. He makes a very good point that the education system is not what it could or should be. He also has an inspirational and clever idea on how to make things work out for the better. However, there are some major flaws in his ideas and he has passed over a few major points. While Freire encourages every person to pursue an education, he makes it a given for humans in general, therefore the importance of education can be easily lost. Freire also places almost no value on the role of the student within education. It rests on the teacher alone to determine a successful learning experience. He divides education between the teachers, when really it is more a matter of dividing the students between those who think for themselves and those who do not. His model creates something more like two types of mimics: those who mimic other peoples thinking and those who mimic the teachings of how to think. Yet it seems that the two styles of learning, the “banking method” and the problem-posing method, must meld together if the learning experience is to be successful.

A student cannot learn anything without the foundation gained by traditional learning. A second grader could not be expected to grasp why he is learning why two plus two is four, but if he learns the knowledge that it is, then that sets him up for learning the reasoning behind it at a more advanced age. Yet the child cannot be expected to do anything but absorb facts all his educational years, that would leave him altogether unprepared for the “real world”. Therefore, the only thing left to do is to integrate the two methods into each other.

Accounting career essays should represent your primary goals for why you are taking courses and getting your degree; however, it should also demonstrate the other potential positions for your degree program. It is often a good idea to provide three opportunities that are able to consider your accounting degree as a primary factor for employment. In addition, you may also list that you can teach accounting, or even us accounting in training programs. In this way, accounting has a number of unexpected purposes and opportunities.

First year students are the ones most often asked to complete the accounting career essay, and in this way, you have more freedom for the formatting and the structure; however, this does not mean your essay should be full of errors. You want to create the best possible accounting career essay. You are able to do your best, express yourself, and meet the growing needs of educational excellence that will continue to be a focus of your college coursework. You may make a few mistakes, but overall you should do your best to edit out all the mistakes that may appear in your paper. Read your paper aloud or to a friend to assist you in developing the flow and to find the errors in the paper.

Next, you can develop almost a “fill-in-the-blank” approach to your paper if you establish the parameters well. You can do this by determining how many pages your assignment requires (or words) and assigning the bulk of the pages or word count to the body. Select at least three points that you will cover and title each paragraph with that point and split the Body’s section of words of pages between them. Following this, you should return to the introduction and write a short paragraph of what you will write, (this should be reviewed as you work and possibly revised when you have completed the writing). In the introduction, you will also add in your topic sentence – which is the focal point of your essay.

Once you have established these parameters – split the remaining pages or words between the introduction and the conclusion. For each of your three topics you put your Body, introduce the concepts, and establish a topic sentence for that concept. Fill in each paragraph, and then review the information to be certain it still follows the goals of your introduction paragraph. Once you have completed all of these, you will try to add in some history or related formulas that most apply to your particular essay. Write the conclusion to tell the reader the important points they have read, and then edit your paper.

A great deal of information is available to accounting students; however, most of the information is directly related to forms and math. This means that your accounting research paper could be related to why the forms are important, demonstration on how to use the math and forms, or even historical relevance to thy the forms were developed in the form they are now used. Every idea you have for accounting can be developed right from the textbooks of your course or the lectures from your instructor.

While working on which idea to develop fully, consider that most courses allow you to develop a research paper based on how you would use the information from your course to develop stakeholder information for the organization. In some situations, you are able to use a company you have created for this purpose. If this is an idea that your instructor has improved, consider creating enough information on your pretend company to reuse it for other assignments later. You may develop the organizational structure, income, product, and nearly everything for the company and keep using it to present all future accounting research papers using this information.

Additionally, accounting is related to ethical needs of the organization. As the world changes so do the ethical needs of an organization – these to include the needs to demonstrate sustainability and the required accountability of the organizations books and records. It is essential that all accounting students understand the many laws and ethical requirements that accounting offices’ face today, and what lead up to these needs. After a number of organizations have been charged with illegal activities that passed through the accounting offices, it is true that many students will be under a great deal of scrutiny when they get their first job in accounting. In this way, you could even write an accounting essay using the idea of what it was like in accounting 50 years ago versus what happens today.

Finally, remember that application of information is the primary objective of writing an accounting essay. Your idea should begin with a simple search through the topics in your textbook and assigned readings. This will begin your best Accounting ideas and give you somewhere to begin.

What is the problem you would like to solve? Write this out in your word file or a file where you can make diagrams. When you write the problem out just use a single sentence, and then attach boxes to this sentence. What will you need to know to solve this problem? What will you expect the results to look like? Where do you expect to find similar results? Are there theories that agree with your Accounting thesis ideas or are they all different? After you have developed some of these answers, refer back to the syllabus or rubric for your accounting thesis.

In the rubric or syllabus, you should find a general outline that you may use for your Accounting thesis. If there is no such information, you can check in databases such ProQuest to see how other people have setup their thesis and dissertations for submission; however, keep in mind, you cannot duplicate their work, or you will not demonstrate original and critical thinking – no matter how great the idea – leave it and just use the outline. Work a little each day so that you do not become overwhelmed. Now you know exactly how to write a good Accounting thesis for Undergraduate, Master’s and Ph.D. level.

The scenario of Australian corporate funding costs rising because our accounting standards are out of line with those of some other countries might become reality, says PricewaterhouseCoopers partner Jan McCahey, if urgent steps are not taken to bring Australian accounting requirements in line with those of the International Accounting Standards Board (IASB).

McCahey, one of Australia’s pre-eminent financial reporting experts, believes the domestic accounting standard setter, the Australian Accounting Standards Board (AASB), needs to move more quickly to ensure there are as few differences as possible between the international accounting standards framework and the domestic literature.

Otherwise, notes McCahey, Australia and its business community will continue to lag behind international developments and be unable to keep in step with the rapid-fire pace at which the London-based standard setter is moving.

“The more telling thing is that companies are doing business globally and to me there is going to be a move to - if you like - an alternative set of recognised accounting standards worldwide. That’s going to be the IASB standards,” says McCahey, who is also a former chief accountant of the Australian Securities and Investments Commission (ASIC). “If you’re not using US generally accepted accounting principles or IASB standards, I think if you were trying to raise money - debt or equity - in capital markets, people are going to ask questions about the quality of your financial reporting,” she says.

Her comments come at a time when the IASB is beginning to challenge the international business community with a steady stream of exposure drafts - two are presently out for public comment - with the end goal of improving financial reporting across all capital markets.

The two IASB exposure drafts that have been the subject of recent AASB invitations to comment are a 404-page potpourri of amendments to 12 international accounting standards and a 337-page tidy-up job on the accounting standards dealing with disclosure, presentation, recognition and measurement of financial instruments.

An “invitation to comment” is the board’s document that summarises the Australian position on the international exposure draft and states the AASB’s intent to bring domestic accounting standards in line with the IASB.

In the case of financial instruments, for example, it would mean Australia would actually have rules in place dealing with the recognition and measurement of financial instruments. There’s nothing in the Australian literature that deals with forcing fair value accounting for derivatives, nor is there anything substantial in accounting standards regarding the derecognition of financial assets or financial liabilities.

That general strategy of engaging with the IASB in developing and exposing proposals is a good thing, McCahey asserts, but the domestic accounting authority needs to do much more to bring forward the implementation of IASB standards in Australia. She wants a firm resolve from the standard-setter to set actions in train so Australian companies will be able to say their financial statements comply with international standards by a specific target date - such as the European implementation deadline of January 2005. In this way, companies will not be left in a position where they will be penalised through no fault of their own for complying with a set of accounting pronouncements that are neither understood by nor relevant to groups or individuals making decisions related to investing.

That January 2005 date is one favored by Senator Ian Campbell, the Parliamentary secretary to the Treasurer, and also one that has been endorsed by the Financial Reporting Council, the AASB’s oversight body, as the adoption date for international accounting standards in a recent release.

“It seems to me that it goes without saying that we as a country must move to international accounting standards because otherwise, by the years 2005 and 2007, you are going to have the US doing their accounting in accordance with US standards, a very large number of companies in Europe on IAS, much of Asia on IAS and for us to be doing something different is going to be a problem,” says McCahey, who is also a former director of accounting standards at the Australian Accounting Research Foundation.

“It’s going to be a problem for corporates because, if there are two established reporting frameworks, anybody that is not reporting in accordance with either of those frameworks will incur a higher cost of capital.”

Analysts and other users of financial statements will be focusing on trying to understand two kinds of accounting frameworks, and McCahey believes companies could find themselves facing rather uncomfortable questions from market participants if they are reporting under a set of accounting rules that is not emanating from the London-based IASB or the US Financial Accounting Standards Board.

“People are going to gear up for understanding IAS and understanding US Generally Accepted Accounting Principles (GAAP). Companies preparing accounts not in accordance with either of those frameworks will have questions asked of them about what the differences are and why they aren’t doing it. There is going to be this presumption that the reporting they are adopting is of a lower quality. That will be the presumption whether that’s a fact or not.”

McCahey is nothing if not consistent. Her concerns about Australia’s lagging behind the IASB’s literature were expressed before she departed her former role as ASIC chief accountant in November 2000. Nearly two years later, the outstanding gaps that existed at the time she made her concerns known remain.

Australia has often prided itself on having a quality set of accounting standards, she explains, but the fact that Australia does not have accounting standards in significant areas such as the recognition and measurement of financial instruments and pension or superannuation accounting makes that claim less credible the longer these gaps remain.

When the earlier program to harmonise Australian accounting standards began in 1996, the AASB’s objective was to ensure that compliance with Australian accounting standards meant compliance with the material produced by the then International Accounting Standards Committee (IASC), which was the IASB’s predecessor body. That process was designed to exclude the options contained in those accounting pronouncements that were considered to be counterproductive to the objectives of standardisation and good financial reporting.

This all took place at a time when the international standard setter did not have as complete a suite of accounting pronouncements as it has now.

“At that stage, there wasn’t nearly as big a gap between IAS standards and Australian standards as there is now,” McCahey explains. “Over that period the IASC issued a whole lot of new accounting standards - standards on tax, impairment, provisions, financial instruments. All of those things came out of that process. It is to me imperative that we move to closing the gap. I don’t really care how we do it, to be honest. I just want it done.”

Each of the issues that are on McCahey’s list of gaps that need filling have been on the AASB’s agenda at one time or another. Accounting for intangible assets and pension accounting were issues on which the AASB failed to promulgate standards a decade ago, and they have been the proverbial millstone around the neck of the standard setters ever since.

“Those matters are all on issues the board has had difficulties dealing with over time so they are not going to be quick fixes. If we don’t bridge those gaps quite quickly we will be finding ourselves with very major gaps in our standards with comparison to the IASB for a very long time,” she asserts.

“If you compare Australian standards with them, we have gaps in a number of areas. Sure, we have a standard on extractive industries and the IASB doesn’t, but we don’t have a standard on the recognition and measurement of financial instruments. We don’t have a robust impairment test. We have a very small number of issues in the area of accounting for intangibles that are covered. We don’t deal at all as extensively with intangible assets accounting as the IASB series of standards do. They are just four or five topics that really need to be fixed.”

Another concern McCahey outlines is the need for clear communication of the board’s strategy to the community in general. A clear target date for convergence with IASB pronouncements would ensure companies and others would understand the need to respond to documents that have been exposed fairly quickly because there is a set deadline to which the AASB would be working.

A specified date would also ensure that the business community in general would have some degree of accountability from the board in relation to a timetable for the delivery of an outcome.

“If you expose certain proposals and your constituents understand that you need the feedback quickly because you’re trying to get a standard in place to meet this deadline, then they are going to be more comfortable about acceding to that than they would be if they believed we had another 20 years to get there,” McCahey says.

“The IASB has issued the document on improvements recently. It isn’t going to be the last document they will be issuing for three years, so we can get [the gaps in financial reporting rules in Australia] sorted out. Their next project will come out and the next one and so forth. We have so much to catch up on here before we even really start to think about doing these other things that are amendments to existing IASB.”

Keeping up to date with current developments at an international level is one challenge. Implementing existing literature that is in line with both IASB and FASB pronouncements is another. McCahey points to the recent deferral of the tax effect accounting standard by the AASB as an example of where Australia could have taken one step closer to having practical convergence with international standards.

That standard’s implementation or effective date was deferred, according to the AASB, in order to ease the burden of compliance that companies were facing because the same implementation date - July 1 - applied to both the tax effect accounting standard and the Federal Government’s tax consolidations regime.

Deferring the tax standard could not be justified, McCahey notes, in an environment where implementation of standards that lined up with the convergence objective was being done to a set timetable. “If you had expressed a target date it would be pretty clear to you - you would have set your own perimeters - that you couldn’t push out implementation dates willy-nilly if you were trying to achieve convergence by a particular date. It imposes a discipline on you, an accountability. And I think it’s an accountability the community probably deserves,” McCahey argues. “Each month we are not doing anything to get there, is a month less for us to do the work. We are running short of time.”

There may be a need for the AASB to change the way in which it goes about setting standards in order to have some type of speedy implementation. The present process appears to be moving too slowly and it might be time, McCahey suggests, to opt for some radical changes to processes.

One idea she places on the table is that the AASB could get a sub-committee of the board to deal with domestic issues while the board itself gets on with the international agenda. Another is for the AASB to propose the introduction of a number of IASB standards in separate tranches over the next few years in order to bring some closure to the present lack of completeness and, indeed, lack of comparability between parts of the Australian and IASB material.
conclusion

“Sometimes the environment is such that you need to make some changes to the way you do things,” McCahey reflects. “Even if these things were successful in the past. We just have a long way to catch up.”

THE IMPORTANCE OF HUMAN CAPITAL ASSETS
Value is created when intangible resources are deployed and degrades when they remain unused. Today knowledge or more colloquially, intelligence and brainpower have become the key determinant for the economic and business success. The key success factor of an individual business enterprise is no longer its sheer size or the number of tangible assets it controls - It is it’s Human Capital.

The importance of the human resources of a company can be illustrated in several ways. The market prices of corporate securities often reflect values substantially different from those indicated by the recorded values of the individual assets. Obviously, a number of intangible assets including human resources continue to remain unrecorded. Early evidence suggested that the replacement costs of human resources are quite substantial. In a survey, five hundred corporate presidents were asked about the cost of replacing their entire workforce. The estimates ranged from three to five times of the annual payroll of the company. If an organization pays Rs. 500 million payrolls it would have a worth of Rs. 1 billion to Rs. 2.5 billion. Further, in any organization the payrolls exceed the earnings by eight to ten folds, and since the human organization can be regarded as worth three to five times the payroll, the human organization could be valued at twenty five to fifty times a company’s annual earnings. A five percent fluctuation in the firm’s human capital would be equal to its reported annual earnings.

The growing technical complexity of the modern business and the increasing time required for an individual to gain the experience is making the brainpower a critical resource in many developed countries. In such countries a lot of financial capital is invested in creating the knowledge and intellectual capital. For this reason it is not uncommon to learn of a large corporation purchasing small technologically superior firms – not for their plant and equipment but for their skilled managers, scientists and engineers as evidenced by the “merger mania” experienced in the last 15-20 years.

Clearly human capital assets, device creations such as patent able inventions and copyrightable materials, which provide exclusive future benefit potential. Human capital also provides various expert services, consulting and financial planning, which are valuable for free services and are in demand. In fact, the intellectual assets of a company are often worth three or four times the company’s tangible book value.

HUMAN RESOURCE ACCOUNTING
Human resource accounting historically has been defined as the process of identifying and measuring data about human resources and then communicating this information to interested parties. Human resource accounting, after almost 40 years of extensive research, still continues to be a topic hotly debated by both accounting theoreticians and practitioners.

Since initially appearing in the accounting literature, Human Resource Accounting has gone through several stages of development, which are:
1. Development and Validation
2. Organizational Applications
3. Empirical Research Investigation

The potential impact of HRA on economic resource measurement of the firm has always been a source or wonder and astonishment. How exactly do we demonstrate that the little user’s guide shipped with a washing machine or the online help embedded in a hotel reservation system make a positive contribution to a company’s finances? One of the most recurring topics in technical communication is “proving” the value of our work. Our current accounting systems and practices have limited means for calculating the financial benefits from the value added services packaged with products and policies and procedures developed for use in-house.

When financial capital was scarce and labour was plentiful in the predictable world, the focus of attention was definitely Finance. Financial accounting, planning and control were considered as the key to sustained success for mature organisations. But access to financial capital no longer remains an issue in the global marketplace and human capital is emerging as the new critical factor in this changing environment. Business valuations, company law and corporate governance are consequently moving away from the conventional considerations of the last century.

The accounting methods that were developed and which had become the standard for the Old World now can no longer place a sensible or fair value on a business nor help its stakeholders to assess its capabilities and future prospects. Financial statements cannot tell us how much value is lost in washed out human capital during mergers nor the future cost for developing and redeveloping the competencies lost on account of downsizing.

Human Capital Accounting deals with six major issues, which are:
1. Existing methods of reporting on the financial value of Human Capital as an intangible asset.
2. New reporting standards for the non-financial aspects of Human Capital.
3. The new concepts of Human Capital.
4. Measuring Human Capital.
5. Analyzing Human Capital (to develop HR strategies that drive organizational performance).
6. Placing Human Capital on the balance sheet.

Human Resource Accounting can be tracked through two methods:
- Cost-based analysis
- Value-based analysis

The cost-based approach focuses on the cost parameters, which may relate to historical cost, replacement cost, or opportunity cost. The value-based approach suggests that the value of human resources depends upon their capacity to generate revenue. This approach can be further sub-divided into two broad categories: non-monetary and monetary.

The nature of resources can also be examined by allocating relative human asset values to different job grades. HRA also helps in examining expenditure on personnel and in re-appraisal of expenditure on services and training. It can also serve as a key factor in case of mergers and take-over decisions, where the human asset value becomes a relevant factor. Another very significant role, which HRA can help in creating, is goodwill for a company. The company can project itself in having best practices with superior policies in place. Experts believe that this may help the organisation attract more investments.

STAND-IN ACCOUNTS FOR HUMAN CAPITAL
The various approaches to stand-in or surrogate accounts for human capital also form an important part human capital accounting. Our main focus here is:
1. Goodwill Account
2. Research and Development Expenditure

Goodwill
Realizing the financial accounting failure, intrinsic in ignoring human capital, capitalizing the asset seems to have become the need of the hour. In certain instances, rather than show it under a separate head, human capital asset is capitalized as “goodwill.”

“Goodwill is the present value of the entity’s projected future excess earnings over the average earnings of another entity in the same industry.” There are certain conflicting views regarding goodwill. Some accounting theoreticians argue that goodwill should be written off immediately because it is not transferable, some argue the permissible maximum amortization period should be short because technology changes so swiftly, while others contend goodwill should be viewed as permanent until it has become apparent that it has declined in value. Those who argue that human capital assets should be recognized do not favour immediate write-off or the present amortization requirement for goodwill.

Research and Development
Research and development costs could be considered substitutes for human capital assets because research improves the knowledge and awareness of employees. Intellectual capital would be considered to have been increased because of the learning and understanding gained by means of engaging in the research and development. It would be thus expected that the revenues for the firms engaged in research and development would be greater as compared to the firms who have not undertaken research and developmental activities.

A number of different methods have been proposed as possible approaches to capitalizing human assets directly. One approach is to capitalize all human resource development expenses and the second approach is to capitalize unpurchased goodwill.

Capitalizing Un-purchased Goodwill
We have previously discussed the goodwill account as a substitute in many instances of human capital. A very famous method of determining human capital assets is by capitalizing un-purchased goodwill.

In this method the excess earning of an entity over the average earnings of all entities in the current year are capitalized.

First, the net income after taxes is divided by the average value of owned assets for all business entities. The determined result is the rate of net income on average owned assets. Each entity would determine its own rate of net income on average owned assets. If an entity’s net income were lower than the average for all business entities presumably it had not managed its human resources so effectively that it had capitalizable human assets. If the entity had higher than average rate of net income on average owned assets then the entity had human capital assets that could be capitalized. The excess earnings were presumably due to the application of the intellectual intelligence of the employees.

Capitalizing all Human Resource Development Expenses
If the outlook that employees are valuable assets and will provide future value to the firms is accepted then the payroll costs that optimise the value of employees in the organisation should be ideally viewed as investments in assets. Those expenditures commonly viewed as expenses but are actually related to the development and progress of human resources of the firm should be capitalized. One approach suggested for the capitalization of assets would be to capitalise the following human resource development expenses.

1. Recruiting - Offering inducement to qualified personnel to accept a particular job or profession
2. Hiring - Engaging personnel services
3. Education and providing schooling and mental development
4. Training
5. Conserving as well as preserving the health and maintaining safety
6. Utilizing - making use of employee talent
7. Evaluating - Objectively reviewing, examining and judging employee qualifications
8. Rewarding - Giving fair recompense for the valuable contributions of employees
In short, one simple approach to capitalization of assets could be capitalizing expenses, such as those in the preceding list, which are related to the development of the entity’s human resources.

ACTUAL PLACING OF HUMAN CAPITAL ON BALANCE SHEETS
A lot has been said about placing the human capital on the balance sheet but there are few who have tried to apply it into practice and one such example is that of the Government of Denmark. The Ministry of Business and Industry has issued a directive that from the trading year 2005, companies registered in Denmark will have to include information on their customers, processes and human capital in their annual reports. The information should have five measures for each parameter and comparison with the previous two years must be shown. The report should have a narrative for each set of figures. Information for investors about intellectual capital, both current and future, should occupy at least one third of the report.

Companies like Infosys, BHEL and Reliance in India have implemented HRA and few are working towards it. Infosys, which started showing human resource as an asset in its balance sheet, has been reaping high market valuations. NIIT has been following a similar method known as Economic Value Added (EVA), which also helps in assessing the real value that an employee can fetch for the company. Experts point out that companies can derive many benefits by going in for HRA. Not only can they measure the return on capital employed on total organizational assets (including the human assets), but the resources can also be planned accordingly. Once organizations realize the actual benefit of HRA and take it as a growth process, it only helps them in increasing their shareholders’ value. When a company is able to assess an individual’s worth, it helps in increasing its own worth.

THE DETERRENTS
While HRA, as a concept has been present in India for more than a decade, with BHEL taking a lead, it is only now that the awareness is being translated into application. Still there are certain deterrents in the way, like,

1. In terms of awareness and acceptance, the level is still low as many companies take little initiative to make the numbers public to shareholders, despite having the data.
2. Another major deterrent is the lack of an industry standard. This means that every company has to evolve its own standard, which can become a tedious process, considering that most of them are still involved in improving their business. Industry bodies like Nasscom can help set a standard.
3. Another aspect working against the acceptance of HRA is the need for extensive research that it entails. Many companies do not want to go into the intricacies of finding the value of their human resources. Some industry people feel, while most big companies (with a large manpower) can afford to dwell into such best practices, it is not an economically viable option for small and medium companies.
4. One cannot totally rely on this concept. Considering the dynamism of the industries, it is very difficult to predict as to what is going to be your future requirements and how technology is going to shape in the near future.
5. Finally, placing a monetary value on intangible assets, like human capital, creates the potential for abuse.

CONCLUSION
Most of researchers agree that managers, investors, and society in general would benefit from further research in HRA. The adoption of an HR measurement framework is about extending the credibility of HR on the one hand, and on the other placing human capital firmly and strategically on the organization’s balance sheet. Measurement represents a powerful tool by which HR can change the way it works and the value the organization perceives it to create. To know how to measure economic categories related to human beings means that social relations can be better understood and justified. Moreover the economic exchanges between the economic unit and society as well as between persons themselves could be better monitored and deeper recognised.

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