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1. Introduction
Since the introduction of Liberalization, Privatization,
and Globalization (LPG) in 1991, the researchers in the
literature of accounting are finding greater interest in
Indian GAAPs (set by ICAI, the Institute of Chartered
Accountants of India). The proposition is whether Indian
accounting practices are approaching to be harmonized
with the International Financial Reporting Standards
(IFRSs) or not. Harmonization focuses on elimination
of divergence among the individual elements in the
accounting standards and reduction of contradictions
among themselves as well (Kleekmper et al., 2002). In
essence, the endeavor of the harmonization process is
either to reduce or to overcome the differences in various
accounting policies to convey crystal set of uniform
accounting information to provide better comparability of
financial statements.
2. Literature Review
On formulation of new accounting standards, the
accounting body in India, ICAI always tries to follow the
IFRS concerned and the prevailing departure is mostly
contributed by the legal system, customs, and usages in the
country (Chander, 2006; pp. 3-4), and still there is a gap
on the matter of harmonization. Developed countries like
Canada and China have announced their harmonization
target by 2011 and 2008 respectively (ICAI, 2007) while
ICAI till date has not come up with any target deadline
and its status in addressing the issue of harmonization
* Assistant Professor in the Department of Commerce, Rabindra Mahavidyalaya, Hooghly,West Bengal, India.
** Professor, The Department of Commerce, The University of Burdwan, West Bengal, India.
*** Assistant Professor, Department of Commerce, Rajiv Gandhi University, Doimukh, Itanagar, Arunachal Pradesh, India.
Methodology
The process of harmonization begins with diversity (in
accounting practices), which reduces over the periods.
In the stage of diversity, firms within the industry are
examined and compared by distinguishing the issues related
to conformity and diversion. This stage pursues towards
harmonization and construction of index and application
of the same for a few accounting standards. Throughout
this process, the degree of comparability measure is
achieved. The ending is standardized situation, where
homogeneity and uniformity exist. In a stipulation of
uniformity, there would be similar accounting principles
and practices. In the following, we construct the index
and measure the level of harmonization.
Level of Harmonization
The level or degree of harmonization of financial
statements of different companies in the same industry
can be compared by using any of the following methods.
However, the empirical results of the study are derived
using the last method.
(i) Comparability Index (I index): This method is used
to compare the results of accounting data / figures
under the local GAAP and the foreign GAAP. Here,
I-Index = 1- [(RA-RD) / RA]. Where, RA = Adjusted
figure under the foreign GAAP, RD = Disclosed figure under local GAAP. Here, if I Index >1, Local
GAAP is said to be less conservative than the foreign GAAP; if I Index =1, Local GAAP and foreign GAAP give the same result, i.e., no difference;
and, if I Index < 1: Local GAAP is more conservative than the foreign GAAP.
(ii) Herfindhal Index (H- Index): The method is used
to compare the number of accounting policies that
may be disclosed under the local GAAP. H-Index
n
N ( N 1)
ni (ni 1)
1
full harmonization the (C ) index becomes , and for
N
0
Range of Policies
Total
2005-06
%
Total
2006-07
%
Total
2007-08
%
Total
2008-09
%
Total
Less than 15
19
63.33
13
43.33
10
33.33
30
23.33
15 25
11
36.66
16
53.33
19
63.33
18
60
18
60
3.33
10
10
16.67
30
30
30
100
More than 25
Total
30
30
30
Total
LIFO
FIFO
Weighted Average (WA)
Both FIFO and WA with
exceptions (FIFO&WA)
Varied Valuation
Not disclosed
Total
Table 3:
Method
WDV
Straight Line (SL)
Vary with assets
Not disclosed
Total
2004-05
Method
2005-06
%
Total
2006-07
%
Total
2007-08
%
2008-09
Total
Total
2
4
9
6.67
13.33
30
1
5
10
3.33
16.67
33.33
1
7
7
3.33
23.33
23.33
0
8
8
0
26.67
26.67
0
8
7
0
26.67
23.33
20
16.67
16.67
13.33
10
5
4
30
16.67
13.33
100
5
4
30
16.67
13.33
100
6
4
30
20
13.33
100
7
3
30
23.33
10
100
9
3
30
30
10
100
11
15
4
0
30
2005-06
%
36.67
50
13.33
0
100
Total
8
17
5
0
30
2006-07
%
26.67
56.67
16.67
0
100
Total
8
19
3
0
30
2007-08
%
26.67
63.33
10
0
100
Total
7
21
2
0
30
2008-09
%
23.33
70
6.67
0
100
Total
6
21
3
0
30
20
70
10
0
100
Table 4:
Method
Total
Table 5:
2005-06
%
13
2
5
7
9
30
Total
43.33
6.67
16.67
23.33
30
100
2006-07
%
9
2
4
8
7
30
Total
30
6.67
13.33
26.67
23.33
100
2007-08
%
8
1
4
10
7
30
Total
26.67
3.333
13.33
33.33
23.33
100
2008-09
%
9
0
5
11
5
30
Total
30
0
16.67
36.67
16.67
100
7
0
5
13
5
30
23.33
0
16.67
43.33
16.67
100
Methods
Deferred (only)
Wholesome (only)
Both depending on policy
Varies based on nature of expenditure
Not fully disclosed
Total
2004-05
2005-06
Total %
Total
4
5
4
3
14
30
13.33
16.67
13.33
10
46.67
100
2
3
7
7
11
30
2006-07
%
6.67
10
23.33
23.33
36.67
100
Total
0
2
9
10
9
30
2007-08
%
0
6.67
30
33.33
30
100
Total
0
2
12
7
9
30
2008-09
%
0
6.67
40
23.33
30
100
Total
0
2
14
5
9
30
0
6.66
46.67
16.67
30
100
Table 6:
years
2004-05
2005-06
2006-07
2007-08
Accounting Issue
Accounting Policies Disclosed (AS1)
Inventory Valuation (AS2)
0.519
0.171
0.455
0.186
0.503
0.167
0.441
0.197
C
0.423
0.209
0.381
0.335
0.267
0.4
0.211
0.232
0.464
0.229
0.271
0.533
0.255
0.285
0.524
0.273
0.317
Table 7:
2008-09
years
2004-05
2005-06
2006-07
2007-08
600
322
0.287
P. H.
600
360
0.359
P. H.
600
381
0.402
P. H.
600
438
0.532
P. H.
2008-09
600
455
0.574
P. H.
1 P.H. and F.H. indicates partial harmonization (full harmonization) in terms of partial C-index (C index) value. Even though
within the process of harmonization in India, newer A.S. s like A.S.23, 24, 26, 27, 28,and 29 were introducing by I.C.A.I. by
year after year, a few firms have taken their initiative to disclose these information. Thus, No of firms (30 ) * No of Accounting
Issues Considered ( 20 ) = 600. PH indicates partial harmonization.
2005-06
2006-07
2007-08
2008-09
(C )
(C )
(C )
(C ) N
(C )
Disclosure of
Accounting Policies
30
100.0
0.05
30
100
0.05
30
100
0.05
30
100
0.05
30
100
0.05
Valuation of
Inventories
30
100.0
0.05
30
100
0.05
30
100
0.05
30
100
0.05
30
100
0.05
AS 3 Cash Flow
Statements Changes
25
in Accounting Estimates and Errors
83.33
0.04
27
90
0.045
26
86.66
0.043
27
90
0.045 28
93.33
0.047
Contingencies and
Events Occurring
after the Balance
Sheet Date
16.66
0.008
20
0.01
16.66
0.008
23.33 0.012 8
26.67
0.013
Depreciation Accounting
30
100.0
0.05
29
96.66
0.0483
28
93.33
0.046
29
96.66 0.048 30
100
0.05
Revenue Recognition 30
100.0
0.05
30
100
0.05
30
100
0.05
30
100
100
0.05
11
The Effects of
Changes in Foreign
Exchange Rates
16.66
0.008
12
40
0.02
15
50
0.025
22
73.33 0.036 28
93.33
0.047
13
Accounting for
Investments
22
73.33
0.036
23
76.66
0.038
21
70
0.035
23
76.66 0.038 24
80
0.04
26
AS.
No.
Indian Accounting
Standards
0.05
30
15
Employee Benefits
25
83.33
0.041
86.66
0.043
26
86.66
0.043
23
76.66 0.038 28
93.33
0.047
16
Borrowing Costs
23.33
0.0116 9
30
0.015
10
33.33
0.016
12
40
0.02
40
0.02
17
Segment Reporting
12
40.00
0.02
15
50
0.025
17
56.66
0.028
21
70
0.035 22
73.33
0.037
18
15
50.00
0.025
18
60
0.03
20
66.66
0.033
25
83.33 0.041 26
86.67
0.043
12
19
Leases
30.00
0.015
11
36.66
0.018
15
50
0.025
16
53.33 0.026 18
60
0.03
20
15
50.00
0.025
18
60
0.03
22
73.33
0.036
25
83.33 0.041 28
93.33
0.047
22
83.33
0.041
25
83.33
0.041
26
86.66
0.043
26
86.66 0.043 26
86.67
0.043
23
23.33
0.048
10
33.33
0.103
11
36.66
0.126
11
36.66 0.126 12
40
0.02
26
Intangible Assets
16.67
0.023
23.33
0.048
10
33.33
0.103
12
40
0.151 12
40
0.02
27
Financial Reporting
of Interests in Joint
Ventures
13.33
0.014
26.66
0.064
23.33
0.048
30
0.08
10
33.33
0.017
28
Impairment of Assets 12
40
0.152
15
50
0.241
17
56.67
0.31
23
76.66 0.58
24
80
0.04
29
30
0.082
11
36.66
0.126
15
50
0.24
27
90
28
93.33
0.047
0.80
5. Conclusion
On harmonization, there are different opinions on the
theoretical points of views and empirical point of views
as well. In order to ensure uniformity, the firms in the
Indian pharmaceutical industry are following the Indian
Accounting Standards and are adopting disclosure
practices theoretically. There is diversity regarding the
disclosure of information. The increase in international
capital market activities due to LPG, and possibility of
the variety of approaches regarding the recording of same
transaction in various alternative manners within each
accounting standard, the scopes for harmonization are
limited. This implies that all accounting standards have
to be made mandatory; otherwise it will be extremely
difficult for Indian investors to trust on the corporate
reporting practices. However, the study forwards a few
suggestions.
References
Archer, S., Delvaille, P. & McLeay, S. (1996). A Statistical
Model of International Accounting Harmonization.
Abacus, 32, pp. 1 - 29.
Archer, S., Delvaille, P. & McLeay, S. (1995).
The Measurement of Harmonization and The
Comparability of Financial Statement Items: WithinCountry and between Country Effects. Accounting
and Business Research, 25, pp. 67 - 80.
Benzacar, K. (2008). IFRS The Next Accounting
Revaluation. CMA Management, June/July, pp. 26
- 30.
Chander, A. (2006). Review of Practical Implementation
Issues of International Financial Reporting
Standards, United Nations Conference on Trade and
Development. Retrieved from http://unctad.org/en/
docs/c2isard33a3_en.pdf.
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