Inspira- Journal of Modern Management & Entrepreneurship 34

ISSN : 2231–167X, Volume 01, No. 02, October, 2011, pp.34-40

International Accounting For Social Disclosure: A Review

Dr. M.C. Gupta

International accounting may be defined as that branch of accounting

which deals with the recording and translation of foreign transactions,
preparation and presentation of consolidated foreign financial statements, and
presentation of international financial reporting in accordance with
international GAAP and auditing practices.
The purpose of accounting thus is to provide information that is useful
for decisior making. As long as the business continues to operate within its
national boundaries, generating accounting information as above is never a
challenge, for the accountant has to follow the same accounting standard, and
operate in the same social, political, economic and legal environment. Over
the last few decades however, businesses have grown more globalized
Multinational corporations have emerged in a bigger way both in quantum
and size. Trade and commerce between nations have been on rise. Cross-
border transactions involving flow of goods, services and capital are in an
ever increasing spree. With the increasing pace o globalization and economic
liberalization, particularly towards the end of the twentieth century,
executives are called upon to make decisions based on financial information
originating from other countries. These decisions range from evaluating the
performance of foreign subsidiary(ies), affiliates, joint ventures to making
credit decisions on customers belonging to other countries, and making
investment and financing decisions based on opportunities it other countries.
Since countries have their own set of socio-economic, political, legal cultural,
technological and linguistic environment, financial reporting diversities are
quite eminent. With diverse financial reports in hand, decision makers find it
difficult to make effective decisions. To overcome this difficulty and to have a
more uniform and harmonizes financial reporting across the globe, the
concept of international accounting' has gainer momentum.
Development of International Accounting
The factors, which have contributed towards the development of
international accounting are:-
1. Expansion of world trade


Assistant Professor, Department of ABST, University of Rajasthan, Jaipur
International Accounting For Social Disclosure : A Review 35

2. Emergence of multinational corporations

3. Increase in international flow of capital
4. Historical evolution o accounting
5. Need for harmonization of accounting practices.
Scope of International Accounting
The scope of international accounting is both wide and vast included
in which are the recording of foreign transactions, translation of foreign
currency, adjustment of foreign financial statements against inflation,
consolidation of foreign financial statements, financial reporting and
disclosure, segment reporting, multinational transfer pricing, international
budgeting, performance evaluation of subsidiaries, foreign exchange risk
management, international taxation, analysis of foreign financial statements,
accounting for newer financial instruments like options, swaps and other
derivative products, international joint ventures, environmental accounting,
and integration of ethics into accounting. When clubbed into major groups,
the scope of international accounting covers financial accounting,
management accounting and social and allied accounting activities as
depicted in Table 1.
Table 1
Scope of International Accounting
Financial Accounting Management Accounting Social and Allied
Accounting Activities
 Foreign Transactions  Multinational Transfer  Accounting for new
Pricing Financial Instrument
 Foreign Currency  Budgeting and  Global Joint Ventures
Translation Performance
Evaluation of Foreign
Subsidiaries
 Accounting for  Exchange Risk  Environment and
Foreign Inflation Management Social Disclosure
 Consolidated  Analysis of Foreign  Integration of Ethics
Financial Reporting Financial Statement into Accounting
and Disclosure
 Segment Reporting  International Taxation

Social Disclosure
Social disclosure primarily aims at informing general public about the
social welfare measures taken by the firm and their effects on the society. The
firm ability and success in discharging social obligation is also reflected in the
process of social disclosure.
36 Inspira- Journal of Modern Management & Entrepreneurship : October, 2011

Public enterprises in India like the bharat heavy electrical Ltd (BHEL),
Steel authority of India Ltd (SAIL) and oil and natural gas corporation
(ONGC) Ltd have been publishing social income statement and social balance
sheet, over and above the conventional and statutory financial reports, for the
use of the stakeholders. The social income statement discloses information as
regards (1) net social income to employees, (2) net social income to
community and (3) net social income to general public.
The social balance sheet reports (1) the organization's equity and (2)
the social equity contribution by the employees as the total liabilities, and (1)
social capital investment,(2) other social assets, and (3) human assets as the
total assets. Table 2 and 3 contain the format and the list of items generally
included in the social income statement and social balance sheet as found in
vogue.
Table 2
Social Income Statement
Particulars This Previous
year year
Social Benefits and Costs to Staff
1. Medical and hospital facilities - -
2. Educational facilities - -
3. canteen facilities - -
4. Recreation, entertainment and cultural activities - -
5. housing and township facilities - -
6. Water Supply, concessional electricity and transport - -
7. Training and career development - -
8. Provident fund, gratuity, bonus, insurance benefits - -
9. Holiday leave encashment and leave-travel benefits - -
10. other benefits
Total benefits to staff - -
B. Social Costs of Staff:
1. lay off and involuntary termination - -
2. Extra hours put in by officers voluntarily - -
Total cost of staff - -
Net social income to staff(A-B) - -
II Social Benefits & cost to community
A. Social Benefits Community
1. Local taxes paid to panchayat/municipality - -
2. Environmental improvements - -
3. Generation of job potential - -
4. Generation of business - -
Total social benefits to community - -
B. Social Costs to Community
Increase in cost of living in the firm's Vicinity - -
Net social income to community-II(A-B) - -
III Social Benefits and costs to general public
A. Social Benefits to General Public:
1. Taxes, duties, etc paid to the state governments - -
International Accounting For Social Disclosure : A Review 37

2. Taxes, duties etc paid to the central government - -

Total benefits to general public - -
B. Social Costs to General Public:
1. State services consumed: electricity services - -
2. Central services consumed: telephone telegrams, - -
postal services and banking - -
Total social benefits to general public- III(A-B)
Net social income to staff community - -
and General public (I+II+III)

Table 3
Social Balance Sheet
Liabilities As at As at Assets As at As at
31.3 31.3 31.3 31.3
(i) Organization - - (i) Social capital investment - -
equity - - (1) Township land - -
(ii) Social equity (2) Buildings - -
contribution a. Residential and welfare - -
by staff building - -
b. Canteen buildings - -
3. Township water supply & - -
sewerage - -
4. Township-roads - -
5. Township electrification - -
(ii) Other social assets - -
(1) Hospital equipment - -
(2) Hospital vehicle/ambulance - -
(3) School equipment - -
(4) Club equipment - -
(5) Playground/park - -
(6) School buses - -
(7) Others
Liabilities As at As at Assets As at As at
31.3 31.3 31.3 31.3
(i) Organization - - (i) Social capital investment - -
equity - - (1) Township land - -
(ii) Social equity (2) Buildings - -
contribution a. Residential and welfare - -
by staff building - -
b. Canteen buildings - -
3. Township water supply & - -
sewerage - -
4. Township-roads - -
5. Township electrification - -
(ii) Other social assets - -
(1) Hospital equipment - -
(2) Hospital vehicle/ambulance - -
(3) School equipment - -
38 Inspira- Journal of Modern Management & Entrepreneurship : October, 2011

(4) Club equipment - -

(5) Playground/park - -
(6) School buses - -
(7) Others

Advantages of International Accounting

The importance of international accounting lies with its advantages, which
have been listed below:
 It facilitates achieving harmonization of accounting practices
across nations.
 It helps in reaching out to global investors.
 It helps in taking informed decisions
 It helps in mobilizing global resources
 It help in establishing uniformity in global financial reporting and
disclosure practices.
 It helps in the professionalization of accounting education world
over.
 It helps in inculcating ethics and transparency into accounting
practices.
Contrasts in Accounting Philosophy
The major contrast associated with international accounting is its
operational complexities and diversities owing to the socio-economic,
political, cultural, technological and perceptual differences that exist among
nations worldwide. The nature and extent of these diversities vary not only
across countries but also from trivial to sustentative in term of intensity Trivial
differences are, for example, what is called sales in the US is turnover in the
UK A major difference in terms of accounting philosophy is found in
Germany where, among others, the emphasis is laid on creditor's protection
and accordingly the accounting reporting.

Table 4
Contrasts in Accounting Philosophy
on one hand on the other
primary purpose of external provide information to stock Protect creditors; guard
financing reporting holders(e g US and UK against reporting information
that will harm the company
competitively Japan and
Germany.
Guidance provided by Very specific operational and Broad principles only,
standards implementation details (e.g. allowing management
US) considerable discretion for
many transactions e.g. Japan
and Germany)
International Accounting For Social Disclosure : A Review 39

Topic covered by standard Specific individual standards No specific individual

provide extensive coverage of standard for some major
major and minor business business activities post
activities, including for employment health benefits
example how to account for in Canada, Germany and
the costs of modifying Netherlands
computer software to cope
with the year 2000 (US)
Relationship to income tax External reporting and tax Income taxes based heavily
laws reporting bases on such on externally reported
different rules that there are income e.g. Germany, France
essentially two sets of books and UK
e.g. Australia, Canada, US and
Netherlands
Reporting frequency Quarterly (US Canada, Semi- annually (UK France,
Mexico and Israel) Netherlands, Germany and
Japan
Disclosure of accounting Extensive footnote and Considerable aggregation of
adjustments (transparency) narrative discussion on; asset and liability classes, few
choices and application of footnotes, and, at most,
accounting methods, cryptic comments about how
estimation techniques, accounting standards are
transfers to and from reserves applied, transfers to and from
and provisions, and other reserves, and the basis for
accounting adjusting various accounting
entries(e.g. Australia, new adjustment (e.g.)France,
Zealand, US Canada, and UK) Japan Germany and
Switzerland)
Charges against owners' Clean surplus- virtually all No clean surplus- some
equity charges, including the charges especially those
cumulative effects of changes associated with the prior-
in accounting choices, must period effect of changes in
flow through the income accounting methods, can be
statement (e.g. US and, with made directly against
more exceptions, the UK) retained earnings(e.g.
Germany)

Conclusion
With the increasing pace of globalization and economic liberalization,
particularly towards the end of twentieth century, executives are called upon
to make decisions bases on financial information originating from other
countries. These decisions range from evaluating the performance of foreign
subsidiary affiliates, joint ventures, to making credit decisions on customers
belonging to other countries, and making investing and financing decisions
based on opportunities in other countries. Since countries since countries have
their own set of socio- economic, political, legal cultural, technological and
40 Inspira- Journal of Modern Management & Entrepreneurship : October, 2011

linguistic environment, financial reporting diversities are quite eminent. With

diverse financial reports in hand, the decision makers find it difficult to make
effective decisions. To overcome this difficulty and have a more uniform and
harmonized financial reporting across the globe, the concept of 'international
accounting has gained momentum.
International accounting has both advantages and limitations. Its
major advantages relate to achieving harmonization of accounting practices
across nations, reaching out to global investors, making informed decisions,
mobilizing global resources, establishing uniformity in global financial
reporting and disclosures practices, professionalizing accounting education
world over and inculcating ethics and transparency into accounting practices.
Its limitation lie with effect that a uniform accounting practices world is
difficult, if not impossible due to the presence of socio-economic, political
cultural, technological and perceptual differences among nations.

References
1. Evans, T.G., Taylor, M.E. and Holzman, O., International Accounting and Reporting,
Macmillan, New York, 2005.
2. Rathore, S., International Accounting, Prentice-Hall of India, New Delhi, 2006.
3. Saudagaran, S.M., International Accounting- A user perspective, Taxman India, 2011 P.
192.
4. Mohapatra, A.K. Das, International Accounting, Prentice-Hall of India, New Delhi,
2007.
5. NSE Fact Book, 2007.