Module 5.

Recent Development in Accounting And Accounting

Standards.

Human Resource Accounting- Environmental Accounting disclosure as per Global Reporting

Initiative ( GRI) Reporting Variables- Social Responsibility accounting. Indian Accounting
Standards – Meaning- Objectives- significance of accounting Standards – Process of setting
Accounting Standards in India – List if Indian Accounting Standards ( IND AS)

Meaning of Human Resource Accounting

Human resource accounting is the art of valuing, recording, and presenting the work of all
human resources in an organization’s accounts. It can help management make vital decisions
about selection, layoff, transfer, training , promotion etc.

Human Resource Accounting tracks and manages employees’ costs and values, including
performance, compensation, benefits, and training. HR professionals use various tools to track
and analyze data, such as employee surveys, performance reviews, and compensation and
benefits reports. In addition to tracking employee performance, HR professionals also need to
track the performance of the organization as a whole.

Definition of Human Resource Accounting

American Accounting Association (1973). “Human resource accounting is the

process of identifying and measuring data about human resources and
communicating this information to interested parties.”

Stephen Knauf (1983) “Human resource accounting (HRA)refers to the

measurement and quantification of human organizational inputs such as
recruiting, training, experience, and commitment”.

Ravindra Tiwari (2012) “Human resource accounting is an attempt to identify,

quantify and report investment made in Human resources of an organization that
is not presently accounted for under conventional accounting practice.”
Features of Human Resource Accounting

1. Human Resource Management

2. Employee Benefits
3. Payroll
4. Compensation
5. Human Capital
6. Records Management
7. Benefits Administration
8. Recruitment & Selection

Features of Human Resource Accounting - Explanation

1. Human Resource Management: It involves everything from hiring to training

and development.
2. Employee Benefits: This includes health insurance and retirement benefits.
3. Payroll: Includes things like payroll taxes, employee overtime costs, and other
expenses related to compensation and payroll processes
4. Compensation: It includes salary, bonuses, stock options, and other forms of
payment that employees receive are included.
5. Human Capital: Includes work hours, absenteeism, turnover rates, etc.
6. Records Management: This involves everything from keeping track records for
accounting .
7. Benefits Administration: This involves keeping track of benefits provided by
employers, such as vacation days or paid time off.
8. Recruitment & Selection - This involves recruiting new employees as well as
screening job applicants to fit into the organization’s system.

Methods of Human Resource Accounting

Different methods of Human Resource Accounting are :
• Historic Cost Method
• Replacement Price Method
• Present value of future earnings Method
• Procurement Cost Approach Method
• Replacement Cost Method
• Competitive Bidding Method
 Methods of Human Resource Accounting – Explanation
• Historic Cost Method : Historical costs are based on actual human resources expenses.
There are two types of such expenses: purchase expenses and learning expenses. Training
and development expenses are included in the acquisition price.

• Replacement Price Method: Unlike historical price, which considers the actual price
sustained by workers, substitute expense considers the nationwide cost of replacing
today's employees.
In order to calculate the replacement price, various kinds of expenditures are considered,
both in terms of procurement and price determination.

• Present value of future earnings Method : In this method, the value of future earnings
for a number of individuals is approximated as much as their retired life. It is marked
down at a predetermined price to acquire the here-and-now value of such revenues.
Today's worth of future revenues is used when it comes to financial assets, but this
approach does not result in an appropriate measurement of human resources.

• Procurement Cost Approach Method: A key aspect of this method is the capitalization
of historical costs. The company incurs these costs to improve its business performance.
The expenses incurred in employment are capitalized and written off over a period of
time.
• Replacement Cost Method : Under this technique, one considers how much it costs to
replace existing sources as well as, thus, how much it costs to replace a company's
current human resources.

• Present Value of Future Profits Method: The capitalization of wage technique is

another method to capitalize wage income. It involves estimating future earnings up to
the employee's or worker's retirement age and marking the worth accordingly to acquire
the present value.

• Competitive Bidding Method: This is also known as the opportunity cost method.
Opportunity cost is the tangible benefit of choosing an alternative path Once HRA has
been audited, each bidder's total amount of capital expended is recorded. The return on
investment is determined by comparing the dollar amount bid with the amount spent.

Benefits of Human Resource Accounting

Human Resource Accounting is a process that helps organizations manage their human resources. There
are many advantages to using HR accounting software, including:

• Assists in Determining ROI - HRA is an accounting system that recognizes the expense made
on an organization's personnel. Once the investment is computed, an organization can quickly
calculate the exact ROI by determining the earnings made by the organization.
• Inspires Employees - Staff members get motivated to enhance themselves once they familiarize
their real value in the eyes of the personnel accounting system of the organization.
• Boosts Process of Choice Making - HRA works as a centre to get information about the actual
value of personnel operating in the organization. This information assists the administration in
making appropriate choices regarding organizational concerns.
 • Sign of Health of the organization - HRA functions as an indication of the well-being of any
kind of organization. The quantity of investment made on the personnel of any organization helps
in the accumulation of the amount of revenue that might be gained in the future.

• Assist in Manpower Requirement for Recruitment - HRA reports on the changes in obtaining
returns as well as how much expense needs to be made on the manpower of the organization. If
the earnings are high demand for hiring brand-new staff members, and if no earnings are gained,
no more employment occurs. These decisions are based on the information given by HRA.

• Ascertains Unfavorable Results of the Programs - HRA system additionally assists in

establishing the negative impacts of numerous programs running in the organization.

• Facilitates Organizing and Executing HR Plans - HR policies of an organization include plans

regarding human resources functions such as promotion, training, demotion, transfer etc.
Appropriate organization and implementation of these plans are vital for every organization's
smooth functioning. This feature is controlled by the Human Resource Accounting system of an
organization.

Environmental Accounting

Meaning
Environmental accounting refers to the practice of identifying ,
measuring and reporting on the environmental impact of an
organization’s activities.

Definition

Environmental accounting, as defined in these guidelines, aims at achieving sustainable

development, maintaining a favorable relationship with the community, and pursuing effective
and efficient environmental conservation activities.

Forms of Environmental Accounting

1. Environmental Management Accounting (EMA)
2. Environmental Financial Accounting (EFA)
3. Environmental National Accounting (ENA) :

1. Environmental Management Accounting (EMA)

This is an accounting with a particular focus on material and energy
flow information and environmental cost information.

Sub-systems
This type of accounting can be further classified in the following sub
Systems :

a) Segment Environmental Accounting (SEA) :

This is an internal environmental accounting tool to select an investment
activity, or a project, related to environmental conservation from among
all processes of operations, and to evaluate environmental effects for a
certain period.

b) Eco Balance Environmental Accounting (EBEA) :

This is an internal environmental accounting tool to support PDCA for
sustainable environmental management activities.

c) Corporate Environmental Accounting (CEA) :

This is a tool to inform the public of relevant information compiled in
accordance with the Environmental Accounting. It should be called as
Corporate Environmental Reporting..For this purpose the cost and effect
(in quantity and monetary value) of its environmental conservation
activities are used.

2. Environmental Financial Accounting (EFA) :

This is a financial accounting with a particular focus on reporting
environmental liability costs and other significant environmental costs.

3. Environmental National Accounting (ENA) :

This is a national Level accounting with a particular focus on natural
resources stocks and flows, environmental costs and externality costs
etc.

The Global Reporting Initiative ( GRI)

The Global Reporting Initiative is a leading organization that sets standards for sustainability
reporting . GRI provides guidelines for reporting on a range of sustainability issues, including
environmental impacts. The GRI Standards include specific requirements for environmental
reporting.

Specific Requirements for GRI Standards for Environmental Reporting

The GRI Standards includes specific requirements for

 environmental reporting, such as:
1. Disclosure of organization’s environmental Policy
2. Reporting on organization’s Environmental impacts.
3. Reporting on organization’s Environmental performance
4. Describing organization’s environmental initiatives.

Specific Requirements for GRI Standards for Environmental Reporting- Explanation

The GRI Standards includes specific requirements for environmental reporting, such as:
1. Disclosure of organization’s environmental Policy:
Disclosure of organization’s environmental Policy and management systems.
2. Reporting on organization’s Environmental impacts.
Reporting on organization’s Environmental impacts, such as green house gas
emissions, water use and waste generation.
3. Reporting on organization’s Environmental performance
Reporting on organization’s Environmental performance, such as energy
efficiency, renewable energy use and waste reduction efforts.
4. Describing organization’s environmental initiatives.
Describing organization’s environmental initiatives. Such as environmental
education programs and community outreach efforts.

By adhering to the GRI Standards for environmental reporting, organizations can

provide transparent and comprehensive information about their environmental
impacts and performance.
This can help stakeholders, including investors, customers and employees, make
informed decisions and hold organizations accountable for their environmental
impact.

Advantages of Environmental Accounting

i) Discloses Utilization of Natural Resources :

Environmental accounting is helpful in presenting in a transparent manner, the utilization of
natural resources of the country, the costs incurred to use them and the income earned there
from.

ii) Social Contribution by Corporations :

Environmental accounting helps in measuring the contribution made by various corporations or
companies in fulfilling their social responsibilities.
iii) Environmental Protection :
A business enterprise does not live in isolation. In order to maximize wealth, it takes support of
social and ecological systems. Environmental accounting helps in measuring the extent to which
a corporate enterprise has utilized the environmental resources. In any case, it has to be seen that
a business enterprise in the course of their business activities does not vitiate, pollute or endanger
environment. As a matter of fact, a number of laws have been enacted in our country to protect
the environment.

Limitations of Environmental Accounting

The present format of national accounts does not provide a full economic value of environmental
resources. The following are a few limitations :

i) Non-recognition of Environmental Expenditure

Expenditure incurred to protect the environment or preventing it from degradation cannot be
separated from the SNA data as per the present system of national accounts.

ii) Non-marketed Goods and Services

Environment provides certain goods which are of high value but are not sold in the market.
These may include firewood, building materials generated in the forests, medicinal plants, etc.
Some countries do not incorporate these goods in their national accounts. However, they
compute the marketable value of similar products and use it as a basis for valuing non-marketed
goods and services.

iii) Consumption of Natural Capital

The system of national accounts treats the gradual depletion of physical assets such as plant and
equipment as depreciation However, depletion of natural capital particularly the forest is treated
as income. This seems to be an inconsistent approach. It will be appropriate to treat the depletion
of natural capital, on the same pattern of that of depletion of physical assets.

Social Accounting ( Social Responsibility Accounting) - Meaning

Social Accounting, also known as Social Responsibility Accounting, is a part of an evolving

corporate reporting system that assesses and takes responsibility for the company’s effects on the
environment and its impact on social welfare. It is a concept that has been introduced to better
articulate the measures that contribute to long-term value and the role organizations play in
society. It goes beyond the profit motive of businesses and focuses on sustainable development.
Social Accounting - Definitions

The Institute of Chartered Accountants of India or the ICAI defined it as “Social accounting is a way
of measuring, understanding, reporting and ultimately improving an organization's social and ethical
performance”.

Richard Dobbins and David Fanning defined it as “the measurement and reporting of information
concerning the impact of an entity and its activities on society”.

Kohler defined Social Accounting as “the application of double-entry book-keeping to socio-economic

analysis”.

Need for Social Accounting

Social Accounting determines whether the organization’s

goals, policies, programs and strategies are consistent with
society. Therefore, businesses are not only accountable to
shareholders but also to other stakeholders including:

• Environment.
• Customers.
• Employees
• Suppliers.
• Business partners.
• Local communities.
• Regulators

Features of Social Accounting

• Social Accounting establishes a relationship between business and society

• Social Accounting comprises both Social costs, as well as Social benefits
• Social Accounting, is related to the use of Social resources
• Social Accounting accounts for the company's Social responsibilities.

Benefits of Social Accounting

• It goes beyond quantitative measures and also takes into account

 qualitative measures.
• It builds a sense of trust in society through its transparency.
• It helps in enhancing the goodwill of the company in eyes of society.
• It helps companies to build relationships with society.
• It assists companies to identify their social responsibilities and also aids in
future decision-making.

Limitations of Social Accounting

• It is a time-consuming process.
• Lack of standardization may make financial statements incomparable.
• The cost of maintaining such a system may outweigh its benefits.
• It may not be very useful for investors who invest purely on the basis of
financial factors

Indian Accounting Standards ( Ind AS)

The Indian Accounting Standards ( Ind AS) are a set of accounting standards adopted by Indian
companies that are based on International Financial Reporting Standards ( IFRS).

Objectives of Indian Accounting Standards

The objectives of Indian Accounting Standards are as follows:

1. To improve quality and consistency of financial reporting.

2. To ensure transparency and comparability
3. To enhance the credibility of financial statements
4. To facilitate global integration
5. To promote better corporate governance .

Objectives of Indian Accounting Standards – Explanation

1. To improve quality and consistency of financial reporting.

Indian As aims at to improve the quality and consistency of financial reporting by ensuring
that companies follow uniform accounting practices. This helps investors , analysts, and
other stakeholders make informed decisions based on the financial statements.

2. To ensure transparency and comparability

Ind As promotes transparency and comparability by requiring companies to disclose
relevant information in a standardized format. This enables the stakeholders to compare the
financial performance of various companies and make better informed decisions.

3. To enhance the credibility of financial statements

Ind AS aims to enhance the credibility of financial statements by requiring companies to
follow a set of well established accounting principles. This increases the reliability of
financial statements and reduces the risk of financial fraud or misrepresentation.

4. To facilitate global integration

Ind As facilitates global integration by aligning Indian Accounting Standards with
international best practices. This makes it easier for Indian companies to do business
globally and improves their access to international capital markets.

5. To Promote better corporate governance

Ind AS promotes better corporate governance practices by requiring companies to provide
more detailed and transparent financial information , reducing risk of fraudulent financial
reporting and enhancing the confidence of the stakeholders in the financial statements.

Significance of Indian Accounting Standards

Indian Accounting Standards are significant for various reasons. They have had a major impact
on financial reporting in India and have improved the quality and transparency of financial
statements. The following points are considered for significance of Indian Accounting Standards.

1. Improves comparability and consistency

2. Promotes transparency
3. Better access to global capital markets
4. Improved risk management
5. Greater accountability

Significance of Indian Accounting Standards – Explanation

1. Improves comparability and consistency

Ind As has led to improved comparability and consistency of financial
statements across companies. This is because Indian accounting Standards
provides a standardized framework for accounting practices , which makes
it easier for stakeholders to understand and compare financial statements.

2. Promotes transparency
Ind AS has increased the transparency of financial statements by requiring
companies to disclose more information about their financial position and
performance.

3. Better access to global capital markets

Ind AS has helped Indian companies to access global capital markets by
 aligning Indian Accounting Standards with international best practices.
This has increased the credibility of Indian financial statements and make it
easier to Indian companies to raise funds from global investors.

4. Improved risk management

Ind AS has helped companies to improve their risk management practices
by providing a clearer picture of their financial position and performance.
This has reduced the risk of financial frauds and misrepresentation and
improve the credibility of financial statements.

5. Greater accountability
Ind AS has increased the accountability of companies by requiring to
follow a set of well established accounting principles. This improves the
credibility of financial statements.

Overall , Indian Accounting Standards play a crucial role in the financial

reporting and decision making process of businesses operating in India.

Process of setting Accounting Standards in India

The process of setting Indian Accounting Standards ( IND AS) involves the following steps:

1. Constitution of standard setting body

2. Identifying issues and developing standards
3. Exposure draft and public comment
4. Analysis of public comments
5. Approval by the Council of ICAI
6. Notification by the Ministry of Corporate Affairs.
7. Periodic review and revision

Process of setting Accounting Standards in India - Explanation

1. Constitution of standard setting body

The Institute of chartered Accountants of India ( ICAI) is the authorized body
responsible for setting accounting standards in India . the ICAI has a separate
Accounting Standards Board ( ASB) that is responsible for the formulation and
revision of accounting standards in India.

2. Identifying issues and developing standards

The ASB identifies emerging issues and areas that requires accounting standards .
the ASB then develops draft accounting standards taking into account the IFRS
and other international accounting standards as well as local regulatory
 requirements.
3. Exposure draft and public comment
The ASB issues the draft accounting standards as an exposure draft for public
comment. Interested stakeholders , including businesses and industrial bodies ,
regulators and general public are invited to public feedback on the draft standards.

4. Analysis of public comments

The ASB analyzes and reviews the feedback received from the stakeholders, and
makes changes to draft standards as necessary.

5. Approval by the Council of ICAI

The final draft of accounting standards is submitted to the Council of ICAI for
approval.

6. Notification by the Ministry of Corporate Affairs.

Once approved by the ICAI , the accounting standards are submitted to the
Ministry of Corporate Affairs for notification. Once notifies, the standards become
mandatory for all relevant entities.

7. Periodic review and revision

The ASB periodically reviews and revises the accounting standards to ensure that
they remain relevant and up to date taking into changes in accounting practices,
business models and regulatory framework.

List of Some of the Important Indian Accounting Standards (Ind AS).

1. AS 1 – Disclosure of Accounting Practices

2. AS 2 – Valuation of Inventories
3. AS 3 – Cash flow Statements
4. AS 4 – Contingencies and events occurring after the Balance sheet date.
5. AS 5 – Net Profit or Loss for the period , prior period items and changes
in accounting policies.
6. AS 10 – Property, Plant and Equipment .
7. AS 11 – The effects of changes in foreign exchange rate.
8. AS 16 – Borrowing costs.
9. AS 17 – Segment Reporting.
10. AS 18 – Related party disclosures.

List of Indian AS related to preparation of Financial Statements.

1. AS 6 –Depreciation Accounting
2. AS 7 – Construction contracts.
3. AS 8 – Accounting for Research and Development
 4. AS 9 – Revenue Recognition
5. AS 12 – Accounting for Government Grants
6. AS 13 – Accounting for Investments.
7. AS 14 – Accounting for Amalgamations.
8. AS 15 – Employee benefits.
9. AS 19 – Leases.
10. AS 20 – Earning Per Share

List of Indian AS related to preparation of Balance Sheet

1. AS 1 – Disclosure of Accounting Practices

2. AS 2 – Valuation of Inventories
3. AS 10 – Property, Plant and Equipment .
4. AS 13 – Accounting for Investments.
5. AS 15 – Employee benefits.
6. AS 17 – Segment Reporting.
7. AS 21 – Preparation of consolidated Balance Sheet.
8. AS 29 -– Provisions , Contingent Liabilities and
Contingent Assets.

List of Indian AS related to preparation of Statement of Profit and Loss

1. AS 1 – Disclosure of Accounting Practices

2. AS 2 – Valuation of Inventories
3. AS 9 – Revenue Recognition
4. AS 10 – Property, Plant and Equipment .
5. AS 11 – The effects of changes in foreign
exchange rate.
6. AS 13 – Accounting for Investments
7. AS 15 – Employee benefits.
8. AS 17 – Segment Reporting.
9. AS 18 – Related party disclosures
10. AS 28 – Impairment of Assets.

List of Indian AS related to Taxation

• AS 22 – Accounting for Taxes on Income

• AS 29 – Provisions , Contingent Liabilities and Contingent
Assets.
• AS 31 – Financial Instruments Presentation.
• AS 12 – Accounting for Government Grants
• AS 17 – Segment Reporting
• AS 18 – Related party disclosures