Table of Content

Title Page no.

Introduction 3

Review of Literature 4-9

Core/Concepts Analysis 9 - 12

Conclusion 13 - 14

Bibliography 15
 Accounting Policies Followed by Sole Trading
Concerns and NPOs in India vs. France

Introduction

Accounting policies are the principles and methods adopted

by entities for preparing financial statements, ensuring
transparency, consistency, and compliance with regulatory
frameworks. This assignment compares the accounting
policies followed by sole trading concerns and Non-Profit
Organizations (NPOs) in India and France. While both
countries emphasize accurate financial reporting, the cultural,
economic, and regulatory differences influence their
accounting frameworks, providing unique insights into their
bookkeeping practices and financial performance.
India, with its diverse and developing economy, exhibits
varied approaches to accounting policies, influenced by the
size and resources of the entities. Conversely, France, as a
developed economy, adopts a more structured and
standardized approach. This analysis delves into the historical
evolution of accounting systems, regulatory frameworks, and
practical applications in these countries, focusing on sole
trading concerns and NPOs.
 Review of Literature (India vs France)

1. India
In India, accounting practices are shaped by guidelines known as the
Accounting Standards (AS), which are developed by the Institute of
Chartered Accountants of India (ICAI). These standards help ensure
that financial records are maintained systematically and consistently.
For sole proprietors—individuals running small, owner-operated
businesses—the choice of accounting method usually depends on
personal preference and available resources. Two common
approaches are:
• Cash basis: Recording transactions when money is actually
received or paid.
• Accrual basis: Recording transactions when they are incurred,
even if payment hasn’t been made yet.
Non-Profit Organizations (NPOs) in India, like charities or
community groups, face additional legal requirements. They must
follow laws such as:
• The Societies Registration Act, 1860, which governs how
societies are registered and managed.
• The Income Tax Act, 1961, which ensures their financial
records are clear and tax-compliant.
These laws are important because they make sure NPOs operate
transparently, building trust with donors and beneficiaries.
Key Principles in Indian Accounting:
• Prudence: This means being cautious. Accountants avoid
overstating income or assets, ensuring financial records don’t
paint an overly optimistic picture.
 • Materiality: Focus is placed on recording information that truly
matters and could influence decisions, so no important details
are left out.
• Consistency: By using the same accounting methods every
year, it becomes easier to compare financial records over time.

An important change in India’s financial landscape was the

introduction of the Goods and Services Tax (GST). GST is a tax
system that combines several indirect taxes into one. While it
simplifies tax collection for the government, it has made accounting
more complex for sole traders, who now need to adjust their
bookkeeping to comply with this system.

2. France
In France, accounting is governed by a standardized system called the
Plan Comptable Général (PCG). Think of this as a rulebook for how
businesses and organizations should manage their financial records.
This system applies to everyone—whether you’re running a small
business or a large corporation.
One key feature of the French accounting system is its alignment with
the European Union’s directives. This ensures that financial reporting
is consistent not just within France but also across other EU countries.
French businesses commonly use the accrual basis of accounting,
which is considered more accurate because it records transactions
when they happen, rather than when money changes hands.
Key Features of French Accounting:
• Uniformity: All entities, big or small, must use a standardized
chart of accounts. This makes it easier to compare and analyze
financial records across organizations.
• Transparency: French accounting emphasizes clear and detailed
disclosures so that stakeholders—like investors, donors, or
 government authorities—can trust the financial information
provided.
• Regulatory Compliance: Businesses must follow EU standards
along with national laws, ensuring they meet international and
local expectations.
For NPOs in France, there are specific rules under laws like the Law
of Associations (1901). These organizations must prepare detailed
financial statements, including:
• Balance sheets: A snapshot of what the organization owns
(assets) and owes (liabilities).
• Income statements: A summary of their revenues and expenses.
• Activity reports: A breakdown of how they used their resources
for various projects or activities.
These rules promote accountability, ensuring that funds are used for
the intended purposes.

3. Comparative Studies between India and France

The Research has shown that the accounting systems in India and
France are influenced by their cultural, regulatory, and economic
environments. Here’s what some studies have revealed:
• Regulations and Compliance:

o In India, sole proprietors often run their businesses

informally. They may not follow strict accounting
practices unless absolutely necessary. This is partly
because the regulatory environment for small businesses in
India is more lenient. o In France, on the other hand, sole
 proprietors must follow a structured accounting system
because of stricter laws and higher expectations of
compliance.

• Challenges Faced by NPOs:

o Gupta and Kumar (2021) observed that Indian NPOs often

struggle to adopt the accrual basis of accounting. This is
because many of them operate with limited resources and
lack access to proper training or support. o French NPOs
have a smoother experience due to the robust frameworks
already in place, making it easier for them to comply with
rules.

• Global Influences:

o Patel and Dubois (2022) explored how globalization is

influencing accounting practices. With international
standards like the International Financial Reporting
Standards (IFRS) becoming more common, countries like
India and France are gradually moving toward a more
unified system.
This trend of convergence shows how global collaboration and trade
are shaping accounting practices, making them more standardized
across different nations.
Core Content

1. Accounting Policies: Accounting policies are the specific

procedures implemented by a company's management team that are
used to prepare its financial statements. These include any accounting
methods, measurement systems, and procedures for presenting
disclosures.

Accounting policies differ from accounting principles. Accounting

principles are the accounting rules, and the policies are a company's
way of adhering to those rules.

Accounting Policies are set up by International Financial Reporting

Standards (IFRS) Foundation. It provides a globally consistent
framework for accounting.

Requirement of Accounting Policies:

Accounting policies were created to ensure consistency,
transparency, and comparability in the financial reporting of
organizations. The need for accounting policies arose due to several
factors in the evolving landscape of business and finance in the
international market.

1. Consistency in Financial Reporting

Accounting policies ensure that financial statements are
prepared in a consistent manner from one period to another,
making them reliable for users like investors, creditors, and
regulators.
 In the absence of these accounting policies the data of different
organisations would be presented in their own way and there
will be no standardisation and the companies could also
manipulate the financial statements.

2. Comparability Between Companies

Accounting policies help create a level playing field by ensuring
companies in the same industry or country follow similar
accounting principles.
Eg- In the absence of standardised accounting policies an
investor will not be able to compare the financial position of 2
companies as the method of preparation of their books of
account is different.

3. Transparency
The accounting policies are universal, this prevents companies
from misrepresenting their books of accounts to manipulate the
investor’s perspective regarding their company. It also helps the
shareholders and the government to understand the methods
used and assumptions used.

These are some of the major reasons for the requirement of

Accounting Policies.

Although there are standard Accounting Policies, these policies

cannnot be consistently followed due to various challenges like
Complexity of Standards, Regional factors, etc. This led to the
introduction of Accounting Principles, these are the accounting
rules, and the policies are a company's way of adhering to the
rules established by IFRS by making some changes however the
general rules remain the same like consistency, prudence, etc.

Accounting Principles consists of 2 parts:

Accounting Concepts: They guide the preparation of financial
statements by establishing universally accepted principles for
recording, classifying, and summarizing financial transactions. These
have a formal recognition and are globally accepted.
Eg- Matching concept, Dual Aspect concept

Accounting Conventions: They are generally accepted accounting

practices that have been developed over a period of time, these are
Informally accepted and may differ across organizations or countries.
Eg- Conservatism Convention

Accounting Policies and Principles followed in India vs France

1. The Indian Accounting Standards (IND AS) are based on

International Financial Reporting Standards (IFRS) that is
followed globally. The goal of IND AS was to align Indian
accounting practices with global standards to enhance
comparability, transparency, and uniformity in financial
reporting, particularly in the context of India's increasing
integration with global markets.

Why was IND AS formed???

IFRS already existed as a global framework for financial reporting but
IND AS was designed to address the unique conditions in India.

Eg:
IFRS allows entities to measure Property, Plant, and Equipment using
either Cost Model or Revaluation Model.

The model that is more used globally is the revaluation model as it

enhances the relevance of financial statements, but relies on certain
factors that are not consistently available in India.
To address these challenges Ind AS 16 retained the cost model as the
default approach while allowing the revaluation model as an optional
policy for companies with access to reliable fair value data.

Ind As allowed Indian businesses to align with global standards while

accommodating local economic and regulatory realities. By
addressing these practical concerns, Ind AS made global
comparability achievable without imposing undue burdens on Indian
companies.

2. The Accounting framework followed in France is the French

GAAP (Generally Accepted Accounting Principles). It is rooted in a
rule-based approach and designed to ensure consistency,
compliance, and integration with French tax laws.

French GAAP is much more Conservative as compared to IFRS. Eg-

In case of French GAAP the Revenue is recognized only when
realized or when it is certain that the revenue will be received. On the
other hand, According to IFRS, revenue is recognized when the
performance obligations are satisfied.

How do these Accounting Policies affect Sole Trading Concerns

and NPOs??

• In India, Sole traders and smaller entities usually follow

simplified accounting standards (AS), while IND AS is
mandatory for larger entities as the local Indian markets are
smaller, less complex and very large in number.

In case of France, Sole proprietors and NPOs must comply with

French GAAP, regardless of size and complexity. In France the
number of local businesses are very less so all of them have to strictly
comply with the French GAAP.

• In India, Tax reporting and tax burden is lesser for small

businesses and NPOs, the simpler accounting framework under
AS minimizes the need for complex tax adjustments, benefiting
small businesses that may not have the resources for intricate tax
planning. However as the businesses start growing they have to
comply with IND AS and the complexity increases.

French GAAP is highly integrated with local tax laws, offering

direct alignment and no deferred tax accounting. French GAAP
is less complex for small businesses and depreciation methods
under French GAAP are aligned with tax rules, ensuring small
businesses face minimal complexity in calculating deductions.

• Indian Sole proprietors typically use simplified systems (cash or

accrual), with fewer statutory disclosures and IND AS allows
flexibility in adopting certain policies like inventory valuation
like FIFO or Weighted Average.

French Sole proprietors are subject to detailed accounting rules

under Plan Comptable Général PCG and PCG mandates strict
compliance with rules for inventory valuation and revenue
recognition.

• In India there is no mandatory detailed financial statements for

sole proprietors unless specified under tax law and they can
follow multiple methods to calculate depreciation, including
straight-line and reducing balance.
 On the other hand, In France, Sole proprietors must maintain
detailed books and file statutory reports as per French GAAP
and Primarily use straight-line method to calculate depreciation.
 For NPOs in India, Standard requirements include an income
and expenditure account, receipts and payments account, and
balance sheet, more emphasis is laid on transparency but not
legally mandated for smaller NPOs.

In France NPOs must prepare detailed financial statements,

including specific schedules for donations and grants.

• Small Indian NPOs have a better Tax Exemption flexibility as

compared to NPOs in France as they are strongly integrated with
accounting rules and if they are unable to comply, it might affect
their tax-exempt status.
 ANALYSIS

1. Starting an NPO in India versus France depends on various factors,

including the business environment and regulatory framework.
India offers vast opportunities in addressing critical social issues
like
poverty, healthcare, and education due to its large population and
pressing social needs. However, the regulatory environment can be
complex, with bureaucratic hurdles and strict rules on foreign funding
under the French GAAP. Overall, India is more suitable for NPOs
focusing on social development as there is a strong need and potential
for large scale impact.

2. Bookkeeping Practices
• Sole Traders:
o In India, sole traders typically maintain single-entry
systems for simplicity. These systems are cost-effective
but lack the comprehensiveness of double-entry systems.
o In France, even small sole traders adhere to double-entry
bookkeeping, providing a more accurate and detailed
financial record.

• NPOs:
o Indian NPOs often struggle with resource allocation for
maintaining robust financial systems. Many rely on
cashbased accounting, leading to gaps in financial
reporting. o French NPOs benefit from subsidies and
 structured frameworks under the PCG, enabling them to
maintain detailed and transparent records.

3. Financial Performance Evaluation

• India:
o Sole trading concerns often face challenges in financial
performance evaluation due to inconsistent accounting
practices. The absence of stringent compliance
requirements allows flexibility but hampers comparability.

o NPOs in India are primarily evaluated based on fund

utilization and compliance with donor requirements rather
than comprehensive financial performance metrics.

• France:
o The uniformity in accounting practices enables better
comparability and transparency in financial performance
metrics for sole traders and NPOs alike. French NPOs are
evaluated on financial health, fund utilization, and
compliance with regulatory standards.

4. Challenges and Opportunities  India:

oChallenges: Limited resources, lack of awareness about
standardized practices, and inadequate regulatory
enforcement. o Opportunities: Adoption of digital tools,
increased awareness, and support from professional
bodies like ICAI.
 • France:
o Challenges: High compliance costs and the complexity of
the PCG. o Opportunities: Harmonization with
international standards and leveraging technology for
efficient reporting.
Conclusion
When comparing the accounting practices in India and France, you
can see some big differences because of things like rules, culture, and
the overall economy. France has a very organized way of doing
accounting. They have clear and strict rules that make sure that the
financial information for both small businesses (sole traders) and
nonprofit organizations (NPOs) is consistent, easy to understand, and
trustworthy. This system is based on the French Plan Comptable
Général (PCG), which sets the same rules for everyone, ensuring that
financial statements are easy to compare. For NPOs, this also helps
make sure donations and other funds are used properly and that
everything is clear to donors and regulators.

On the other hand, India’s accounting system is a bit more flexible.

Since India is still developing, its accounting practices can be
different depending on the size and resources of the business. While
big companies and NPOs in India follow international standards,
smaller sole traders or local NPOs may not always use the same
formal systems. This can lead to some inconsistencies in financial
reporting, especially in small businesses that don’t have the same
resources or knowledge as larger companies.
To improve things in India, there are a few steps that could help. First,
strengthening the rules and regulations would make it easier for
everyone to follow the same standards. Teaching more people about
basic accounting and how to use it properly would also help. Finally,
using digital tools like accounting software could make things much
easier. These tools can help businesses keep track of their finances
automatically, reducing mistakes and helping them make smarter
financial decisions. With technology, even small businesses can have
better control over their money and be more transparent, helping them
build trust.
In short, while France has a well-established, standardized system that
makes financial reporting clear and reliable, India’s system is still
evolving. By improving education, updating regulations, and using
digital tools, India could make its accounting practices more
consistent and trustworthy, which would help businesses and NPOs
grow in a more organized way.
Bibliography
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Accounting. Pearson.
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Reporting for Indian NPOs. Indian Journal of
Accounting, 53(2), 89-102.
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Accounting Standards Authority.
4. Institute of Chartered Accountants of India. (2023).
Accounting Standards. Retrieved from ICAI.
5. Patel, M., & Dubois, L. (2022). Globalization and
Convergence of Accounting Practices. Journal of
International Business Studies, 48(3), 567-582.
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