Virginia Tech
Pamplin College of Business
Department of Accounting and Information Systems
ACIS 5034 Global Issues in Accounting and Information Systems
Fall 2015 Semester Paper Handout
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Instructor:
David Tegarden
Team members:
Elizabeth Perez
Lisa Hinrichs
Niklas Kreilkamp
Truong Nguyen
Table of Contents
History............................................................................................................................................. 2
Culture............................................................................................................................................. 4
Political and Legal System.............................................................................................................. 7
Business model ............................................................................................................................... 9
Accounting system ........................................................................................................................ 13
Accounting Profession .............................................................................................................. 13
Accounting Regulation .............................................................................................................. 17
Accounting Principles and Practices ......................................................................................... 19
Interaction with the Marber’s globalization dimensions .............................................................. 20
Hofstede and Gray Analysis ......................................................................................................... 31
Relationship between India and the United States ........................................................................ 36
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INTRODUCTION
India has been one of the largest emerging economic markets, since its liberalization.
India has been rapidly growing and attracting foreign direct investment, which is also aiding
India’s fast economic growth. The purpose of the paper is to provide an overview of India and
the accounting systems. Included in our paper is a comparative analysis of IFRS, US GAAP and
India AS. There is also a brief overview of India history, politics, and cultures and how they
affect India’s economy and accounting.
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Sectors
India
Area
3,287,263 sq. km
Population
1,251,695,584 (2015 est.)
Capital City
New Delhi
Life Expectancy
66.97 Years (men)
69.42 Years (women)
Currency
Indian Rupee
1 INR = 0.0154 US dollars
GDP- per Capita (PPP)
US $5,900 (2014 est.)
Language
Hindi 41%, Bengali 8.1%, Telugu 7.2%, Marathi 7%, and
others
Ethnic Groups
Indo-Aryan 72%, Dravidian 25%, Mongoloid and others 3%
Source: The World Factbook
1.
History
The Republic of India was born when they gained independence from the British
Commonwealth on August 15, 1947. Mohandas Gandhi and protégé Jawaharlal Nehru led
nonviolent resistance to British rule which resulted in the Independence of India.[1] The British
promised India to free them after WWII and keeping to their promise India’s Constitution was
adopted on November 26, 1949 and went into effect on January 26, 1950. Britain partitioned
India by the religious lines, because there were two major religions in India, and the Muslims
League refused to participate in talks with the assembly and demanded for separate state for
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Pakistan. The partition took place on August 15, 1947, dividing them to what is known today as
Pakistan and India. The partition took place in order to keep peace between religions and instead
of causing peace between both countries it actually became a rift between them. There were 10
million people that actually moved between countries and 1 million deaths due to religious wars.
Gandhi lost his life at the hands of a Hindu fanatic on January in 1948. Gandhi’s effort had
aided Britain in the independence of India. India is made up of a majority of Hindus, minority of
Muslims and some of the other religions are Sikhs and Christians.
India’s new constitution also came with a new political system. India adopted a Federal
Parliamentary Democratic Republic similar to Britain’s political system in 1947. A Federal
Parliamentary Democratic republic has a president for the head of state and a prime minister for
the head of the government. The first prime minister of India was Gandhi’s protégé Jawaharlal
Nehru. The first president of India was Rajendra Prasad.
India and Pakistan religious wars did not end with the partition that occurred in 1947,
they have fought three wars since. The most recent war between the countries took place in 1971
and resulted in Pakistan being divided. Pakistan was divided and the Eastern part became
Bangladesh. The territorial disputes did not just end with the division between India and
Pakistan, India has an unresolved territorial dispute with China’s as well.
When the partition of India was taking place there were 17 provinces and 562 Princely
States. The provinces and princely states were allowed to choose which side they would join,
whether it was India or Pakistan. Currently today India is made up of 28 states and 7 union
territories.
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2.
Culture
India is a multicultural country with different cultures and diverse ways of life. This
diversity is visible in many spheres like the language, dietary habits, music and dance and
religion. The national languages spoken in India are Hindi and English, and additionally twentyone other accepted languages and over five hundred dialects. Nevertheless, language barriers in
India are relatively small, because English is the language of business.
[2]
The diversity is also
visible in dietary habits of Indians. Indian cuisine is well- known for its wide selection of foods
and drinks. Affected by the process of globalization and the associated increasing
internationality, the Indian cuisine gets more and more diverse. In general, the cooking styles can
be divided into South Indian and North Indian cuisine. While citizens from the South of India
prefer eating meat, people from the North of India are mostly vegetarian.
[3]
Indians culture
heterogeneity is also reflected in the spheres of religion. The main religions of India are
Hinduism and Islam. But there are also other religions like Sikhism, Christianity, Buddhism,
Jainism, Zoroastrianism, Judaism and the Bahá`ì Faith. Despite of the religious difference,
people live in harmony and celebrate a lot of festivals that bring people together. [4]
Another important cultural aspect of a country is the communication style. Indians tend to
be very indirect and find it very difficult to say “no”. Instead of rejecting a request directly,
Indians tend to use evasive answers like “We`ll try”. [5]
Geert Hofstede, a Dutch social psychologist, identified six cultural dimensions, helping to
understand the cultural context of a society and to explain the behavior of people from various
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cultures. These six dimensions are: Power Distance, Uncertainty Avoidance, Individualism,
Masculinity, Time Orientation and Indulgence vs. Restraint. [6]
If you apply these principles to the culture of India, the following picture emerge:
The first cultural dimension is called Power Distance and can be defined as the extent
that less powerful members of a society accept that power is distributed unequally. Countries
with a high power distance are characterized by people who blindly obey the orders of their
superiors. India has a high score of 77, which indicates that Indians favor hierarchy and topdown structures in society and organizations. The hierarchical structure of Indian society
requires that the leader is viewed as the highest authority. He makes all decisions and assumes
full responsibility. The employees, on the other hand, refuse to take responsibility and just do
what the leader has commanded them to do. The communication between the leader and the
employees is top down and control is taken for granted. [6]
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Individualism is the tendency of citizens to look after themselves and their immediate
family only, whereas Collectivists see themselves as part of a group that takes care of them in
exchange for loyalty. With a score of 48, India has both, collectivistic and individualistic
features. The collectivist side means that Indians prefer to belong to a larger social framework, in
which people are expected to act in a way that increases the value of the whole community. This
means that final decisions are made in accordance with the family and the social group. The
individualistic side, however, is a result of the dominant religion- Hinduism. The Hindus believe
in a cycle of death and rebirth so that each individual is responsible for his way of life and the
impact it will have on his rebirth. [6]
A masculine country is defined as a country where much importance is attached to
success, money and things. A femininity culture, however, focusses on caring for others and the
quality of life. India scores 56 on this dimension and therefore can be regarded as a Masculine
society. In India work and the visual display of success and power in the work place are very
important. [6]
Uncertainty Avoidance is the extent to which people feel threatened by uncertain
situations and have created beliefs that try to avoid these uncertainties. With a score of 40, India
has a medium preference to avoid uncertain situations. Therefore, the acceptance of uncertainty
and imperfections are relatively high and India can be seen as a country tolerating unexpected
events. [6]
Time orientation is defined as dealing with society`s search for virtue. India scores 51 on
this dimension, indicating that they tend to focus on the future. Indian time is relative and can be
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called “Indian flexible time”. This means that punctuality is not important and plans are changed
very often. Besides, there is not only one truth in India, there are several, depending on the
seeker. [6]
The last dimension of Hofstede is called Indulgence, measuring the freedom to satisfy
one`s needs within a society. India has a low score of 26 in this dimension, indicating that
behavior is controlled by social norms. A restrained culture has a tendency to cynicism and
pessimism. [6]
3.
Political and Legal System
India is a very diverse country and so is there political and legal system. After gaining
independence in 1947 a new political and legal system was formed. It included elements from
their former colonial ruler Great Britain and newly developed ideas. Separate laws govern 1.2
billion Hindus, Muslims, Christians, and followers of other religions. India is now the largest
democracy in the world and has a multi-party system. The structure of the state is both Unitary
and Federal. India has a parliamentary form of government and is divided into 28 states and 7
union territories that govern based on the Indian constitution. The government is divided into
three forces including legislative, executive and judicative.
The Rajya Sabha is the upper house of the Parliament of India consisting of 245 members
(233 represent different states and union territories and 12 are nominated by the president).
Together with the Lok Sabha, the lower house of Parliament consisting of 545 members (543
member are elected by the Indian people and 2 are nominated by the president), the Rajya Sabha
forms the legislative arm of the Indian political system.
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The president is elected by the members of both houses of parliament and legislative
assemblies of state and his term of office is five years. He has the right to appoint the prime
minister of the country and also holds executive, judicial and legislative powers. The Prime
Minister of India is the chief of government, chief adviser to the President of India, head of the
Council of Ministers and the leader of the majority party in the parliament. The prime minister
leads the executive branch of the Government of India. The vice president is elected in the same
manner as the president and is the chairman of the Rajya Sabha. The executive government is
completed by the council of ministers. It compromises Cabinet Ministers, Minister of States and
Deputy Ministers. All legislation requires consent of both houses of Parliament.
The Judicial system is based on English common law. A high percentage of
contemporary Indian law shows substantial European and American influence. There are two
main sources of law, which are enactments passed by the Parliament or the State Legislatures
and judgments of the Supreme Court. Furthermore it is structured in a three level system
including Districted Courts, High Courts and the Supreme Court. The Constitution of India
guarantees equal rights to all citizens, and prohibits discrimination on the basis of race, ethnicity,
gender, caste, and religion. It also contains "directive principles of state policy", which require
the government to set goals for the welfare of the people, such as a minimum wage, jobs for
people from disadvantaged backgrounds, and subsidized medical care. The Indian Constitution is
one of the largest in the world, and comprehensive and sweeping in its scope.
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4.
Business model
India followed pure command economy for most of its history, including state-ownership
of many sectors, extensive government planning and isolation from the world economy.
Economy of this country was stagnant instead of growing for approximately 80 years before and
after independence, from 1900 to 1980. Since the mid-1980s, India has experienced a gradual
structural change. The country has slowly opened up its markets through economic liberalization
measures, including industrial deregulation, privatization of state-owned enterprises, and reduced
controls on foreign trade and investment. After the fundamental reforms in the 1990s, India has
progressed an open-market economy, yet it has not been completely free market economy. This
model is called mixed economy which we can find characteristics of both market economy and
command economy. In a mixed economy, certain sectors of the economy are left to private
ownership and free market mechanisms, while other sectors have significant state ownership and
government planning.
India has improved its competitiveness considerably since 1991 because this country not
only takes advantage from liberalization including information and communications revolution,
high volume capital with low interest rate, and foreign direct investments but also has unique
path. This country has relied on its domestic market more than exports, consumption more than
investment, services more than industry, and high-tech more than low-skilled manufacturing.
This approach has meant that the Indian economy has been mostly insulated from global
downturns, showing a degree of stability that is as impressive as the rate of its expansion. [7]
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The entrepreneur is also clearly at the center of India's success story. India now boasts
highly competitive private companies, a booming stock market, and a modern, well-disciplined
financial sector. And since 1991 especially, the Indian state has been gradually moving out of the
way -- not graciously, but kicked and dragged into implementing economic reforms. It has
lowered trade barriers and tax rates, broken state monopolies, unshackled industry, encouraged
competition, and opened up to the rest of the world. The pace has been slow, but the reforms are
starting to add up. [7]
India tends to skip an industrial revolution altogether, jumping straight from an
agricultural economy to a service economy rather than other economies which evolved from
agriculture to industry to services. India appears to have a weak middle step. Regarding to World
Bank data between 1990 and 2014, while services accounted for approximately or more than 50
percent of India's GDP, agriculture and industry combination was just remaining amount. The
main agricultural products are rice, wheat, jute, tea, sugarcane, cotton, oilseed, poultry and fish.
Textiles, steel, chemicals, food processing, petroleum, machinery, steel, and cement are the
major industries. One of the fastest growing sectors is business services which includes
information technology enabled services, information technology, business process outsourcing
etc.
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Source [8]
The relative strengths enable India grow its economy are its highly educated system and
young workforce. India has capitalized on educated English-speaking population to become a
major exporter of information technology services, business outsourcing services, and software
workers.
However, India also need to address many challenges including lack of natural
resources, undeveloped infrastructure, ineffective enforcement of intellectual property rights, and
violence.
The progress of economic reforms in India is followed closely. The country focus its
priorities on public sector reform, infrastructure, real transparent real estate markets, agricultural
and rural development, poverty, jobless and health challenges especially HIV/AIDS. India’s
economic picture has become brighter. With the increase of GDP and GNI and the decrease of
inflation rate, India is one of the most preferred destinations for foreign direct investments. FDI
inflow was USD35 billion in 2014. India is now the world's fourth-largest economy. This
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country was expected to surpass Japan to become the third-largest in the near future. However, to
continue this trend, India needs to revitalize the investment cycle and accelerate structural
reforms.
Source [8]
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5.
Accounting system
5.1
Accounting Profession
The Institute of Chartered Accountants of India (ICAI) is a statutory body established on
1 July 1949 under the Chartered Accountants Act, 1949 (Act No. XXXVIII of 1949) for the
regulation of the profession of Chartered Accountants in India. During its 64 years of existence,
ICAI has achieved recognition as a premier accounting body not only in the country but also
globally, for its contribution in the fields of education, professional development, maintenance of
high accounting, auditing and ethical standards. ICAI now is the second largest accounting body
in the whole world.
The ICAI is responsible for regulating the profession of accounting, conducting education
and examinations of chartered Accountancy, development of uniform standards of practice and
the strategic development of the profession. It is also responsible for licensing, certification,
monitoring quality, advising to Government and discipline.
ICAI is the only licensing cum regulating body of the financial audit and accountancy
profession in India. It recommends the accounting standards to be followed by companies in
India to The National Financial Reporting Authority (NFRA) and sets the accounting standards
to be followed by other types of organizations. ICAI is solely responsible for setting the Auditing
and Assurance Standards (AAS) to be followed in the audit of financial statements in India. It
also issues other technical standards like Standards on Internal Audit (SIA), Corporate Affairs
Standards (CAS) etc. to be followed by practicing Chartered Accountants. It works closely with
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the Government of India, Reserve Bank of India and the Securities and Exchange Board of India
in formulating and enforcing such standards.
The affairs of the Institute are managed by the Council which consists of 40 members of
whom 32 elected by the members and remaining 8 nominated by the Central Government.
Members of the Institute are known as Chartered Accountants. The council functions through
four Standing Committees and 41 Non Standing Committees for carrying out the provisions of
the Chartered Accountant Act of 1949. The Council is re-elected every 3 years. Becoming a
member requires passing the prescribed examinations, three years of practical training (known as
article ship) and meeting other requirements under the Act and Regulations. A member of ICAI
can use the title CA before his/her name. A member of ICAI may either be an Associate
Chartered Accountant (A.C.A.) or a Fellow Chartered Accountant (F.C.A.) based on his
experience. Further based on holding Certificate of Practice, they may also be classified as
practicing and non-practicing Chartered Accountants. The total membership of the ICAI doubled
for the period from 2001 to 2015 from about 115,000 members in 2001 to 239,974 members in
April 2015. As of 1 April 2015, the Institute has 239,974 members out of which 160,708 are
Associates and 79,266 are Fellows. [9]
One of the significant restraints that the ICAI places on its members is that Indian
accounting firms cannot advertise, whether in India or abroad. They cannot canvass directly or
indirectly for professional assignments nor can they make presentations to prospective clients.
Further, Indian accounting firms cannot have non Chartered Accountants as partners nor can they
have any profit sharing arrangement with non-Chartered Accountants. [10] The Indian Accounting
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Profession is dominated by small and medium sized firms. The Indian Chartered Accountants are
rendering services in every walk of economic life - Politics, Judiciary, Government, Agriculture,
Corporate, NGOs.
ICAI has decided to converge with IFRSs from accounting periods commencing on or
after 1 April 2011 for listed entities and other public interests entities such as banks, insurance
companies and large-sized entities. IFRSs-specific training programs will be organized for its
members and others concerned to prepare them to implement IFRSs. IASB has also offered to
help the ICAI in its endeavors towards Convergence with IFRSs in India.
ICAI is one of the founder members of the International Federation of Accountants
(IFAC), South Asian Federation of Accountants (SAFA), and Confederation of Asian and Pacific
Accountants (CAPA). ICAI was formerly the provisional jurisdiction for XBRL International in
India.
ICAI vision 2013 emphasizes that it want to become World’s leading accounting body, a
regulator and developer of trusted and independent professionals with world class competencies
in accounting, assurance, taxation, finance, and business advisory services by 2030.[9]
Timeline of events for the ICAI [9]
Year Events
1857 The first ever Companies Act in India legislated.
1866 Law relating to maintenance of accounts and audit thereof introduced.
Formal qualification as auditor now required.
1913 New Companies Act enacted.
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Year Events
Books of accounts to be maintained specified.
Formal qualification to act as auditor named. A Certificate from the local
government to be held in order to act as auditor. An unrestricted Certificate
entitled a person to act as auditor throughout British India. A Restricted Certificate
entitled him to act as auditor only within the Province concerned and in the
languages specified in the certificate.
1918 Government Diploma in Accounting (GDA) launched in Bombay. On completion
of articleship of three years under an approved accountant and passing the
Qualifying Examination the candidate would become eligible for the grant of an
Unrestricted Certificate.
1920 The issue of Restricted Certificates discontinued.
1927 Society of Auditors founded in Madras.
1930 Register of Accountants (RA) to be maintained by the Government of India to
exercise control over the members in practice. Those whose names found entry
here were called Registered Accountants (RA).
1930 The Governor General in Council replaced the local government as the statutory
authority to grant certificates to persons entitling them to act as auditors.
Auditors allowed to practice throughout India.
1932 First Accountancy Board formed. The Board was to advise the Governor General
in Council on matters relating to accountancy and to assist him in maintaining
standards of qualification and conduct required of auditors.
1933 First examination held by the Indian Accountancy Board. GDAs exempted from
taking the test.
1935 The first Final Examination was held. GDAs exempted from taking the test.
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Year Events
1943 GDA abolished.
1948 Expert Committee formed to examine the scheme of an autonomous association of
accountants in India.
1949 The Chartered Accountants Act, 1949 was passed on 1st May. The term Chartered
Accountant came to be used in place of Indian Registered Accountants.
Chartered Accountants Act was brought into effect on 1st July. The Institute of
Chartered Accountants of India is born.
1999 ICAI completed 50 years on 1st July 1999.
5.2
Accounting Regulation
The accounting regulation in India was developed in the first half of the 20th century and
was enacted 1949 under the Chartered Accountants Act, which aims for the regulation of the
profession of Chartered Accountants in India.
[11]
Prior to 1949, the profession of accountancy
was controlled and regulated by the government. The Chartered Accountants Act led to the
establishment of the Institute of Chartered Accountants of India (ICAI). During its 66 years of
existence the ICAI has achieved acknowledgment as a premier accounting body in India itself
and worldwide. The motto of the ICAI is “Ya Aeshu Suptaeshu Jagruti” which means, "a person
who is awake in those that sleep". Their motto emphasizes that the ICAI strives to be
trustworthy, competent and ethical.
[12]
It is known for its contribution in the fields of education,
professional development, maintenance of high accounting, auditing and ethical standards.
Furthermore, the ICAI is responsible for conducting examinations, development of uniform
standards of practice and the strategic development of the profession. In addition it is responsible
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for licensing, certification, training, and discipline. Because of its success in the past the ICAI
now is the second largest accounting body in the whole world. The Chartered Accountant Action
Committee (CAAC), a body of high-profile professional accountants, supplements the ICAI and
helps drafting or commenting future standards. The Committee consists of 30 members of whom
the members elect 24 and the remaining 6 are nominated by the Central Government to represent
the Comptroller and Auditor General of India, Central Board of Direct Taxes, Department of
Company Affairs and other stakeholders. Its task is to carry out the provisions of the Chartered
Accountant Act of 1949.
[13]
The decision making process in the committee is structured so that
all 30 members have to consensually agree on any decision. In order to open the Indian
accounting market for international competition the Chartered Accountant Act was amended by
the Central Government of India in 2006. Permission has been granted to Indian and
international accounting firms to provide multi-disciplinary services. The Indian accounting
profession is mainly comprised of small and medium sized firms, but is in the process of
consolidation. [14]
As of 2010, the Institute of Chartered Accountants of India has released 32 Accounting
Standards. Compliance with accounting standards released by ICAI has become a statutory
requirement with the amendment of the Chartered Accountant Act (2006) by the Government of
India. Before that the constitution of the National Advisory Committee on Accounting Standards
(NACAS) was the only accounting standard setter in India. Now it can only consider accounting
standards recommended by ICAI and advise the Government of India to notify them under the
Companies Act. In addition the Accounting Standards notified are applicable only to companies
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registered under the companies act. For all other entities the accounting standards issued the
ICAI continue to apply. In the recent past the ICAI and The IASB worked together in order to
improve the convergence between IFRS and Indian GAAP. As a result the 32 new standards
issued by the ICAI are in many aspects similar to the IFRS standards. [15]
5.3
Accounting Principles and Practices
The previous Accounting System of India (Indian GAAP) has had to take a lot of
criticism, since it is very broadly based and gives the possibility to use similar accounting
methods for similar events. This makes necessary the introduction of a new Accounting System.
The Indian Accounting Standards (India AS) are a set of accounting standards, notified by the
Ministry of Corporate Affairs. These standards have been formulated by the Accounting
Standards Board of Institute of Chartered Accountants of India (abbreviated as ICAI) in 2014
and are converged with the International Financial Reporting Standards (IFRS).
[17]
India
originally intended to implement the approach in 2011, but the change to India AS was
postponed.
[19]
Companies now have the opportunity to adapt India AS for accounting periods
beginning on or after 1, April 2015. For the accounting periods on or after 1, April 2016, listed
companies and companies beyond a defined size have to apply the new framework.
[17]
The
overall goal of the implementation is to standardize the treatment of accounting practices and
aspects and to harmonize accounting policies in order to make an international comparison as
easy as possible. Besides, it helps India to have access to international financial markets more
easily, because many stock exchanges require IFRS certified accounts. By implementing IFRS,
foreign companies become the possibility to get a better understanding of the financial
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statements of Indian companies and Indian accountants become globally acceptable due to their
experience in working with IFRS. [16]
The objective of the financial statements is to provide useful information for decisionmaking. Due to the fact that you cannot provide information for all users, the financial statement
has to the meet the common needs of most users.
[18]
The underlying assumptions are accrual
basis, meaning that effects are recognized when they occur and going concern, assuming that the
operation will continue for the foreseeable future. The conceptual framework also defines the
basic principles (understandability, relevance, materiality, reliability, faithful representation,
substance over form, neutrality, prudence, completeness and comparability), as well as the
elements of the financial statements (assets, liabilities, equity, income, expenses and capital
maintenance adjustments) and recognition and measurement principles, which are similar to
those found in IFRS.
[18]
The aim of the financial statements is therefore to show a true and fair
view of the financial positions, performance and cash flows of the entity. Because of the fact that
this framework does not deal with exact concepts, the true and fair view should be achieved by
following the principal qualitative characteristics and appropriate accounting standards. [18]
6.
Interaction with the Marber’s globalization dimensions
Globalization is defined through trade, investment, technology, ideas and immigration
that occurs with the different countries. Globalization as described by Marber he says that others
view of globalization is as if a blind men were describing an elephant, piece by piece as separate
parts. Marber says globalization is not about the pieces but about how each piece of the elephant
works together from tusk to tail. All the pieces of the elephant are interconnected and work
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together and that is also how globalization works. Per Marber the seven dimensions that affect
globalization are as follows: trade and finance, energy, defense, and security, immigration,
health, environment, and poverty. As discussed by others globalization is viewed as either one or
two dimensions. We have selected three dimensions to describe more in depth there
interconnections within India and these are: immigration, poverty and trade and finance. [21]
Globalization is an important factor for India as they are the second largest economy.
India’s economic power comes from technological revolution, opening of the borders,
privatization of many infrastructure such as transportation and communication.
[20]
India is
highly impacted by immigration and poverty. In assessing the dimensions is necessary to discuss
the meaning of immigration and its importance and correlation to poverty.
Trends have been reshaped with the human immigration, which increases outsourcing of
migrant temporary workers in order to meet the demands of developed countries. This in a way
how immigrations interconnects with trade and finance. Then immigration affect health due to
cross border pandemics. It is not all bad though, because through immigration medicine is able
to reach underdeveloped countries.
Trade and globalization has opened up ways to combat poverty. Poverty will not be
overcome tomorrow, but through the seven dimensions the poverty battle is being fought one day
at a time. It is realistic that poverty could end in our lifetime. Poverty effects people with
hunger, disease and shorter life span. Poverty also effects globalization because it breeds
instability, environmental degradation and civil conflict. [21]
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Immigration and Poverty
India is highly impacted by immigration and poverty dimensions.
In assessing the
dimensions it is necessary to discuss the meanings of immigration and its importance and
correlation to poverty. Immigration or to migrate in India is due to various social economic &
political reasons. Immigration in India has been occurring since the history of India can be
documented. Immigration and migration is needed in all developed and undeveloped countries,
because it aides the countries in various ways. In the US since it is a developed country
immigration is needed to supplement the aging that are no longer able to work. The immigration
provides the US with help in workforce and the immigrant receives the benefit of being able to
support themselves as well as family members, provided that the person immigrated due to the
poverty level or lack of work in their home country.
India’s poverty level leads them to have heavy immigration out of India, in search of a
better future and in turn helping India’s economy because when the people that leave are
remitting money back to India they are in fact accruing foreign currencies and investing in
India’s economy. Immigration into India can involve the people that left coming back into India
with their new found experiences and applying them to the workforce in India. It can also be
derived from close by countries with higher poverty levels and people looking for better futures.
India is a developing country that has grown exponentially, which is a reflected by the amount of
economic development due to: manufacturing, information technologies, services, and foreign
direct investment and employment opportunities now available.
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Migrate from their birth place
Category
Migrations by Place of birth
Percentage
A.
Total Population
1,028,610,328
B.
Total Migrations
307,149,736
29.9
B.1
Migrants within the state of enumeration
258,641,103
84.2
181,799,637
70.3
B.12 Migrants from other districts of the state
76,841,466
29.7
B.2
Migrants from other states in India
42,341,703
13.8
B.3
Migrants from other countries
6,166,930
2.0
B.11 Migrants from within the districts
Source: [22]
Migration is also occurring from the rural into the urban areas in search of employment
and education opportunities.
Reason for migrations
Number of Migrants
Persons
Total migrants
Males
Females
98,301,342 32,896,986 65,404,356
Reason for migration : Work / 14,446,224 12,373,333
Percentage to Migrants
Persons Males Females
100.0
100.0
100.0
2,072,891
14.7
37.6
3.2
Employment
Business
1,136,372
950,245
186,127
1.2
2.9
0.3
Education
2,915,189
2,038,675
876,514
3.0
6.2
1.3
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Reason for migrations
Number of Migrants
Persons
Marriage
Moved after birth
Moved with households
Other
43,100,911
6,577,380
20,608,105
9,517,161
Males
Females
Percentage to Migrants
Persons Males Females
679,852 42,421,059
43.8
2.1
64.9
3,148,707
6.7
10.4
4.8
8,262,143 12,345,962
21.0
25.1
18.9
9.7
15.7
6.7
3,428,673
5,164,065
4,353,096
Source: [22]
Immigration and poverty have affect the cultures in India. India is a multicultural country
with different cultures and diverse ways of life, due to the immigration of Marber dimension.
Due to the ever-growing diversification it affects the accounting. India’s culture has affected the
accounting practices in order to reflect its diversity since India has 18 official languages and
dialects due to immigration.[20] India has moved to more of an international accounting, in order
to maintain a competitive advantage and conduct business abroad. It has become more attractive
to multi corporations from overseas due to India’s transparency.
Trade and Finance
Globalization has grown the integration of economies over the world through unlimited
trade and financial flows. Globalization in trade and finance opened up new and tremendous
opportunity for worldwide countries including India. Following a long period of crisis and under
influence of globalization, Indian introduced economic policy changes in early 1990s which
allowed India to open its economy to international economy. There were number of major
strategy for liberalization and globalization at that time in India including:
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
Devaluation Indian currency against major currencies in the international foreign
exchange market,

Privatization public sectors,

The removal of quantitative restrictions on imports,

Wide-ranging financial sector reforms in banking, capital markets including
deregulation of interest rates, etc…
India also allow foreign direct investment by providing facilities to foreign companies to
invest in different fields of economic activity in India; removing constraints and obstacles to the
entry of MNC’s in India; simplifying procedures and relaxing entry barriers for business
activities and providing investor friendly law and tax system; carrying out massive liberalization
programs by switching over from quantities restrictions to tariffs and import duties.
The economy reforms in India have led to fiscal consolidation, control inflation to some
extent, increase in foreign exchange reserve and greater foreign investments. This help India not
only to increase GDP significantly but also to change the direction of growth in the sectors that
are transferring from agriculture to services. However India still has to face future challenges in
different sectors. The government needs to take up appropriate measures to increase India’s
competitive advantages in world market. Among them, the role of accounting is very important
as more local enterprises engage in foreign investment and more multinational companies invest
in India. Accounting has to deal with monetary mechanism and other transactions related to the
international business. Accounting has to serve the need of international trade, commerce,
industry, international finance, taxation, currency, export-import procedures, documentations
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laws, trade – environment, auditing etc. The global business required of standardized system of
accounting for the comparability of financial statements, the quality of financial information and
the cost savings and confidence increase of foreign investors. In quest to achieve convergence
with international accounting standard, India made a move from local GAAP to IFRS from
accounting periods commencing on or after 1 April 2011 for listed entities and other public
interests entities such as banks, insurance companies and large-sized entities.
Source [8]
7.
Comparison of US GAAP, IFRS and the India Accounting System
In order to understand the development within the Indian accounting system it is
important to look at the similarities and differences with other important accounting systems like
IFRS or US GAAP. It becomes evident that the new Indian accounting system (Indian AS) is
more closely connected with IFRS than the old system (Indian GAAP). In the new era of
globalization, India wants to get access to foreign capital markets as well as to receive more FDI
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from other countries. Although there are still differences between Indian AS and IFRS, the
introduction of the new system is an important step to increase the comparability with companies
of other countries.
US GAAP
Property, Plant
Similar to IFRS
IFRS
Indian GAAP
IAS 16
There is no
and Equipment
Property under
exemption
– scope
construction or
in AS 10 for
Development for
property under
future use is within
development for
the scope of IAS
future use as
40, Investment
investment property
Indian AS
Similar to IFRS.
Property.
Income Taxes –
Similar to IFRS
Deferred taxes are
Deferred taxes are
deferred income but with specific
determined on the
determined for
taxes
differences in
basis of temporary
timing differences
application
differences between in respect of
Similar to IFRS.
the carrying amount recognition of items
of an asset or
of profit or
liability in the
loss for the
statement of
purposes of
financial position
financial reporting
and its tax base
and for income
taxes
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Impairment of
Companies can
Allocated to cash
AS 28: “bottom-
Assets
assess whether it
generating units
up/top-down”
– goodwill
is more
that are expected to
approach to test
likely than not
benefit from the
goodwill for
that the fair value
synergies of
impairment
of a
business
reporting unit is
combinations
Similar to IFRS.
less than its
carrying
amount (if so:
recoverability
test; if carrying
amount > fair
value:
impairment
testing)
Intangible
Similar to IFRS
Intangible assets
Measured only at
Assets
(exception: no
can be measured at
cost.
– measurement
revaluations)
either cost or
Similar to IFRS.
revalued amounts
Intangible
Similar to IFRS
Useful life may be
The useful life may
Assets – useful
(exception:
finite or indefinite
not be indefinite.
Life
Software)
Similar to IFRS.
There is a
presumption that
the useful life will
not exceed 10 years
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Financial
Similar to IFRS
Financial asset or
There is no
Instruments
liability should be
definition of
– general
recognized when
financial instrument
recognition
the entity becomes
Principle
party to the
Similar to IFRS.
contractual
provisions of the
instrument.
Financial
Similar to IFRS
IFRS 9 introduces a No specific
Instruments –
logical approach for guidance.
initial
the classification of
measurement
financial assets
Similar to IFRS.
driven by cash flow
characteristics and
the business model
in which an asset is
held. Almost all FI
are initially
measured at fair
value.
Statement of
Different
May be classified
Specific rules for
Similar to Indian
Cash Flows –
classification
as operating,
financial and non-
GAAP.
interest and
possible
investing or
financial
financing activities
companies. There is
depend on the
little scope for
context. It should
interpretation.
dividend
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INDIA
be consistent from
period to period.
Revenue
Difference:
The core principle
AS 9 requires the
recognition -
completed
under IFRS 15 is
recognition of
(construction
contract method
that an entity
revenue when (i)
contracts)
and gross profit
should recognize
significant risks and
approach are
revenue up to the
rewards of
allowed
amount that
ownership have
matches the current
been transferred, (ii)
workload. It is
no significant
using a 5-step
uncertainty exists
approach to
regarding the
determine the right
amount of revenue
amount of revenue.
and (iii) at the time
Similar to IFRS.
of recognition, it is
not unreasonable to
expect ultimate
collection.
Consolidated
Under both US
Consolidated
Includes exceptions
Financial
GAAP and IFRS,
financial statements like the exemption
Statements –
the determination
include
of subsidiaries that
subsidiaries,
of whether
all subsidiaries and
are to be sold within
associates and
entities are
equity-accounted
the next 12 month
Joint ventures
consolidated by a
associates and joint
Similar to IFRS.
reporting entity is ventures
based on control,
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INDIA
although there are
differences in
how control is
defined. Provides
for primarily two
consolidation
models (variable
interest model
and voting
model)
Consolidated
Uniform
Consolidated
If not practicable to
Financial
accounting
financial statements use uniform
Statements –
policies between
should be prepared
accounting policies
uniform
parent and
using uniform
in the preparation of
accounting
subsidiary are not accounting policies
consolidated
policies
required
financial statements
Similar to IFRS.
the fact itself must
be disclosed
Sources: [24] and [25]
8.
Hofstede and Gray Analysis
Gray develops a theoretical framework to describe the influence of the culture on
accounting. His framework is based on Hofstede`s cultural dimensions (Power Distance,
Collectivism vs. Individualism, Femininity vs. Masculinity and Uncertainty Avoidance).
[27]
Gray extends this model by overlaying accounting values and systems with their links to societal
values and institutional norms. For this purpose, he identified four accounting values:
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Professionalism, Uniformity, Conservatism and Secrecy.
[28]
He assumes that there is a
relationship between these accounting values and the societal values of a country. Gray
completes his theory by formulating four hypotheses that describe the relationship between
Hofstede`s cultural dimensions and his accounting value dimensions and by predicting how
different cultural areas affect each of the accounting values. [28]
Relevant Hofstede Values [26]
India
Power
Collectivism vs.
Femininity vs.
Uncertainty
Distance
Individualism
Masculinity
Avoidance
77 (H)
48 (L)
56 (H)
40 (L)
H1
H2
H3
H4
0, 1, 0
0, 1, 1
0, 1, 0
0, 1, 1, 0
H2
H3
H4
Uniformity
Optimism
Secrecy
Hypotheses Hit vs. Miss Values
India
Gray Based Results
H1
Statutory
India
Control
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His first hypothesis is “the higher a country ranks in terms of individualism and the lower
it ranks in terms of uncertainty avoidance and power distance then the more likely it is to rank
highly in terms of professionalism”. India scores low in Individualism so that there is only a low
preference for independent professional judgments. People in India do not want to make
individual decisions and there is only low respect for individual endeavor. The high power
distance in India also speaks in favor of Statutory Control. India does not attach great importance
to equal rights, but is characterized by hierarchical levels and many laws and rules. The low
uncertainty avoidance is the only cultural value that speaks against Statutory Control. A country
with low uncertainty avoidance believes in fair play and few rules, so that professional
judgments tend to be more tolerable. According to the cultural values, India tends to focus on
Statutory Control. Therefore, the accountants in India must adhere to relatively prescriptive and
detailed legal requirements.
[27]
After the adoption of Indian AS the actual accounting system
became rather professional. Indian AS is a principle based accounting system and is highly
driven by the technical judgment of the Indian accounting profession. Therefore the influence of
the Indian government decreased. Although, the new system is more independent of the
government than it was before it is still not as independent as the US system. The old Indian
GAAP was different though. It was rather based on a rule driven approach and thus closer to the
theoretically fitting accounting system described by Grays model.
The second hypotheses relates to Uniformity: “the higher a country ranks in terms of
uncertainty avoidance and power distance and the lower it ranks in terms of individualism then
the more likely it is to rank highly in terms of uniformity”. India is characterized by low
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INDIA
uncertainty avoidance so that there are only few written rules and regulations. This factor speaks
against Uniformity. However, India scores low on the dimension of Individualism. This score
speaks in favor of uniformity, because Indians believe in organization and order and show a great
respect for group norms. The high power distance in India also underlines this theory, because
uniformity is more easily exercised in a large power distance society, where laws and orders are
accepted. It can, therefore, be argued that India ranks relatively high in terms of uniformity. It
may be expected that there is a strict inter- company and inter- temporal conformity in India or at
least a consistence within companies over time and a high comparability between different
companies.
[27]
In the real Indian accounting system uniformity and flexibility elements are
represented within standards. The new Indian AS is principle based, which speaks in favor of
flexibility. Every company has the right to use professional judgment in order to deal with
accounting issues correctly. The old Indian GAAP was different though. It was rather based on a
rule driven approach and thus closer to the theoretically fitting accounting system described by
Grays model.
Gray`s third hypothesis deals with Conservatism: “the higher a country ranks in terms of
uncertainty avoidance and the lower it ranks in terms of individualism and masculinity then the
more likely it is to rank highly in terms of conservatism”. Conservatism is mostly linked with
uncertainty avoidance. India scores low on this dimension so that there are no security needs and
only less written rules and regulations. As a consequence, this means that India ranks highly in
terms of optimism. India therefore does not use cautious approaches and conservative
measurement methods. There also seems to be a weak connection between Conservatism and
34
INDIA
low scores in terms of individualism and masculinity. India scores low on the dimension of
individualism, but has a high score on the dimension of masculinity. It must therefore be
concluded that the country is to rank highly in terms of optimism.
[27]
In this case the real
accounting system matches with the one expected by the Gray model.
The last hypothesis is “the higher a country ranks in terms of uncertainty avoidance and
power distance and the lower it ranks in terms of individualism and masculinity then the more
likely it is to rank highly in terms of secrecy”. India scores low on the dimension of uncertainty
avoidance. This low score speaks against secrecy, because a country with low uncertainty
avoidance does not have many written rules and regulations restricting information disclosures
and therefore avoiding conflicts and maximizing security. The high power distance of India,
however, speaks in favor of secrecy. A country, characterized by a high power distance wants to
restrict information in order to maintain the imbalance of power. The low score on individualism
also indicates that India ranks high in terms of secrecy. Employees of a firm identify themselves
with the company and not with the external partners so that they keep information secure. A last,
but less important link can be recognized with masculinity. India scores high on masculinity,
which speaks against secrecy. But all in all, it can be concluded that India can be ranked highly
in terms of secrecy.
[27]
Although, the model predicts secrecy to be dominant within the Indian
accounting system transparency becomes more and more important in India. The new Indian AS,
which aims at the convergence with the IFRS wants to make it more attractive for foreign
investors to invest in India. A higher transparency of financial information is one necessary step
35
INDIA
in the right direction. Still the level of transparency is not comparable with the standards in the
US.
9.
Relationship between India and the United States
India-U.S. bilateral relations have developed into a "global strategic partnership", based
on shared democratic values and increasing convergence of interests on bilateral, regional and
global issues. Today, the India-U.S. bilateral cooperation is broad-based and multi-sectorial,
covering trade and investment, defence and security, education, science and technology, civil
nuclear energy, environment, agriculture and health. [29]
Civil Nuclear Cooperation
India and the United States joined forces in 2008 in order to create a Civil Nuclear
Agreement that was signed into effect on October 2008. After the signing years to begin work
on the project due to finding a cooperation to take on the contract. On Sep 2013 the contracts
were signed to begin work on the nuclear power project in Gujrat. The group have met twice but
the work is yet to begin. [29]
Defence Cooperation
India and the United States also share an agreement on defence cooperation that took
effect in 2005 because of the intensification in the defence trade. The agreement covers, defence
trade, joint exercises, personnel exchange, collaboration and cooperation in maritime security
and counter piracy and exchanges between the three services. In 2013 a joint declaration of
defence was issued and the countries work together on the bilateral exercises more than they
collaborate with any other country. They have also developed a defence trade and technology
36
INDIA
initiative, which is meant to make transfer of policy easier and to add strategic value to the
bilateral relationship. The countries have also been cooperating on tackling terrorism together.
They share intelligence on the concerns of terrorism and the US-India counterterrorism
cooperation initiative was signed on 2010, since the agreement went into effect there has been
considerable progress on intelligence sharing. [29]
Trade and Economic
India and the United States have a bilateral relationship that allows them to have trade
agreements that facilitated trade and investments. The trade agreements eliminate tariffs, import,
quotas, export restraints and other trade barriers that allow the exchange of goods. The trade
between India and the United States has been mutually successful, it has reached USD 63.07
billion in 2013. India’s importation to the United States is USD 41 billion and the United States
export to India is around USD 22 billion. India imports more to the United States than the
United States exports to them. The cumulative FDI inflows from the US from April 2000 to
September 2014 amounted to about USD13.19 billion constituting nearly 6 % of the total FDI
into India, making the U.S. the sixth largest source of foreign direct investments into India. India
also holds FDI in the United States. Both countries are currently in talks to strengthen their
bilateral engagements on the economic and trade issues. [29]
Science & Technology (“S&T”)
National Aeronautics and Space Administration (“NASA”) and Indian Space Research
Organization (“ISRO”) signed an agreement for activities related to India's Mars Orbiter Mission
and the Charter for ISRO-NASA Mars Working Group. In September 2014, the Implementing
37
INDIA
Agreement for Cooperation on the NASA-ISRO Synthetic Aperture Radar (NISAR) Mission
was also signed.
The India-U.S. S&T cooperation has been steadily growing under the framework of U.S.India Science and Technology Cooperation Agreement signed in October 2005. There is an
India-U.S. Science & Technology Joint Commission, co-chaired by the Science Advisor to U.S.
President and Indian Minister of S&T.
[29]
Energy and Climate Change
The U.S.-India Energy Dialogue was launched in May 2005 to promote trade and
investment in the energy sector, and held its last meeting in March 2014 in New Delhi. Besides
five existing working groups in oil & gas, coal, power and energy efficiency, new technologies
& renewable energy and civil nuclear co-operation, another working group on 'sustainable
development' was added recently to the Energy Dialogue.
India and the US are advancing cooperation and dialogue on climate change through a
high-level Climate Change Working Group, which had its first meeting in July 2014. [29]
Education
Under the Singh-Obama Knowledge Initiative launched in 2009, cooperation in
education sector has been made an integral part of the strategic partnership between the two
countries. The Fulbright program was renewed in 2008 as the Nehru-Fulbright Program, with
enhanced mandate and joint funding, to provide more student and scholar exchange grants.
The Higher Education Dialogue, which has had four meetings since 2011 (last in
November 2014 in New Delhi), laid out the roadmap for promoting strategic institutional
38
INDIA
partnerships, deepening collaboration in research and development, fostering partnerships in
vocational education and focusing on junior faculty development.
India is learning from the U.S. experience in community colleges in order to meet our
demands for skill-development. A Memorandum of Understanding was signed between All India
Council for Technical Education and the American Association of Community Colleges in June
2013 for co-operation in setting up community colleges in India. [29]
Health Sector
Under the 2010 U.S.-India Health Initiative, four working groups have been organized in
the areas of Non-Communicable Diseases, Infectious Diseases, Strengthening Health Systems
and Services, and Maternal and Child Health. In order to build up the disease surveillance and
epidemiological capacity in India, Global Disease Detection-India Centre was established in
2010 and an Epidemic Intelligence Service program launched in Oct 2012. U.S. National
Institutes of Health, the Indian Council of Medical Research, and India's Department of
Biotechnology have developed a robust relationship in the biomedical and behavioral health
sciences, research related to HIV/AIDS, infectious diseases, diabetes, cardiovascular diseases,
eye disease, hearing disorders, mental health, and low-cost medical technologies. [29]
Cultural cooperation
Cultural cooperation between India and the U.S. is rich and manifest in diverse ways.
Apart from the India-focused educational programs at the Universities and educational
institutions, many private institutions teach Indian cultural arts. In addition, the Embassy not
only provides updated information on various aspects of India that are relevant to the United
39
INDIA
States through social media channels but also operates culture activities and tourism promotion.
[29]
Like any pair of countries, the US and India have differing policy priorities in a number
of key areas. However there are equally, if not more powerful factors pulling the two sides
together.
CONCLUSION
India – an influential nation in South Asia, also known as the Asian tiger is home to the
world’s second largest population. India is a country of bulk variety, arguably the most sundry
nation in the world, whether it concerns religious, cultural, or ethnic diversity. Globalization has
helped improved India’s standing thereby making it an important player in the global economy.
This country is now the fourth largest economy in terms of purchasing power parity, may
overtake Japan and becomes third major economic power within the near future. India has
received big flows of foreign direct investment around the World. The differences in culture,
legal and political system, and business model and globalization led to challenges for
multinational companies and required adopting IFRS in India. Implementing a global set of
accounting standards will allow local and international companies to be more competitive in
global market place and find more sources to raise capital. The financial statement become more
reliability and comparability. Companies also will be able to cut down the number of financial
statements they prepare.
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