accouting types.pdf
- 1. What is Inflation Accounting? • Inflation accounting is a special technique used to factor in the impact soaring or plummeting costs of goods in some regions of the world have on the reported figures of international companies. • Financial statements are adjusted according to price indexes, rather than relying solely on a cost accounting basis, to paint a clearer picture of a firm’s financial position in inflationary environments. This method is also sometimes referred to as price level accounting. • How Inflation Accounting Works----- • When a company operates in a country where there is a significant amount of price inflation or deflation, historical information on financial statements is no longer relevant. • To counter this issue, in certain cases companies are permitted to use inflation-adjusted figures, restating numbers to reflect current economic values. 1
- 2. • Inflation accounting is the practice of adjusting financial statements according to price indexes. • Numbers are restated to reflect current values in hyperinflationary business environments. 2
- 3. What is Creative accounting ? • Creative accountingcapitalizes on loopholes in the accounting standards to falsely portray a better image of the company. • Tweaking figures can lead to higher bonuses for directors, help convince a lender to give a firm a loan and inflate the company’s valuation. • Creative accounting tricks vary in nature and consistently evolve as regulations change. • Investors should always be skepticaland read financial statements from top to bottom for any signs of foul play. 3
- 4. What is Creative accounting ? • Creative accounting consists of accounting practices that follow required laws and regulations, but deviate from what those standards intend to accomplish. • Creative accounting capitalizes on loopholes in the accounting standards to falsely portray a better image of the company. Although creative accounting practices are legal, the loopholes they exploit are often reformed to prevent such behaviors. • How Creative Accounting Works • A primary benefit of public accounting statements is that they allow investors to compare the financial health of competing companies. However, when firms indulge in creative accounting, they often distort the value of the information that their financials provide. • Creative accountants will always find bizarre and novel ways to tweak figures to a company’s advantage. Their goal is to make a firm look as successful and profitable as possible and sometimes they will go about doing this by twisting the truth. • If a gray area in accounting is found, it may be exploited, even if it results in misleading investors. 4
- 5. What is Social AUDIT AND ACCOUNTING ? • Social Audit is an independent evaluation of the performance and social responsibility of an organization as it relates to the attainment of its social goals. • It is an instrument of social accountability of an organization. In other words, Social Audit may be defined as an in-depth scrutiny and analysis of the working of any public utility vis-a-vis its social relevance. • Both Social Audit and Social Accounting are the process that enables an organization to assess and demonstrate its social, economic and environmental benefits and help to discharge social responsibility in proper way. • As business organization is a social unit, the society, therefore, expects that business organizations will not injure the society in any manner; on the contrary, like all good members of the society, it will strengthen it. 5
- 6. 1. Thus social Audit and Social Accounting both are essential to measure social performance and social responsibilities; through which a business seeks to place a value on the impact on society of its operations. 2. Though it is not compulsory to make these statements and audit, like other top countries some Indian companies like TISCO, CCI, ITC are focusing on social responsibility and also started to make social report for calculating total cost and benefits for performing social responsibility 6
- 7. Principles of Social Audit: Eight specific key principles have been identified from Social Auditing practices around the world. 1. Multi-Perspective: Aim to reflect the views (voices) of all those people (stakeholders) involved with or affected by the organization/department/ programme. 2. Comprehensive: Aims to (eventually) report on all aspects of the organization’s work and performance. 3. Participatory: Encourages participation of stakeholders and sharing of their values. 4. Multidirectional: Stakeholders share and give feedback on multiple aspects. 5. Regular: Aims to produce social accounts on a regular basis so that the concept and the practice become embedded in the culture of the organization covering all the activities. 7
- 8. 6. Comparative: Provides a means whereby the organization can compare its own performance each year and against appropriate external norms or benchmarks; and provide for comparisons to be made between organizations doing similar work and reporting in similar fashion. 7. Verified: Ensures that the social accounts are audited by a suitably experienced person or agency with no vested interest in the organization. 8. Disclosed: Ensures that the audited accounts are disclosed to stakeholders and the wider community in the interests of accountability and transparency. 8
- 9. Benefits and scope of Social Audit 1. Involvement of people in developmental activities ensures that money is spent where it is actually needed. 2. Reduction of wastages. 3. Reduction in corruption. 4. Awareness among people. 5. Promotesintegrity and a sense of community among people. Improves the standard of governance 9