| RELEVANCE: | | | | strengthen them for ensuring the good Corporate |
| In recent years, the Oman economy has | | | | Governance. |
| undergone a number of reforms, resulting in a | | | | PRACTICES: |
| more market-oriented economy. Particularly, the | | | | The primary and secondary data collected from |
| financial impetus extended by the Sultanate of | | | | the select companies are carefully examined to |
| Oman had signaled the beginning of a positive | | | | find the extent of compliance with the accounting |
| trend. The size of Oman industry is becoming | | | | standards and issues in corporate practices. Some |
| much bigger and the expectations of various | | | | of the important findings are as follows:i) |
| concerned parties are also increasing, which can | | | | Perceptions on the relevance of Accounting |
| be satisfied only by good Corporate Governance. | | | | Standards for Corporate Governance: Except one |
| The importance of good Corporate Governance | | | | sample of private companies which has not |
| has also been increasingly recognized by the | | | | disclosed its opinion, all others (90% of the |
| industry for improving the firms' competitiveness, | | | | sample) have expressed the accounting standards |
| better corporate performance and better | | | | as more relevant for Corporate Governance.ii) |
| relationship with all stakeholders(1). In oman also | | | | Practices of Accounting Policies Disclosed in Annual |
| the industries have obliged to reform their | | | | Reports: The majority of the sample companies |
| principles of Governance, for which, Oman | | | | (80%) disclosed twenty to twenty five policies |
| companies will now be required to make more | | | | and the remaining is equally distributed between |
| and more elaborate disclosures than have been | | | | less than twenty and more than twenty five |
| making hitherto. This necessiates to adhere to the | | | | standards disclosed by the select companies. All |
| uniform and proper accounting standards, as the | | | | the select public limited companies have complied |
| standards reduce discretion, discrepancy and | | | | with twenty to twenty five accounting |
| enhances not only the degree of transparency in | | | | standards.iii) Practices of Inventory Valuation: The |
| sharing of information with the parties concerned | | | | sample companies have adopted either the lower |
| but also reinforces the broader role the directors | | | | of cost or net realisable value or moving average |
| need to play for achieving Corporate objectives in | | | | methods for the inventory valuation.iv) Practices |
| the midst of challenges and adversities. | | | | of Preparation of Cash Flow Statement: All the |
| Here, the Corporate Governance is a voluntary, | | | | select companies have presented cash flow and |
| ethical code of business concerned with the | | | | changes in equity statements.v) Corporate |
| morals, ethics, values, parameters, conduct and | | | | Practices of Depreciation: The study revealed that |
| behavior of the company and its management. | | | | the majority of the sample companies (90%) |
| The corporate responsibility begins with the | | | | have followed straight line method for the |
| directors who are the mind and soul of a firm. | | | | computation of depreciation and the remaining |
| The Board is expected to act as | | | | followed diminishing value method. Further |
| conscience-keeper of the corporate vision and | | | | examination revealed that all sample public |
| mission, and devise the right type of systems for | | | | companies followed the straight line method of |
| organizational effectiveness and satisfaction of | | | | depreciation.vi) Practices of Construction |
| stakeholders. Thus, the Corporate Governance is | | | | Contracts: The sample consists of one |
| a system of accountability primarily directed | | | | construction company, which has followed per |
| towards the shareholders in addition to maximizing | | | | cent of completion method.vii) Practices of |
| the shareholders' welfare(2), where the debate on | | | | Research & Development: None of the select |
| disclosure/ transparency issues of Corporate | | | | companies has disclosed the expenditure on |
| Governance eventually centres around the proper | | | | research and development.viii) Practices of other |
| accounting standards and their practices and | | | | Standards: The study revealed that the |
| issues, as the application of accounting standards | | | | accounting practices related to fundamental errors |
| give a lot of confidence to the corporate | | | | and changes, effects of changing prices, business |
| management and make the disclosure more | | | | combinations, hyperinflationary economies, financial |
| effective and ensure the good Corporate | | | | statements of banks and similar financial |
| Governance to promote a healthy investment | | | | institutions and agriculture were not disclosed by |
| climate. | | | | any of the select companies as the companies |
| Thus, the study of practices of accounting | | | | are not concerned with such activities. |
| standards is an important and relevant issue of | | | | From the analyses of practices and general |
| good Corporate Governance in the present | | | | discussions, some of prime issues of accounting |
| environment, as the standards are viewed as a | | | | standards in the context of Oman are identified |
| technical response to call for better financial | | | | and presented here under in brief. |
| accounting and reporting; or as a reflection of a | | | | ISSUES:i) Disclosure of Accounting Policies is |
| society's changing expectations of corporate | | | | followed by most of the sample companies, since |
| behavior and a vehicle in social and political | | | | it is mandatory. The items stated under |
| monitoring and control of the enterprise(3). | | | | accounting policies or notes are more or less |
| STUDY: | | | | same in all the concerns selected for the study, |
| The old ways of selective and conservative | | | | but the treatment of some items were not |
| reporting is yielding place to more transparent and | | | | similar to the other concerns. |
| voluntary disclosures, in tune with the changing | | | | The requirement of the disclosure standard is only |
| times. There is no alternative to adopting by the | | | | to disclose the material facts, what is the material |
| corporate entities of new standards of | | | | or immaterial it would be decided by the |
| accountability, where the accountability is largely a | | | | organization, where the influence of personal |
| matter of disclosure, of transparency, of | | | | judgement is expected in the absence of |
| explaining a company's activities to those to | | | | concrete guidelines. Therefore, the existence of |
| whom the company has responsibilities(4) i.e. the | | | | the standard is doubtful.ii) In few accounting |
| disclosure in simple, understandable and | | | | standards, such as, valuation of inventories and |
| comparable form, forms clearly the basis for | | | | depreciation accounting, the alternative accounting |
| accountability, which can be provided only if | | | | treatment is allowed. This kind of flexibility creates |
| companies adopt uniform accounting policies and | | | | problems in judging the quality and reliability of |
| disclose adequate information about the | | | | financial statements of an enterprise and the |
| accounting standards followed. Thus, accounting | | | | different methods are followed for different |
| standards ensure the comprehensive disclosure of | | | | companies or for different periods, the possibility |
| the corporate's accountability, which may be | | | | of inter-unit, intra-industry or inter-period |
| regarded as a prime issue and a pre requisite for | | | | comparison is impaired. The lack of comparability |
| good Corporate Governance. | | | | renders the financial information less useful and |
| An examination of practices of accounting | | | | creates confusion in the minds of the investing |
| standards, and their issues in Oman industry may | | | | public.iii) In case of construction contracts, the |
| help to understand the existing practices of | | | | standard provides for adoption of either |
| accounting standards, which in turn help in | | | | completed contract method or percentage of |
| designing the effective standard practices so as | | | | completion method for recognition of profit on |
| to ensure good Corporate Governance leading to | | | | completed contract, which attracts the same |
| a healthy investment environment. | | | | limitation of comparability.iv) The hybrid method of |
| In this context, an attempt is made here to | | | | accounting i.e. accounting for income on cash basis |
| examine the accounting standards and their | | | | and expenditure on accrual (mercantile basis), |
| practices in Oman, with a view to strengthen the | | | | followed by corporates, conveniently allows them |
| accounting standards and improve their practices | | | | to manipulate their reports.v) The standards |
| for good Corporate Governance. The data for | | | | setting process is closed and narrow and the |
| the study are obtained from the annual reports | | | | execution is unsound , that causes the various |
| (published during 2001-'02) of ten Omani | | | | practices and imperfect disclosure, which defeats |
| companies of different nature, selected from the | | | | the prime objective of accounting standards in |
| top companies in terms of assets. The sample | | | | achieving the good Corporate Governance.vi) The |
| consisted of 6 private and 4 public companies. | | | | adoption of IAS in toto without looking into their |
| The simple per centage method is used to | | | | relevance in the context of Oman industrial |
| analyze the data. The authenticity of the data is | | | | environment, lacks the focus on the domestic |
| verified with the opinions of management, who | | | | problems and indigenisation. |
| are aware of the company affairs and Corporate | | | | The following suggestion are made on the basis |
| Governance. The corporates' perceptions on the | | | | of discussions with the corporates to solve the |
| relevance of accounting standards for good | | | | above issues and to improve the utility of |
| Corporate Governance in the context of Oman | | | | accounting standards for ensuring good Corporate |
| are also examined. | | | | Governance. |
| STANDARDS IN OMAN: | | | | SUGGESTIONS:i) The most important suggestion |
| In any country, the awareness and | | | | for strengthening the accounting standards to |
| competitiveness among the corporates would be | | | | improve the quality reporting thus Corporate |
| strengthened when they understand each other | | | | Governance values, is focusing on the local |
| and compare their performance, for which the | | | | conditions, improving the relevance i.e. |
| simple, understandable and comparable disclosure | | | | indigenisation of accounting standards to make the |
| is an important instrument. The main objective of | | | | standards more suitable or appropriate to the |
| disclosure would be fulfilled and the utility of the | | | | existing industrial phenomenon in Oman.ii) The |
| disclosure towards good Corporate Governance | | | | Capital Market Authority in Oman in consultation |
| would be improved when the disclosure is done | | | | with other professionals and regulatory bodies |
| on the basis of uniform and consistent accounting | | | | should evolve some mechanism to limit the scope |
| standards. Thus, the development and the | | | | of alternative methods available within an |
| practice of uniform accounting standards has | | | | accounting standard. Thus,the use of uniform |
| become an essential ingredient of Corporate | | | | accounting standards would enhance the |
| Governance and the various bodies have been | | | | qualitative and comparability dimensions of financial |
| contributing their wisdom to strengthen the | | | | statement and reporting.iii) The establishment of |
| standards to make the Corporate Governance | | | | harmony among the applicable laws like |
| more effective in the context of the changing | | | | Companies Act, Income Tax Act, Banking |
| corporate environment. The corporate | | | | Regulations etc., which have significant bearing on |
| management is also now feeling the pressure for | | | | different items of financial statements, would give |
| reforming accounting practices and level of | | | | true and fair view of business.iv) The formulation |
| transparency emanating from alert lenders, | | | | of comprehensive and indigeneous standards, like |
| regulatory agencies, financial analysts and above | | | | accounting for changes in prices, inflationary |
| all, board of directors who realize that it is the | | | | economies, segment accounting, accounting for |
| quality of information which will determine how | | | | joint ventures, earning per share, investment in |
| efficiently they have discharged their | | | | subsidiaries, associates etc., useful to make |
| responsibilities towards the good Corporate | | | | accounting standards more user friendly and |
| Governance. | | | | international acceptable. |
| In Oman, though the financial statements have | | | | To sum up, though the entire industrial community |
| been prepared in accordance with International | | | | in Oman has been following the International |
| Accounting standards issued by the International | | | | Accounting Standards and adopting disclosure |
| Accounting Standards Committee (IASC), | | | | practices to ensure true and fair view of the |
| interpretations issued by the Standing | | | | economic activities, still a lot more needs to be |
| Interpretation Committee of the IASC and the | | | | done to promote good corporate governance and |
| requirements of the Commercial Companies Law | | | | a healthy investment climate. The other middle |
| of the Sultanate of Oman and the disclosure | | | | east countries, which adopt the policy of |
| requirements set out in the rules for disclosure | | | | liberalization and intend to increase in international |
| issued by the Capital Market Authority of the | | | | capital market activities due to globalization should |
| Sultanate of Oman, the disclosure is inadequate | | | | learn that reducing the variety of approaches in |
| and is a negative phenomenon to a country which | | | | the each accounting standards, formulating the |
| wishes to be strengthened further, because it | | | | comprehensive and indigeneous standards and |
| cannot hope to tap the GDR market with | | | | making all accounting standards as mandatory |
| inadequate financial disclosures, since the more | | | | have to be given top priority for attaining the |
| transparent activities of a company governed by | | | | required objectives, otherwise it will be |
| the proper accounting standards, the more | | | | exceedingly difficult for Oman investors to trust |
| accurately will its securities be valued(5). | | | | the Corporate Governance. |
| The International Accounting Standards followed in | | | | ***************** |
| Oman industry are Presentation of Financial | | | | * The article is presented in Accounting, |
| Statements (IAS 1); Inventories (IAS 2); Cash | | | | Commerce & Finance: The Islamic |
| Flow Statements (IAS 7); Net Profit or Loss for | | | | Perspective International Conference V, held in |
| the period (IAS 8); Fundamental Errors & | | | | Brisbane, Australia during 15-17, June 2004. |
| Changes in Accounting policies (IAS 9); Events | | | | REFERENCES: |
| After the Balancesheet Date (IAS 10); | | | | 1. Tiwary, Ojha, Arun Kumar, "Corporate |
| Construction Contracts (IAS 11); Income Taxes | | | | Governance in India: What it Means and What it |
| (IAS 12); Segment Reporting (IAS 14); Effects of | | | | needs?", The Indian Journal of Commerce, New |
| Changing Prices (IAS 15); Property, Plant and | | | | Delhi, Oct-Dec,1998, p.154. |
| Equipment (IAS 16); Leases (IAS 17); Revenue | | | | 2. Chandratre, KR, "Role of Board of Directors in |
| (IAS 18); Employment Benefits (IAS 19); | | | | Emerging Dimensions of Corporate Governance |
| Accounting for Govt. Grants & Govt. | | | | and Impending Changes in Company Law, The |
| Assistance (IAS 20); Effects of Changes in | | | | Chartered Secretary, The Institute of Chartered |
| Foreign Exchange Rates (IAS 21); Business | | | | Secretary of India, New Delhi, May 97, p. 505. |
| Combinations (IAS 22); Borrowing Costs (IAS 23); | | | | 3. R.I.Ticker, "Corporate Responsibility, Institutional |
| Related Party Disclosures (IAS 24); Retirement | | | | Governance and the Roles of Accounting |
| Benefit Plans (IAS 26); Consolidated Financial | | | | Standards" in Michael Bromwich and Anthony G. |
| Statements (IAS 27); Investments in Associates | | | | Hopwood (Eds.), Accounting Standards Setting, An |
| (IAS 28), Hyperinflationary Economies (IAS 29); | | | | International Perspective, Pitman Books Ltd., |
| Banks & Similar Financial Institutions (IAS 30); | | | | London, 1883, p.27., Cited in Lele RK, Jawahar Lal, |
| Interests in Joint Ventures (IAS 31); Financial | | | | "Accounting Theory", Himalaya Publishing House, |
| Instruments: Disclosure & Presentation (IAS | | | | New Delhi, 96,p.56. |
| 32); Earnings Per Share (IAS 33); Interim Financial | | | | 4. Sir Adrian Cadbury, "Developments in |
| Reporting (IAS 34); Discontinuing Operations (IAS | | | | Corporate Governance", The Company |
| 35); Impairment of Assets (IAS 36); Provisions, | | | | Secretary, The Institute of Chartered Secretary |
| Contingent Liabilities & Assets (IAS 37); | | | | of India, New Delhi, May 97, p. 497. |
| Intangible Assets (IAS 38); Financial Instruments: | | | | 5. The Report of the Cadbury Committee on |
| Recognition & Measurement (IAS 39); | | | | "Financial Aspects of Corporate Governance", The |
| Investment Property (IAS 40); Agriculture (IAS | | | | Company Secretary, The Institute of Chartered |
| 41). | | | | Secretary of India, New Delhi, May 97, p. 573. |
| Though the Oman industry has been following all | | | | 6. Verma, Garg, Singh, "Disclosure of Accounting |
| the International Accounting Standards, in practice, | | | | Standards Vis-à-vis Company |
| some of them are not free from criticism due to | | | | Characteristics: A Study of Indian Corporate |
| certain inherent weaknesses. The practices of | | | | Sector", The Indian Journal of Commerce, New |
| these standards in the Oman industries and the | | | | Delhi, Oct-Dec,1998, p.131. |
| gaps are discussed in what follows with a view to | | | | |