When is cash basis accounting used?

Corporate Governance and Accounting Standards in Oman: An Empirical Study on Practices

RELEVANCE:In recent years, the Oman economy				Practices of Inventory Valuation: The sample
has undergone a number of reforms, resulting				companies have adopted either the lower of
in a more market-oriented economy.				cost or net realisable value or moving
Particularly, the financial impetus extended				average methods for the inventory
by the Sultanate of Oman had signaled the				valuation.iv) Practices of Preparation of
beginning of a positive trend. The size of				Cash Flow Statement: All the select companies
Oman industry is becoming much bigger and the				have presented cash flow and changes in
expectations of various concerned parties are				equity statements.v) Corporate Practices of
also increasing, which can be satisfied only				Depreciation: The study revealed that the
by good Corporate Governance.The importance				majority of the sample companies (90%) have
of good Corporate Governance has also been				followed straight line method for the
increasingly recognized by the industry for				computation of depreciation and the remaining
improving the firms' competitiveness, better				followed diminishing value method. Further
corporate performance and better relationship				examination revealed that all sample public
with all stakeholders(1). In oman also the				companies followed the straight line method
industries have obliged to reform their				of depreciation.vi) Practices of Construction
principles of Governance, for which, Oman				Contracts: The sample consists of one
companies will now be required to make more				construction company, which has followed per
and more elaborate disclosures than have been				cent of completion method.vii) Practices of
making hitherto. This necessiates to adhere				Research & Development: None of the select
to the uniform and proper accounting				companies has disclosed the expenditure on
standards, as the standards reduce				research and development.viii) Practices of
discretion, discrepancy and enhances not only				other Standards: The study revealed that the
the degree of transparency in sharing of				accounting practices related to fundamental
information with the parties concerned but				errors and changes, effects of changing
also reinforces the broader role the				prices, business combinations,
directors need to play for achieving				hyperinflationary economies, financial
Corporate objectives in the midst of				statements of banks and similar financial
challenges and adversities.Here, the				institutions and agriculture were not
Corporate Governance is a voluntary, ethical				disclosed by any of the select companies as
code of business concerned with the morals,				the companies are not concerned with such
ethics, values, parameters, conduct and				activities.From the analyses of practices
behavior of the company and its management.				and general discussions, some of prime issues
The corporate responsibility begins with				of accounting standards in the context of
the directors who are the mind and soul of a				Oman are identified and presented here under
firm.The Board is expected to act as				in brief.ISSUES:i) Disclosure of Accounting
conscience-keeper of the corporate vision and				Policies is followed by most of the sample
mission, and devise the right type of systems				companies, since it is mandatory. The items
for organizational effectiveness and				stated under accounting policies or notes are
satisfaction of stakeholders. Thus, the				more or less same in all the concerns
Corporate Governance is a system of				selected for the study, but the treatment of
accountability primarily directed towards the				some items were not similar to the other
shareholders in addition to maximizing the				concerns.The requirement of the disclosure
shareholders' welfare(2), where the debate on				standard is only to disclose the material
disclosure/ transparency issues of Corporate				facts, what is the material or immaterial it
Governance eventually centres around the				would be decided by the organization, where
proper accounting standards and their				the influence of personal judgement is
practices and issues, as the application of				expected in the absence of concrete
accounting standards give a lot of confidence				guidelines. Therefore, the existence of the
to the corporate management and make the				standard is doubtful.ii) In few accounting
disclosure more effective and ensure the good				standards, such as, valuation of inventories
Corporate Governance to promote a healthy				and depreciation accounting, the alternative
investment climate.Thus, the study of				accounting treatment is allowed. This kind of
practices of accounting standards is an				flexibility creates problems in judging the
important and relevant issue of good				quality and reliability of financial
Corporate Governance in the present				statements of an enterprise and the different
environment, as the standards are viewed as a				methods are followed for different companies
technical response to call for better				or for different periods, the possibility of
financial accounting and reporting; or as a				inter-unit, intra-industry or inter-period
reflection of a society's changing				comparison is impaired. The lack of
expectations of corporate behavior and a				comparability renders the financial
vehicle in social and political monitoring				information less useful and creates confusion
and control of the enterprise(3).STUDY:The				in the minds of the investing public.iii) In
old ways of selective and conservative				case of construction contracts, the standard
reporting is yielding place to more				provides for adoption of either completed
transparent and voluntary disclosures, in				contract method or percentage of completion
tune with the changing times. There is no				method for recognition of profit on completed
alternative to adopting by the corporate				contract, which attracts the same limitation
entities of new standards of accountability,				of comparability.iv) The hybrid method of
where the accountability is largely a matter				accounting i.e. accounting for income on cash
of disclosure, of transparency, of explaining				basis and expenditure on accrual (mercantile
a company's activities to those to whom the				basis), followed by corporates, conveniently
company has responsibilities(4) i.e. the				allows them to manipulate their reports.v)
disclosure in simple, understandable and				The standards setting process is closed and
comparable form, forms clearly the basis for				narrow and the execution is unsound , that
accountability, which can be provided only if				causes the various practices and imperfect
companies adopt uniform accounting policies				disclosure, which defeats the prime objective
and disclose adequate information about the				of accounting standards in achieving the good
accounting standards followed. Thus,				Corporate Governance.vi) The adoption of IAS
accounting standards ensure the comprehensive				in toto without looking into their relevance
disclosure of the corporate's accountability,				in the context of Oman industrial
which may be regarded as a prime issue and a				environment, lacks the focus on the domestic
pre requisite for good Corporate				problems and indigenisation.The following
Governance.An examination of practices of				suggestion are made on the basis of
accounting standards, and their issues in				discussions with the corporates to solve the
Oman industry may help to understand the				above issues and to improve the utility of
existing practices of accounting standards,				accounting standards for ensuring good
which in turn help in designing the effective				Corporate Governance.SUGGESTIONS:i) The most
standard practices so as to ensure good				important suggestion for strengthening the
Corporate Governance leading to a healthy				accounting standards to improve the quality
investment environment.In this context, an				reporting thus Corporate Governance values,
attempt is made here to examine the				is focusing on the local conditions,
accounting standards and their practices in				improving the relevance i.e. indigenisation
Oman, with a view to strengthen the				of accounting standards to make the standards
accounting standards and improve their				more suitable or appropriate to the existing
practices for good Corporate Governance. The				industrial phenomenon in Oman.ii) The Capital
data for the study are obtained from the				Market Authority in Oman in consultation with
annual reports (published during 2001-'02) of				other professionals and regulatory bodies
ten Omani companies of different nature,				should evolve some mechanism to limit the
selected from the top companies in terms of				scope of alternative methods available within
assets. The sample consisted of 6 private and				an accounting standard. Thus,the use of
4 public companies. The simple per centage				uniform accounting standards would enhance
method is used to analyze the data. The				the qualitative and comparability dimensions
authenticity of the data is verified with the				of financial statement and reporting.iii) The
opinions of management, who are aware of the				establishment of harmony among the applicable
company affairs and Corporate Governance. The				laws like Companies Act, Income Tax Act,
corporates' perceptions on the relevance of				Banking Regulations etc., which have
accounting standards for good Corporate				significant bearing on different items of
Governance in the context of Oman are also				financial statements, would give true and
examined.STANDARDS IN OMAN:In any country,				fair view of business.iv) The formulation of
the awareness and competitiveness among the				comprehensive and indigeneous standards, like
corporates would be strengthened when they				accounting for changes in prices,
understand each other and compare their				inflationary economies, segment accounting,
performance, for which the simple,				accounting for joint ventures, earning per
understandable and comparable disclosure is				share, investment in subsidiaries, associates
an important instrument. The main objective				etc., useful to make accounting standards
of disclosure would be fulfilled and the				more user friendly and international
utility of the disclosure towards good				acceptable.To sum up, though the entire
Corporate Governance would be improved when				industrial community in Oman has been
the disclosure is done on the basis of				following the International Accounting
uniform and consistent accounting standards.				Standards and adopting disclosure practices
Thus, the development and the practice of				to ensure true and fair view of the economic
uniform accounting standards has become an				activities, still a lot more needs to be done
essential ingredient of Corporate Governance				to promote good corporate governance and a
and the various bodies have been contributing				healthy investment climate. The other middle
their wisdom to strengthen the standards to				east countries, which adopt the policy of
make the Corporate Governance more effective				liberalization and intend to increase in
in the context of the changing corporate				international capital market activities due
environment. The corporate management is also				to globalization should learn that reducing
now feeling the pressure for reforming				the variety of approaches in the each
accounting practices and level of				accounting standards, formulating the
transparency emanating from alert lenders,				comprehensive and indigeneous standards and
regulatory agencies, financial analysts and				making all accounting standards as mandatory
above all, board of directors who realize				have to be given top priority for attaining
that it is the quality of information which				the required objectives, otherwise it will be
will determine how efficiently they have				exceedingly difficult for Oman investors to
discharged their responsibilities towards the				trust the Corporate
good Corporate Governance.In Oman, though the				Governance.**********************************
financial statements have been prepared in				***************************
accordance with International Accounting
standards issued by the International				* The article is presented in Accounting,
Accounting Standards Committee (IASC),				Commerce & Finance: The Islamic Perspective
interpretations issued by the Standing				International Conference V, held in Brisbane,
Interpretation Committee of the IASC and the				Australia during 15-17, June
requirements of the Commercial Companies Law				2004.REFERENCES:1. Tiwary, Ojha, Arun Kumar,
of the Sultanate of Oman and the disclosure				"Corporate Governance in India: What it Means
requirements set out in the rules for				and What it needs?", The Indian Journal of
disclosure issued by the Capital Market				Commerce, New Delhi, Oct-Dec,1998, p.154.2.
Authority of the Sultanate of Oman, the				Chandratre, KR, "Role of Board of Directors
disclosure is inadequate and is a negative				in Emerging Dimensions of Corporate
phenomenon to a country which wishes to be				Governance and Impending Changes in Company
strengthened further, because it cannot hope				Law, The Chartered Secretary, The Institute
to tap the GDR market with inadequate				of Chartered Secretary of India, New Delhi,
financial disclosures, since the more				May 97, p. 505.3. R.I.Ticker, "Corporate
transparent activities of a company governed				Responsibility, Institutional Governance and
by the proper accounting standards, the more				the Roles of Accounting Standards" in Michael
accurately will its securities be				Bromwich and Anthony G. Hopwood (Eds.),
valued(5).The International Accounting				Accounting Standards Setting, An
Standards followed in Oman industry are				International Perspective, Pitman Books Ltd.,
Presentation of Financial Statements (IAS 1);				London, 1883, p.27., Cited in Lele RK,
Inventories (IAS 2); Cash Flow Statements				Jawahar Lal, "Accounting Theory", Himalaya
(IAS 7); Net Profit or Loss for the period				Publishing House, New Delhi, 96,p.56.4. Sir
(IAS 8); Fundamental Errors & Changes in				Adrian Cadbury, "Developments in Corporate
Accounting policies (IAS 9); Events After the				Governance", The Company Secretary, The
Balancesheet Date (IAS 10); Construction				Institute of Chartered Secretary of India,
Contracts (IAS 11); Income Taxes (IAS 12);				New Delhi, May 97, p. 497.5. The Report of
Segment Reporting (IAS 14); Effects of				the Cadbury Committee on "Financial Aspects
Changing Prices (IAS 15); Property, Plant and				of Corporate Governance", The Company
Equipment (IAS 16); Leases (IAS 17); Revenue				Secretary, The Institute of Chartered
(IAS 18); Employment Benefits (IAS 19);				Secretary of India, New Delhi, May 97, p.
Accounting for Govt. Grants & Govt.				573.6. Verma, Garg, Singh, "Disclosure of
Assistance (IAS 20); Effects of Changes in				Accounting Standards Vis-Ã -vis Company
Foreign Exchange Rates (IAS 21); Business				Characteristics: A Study of Indian Corporate
Combinations (IAS 22); Borrowing Costs (IAS				Sector", The Indian Journal of Commerce, New
23); Related Party Disclosures (IAS 24);				Delhi, Oct-Dec,1998,
Retirement Benefit Plans (IAS 26);				p.131.***************************************
Consolidated Financial Statements (IAS 27);				************************BIOGRAPHICAL DETAILS
Investments in Associates (IAS 28),				OF AUTHORS:Dr.K.Shankaraiah, Assistant
Hyperinflationary Economies (IAS 29); Banks &				Professor in Accounting
Similar Financial Institutions (IAS 30);
Interests in Joint Ventures (IAS 31);				& D.N.Rao, Lecturer in Finance
Financial Instruments: Disclosure &
Presentation (IAS 32); Earnings Per Share				College of Commerce & Economics, Sultan
(IAS 33); Interim Financial Reporting (IAS				Qaboos University, PB 20, PC 123, Al Khod,
34); Discontinuing Operations (IAS 35);				Muscat, Sultanate of Oman.1.
Impairment of Assets (IAS 36); Provisions,				Dr.K.Shankaraiah:
Contingent Liabilities & Assets (IAS 37);
Intangible Assets (IAS 38); Financial				A Senior Associate Professor of Commerce in
Instruments: Recognition & Measurement (IAS				Osmania University, Hyderabad, Andhra
39); Investment Property (IAS 40);				Pradesh, India with 18 years of teaching and
Agriculture (IAS 41).Though the Oman industry				research experience.
has been following all the International
Accounting Standards, in practice, some of				Working as Assistant Professor in Accounting
them are not free from criticism due to				in College of Commerce & Economics, Sultan
certain inherent weaknesses. The practices of				Qaboos University, Sultanate of Oman.
these standards in the Oman industries and
the gaps are discussed in what follows with a				Worked as Accounting Section Head in the
view to strengthen them for ensuring the good				Department of Business Management of Bahrain
Corporate Governance.PRACTICES:The primary				Training Institute, Ministry of Labour &
and secondary data collected from the select				Social Affairs, Kingdom of Bahrain.
companies are carefully examined to find the
extent of compliance with the accounting				Participated in various national and
standards and issues in corporate practices.				intenational seminars.
Some of the important findings are as
follows:i) Perceptions on the relevance of				Published about 30 articles in various
Accounting Standards for Corporate				journals of national and international
Governance: Except one sample of private				repute.
companies which has not disclosed its
opinion, all others (90% of the sample) have				Written books and developed course materials
expressed the accounting standards as more				for academecians, researchers and tudents.
relevant for Corporate Governance.ii)
Practices of Accounting Policies Disclosed				Areas of specialisation are accounting and
in Annual Reports: The majority of the sample				finance.
companies (80%) disclosed twenty to twenty
five policies and the remaining is equally				Undertaken various research projects and
distributed between less than twenty and more				providing guidance to Ph.D. research
than twenty five standards disclosed by the				scholars.
select companies. All the select public
limited companies have complied with twenty				Member and Resource person of various
to twenty five accounting standards.iii)				academic and professional bodies.2. D.N.

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Corporate Governance and Accounting Standards in Oman: An Empirical Study on Practices