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ACCOUNTING FOR MANAGERS

ASSIGNMENT IN EMERGING AREAS IN ACCOUNTING
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K.VIJAYA SURYA

MBA ±FIRST YEAR

DMS

SEC:A

DATE:17.08.2010

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HUMAN RESOURCE ACCOUNTING:

Human resource accounting(HRA) is defined by the American accounting
association¶s committee on Human Resource Accounting as´the process of identifying and
measuring data about human resources and communicating this information to interested
parties´.

WHY HRA ACCOUNTING?

_c It furnishes cost/value information for making management decision
about acquiring, allocating, developing and maintaining human resources in
order to attain cost-effectiveness.
_c It allows management personnel to monitor effectively the use of human
resources.
_c It provides an sound and effective basis of human asset control, that is,
whether the assert is appreciated, depleted or conserved.
_c It helps in the development of management principles by classifying the
financial consequences of various practices.

MEASUREMENT IN HRA:

The biggest challenge in HRA is that of assigning monetary values to

different dimensions of HR costs, investments and worth of employees.The two main
approaches employed for this are:

_c The ï
  ï
whichinvolvesmethod based on the cost incurred by

the company with regard to an employee.

 _c The ï  ï 
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which involves method based on the
economic valve of the human resources and their contribution to the
company¶s gains. This approach looks at the human resources as assets and
try to identify the stream of benefits flowing from the asset.

HEDGE ACCOUNTING

.  Hedge accounting is a method of accounting where entries for the ownership of a

security and the opposing hedge are treated as one. Hedge accounting attempts to reduce the
volatility created by the repeated adjustment of a financial instrument's value, known as marking
to market. This reduced volatility is done by combining the instrument and the hedge as one
entry, which offsets the opposing movementsOcHedge accounting is an accountancy practice.

WHY IS HEDGE ACCOUNTING NECESSARY?

_c Many financial institutions and corporate businesses (entities) use derivative

financial instruments to hedge their exposure to different risks (for example
interest rate risk, foreign exchange risk, commodity risk, etc.).
_c Accounting for derivative financial instruments under International
Accounting Standards is covered by IAS39 (Financial Instrument:
Recognition and Measurement).
_c IAS39 requires that all derivatives are marked-to-market with changes in the
mark-to-market being taken to the profit and loss account. For many entities
this would result in a significant amount of profit and loss volatility arising
from the use of derivatives.
_c An entity can mitigate the profit and loss effect arising from derivatives
used for hedging, through an optional part of IAS39 relating to hedge
accounting.
ACCOUNTING FOR HEDGES:

Three types of hedge accounting are recognized by IFRS. These are 4

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and 

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requirements on accounting for the fair value changes.



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_c The hedged asset or liability is adjusted for fair value changes attributable to
the risk being hedged, and those fair value changes are recognized in the
income statement.c
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_c The risk being hedged in a fair value hedge is a change in the fair value of an
asset or liability or unrecognized firm commitment
_c It is an identified portion of an asset, liability or firm commitment that is
attributable to a particular risk and could affect the income statement.
_c An example of a fair value hedge is a fixed-rate loan whose interest rate
exposure is converted to floating rates with an interest-rate swap.
_c Another example is mitigating a potential fall in the value of an available-
for-sale equity investment with an equity forward or option.
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_c Cash flows relate to existing assets and liabilities such as future interest
payments or receipts on floating rate debt. 
_c Future cash flows can also relate to forecast sales or purchases in a foreign
currency.
_c Volatility in future cash flows will result from changes in interest rates,
exchangerates, equity prices or commodity prices.
 The risk being hedged in a cash flow hedge is the exposure to variability in cash flows
that:

_c It is attributable to a particular risk associated with a recognised asset or

liability, an unrecognised firm commitment (currency risk only), or a highly
probable forecast transaction.
_c could affect the income statement.
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_c A hedge of a net investment with a foreign currency borrowing or a
derivative can qualify for hedge accounting.
_c The foreign currency gains or losses on the hedging instrument are deferred
in equity.
_c The hedging instrument in a net investment hedge will almost always need
to be denominated in the foreign operation¶s functional currency in order to
be effective.

The amount recognised in equity in the µhedging reserve¶ should be the lower of:

_c The cumulative gain or loss on the hedging instrument from the inception of
the hedge.
_c The cumulative change in the fair value (present value) of the expected cash
flows on the hedged item from the inception of the hedge.
FORENSIC ACCOUNTING:
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The integration of accounting, auditing and investigative skills yields the speciality
known as Forensic Accounting.Forensic accounting is accounting that is suitable for legal
review, offering the highest level of assurance, and including the now generally accepted
connotation of having been arrived at in a scientific fashion. Forensic accounting is the
specialty practice area of accountancy that describes engagements that result from actual
or anticipated disputes or litigation. "Forensic" means "suitable for use in a court of law",
and it is to that standard and potential outcome that forensic accountants generally have
to work.

WHY FORENSIC ACCOUNTING?

_c It investigative specialists work with financial information for the purpose
of conveying complicated issues in a manner that others can easily
understand.
_c forensic accountants and forensic accounting specialists are engaged in the
public practice of forensic examination
_c others work in private industry for such entities as banks and insurance
companies or governmental entities such as sheriff and police departments,
the Federal Bureau of Investigation (FBI), and the Internal Revenue
Service (IRS).
_c Forensic accounting involves looking beyond the numbers and grasping the
substance of situations. It¶s more than accounting«more than detective
work«it¶s a combination that will be in demand for as long as human
nature.ac and in tax investigations, economic crime investigations, all kinds
of civil litigation support, specialized audits, and even in terrorist
investigations Forensic Accountants work throughout the business world,
in public ac
ENVIRONMENTAL ACCOUNTING:

_c Environmental accounting, is a subset of social accounting, focuses on the

cost structure and environmental performance of a company.
_c It principally describes the preparation, presentation, and communication
of information related to an organisation¶s interaction with the natural
environment.
_c Although environmental accounting is most commonly undertaken as
voluntary self-reporting by companies, third-party reports by government
agencies, NGOs and other bodies posit to pressure for environmental
accountability.
_c The environmental accounts have the advantage that they are consistent
with National Accounts. Furthermore, they can be coupled to input-output
_c Opportunity costs are another cost category which can be examined with
an environmental and social accounting. c
_c Opportunity costs refer to what we do without in order to have something
else

BENEFITS:

_c Environmental accounting allows companies to take all costs, rather than

just company expenses, into account when making production and pricing
decisions.
_c The depletion of natural resources involves more costs than the monetary
ones that appear on company financial statements.
_c Examining our use of and affect on natural resources and the environment
around us increases our awareness of the way in which we treat that
environment.
 _c This awareness allows us to make decisions that will keep our drinking
water cleaner, decrease air pollution and manage dwindling natural
resources
_c The environmental accounting framework (SEEA, 2003) is particularly
useful to assess the influence of the economy on the environment both
directly and indirectly
_c Environmental accounting can be used to monitor our use of minerals and
natural oil. We can also examine the costs of water and air pollution.
_c Animal habitats and the farm land needed to produce food can also be
examined to determine what impact our activities are having.c
.cc

CONSTRUCTION ACCOUNTING:
c

_c Construction projects are a few of the most confusing jobs and the most
involved.
_c During each project the director has to keep track of what needs to be done,
who is being hired to work on the contrasting components of the building,
and when to pay for the materials and employees.hence construction
accounting is important.

_c Construction accounting is a form of project accounting applied to

construction projects.
_c Construction accounting is a vitally necessary form of accounting,
especially when multiple contracts come into play.
_c The construction field uses many terms not used in other forms of
accounting, such as draw and progress billing.
 _c Construction accounting may also need to account for vehicles and
equipment, which may or may not be owned by the company as a fixed
asset.
_c Construction accounting requires invoicing and vendor payment, more or
less as to the amount of business done
_c Construction accounting involves charging construction costs to the
applicable contract.
_c Costs fall into three categories-Direct costs, Indirect costs and contract
costs.
_c ïï

are labor, material, and subcontracting costs.
_c  ïï

include indirect labor, supervision, tools, equipment costs,
supplies, insurance, and support costs.
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, are generally excluded from
contract costs.
_c A contract is a big job requiring considerable length of time to complete
and comprising activities to be done outside the factory promises, viz.
construction of a dam or school building, laying down railway lines, etc.
_c Special financial and management accounting is required to maintain the
records of construction contracts.
_c Since each contract involves considerable resources both in terms of men
and materials.
_c It is necessary to devise an appropriate accounting system to ascertain the
cost and profit made on each contract separately.c

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_c Accounting modulecovers the accounts receivables and accounts payables,

check writing, financial reports, job costs, project billing, inventory, unit
costs, cover assemblies, cost estimating module.
_c Meanwhile, project management module comprises materials and quantity
takeoffs, change orders, contract writing, punch lists, and schedules .
 _c Business management modules comprises appointments, customer
relations leads, sales, property management, and the like.

GOODWILL ACCOUNTING:

_c Goodwill in financial statements arises when a company is purchased for more than the
fair value of the identifiable assets of the company.
_c The difference between the purchase price and the sum of the fair value of the net assets
is by definition the value of the "goodwill" of the purchased company.
_c The acquiring company must recognize goodwill as an asset in its financial statements
and present it as a separate line item on the balance sheet, according to the current
purchase accounting method.
_c Goodwill serves as the balancing sum that allows one firm to provide accounting
information regarding its purchase of another firm for a price substantially different from
its book value.
_c Goodwill can be negative, arising where the net assets at the date of acquisition, fairly
valued, exceed the cost of acquisition.
_c Goodwill was originally used to reflect the fact that an ongoing business had some
"prudent value" beyond its assets, such as the reputation the firm enjoyed with its clients.
Likewise, a buyer may agree to "overpay" because he sees potential synergy with his own
business.
_c The accounting sense of goodwill followed as a possible explanation of why a firm sells
for more than the value of its current asset.. F
RETAIL ACCOUNTING:
c

_c Retailing consists of the sale of goods or merchandise from a fixed location,

such as a department store, boutique or kiosk, or by mail, in small or
individual lots for direct consumption b retail is synonymous with heavy and
extensive transactions.
_c It is a concept where business strategies are planned and executed
everymoment,

BENEFITS OF RETAIL ACCOUNTING:

_c It is a well established fact that the most important factor of any retail
business is accounting as only this department is responsible for managing
andestimating the profit or loss of the company.
_c Therefore, it is very important for any retail shop to recruit a staff that can
bear the pressure of complexdeals and large business processing, especially
in the field of accounting.
_c Even the people who have just started with their retailing shops must
focuson the retail accounting of their firm as it forms the foundation of the
entire business.
_c A retail shop basically runs on the procedure of buying and selling the
commodities at the same time. In fact, in order to offer variety, this process
ofbuying and selling gets multiplied as more and more varieties are required
to attract the customers and earn decent profit percentage.
REFERENCES:

1.www.ignou.ac.in/edusat/mba/MS-23/Block-4/pdf/Unit-18.pdf.

2Ocen.wikipedia.org/wiki/Hedge_accounting.

3. O
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â.org/wiki en.wikipedia /Construction_accounting.

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