Introduction

I as a reviewer of this book, would like to reiterate the words of Albert Einstein – “Creativity is seeing what others see and thinking what no one else ever thought”.

Financial Accounting is an integral part of the study of Accountancy. The scope of accounting encompasses not only recording of financial events and transactions of an individual and entity, but also information that facilitates decision-making.

Every now and then, the discipline of education, management, practitioners and teachers of finance and accounting, throws up some intriguing question on Golden Rule of Accounting (Traditional approach) and accounting process³.

The golden rule of accounting become disastrous when non-commercial background practitioners and management team members is faced with discontinuous change since 15^th centuries³.

What is the nature of account, event type, the accounting cycle, mechanics of accounting, determination of financial performance and financial position of an individual, entity, etc., - affect each other – in a way we can reliably and easily understand?  These questions are in the nature of mysteries – questions that do not permit straight forward answers are widely known, but hold on to their mysteriousness, and persist as ‘unexplained knowns’ by golden rule of accounting.

Depart from ‘Golden Rule of Accounting’

Mystery, therefore, focuses on the moment of wonder as the pedagogical purpose, and need happens for the transition from ‘unexplained knowns’ in to ‘understanding or realisation’.

The book titled as Financial Accounting for Management, conceptualised and authored under the new pedagogical tool named as ‘Modern Approach of Accounting’, by Paresh Shah. The nature of account is emphasis on the five parts as per Modern Approach of Accounting (MAA) and replaced the age-old traditional concept of three types of account. The traditional rule of Debit and Credit (since 1494, developed by Luca Pacioli) (Paresh, 2007, pp. 113-116) based on three types of accounts has been replaced by five nature of accounts through arithmetical equation in MAA¹.

The author has rightly applied this term, certain phenomenon which are ‘unknown’ to the extent that they are ‘unthought’ or ‘deliberately ignored’, but which nevertheless, in the pedagogical sense, provide moments of wonders and initiation for the reader from all corners of the world.

This focus on the moments of initiation that mysteries facilitate helps the author to challenge the epistemological assumptions that have come to underpin the golden rule of accounting, a key task that this book performs admirably.

Thesis of the Book ‘Financial Accounting for Management’:

Though initial efforts in re-defining emanated largely from the solid foundation of research work during the teaching of non-commercial background management students and participants. A solid pedagogical tool of Dual Aspects¹ are researched and conceptualised in detail by author in mid-nineties of 20^th century.

In the beginning, this pedagogical concept was named as ‘Adopted Approach’  (Paresh, 2007, p. 106) and the accounting cycle through out the book is elaborated by ‘Adopted Approach’ (Paresh, 2007). The same pedagogical approach has been renamed as ‘Modern Approach of Accounting’ in later on editions^{2, 3}.

Analysis

Paresh’s book is organised in five parts comprising of 20 chapters. The book uses ‘Modern Approach of Accounting’ through out the book (except for indicating debit and credit terms as per golden rule of accounting, i.e., age-old traditional approach of accounting to support the commercial background readers). In the whole book, the accounts are indicated by columnar method instead of T form. In the columnar form of accounts, columns are indicating increase in value and/or decrease in value, along with each account is indicated as per applicable nature of accounting as per MAA, and Debit and Credit words are shown as part of column heading (considering the need of today’s computerisation of accounting and its generation of reports, etc.).

This book is divided into five parts – Fundamentals of accounting, Recognition and types of transactions, financial statements, Analytical accounting, and Special topics.

The important accounting concepts, the vertical presentation from management view and legal view, and utility of balance sheet elaborated. Book also deals with the detailed analysis of income statement in vertical format. It also discusses the cash conversion cycle.

The concepts of objectively verifiable evidence, in addition to the concept of receipt and capital maintenance. It also explains the modus operandi of electronic banking. Book has elaborated revenue and expense recognition and its measurements in addition to the relationship between assets and expenses. Book has given justice to the concept of analyzing transactions wherein it explains the topics such as journal proper, fundamentals of accounting as per modern approach of accounting, errors in accounting and the suspense account.

The concept of non-current assets and its writing off the value over the period based on three types of phenomenon, like time phenomenon, capacity phenomenon and funds management phenomenon are clarified. Additionally, different goodwill valuation methods are also elaborated. The management of current assets in the form of cash balance, bank balance, and its diverse types are discussed. Book has also explained the impact of receivables and inventory valuation and discusses the topics such as accounting of uncollectible receivables, receivable and inventory measurement, controlling of inventories, costing of inventories, and valuation of stock and its impact on financial statements. The critical discussion and accounting treatments related to capital and liabilities and its presentations in financial statements of corporates are explained with real-life corporate illustrations.

It also deals with the need of bank reconciliation statement and its preparation as part of internal control management, and identification of causes of differences in the balance as per firm’s record and as per banker’s record. Book deals with the distinct types of entries required at period end to prepare financial statements, and the concept of work sheet and its utility. It also elaborates the GST accounting, and its impact. The modus operandi to find out the missing values and to verify the reliability and accuracy are discussed with illustrations in detail.

Today’s contemporary situation of delay receipt and payment of receivables and payables, respectively, and its dealing in the interest of entity has been explained as average due date, account current, and negotiable instruments. The analytical aspects of financial statements, like common size statements, comparative financial statements, financial ratio analysis and cash flow statement for manufacturing entity and financial entity are explained in detail, with real-life cases (few places’ names of entity are disguised by author to maintain confidentiality in conceptual cases and business application cases).

The foreign exchange accounting for import-export transactions in addition to the foreign branch accounting elaborated and evaluated. It also discusses the unique way of quotations of foreign exchange rates, hedging of transactions, and treatment of exchange differences.

The legal and regulatory aspects of accounting. Topics such as IFRS, Ind AS and GAAP are explained in addition to contemporary accounting like inflation accounting, human resource accounting, and forensic accounting.

Significance

Book focuses on the concepts, principles and practices that facilitates the development of accounting skills for effective decision-making. Another facet of the book is that in almost each chapter the most recent cases and events from real-life Indian companies are built in. The book also contains cases for classroom discussions in the form of conceptual cases and business application cases at the end of each chapter.

Paresh provides focuses on the accounting treatment on latest conceptual development in Indian taxation system, and its impact, like GST provisions in addition to discussion on IFRS norms – Indian Accounting Standards, valuation of goodwill, hedging of foreign exchange transactions, foreign branch accounting, inflation accounting, human resource accounting, environment accounting, forensic accounting, translation of foreign currency transactions and its accounting, etc., based on MAA.

Relevance

Paresh demonstrates through out in his book, that Modern Approach of Accounting – believes in dichotomies – the sum of left-hand side of arithmetic equation equals the sum of right-hand side of arithmetic equation, - five types of nature of accounts, - debit and credit word itself has no meaning and significance, in the today’s state-of-art-technology, and for better and lucid understanding of accounting and in turn its use in decision-making.

The legacy of conquest of Modern Approach of Accounting must be reckoned with the same way the Golden rule of accounting trying to reckon with three types of traditional accounts. Because of the added scholar’s work (Paresh’s Work on conceptualising)-there has been much needed contribution to the field in the future years to come.

Intended Audience

The book is quite useful for non-commerce background reader, management students, and computer software and state-of-the-art technological software developer in the field of Information, Communication and Technology (ICT).

References

1. Paresh, 2005, - Paresh, S., 2007. Basic Financial Accounting For Management. First ed. Delhi: Oxford University Press.
2. Paresh, S., 2013. Financial Accounting for Management. Second ed. Delhi: Oxford University Press.
3. Paresh, S., 2019. Financial Accounting for Management. Third ed. Delhi: Oxford University Press. https://global.oup.com/academic/product/financial-accounting-for-management-9780199494439?q=paresh%20shah&lang=en&cc=gb