Corporate Governance, Accounting Theories and Financial Reporting

This report provides a comprehensive analysis of Punjab National Bank's financial statements, focusing on its compliance with accounting standards and the application of accounting theories. The report examines employee benefits, contingent liabilities, and the bank's adherence to accounting guidelines. It delves into specific areas of the financial statements, comparing employee benefits and contingent liabilities to assess their conformance. Furthermore, the report addresses legal and accounting issues faced by the bank, including a significant fraud scandal, and discusses the implications for financial reporting and corporate governance. The conclusion summarizes the bank's compliance with accounting standards and highlights the importance of ethical practices and robust internal controls to prevent financial misconduct. The report emphasizes the need for high-quality financial reporting frameworks to ensure transparency and investor protection.

Running head: ACCOUNTING THEORIES AND ISSUES
Accounting theories and issues
Name of the Student
Name of the University
Author Note

1ACCOUNTING THEORIES AND ISSUES
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Accounting standard guidelines and its compliance:.................................................................2
Elements of employee benefits and their conformance:............................................................3
Elements of contingent liabilities and their conformance:.........................................................5
Legal and accounting issues:......................................................................................................9
Conclusion:..............................................................................................................................10
Reference list:...........................................................................................................................12

2ACCOUNTING THEORIES AND ISSUES
Introduction:
The report is prepared for evaluating the financial statements of company for
analyzing its compliance with the accounting standard and the guidelines that it follows while
preparing the financial statements. Punjab national bank is a financial service and
multinational banking institution of India that was established in year 1984. The brand image
of organization is its core image having more than 10 crore customers, consistent growing
profit, and strong CASA base, increased pace of digitalization, stable assets quality and low
cost of deposits (Hambrick et al. 2015). The main purpose of preparing report is to critically
evaluate the effectiveness of the corporation for meeting the conceptual reporting framework
of accounting. Purpose of accurate and fair disclosure of financial information is served by
the financial statements complying with the accounting standards (Aryee et al. 2015). In this
particular study, analysis of financial statements is done by comparing the two areas of
financial statements that is contingent liabilities and employee benefits. Moreover, the report
also intends to analyze the existing loopholes in the financial report of Punjab National bank.
Later part of report demonstrates any legal or accounting issues faced by organization and the
way it should be disclosed in the financial statements.
Discussion:
Accounting standard guidelines and its compliance:
The financial statements of Punjab national bank is prepared according to the
Generally accepted accounting Principles in India and the regulatory norms and statutory
provisions prescribed by Reserve bank of India, accounting standard and Banking regulation
Act, 1949 (Power and Gendron 2015). Preparation of financial statements has been done

3ACCOUNTING THEORIES AND ISSUES
using the accrual concept on an ongoing concern basis and according to accounting practices
and policies that is followed consistently. The two areas that have been selected from the
financial report for comparison are employee benefits and contingent liabilities.
Elements of employee benefits and their conformance:
The particulars that are involved in the determination of employee benefits are
discount rate, attrition rate, expected return rate on plan assets and escalation rate in salary.
Determination of discount rate is done in accordance with obligations as per para 78 of
AS15R by lining to market yield and date of government bonds. On other hand, at the
beginning period expectations of market form the basis of determining the expected rate of
return on planned assets. This helps in generating return over the entire life for related
obligation. Furthermore, as mentioned in the paragraph 83-91 of AS15R, any estimates of
increasing the future salary is taken into consideration by considering actual variations such
as seniority, promotion, inflation and other important factors. Attrition rate is determined by
making reference to expected and past future experiences and it comprise of all types of
withdrawal due to disability and other than death (Pnbindia.in 2018).
Any changes in plan assets fair value are done by referring to AS-15 that ICAI issues
during the year. This particular standard takes into account the fair value of plan assets in
relation to gratuity funds and pensions being interest that is accrued on investments, long
term benefits of employees that should be accounted for against the principal amount. Any
changes in contribution of employer to gratuity funds and pensions that represents present
value of obligation lower than plan assets fair valuation is credit to provision for employees
or payment to employees (Pnbindia.in 2018).
The table below depicts the summarized position of employee benefits in accordance
with the accounting standard and in line with the accounting policy.

4ACCOUNTING THEORIES AND ISSUES
Employee benefits disclosure:
(Source: Pnbindia.in 2018)

5ACCOUNTING THEORIES AND ISSUES
Long term employee benefits:
(Source: Pnbindia.in 2018)
The provision for employee benefits such as gratuity, encashment of leave, pension
and any other necessary provisions such as income tax and unhedged exposure to foreign
currency have been done using a basis of estimation.
Elements of contingent liabilities and their conformance:
The Punjab national bank recognizes the contingent liabilities and provisions in
compliance with the accounting standard 29 “ Provisions, Contingent liabilities and
contingent assets” that the Institute of chartered accountants of India issues (Pnbindia.in
2018). Recognition of such provision and contingent liabilities are done when the
organization as a result of past events has present obligations and this would have the
consequence of probable outflow of resources that embodies economic benefits. Such
benefits are required by organization for settling the obligations and when the stated amount
of obligations can be reliably estimated. Contingent assets on other hand are not recognized
in the financial statements.

6ACCOUNTING THEORIES AND ISSUES
Contingent liabilities:
(Source: Pnbindia.in 2018)
The liabilities that is stated under serial number i), ii), (III), (IV), (V) and (VI) are
dependent upon the court outcome, out of court settlement, disposal of appeals, raising and
development of demand by concerned parties and terms of contractual obligations.
The movement of provision for liabilities is stated in the following table.
Movement in liabilities provision:
(Source: Pnbindia.in 2018)
The movement of liabilities provision is depicted in the table that shows the legal case
contingencies and arrears in salary. It can be seen that the balance of provisions for liabilities
in relation to arrears in salary and legal contingencies case for financial year 2017 stood at
7.10 crore and 24.36 crore respectively. The total amount of contingent liabilities for
financial year 2017 stood at 338851.04 crore.

7ACCOUNTING THEORIES AND ISSUES
Disclosure of liabilities provision movement:
(Source: Pnbindia.in 2018)
The above table shows the movement in the provision for liabilities. In case of
contingent liabilities, organization should not expect any amount of reimbursement.
The auditors of the Punjab national bank have observed that the financial information
and the several statements of organization have been prepared according to requirements of
Accounting Standard (23) that is related to accounting for investment in associates in
consolidated financial statements and Accounting Standard (21) that is related to consolidated
financial statements. All such accounting standards are issued while meeting the requirements
of Reserve bank of India and by the Institute of chartered accountants of India.
The accounting standards that are issued by ICAI form the basis of preparation of
financial statements. Moreover, they are prepared based on separate financial statements
regarding the components according to section 29 provisions of the Banking regulation act,

8ACCOUNTING THEORIES AND ISSUES
1949. It has been mentioned by the auditors that the audit evidence that have been obtained
by them are appropriate and sufficient that would help in providing basis for audit opinion.
Moreover, it has been identified from the annual report that for certain employee
benefits, the associates of Regional rural banks have not complied with the revised
accounting standard 15. Such employee benefits have been accounted on adhoc as you go
basis. In like manner, there has not been any elimination of unrealized loss and profits that
has resulted from transactions between subsidiaries and parents to the extent of interest of
parents in subsidiaries and associates (Henderson et al. 2015). Therefore, it is not possible to
ascertain the consequential effects and impact on profits.
Hence, from the analysis of financial report of Punjab national bank, it can be inferred
that the organization complies with all the applicable accounting standards and requirements
of Reserve bank of India and Institute of Chartered accountant of India. Due to differences in
the accounting policies and unavailability of complete information’s, no adjustments have
been made by organization (Reisel 2014).
Legal and accounting issues:
The Punjab national bank was caught in scandal where SWIFT code was misused that
has shaken the banking sector confidence as the fraud case accounted for 70% of banking
assets of India. Apparently, it was the largest fraud in the history of banking industry of India.
A fraudulent transaction of amount totaling $ 1.8 billion was involved in the case. The reason
attributable to fraud case was due to alleged misuse of incomplete ledger entries and SWIFT
interbank messaging system. This scam of 11000 crore was facilitated by failure of
compliance as the SWIFT financial messaging system was not monitored
(economictimes.indiatimes.com 2018). The bank have been swindled by companies that were
owned by two diamond merchants that began with issuing letter of credit of smaller amount

9ACCOUNTING THEORIES AND ISSUES
of 800 crore. Bank issued more letter of credit for offsetting the payment when the due credit
was not paid in time. This letter of credit was allegedly issued by two employees of bank for
issuing fresh loans. It was perceived that this discrepancy could have been immediately
detected by integration on core banking system. Core banking system of the bank had some
drawback and employees of organization did not have good morale (Gray et al. 2014).
During the financial year 2016-2017, any incident of fraud is not reported by statutory
auditor of company. The completeness and accuracy of financial statements should be
maintained by the maintenance and implementation of adequate internal controls. They are
required to ensure that such controls are effective enough for evaluating that the financial
statements are free from material misstatement and provides a true and fair view. Auditors
provided the view that they have not come across any fraud incidence based on the
information and explanations that have been provided in the financial statements
(Eisenschmidt and Schmidt 2018). Such fraud occurrence is indicative of the fact that
forensic audit was not undertaken by management of organization and have not enquired into
the loan approval process. Moreover, such fraud has the consequence of loss of faith on part
of public and posing biggest risk to the state owned bank.
In order to address or to avoid occurrence of such scandals, it is required to develop
high quality and globally accepted framework of financial reporting. Organization should
pursue a dual objective of upholding the financial reporting quality both at domestic and at
international level and thereby providing investors with information that is transparent,
comparable and reliable. Development of framework of global financial reporting is guided
by the cornerstone principle underlying regulation system and thereby pursuing mandate of
protecting investors by promoting informed decision making through fair and full disclosure
(Gimbar et al. 2016).

10ACCOUNTING THEORIES AND ISSUES
It is not only the body of accounting standards that helps in ensuring that financial
information that are relevant provided to capital market. The structure of financial reporting
that is effective initiates with a reporting made to company’s management that is responsible
for proper application and implementation of GAAP (indianexpress.com 2018). Moreover, it
is the responsibility of auditors to test and form an opinion on whether the financial
statements have been presented according to accounting standards. It is essential to meet
some of the listed responsibilities because there might not be proper application of
accounting standard irrespective of their quality if they are not met (Cheng et al. 2014). This
would result in lacking of comparable, transparent and producing financial information that
are consistent.
Conclusion:
From the analysis of annual report of Punjab National bank, it can be inferred that
organization has complied with all the applicable accounting standards while preparing their
financial statements. The area of employee benefits and that of contingent liabilities have
been explained in reference to the standard they comply. However, certain employee benefits
of the banking subsidiaries have not been accounted for using the relevant accounting
standard. Furthermore, bank also indulged in the corporate scandal of amount $ 1.8 billion
due to the failure to comply with the financial messaging system and unethical practices on
part of employees. Therefore, it can be concluded from the evaluation of the financial report
that although the organization complied with all the relevant accounting standards, the lacked
in terms of following it stringently. In addition to this, organization did not comply with the
standards on ethical fronts because of involvement of employees in issuing letter of credit of
excess amount and offsetting the credit payment whenever they fell due. For detecting the
fraud and occurrence of such fraud, sufficient and proper steps should be undertaken for

11ACCOUNTING THEORIES AND ISSUES
maintaining adequate accounting records according to the provisions of Act. The monetary
loss related to such scams can be prevented by having a pro active follow up with the
concerned intermediary bank.