Accounting Education and

Research as Infrastructure for a

Modernizing Economy
Shyam Sunder
James L. Frank Professor of Accounting, Economics
and Finance, Yale School of Management
New Haven, CT, USA
29th All India Accounting Conference
University of Delhi, December 22-23, 2006
 An Overview
• Importance of infrastructure for modernization of Indian
economy
• Service infrastructure just as important as the physical
• Accounting is a critical element of service infrastructure
for organizations and economy
• Development, modernization and innovation of all parts:
– Financial reporting, management accounting, internal controls,
government and not-for-profit accounting, governance, financial
analysis, forensic and investigative, internal and external
auditing, government financial management, program evaluation
• In academia, special and immediate attention to
curriculum, research, and doctoral education
• Indian accounting can become the envy of others (just
as the software did) if this community is so determined
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Better Infrastructure of Modernizing
India’s Economy
• The awareness of the critical need to
develop the physical infrastructure in India
to support a modern economy is a recent
and welcome development.
• No economy can survive, much less
thrive, without provision of efficient
transportation, communication, and
utilities.

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 But, That is Not Enough
• All the Seven Wonders of the Ancient
World?
– Great Pyramid of Giza
– Hanging Gardens of Babylon
– Temple of Artemis
– Statue of Zeus at Olympia
– Mausoleum of Maussollos
– Colossus of Rhodes and the
– Lighthouse of Alexandria.

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 What is Missing?
• All these are physical constructions—tangible—
things you can see and touch
• Was it Alexander’s physical strength and skill
that made him so great? Or was it his skills of
management?
• The tangible and visible nature of physical
infrastructure obscures the role and criticality of
equality important institutional, human skills,
soft, and services infrastructure of society which
is no less important

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 Accounting is Part of Services
Infrastructure
• Services infrastructure of which accounting—the
profession, education and research—is an important part
• India has an ancient tradition of bookkeeping for
merchants running proprietary businesses (bahee-khata)
• However, the broader forms of accounting to support
efficient manufacturing and efficient capital markets may
have lagged behind the western practices
• What can Indian accountants, educators, researchers
and the government do to develop accounting in India so
it becomes a leading innovator in the world in its own
right?

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 Elements of Accounting to
Modernize the Indian Economy
• Management accounting
• Financial reporting
• Internal controls
• Government and not-for-profit accounting
• Corporate governance
• Financial analysis
• Forensic and investigative accounting,
• Taxation
• Internal auditing
• External auditing
• Government financial management and program evaluation
• Curriculum
• Research
• Doctoral education

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 Management Accounting
• When a proprietorship business grows into a multi-level
managerial hierarchy, the simple bookkeeping system is
no longer sufficient
• Bookkeeping must be expanded to include cost
accounting, performance evaluation, compensation,
transfer pricing etc. to run the organization efficiently
• Work with managers to observe and share their
accounting innovations
• Field studies of improving operational efficiency
• Examination of performance measurement and
compensation systems
• Operational efficiency in services sector (banking,
software, government offices, etc.)

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 Financial Reporting
• With large capital needs, no single individual can own the enterprise, and
capital must be gathered from a large number of shareholders
• To meet the needs of such enterprises, bookkeeping and managerial
accounting expanded into financial reporting—the most comprehensive form
of accounting developed to serve the needs of organizations with publicly
traded ownership shares
• Financial reporting has come to be dominated by written standards (e.g.,
FASB and IASB)
• Standards alone are not sufficient to ensure good financial reporting
• Developing social norms of “true and fair” financial reporting in accounting
and business community—role of professors
• Developing an open process for creating competitive standards to ensure
efficiency in financial reporting
• Development of alternative methods of accounting, field testing, and
research on link to security markets
• International participation and engagement

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 Internal Controls
• Development of internal controls to ensure
the preservation of organization’s
resources
• Measurement of pilferage, wastage
• Cost effectiveness of internal controls
• Reporting mechanisms for internal
controls violations (CEO, in-house
counsel, board of directors)
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 Government and Not-for-profit
Accounting
• Choosing accounting approaches
according to the economic characteristics
of the product
– Private goods (clothes, cars, electricity)
– Public goods (sanitation, courts, police)
• Municipal, state and union governments
• Standards and norms for the sector

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 Corporate Governance
• A great deal of good governance depends on
good accounting (both in corporations as well as
in other sectors of the economy)
• Audit committees and their effectiveness
• Public roles: vigilance and monitoring by small
shareholders
• Role of the press in good corporate governance
• Convincing management of their fiduciary role
and responsibility
• Managing and reporting executive compensation
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 Financial Analysis
• Huge growth industry for India: analytical service
exports
• Using financial reports and other sources of
information to make investment decisions
– Brokerage
– Investment banking
– Mutual and hedge funds
– Bankruptcy analysis and vulture funds
• Educating accounting and business students in
financial analysis

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 Forensic and Investigative
Accounting
• Analysis of financial reports and other
information to:
– Detect financial malfeasance
– Investigate fraud
– Gather evidence for prosecution and defence
– Corruption
• Educating students in detection
techniques and statistical analysis
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 Taxation
• Efficiency of revenue collection (cost-
benefit analysis)
• Efficiency of audit decisions in taxation
• Economic analysis of consequences of
taxation
• Alternative means of revenue collection
(VAT vs. sales tax, etc.)

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 Internal auditing
• Role and extent of internal auditing
• Reporting relationships of internal auditors
(executives, board, etc.)
• Divide of work between internal and
external auditing

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 External auditing
• Hiring, managing and firing of external
auditors
• Cost and pricing of external auditing
• Organization of market for auditing
• Auditor liability analysis and
consequences
• Competition and independence
• Audit quality: definition and measurement
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Government financial management
and program evaluation
• Improving financial management in
government sector
• Evaluation of government programs for
effectiveness and efficiency
• Budgeting techniques
• Comparative analyses of government
financial management within country and
internationally
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 Curriculum
• Dynamic development of curriculum
• Curricular development support and incentives
• University rules and regulations: rigidity versus
flexibility
• Balance of theory and practice in curriculum
• Case, books, and problem development
• Publication of curriculum oriented academic
journals
• Financial support and testing of curriculum
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 Research
• Interaction between instruction, practice and
research
• Engagement of research and professional
communities (CA, CWA, investment and
commercial banks, mutual funds, financial
service intermediaries, government and auditor
general of India, etc.)
• Refereed research journals with rigorous
standards
• Innovation and international leadership in
accounting

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Danger Signs: Quality and Quantity
of Scholarship
• As an expatriate Indian who has retained his Indian citizenship after
36 years abroad, please forgive me for sharing one concern I have
about a critical weakness in India’s development
• This concerns research and scholarship, as reflected in high quality
PHD programs, not only in accounting and management, but in
virtually all aspects of academia (with the fortunate exception of
chemistry).
• PhD programs, like high quality seed needed for agriculture, are
expensive in time and money.
• Yet, unless we have the foresight to find ways of attracting at least 5
percent of the brightest students in each year’s class to scholarly
careers, India would have no hope of being able to compete in the
world awash in talent and better educational systems.
• Since there is no time today, I shall expand on this analysis in my
address at the India Habitat Center at 6:30 PM on January 9.

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 To Summarize
• Development of these dimensions of accounting
will help India increase the efficiency of its
administrative structures and economy, and
compete more effectively and equitably in the
world markets.
• It will also enable accounting to become a
vibrant academic discipline in universities and
practice in business community
• Advancement of the practice, education and
scholarship of accounting will help India develop
an internal and exports market for accounting-
related services listed above.
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 The Challenge
• What is it that Indian software engineers
can do to be among the best in the world
that Indian accountants and scholars
cannot?
• Innovation and leadership is a state of
mind.
• Indian accounting is ready for the
challenge
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 Thank You!

Shyam.sunder@yale.edu
www.som.yale.edu/faculty/sunder
Theory of Accounting and Control