Question

International Business

What is the purpose of accounting? Why do countries have different accounting standards? Explain “harmonization of accounting standards. Why is this important in doing international business?

Answer 1

Accounting

The accounting is requirement of each business. It helps business in maintaining the records for future references. Accounting and book keeping is one of the statutory requirements for a mid and large size business.

Purpose of accounting:

1)      Maintaining the records or transaction of a business

2)      Reporting requirement

3)      It is one of the statutory obligations for a business

4)      Accounting facilitates preparation of Financial statement of the business

5)      It helps business to keep check on daily transactions and prevents it from any frauds and manipulations

At initial stage before globalization each country were functioning individually hence, each country has framed accounting standards as per their own needs and requirements. The accounting standards were totally based on the in-country business standards and regulation related to the particular country.

Harmonization of accounting:

IFRS – International financial reporting standards is playing key role in harmonizing the accounting standards on a global stage.

Post globalization the countries are becoming borderless and they transact across the globe. The investors do invest in those nation which they feel attractive. The investors or FDI look for a nation which has global business standards and practices. The harmonization of accounting standard is basic which finally reflects in financial statements of a business. Presently, IFRS is trying to harmonize the accounting practice and trying to bring entire world on common platform.