Question

In: Accounting

Ball (2006, p.17) makes the following comment: “In sum, even a cursory review of the political...

Ball (2006, p.17) makes the following comment: “In sum, even a cursory review of the political and economic diversity amongst IFRS adopting nations, and of their past and present financial reporting practices, makes the notion that uniform standards alone will produce uniform financial reporting seem naïve.” Critically assess the validity of Ball’s comments and discuss five factors which lead to national differences in accounting (Hint: treat different cultural dimensions as one factor).

Solutions

Expert Solution

I agree with Ball’s comments and the mere fact that the IFRS adopting nations differ from each other due to the different political and economic factors affecting them is a strong enough factors that will prevent these nations to produce uniform financial reporting. The existence of different political and economic factors leads to differences in the way users of financial statements desire information and the accounting standards like IFRS ignores the fact that market forces are local and so are political forces. Both market forces and political forces have a significant impact on a business and so its accounting as well.

Five factors which lead to national differences in accounting are:

· Different cultural dimensions and differences in users and the information that they desire – Cultural dimensions are different for different countries and hence the information that a user may need in Country A may not be important information for users in Country B.

· Government imposed rules which differs from one country to another country – Government rules and regulations cannot be standardized and they largely remain country specific and hence vary significantly from one country to another country.

· Differences in companies and their industries – The economic composition and structure of industries also vary from one country to another country.

· Implementation of accounting standards is not even and differs from one country to another.

· Incentives of managers of a company (known as prepares of financial statements) and that of various enforcers (like auditors, board members, stock analysts etc.) remain largely local.


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