Question

In Germany and China separate institutions established by law carry out the roles of public accounting and auditing. What is the impact of this professional practice on the usefulness of international accounting in Germany and China? Discuss the problem of international segment identification, making reference to the strengths and limitations of current international audit regulation and practice.

Answer 1

The international accounting standard board has established international accounting standards.

The main purpose of the IASB is to provide globally accepted accounting framework and presentation of financial statements.

Through IASB issued standards the transparency of accounting practices, which boosts the flow of capital even throughout the international markets.

This helps the domestic or foreign companies to compare their own financial statements with that of the financial statements of foreign companies and even compare their performances.

Use of these standards makes the financial reports automatically acceptable in IFRS compliant countries.

Compliance with these standards enhances the financial reports

The problems of implementation of International segmentation are many, they are:

The level of aggregation arises from no aggregation to country level aggregation, i.e., no aggregation implies that data of individual customers of different countries constitute basic information of segmentation. Segments formed in this way consist of consumers from different countries that are similar on the segmentation basis employed.

Country-level aggregation pools all the information across consumers within each country and/or uses information pertaining to the countries themselves and forms groupings of countries based on their similarities of the segmentation basis in question

One of the most crucial factors of international segmentation is the choice of segmentation. It is the basis of assigning the international consumers around the world.

And the segmentation approach is very much essential in the international markets.

Any rigorous international segmentation study requires that its segmentation basis exhibits construct equivalence.

Construct equivalence can be distinguished in three types:

Functional equivalence

Conceptual equivalence and

Categorical equivalence

International segmentation has some advantages too, they are

• Cultural influence- difference reporting patterns of different firms around the world can be used for better presentation of financial statements and also improve standards
• Multinational Firms- a company with one uniform way of reporting for all its establishments around the world, helps the auditor in performing the audit work instead of digging deep different standards for different branches around the world.
• Elimination of LIFO- International standards do not accept LIFO method of accounting as it is not the correct way of reporting since the amounts reflected in the financial reports do not reflect to that of the prevailing market prices which is not a prudent way of disclosing financial statements.
• Write downs- if a company adopts IAS writing down of impaired assets takes down in one single step instead of a multi step process.