Question

1. Describe the critical role of international perspectives in the application of accounting.

2. Discuss how differences in culture, the legal system, and the socio-economic environment impact the interpretation and analysis of financial information in different countries.

3. Improve your skills related to global financial information.

4. Discuss the need for the creation of uniform accounting standards of international application.

ABC Corp. is involved in various lawsuits regarding product liability, commercial liability, and other matters that arise from time to time in the ordinary course of business. The lawsuits pending at the beginning of the year and those filed in the current years are detailed below.

Pending Lawsuits at the Beginning of the year.

1. Product liability lawsuit related to XYZ, a pharmaceutical drug in which claimants seek substantial damages. ABC’s attorneys assess the likelihood of losing the lawsuit (60%). At the beginning of the year, the estimated loss ranged from $500,000 to $1,500,000. At the end of the year, the attorney’s assessment of the loss increased to a range between $750,000 and $2,000,000.

2. A personal injury lawsuit in which a claimant seeks substantial damages. ABC’s attorneys assess the likelihood of losing the lawsuit as probable at 95%. At the beginning of the year, ABC reported a contingent liability of $750,000 for the lawsuit. At the end of the year, the attorney’s assessment of the loss increased to a range between $900,000 and $3,000,000.

New Pending Lawsuits

3. A new product liability lawsuit was filed related to the drug xxx. ABC’s attorneys assess the likelihood of losing the lawsuits as remote at 10%. The attorney’s assessment of the loss increases to a range between $10,000,000 and $15,000,000.

4. A new product liability lawsuit was filed related to the drug yyy. ABC’s attorneys assess the likelihood of losing the lawsuit as probable. The attorney’s assessment of the loss increased to a range between $2,000,000 and $4,000,000.

Required:

Explain how each lawsuit is accounted for under IFRS. Assume ABC has a provision/”contingent” liability of $1,000,000 at the beginning of the year related to XYZ.

Answer 1

1)The critical role of international perspective in application of accounting can be defined as follows

1.Increasing multinational companies,operating across the boders leads to emergence of the need for a set of uniform standards whinch inturns increase the demand of use international accounting for comparing the balance sheet and profit and loss account of various companies across the world.

2.Rapid expansion of capital market, which plays important role in distribution of economic resources,the manner of disclosing the information is one of the sailent features in determining market efficiency which inturn increase the need of international accounting so that it can be defined precisely so that it can be world wide.

3.Different accounting method are followed for one type of transcation in different countries,due to this many problems are caused in analysis and comparision of finacial statements.hence international accounting standards have developed.

4.The benifits of accepinting international standard are as follows

a) Reducing the cost standard formulation for the countries that have not yet developed accounting and auditing principles, acceptance of international standards reduces the standarization cost.

b) By adopting international standards its becomes easy for comparing financial statements.

c) by adopting international standard in accounting all professional around the world will focus on single standard which inturn increases the quality of financial statement

d) IFRS reduce the cost of access to the information of different capital markets by reducing compliance cost.Accountants will be able to prepare and analyze financial statement of all companies in world by learning single set of standards.

e) by adopting single set of standards world wide investors can correctly interpret the information and hence will adopt better decision based on the information.