Question

Based on the understanding of the causes of differences in accounting practice among contries, critically discuss how companies' ownership and sources of finance could lead to differences in financial reporting practices.

Answer 1

Different accounting practices has been adopted by different countries. It is not possible for every country in the world to adopt uniform accounting principles and practices due to differences in geographical locations and developments in a particular country. Few countries are under developed, few are in developing stage and few countries are already developed, so, accounting practices has been adopted in these countries in such a manner that it will enhance its growth rate and add more foreign investments and exports in the economy. For example, US GAAP is followed in USA, IFRS s followed in Britain and Convergence of GAAP and IFRS i.e. IND AS is followed in India.

Companies ownership and sources of finance lead to differences in financial reporting practices. Now a days almost every Multinational corporation has taken loan from outside the territory due to differences in interest rate in form external commercial borrowing (ECB). As per Securities Exchange Commission (SEC), detailed information is required with respect to sources of finance and company ownership if a company want to raise fund in US in the form of ECB and at the same time, less information is required in India as per SEBI guidelines. So, there is difference in financial reporting practices because of the requirement of different regulatory bodies in different countries.