In: Accounting
a, Describe six major reasons for accounting diversity: legal
system, taxation, providers of
financing, inflation, political and economic ties, and
culture.
b. Describe which factor or factors appear to have exerted
influence on the development of
accounting in China, Japan, Germany, Mexico and United
Kingdom?
c. Identify the distinguishing features of the accounting system in
each of these countries.
a)
Accounting Diversity refers to the differences in recording and making use of financial information. While many corporates deal with the variabilities without cutting on business operations, the problems affect major business dealings, including assessing a company’s net worth and the way managers make business decisions under the Generally Accepted Accounting Principles and Standards.
While accounting and bookkeeping services in Dubai train using several textbooks and educational philosophies, two organizations set the accounting standards used by the accountants and bookkeepers in Dubai under the Generally Accepted Accounting Principles.
The Generally Accepted Accounting principles have a general Diversity hierarchy for bookkeeping and accounting services in Dubai. The accounting companies in Dubai have the potential to legally and professionally elucidate the accounting standards in such a way as to generate diversity in recording finances.
As per the studies of the National Bureau of Economic Research, accounting diversity impacts security pricing and compiles international portfolios.
Reasons For Accounting Diversity
As per the survey of pertinent literature, following are the factors influencing the financial reporting practices of a country
1.Legal System
There are two significant types of legal systems used, viz., common law and codified Roman law. Now the question arises what does the legal system of a country has to do with accounting?
Code law countries mainly have corporation law, which sets up the basic legal parameters controlling business enterprises. The corporation law often specifies which financial statements must be issued in accordance with a prescribed format. The national legislature of the country passes the accounting law that includes additional accounting measurement and disclosure rules.
The accounting companies tend to have little effect on the development of accounting standards in the countries where the accounting rules are legislated. In countries with common law, fixed accounting rules are established by the statements or by an independent non-governmental body representing a number of constituencies.
Therefore, the type of legal system in a country decides whether the primary origin of accounting rules is the government or a non-governmental organization.
2.Taxation
In some countries, issued financial statements form the rationale for taxation. But in other countries, financial statements are altered for tax purposes and presented to the government separately from the reports sent to stockholders
In most cases, for a tariff to be removable for tax purposes, it should also be used in the computation of financial statement income. Well-managed accounting companies attempt to reduce income for tax purposes.
3.Inflation
The Countries experiencing persistently high rates of inflation found it necessary to take on accounting rules that needed the inflation adjustment of historical cost amounts. This was mainly true in Latin America, which has experienced inflation more than any other part of the world.
Modifying accounting records for inflation leads to a write-up of assets and hence the related expenses. Adjusting income for inflation is mainly vital in those countries in which accounting and financial statements serve as the reason for taxation, or else the accounting companies will be paying taxes on fabricated profits.
4.Providers of Accounting and Financing
The utmost providers of financing for business enterprises are family members, governments, banks, and shareholders. In those countries in which financing of accounting companies is controlled by families, banks, or the state, there will be little pressure for information disclosure and public accountability.
Banks and the state will often be able to get the information needed for decision making from inside the company. As the accounting companies become more reliant on financing from the general residents through the public offering of shares of stock, there is greater demand for more information that is made available outside the accounting companies.
5.Political and Economic Ties
Accounting is a technology that can be comparatively easily borrowed from or inflicted in another country. Accounting rules have been carried from one country to another through political and economic links.
For example, Both France and England have conveyed their accounting and financial services frameworks to various countries around the world. British-style Accounting systems are found in countries as distant as Australia and Zimbabwe.
French Accounting is widespread in the former French colonies of western Africa. More recently, the United States' economic ties have had an influence on accounting in Mexico, Canada, and Israel.
6.Correlation of Factors
There is a high amount of correlation between the legal system, source of financing, and tax conformity. Common law countries are inclined to have greater numbers of domestic listed companies, depending more heavily on equity as a source of capital. Code law countries are tempted to link taxation to accounting statements and depend less on shareholders' financing.
B)
China: A distinguishing feature is the manner in which accounting and auditing havedeveloped. Unlike in many other countries, In China accounting and auditing have takendifferent paths in their development as rival disciplines with the support of differentgovernment agencies
.Japan: A distinguishing feature is the manner in which accounting has been regulated.The accounting profession is not strong in Japan, compared to its counterpart, forexample,
in the U.K., and it has played a relatively minor role in regulating accountingand financial reporting in that country. The main sources of accounting regulation are theCommercial Code and the Corporate Income Tax Law.
Germany: A distinguishing feature is the dominance of auditing in the financial reportingrelated activities.
C)
china
differences between IFRSs and Chinese GAAP include:
A. Accounting standards and practices in China lack conservatism.
B. There are no coherent interpretations of the relevant requirements.
C. In some areas covered by IFRSs there are no specific rules in China, including business combinations, impairment of assets, and the definitions of operating and finance leases.
GERMANY
Since January 2005, all German listed companies are required to use IFRSs in preparing their consolidated financial statements. However, German accounting practices differ from IFRSs in some important respects.
A. German accounting law contains no specific rules in some areas. Examples include the translation of foreign currency financial statements of foreign subsidiaries, disclosures of fair values of financial assets and liabilities, and earnings per share.
B. There are inconsistencies between IFRSs and German rules in some areas. For example, according to German rules, goodwill arising on consolidation can be deducted immediately against equity, and inventories can be valued at replacement cost.
C. According to German tradition, a management report is an important part of a company’s financial statements, whereas IFRSs do not include specific requirements in this regard.
Japan
There are several important differences between IFRSs and Japanese GAAP.
A. In general, companies are not under pressure from their main providers of finance to disclose information publicly, and Japanese companies are reluctant to provide information voluntarily.
B. There are no specific rules in some areas covered by IFRSs, such as impairment of assets, discontinuing operations and segment reporting.
C. There are inconsistencies between Japanese GAAP and IFRSs; for example, inventories can be valued at cost under Japanese GAAP rather than at the lower of cost and net realizable value as required by IFRSs.
uk
.K. accounting standards are generally similar to IFRSs, but there are also differences in some areas. For example, U.K. GAAP allows companies to amortize goodwill at their discretion, whereas IFRSs require goodwill to be tested for impairment annually.
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