Question

How has diversity changed the corporation's financial statements? Has there really been an effect on the bottom line? Does it benefit the shareholders? How does it affect the other departments of the corporation that are making financial decisions, ie marketing? Food for thought!

Answer 1

Business activity has expanded in recent years, crossing national borders to acquire an international dimension. As a result, financial information, as a communication vehicle, is used internationally and needs to be understood both inside and outside its country of origin. The analysis and interpretation of this information at international level is hindered by a multitude of factors, such as the international diversity in accounting principles.This paper seeks to ascertain, on an empirical basis, whether the existence of diversity in accounting principles has significant consequences for the interpretation of financial reporting at an international level and, therefore, for the decisions which may be taken on the basis of the conclusions drawn from an analysis of such information. To that end, we have examined the financial statements of a sample of Spanish listed companies and reformulated them using the GAAPs of other countries so as to understand how financial ratios derived from the Spanish GAAP would be affected as the basis of financial statement changes from Spain to other countries or by diverse national GAAPs.We have found important differences in the situation of companies (liquidity, solvency, indebtedness and profitability) under different accounting principles. Consequently, accounting diversity can be considered as an important barrier for the international comparability of financial reporting.