During the PRE-IFRS accounting system and where worldwide accounting diversity was widespread, a number of PRE-IFRS developmental factors were found to be the cause behind international differences in ownership and financing of companies and led to differences in the financial reporting practices of multi-national corporations (MNCs). This type of environment created extensive opportunities for corruption and poor performance and made it hard to compare global companies. The following four main PRE-IFRS development factors have the biggest impact on international business accounting practices: source of finance, legal system, taxation system and political and economic ties (Meek & Saudagaran, 1990). Even though the International Financial …show more content…
126). Gray did this by using the cultural dimensions that Geert Hofstede identified in his cross-cultural research to determine that there is a relationship between cultural societal values and the development of accounting system values (1988, p. 6). It is important to note that a nation’s accounting values can only be predicted once that nation’s cultural dimensions are known. As a nation’s cultural dimensions can only be predicted once a nation’s PRE-IFRS development factors are understood, it is an absolute necessity for a nation’s PRE-IFRS development factors, such as sources of finance, legal systems, taxation, and political and economic ties to be understood before predicting a nation’s accounting values. Because of this, I will be comparing accounting values between Australia and China, as we have previously discussed their cultural dimensions in detail.
Gray identified four widely recognised accounting values that can be used to understand a nation’s accounting practices, which are professionalism, uniformity, conservatism and secrecy (Doupnik & Perera, 2015, p. 37). Professionalism verses statutory control is understood to be the difference between a nation’s preference for either individual professional judgement and self-regulation
In the course of history and as per the needs and complexity of financial system, almost each and every country in the world developed their own accounting principles and financial reporting system in accordance to their rule, law, culture and social order. However, as the world moves more toward globalization, world market economy get close to each other, International investments spread out throughout the globe especially among countries with open economy. Thus, the diversity in accounting practices is not conducive for boosting international investments, and businesses in today’s market. For example, guess you invest in the international market and you are required to prepare a financial report in compliance with rule of that country and then you need to convert the report to where your company is originally resident. First of all, it is a hassle for the investing companies to report based on the host country rule and regulation. Second, it creates a lot extra costs which fall on investors to compare the result of the report with different countries and may not be able to make a good comparison anyway. Thus, it limited the effectiveness of the international capital markets as well as cross border investment. (International Accounting Pg, 65)
Why do we study comparative accounting? Countries around the world have different aspects such as taxation, legal systems, culture and colonial influence that differ the way accounting is reported. Ultimately the need for fair presentation is the final objective to comparative accounting. Thousands of years ago when accounting was first practiced, each country practiced financial reporting according to the power and strengths in their country, regardless of how accounting was reported in neighboring countries. Nowadays, because the world is becoming more globalized and harmonized, standard-setters feel the need to report their accounting in a uniform way. The International Accounting Standards Board [IASB] was formed as a non-for-profit
Therefore, they require acceptance rather than mere adherence. The article presents individual principles which are applied to accounting: utilitarianism and deontological. Pros and cons of utilitarianism when applied to accounting, its influence in the business context in the sense that most economic and finance concepts are implicitly or explicitly built on the assumption that companies are interested in maximizing short-term self-interest. However, the accounting concepts are often presented as neutral or as morally correct, and accounting control has a moral quality (Preuss,
This difference is also tied to the movement of globalization by way of the internal customs from around the world. Based on these practices the account standards around the world are created from a different basis. In the U.S, accounting standards are based on “bright lined rules.” Whereas, in most of the world accounting standards are based off of principles, with the emphasis on principles the international rules focus on the heart of the law. Rather than in the U.S these “bright lined rules” have been created as a result of the multitude of industries located here. The rules however, do not reflect the heart of the law; rather they create a line to be maintained.
In this paper, I will explain if I believe whether a code of ethics should do more than the establish minimum acceptable standards. I will also describe the 5 cardinal virtues of professional accountings, whether there should be rules-based ethics standards. Lastly, I will compare and contrast the AICPA’s Code of Professional Conduct and the IFAC Code of Ethics for professional accountants.
Although, many authors write about these huge incidents in America, few are discussed about the scandals abroad. Other countries (Switzerland, Italy, Greece and others) also have their issues with frauds and scandals, just not as wide spread. Therefore, the International Accounting Standards Board (IASB) seek to implement a single global accounting standard, called the International Financial Reporting Standards (IFRS) (Street, 2012). The IASB was actually established during the 1970s to promote a worldwide acceptance of regulations, accounting standards and procedures (Schroeder et al, 2011). In 2002, the FASB and IASB agreed that there is a need for an international reporting standard. Due to the high volume of international trade and foreign operations, the two boards, decided that there should be one global approach to accounting standards (Zeff,
In conclusion, this highlights the importance of ethics in accounting. A high level of trust placed on accountants to produce accurate reports and data and many critical decisions are based on their reporting and their unethical behaviour can result in major consequences. Additional importance is laid on the application of ethical accounting behaviour by the fact that vast majority of people are affected every day by the decisions of accountants they will never meet. These people contribute to pensions funds, work for companies, actively invest, or are in some other way a stakeholder in various companies. In broad terms,
The importance of information and work in the realm of accounting requires all accountants to remain consistent in standards and ethics. However, perception of an entire culture can shift as seen in the Arthur Anderson debacle in 2002 and the establishment of Sarbanes-Oxley Act (SOX). Also, there is the ongoing concern of global companies attempting to adhere to the same standards and ethics, when social standards differ around the world. Studies show that, “people from different cultures can be expected to hold different implicit theories, which lead to divergent cognitive processes and behavior” (Wong-On-Wing and Lui, 2013, p. 17). Therefore, having an understanding of each ethical system has never been more crucial in organizational culture in the accounting profession. “Accounting ethics incorporate social standards of behavior as well as behavioral standards that relate specifically to the profession”
Divergent accounting practices can cause complications for investors who rely heavily on financial statements being prepared under different methods. The lack of comparability between companies from different countries can significantly affect the analysis of financial statements when making important investment decisions. The differences in accounting principles can cause problems for multinational corporations. Companies trying to gain access to foreign capital markets might have to present a set of financial statements in accordance with the accounting standards applied in that
Globalization, from a business aspect, is the process by which businesses or other organizations develop international influence or start operating on an international scale. Countries have long been involved in business; however, there is a concern regarding the lack of consistency in standards that businesses are to follow. The rapid advancement of technology and conducting business from country to country has become common practice, creating the need to unify as many of the financial rules and regulations as possible. The purpose of this paper is to examine how the two types of financial reporting systems began, discuss combining the two systems or
However, it is difficult to find out specific evidences on the effects of culture on the company’s financial reporting within a large international firm due to some limitations. Firstly, the cultural data is not reliable in an accounting context (Nobes and Parker, 2012). For example, UK and Germany use different legal and accounting systems despite both of them are European countries. German companies are in operating under their own laws and policies. Secondly, compared with the measurement of direct relevant elements of the external environment of accounting such as legal systems or equity markets, the measurements of cultural influences within a company accounting system are vague and indirect (Nobes and parker, 2012). Culture measurement is complex, Hofstede’s theory doesn’t consider about the people which come from other countries and minority population that may have different cultural attributes
Basing from the question, how do societal values and culture affect a company 's accounting system? The answer would be about the integrations of norms and interests that contemplates about the ability to adjust with the traditions and practices of other companies. Societal values can be in a form of policies that may have been unique to an operating institution, which is adapted by the whole society. When it will be integrated, it transforms one unique culture into a diversified forms of cultural practice that impacts the accounting system of the company as indicated by Nobs (1998).
Besides these disadvantages, the historical background of countries also matters. “Colonial inheritance is probably the major explanatory factor for the general system of financial reporting in many countries outside Europe” (ACCA, 2011, p. 11). For instance, it is not difficult to predict how adaptation works in countries which were the former British colonies compared with Soviet countries. According to ACCA, experienced legal background and obtained cultural factors in the former countries accelerate the transition to the IFRS. Being under the control of the USSR for 70 years, the accounting and auditing system in Azerbaijan was also in the same situation as other Former Soviet Union countries: reports were prepared only for the purposes
It seems that the key issue facing global financial markets and international investors is worldwide accounting diversity as considerable differences exist across countries which inevitably leads to chaos in global capital markets as different amounts are being reported on balance sheets and income statements (Doupnik & Perera, 2012, p. 23). This type of environment can create extensive opportunities for corruption and poor performance and it is
Hey, hey, hey! Chapter 2 Conceptual Framework. Now this chapter has very little in the way of numbers so if you’re a true accountant who wants to get his visor out, maybe his arms bands, pocket protector, it might not be the chapter for you. But you better know this stuff. We’re going to see it time again cause the concepts we’re going to come back to them. We’re going to repeat them throughout this course in 312 you’ll see them come up a time again. So make sure you get this chapter down and we will refer back to these concepts. As we go through the course have fun!