Issues in Contemporary Accounting: Differences in Accounting Standards

It has been in deliberation to whether all countries in the world would subject their accounting system under IFRS. As of 2013, there are more than 120 countries around the world necessitate or permit the use of IFRS. These efforts of convergence are to initialize the transparency and uniformity of accounting principles.

The accounting system in the US was strongly influenced by the SEC as opposed to a governmental influence. The SEC sells, exchanges and trades securities, protects investors while maintaining fair, orderly and efficient markets and ultimately facilitates capital formation (Pereira, 1992, p17). The US has the largest and one of the most important, stock exchanges in the world - the New York Stock Exchange located on Wall Street in New York City. This makes the US a huge market for investors world-wide. All investors would like to have access to certain facts about an investment before buying it and while holding it. In order to achieve this, the SEC requires all public firms and companies to disclose meaningful financial and other information to the public, to follow GAAP (SEC, 2007). Thus, any company that wishes to be a market in the SEC’s securities must register with the SEC. For those companies with foreign registrants, the SEC requires them to either report under US GAAP or to provide reconciliations to US GAAP (Nobes, p146, 2006). The SEC also requires public firms to follow GAAP in order to be audited. It is quite evident that most of American accounting is rule based, not government based. According to Nobes’ textbook, Comparative International Accounting, the commission since its inception has intended to limit the exercise of its accounting standard-setting authority to a supervisory role, permitting and encouraging the private sector, currently

After a thorough analysis of several U.S. accounting failures such as those at ENRON, Worldcom, and others, individuals in the European Union and around the world claim that had the U.S. followed International Financial Reporting Standards, instead of U.S. GAAP, these debacles might never had happened. For many years, the accounting profession had faced several challenges developing a set of guidelines that would be generally accepted and universally practiced around the globe. In more recent years, more than 100 countries around the world, have adopted International Financial Reporting Standards in order to settle on a common worldwide accounting language. In today’s business world, the marketplace is demanding for increasing conformity. As gradually more companies start to adopt IFRS, a need for a single set of high quality standards rises and poses pressure on the United States to converge.

Over the last decade, the way in which financial reporting is carried out has seen some significant advancements. One of the most momentous changes has been the introduction of International Financial Reporting Standards (IFRS), which have been adopted broadly throughout the world, with one major exception, the United States. Before accounting standards can be considered truly global, this exception has to be resolved. The prospect of such an occurrence took massive strides in 2002, when the Financial Accounting Standards Board (FASB); responsible for standard-setting in the US, announced their intention to work alongside the IASB in order to converge IFRS with US GAAP. For the first time, a truly global set of accounting standards seemed a

Then, comparability of information needs an explanation. This leads into either one standard for accounting procedures or different standards with firms obliged to mention which standard they have chosen. In the past, business fought constantly against the uniformation of standards and the problem of the latter suggestion is that it needs skilled users to evaluate the impact of the different standards on the financial statement. As only a limited group will be able to do this, the number of possible financers is reduced. Capital could become more expensive since in free market systems a broader supply of capital should result into lower prices for capital and the reverse effect is true.

The Financial Accounting Standards Board (FASB, 2012) believes that convergence of US generally accepted accounting principles (GAAP) with international financial reporting standards (IFRS) is necessary because business worldwide would benefit from having a single set of high quality international accounting standards. This would make it easier for cross-border financial reporting. The FASB makes the claim that it would help with domestic reporting but that seems counterintuitive and the FASB does not back up this claim with evidence. Ultimately the benefit is that companies only deal with one set of standards worldwide and that investors worldwide are able to make sound investment decisions about different companies as a result.

…the context of the formulation and adoption of international accounting standards mainly includes the following factors: civil society with the rule of law, corporate governance with the ability of continually rectifying deficiencies, capital market enhancing transparency and accountability, independent accounting profession with high standard, and so forth; these factors make up an indivisible whole. (Sun, 2011, p. 31)

The utility of ‘Positivism paradigm’ in accounting theory was an interesting approach chosen by the researchers. No other research paper based in such time had ever discussed accounting theories based on Positivism (Christenson,

As people need to speak the same language to understand each other while talking, participants on the global market also need to have similar accounting language in order to communicate in between. For that reason, it is not a surprise that the business world is moving towards establishment of International Financial Reporting Standards,

The definition of accounting theory according to Coetsee (2010) is described in two different ways. The first philosophy concludes that accounting theory is a set of general principles that guide the evolution of accounting practice. The other philosophy describes accounting theory as activity of explaining and predicting accounting practice. What the viewer can see from the statement of the first philosophy is that the accounting theory exists before accounting practices meanwhile the latter states that the accounting practice exists before the theory. Since there are many arguments about this matter, many academic researchers have concluded that accounting theory can be divided into two categories which are positive and normative theory.

Abstract—Accounting in shaped by economic and political forces. It follows that increased worldwide integration of both markets and politics (driven by reductions in communications and information processing costs) makes increased integration of financial reporting standards and practice almost inevitable. But most market and political forces will remain local for the foreseeable future, so it is unclear how much convergence in actual financial reporting practice will (or should) occur. Furthermore, there is little settled theory or evidence on which to

International business has been and continues to be a rapidly growing dimension with communication and transportation advances enabling companies to service a world market. This brings about a new perspective when conducting business in a foreign country, with the need to consider different laws, economic policies, political climates, cultural dynamics, and social factors. Obligatory for its success, a company wishing to expand globally must look at these differences when formulating its international business plan. Additionally, on the heels of such scandals such as those involving Enron, WorldCom, and Satyam Computer Services, investors desire a single international accounting standard; however, hold differing opinions as to what that single standard should be.

For this framework culture can be thought of as the shared values of a society that influence its behavior. It is obvious significant differences in these values exist internationally, and that these differences have an overwhelming effect on all the components of society. With that being said, accounting, as a societal creation, is influenced by these significantly different values as well. Given the objective of adoption and comparability internationally, it is important to look at the effect that culture can have on the implementation of IFRS and the obstacles it presents. After a thorough examination of IFRS and the obstacles it faces because of culture, IFRS will not be able to attain its objective of international adoption and comparability any time soon.

In the era of globalization, differences in national accounting standards are a big obstacle for multinational corporations to prepare consolidated financial statements. Hence, it is clear that accounting standards harmonization is essential. However, in the progress of accounting harmonization, there have been many debates on whether the implementation of principles-based accounting is more efficient than rules-based accounting. Although many countries dispute the rules-based accounting and have tendency to reform their accounting system into the principles-based accounting, in my opinion, the rules-based accounting has many undeniable advantages and until now its application is reasonable.

Accounting is one of the oldest social sciences disciplines whose development has been affected by a variety of historical, economic, social-cultural and institutional factors. In essence, although the discipline is currently harmonized across different nations, accounting systems have been influenced by different national traits, a factor that also influenced the differences in accounting systems at the international level. In general, the accounting systems in use in different countries have developed as a result of different influential factors in each jurisdiction. Regardless of the jurisdiction, however, a number of key factors are generally agreed to have influenced the development of the accounting discipline. The most common