Professional Documents
Culture Documents
Introduction
Accounting is the language of business it is the way firms communicate their financial positions Accounting standards differ from country to country These differences make it difficult for investors, creditors, and governments to evaluate firms The International Accounting Standards Board (IASB) has made some attempts to establish common accounting and auditing standards across countries
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Introduction
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A countrys accounting system reflects the relative importance of each constituency as a provider of capital So, accounting systems in the U.S. and Great Britain are oriented toward individual investors; Switzerland, Germany, and Japan focus on providing information to banks; and France and Sweden prepare financial documents with the government in mind
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Inflation Accounting
The historic cost principle assumes the currency unit used to report financial results is not losing its value due to inflation This principle affects asset valuation If inflation is high, assets will be undervalued
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Level Of Development
Developed nations tend to have more sophisticated accounting systems than developing countries Many developing nations have accounting systems that were inherited from former colonial powers
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Culture
The extent to which a culture is characterized by uncertainty avoidance (the extent to which cultures socialize their members to accept ambiguous situations and tolerate uncertainty) impacts the countrys accounting system Countries with low uncertainty avoidance cultures have strong independent auditing professions
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Lack Of Comparability
Because of national differences in accounting and auditing standards, comparability of financial reports from one country to another is difficult The growth of transnational financing and transnational investment is promoting the growth of transnational financial reporting
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International Standards
There has been a substantial effort recently to harmonize accounting standards across countries Many companies obtain capital from foreign providers who are demanding greater consistency Common accounting standards will facilitate the development of global capital markets The International Accounting Standards Board (IASB) is a major proponent of standardization The IASB currently has 45 standards, but compliance is voluntary About 100 nations have adopted IASB standards or permitted their use in reporting financial results
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International Standards
Most IASB standards are consistent with standards already in place in the United States The European Union has mandated harmonization of accounting principles in its member countries By 2010, there could be only two major accounting bodies with substantial influence on global reporting FASB in the United States and IASB elsewhere
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Currency Translation
Foreign subsidiaries usually keep accounting records and prepare financial statements in the local currency To prepare consolidated financial statements, all local financial statements must be converted to the home currency There are two methods to determine what exchange rate should be used when translating financial statement currencies: 1. the current rate method 2. the temporal method
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The control process in most firms is usually conducted annually and involves three steps: 1. subunit goals are jointly determined by the head office and subunit management 2. the head office monitors subunit performance throughout the year 3. the head office intervenes if the subsidiary fails to achieve its goal, and takes corrective actions if necessary Two factors that can complicate the control process are exchange rate changes and transfer pricing practices
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