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Critical review on Accounting for varieties of capitalism: The case against a single set of global accounting standards

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´╗┐CONTENT 1. Introduction 2. The intrinsic illogic of conceptual framework 2.1 Imperfection of market with uncertainty 2.2 The nature of the firm 2.3 The nature of the financial system 3. Varieties of capitalism 3.1 Varieties of capitalism ? national economic system 3.2 Accounting standards for different varieties of capitalism 3.3 institution evolution 4. Conclusion Reference List 1. Introduction World leaders in have urged that the international accounting standards need to be improved. After that, the G20 called key accounting standards makers, namely IASV and FASB, to create a single set of global accounting standards with high quality, with the belief that the global convergence of accounting standards ?contributes to the free flow of global investment and achieves substantial benefits for all capital markets stakeholders? (PWC, 2007, p. 1). However, business environment in different types of capitalism are distinguished, one set of standards may be not able to be useful to both kinds of countries. Walker (2010) argued that the institutional characteristics of the political and economic system probably determine the optimal design of accounting standards, thus he thought this call is unwise and highly questionable. He also highlighted the imperative of variety of capitalism, especially after going through the global financial crunch caused by sub-prime crisis. This paper aims to explore whether a single set of global accounting standards is a wise determination by IASB/FASB, and critically assess the arguments of Walker. It will begin with analyzing intrinsic illogic of conceptual framework, and then examines the correlations between varieties of capitalism and setting of accounting standards. In the final section, summary about this essay will be provided. Generally, we agree with the arguments of Walker, and we also point out several limitations on his study. 2. The intrinsic illogic of conceptual framework 2.1 Imperfection of market with uncertainty The importance of perfect and complete markets for accounting was first assumed by Beaver and Demski (Walker, 2010, p. ...read more.


Hall and Soskice (2001) explore some features about LMEs and CMEs in five aspects. First, in the internal structure of the firm, the top management plays a monopoly control role in the firm under the LMEs, while the internal structure tends to coordinate each level of firm in the CMEs. Second, as to financial governance, in the LMEs, Capital is acquired in financial markets which are sensitive to current profits. Also, firms are incentive by a market which serves to corporate control to maximize their share prices. By contrast, in the CMEs, Capital probably provided by banks and other long term investors is not focused on quarterly earnings. Third, referring to industrial relations, in the LMEs employees are hired and fired as a part of a labour market. By contrast, Employees are often guaranteed by job security in the CMEs. Fourth, referring to training and education, in the LMEs, the workers are required general skills rather than the specific skills. On the contrary, under the CMEs, industry requires workers have sophisticated technical skills. Last, for inter-firm relationship, under the LMEs, the movements of personnel between companies promote the dissemination of technology. In the CME, the diffusion of technology will be realized by the inter-firm relationship. 3.2 Accounting standards for different varieties of capitalism Walker pointed that there is no need to restrict the option to a single set of global accounting standard. With existing different forms of capitalism in this world, it would be obviously unfair & inappropriate to enforce the accounting standards that designed for one type of capitalism on all other economic systems with essentially differences. There are several differences between national general accepted accounting practice (GAAP) of countries within distinct forms of capitalism. Many scholars point that IAS or IFRSs is a form of accounting that is tailored to maximize trading in shares and predominantly reflecting Anglo-Saxon accounting model, appearing in countries like the UK, USA, and Australia, rather than Continental-European model, which can be found in such countries like Germany, France, and Italy (Flower and Ebbers, 2002 p. ...read more.


Word Count: 2625 Reference List COOPERS, D. P., (2007), Convergence of IFRS and US GAAP, accessed at: http://www.pwc.ch/user_content/editor/files/publ_ass/pwc_viewpoint_0704_e.pdf on 10/18/2012 COULTER, S., (2011), Manufacturing Prosperity: Diversifying UK Economic Growth, London: Social Market Foundation DASKE, H., (2006), ?Economic Benefits of Adopting IFRS or US-GAAP?Have the Expected Costs of Equity Capital Really Decreased? ?, Journal of Business Finance and Accounting, Vol.33, No. 3, pp. 329-373 DING, Y., HOPE, O., JEANJEAN, T., and STOLOWY, H., (2007), ?Differences between domestic accounting standards and IAS: Measurement, determinants and implications?, Journal of Accounting and Public Policy, Vol. 26, No. 1, pp. 1-38 FLOWER, J., and EBBERS, G., (2002), Global Financial Reporting. London: Palgrave. GAERROUSTE, P and SAUSSIER, S., (2005), ?Looking for a Theory of the Firm: Future challenges?, Journal of Economic Behavior and Organization. Vol.58, No. 2, pp. 178-199 HUNG, M and SUBRAMANYAM, K.R., (2004), Financial Statement Effects of Adopting International Accounting Standards: The Case of Germany, Thesis, University of Southern California HOPE, O., (2003), ?Disclosure Practices, Enforcement of Accounting Standards, and Analysts' Forecast Accuracy: An International Study?, Journal of Accounting Research, Vol. 41, No.2, pp. 235-272 HALL, P. A. and Soskice, D., (2001), Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, New York: Oxford University Press LANDEWING, PETER O. RUSSELL, JCMS., (2008), ?Financial Integration in the EU: the First Phase of EU Endorsement of International Accounting Standards?, Journal of Common Market Studies, Vol. 46, No. 2, pp. 243?264 SUNDER, S., (2002), ?Regulatory competition among accounting standards within and across international boundaries?, Journal of Accounting and Public Policy, Vol. 21, No. 3, pp. 219-234 TOKAR, M., (2005), ?Convergence and the Implementation of a Single Set of Global Standards: The Real-life Challenge?, Accounting in Europe, Vol. 2, No. 1, pp. 47-68 UPTON, W., (2008), Perspectives on International Adoption/Convergence with IFRS (available on-line at: http://www.iaiglobal.or.id/referensi/seminar_iai-iasb/Wayne-Perspectives%20on%20International%20adoption.pdf ), accessed 10/18/2012 VAN, B. and VANSTRAELEN, A., (2005), ?Earnings Management under German GAAP versus IFRS?, European Accounting Review, Vol. 14, No. 1, pp. 155-180 WALKER, M., (2010), ?Accounting for Varieties of Capitalism: The Case Against a Single Set of Global Accounting Standards?, British Accounting Review, Vol. 42, No. 3, pp. 137-152 ...read more.

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