Discuss about the International accounting practice between countries.

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GCSE Business Studies

 I. Discuss about the International accounting practice between countries. Provide relevant justification for:

  1. The reasons “WHY” those “ Two Countries” practice consistent account system use examples to illustrate
  2. Indicate the critical differences in practice across “countries” and provide valuable argument to substantiate their differences.

Answer 1:

The international convergence of financial accounting standards and practices has emerged as an important issue as companies have become involved in cross-border activities in product and capital markets. Global financial transactions have increased with more companies raising equity outside their home county. Corporations have expanded through investment in foreign subsidiaries and by sales and production activity in foreign markets. Growth in international business activity has highlighted diversity in financial reporting practices. Each country has a reporting framework that reflects its political, legal, cultural and business environment, which may differ from that of other countries and result in the production of financial information that lacks international comparability. It has been argued that greater comparability in information will enable resources to be allocated more efficiently and better investment decisions to be made. Companies may benefit from reduced accounting costs and a cheaper cost of capital, subsequently; International accounting provides economic information about various types of enterprise that is useful for making decisions about resource allocations. Accounting exists because it satisfies a need—in particular, a need for information. And in order to be relevant to the resource providers, accounting information must be responsive to their needs. United Sates is developed country, and China is developing country, those two countries have different rules and regulations to practice there accounting systems, however; the accounting system between those two countries are practice consistently.

        Accounting standards are the rules by which financial statements are prepared, for example the Generally Accepted Accounting Principles (GAAP) that specify the form and content of financial statements. Auditing standards are the rules that govern how the auditor conducts his/her investigation about how well the financial statements conform to GAAP. Accounting and auditing standards are interrelated.  Accounting standards defines as, the "useful" financial information, auditing standards guide an auditor in determining whether it is "reliable," and with both useful and reliable information, users are in a position to make better decisions. In the United States, Companies today are global players, compete against each other for the same pool of capital and face the same business pressures. Most multinationals, US-based and otherwise, must set performance objectives, observe each other’s activities, and implement similar practices to ensure that their competitor does not have a competitive advantage. And in many areas outside the United States, the accounting literature remains incomplete or insufficient to address the complexities of the modern market.

Furthermore, Companies listed in the US are more likely to choose US GAAP but companies traded in the OTC market show considerable support for IASs, showing the impact of SEC US GAAP requirements on non-US companies’ choice of “international” standards. In the United States, the private sector is also the primary source for accounting standards, but with input and influence from the SEC; standard setting is a particularly lengthy process and, in addition to basic pronouncements, there is much detailed guidance. While Japan is a third country that draws heavily on legal and tax directives, so much so that the private sector has little direct involvement in Setting accounting standards; in many ways, Japan's legal and tax Systems follow those in Continental Europe.

Increasing International investment activities require financial statements of foreign companies, in order to be more reliable and comparable and the need to reduce the degree of environmental variability; and accounting is shaped by the environmental factors in which it operates. Just as nations have different histories, values, and political system, they also have different patterns of financial accounting development. For example, accounting that studied by students in the United States is not the same accounting that student in other countries study.  Indeed, diversity is what we see Japan and United States, have some similarities.

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Environmental Variables

 

From the table above, it shows there are many similarities between United States and Japan. Such as political and economic ties in both two countries are high, inflation complexity and sophistication/education are high, and size of complexity are lager as well in these two countries.   The difference between the two countries only the legal system, US is common law, however, Japan is Code law. And business, for example, most code law countries have historically relied on either banks or the government to supply capital to businesses, whereas common law countries have historically relied on their more ...

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Discuss about the International accounting practice between countries.
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