Although accounting standards and practices are the same across the board in
their origin, the accounting and taxation structures of different countries around the world makes
them vary between countries. Different countries apply different accounting practices. This accounting
diversity is the reason that one company may seem profitable while another seems to be operating
at a loss, in extreme cases. The disparity between global accounting practices can lead to poor
business decision-making, difficulties in raising capital in different or foreign markets, and difficulty
in monitoring competitive factors across firms, industries, and nations. Their accounting practices
are linked to the objectives of the parties who will use the financial information, including people
like investors, lenders, and governments.
While the IASC, the International
Accounting Standards Committee, is trying to make a single set of high-quality, understandable,
enforceable accounting standards worldwide, the USA is resisting, insisting that no standards are
as good as ours. We use the GAAP, or the Generally Accepted Accounting Principles. However, through
the whole Enron thing, the US standards dropped and support of the international standards was given
an unexpected boost. Through the international standards and practices, Enron's accounting mistakes
would have been caught long before the destruction of the whole company.
A difference in accounting principles
between countries, for example, would include one such as that capitalization of R&D costs are allowed
in Japan, the United Kingdom, France, the Netherlands, Switzerland, Canada, and Brazil, but not
in Germany or the United States. Similarly, book and tax timing differences being recorded on the
balance sheet as deferred taxes is required in the United States and the Netherlands, but merely
allowed in some cases in the other countries. These accounting differences could really cause conflict
between countries because of international transactions and stuff.
There are substantial questions of
competitive advantages and informational deficiencies that may result from these continuing differences
across countries, and the differences from the accounting practices from across different countries
are very real and persistent. Some of the differences between countries include fixed asset revaluations
stated at an amount in excess of the cost, inventory valuation using LIFO, finance leases capitalized,
pension expense accrued during period of service, current rate method of currency translation, pooling
method used for mergers, and an equity method used for 20-50% ownership. The way of accounting between
many countries are very different, especially in what is and is not allowed.
The differences in accounting principles
between countries could really cause inconsistencies between international operations. Maybe if
an international standard were set for all countries, there would be less quarreling and more agreement
in accounting between countries. That way there would be less discrepancy in the accounting principles
and the balance sheets for each country.