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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. |
