Concepts of Accounting in Relation to International Practices - Term Paper Example

International Accounting Name Institution Date Table of Contents Table of Contents 2 Introduction 2 Theoretical background 3 Literature review 4 Legal systems and impact on international accounting 4 Public Disclosure in Accounting Systems 5 Limitations of global adoption of IFRSs 6 Challenges of US GAAP and IFRS convergence 6 Comparison of Australia and china 7 Adoption of international financing reporting standards 8 Benefits of convergence to India 10 Obstacles to investment in India 11 Contributions of the Research 12 Hypothesis 13 Conclusion 13 Introduction International accounting mainly seeks to make a comparison of accounting processes allover the world. The comparison is aimed at identifying the best accounting practices and how they are applied. This is due to the diverse nature of the laws that governs the accounting processes in different parts of the world. Some of the accounting concepts used in some countries have considerable impacts on the economy and planning. This is due to the policies that govern the access of information and public accounting as well as finance. International accounting also has an impact in terms of attracting investors in the country. The accounting laws may be unsuitable for investors and hence discouraging investors in the particular country. It is thus important to note that the accounting concept being used has an impact on the growth and development of the country (Alali 80). The Hofstedes dimensions also have an impact on the accounting process in a particular country. Some challenges are also encountered in the accounting processes and has different impacts on the outcome of the accounting process. External factors like religion also has an impact on the accounting process in some countries. This affects the operations that are involved in the accounting process. On the other hand, it is also important to note the contributions of foreign investors in terms of shaping the international laws in accounting. The paper thus discuses concepts of accounting in relation to the international practices in relation to literature review. Theoretical background The concepts of accounting in different countries affect the operations of multinationals. This is due to the difficulties faced when harmonizing the accounting records from different countries. Other factors also have impacts on the accounting reporting systems different countries. The factors are responsible for some of the difficulties faced by foreign investors in the countries. The methods used by the government during financing also have an impact on the accounting reporting system in the country. The laws and regulations used in a country in terms of implementing the standards and policies relating to accounting also differs in most countries and always determines the practices in the country. The methods of accounting reporting also have an impact on the rate of foreign investments in the country. This is because it may lead to obstacles that may discourage investors. On the other hand, religion is one of the factors that have an impact on the accounting reporting system. Harmonization practices have been developed in the past to ensure that the process is made easy when conducting business in any part of the world. However various obstacles have been witnesses as a result of trying to deal with the methods of financial reporting. Literature review Legal systems and impact on international accounting The common laws re important when it comes to the issues of international accounting. These laws originated from England and it is mainly based on the decisions of the judges. The laws made by the judges are based on their experience in handling case as well as the interpretations of the courts. In most countries, the interpretation of these set of laws is based on the courts. Accounting is an important concept and is guided by the law in most of the countries. This is for the purpose of controlling fraud as well as ensuring that the rogue accounts are penalized. The code law on the other hand is also common in most countries. These set of laws are for the purpose of covering exhaustively entire legal process. This is for the purpose of ensuring that both the criminal as well as the civil codes are addressed. In accounting, criminal activities are due to fraud. Best practices in accounting can also be achieved through the guidance of the law. In most countries, the accounting process is guided by the law. The accounting students also have to learn the concepts of the law for the purpose of ensuring that they uphold ethics in their work. It is also important to note that the concepts of the law are used in most countries so as to offer guidance to the accountants. Auditing of the accounts is also done in most countries and it is proscribed in the law. Irregularities in the accounts in most of the countries lead to prosecution in accordance to the law (Benston 21). Public Disclosure in Accounting Systems In international accounting, the systems used by governments to obtain funds are important in terms of ensuring that a country is able to prosper. On the other hand, it is important to note that the public disclosure of accounting information may have positive or negative impacts. Some countries use capital markets to obtain the funds to run the government. Other countries rely on the banks and borrowing from other countries. The countries that obtain the money from capital markets are more likely to encounter greater levels of public disclosure. The high levels of information asymmetry are usually associated with capital markets. The long term loans associated with the capital markets are usually made public. This is for the purpose of accounting and ensuring the transparency of the accounts. The investors in the capital market have to know how their funds were used. It is for this purpose that the level of public disclosure is high. However, when dealing with banks and governments the levels of public disclosure is quite low. The information in the banks is usually considered confidential and hence it cannot be disclosed to the public. Most of the countries in the developing worlds rely on loan from banks and the deals are usually secret. The level of public disclosure is thus low when dealing with the banks and the governments (Bradshaw et al, 28). Limitations of global adoption of IFRSs In the current business world, the numbers of multinationals are on the increase and hence affecting the accounting standards and systems. The need to harmonize the accounting system was first established by the European Union. The harmonization is for the purpose of ensuring that the companies can easily understand the accounting concepts in any countries. Currently, the international financing reporting standards have changed and it has been harmonized in most parts of the world. This concept has enabled the companies across the world to enhance the process of book keeping. However, despite the success of the adoption, some limitations are also evident. The cross cultural effects have affecting the implementation of the concept. This is because the accounting systems in some regions of Asia are quite different. This limits the use of international financing reporting g system. On the other hand, the concept has cost implications and hence its difficulties in implementation in some of the developing countries. The concept of international financing reporting system does not put in place the issues of extra ordinary loses and profits. This has negative impacts on the book keeping for some of the countries. The shortage of professionals in the accounting field also limits the development of the international financing reporting system (Alfredson, et al, 70). Challenges of US GAAP and IFRS convergence The generally acceptable accounting principles are mainly the framework used when dealing with financial accounting. These principles depend on the jurisdictions in which the framework is accepted. In the United States of America, the generally acceptable accounting principles are recognized and applicable depending on the jurisdictions. These principles are usually applied together with the international financing reporting standards. However in the United States of America, these concepts have been meeting with some challenges in terms of coverage. The bodies that have been entitled to oversee the implementation of the strategies are yet to developer flexible policies. The bodies instead relay on the rule based approach in establishing the standards. On the other hand, the issue of objectivity principles in accounting is still a challenge to some of the organizations. This hinders the implementation of the standards. Conservatism, materiality and consistency principles are still challenging issues in most of the companies. This has led to the constrains in the implementation of the policies in the United States of America. The existence of several bodies that are responsible for implementing the accounting policies has also contributed to the challenges. This is due to the long period of time that the policy formulation and implementation takes as all the bodies have to be in consensus (Brown et al. 273). Comparison of Australia and china The comparison of the two countries is important t in terms of establishing the nature of the accounting practices. In Australia, the practices are democratic and hence the free process in most of the accounting principles in most companies. However, in China most of the accounting processes are controlled by the government. The offences relating to the accounting process are quite strict in China as compared to Australia. This is due to the code law system that is used in china s compared to the common law system that is used in Australia. The capital market in Australia is also active as compared to that of china. This means that the levels of public disclosure in Australia are high as compare to china where the capital market system is not widely adopted. The financing systems of the two countries are also different and hence affecting the accounting system used by the two countries. The number of foreign investors is quite low in china as compared to Australia. This is due to the government policies that discourage the foreign investments. This has an impact on the accounting practices on the two countries. The implantation of the international financing reporting standards in China is still developing as compared to Australia. In terms of ranking the two counties according to Hosfstedes dimensions, it is evident that the power distance is large in China as compared to Australia. This greatly contributes to the grip that the government has on the business operations in the country. The firm control of the government in the China has some impacts on the accounting practices. It is also important to note that collectivism is common in China as compared to the high levels of Individualism in Australia. This plays an important role in governing the conduct of the people in the business environment. The rate of uncertainty avoidance is high in China as compared to Australia. This is for the purpose of ensuring that the government has a firm grip on the rules and policies and hence affecting the policies regarding accounting. According to Grey’s accounting dimensions, it is evident that the practices in china are secretive as compared to Australia where transparency is maintained. Statutory control is also common in China with regards to the accounting practices. This is different from Australia where professionalism is common. On the other hand, it important to note that the government control in China has led to the uniformity of the accounting principles (Elliott 2). Adoption of international financing reporting standards The full adoption of international financing reporting standards is important as compared to the harmonization of the concepts. Comparing the financial statements in different countries is complex in most cases. However, the full adoption will ensure that the process is made easy. This is advantageous to the investors as it will make it easy for the investors to make comparisons between different markets. The comparison of the statements is currently difficult as the harmonization process does not necessarily simplify the process. Some of the complex terms that require interpretations are still evident despite the harmonization. The full adoption is thus important in the current era of multinationals. Understanding the implications in the financial statement is also important in terms of ensuring that the investor avoids risks. Full adoption will enable the investors to understand the accounting statements of companies in different countries and hence guiding the company on where to invest. The full adoption is also important for an organization in terms of reducing costs as well as gaining aces to the capital market. It is thus evident that the full adoption of the concepts has international benefits. This is important in terms of enhancing the business processes in the global scene (Arnold 12). It is however, imperative to note that the harmonization has some advantages as compared to the full adoption. This is due to the arguments against the full adoption of the concept. The diverse nature of the business culture is one of the issues that hinders the full implementation. It is also import ant to note that the religious practices and beliefs in some countries guides the business operations. The accounting practices in most parts of Asia are guided by the religious beliefs and practices. The diverse religious beliefs and practices thus hinder the full adoption of the concept. In some countries like China where the government controls most of the accounting policies, the process may prove to be difficult. This is because the government will have to give up the control. This is not possible as some of the governments in some countries will always want to assume control of business policies. This is mainly for the purpose of ensuring that the foreign firms do not get due advantage over the local firms. Although the multinationals will benefit from this concept, the single country entities may not fully benefit. The challenges to the full implementation therefore indicate that full implementation is difficult (Robertson, et al, 1603). Benefits of convergence to India Convergence is one of the most important concepts in doing business in a particular country. India is one of the countries that enjoy the benefits of convergence. Through the concepts of convergence, it is easier for the country to attract the foreign investors. The policies are good in terms of promoting foreign investments in the country. This is compared to the other countries in Asia where the policies discourage the foreign investors. Foreign investments are important for an organization in terms of economic growth and development of a country. On the other hand, the reporting costs for the companies are reduced through the use of this concept. This is therefore important in terms of attracting the investors in the country. It also ensures that the investors are able to fully utilize the opportunity and interact with the local companies. This concept is also in line with the modern concepts of doing business and hence benefiting the foreign investors. The business processes like accounting are also simplified by this process and hence enabling the foreign firms to carry out the processes easily. The trust of the foreign investors in the country also plays an important role in ensuring that the foreign investors are able to carry out their business processes. The standards setting in the accounting process in terms of developing the generally acceptable standards. The standard setters in India are also responsible for ensuring that the standards are maintained. This is important during the implementation stage as the setters fully understand what needs to be done. This is advantageous as compared to other countries that have different bodies in the accounting sector. In some countries, the setters are not responsible for the maintenance and implementation. This leads to the deterioration of the standards incase of disputes between the several organs. Such issues play a role in discouraging the investors as it may force them to change their strategies from time to time. On the other hand, the business standards always reflect the prevailing environmental conditions in the country. This is important in terms of ensuring that the standards are not unfair to the investors. Depending on the prevailing business environment, the standards cam be raised or lowered. This is important in enhancing the accounting processes in the county and developing an enabling environment for the investors. Most of the investors easily prefer the countries that have enabling standards (Mehra, 8). Obstacles to investment in India Although India has advantages in terms of attracting the investors due to the proper procedures of maintaining the standards, there are some obstacles that to investment. This is because the accounting financial reporting standards require a lot of scrutiny be fore an investor can commence the business processes. This also forces most of the investors to compare the financial records of different companies before making a decision. This process is quite tedious and time consuming and hence forming an obstacle to the investment. Risks and uncertainties are also common in India are also common. This is a big obstacle to the development of most companies. It is for this reason that most of the investors to partner with the local companies. This is not satisfactory for most of the companies. It also increases the risks to the new investments. The financial records are also impacted as the means of financial reporting may not be in favor with that of the investor. It is thus important to note that the investors always require assurance before making a major decision with regards to the financial reporting (Srinivasan, et al, 62). Contributions of the Research The research has made important contributions in terms of addressing the issues of international accounting. Through the comparison of the accounting reporting practices in China, Australia, United States of America and India, it is evident that each country has a unique method of addressing the issues of accounting. The reasons as to why the practices differ in the countries have also been answered by the paper. The consequences of the differences in terms of dealing with the accounting issues have also been highlighted in the paper. On the other hand, an important issue of harmonization and adoption has also been highlighted in the research. This answers the question of what challenges are witnessed during the process of harmonization and adoption of the system. It has also been noted by the research that religion is one of the factors that guides the implementation of the accounting concepts in some countries. The role played by religion in terms of implementing the accounting principles is applicable in some countries. On the other hand, it is also important to note that the research has established the role of governments in influencing the accounting reporting systems in some parts of the world. The research has thus played an important role in highlighting the issues affecting international accounting. Hypothesis The international accounting reporting system is influenced by governments as well as the businesses cultures and religions in most of the countries. It is for this reason that adopting the international financing reporting standards is difficult as compared to harmonization. Conclusion In conclusion, the international accounting is an important issue that affects the multination and other foreign investors. This is because it determines how the organization will be able to access the financial records and statements. The laws that are used by a country also influence the accounting practices in the country. The use of common law and code law determines the accounting practices. The laws are important in terms of upholding the standards as well as dealing with fraud. The international financing reporting system is one of the measures that try to address the issue of harmonization in the accounting system. However due to challenges, its implementation is difficult. The accounting practices used in a country also determines its ability to attract investors. India is one of the country with good standards and hence its ability to attract investors. However, in countries like China, the government policies discourage investors. The Hofstedes dimensions is also important in terms of explaining the reasons as to why some laws are strict in some countries and not in others. Religion is also a factor that influences the accounting systems that are used by different countries. However, this is only limited to some countries. On the other hand, it is evident that the harmonization of the financing systems has played an important role in shaping the international accounting. References Alali, Fatima. et al. "International financial reporting standards—credible and reliable? An overview." Advances in Accounting 26.1 (2010): 79-86. Benston, George J., et al. "Worldwide financial reporting: the development and future of accounting standards." OUP Catalogue (2011). Bradshaw, Mark, et al. "Response to the SEC's proposed rule-Roadmap for the potential use of financial statements prepared in accordance with International Financial Reporting Standards (IFRS) by US issuers." Accounting Horizons 24.1 (2010): 117-128. Alfredson, Keith, et al. "Applying international financial reporting standards." Journal of International Accounting Research 9.2 (2010): 70-71. Brown, Philip. "International Financial Reporting Standards: what are the benefits?" Accounting and business research 41.3 (2011): 269-285. Elliott, Barry. Financial accounting and reporting with myaccountinglab. Financial Times, 2010. Arnold, Patricia J. "The political economy of financial harmonization: The East Asian financial crisis and the rise of international accounting standards." Accounting, Organizations and Society (2012). Robertson, Jeffrey, et al. "The Dutch East-India Company and accounting for social capital at the dawn of modern capitalism 1602–1623." Accounting, Organizations and Society (2012). Mehra, Vishakha. "Accounting and reporting of intangible assets in India." (2012). Srinivasan, Padmini, et al. "The value relevance of consolidated financial statements in an emerging market: The case of India." Asian Review of Accounting 20.1 (2012): 58-73. Read More