International Accounting Theory

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Introduction

Accounting practice in international arena is not common worldwide. Although the basic concepts are the same and which are accepted internationally some practices especially in the area of investigations, reporting and entry have major differences. The differences in these accounting practices have its origin on some factors. Some factors that are known to cause differences in reporting of accounting transactions, in various countries include political and economic systems adopted by the country, the legal system of the country, taxation system, the corporation financial system, religion and many others. This paper seeks to explain the factors that cause differences in reporting of accounting practice of a country. The factors that will be under consideration are political and economical factor and legal system.

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Factors influencing accounting practice

Political and economic system

The accounting profession is influenced by political and economical systems that are adapted by a country. Take for example the European Union which is a political system has influenced the accounting practice that will be used by members of the community.

These society members have changed from the accounting standards which they were used initially to the new accounting standards which are international financial reporting standards which are made by international accounting standards board. If a country was colonized by United Kingdom most of these countries tend to follow accounting standards which are used in the United Kingdom. Take for example Kenya, Uganda, Nigeria, India, and many other colonies have adapted accounting systems that are consisted with what the Britons are using. This is true because as countries join economic and trade blocks they seem to agree to use similar if not same accounting standards for reporting financial positions of companies operating in those countries. Another example is the case of Mexico, United States and Canada. This three countries because of the closeness and political ties they use almost similar accounting standards and currently they are just harmonizing their accounting standards for practice to fit international Accounting standards applied by other world countries. Another example is the introduction of American accounting system in Italy. These were because of the political system that was in operation in that country.

The economical and financial crisis in the world has also influenced the Accounting practice in the recent times. Take for example the case of Enron, the collapse of this company changed the accounting practice for public companies a new law was introduced which changed financial practices and streamlined the corporate governance. The new rules which concentrated in investor protection and improved reliability and accuracy of disclosure of businesses. Inflation is another economic factor that has influenced accounting practice. We have accounting standards which seek to streamline how accounting practices should treat instances of runaway as well as hyperinflation. The Accounting standard recognizes methods of adjusting price levels during times of inflation. The aim is to provide a reasonable ground to provide for inflationary changes in prices.

Therefore, economics and political influences on accounting practice have more impact than any other factor. Although there are many other influences politics and economics seem to play a major role in the accounting reporting and practice.

Legal system

Legal system adapted by a country plays an important role in deciding the accounting systems to be adopted. Take for example the United Kingdom which started using common law adopted a law of accounting which is consistent with the common law. The company law as it is in the United Kingdom emanates from the commercial and common law practices as it was read down by the earlier judicial system under common law. This means that the legal system of a country affects accounting practices and regulation of that particular country. However some countries especially those colonized by United Kingdom, they adapt a legal system that is similar to the legal system of United Kingdom. A country may adopt accounting standards for practice of another country but the main aim is the legal system that was used to arrive at the accounting standards in use. This is so because when considering all countries that were colonized by United Kingdom has followed the common law practices which eventually have affected the accounting regulatory system. The united states of America have adopted the federal law which has influenced the Accounting system adapted by the accounting profession of USA.

Conclusion

The Accounting practices differences in the world today is as a result of many factors such as cultural differences economic and political system of a country, legal system of a country and the Accounting profession itself. The economic and legal system has influenced the accounting practices that are being adopted in the world today. This means that politics and economics are the most influential factors for accounting and financial reporting differences in the world.

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Economics and politics influence transparency and governance of companies. And it is this political system that demands from accounting profession similar influences. If the political system of a country is not transparent then the Accounting system adapted may not be very transparent.

References

Choi, F.D.S and meek, G.K (2005) International Accounting, prentice-hall, upper saddle River, NJ.

Clare Roberts C., Weetman P. & Gordon P.; (2005); International financial reporting – a comparative approach; prentice hall 4TH edition

Glautier M.W.E. & Underdown B.; (2006) Accounting theory and practice Radebaugh; L., Gray S and Black E.L (2006) International Accounting and Multinational Enterprises, Willey, New York.

Roe, M.J (2003) political determinants of corporate governance, Oxford University Press, Oxford.

Zysman, J. (1983) Governments, markets and growth: financial systems and the politics of industrial change, Cornell university press, Ithaca.

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BusinessEssay. (2022) 'International Accounting Theory'. 10 February.

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BusinessEssay. 2022. "International Accounting Theory." February 10, 2022. https://business-essay.com/international-accounting-theory/.

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BusinessEssay. "International Accounting Theory." February 10, 2022. https://business-essay.com/international-accounting-theory/.