INTERNATIONAL

BUSINESS

PRESENTED BY :

HUMA RASHID 20

Why Do Countries

Have Different

Accounting System

Topics To Be Covered:

Accounting System

Reasons of Difference international Accounting System

National Culture

Social Institution

ACCOUNTING SYSTEM

A system used to manage the income, expenses, and other financial activities of a business.

Allows a business to keep track of all financial transactions, including

purchases (expenses),

sales (invoices and income),

liabilities + ownership equity (funding, accounts payable)

Assets

Why Do Companies Have

Different Accounting SYSTEM

Accounting is a product of its external environment

It is shaped by forces peculiar to its national environment

It is shaped by

Environmental Factors

National Culture

National System Of Accounting

Social Institutio

n

Status Of Accounting

Profession & Education

Nature of Capital Markets

Types Of Tax Reporting

Legal System & Levels Of

Enforcements

Economics & Political Ties

Types of Business

National Culture

NATIONAL CULTURE

Culture:

“The collective programming of the mind that distinguishes the members of one group or category of people from another”

Continue…

Need to Understand Hofesed’s four National culture Dimensions

Individualism Vs Collectivism

strong versus weak Uncertainty Avoidance

large versus small Power Distance

Masculinity versus femininity

Gray developed four pairs of contrasting accounting values based on Hofsed’s cultural dimensions

uniformity versus flexibility

conservatism versus optimism

professionalism versus statutory control

secrecy versus transparency

Influence of National Culture

NATIONAL CULTURE

Gray’s Four Hypothesis

H1

The higher a country ranks in terms of individualism and the lower it ranks in terms of uncertainty avoidance and power distance then the more likely it is to rank highly in terms of professionalism.

H2

The higher a country ranks in terms of in terms of uncertainty avoidance and power distance and lower it ranks in terms of individualism then the more likely it is to rank highly in terms of uniformity.

H3

The higher a country ranks in terms of in terms of uncertainty avoidanceand lower it ranks in terms of individualism and masculinity then the more likely it is to rank highly in terms of conservatism.

H4

The higher a country ranks in terms of in terms of uncertainty avoidance and power distance and lower it ranks in terms of individualism and masculinity then the more likely it is to rank highly in terms of secrecy.

SOCIAL INSTITUTIONS

The legal systems and levels of enforcement of regulations

Nature of Capital Markets

Types of tax reporting

The accounting profession and education

Political and economic ties

The legal systems and levels of

enforcement of regulations

Common Law

Based on Tradition, custom and precedent

Example: UK, US

Code Law/ Civil Law

Based on codes

Example: France

Theocratic Law

Based on Religious beliefs

Example : Iran

Nature of Capital Markets

Strong Capital Market Countries:

More pressure to use accounting reports to present company in favorable light to attract investors

Greater emphasis is put on the income statement as shareholders are more interested in profit

Example; Canada , U.S

Credit-based systems countries:

Emphasis is given on balance sheet as banks are more interested in solvency and liquidity

focuses on creditor protection through conservative and prudent accounting measurements

Example: Germany, France and Japan

Types of tax reporting

Accounting and taxation are dependent

Published financial statements are utilised as a ground for taxation

Tax regulations set maximum depreciation rates to be applied for particular assets

Example: Germany, France and Japan

Accounting and taxation are Independent

published financial statements are designed chiefly as performance indicators for investment decisions, instead for taxation usage

Example: United States and United Kingdom

The accounting profession

and education

Strong accounting profession Countries:

Audit reports appear to be more independent and reliable

E.g. United States and Canada

Weak Accounting Profession Countries:

the financial statements’ quality and auditors’ independence are more likely subject to dispute.

E.g. Germany and Italy

Types of Business

In Developed Countries:

Large and highly complex MNC’s

Accounting practices evolves with complexities of business

In Developing Countries:

Few large and complex companies

Simple financial reporting is used

Conclusion

International business managers must be aware of how differences in accounting systems in the countries in which they do business affect issues such as measure of financial performance, cash flows, and taxation.