An investigation of different international accounting practices

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Steve Lawrence, 1996, has suggested the meaning of internationalization of business activities which covers all the aspects of commercial functions that must be viewed internationally. This includes the accounting function. The understanding of the international accounting practices of a single country is not sufficient for an understanding of the accounting environment in which most organizations operate. Accounting which is a major tool of business communication it always differs in terms of its application and principles from country to country.

Without standard accounting practices the need to enhance the ability to adjust accounts so that meaningful comparison can be made across national boundaries becomes more urgent. This is an important consideration when reviewing the work of some of the organization involved in international accounting. (Steve Lawrence, 1996)

Evolution of international accounting transactions have occurred in the Atlantic region. The importance of international accounting can be understood by the three particular developments that have occurred during the past decade in the field of accounting. First, (Kress, Lantry, and Alfakhri, 1992) cited (Anguiera, 1989), who has found that as a result of the worldwide expansion of capital markets; approximately 200 multinational corporations (MNCs) trade their equity securities actively in foreign markets. (John Stephen Sands & John Paragasam, 2002)

Second, the sustained economic development, occurred in Asia has not been restricted to Japan but, (according to Cooke and Parker, 1994), now extends to South Korea and Taiwan and to Singapore, the Philippines, and Indonesia, where gross national product (GNP) has been reported in excess of 6%. Furthermore, the continued negotiations by countries including the United States for the Asia-Pacific Economic Cooperation (APEC) trade agreement signifies the importance of the Asia-Pacific region in future international trade.

It can be said by the report that the Canadian participants (Herremans and Wright, 1994) indicated that when developing their international accounting skills they would rank the Pacific Rim as the geographic region that should receive the most emphasis after the United States. (Herremans and Wright, 1994), it has also been indicated that the strengthening of ties between Canada and the Pacific Rim countries is the result of the changing international trade traffic. They also suggested that this shift in historical trade focus has created the need to learn about Pacific Rim countries' cultures and related accounting skills, which are quite different from those in Anglo-Saxon countries.

The third particular development, which was a result of this economic growth in the Asia-Pacific region, that has increased the accessibility of students to tertiary education either in their home country in Australia, North America, and New Zealand. (according to Kubin, 1973) they realized that two of the four considerations when developing the curricula for international accounting courses, which were really important for the students and for their future employers, we realize that given the emergence of many developing economies in the Asia-Pacific region the accounting needs of these countries should be considered in international accounting courses. In particular, large markets are opening up in the Asia-Pacific region and the growth in importance of the region for MNCs and exporters/importers with headquarters on the North American continent will have an impact on the needs of students of international accounting and their future employers. (Herremans and Wright, 1992) they have identified various international business and education sources (e.g., Beamish & Calof, 1989) that have "espoused the need for employees to possess new skills in order to compete in the global market place."

The world economy has inevitably brought moves to create a single set of financial reporting standards through globalization. It seems to be a legitimate role for the International Accounting Standards Board (IASB) to develop financial reporting standards and its forerunner the International Accounting Standards Committee (IASC). The primary argument for a single set of financial reports, premised on principles of economic rationality, is to achieve global harmonization (or convergence), thereby creating an open and accountable world (Lehman, 2005; Roberts, 1991).

The International Financial Reporting Standards (IFRSs) project an aura of objectivity by transcribing complex 'local reality' into universal recognizable and acceptable information (Saravanamuthu, 2004). In this process of convergence, IFRSs are developed with the view of global 'relevance'. Assuming that IFRSs are relevant to all societies, the factors causing the differences amongst the nations are regarded as too simplistic and are seen to be easily effaced. This view fails to acknowledge that even with the establishment of a single set of financial reports, difference in culture influence, infrastructure influence, legal requirements, taxation influence, academic influence, and historical influence. Political systems between nations have contributed largely to international differences in financial reporting (Ampofo and Sellani, 2005; Nobes and Parker, 2004; Radebaugh and Gray, 2002; Saudagaran, 2004; Schultz and Lopez, 2001).

It is important to explore the convergence and harmonization process to determine whether those accounting commercial structures satisfy the needs of all users, or whether they satisfy only a selected group of users, without consciously addressing the needs of others (Hopwood, 1994; Lehman, 2005; Miller and O'Leary, 1994). Globalization is a process whereby multinational companies may enter developing countries. However, "multinational enterprises are still rare and capital mobility has not yet produced a massive shift of investment or shift in employment from the most to the least industrialized countries". (Everett, 2003). In this process of globalization, if multinational enterprises invest in developing countries, a critical notion of accountability is mediated through reformed accounting structures (Lehman, 2005; Robbins, 1993). The silent role of accounting is to monitor and regulate multinational enterprises effects at enterprise, national and global levels (Lehman, 2005; Nelson, 1993). It is apparent that IFRSs neither intend nor enable the impacts of corporate multinational enterprises on local communities and their environments to be monitored (Hove, 1986; Lehman, 2005). These international accounting technologies enable the multinational enterprises to create and sustain the non-equilibrium conditions that persist between the developed and developing world (Graham and Neu 2003). Therefore, multinational enterprises in search of increasing levels of wealth may ignore the needs of many (Lehman, 2005), they are the needs of the country where they are operating.

The legal system differs due to globalization of international accounting. The two major legal systems throughout the world are, first the Common Law and the second is Code Law. Common law was initiated in England and today is followed by companies to understand and communicate English language. It mainly relies on limited amount of statue law. Statues are supplemented by the precedents established by the court decisions. A corporation law for accounting might exist in countries following common law. The governments of the primary source of accounting rules in the accounting profession are established by the profession or an independent nongovernmental body representing the variety of constituencies. Common countries like England have a nongovernmental organization mounting accounting standards with detailed rules and principles like Institute of Chartered Accountants of Wales and England.

. Code law is habitually followed in non-English speaking countries and they tend to have more statues or codified law leading to a wider range of human activity. The basis of legal parameters governing business enterprise is established by code law countries and their corporation law which often the financial statements and published in that format. An accounting law also includes accounting measurement and disclosure rules. The accounting professionals tend to control the development of accounting standards. The international accounting law is rather general in the code law countries. It does not provide a large amount of detail regarding the specific international accounting practices and they may not provide any guidance in certain areas. A very good example to code law is Germany. The German international accounting law passed in 1985, and it has only 47 pages in length and it is silent with regard to issues leases, foreign currency translation, and cash flow statements. (Biscarri and Espinosa, 2008)

The factor that is considered as an impact on international accounting is the level of education. It has been established that there is a positive relationship between education level and the competence of professional accountants (Gernon, Meek, & Mueller, 1987). This is a very strategic and critical action that requires a high level of education, competence, and expertise to be able to understand, interpret, and then make use of these standards, to adopt these international accounting standards. Highly qualified accountants and well-trained users must exercise professional judgment and process complex information (Doupnik and Salter, 1995; Street, 2002). There has been always a problem in adoption of international accounting standards by those countries where the education level is low and expertise is weak.

The next and very important aspect is the cultural influence; Countries belonging to a certain culture adopt the accounting system inspired by countries of the same culture (Nobes, 1998). Abdelsalam and Weetman (2003) highlighted the contribution familiarity and language make to the process of adopting new accounting standards. In the case of adopting IAS, they have shown that both factors, i.e., familiarity and language, seem to favor countries in the Anglo-American group, mainly because of the predominant Anglo-American influence in the development of IAS and also because English is the language of communication within the IASB. There have been significant efforts by IASB to translate these accounting standards and practices but still those outside Anglo American countries remains less familiar with international accounting practices. Given the Anglo-American influence on the IASB's work (Chamisa, 2000; Hove, 1986), we can anticipate that adoption of IAS would be easier for developing countries of Anglo-American culture. In fact, in these countries, several difficulties could be easily resolved because of their cultural proximity and, more specifically, because of their use of a common language (McGee, 1999).

Accounting regulating authorities have come up with many solutions to adapt the accountancy to the new global environment and to the new requirements of decision makers that allows the improvement and advancement of financial accounting. There have been several fundamental changes in past few years like several initiatives have been taken, harmonization of accounting standards, and practice of accounting on international level. There should have a set of accounting standards and practices that provide national and international decision makers with a relatively homogenous information product that is comparable and reliable. For this purpose the International Accounting Standards Board (IASB) has prepared and published international accounting standards (IAS), which have become the reference for the entire world (Dumontier & Raffournier, 1998).

Large industrialized and developed countries, such as the United States, Canada, and members of the European Union have focused on the development of international accounting standards and, more recently, on the adoption of these standards. There have been very less attention given towards the adoption of this standard by the developing countries. According to Richter Quinn (2004), accounting and financial information originating from developing countries is still difficult to trust, despite the urgent need for these countries to attract foreign investment and foreign capital, and despite the pressing demands from individual and institutional investors, lending institutions, and multinational agencies. According to Wolk, Francis, and Tearney (1989), international accounting harmonization is beneficial for developing countries because it provides them with better-prepared standards as well as the best quality accounting framework and principles.

Over the last past three decades, there is a desire to understand the process of change within the international accounting which is also called as historical influence, and the contribution that is made by accounting to broader organizational change and societal has motivated a extensive body of historical research in international  accounting.  Which is labeled as the "new accounting history", this is miscellaneous collection of methodological approaches and that is addressing a ample range of problems has made possible the posing of new questions about accounting's past. Propelled by globalization, world attention today is focused on two emerging market economies, India and China. China's managed liberalization has allowed it to achieve more rapid growth and has attracted a larger portion of direct foreign investment. India, with its messy democracy and nod to individualism in recent times promises a more exciting market environment with greater potential for future growth. The liberalization of the Indian economy since 1991 has exposed Indian firms to foreign competition and foreign investment. As a result, the information needs required by both managers and investors have changed. Transparency is the very first step in this process of financial reporting. This transparency is rapidly occurring in India as the country catapults into becoming a major economic power propelled on by the combined forces of the technological revolution such as the privatization of many infrastructure industries such as transportation and communication. There is the necessity of adoption and applicability of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) to India.3. The attempt to achieve congruence with IAS appears to be more a byproduct of the country's rapid economic growth rather than its catalyst. The continued growth and the attraction of foreign capital to domestic ventures depends on the transparency of the financial dealings. The Institute of the Chartered Accountants of India, (ICAI), India's standard setting body, is increasingly attempting to provide this transparency by revisions and additions to accounting standards, and by Exposure Drafts which aim to bring India more in line with International Financial Reporting Standards. (Shalini E. Perumpral, Mark Evans, Sanjay Agarwal and Felix Amenkhienan, 2009)

Thailand is a country situated in Southeast Asia. The Thai economy, prior to its industrial revolution in the twentieth century, was largely agricultural and self-sufficient (Aieamtham et al., 1987). After industrialization in the early twentieth century, there was a considerable influx of foreign investment into the Thai economy from various Western nations, such as Britain, Germany, and the United States. The latter has been the most significant influence in terms of grants, loans, and technical assistance to facilitate Thai economic growth (Wilson, 1970), and inward economic investment has resulted in a rapid transformation of Thailand from an agricultural-orientated economy to an industrializing nation in the late twentieth century (Schlosstein, 1991). With reference to Kuasirikun and Sherer's (2004) study which elaborated in detail the social and environmental conditions of Thailand, and their social and political implications for business organizations' activities, and that there are interrelated social and political elements with which companies must also interact (Gray et al., 1995a). This wider socio-political perspective of accounting has been adopted by various researchers in their theorization of social and environmental reporting in western countries (Deegan et al., 2002; Gray et al., 1987, 1988, 1991; Guthrie and Parker, 1990; O'Donovan, 2002; Roberts, 1992). In terms of this perspective, social and environmental reporting has been variously regarded as a corporate strategic tool to satisfy stakeholders (Roberts, 1992), to legitimate corporate activities to ensure corporate existence (Deegan et al., 2002; Guthrie and Parker, 1990; Hogner, 1982; O'Donovan, 2002), and to show corporate accountability (Gray et al., 1987). In the last 50 years since its establishment, the accounting profession in Thailand has changed in response to the rapid expansion of the Thai economic environment. The Thai government has promoted Thailand as one of the rapidly industrializing nations of Asia, and the capital invested in the Thai economy has largely stemmed from foreign investors on whom the Thai economy is extensively dependent. Consequently, in addition to keeping pace with economic growth, the accounting system in Thailand has had to change to facilitate the needs of these potential transnational enterprises. Thus, in spite of the institutionalization of the accounting profession in Thailand in the 1948 and 1962 Acts, existing law in the form of the Accounting Act B.E. 2482 (1939) began to appear insufficient to deal with such rapid Thai economic growth and change (ICAAT, 1973). As a result, a new Accounting Act B.E. 2515 (1972) (The Announcement of the National Executive Council No. 285) was promulgated. Moreover in 1980, the Stock Exchange of Thailand (SET), that had been established in 1962, was further regulated by the Stock Exchange of Thailand Act B.E. 2523 (1980). With reference to this Act, companies that are registered with the Stock Exchange of Thailand have to comply with both the Accounting Act B.E. 2515 (1972) and the Stock Exchange of Thailand Act B.E. 2523 (1980). Through the establishment of SET, the development of accounting standards and procedures in Thailand has been influenced by the US GAAP and/or the International Accounting Standards (the Stock Exchange of Thailand Act B.E. 2523 (1980)

In the early 1970s, the main focus was on statements of added value, as well as reports on employment and employee reports. In the 1980s and 1990s, leading reasons for preparing these types of social account included the growing interest in ethical issues and ethical investment practices and increased concern about the environment. However, naturally what is regarded as ethical and unethical varies considerably (Perks et al., 1992). Generally because of extending accountability over a wider group and greater range of activities there may be two major problems. Firstly, who is to be included in the list of stakeholders, secondly, are all stakeholders entitled to the same degree of consideration where their well being (or some other valued state) is concerned. The definition of stakeholder rests on the notion of interests. To be a stakeholder, one must be able to express, or at least be capable of having, interests. Human beings can express interests and future generations seem capable of having interests although they are not able to express them. According to one class of ethical theories, sentient animals are also seen as being capable of having interests. More debatable is the question of ascribing interest to non-sentient animals and plants or even entire ecosystems. On this account it becomes difficult to talk about the interests of nature, for example, of being in one ecological state instead of another. The second important issue concerns whether all stakeholders are entitled to the same degree of consideration. It is important to note that some stakeholders deserve greater consideration than others do. Besides, the degree to which a person or group is affected by certain actions, place in the moral hierarchy also plays a significant role in determining how much consideration should be given. , For example, in a business an employee could well be given more consideration than a competitor. Here, sentient animals as well as future generations face a problem. One way to solve this would be to designate spokespersons for these stakeholders. However, in this way the stakeholders would not be directly represented, for example, in a dialogue. Another response, which is adopted in the ethical account for livestock farming, is to introduce an assessment of the actual and expected consequences for the stakeholder. This is clearly an improvement, but it nevertheless incorporates an interpretation of the needs and demands of, for example, future generations through the selection of criteria and indicators to be included in the sub-account.

Many companies and MNC's in developed and developing countries obtain listings on stock exchanges outside their own country. According to a survey it has been found that one out of every five stocks traded on the London Stock Exchange is foreign. Similarly, 61.5 percent of Singapore's and 59.2 percent of Netherlands' listings are foreign. In the US alone, for example, within the past two decades the investment as well as the sales of US firms abroad has more than tripled (Thomas, 1983). Because of this tremendous worldwide growth in international accounting, the professionals, business, and financial communities are forced to pay greater attention towards the international issues. As a matter of real-world necessity if Investors will remain ignorant about foreign financial statements it will be a major problem. To have an interaction with foreign suppliers, customers, partners, creditors, investors, and governments increases, it is necessary to understand awareness of differences in accounting systems and practices and the problems related to them. Financial statements are typically prepared as per the local accounting standards and regulations. When these reports retain a nationalistic character, there may be a difficulty in understanding and interpreting the reports prepared, for the people of other country (Choi & Levich, 1991). Paramount among these problems is the analysis of financial statements prepared in different ways and the need to reconcile different national standards while preparing a globally consolidated financial report. Investors and especially business leaders need financial statements which are in conformation of sound accounting principles and in accordance with national laws. However, the accounting policies in many countries differ and, in many cases, bear little difference in each other accounting figures disclosed in a financial statement of a foreign subsidiary may be so strange to its parent that efforts at reconciliation may lead to questionable values and unreliable financial results. Consolidated financial statements prepared by the parent organization having foreign subsidiaries may sometimes be misleading rather than being helpful to potential or actual investors. Choi and Levich, (1991) observed about the capital market participants and found that accounting differences are very important and may sometimes affect investment and financing decisions. They have suggested that:

Existing restatement algorithms are still at a very crude stage of development,

Existing algorithms are not being applied effectively, or

No algorithm is capable of producing a proper and meaningful restatement.

If (a) or (b) is true, then more effort in restatement may result in a payoff. If,

However, the answer is (c), and then might be possible that investors are right in developing their skills to read and interpret foreign financial statements in their original form.

After the analysis of these influences and issues due consideration should be given towards the importance of understanding the interacting influences of tasks, individuals and context variables to understand the role of accountants, (e.g. Hogarth and Einhorn 1992; Payne et al 1993; Trotman & Wright 2000). Contextual differences have been found to influence the way accountants process information and make judgments. According to Payne et al. (1993) decision makers often adapt strategies to specific tasks and context variables by balancing the need to make good decision with the need to minimize cognitive efforts. However decision makers should have required knowledge to choose the best and appropriate way. Performing a task incongruent with the bulk of the accountant's training could lead to decreased performance due to the differentiation in process the tasks (Shanteau 1992; Vera Munoz et al. 2001). This potential effect is important for the multitude of accountants who work for small size firms where tax and audit is not explicit. On the contrary accountants working for large size organizations may accept rotational assignments in others departments in which they have not trained.

In the last several decades, standard-setters or regulators have grappled within

The problems posed by different national standards. Previous attempts to standardize the international accounting practice have not been successful due to many problems like the great diversity and multiplicity and differentiation of accounting procedures among different countries. Despite the significant efforts of organizations such as United Nations, the EC, the organization for Economic Cooperation and Development (OECD), all governmental and quasi-governmental institutions and the IASC, the degree of harmonization remains low. There have been many efforts made to eliminate or significantly reduce the differences in accounting standards. Yet, the process of harmonization requires substantially new attempts and direction. Total harmonization of international accounting standards probably seems impractical and unlikely the record of domestic well-funded and supported standard setting bodies in the United States "Does not offer much hope that the infinitely more difficult task of gaining international agreement can be achieved in any reasonable time period. An examination of the limited progress of the FASB in recent years leads quickly to the conclusion that consistent worldwide accounting standards are virtually certain to remain an elusive goal". (Goeltz, 1991).

To alleviate the problem of a lack of conformity, and too much flexibility of International accounting standards, the IASC, in 1989, released Exposure Draft 32 (ED32), "Comparability of Financial Statements," which has proposed an improved set of international standards. Due to the continuing tension between international and domestic pressures on financial reporting practice, the IASC standards cannot be enforced and may not be applied among countries. Clearly, various factors such as tradition, national pride, national laws, emphasis on tax reporting of net income, and extensive use of reserves continue to block the efforts of the IASC.

As per a survey, it has been observed that since the issuing of international standards by the IASC, many multinational firms such as General Electric in the U.S., Sasebo Heavy Industries Co. Ltd. In Japan, and OY WARTSILA AB in Finland, among others, have disclosed their financial data based on international accounting standards either separately or as footnotes to their regular annual reports, (MacArthur J, 1996). Even if the report are prepared based on International accounting standards, the lack of conformity or reference to standards has often times left the readers pondering over the quality of the accounting principles used and/or the financial results which has been shown. This makes it very difficult for the users of international financial statements to take appropriate economic actions. Sometimes the difference between financial results using domestic versus international accounting standards is so significant that the economic decision suggested by them may be sometimes completely opposite of what has been predicted. WARTSILA, a Finnish shipbuilding company, is a very good example of a firm which communicates to its stockholders on two different accounting principles basis. As per the records found in this company's report a consolidated net income for 1984 of 161 FIM millions using finish accounting principles. In the footnote to the financial statements, WARTSILA presented pro-forma financial statements in accordance with international accounting standards showing principal adjustments to arrive at a reconciled net income of 723 FIM millions or over 300 percent increase in net income (Slipkowsky, 1986).

This concludes that international accounting has a great impact on nations as different country have difference in culture influence, infrastructure influence, legal requirements, taxation influence, academic influence and historical influence. Globalization and free trade between countries calls for an urgent need to standardize the accounting principles so that problems can be prevented when these multinational companies work in the different countries of the world. The accounting can be uniform and similar wide-reaching. Above all the need of the international accounting is accepted these principles and they have increased due to the international transaction, and to reduce the difference in the international accounting process followed by different countries and culture.