Gray & Needles Pp 24-26
3
24 1/ ACCOUNTING INFORMATION, DECISION MAKING, AN D THE USES OF FDIANCIAL STATEMENTS auditor's opinion when deciding to invest in a company or to make loans to a firm that has been audited. The independent audit is an important factor in the worldwide / ' growth of financial markets. trt/ ....... &I?A" ,N1"f0,i"> --", Factors That Influence Accounting tanda rds fiNAN" It(.. I } c ~ , J " r , N c . While a variety of economic, social, political, legal, and cultural factors influence the A C : ( . ~ 4 , U A ,DJ"ftl.k formulation of ac.counting standards, the most important factors would seem to be the enterprise's sources of finance an d the nature of capital markets, taxation, the (li1f accounting profession, the nature of accounting regulation, national cultures and tra ditions, an d international economic and political relationships (see Figure 1-6). 110 4M.re' N j111''''-' 1'-/ . / - ources o f Finance and Capital Markets The sources of finance for an enterprise exert an important influence because the more capital that is raised from the public or external shareholders the more pressure there will be for public accountability an d information disclosure. This is the case especially In countries such as the United States an d the United Kingdom where stock markets are highly developed an d substantial numbers of corporations are owned by a broad base of shareholders. In this way, investor interests have been perceived by management to be significant an d have become the predominant influence on finan cial statements. In contrast, banks are a much more important source of finance in countries such as Germany, Japan, an d Switzerland, an d hence their concerns have tended to influence the preparation of financial statements more than those of investors. Taxation Another major influence on accounting standards is taxation, such as in France, Germany, an d Japan, where the financial statements of business enterprises prepared FIGURE 1 - 6 Factors That Influence Accounting Standards International Sources of Finance Economic and Political and C ~ p i t a l Markets Relationships National Cultures and Traditions . . ._T_axa_tion_..... Accounting The Accounting Regulation Profession
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24 1/ ACCOUNTING INFORMATION, DECISION MAKING, AN D THE USES OF FDIANCIAL STATEMENTS
auditor's opinion when deciding to invest in a company or to make loans to a firm
that has been audited. The independent audit is an important factor in the worldwide/ ' growth of financial markets.
.......
,N1"f0,i">--",
Factors That Influence Accounting tandardsfiNAN" It(.. I } c ~ , J " r , N c .
While a varietyof
economic, social, political, legal,and
cultural factors influence theA C : ( . ~ 4 , U A ,DJ"ftl.k formulation of ac.counting standards, the most important factors would seem to be
the enterprise's sources of finance and the nature of capital markets, taxation, the( l i1f accounting profession, the nature of accounting regulation, national cultures and tra
ditions, and international economic and political relationships (see Figure 1-6).110 4M .re'N j111''''-' 1'-/.
/- ources ofFinance and Capital Markets
The sources of finance for an enterprise exert an important influence because the
more capital that is raised from the public or external shareholders the more pressure
there will be for public accountability and information disclosure. This is the case
especially In countr ies such as the United States and the United Kingdom where stock
markets are highly developed and substantial numbers of corporations are owned by
a broad base of shareholders. In this way, investor interests have been perceived by
management to be significant and have become the predominant influence on finan
cial statements. In contrast, banks are a much more important source of finance in
countries such as Germany, Japan, and Switzerland, and hence their concerns have
tended to influence the preparation of financial statements more than those of
investors.
Taxation
Another major influence on accounting standards is taxation, such as in France,
Germany, and Japan, where the financial statements of business enterprises prepared
F IGURE 1 -6 Factors That Inf luence Acco unt ing Standards
InternationalSources of Finance
Economic and Politicaland C ~ p i t a l Markets
Relationships
National Culturesand Traditions ..._T_axa_tion_.....
Accounting The Accounting
Regulation Profession
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the ethical responsibilities of
accountants
26 11 ACCOUNTING INFORMATION, DECISION MAKING, AND TH E USES OF FINANCIAL STATEMENTS
F IGURE 1 -7 Cultural Inf luences on Account ing Standards
-.'Secrecy
Transparency
Optimism Greater caution in assessment Conservatism
Asian (Japan)..
Germanic (Germany,
Switzerland)
Latin (France, Italy, Spain)
Nordic (Sweden.
Finland)
Anglo-Saxon (U.S., u.K.)
hI Malaysia and Sillgapore,
llltemntionni Accolllltillg Sttllldards
are /ls/lally adopted as tire basis for
local a,colII/tillg stal/dards. III
Malta, company law II0W requires
Il1fernatiol/al Accountillg Stlll/dnrds
to be followed ill preparillg compallY
jillnll,ial stalelllellts.
OBJECTIVE 8
Define ethics and describe
Source: Adapted from S. ). Gray, "Towards a Theory of Cultural Influence on the Development
of Accounting Systems International", Abacus (March 1988), p. 12.
International Economic and Political Relationships
Accounting traditions have developed over long periods of time and, in many coun
tries such as in Africa and Asia, have incorporated influences arising from periods of
colonisation and war. These traditions are now changing because of the growing
internationalisation of economic and political relationships around the world. The
formation of economic groupings such as the European Union (EU), the North
American Free Trade Agreement (NAFTA), and the Asia Pacific Economic Coop
eration Forum (APEC) coupled with dramatic political changes in Russia and Eastern
Europe, China, South America, and Africa have resulted in tremendous increases in
international trade and foreign direct investment. New stock markets have sprung up
in many countries, and existing markets have been developi'ng rapidly in response to
deregulation, privatisation, and the internationalisation of finance and investment.
Accounting reports in a cross-border context have become more important, together
with the need to promote better international financial understanding. It is in this
context that the International Accounting Standards Committee (lASC) is seeking to
harmonise accounting standards so that financial statements prepared and presented
by companies will be acceptable and understood everywhere in the world irrespective
of their country of origin. It is the purpose of this book to contribute to this process
of developing a common understanding of accounting and financial statements for
decision-making purposes.
PROFESSIO AL ETHICS A D TH E Acco TI G
PROFESSIO
Ethics is a code of conduct that applies to everyday life. It addresses the question of
whether actions are right or wrong. Ethical actions are the product of individual deci
sions. You are faced with many ethical situations every day. Some may be potentially
