Differences in international financial reporting

Differences in international financial reporting – In the current stage of social development, all countries can be divided into the two following groups:

  • Countries with the legislation of general judicial development; Differences in international financial reporting
  • Countries with a well-structured legislative framework. Differences in international financial reporting

In the first group of countries laws are a set of merciless rules designed according to the principle ‘You are obliged to…!’, i.e., allowed only if expressly permitted in the law.

See also: https://en.wikipedia.org/wiki/Common_law

The responsibility of both physical and legal entities is to literally obey the rules laid down in the legislation which are provided for each even the smallest of the cases.

Accounting standards which are approved at the government level are introduced by the force of law. Any accounting procedures are laid down in detail, and the tax accounts and the possibility to control their full and due payment to the budget becomes the main accounting objective.

The second group of countries develops their laws in the form of a series of restrictions following the principle ‘You shall not be allowed to…!’, i.e., anything that is not forbidden is allowed.

See also: https://en.wikipedia.org/wiki/Civil_law_(legal_system)

The legislation establishes a framework within which both physical and legal entities may act freely. In this case, the state does not regulate the accountancy laws, being designed by multiple non-government organisations bringing together professional accountants.

Accounting turns into a creative process; it includes designing of systems, preparation of estimates, cost analysis, audit inspections, profit and tax planning. This difference in the approaches for designing the accounting systems can be explained due to the fact that in the majority of countries with strict legal regulation the financial needs of companies are fulfilled on the account of governments and banks. Business in countries with orientation on the general judicial legislation uses the share capital and securities markets.

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The country models can be in more detail subdivided as follows:Differences in international financial reporting

The British – American – Dutch Model:

  • highly-developed securities market;
  • many multinational corporation (MNC) centers established;
  • accounting is focussed on the information requirements of investors and creditors.

The Continental Model (Japan and the European countries France, Germany, Switzerland, Austria, Belgium, Denmark, etc.):

  • businesses are closely connected to the banks;
  • statutory publication of annual reports;
  • prudent accountancy procedures, which are strictly regulated pursuant to the law; – priority issue – taxation.

The South American Model: Differences in international financial reporting

  • oriented to the needs of the government;
  • designing of special accounting techniques in consideration of the instability of the currency units, issues with the opening value estimation for fixed assets.

The Islamic Model: Differences in international financial reporting

  • usury is forbidden;
  • company assets and debts are reported at market prices.

The International Model (IFRS used): Differences in international financial reporting

The International Accounting Standards Committee was formed in 1973 through an agreement between the professional accounting bodies from Australia, Canada, Germany, Japan, Mexico, Indonesia, Ireland, Great Britain, and the USA. Presently this organisation includes 14 professional accountancy body members in 105 countries.

Objectives of the IASC: Differences in international financial reporting

  • to formulate and publish accounting standards;
  • to introduce the accounting standards worldwide;
  • to assist countries in developing their own standards;
  • to assist in the application of IFRS and to find solutions for their application;
  • to assist auditors in preparing their opinions in conformity with IFRS;
  • to assist users of financial statements to interpret the information.
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International financial reporting standards were developed due to the economic and national differences in various countries after long and multiple alignment processes. They are advisory by nature in respect of the national accounting models and their goal is to achieve the comparability of these systems.

Differences in international financial reporting

Annualreporting provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.

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