Development and Classification
Chapter 2
Development and Classification
Discussion Questions
1.
a) Sources of finance. Where capital markets/shareholders are the principal source of finance, accounting focuses on profitability, stewardship, and a fair presentation of results and financial position. There are high levels of disclosure in published financial statements. When banks are the principal source of finance, accounting tends to be conservative and disclosures are usually relatively low (banks have direct access to information). When governments are the principal source of finance, accounting is aimed at the information needs of government agencies such as tax collection, assembling macroeconomic statistics, or compliance with macroeconomic goals.
b) Legal system. Accounting in code law countries tends to be highly prescriptive, detailed, and procedural, designed to cover every possible circumstance. Accounting standards are a part of national laws. Accounting in common law countries is more adaptive and innovative and tends to allow more judgment to suit the circumstance. Accounting standards are set in the private sector.
c) Taxation. This tends to parallel the legal system. In common law countries (where accounting standards are set by the accounting profession), accounting and taxation are separate. In code law countries (where accounting standards are national laws), accounting and taxation are essentially the same.
d) Political and economic ties. Accounting technology and expertise is imported and exported based on the contacts that nations have with each other through commerce, conquest, etc.
e) Inflation. Historical cost accounting is the basis for initially recording transactions around the world. Inflation puts stress on the historical cost principle. Where inflation is high, accounting adjusts recorded amounts to reflect price level changes.
f) Level of economic development. This factor defines the difficulty and types of the accounting issues
Development and Classification
Discussion Questions
1.
a) Sources of finance. Where capital markets/shareholders are the principal source of finance, accounting focuses on profitability, stewardship, and a fair presentation of results and financial position. There are high levels of disclosure in published financial statements. When banks are the principal source of finance, accounting tends to be conservative and disclosures are usually relatively low (banks have direct access to information). When governments are the principal source of finance, accounting is aimed at the information needs of government agencies such as tax collection, assembling macroeconomic statistics, or compliance with macroeconomic goals.
b) Legal system. Accounting in code law countries tends to be highly prescriptive, detailed, and procedural, designed to cover every possible circumstance. Accounting standards are a part of national laws. Accounting in common law countries is more adaptive and innovative and tends to allow more judgment to suit the circumstance. Accounting standards are set in the private sector.
c) Taxation. This tends to parallel the legal system. In common law countries (where accounting standards are set by the accounting profession), accounting and taxation are separate. In code law countries (where accounting standards are national laws), accounting and taxation are essentially the same.
d) Political and economic ties. Accounting technology and expertise is imported and exported based on the contacts that nations have with each other through commerce, conquest, etc.
e) Inflation. Historical cost accounting is the basis for initially recording transactions around the world. Inflation puts stress on the historical cost principle. Where inflation is high, accounting adjusts recorded amounts to reflect price level changes.
f) Level of economic development. This factor defines the difficulty and types of the accounting issues