Classification of Accounting Systems
Critically evaluate to what extent past research into classification of accounting systems has become irrelevant because of international harmonization efforts.
Let us remind that IASC was replaced in 2001 by IASB (International Accounting Standards Board). We are going to start this paper with the different classification researches, taking for example Hofstede and Gray’s studies. Then we will draw the main differences between GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). We will also speak about the Americanocentrism problem. To finally dealing with the differences and harmonization. *Two Main Example*s* of Past Studies*: *Hofstede’s* societal dimensions and Gray’s accounting values Different Classification Researches
The first one is the deductive or judgmental method. Environmental factors are identified and they are linked to national accounting practices. Then, international groupings and development patterns are proposed. The second one is the inductive or empirical approach where individual practices are analyzed; the grouping or development patterns are identified, and where the explanations are based on economic, social, political and cultural factors proposed. In the deductive approach, Mueller developed four approaches to accounting development. Macroeconomic pattern: where business accounting is tied to national economic policies (Sweden, France, Germany) Microeconomic pattern: where accounting is a branch of business economics (Holand) Independent discipline pattern: where accounting is a service function derived from business practices (US, UK) and where accounting is considered to be capable of developing its own conceptual framework from business practice. Uniform Accounting pattern: where accounting is an efficient mean of control and administration. It takes into account that culture and historical roots are very important. Hofstede define four societal dimensions: individualism versus collectivism, large versus small power distance, uncertainty avoidance: degree to which a firm is ok with ambiguity, masculinity: preference for achievement, assertiveness, material success. Now let us focus on Gray who has developed the following pairs of contrasting accounting values: Professionalism VS Statutory Control: there is a preference for individual judgment, self regulation. Uniformity VS flexibility: there is a preference for enforcement of uniform practices. Conservatism VS Optimism: there is a preference for cautious approach. Secrecy VS Transparency: there is a preference for confidentiality. There are a lot of international pressures like the growing international interdependencies and the harmonization of the regulatory framework. But also the new opportunities, joint ventures and alliances. *GAAP/*IFRS
Let us start by an analysis of the GAAP (Generally Accepted Accounting Principles). Financial accounting relies on certain standards of the GAAP. Principles of GAAP derive from tradition. There are seven main principles: regularity or consistency, sincerity, permanence of methods, non compensation, prudence, continuity, and periodicity. In any report of financial statements (audit, compilation, or review), the auditor must indicate to the reader whether or not the information contained within the statements complies with GAAP. The convergence of accounting standards, that the majority of the industrialized countries support is advantageous for the companies in the Stock Exchange: they should not have to produce several financial statements and thus save important sums of money. The financial risk is reduced. The investors, for their part, can better compare and examine the financial data of companies wherever they are established. Their decision making is thus improved. This international harmonization is a process...
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