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Tax assessment Performance evaluation of the firm ontrol internal expenditure Planning for future expenditure and
$anks%
&oan capital
'overnment
Make loans or investment
"elationship between business and providers of capital # Individual investors E%g in () and (*
individual investors and ma+or source of capital stock and bond market purchase small proportion of stocks and bonds No desire to be involved in day to day management of firms &ack the ability to get information on demand from management ,inancial accounting system provide information re-uired by small investors to
Inflation accounting
1istoric cost principle:
Assumes currency is not losing value to inflation Most significant impact in the area of asset valuation urrent cost accounting: ,actors out inflation (sed in 'reat $ritain until inflation rate declined
&evel of development
!eveloped countries have more sophisticated accounting procedures
Accounting problems are more complex )ophisticated capital markets &enders re-uire comprehensive reports Educated workforce can perform complex accounting functions
ulture
1ofstede2s uncertainty avoidance has an impact on accounting systems
&ow uncertainty avoidance 3 these countries tend to have strong independent auditing professions that ensure a firm2s compliance with rules
Accounting clusters
,ew countries have identical accounting systems% )imilarities exist in clusters
Accounting clusters
Europe-Japan Group 1ave close ties to banks% Accounting practices meet bank2s needs%
&ack of comparability
4ne result of national differences in auditing and accounting standards is lack of comparability of financial reports
!utch 5 current values for replacement assets 5 0apan 5 prescribes historic cost 'ermany 5 depreciation is liability/ $ritain 5 depreciation is deducted from assets
&ack of comparability
6ith growth of global capital markets both transnational financing and transnational investment have grown ,irm has to explain to investors why its financial position looks different in two accountings
International standards
Efforts to harmoni.e accounting standards across countries ,ormation of International Accounting )tandards $oard in March 7889 Members represent :; countries "esponsible for formulating international accounting standards <IA)= 1as issued over >8 IA)
!ifficult to get re-uisite votes ?oluntary compliance
"ecognition is growing