International accounting practices are influenced by eight main factors:
1. Sources of funding - Equity markets focus on profitability for investors while credit-based systems focus on conservative measurements to protect creditors.
2. Legal systems - Code law countries have more complete accounting rules in national law, while common law develops case by case.
3. Taxation - Tax rules often set accounting standards because companies record revenue and expenses for tax purposes.
4. Politics and economics - These societal forces shape accounting.
5. Inflation - Distorts historical costs and impacts rules around revaluing assets.
6. Economic development - Determines important business transactions and priorities.
7. Education levels - Complex standards require competent
1. 7. DISCUSS IN DETAIL DIFFERENT FACTOR THAT INFLUENCE INTERNATIONAL ACCOUNTING
PRACTICES.
In addition there are 8 (eight) factors that influence the development of international accounting,
namely:
1. Sources of funding
In countries with strong equity markets, accounting has focused on how well management runs the
company (profitability), and is designed to help investors analyze the future cash flows and related
risks. Instead, the credit-based system in which the bank is the main source of funding, accounting
has focused on the protection of creditors through conservative accounting measurements.
2. Legal System
The western world has two basic orientations: the legal code (civil) and common law (case). In code
law countries, law is a complete group that includes the provision of accounting rules and procedures
that are incorporated in national law and tend to be very complete. In contrast, common law
developed on a case by case basis without any attempt to cover all cases in which a complete code.
3. Taxation
In most countries, tax rules effectively set the standard because the company should record revenue
and expenses in their accounts to claim it for tax purposes. While a separate tax and financial
accounting, tax rules sometimes require the application of certain accounting principles.
4. Politics and Economics Association
5. Inflation
Inflation causes the distortion of historical cost accounting and affect the propensity (tendency) of a
State to apply the changes to the accounts of the company.
6. Levels of Economic Development
These factors influence the types of business transactions are conducted in an economy and
determine what is most important
7. Level of Education
Standard accounting practices are highly complex would be useless if misunderstood and
misused. Disclosures about the risks of derivative securities will not be informative unless it is read
by the competent authorities
8. Culture
Four dimensions of national culture, according to Hofstede: individualism, power distance,
uncertainty avoidance, masculinity.
The dimensions in the Accounting Practices Affecting Accounting:
1. Professionalism versus control mandatory preference to the implementation of individual
professional balance and regulation of their own professional circles as compared to the compliance
with legal provisions that have been determined.
2. Uniformity versus flexibility preference for uniformity and consistency than the flexibility to react
to specific circumstances.
3. Conservatism versus optimism.
4. Confidentiality versus transparency preference for confidentiality and restrictions on business in
accordance with the basic information need to know than the willingness to disclose information to
the public.