VOLUME NO. 7 (2016), ISSUE N O.

07 (J ULY) ISSN 0976-2183

FACTORS AFFECTING THE DEVELOPMENT OF INTERNATIONAL ACCOUNTING

SIDHARTHA SHARMA
ASST. PROFESSOR
DEPARTMENT OF CBM
D.A.V UNIVERSITY
JALANDHAR

ABSTRACT
In todays scenario accounting is not only a systematic process of recording and reporting of financial information, if we think so then it will be a wrong notion.
With the drastic reforms in international markets, emergence of large number of MNCs, expansion of Accounting bodies and various other environmental factors.
Most accountants and financial executives at international level are realizing the diversity and complexities in accounting policies, practices and procedures. This
paper broadly examines the important factors which has a huge impact on the development of international accounting.

KEYWORDS
accounting, diversity, environmental factors.

INTRODUCTION

A nations accounting policies, practices and procedures is affected by a variety of economic, socio cultural, political, legal and many other environmental
factors, so it is highly unlikely for the influential factors of any two countries to be exactly the same. Nations accounting principles and practices are the
product of complex interaction of above environmental factors. It is unlikely that mix is identical in any two countries or more and therefore diversity is to
be expected at global level. In other words, Accounting is influenced by various environmental variables, but at the same time, it is one of the factors affecting on
this same environment. This is a fact that points to the interdependency of accounting and its environment.

REVIEW OF LITERATURE
FREDERICK D. S CHOI (1991) concluded that investors and participants in the international capital market perceive accounting diversity as a major problem that
affects the capital market decisions.The paper concluded the two main factors Firstly; differences in the accounting practices may affect the security valuation and
the composition of international portfolios. Secondly, this paper described as effective ways of tiding over accounting diversity and its impact on international cap-
ital markets.
PETER JOOD & MARK LANG (1994) investigated the diversity in the accounting practices of France, Germany and United Kingdom. This paper concluded the
various factors. Firstly, the paper has explored the significant differences between ratio analysis and financial market valuation. Secondly, it also provides prelim-
inary evidence on the effects of the (EU) European Union directives on accounting measurement differences.
SUSANA & JOSE A LAINEZ (2000) explored out that existence of diversity in accounting principles and accounting system has significant consequences for the
interpretation of financial reporting in global arena and, therefore, for the decisions which may be taken on the basis of the interpretation drawn from an analysis
of such accounting information. The paper concluded the two main factors. Firstly, accounting diversity can be considered as a prime obstacle for the international
comparability of financial reporting. Secondly, the paper has found the important differences in the situation of companies i.e. liquidity, solvency and profitability
etc under different accounting principles
HASSAN R. HASSABELNABY, RUTH W. EPPS AND AMAL A. SAID (2003) found that the impact of environmental variables on the development of accounting. Four
environmental variables are used to explain the variation observed over time in accounting diversity and development. These factors were the economic environ-
ment, the political environment, the development of the stock market, and privatization of state owned corporations. The paper concluded the two main factors.
Firstly, the impact of the environmental variables on accounting development changes over time reflecting the different stages of democracy and economic reform.
Secondly, it provides international investors and researchers with an in depth understanding of the dominating environmental variables that affect accounting in
global arena.
LOANA MARIA DRAGU (2010) found that the global accounting conceptual framework and standards still continue to represent a mission for international ac-
counting bodies like (IASB) international accounting standard board and (FASB) financial accounting standard board, being far from the stage of practical imple-
mentation. Both accounting bodies are witnessing the diversity and complexities in reation to accounting system in global arena. Thus, harmonizing both national
and international accounting regulations is necessary so that it would be in accordance with companies interest.
ADELA DEACONU & ANUTA BUIGA (2011) witnessed the diversity between accounting systems of Continental-European type and Anglo-Saxon type respectively.
The paper concluded the two main factors. Firstly, the paper examines the relevance of the criterion in the historic context. Secondly, it studies the whole frame-
work comprising economical, social, legal and political variables and their impact on accounting diversity.
JOEL BRANSON & MUIZ JAMIL (2011) observed that the main factors for diversity in accounting practices, policies and procedures and to better understand how
accounting differences have a huge impact on accounting harmonization. The paper concluded the two main factors. Firstly, it strengthens the awareness of the
existence of the causes for accounting diversity. It is important to understand the current complexities and difficulties of the drive towards international accounting
harmonization. Secondly, the in-depth analysis of the environmental variables that are considered most influential in causing accounting diversity.

OBJECTIVE OF THE STUDY

The present paper is concerned with fulfilling the objective of studying various factors that affects the development and growth of international accounting.

RESEARCH METHODOLOGY
This paper is totally based upon empirical studies and data. The data used in the study is primary as well as secondary. Primary data has been collected on the
basis of personal interactions with experts, academicians and the learned persons. On the contrary, secondary data is collected by reviewing various authentic
research papers from online databases of peer reviewed, journals, official websites, books, professional magazines and newspapers.

DISCUSSIONS
Research literature reveals the following factors that impact accounting diversity at national level as well as which are likely to shape accounting diversity in global
arena.
IMPACT OF ECONOMIC FACTOR
The level of economic development of the country is likely to influence the type of business entities or groups exist in a country. Developed countries like US and
UK are more featured by large and complex organizations in comparison to developing countries like India, Pakistan and Sri Lanka. Financial recording and reporting
practices will be more sound and complex in developed countries due to the presence of hefty number of multinational corporations.

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IMPACT OF POLITICAL FACTOR
The political environment and system prevailing in a particular country will have a greater impact on the accounting principles and practices. The way a country is
politically governed can have considerable influence on accounting system. The relevance of political system can also see in many countries that are effectively
run by dictators. Countries like France and Netherlands still follow accounting system given by their colonial rulers. Likewise, countries like India, NZ, Australia and
Hong Kong has adopted the accounting system of Britishers.
IMPACT OF SOCIO CULTURAL FACTOR
A major source of influence on accounting practices and procedures is socio-culture factor. Factors like secrecy v/s transparency, optimism v/s pessimism and
uniformity v/s flexibility etc have a huge impact on the measurement of financial items as well as financial disclosure practices. Developed countries like US and
UK are more transparent, optimistic and flexible than Japan, Germany, India and China etc when it comes to disclosure of financial records.
IMPACT OF LEGAL FACTOR
Legal environment is one of the most dominating factor for diversity in accounting practices in global arena. Different countries have their own legal structure and
systems. Some countries are nationalistic and other are rationalistic. In other words, some countries possess strict legal system and other countries possess
adaptive legal system. Countries like France and Germany follows code law which is more legalistic, detailed, prescriptive, procedural and nationalistic. On the
contrary, countries like US, UK and NZ and Australia follows common law which is more flexible, adaptive and innovative in comparison to code law.
IMPACT OF INTERNATIONAL MARKETS
The elements of capital market have an impact on accounting practices and procedures. Difference in financial system, emergence of new and innovative financial
securities and impact of GAAR etc factors leads to diversity in accounting practices and procedures. In debt oriented countries like Germany, Japan and Switzerland,
financial reporting tends to be more Spartan against equity oriented countries like US, UK and Canada. The level of globalization of capital market or listing of
securities at international level impacts financial recording and reporting practices to huge extent.
IMPACT OF MNCs
Developed countries tend to have capitalistic economy as well as possess large and complex organizations, where accounting problems are far more complex and
detrimental than those of small organizations in developing and underdeveloped countries. In countries like US and UK, organizations are relatively large, complex
and owned by large number of employees against developing countries like India, Pakistan and Sri Lanka. The extent of accounting principles and practices is likely
to be maximum and complex in developed countries.
IMPACT OF INFLATION
An economys level of inflation can also be perceived as a influencing factor in the context of diversity in accounting practices, policies and procedures, because it
has a direct impact on the asset valuation method and because, in conditions of high inflation, it is essential to have an accounting system in line with the infla-
tionary conditions of a particular country. Countries like US and UK are familiar with historical cost model when it comes to their accounting practices. On the
contrary, countries like Bolivia and Mexico do not have luxury of persisting with the practice of historical cost model. They use inflation adjusted models of financial
reporting to provide more decision relevant information in context to their economies.
IMPACT OF AUTONOMOUS BODIES
Number of accounting professional bodies has a direct link with the quality of accounting practices, policies and procedures that prevails in a particular country.
The designing and standard of accounting system in a country is primarily depends upon the quality of professional bodies. Independent accounting professional
bodies like (AASB) Australian accounting standard board, (AARF) Australian accounting research foundation, (ICAA) Institute of chartered accountants in Australia
etc has a huge impact on Australian accounting principles and practices. At global level, (IASB) international accounting standard board and (FASB) financial ac-
counting standard board are providing conceptual framework to satisfy the needs and nature of diverse groups of accounting users at global level which facilitate
the harmonization and universality of information at global level.
IMPACT OF CONCEPTUAL FRAMEWORK
Conceptual framework provides a logical and consistent guide to accounting standards that prevails in a particular country. While a conceptual framework does
not have a compulsory status in every country, still it provides a reference point for developing and adopting accounting standards. Countries like US, UK, Canada
and Australia etc have invented their own version of conceptual framework in accordance with their own environmental variables. On the contrary, developing
countries like India, Pakistan, Sri Lanka have a habit to follow conceptual framework of other countries.
IMPACT OF LEVEL OF EXECUTION
There is a vast difference between the accounting rules, regulations and provisions and actual accounting policies, practices and procedures that prevails in a
particular country. The difference between accounting regulations and principles often depends upon the level of enforcement. The level of enforcement is very
poor in developing countries like India and China due to factors like scarcity of resources and lack of professionalism.
IMPACT OF REPORTING PRACTICES
Type of report regime can also have a huge impact on the system of accounting as well as the financial reporting that prevails in a particular country. Countries
like Austria and Germany who follow single set of rules i.e. same rules for financial as well as tax reporting looks rich in their report regime to potential investors
but poor to tax authorities against countries like US, UK and India who use to follow double set of rules while reporting.
IMPACT OF e-BUSINESS
The concept of e-business which has emerged in developed countries like US, UK and Japan has now entered in developing as well as under developed countries
at a very rapid rate. Companies are catching global customers but at many levels e-business has posed number of international problems. At global level, various
accountants and financial executives are inventing new methods and techniques in order to tide over such problems
IMPACT OF CROSS BORDER TERRORISM
Cross border terrorism is not a new phenomenon particularly for Asian countries. However terrorist attack on 11 September, 2001 in US has made cross border
terrorism an international issue. Developed country like US in particular is not only providing financial assistance to developing and under developed countries to
fight against terrorism but also business and their own accounting system to carry out transactions in an efficient manner.
IMPACT OF RESEARCH AND INNOVATION
Various accounting approaches and concepts have been emerged due to the recognition of business enterprise with complex interaction of various environmental
variables like economic, social, political, legal and technological etc. The concepts like social accounting, human resource accounting, strategic accounting, inflation
accounting, international transfer pricing, consolidation and foreign currency translation etc are the precious gift of environment.

SUGGESTIONS
It is next to impossible to bring perfection in accounting system and practices all over the world due to different environmental factors prevailing in different
countries but accounting differences at global level can be reduced by establishing effective accounting standards, formats, methods and procedures which are
acceptable at global level. It is the duty of international accounting bodies and institutions to come together and establish such a global accounting conceptual
framework which reduces the element of subjectivity and facilitate harmonization and universality of accounting at global level but still the universal accepted
accounting conceptual framework continue to represent a mission for international accounting bodies and institutions.

CONCLUSION
Accounting principles and practices are the product of environment. Different countries are indifferent to international dimensions of accounting and financial
reporting due to complex interaction of environmental variables. The cumulative impact of the changed character of international capital market, predominance
of MNCs, new accounting bodies, emergence of e-business, economic, legal, political, social and various other environmental variables has created the element

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of subjectivity and harmonization looks next to impossible. On the other side, accounting diversity in global arena has also enhanced the nature and scope of
accounting at global level. Today financial experts are witnessing sound conceptual framework given by different accounting bodies as well as innovative concepts
and methods to tide over the complexities related with the accounting diversity at global level.

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