Question

Explain how international differences in the ownership and financing of companies could lead to differences in financial reporting.

Answer 1

There are major international differences in accounting practices whereby different companies in a country may use different accounting systems. This differences between companies mainly influenced by a company’s country, size, sector or number of stock exchange listings. It is very significant that banks are the capital provider for small family-owned business in Germany, France and Italy. However, in the United States and the United Kingdom there are large numbers of companies that rely on millions of private shareholders for finance.

Differences in the ownership structure and the way these companies are financed have been singled out as leading to the differences in financial reporting of these companies. In cases where countries do come up with very drastic changes or the professional accountants also fail to clearly interpret and use these IFRS in a manner that is consistent, then there is the risk of not achieving comparability.

The differences in accounting practices across countries are not obvious when it comes to all accountants. Such differences that have been widely noted have to do with the ownership and financing practices of companies, which have the potential of leading to the differences in financial statements .

One of the differences in the ownership and financing of companies could lead to differences in financial reporting is external environment and culture. Clearly, its environment, including the culture of the country in which it operates, affects accounting. We can se from the argues of Hofstede stated that culture include a set of societal values that drive institutional form and practices.

Another reasons that could lead the differences in financial reporting are Providers of finance. Several countries like Germany, France and Italy, capital provided by banks in very significant.