Question

A variety of economic and institutional factors are thought to have influenced the development of a country’s accounting system and cause differences in those systems across countries. As differences in accounting across countries can create several problems, standard setters around the world have been attempting to converge accounting standards since about two decades ago by using a single set of accounting standards worldwide for the benefits of multinational corporations.Provide TWO (2) comments on what problems can arise from differences in accounting across countries

Describe THREE (3) benefits of a single set of accounting standards for multinational companies

Answer 1

problems that can arise due to difference in accounting across countries are - :

1. Worldwide accounting diversity causes additional complexity for MNCs in the preparation of consolidated financial statements on the basis of parent company GAAP.

2.It will also lead to lack of comparability of financial statements when making foreign acquisition decisions.

benefits of single set of accounting standards are as follows -:

(1) an increased comparability between firms, which reduces investor risk and facilitates cross-border financing and investment;

(2) a reduction in the cost of preparing consolidated financial statements for multinational firms; and

(3) the improved reliability and credibility of financial reports.