GLOBAL ACCOUNTING PRINCIPLES 4
Whilethere are varied factors that explain the international variations infinancial reporting, it is evident that the source of capital is themost fundamental one. There are varied sources of external capitalfor any company or entity including government, banks andshareholders. Further, there are variations regarding which of theseoffers the highest financial capital to business entities fromcountry to country (Needleset al, 2011).The needs of capital providers will be different not only acrosscountries but also within them. Of particular note is the fact thatthe variations of capital providers implies that the AccountingPractices have to be different so as to meet the capital providers’needs.
Thisfactor is, with no doubt, an impediment to the harmonization ofinternational accounting standards especially considering that itaffects the manner in which information is shared. Needless to say,sharing of information comes as extremely fundamental to theharmonization of these practices. Unfortunately, the source ofcapital determines the disclosure requirements of a company (Needleset al, 2011).For instance, companies that have shareholder ownership have a higherregard for information disclosure than those that derive capital fromgovernments and banks. Indeed, financial statements in such companieswould be geared towards offering individual investors the informationnecessary to make decisions pertaining to selling or purchasing bondsand stocks. The other group would strive to protect the investmentsof the banks, which means that conservative techniques of accountingwould be used where assets are undervalued and liabilities overvalued(Needleset al, 2011).
Themost fundamental way of dealing with this issue would entail thecreation of legal framework and policies that would guide overallaccounting practices. These policies would form the basis ofrequirements for all companies across the globe, thereby resulting inharmonization of accounting practices. This may be complemented withbuilding of awareness regarding the importance of harmonization, soas to gain support for the practice.
Needles,B. E., Powers, M., & Crosson, S. V. (2011). Principlesof accounting.Mason, Ohio: Cengage Learning.