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Business in Today's Economy - International Accounting Differences

Autor:   •  November 25, 2011  •  Essay  •  1,247 Words (5 Pages)  •  1,666 Views

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INTERNATIONAL ACCOUNTING DIFFERENCES

International accounting differences pose a number of problems from a financial analysis perspective:

1. In attempting to value a foreign corporation, there is a tendency to look at earnings and other

financial data from a home country perspective - leads to the potential of overlooking the

effects of accounting differences.

2. An awareness of international differences suggests the need to become familiar with foreign

accounting principles in order to better understand earnings data in the context in which such

measures are derived.

3. Issues of international comparability and accounting harmonization become highlighted in the

context of considering alternative investment opportunities.

Module 1 – International Financial Statement Analysis Page 2

MAJOR DIFFERENCES IN ACCOUNTING PRINCIPLES AROUND THE WORLD

1. Conservative application of historical cost generally required in Germanic, Latin, and Asian

countries

2. More flexible approach to valuation in the UK and the Netherlands

3. Depreciation in the Anglo-Saxon and Nordic countries is based on useful economic life

compared to tax rule factors in Germanic, Latin, and Asian countries

4. Inventory measurement is generally based on the principle of "lower of cost or market" but with

some variation as to the meaning of market

5. Construction contracts are generally accounted for by using the percentage of completion

method in Anglo-Saxon and Germanic countries

6. Research and development costs are usually expensed immediately in the Anglo-American and

Germanic countries

7. Retirement benefits usually based on accrued or projected benefits with pay-as-you-go common

in Latin and Asian countries

8. Strong tax influence on accounting in Germanic, Latin and Asian countries

9. Treatment of business combinations varies but more flexible approach to goodwill in Anglo-

Saxon, Nordic and Germanic countries

10. Intangibles – generally a flexible

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