Business in Today's Economy - International Accounting Differences
Autor: antoni • November 25, 2011 • Essay • 1,247 Words (5 Pages) • 1,666 Views
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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