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CHAPTER 9 UNDERSTANDING THE ISSUES 1. There are a variety of environmental factors that may account for the differences in accounting principles among countries. A major factor relates to the influence that other countries may have had on a particular country. For example, countries that were ruled or colonized by England are more like to have accounting principles similar to England. Another im- portant factor is the standard-setting process and whether the accounting principles have been de- veloped more in the private versus public (govern- ment) sector. In some countries, government rules and regulations heavily influence accounting prin- ciples. Other factors resulting in differences in ac- counting principles include: types of business activit- ies and economic conditions, forms of capital mar- kets, typical forms of doing business, social and cul- tural values, and the cooperative efforts between na- tions with respect to trade and capital markets. 2. The primary goal of harmonization is to estab- lish a flexible approach to improving comparability with respect to how common transactions are ac- counted for in various nations. Comparability would be enhanced if the principles used to prepare finan- cial statements were the same or in harmony. One approach to the harmonization of accounting stand- ards is to let accounting naturally evolve as interna- tional business develops. As more business is con- ducted between nations, the parties needing com- parable financial information will serve as a force be- hind the harmonization of accounting standards. For example, the North American Free Trade Agreement (NAFTA) has resulted in the United States, Canada, and Mexico undertaking efforts to assess the similar- ities and differences in accounting standards of these nations. Another approach involves the use of bilateral agreements between countries. The ac- counting directives of the European Union (EU) rep- resent a major example of bilateral agreements. An alternative approach is to not wait for the evolution- ary forces but rather to promulgate and proscribe specific standards through a due process system. The IASC has taken a leading role in developing such standards and has issued a number of Interna- tional Accounting Standards (IAS). 3. The IASC has two major objectives. The first is to formulate and publish standards on financial ac- counting and reporting and to promote their accept- ance worldwide. The second objective is to work for the harmonization of accounting standards and pro- cedures relating to the presentation of financial statements. 4. There are a variety of recognized methods that may be used to account for inventory. However, not all countries use the same methods. For example, in the United States, LIFO is a very frequently used method; yet in the United Kingdom, LIFO is seldom used. Many countries adhere to historical cost when valuing ending inventory; yet in Mexico, inventory is valued at current value. Obviously, these differences
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This note was uploaded on 04/07/2008 for the course ACCT. 3533 taught by Professor Jahanian during the Spring '08 term at Temple.

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