Common accounting orientation and practices one

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common accounting orientation and practices. One classification scheme identified three major accounting models: 1. The Fair Presentation/Full Disclosure Model (also known as the Anglo-Saxon or Anglo-American model) described the approach used in the United Kingdom and the United States, where accounting is oriented toward the decision needs of large numbers of investors and creditors. This model was used in most English-speaking countries and other countries heavily influenced by the United Kingdom or the United States. Most of these countries follow a common law legal system. 2. The Legal Compliance Model originated in the code law countries of Continental Europe and is sometimes referred to as the Continental European model. It was used by most of Europe, Japan, and other code law countries. Companies in this group usually were tied closely to banks that served as the primary suppliers of
financing. Because these are code law countries, accounting was legalistic and designed to provide information for taxation or government-planning purposes. 3. The Inflation-Adjusted Model was found primarily in South America. It resembled the Continental European model in its legalistic, tax, and government-planning orientation. It distinguished itself, however, through the extensive use of adjustments for inflation. International Pressure for Accounting Change Why are national accounting distinctions are becoming blurred? Major forces for accounting change are at work in the global environment, including: a growing international economic/political interdependence new trends in foreign direct investment the impact of new technology the rapid growth of international financial markets the expansion in business services and changes in multinational corporate strategy the activities of international regulatory organizations National cultures, traditions, and practices will be increasingly challenged in the years ahead as the pressures for global convergence increasingly impact accounting practices. Ch(4)
International Convergence of Financial Reporting Because of the problems associated with worldwide accounting diversity, attempts to reduce the accounting differences across countries began in earnest in the 1960s. For many, the ultimate goal is to have all countries converge on a single set of international accounting standards that are followed by all companies around the world. Harmonization versus Convergence The ultimate goal of both harmonization and convergence is to achieve international comparability in financial reporting, and both are processes that take place over time. Harmonization Harmonization refers to the reduction of alternatives while retaining a high degree of flexibility in accounting practices. Harmonization allows different countries to have different standards as long as the standards do not conflict.

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