There are many reasons for international differences in financial reporting.
US. CFOs need to know what they are in order to understand global competitors, acquisition targets, and even non-US.
accounting personnel.
T I his article discusses some of the underlying reasons for international differences in financial reporting. An appreciation of reasons for international differences can provide U S . CFOs with a more robust understanding ofthe financial statements issued by their global competitors, as well as those issued by potential acquisition or investment targets. Moreover, since international differences often relate to the culture and training of non-US. employees, insight can be gained into differential reactions by these employees to corporate policies, communications, and management methods. Thus, understanding reasons for these differences can aid management decisions regarding policies and management methods.
The article first discusses four major factors that have significant influence in international reporting differences. These are (1) legal systems, (2) the sources or providers offinancing, (3) the relationship of financial reporting to tax reporting, and (4) the influence of the domestic accounting profession. It also discusses other factors that have had some influence, though less pervasive, on financial reporting. These other factors are the level of inflation, microeconomic theory, business development, and historical accidents. (Exhibit llists both the major factors and other factors influencing financial reporting.) Finally, the article provides summaries of reporting differences revealed by a sample offirms that reconcile their domestic net income and shareholders' equity to U S . generally accepted accounting principles (GAAP) as required ofnon-US. registrants by the Securities and Exchange Commission (SEC). These summaries provide information to help understand the impact that different accounting standards can have on financial data and their analysis.