Question

Journal Question

Why do the accounting systems of different countries differ. Why do these differences matter?

Note

displays a thorough understanding of the underlying concepts with references to required readings.

Journal entry integrates any relevant outside resource, or research, to support important points.

Correct citations are included.

Answer 1

Accounting systems of different countries differ due to differences in accounting practices, principles and reports. As per Mockler accounting diversity across national borders probably is the result of numerous factors including differences in accounting measurement and disclosure rules Generally Accepted Accounting Principles (GAAP differences), differences in management behavior, and the degree of alignment between financial and tax accounting.

For example, there are differences in the principles of inventory valuation, depreciation, taxation, and disclosures etc. which lead to differences in accounting systems. Another reason of difference can be difference in management attitude in different countries. According to Mockler for example, prior studies show that the information asymmetry problem is more severe in the U.S. than in Japan due to the close ties between Japanese market participants and the companies in which they invest. As a result, Japanese market participants are less responsive to short-term changes in profitability than U.S. market participants which suggests that Japanese managers are less inclined than U.S. managers to manipulate short-term earnings at the expense of long-term profits. These differences matter as they create differences in financial statements which make them difficult to compare. There can be problem of reconciliation.