Abstract
In this paper we will focus on why accounting and financial reporting systems developed differently in different countries. At the end we will pay attention to research approaches which try to explain, with the help of this national characteristics, the differences in the degree of accounting quality observed between various countries, even after these countries switched to mandatory compliance with IFRS for listed groups The limits mentioned are set by standard setters in different countries or international standard setters such as the IASB, which promulgate the methods of recognition and measurement, consolidation presentation and disclosure that the company must comply with. Some standard setters allow many options with regard to those issues. Other standard setters are strict and prescribe, for example one specific measurement method for a specific asset. Companies located in countries where standard setters allow many choices with regard to recognition and measurement issues have much more accounting flexibility in the presentation and valuation of this assets, liabilities, earnings and financial position. As a result, users of financial statements of companies located in countries with accounting flexibility will face more problems comparing the performance of different companies with one another than users of annual accounts of companies located in countries with very little accounting flexibility. Harmonization increases the comparability of financial information and creates more transparency for the users of financial information. As a result, the information asymmetry between stakeholders and the companies decreases. This will lead to a lower cost of capital for companies [see for example Leuz and Verrecchia, 2000, Botosan and Plumblee, 2002] and the increase in the market liquidity [Lambert et al. 2007, Daske et al. 2008]. Today the comparability of financial information published by listed groups might have improved, but the situation for the large majority of non listed companies [often SMEs] has not improved yet.
Highlights
All over the word stakeholders use the information provides by financial statements in their decision-making process for the purposes enumerated earlier
The use of the information is more ore less the same world wide, the communication of that information can differ according to the types of accounting standards used or other influencing factors [legal system, development of the capital market, enforcement of accounting standards, governance regulation, culture]. 1
The performance and the financial position of another company is only a yardstick for evaluation if comparability is not jeopardized by accounting flexibility, which is to large extent determined by the type of accounting standards, the risk of litigation, culture, the reporting incentives of management
Summary
All over the word stakeholders use the information provides by financial statements in their decision-making process for the purposes enumerated earlier. In each country annual accounts provide information on the financial position of a company and its result. We focus on the most important environmental, institutional and cultural differences that shaped financial reporting in the individual countries: provision of finance, the existing legal system, the link between accounting and taxation, and cultural differences between societies. These elements still influence accounting practices, even after mandatory compliance with IFRS is installed in many jurisdictions.[2]
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