Classification Part 2

Classification

Post globalization, once the countries opened up the boundaries for cross-border business, the counting of accounting aspect for business houses has become a very challenging job. (Nobes, 1998) As it is understood, the accounting is a language of business, and this language of business differ from country to country because of various reasons while going for financial reporting for the companies, it is high time to pay attention for accounting presentations made by the companies. The accounting reporting of business from one country to the other country differs in many aspects. Various reasons are contributing towards the difference in accounting reporting as per the author Christopher Nobes. The main reasons are highlighted below:

(i) Nature of business ownership and financing system.

(ii) Stage of economic development.

Across the globe, the nature of business ownership differs from one country to the other country and accordingly the financing system also differs. Hence as a consequence to this, while preparing the financial statement, the financial reporting gets modulated accordingly. In times, in individual countries, every entity mentions the ownership of business as a top priority. It also happens that, the financier who funds for the growth of the firm, does need the financial reporting as per its requirement for better understanding and transparency. So it is imperative that the company is reported as per the requisite format for the financier like banks or financial institutions. There are certain aspects of the financial statement reporting which are needed by the financing system, and those particular issues need to be highlighted while making the financial reporting for the entity. So every business entity is forced to prepare the financial statement to co-operate the financing system, which eventually differs from country to country. It also happens that, the financial statement is made in such a way that, there is all requisite information for the investor who wanted to invest in the company and wanted to understand everything about the enterprise.

The accounting system has undergone massive change, and it may be observed that the financial reporting standards are differing from country to country. It may be quoted that, the accounting presentation in the developed countries like Unites States Of America, United Kingdom, Australia, Switzerland, etc. follows such a procedure, which gives a detail of accounting information and it all get reflected in the financial reporting. There are many factors which contribute towards better accounting presentation in the developed economy. The accounting norms have become very stringent over the years due to the fraudulent activities in the economy and a consequence to this, the regulators in the respective counties try to change the financial reporting set up from time to time. For example over the years, we find many kind frauds pertained to the financial reporting in the history of the USA financial system and the regulators try to plug in requisite changes in the financial reporting to protect the interest of the investors. So in this line of thought, we may say the GAAP concept in the respective countries will have a difference in aspects when we start comparing them. However, it is the fact that the GAAP pertained to the developed economy carries more stringent accounting guidelines for reporting, as compared to the weak economy.

Almost all the countries have stepped into the businesses which are more of cross-border in nature in the recent times and financial reporting along with accounting considerations in this regard should be, such a way that, it is understood and presented uniformly for (Nobes Classification of the Accounting System, 2015) the entire business. So the financial reporting should be modulated in such a way that, it becomes easy for reading for everyone irrespective of country. As it is observed that, cross-border investments are viewing the business opportunities across the globe and an investor from a developed economy would prefer to invest in a developing economy for better returns, as an event of this, there has to be simple accounting presentation by the companies. Going forward in the ten years, the field of accounting would be in a consolidated format. As the business dynamism is increasing day by day, every country would be advised to go for financial reporting as per the IFRS guidelines, which will help on a large scale. So invariably there won’t any accounting classification in this regard and will be only one accounting classification. The factors contributing to one kind of accounting classification going forward are that, it brings better accounting presentations, alluring cross-border investments, protecting the interest of investors, helping the regulators, etc. (Nobes Classification of the Accounting System, 2015)

References

Nobes Classification of the Accounting System. (2015, January 24). Retrieved July 12, 2016, from Paper Camp: http://www.papercamp.com/essay/145065/Nobes-Classification-Of-The-Accounting-System

Nobes, C. (1998, September). Towards a General Model of the Reasons for International Differences in Financial Reporting. 34(2), 162-187 26p. Retrieved July 12, 2016, from EBSCO MegaFILE database. (1243600)