A Comparative Analysis of Significant Influences on the Accounting Systems of Diverse European Countries and the U.S.A
Aghimien, Peter, Mitchell, Steve, Overholser, Heather, Journal of International Business Research
The main purpose of accounting is to provide to stakeholders, information useful for economic decision making. Stakeholders may be within a company, society, the government, etc. Since accounting is designed to provide information to stakeholders, their wants and interests naturally are reflected in the accounting systems that serve them. This paper analyzes the economic, legal, political, educational, and religious impact on accounting systems in three European countries (France, Sweden, and the United Kingdom), and compares them to the United States. The European countries have similar themes that link them together and in some ways relate to the United States.
THE ECONOMIC IMPACT ON ACCOUNTING SYSTEMS
According to the Financial Accounting Standards Board exposure draft, Objectives of Financial Reporting and Elements of Financial Statements of Business Enterprises, "accounting objectives stem from users' information needs...... needs, in turn, depend significantly on the nature of the economic activities and decisions with which the users are involved" (Frank, 1979). Economic environments in which accounting operations take place vary by country; therefore, it stands to reason that accounting systems must essentially differ from country to country in order to maintain the smooth operation of markets and preserve confidence in business
Essentially, governments are concerned with the healthy functioning of the economy for which they are responsible. Increasingly, accounting standards are becoming the necessary step to establish controls on markets and corporate behavior. This section analyzes the potential economic impact on accounting systems in France, Sweden and the United Kingdom. In addition, the varying economic conditions of the countries mentioned will be compared to the United States, who is at the forefront of economic development.
The U.S. has the largest and most technologically powerful economy in the world. In this market-oriented economy U.S. business firms enjoy greater flexibility than Western Europe in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering U.S. markets (United States, CIA, 2007). Long-term problems include inadequate investment in economic infrastructure, sizable trade and budget deficits, and stagnation of family income in the lower economic groups.
Accounting standards are influenced by the economic and social environment in which they are established and applied. For example, almost all countries use historical cost and the lower of cost or market; however, accounting principles applied, differ considerably due to undervaluation, varying depreciation methods, selective application of inventory valuation methods, and different rates of economic development (Schoenfeld, 1981). Several characteristics of the U.S. environment are important in that regard. These characteristics also influence the ways in which the United States adapts to and promotes the internationalization of accounting standards.
The United States has a heavy reliance on open capital markets. Whereas European corporations have relied on banks for financing, American companies have tended to rely on their countries well-developed capital markets (Amatori, 1999). In the United States, both debt and equity capital are raised in large measure through marketable securities issued in active auction markets where buyers are both individual and institutional investors. Bank loans and private placements are important, but they are priced and transacted in the shadow of the auction markets. U.S. law prohibits banks from owning significant equity interests in industrial companies. In the United States, there is a clear emphasis among American corporations on shareholder value, as opposed to European corporations, which focuses on the broader interest of all stakeholders. …