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The Financial Statement With the Continental Model Emphasizing Creditors Protection - Research Paper Example

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The paper describes accounting practices that are shaped by economic, political, cultural and legal factors. It is necessary to understand these differences to have a wider understanding of accounting practices as well as to be better prepared to operate in a globalized market…
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The Financial Statement With the Continental Model Emphasizing Creditors Protection
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Download file to see previous pages One practical difference that comes immediately to mind as a result of the above factors, is the different method of depreciation followed in the United Kingdom and Germany, which are at the opposite ends of the spectrum. Whereas in the United Kingdom depreciation is determined according to custom with, “convention and pragmatism, rather than exact rules…[determining] the method of depreciation, estimates of the scrap value and the expected length of life” (Ferrari L 2005). In Germany on the other hand, tax regulations lay down all these aspects in detail, leaving no room for subjectivity or manipulation. Needless to say, the financial statements of the same company prepared using different accounting practices would have different degrees of transparency. The more transparent the financial statement, the higher the quality and the more its value to investors and shareholders. Another difference lies in the realm of public disclosure. On the Continent, shareholdings are likely to be concentrated in the hands of a few institutional investors like banks and contacts between the company and the bank are likely to be kept confidential. Whereas, when there are more diverse shareholders, public disclosure is more common, allowing a greater number of people to asses the financial viability of a company and its future prospects and potential for growth. These differences in accounting practices, however, are a handicap in the increasingly globalized marketplace. Differences between accounting systems make it difficult to compare the relative worth of a company from an investor’s point of view, especially when the investor could well be from yet another country. ...Download file to see next pagesRead More
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