Major Factors and Economic Issues in China and Brazil - Essay Example

The accounting practices in China focus on both the fair presentation of financial position and a conservative presentation. The reason behind a fair presentation is to meet the various needs and requirements of the stakeholders and the capital market. The conservative approach is targeting the banking sector, which has direct access to financial information (Central Intelligence Agency).

(b): Legal system – the legal system in China is coded. Coded laws seek to, exhaustively, envelop the existing laws and preserve their implication to match that of the time it was coded. For this reason, Chinese accounting practices are high, rigid, prescriptive, detailed, and procedural. This kind of legal system requires that the national law regulate accounting practices. For that reason, China engages in the preparation of two sets of financial statements. That is, the rigid and the adaptive type, to comply with different types of legal systems (Central Intelligence Agency).

(c): Taxation – the system is linked to reflect the legal system. In China, national laws regulate taxation practices. In this case, the accounting and the taxation process are the same (International Federation of Accountants).

(d): Political and economic ties - the basis of accounting practices is influenced by external forces due to international relations. China has strong political and economic ties with Japan, whose legal system is codified. The ties have greatly influenced China’s financial reporting regime (International Federation of Accountants).

(e): Inflation – the changes in the rate of inflation affect the commodity prices in countries. The financial figures should reflect the level of inflation in a country. However, in countries with a low rate of inflation, like China, the reported accounting figures rarely reflect the rate of inflation (Central Intelligence Agency).

(f): Level of economic development – the economic development in China is reported as high due to the increase in the GDP. This means that many complex transactions, both local and international, influence the accounting regime in China. For this reason, China practices accounting standards that conform to both national and IFRS regulations (Central Intelligence Agency).

(g): Educational level – China’s educational level is high. Therefore, the existence of a high level of skills is an accurate platform for implementing a complex accounting regime. This has influenced the accounting regime in China (Central Intelligence Agency).

Major factors in Brazil

(a): Source of finance – the major source of finance in Brazil is the stock market and the Government. This factor has shaped the accounting regime in Brazil in that the accounting practices are both aimed at meeting the existing and potential shareholders and the Government's needs. Consequently, the accounting practices in Brazil are focused on the fair presentation of financial information useful to both the potential shareholders and the government (Encyclopaedia Britannica).

(b): Legal system- the legal system implemented in Brazil is coded law. For this reason, the accounting practices in Brazil are high, prescriptive, detailed, and procedural, to conform to the requirements of the legal system. Therefore, the national law of Brazil requires the preparation of two sets of financial statements for the local and international stakeholders (Encyclopaedia Britannica).

(c): Taxation – the taxation system implemented in Brazil is linked to reflect the legal system. The taxation practices referred to as linked are required by the law to be regulated by the national laws. In this case, the process of taxation in Brazil is different from those suggested by the GAAP regulations. Therefore, the accounting and the taxation process are the same (International Federation of Accountants).  

(d): Political and economic ties - the basis of accounting practices is influenced by external forces due to international relations. Brazil has strong political and economic ties with countries in Europe, including the United Kingdom, and the United States. Both the U.S. and the U.K. have implemented “separate” taxation practices and the common law as the legal system. For that reason, Brazil has adopted the GAAP just for the sake of internal relations (International Federation of Accountants).  

(e): Inflation – the changes in the rate of inflation affect the commodity prices in a country. The financial figures should reflect the level of inflation in a country. However, in countries with a low rate of inflation, the reported accounting figures rarely reflect the rate of inflation. Concerning Brazil, the rate of inflation is high. This will affect the accounting practice through the adjustments of the financial statements to reflect the rate of inflation (Central Intelligence Agency).

(f): Level of economic development – Brazil experiences slow economic development due to low levels of GDP. The lower level of economic development means that the accounting practices implemented in Brazil are simple due to simple transaction processes (Central Intelligence Agency).

(g): Educational level – the educational level is low in Brazil due to insufficient investments in education. As a result, people with low educational levels cannot understand complex concepts. Consequently, the accounting practices in Brazil support simple accounting practices. This has influenced the accounting regime in Brazil (Central Intelligence Agency).