Please enable JavaScript.
Coggle requires JavaScript to display documents.
Why jurisdictions have different rules (Contingent model of accounting…
Why jurisdictions have different rules
Objectives of financial reporting
International Accounting Standards Board (IASB)
provides framework of factors which should be in the forefront of standard-setter's mind
primary purpose of financial statement
provided summarised info on assets, liabilities, equity, income, expenses, equity changes, cash flow
classification and aggregation should be useful to its users i.e. helps to make decisions in providing resources
important to investors understanding
revised inherited rules (from IASC) because they were inconsistent
standard setters
objectives
make decisions which provide a balance between difference objectives (complex choices)
use rules to enhance the economy rather than damage it
ensure information used is of high quality
application of rules to not be too onerous
information which is consistent and comparable
how are these objectives interrupted across different jurisdictions & which ones take priority
overview
based upon the rules maker's perception of what should and should not be included to reflect the health of a company
factors
cultural variables
Contingent model
events
e.g. wars
political decisions
Contingent model of accounting change
rules in a country represent an accumulation of rules brought together over many years
resulting in inconsistencies
pulled together by different people, at different times, with different circumstances and priorities
One influential factor is how standards change
Contingent model
suggests the existence of a cycle in accounting regulations
event which disturbs perception that the following are operating effectively - financial reporting; associated auditing infrastructure; professional regulation e.g. scandal/ WIM
needs to intrusive and on a large scale to convince action
Search for consensus to change rules - via a formal process (if established)
new applied to previous rule
New equilibrium established
Unintended consequence of rule change
stems from
4 more items...
is experienced by all countries but is becomes active by different events in each country
i.e. two countries can start with the same basic rules, but different country specific rules will evolve the foundations creating different rules between the two countries
Means of regulation
cultural variances can have significant impact on methods used by countries to regulate accounting
underlying legal system fundamental factor
two models
Common Law Model
how law applied is largely decided by courts
law states objectives
people attempt to meet these
court decides if they were successful
e.g. practitioners determine technical details (not the state)
characteristics
company law infrequently changes
professional rules constantly changing
changes decided by expert committee of auditors, preparers, users of financial statements
detailed rules can be changed quickly
practitioners familiar with constant changes which need to be updated and applied to their knowledge base
Roman Law Model
law determines procedures to follow in order to meet legislators objectives
practitioner has little to no input, and exercises little judgement in following procedures
characteristics
commercial code
tax statuses
jurisprudence - philosophy of law
statuses change infrequently
professional guidance not mandatory or extensive
changes to law drafted by civil servants in consultation with persons with an interest in accounting
Events
Wars (invasion) can bring different cultural laws to invaded countries
becomes a military decision
can be far reaching with unintended consequences
political decisions
e.g. joining EU trading bloc