How Accounting Environments Differ Internationally

Accounting is the language of business, but what happens when you expand your business into areas that speak different languages?  What happens when the language of business is not the same in one country as it is in another?  Differences in accounting procedures and reporting policies can pose significant problems for international businesses.

Just as a country’s business environment is reflective of the cultural, legal, and political factors within a country, so are the accounting standards.  For example, in the United States and United Kingdom, accounting procedures are developed by independent boards such as the UK Accounting Standards Board and FASB (Financial Accounting Standards Board).  Each board works with professional accounting groups to determine which policies and practices are optimal.  The result has been the so-called generally accepted accounting practices (GAAP) that provide a true and fair view of a firm’s performance based on the standards agreed upon by these professional boards.  GAAP are flexible, and often times, accountants have leeway to exercise their professional judgment in reporting a firm’s performance.  


Conversely, countries that use code law are likely to codify their national accounting procedures.  For example, France’s code law system and longstanding tradition of a powerful central government have impacted the decision for French firms to use a national uniform chart of accounts.  In this system, all corporate accounting records must be officially registered with the government.  Larger French firms are also required to publish a “social balance sheet” that outlines treatment and compensation of employees.

International political ties are important factors in determining a country’s accounting procedures.  Most members of the former British empire have adopted the accounting principles of the United Kingdom while former colonies of France and the Netherlands have opted to use those of their previous rulers.  For instance, the accounting procedures of the Phillippines closely mirror those of the United States because the US controlled that economy from 1898 to 1946.

The important takeaway is that political, cultural, legal, and economic forces can have a remarkable impact on accounting systems internationally.  These forces affect the way accountants treat different accounting issues, impact a firm’s reported profits, the value of firm’s assets, the firm’s tax liability, and its decision to begin or continue operations in a country.