© 2000 John Petroff
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© 2000 John Petroff |
This chapter is not intended to teach accounting. Instead it is a review of guiding principles of accounting systems used in the West. The financial analytical techniques presented in subsequent chapters rely on financial data that is organized according to these principles and the quality of the analytical work depends on the quality of the accounting data used. The sections are
A- For whom are GAAP financial statements intended
B- The accounting function
C- How are financial statement prepared
D- Limitations of accounting numbers
E- Differences between GAAP and international accounting
The chapter is devoted almost in its entirety to the system used in the United States. This system is said to be founded on generally accepted accounting principles, or GAAP, which are now developed by the Financial Accounting Standards Board (FSAB at http://www.rutgers.edu/Accounting/raw/fasb/). In part, because of the dominance of American firms after World War II, American foreign investments in many sectors of European and Asian countries, the role of American auditing firms and an attitude of the American accounting profession more open to change, GAAP accounting has influenced accounting of many countries. Nevertheless, remarks throughout this and other chapters on notable differences between American GAAP accounting and other western accounting systems, lead to the conclusion that only small differences exist between American and non-American Western accounting systems. Or at least, as it will appear in the next chapter, these differences are trivial when compared to differences that exist between international accounting and non-western accounting. This author can also offer his personal experience that showed that having been trained in accounting in France, he had no trouble being hired as an accountant in the United States when he arrived there in the 1960's.
Worldwide harmonization of accounting has been promoted in recommendations of world organizations such as the OECD in 1976 and UN in 1977, as well as regional groupings such as the European Union since its earliest days. Harmonization has also been helped by the formation of professional associations at the regional (e.g. EU) and international levels (e.g. International Federation of Accountants). The differences between accounting systems of the world are slowly dissolving in rounds of meetings of the International Accounting Standards Committee (IASC at http://www.iasc.org.uk/), which bring representatives of professional associations of 50 different countries since 1973. Thus, recently, the term of "international accounting" has emerged to designate the accounting system elaborated by IASC. It turns out that this international accounting system is closest to the one used in the UK, and throughout the former British Commonwealth countries. Differences between GAAP and international accounting are touched upon in the last section of this chapter. In most countries, such as Russia and Kazakhstan, where the accounting system was radically different from western accounting, it is this international accounting system that is currently being adopted, even with the financial support of American USAID money.
The present designation of international accounting should not be confused with that branch of accounting that deals with the operations of a company with subsidiaries and assets expressed in another currency than that of the parent company, which is also known as "international accounting". It might be less confusing if some new terminology would be adopted for the latter, possibly "interantional operations accounting".
See review questions Q-6.1 through Q-6.7.
See research assignment R-6.1.
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