Financial Accounting Theory and Analysis, 15th Edition

3International Accounting

Financial accounting is influenced by the environment in which it operates. Nations have different histories, values, cultures, and political and economic systems, and they are also in various stages of economic development. These national influences interact with one another and, in turn, influence the development and application of financial accounting practices and reporting procedures. Multinational corporations operating in many countries might earn more than half of their revenues outside of the United States. Because of national differences, the financial accounting standards applied to the accounting data reported by these multinational companies often vary significantly from country to country. This has necessitated the demand for global financial reporting to improve multinational commerce.

Companies prepare financial reports that are directed toward their primary users. In the past, most users were residents of the same country as the corporation issuing the financial statements. However, the emergence of multinational corporations and organizations such as the European Union (EU), the General Agreement on Tariffs and Trade (GATT), and the North American Free Trade Agreement (NAFTA) has made transnational financial reporting more commonplace. Transnational financial reporting requires users to understand the accounting practices employed by the company, the language of the country in which the company resides, and the currency used by the ...