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Accounting policies development and classification

Different countries adopt different policies with respect to the dynamics of the multiple interactions they indulge in. The main aim of the policies is to provide a means through which conformity, competence consistency, integrity and transparency among other required qualities can be effected.
Question 1
In consideration of the following countries: Belguim, China, Czech Republic, Gambia, India, Mexico, Senegal, and Taiwan there would be a varied classification in terms of their legal system and accounting practice systems. It is however evident that the legal system a country adopts will greatly influence the accounting practice system that will be put in place. Gambia and India both have common law legal systems while it is also notable that they were both British colonies. On the other hand, Belgium, Czech Republic, Mexico, Senegal, and Taiwan adopt the code legal system. China’s legal system leans more towards common law as opposed to code law (p. 4 par 2).
With regards to accounting systems, the type of accounting system adopted by a particular country is determined by the kind of legal systems adopted. There are two main classifications when it comes to accounting practice systems. They are fair presentation and legal compliance systems. Fair presentation essentially emphasizes on substance over form and is a tenet derived from common law. This is mainly capital market oriented that is to imply that it focuses on decision needs of investors. By the use of the fair representation, financial statements help investors evaluate managerial capabilities of a firm and can also enhance predictable speculations of future cash flows. This is at a resort of extensive disclosures provided in the additional information in the financial statements. Legal compliance on the other hand is derived from code law and is mainly meant to satisfy government imposed regulations. It covers issues on taxable amounts, dividends payable bonuses paid to employees and other conservative measures (p. 2, par 2-5).
It is evident that countries adopting common law guidelines will more often than not adopt fair representation accounting policies. On the other hand, countries subjected to code law will adopt the use of legal compliance as the accounting. However, recently companies in countries using common law are now adopting the use of International Financial Reporting Standards which is a fair representation policy. Recently, many countries in the European Union have adopted the use of the International Financial Reporting Standards which calls for fair presentation. This applies for both Belgium and the Czech Republic. Gambia and India also adopt the fair representation policy considering the British colonial influence. In addition Mexico and Taiwan also use the fair representation accounting policy. China due to the US influence, they use International Financial Reporting Standards thus fair representation. Senegal which was a France colony, they adopt the use of legal compliance (p. 5, par 1).
Question 2
The five stock exchanges have the most foreign listed companies are London with 681 companies, New York with 415companies, Nasdaq 336 companies, Singapore with 312, and finally Mexico with 248 companies. New York, London, and Nasdaq are considered as the largest capital markets of the world and hence their ability to attract many companies. The Singapore stock exchange handles many Asian companies while the Mexican exchange has many Central and South American companies (p. 5, par 2).
The stock exchanges that have the highest proportion of foreign to total listed companies were as follows; Luxembourg was leading with 87 percent given the fact that the exchange house attracts many European firms. Bermuda is second with 69 percent. It mainly owes its high propotion to the flexible laws and its consideration as a financial sector. Mexico is third with 66 percent as it attracts many Central and South American Companies. Singapore is fourth with 41 percent while the fifth stock exchanges according to the rankings is a tie between the London stock exchange and Swiss. The Swiss stock exchange attributes its high propotion to its ability to attract European countries. As for the London stock exchange, it not only attracts the European based companies but also companies from countries of its former empire (p. 5, par 3).
Question 3
The European Union has over the years attained milestones in regard to the accounting harmonization efforts. However, as yet, there are hindrances to these achievements. The main obstacle is deemed to be the fact that common and code law countries exist in the European Union. This thus regulates the accounting development efforts as the basic orientation of accounting and other standards are set in accordance to the national laws of different countries. However, in earlier years as the European Union was devolping, the main challenge was lack of developed capital markets. Capital markets facilitate a system of finance and as 2004, this was the main hinderance to the EU accounting harmonization (p. 5, par 4).
In the face of these drawbacks, the future still seems bright for the European Union. This is because, there are certain factors that indicate the harmonization efforts can highly prosper. For starters, the markets are developing and the economies are expanding. This is paving way for better planning hence developments in the capital markets. The growth is also evident in regards to accounting expertise. The recent agreement to converge to the adoption of the fair presentation policy will greatly boost the harmonization efforts. This will imply adhering to the International Financial Reporting Standards when consolidating the financial statements. The achievements of the European Union integration will also enhance harmonization efforts. For instance, the adoption of a single currency (the Euro) will propel the harmonization efforts (p. 5, par 5).
Question 4
Individualism scores are used to predict accounting values in different countries ans thus providing a base for comparison. According to Gray, the individual scores scores are as follows; china is the least with 20, the Czech Republic have 58, France 71, Germany 67, India 48, Japan 46, Mexico 30, Netherlands, United Kingdom 89, and finally the United States leads with 91(p. 5, par 6a).
Individualization scores can be characterized as high, low or medium. China and Mexico are considered to have low individualization scores. Countries with medium individualization score include India, Japan, and Chech Republic. On the other hand, high individualized countries of the ten include; United States, United Kingdom, Netherlands, France and Germany (p. 5, par 6b).
According to Gray, high individualism is more often than not associated with the following values; professionalism, flexibility, optisim and transparency. This is the main attributes of high individualism thus higher rating the accounting policies in Netherlands, United Kingdom and United states. Low individualism on the other hand was mainly attributed to statutory control, uniformity, conservatism and secrecy. Grey predicted that China and Mexico had low scores on individualism as a result of statutory control and secrecy respectively. This prediction has however been challenged as not being reliable. For medium individualism, the prediction is that middle accounting values are in place. This prediction has also received criticism. For instance, proponents consider India to be associated with professionalism, flexibility, optisim and transparency. This has thus raised query to the predictions that had been made by Gray (p. 5, par 6c).

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