International Classification of Accounting

International Classification of Accounting

Classification can help investors understand the different markets and make informed judgments about the market's potential. Since different countries show varying progress due different laws and standards which are predominant in that area. Also classification can help predict how certain financial decisions may affect a country by looking at similar countries and their reactions to those types of decisions. Also classification helps chart progress, encourages precision when comparing various countries and can shape development of countries.

The national culture affects accounting differences because they are the basis to which companies in a country must confirm to. Depending on the how strict or enforced the laws are this will affect firms' application of accounting standards prevalent in that country. Depending on the culture, some countries maybe more rule based while others are principle based. In principle based countries, adherence to accounting standards are to the discretion of the company, which can allow more discrepancies, and less uniform data.

The main model of international classification of accounting that I prefer would be the Continental European Model, this model is predominantly focused on legalism. I prefer this because standards will be more uniform and stricter on entities to conform to. This makes it easier for the public and external users to make comparisons between entities. When things are uniform and following the same standards it makes it simpler for external users to understand and make decisions on.

When producing classifications in the comparative international accounting we should be classifying accounting practices, variables causing the differences in these practices, and structural practices. It is also pertinent to classify the classifications by hierarchy to further organize the various regions and be able to see how they are linked together despite not falling under the same group.

According to accounting classifications there was a very apparent difference between Anglo-Saxon groups and Continental European accounting however with new data and examinations it seems that the difference between the two groups have dwindled. Now it is said that the two groups share more similarities than differences.

Due to international harmonization, classification has become a historical element in today's accounting standards. Classification is now only really relevant to countries that have not converged with IFRS or adopted its standards. However, in near future when uniformity has been adopted by all countries classification will no longer be needed to interpret various countries' financial data.

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