Question

1, what are the potential benefit that a multinational corporation could derive from the international convergence of accounting standards?

2, what are the reason for accounting diversity and explain

Answer 1

Benifits of International Convergence of Accounting Standards to Multinational Corporations

1. For an organization which has operations in multiple countries can use a unified accounting standards which is applicable all subsidiaries irrespective of geographic locations. It will eventually improve accuracy and effeciency.
2. It's facilitates effective comparision of business across geograhic segments as all units are pursuing same acccounting standards and also provides a common accounting language.
3. High standards of financial reporting will gain investor's trust on financial and non financial information.
4. Globally comparable finacial reporting will attract investors from across the world. For investors international accounting standards facilitates them a convenient way to compare their business performce with other companies.
5. It probides flexibility to account for expected and unexpected changes in global economic environment.
6. Benefits not only businesses but also regulators. It makes cross border mergers and strategic investments more easier as national regulators develop supervisory practices which are more closely aligned.

Reasons for Accounting Diversity

1. Legal System: Every country has it's own legal system. Two major types of legal systems are Common Law and Codified Roman Law. Countries which follow common law has limited reliance on statute law. In such countries case laws, which are court orders in similar circumstances supplements statute. Code law countries have corporation law which has basic legal parameters governing business. In common law countries, country specific accounting rules are established by the profession. In code law countries accounting law tends to be general and provide no guidance at all.
2. Taxation: In some countries tax structure is more complex while in some countries taxation is much simpler. Published financial statements are enough for tax computation in some countries. But it is not same everywhere. Countries like India, while computing tax we have to add back certain expenses and deduct some expenses which aren't disclosed in financial statements.
3. Inflation: Countries with high inflation rate, found it necessary to adopt accounting rules which can tackle inflation. Adjusting accounting profits to counter inflation may require accounting standards customized to it. This might not be same in every countries.
4. Political and Economic Ties: Accounting practices and technology can be easily borrowed and adopted from one country to another. Through political and economic links like grouping of countries helps to convey accounting rules from one country to another.