Countries Classified Based on Accounting Practice Systems
Notably, Belgium, China, the Czech Republic, Gambia, India, Mexico, Senegal, and Taiwan have a varied classification in terms of their legal system and accounting practice systems. However, it is evident that the legal system that a country adopts will greatly influence the accounting practice system that will be put in place. Gambia and India both have common legal systems, given that they were both British colonies. On the other hand, Belgium, the Czech Republic, Mexico, Senegal, and Taiwan have adopted a similar legal system, which is code law. China’s legal system leans more towards the common law than towards the codified law.
With regards to accounting systems, the accounting system adopted by a certain country is determined by the legal system adopted. There are two main classifications of accounting practice systems. This includes the fair presentation and legal compliance systems. Essentially, the fair presentation underscores on material over the procedure. Furthermore, it is a tenet derived from the aspect of common law. This is mainly capital market-oriented. This implies that it focuses on the decision needs of investors. Financial statements help investors evaluate the managerial capabilities of a firm by adopting the use of fair representation. This can also enhance predictable speculations of future cash flows. This is in respect to the widespread revelations provided in the extra information from the financial statements.
On the other hand, legal compliance is derived from the code of 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. It is evident that countries adopting common law guidelines will not adopt fair representation accounting policies. On the other hand, countries adhering to the code law will adopt the use of legal compliance as the accounting policy. However, in the recent past, companies within countries using common law are now adopting the use of the International Financial Reporting Standards, which is a fair representation policy.
Recently, many countries within the European Union have adopted the use of the International Financial Reporting Standards that call for a fair presentation. This applies to 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 use a fair representation accounting policy. China has adopted the International Financial Reporting Standards due to the US influence. Senegal, which was a France colony, has adopted the use of legal compliance.