Chapter 9, Problem 1UTI

To determine

Accounting Principles:

International organizations like IASB and IFAC are majorly involved in the convergence of accounting principles all over the world.

Factors influencing the accounting process through environmental factor.

Answer to Problem 1UTI

The factor influencing the accounting process varies from one country to other.The various environmental factors affecting the accounting principles nationwide are as follows:

• Cultural and social values.
• Legal and Political system.
• Economic condition and business activities.
• Capital Market and ownership forms.
• Standard setting process.
• Co-operative efforts between nations.

Explanation of Solution

Environmental Factor:

For better understanding take the legal and political systems that has influenced in the development of the accounting standards over a period of time. It is clearly seen that the countries once which are ruled by strong nation has now become a developing country or a developed country.

The best example of developed country is U.S. as U.S. took its accounting patterns from U.K. and now U.S has mastered in accounting principles.

Below are the reasons for the difference in the use of accounting standards:

1. The country that has strong democratic and political conditions tries to develop he is accounting principles through standard setting groups rather than using the government regulations.
2. Sometimes the legal and the tax laws of a country may have an impact on the development of accounting. It can be up to an extent of finding the difference between the accounting income and taxable income
3. There are various environment factors made the people to feel the development in the accounting standards around the globe. Even though, the accounting standards are well used around the globe there is still difficulty in using a single set of accounting standards.
4. The International Accounting Standard Board set an example in using the single set of accounting standards. Only few professional organisations around the world has initiated in the cooperating with the International Accounting Standard Board.

Hence, above are the reasons found for the difference in use of accounting standards in various countries.