Exercises 1, 8
1. The most commonly used two method is liquidity and reverse liquidity. U.S. typically uses liquidity order which is started with cash. Europe companies use reverse order of liquidity which is started with fixed assets.
2. The two major system are code law and common law. Countries use code would also typically have an accounting law with less detail. Compare to those Countries who use common law, they always have a non-legislative organization develops Accounting law with more details.
3. Financial statement published based on purpose of taxation, companies would like to minimize the financial statement income in order to minimize financial income tax. However, if expenses taken for tax purpose are not required to be recognized in financial statement, companies probably will not try to minimize the financial statement income.
4. The major providers of capital for business enterprises are banks, governments and shareholders. Equity is becoming more and more important, financial statement disclosure is becoming more and more important too.
7. The cultural value uncertainty avoidance is in favor of measuring profit and assets conservatively and securely. Uncertainty avoidance also in favor of secrecy which means less disclosure of financial statement.
8. The Anglo area is expected to have more disclosure and less conservatism, and the less developed Latin area is expected to have less disclosure and more conservatism.
9. According to Nobes, two most important factors influencing differences in accounting system across countries are nature of culture and type of financing system.
Gross profit margin
Operating profit margin
Net profit margin