The document discusses accounting diversity, which refers to differences in how financial information is recorded and used. Accounting diversity stems from factors like legal systems, taxation, inflation, sources of financing, political/economic ties, and the correlation between these factors. This diversity causes problems such as difficulty preparing consolidated financial statements, limiting access to foreign capital markets, reducing comparability between financial statements, and lack of high-quality accounting information.

1. Under the guidance of
Sundar B. N.
Asst. Prof. & Course Co-ordinator
GFGCW, PG Studies in Commerce
Holenarasipura

2. What is accounting diversity?
Accounting diversity refers to the differences in recording and making use
of financial information. While many corporates deal with the variability
without cutting on business operations, the problems affect major business
dealings, including assessing a company’s net worth and the way managers make
business decisions under the Generally Accepted Accounting Principles and
Standards.
As per the studies of the National Bureau of Economic Research, accounting
diversity impacts security pricing and compiles international portfolios.

3. Reason for accounting diversity
• Legal system
• Taxation
• Inflation
• Providers of Accounting and Financing
• Political and Economic Ties
• Correlation of Factors

4. Legal system
There are two types of legal systems code law and common law.
Code law : code law countries mainly have corporation law which sets up the basic
legal parameters controlling business enterprises. The corporation law after specifies
which financial statements must be issued in accordance with a prescribed format.
In countries with common law,fixed accounting rules are established by the
statements or by an independent non-government body representing a number of
constituencies.

5. Taxation
• Financial statements are the basis for taxation in some countries.
• Other adjust financial statements for tax purposes, and submit separate
reports to stockholders.
• In most cases, for a tariff to be removable for tax purposes, it should also be
used in the computation of financial statement income. Well managed
accounting companies attempts to reduce income for tax purposes.

6. Inflation
• The countries experiencing persistently high rates of inflation found it
necessary to take on accounting rules that needed the inflation adjustment of
historical cost amounts.
• High inflation rates force adoption of accounting rules that adjust historical
costs to current or market value.

7. Providers of accounting and financing
• In many countries major sources of capital are families, banks and
government.
• Accounting and disclosure in those countries tend to be less important.
• In the U. S and U K the providers of financing are diverse shareholders, so
accounting and disclosure are more important.

8. Political and economic ties
• Accounting is a technology that can be comparatively easily borrowed from
or inflicted in another country.
• Accounting rules carried from one country to another through political and
economic links.
• For example, Both France and England have conveyed their accounting and
financial services framework to various countries around the world.

9. Correlation of factors
There is a high amount of correlation between the legal system,source of
financing, and tax conformity. Common law countries are inclined to have
greater number of domestic listed companies, depending more heavily on
equity as a source of capital.

10. Problems caused by accounting diversity
1. Preparation of Consolidated Financial Statements.
2. Access to Foreign Capital Markets.
3. Comparability of Financial statements.
4. Lack of High –Quality Accounting Information.

11. Conclusion
Accounting Diversity refers to the differences in recording and making use
of financial information. While many companies deal with the differences
without interrupting business operations, the problems impact major business
dealings, including evaluation of a firm’s net worth and also the way managers
make business decisions.

12. Reference
• https://marketpublishers. com/report/company_reports/accounting-
diversity-reasons-n-problems. html.
• https://link. springer. com/chapter/10.1057/9781137374349_4.
• https://www.bartleby.com/essay/Factors-Affecting-Worldwide-Accounting-
Diversity-F3Bzpm5y9cxw.
• https://www.coursehehero.com/file/problems-caused-by-worldwide-
accounting-diversity-for-a/.