The financial statements from companies from around the world typically reflect the cultural values and economic climate of their country. Because there is so much variation, investors may have a difficult time reading and interpreting the financial statements of foreign countries. However, there is a movement to standardize accounting methods throughout the world. Yet, this may still be a long time in coming.
Despite the variation across the globe, there are regions with accounting principles in common.
The focus of financial statements in these nations is on serving the needs of the investor. These countries rely on investors to fund their endeavors. Because of the vast stocks and bonds market in place, the financial statements must be usable by different groups such as brokers, individuals, banks, institutions etc.. These nations follow the Generally Accepted Accounting Principles (GAAP) and give accountants the liberty of selecting the accounting methods within these principle which best suit them.
In contrast, European nations don’t have the large stocks and bonds market. Their primary investment source is usually a large bank. The European GAAP is far more detailed and requires strict compliance with little room for individual variation. European nations often have the same law for taxation as financial reporting.
In South America, the focus of financial reporting is use by government planners. The financial statements are produced with accounting methods for the severe inflation experienced by their economies.
In Easter Europe, these nations were formally communist and therefore didn’t require any real financial reporting. However, with the move towards capitalism, they are seeking to become more investor oriented by catering their financial statements to more informative accounting standards.