In Your Submissions Use APA Guidelines And References

In Your Submissions Use Apa Guidelines And References Where Appropriati

In your submissions use APA guidelines and references where appropriate 1. What are the two common methods used internationally for the order in which assets are listed on the balance sheet? Which of these two methods is most common in North America? In Europe? 2. What are the two major types of legal systems used in the world? How does the type of legal system affect accounting? 3. How does the relationship between financial reporting and taxation affect the manner in which income is measured for financial reporting purposes?

Paper For Above instruction

The criteria for presenting assets on the balance sheet and understanding the influence of legal systems and taxation on financial reporting are fundamental in international accounting practices. This paper explores the two common methods used globally for stocking assets, examines the two predominant legal systems worldwide and their implications for accounting, and analyzes how the relationship between financial reporting and taxation influences income measurement.

International Methods for Asset Listing on the Balance Sheet

Globally, two primary methods are employed to determine the order of assets on the balance sheet: the order of liquidity and the order of permanence. The order of liquidity arranges assets based on their ability to be converted into cash within a short period, typically highlighting current assets first, followed by non-current assets. This method is prevalently used in North American accounting, notably in the United States, aligning with the principles of the Generally Accepted Accounting Principles (GAAP). The rationale behind prioritizing liquidity is to emphasize an entity’s short-term financial strength and ability to meet immediate liabilities (Kieso, Weygandt, & Warfield, 2019).

Contrastingly, the order of permanence arranges assets based on their physical or operational permanence, such as land, buildings, and equipment, which are often non-current in nature. This method is more common in Europe, aligning with the International Financial Reporting Standards (IFRS), especially in countries like the United Kingdom and members of the European Union. The focus here is on presenting assets that are central to ongoing operations and long-term sustainability, reflecting different strategic priorities (Nobes & Parker, 2016).

Major Legal Systems and Their Impact on Accounting

The world predominantly operates under two major types of legal systems: the Common Law system and the Civil Law system. The Common Law system, exemplified by countries such as the United States, the United Kingdom, and Canada, is characterized by case law and judicial precedents. It grants substantial discretion to accountants and auditors, with extensive reliance on professional judgment and evolving standards (Gray, 2019). This flexibility influences accounting regulations, fostering a practice that emphasizes transparency and market-driven disclosures.

In contrast, the Civil Law system, prevalent in countries like France, Germany, and Japan, is based on comprehensive legal codes and statutes. Accounting standards in these jurisdictions are more prescriptive, with detailed regulations that reduce variability but may limit adaptability and innovation. The structured nature of Civil Law influences accountants to follow rigid compliance procedures, often resulting in uniform financial statements that emphasize legal adherence over managerial discretion (Lanis & Wahlen, 2018).

The legal system significantly affects accounting procedures, disclosure requirements, and the enforcement of standards. In Common Law countries, the judicial system and market forces play a vital role in shaping accounting practices, fostering transparency and investor confidence. Conversely, Civil Law jurisdictions often prioritize legal consistency and administrative oversight, influencing how financial information is prepared and disclosed (Nobes & Parker, 2020).

Relationship Between Financial Reporting and Taxation

The interaction between financial reporting and taxation profoundly influences income measurement. While both processes aim to determine taxable income and financial performance, they often employ differing criteria and measurement bases, leading to discrepancies. Financial reporting generally follows accounting standards such as IFRS or GAAP, which focus on providing a true and fair view of the company's financial position and performance. These standards emphasize principles-based approaches, fair value assessments, and accrual accounting.

Taxation, on the other hand, is governed by statutory regulations that often prioritize revenue collection and fiscal policy objectives. Tax laws prescribe capital allowances, depreciation rates, and timing differences, resulting in taxable income that may diverge significantly from reported accounting income (Wahlen, 2020). For instance, accelerated depreciation methods for tax purposes can lead to lower taxable income in early years compared to financial reporting.

This divergence necessitates the recognition of deferred tax assets and liabilities to account for temporary differences between financial and taxable income. The purpose is to reconcile differences and present a comprehensive view of a company's financial health. The relationship influences managerial decisions, with companies often engaging in tax planning strategies that exploit these differences to optimize cash flows and compliance (Hanlon & Heitzman, 2019).

Furthermore, the legal and economic environment impacts how these discrepancies are managed. Countries with tax systems closely aligned with accounting standards tend to report more consistent income measures, promoting transparency. Conversely, jurisdictions with significant differences between tax and accounting rules may experience increased complexity and potential for manipulation (Rego & Wahal, 2017).

Conclusion

Understanding the methods for listing assets on the balance sheet, the influence of legal systems, and the interaction between financial reporting and taxation are critical for comprehensive international accounting practices. The order of assets reflects different strategic priorities, shaped by regional standards and legal environments. Legal frameworks dictate the flexibility and rigidity of accounting procedures, influencing transparency and consistency. Lastly, the complex relationship between financial reporting and tax laws impacts how income is measured, with significant implications for managerial decision-making, investor confidence, and regulatory compliance. An appreciation of these factors enhances the capacity to interpret financial statements appropriately across different jurisdictions, fostering better global financial analysis and policy formulation.

References

- Hanlon, M., & Heitzman, S. (2019). Financial Accounting: The Impact of Regulations. Wiley.

- Gray, S. J. (2019). International accounting and business. Routledge.

- Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.

- Lanis, R., & Wahlen, J. M. (2018). The effect of legislation and legal system on accounting. Accounting & Finance, 58(2), 561-589.

- Nobes, C., & Parker, R. (2016). Comparative International Accounting. Pearson.

- Nobes, C., & Parker, R. (2020). Comparative International Accounting. Pearson.

- Rego, S. O., & Wahal, S. (2017). The role of income measurement in financial reporting and taxation. Journal of Accounting and Economics, 63(1), 173-197.

- Wahlen, J. M. (2020). The influence of tax laws on financial reporting. The Accounting Review, 95(3), 449-468.