The article discusses about the accounting and audit standards in the United States, which is different from one country to another due to business practices, fiscal systems and the law regulating a company. The International Federation of Accountants and the International Accounting Standards Committee aimed to a have a consistency of audit and accounting standards around the world, although these diversities can easily identify a company\u27s national origin and as a basis of the financial statements presentation

Gould, John D.

McAllister, John P.

Orsini, Larry L.

English

DigitalCommons@Kennesaw State University

Kennesaw State UniversityDigitalCommons@Kennesaw State UniversityFaculty Publications9-1997Global Auditing and Accounting ConfusionJohn P. McAllisterKennesaw State UniversityLarry L. OrsiniSaint Bonaventure UniversityJohn D. GouldWestern Carolina UniversityFollow this and additional works at: https://digitalcommons.kennesaw.edu/facpubsPart of the Accounting CommonsThis Article is brought to you for free and open access by DigitalCommons@Kennesaw State University. It has been accepted for inclusion in FacultyPublications by an authorized administrator of DigitalCommons@Kennesaw State University. For more information, please contactdigitalcommons@kennesaw.edu.Recommended CitationMcAllister, John P., Larry L. Orsini, and John D. Gould. "Global Auditing and Accounting Confusion." Journal of Accountancy 184.3(1997): 89-91. Print.8/25/2017 Global Auditing and Accounting Confusionhttp://www.journalofaccountancy.com/issues/1997/sep/global.html 1/4Journal of Accountancy Global Auditing and Accounting ConfusionIf a company is all over the world, which auditing and accounting standards does it use?BY JOHN P. MCALLISTER, LARRY L. ORSINI AND JOHN D. GOULD September 1, 1997     EXECUTIVE SUMMARYWHEN POSTING THEIR financial statements on the Internet, multinational companies do notalways clarify under which countrys GAAS/GAAP the statements were audited or prepared.INCREASED GLOBALIZATION and Internet use makes clear GAAS and GAAP labelingessential.WITHOUT CLOSE STUDY, its hard to tell which is the true home country of a givencorporation; financial statement users cannot make assumptions.SAS no. 58, Reports on Audited Financial Statements , needs to be updated to reflect theinternational nature of business today.U.S. GAAS AND GAAP are clear and rigorous. As a matter of pride for the U.S. CPAprofession, statements prepared and audited under U.S. standards should be so marked.ROBERT K. ELLIOTT, CPA , is a partner of KPMG Peat Marwick LLP in New York City. He waschairman of the AICPA special committee on assurance services.  DON M. PALLAIS, CPA , has his own practice in Richmond, Virginia. He was executive director ofthe AICPA special committee on assurance services and now is a member of the assuranceservices committee.The standard audit report, which was expanded a scant decade ago (see Statement on Auditing Standardsno. 58, Reports on Audited Financial Statements ), should be amended again to say—to an internationalinvesting community—that it specifically refers to U.S. standards.Initially, we had thought of this as a desirable—but not essential—change because of the diversity of generallyaccepted auditing standards and generally accepted accounting principles from country to country. Now,however, we believe the Internets easy ability to break down restrictions on the distribution of financialstatements makes this change an absolute necessity. Expansion of the auditors report is a logical extensionof the guidance provided by Statement on Auditing Standards no. 51, Reporting on Financial StatementsPrepared for Use in Other Countries (AU 534) and is consistent with the guidance provided by theInternational Standards on Auditing (AU 8700.22).8/25/2017 Global Auditing and Accounting Confusionhttp://www.journalofaccountancy.com/issues/1997/sep/global.html 2/4AUDITING AND ACCOUNTING DIVERSITY Auditing and accounting standards vary from country to country largely because of differing businesspractices, fiscal systems and company law. Worldwide uniformity of auditing and accounting standards is anobjective of the International Federation of Accountants (IFAC) and the International Accounting StandardsCommittee (IASC). A number of developing countries have adopted the international standards set by thesebodies as benchmarks for their national standards; however, developed countries are moving more cautiouslyfrom their own well-established standards to international standards. Thus, auditing and accounting diversitywill continue to be a fact of life.An Internet search turned up 92 stock exchanges all over theworld: Africa 3Asia 22Europe 32Middle East 5North America 16South America 14WHO IS US? Despite this diversity, it used to be easy for a user of financial statements to identify the national origin ofcompanies and the basis of presentation of their financial statements. U.S. companies used U.S. GAAS andGAAP and French companies used French GAAS and GAAP. However, such easy identification of the "home"country of multinational enterprises is becoming a thing of the past. Former Secretary of Labor Robert Reichsuggested in a January 1990 Harvard Business Review article (aptly titled "Who Is Us") that, as our economycontinues to become truly global, it will become increasingly difficult to identify an entity as "American." Is acompany a U.S. company if itIs incorporated in Delaware?  Has shareholders all over the world?  Has manufacturing operations and most of its employees in Asia? Sells most of its products in member countries of the European Union?THE INFORMATION AGE Although U.S. auditors and accountants might agree to expand the audit report language for U.S. companyfinancial statements that are distributed worldwide, they probably would consider it irrelevant for statementsthat will likely remain in the United States. Such a distinction might have made sense a year or two ago, butthe Internet has changed all that. Companies of all sizes have home pages on the World Wide Web that offerinformation requiring only a "point and click" for access (see "When the Bottom Line Is Online,"(/issues/1997/mar/botmline.html) JofA, Mar.97). Annual and quarterly reports often are part of this menu ofofferings, and their readers could be sitting almost anywhere in the world. Thus, limited distribution is nolonger a safe assumption.8/25/2017 Global Auditing and Accounting Confusionhttp://www.journalofaccountancy.com/issues/1997/sep/global.html 3/4The exhibit below, conveys both the reality and the extent of the need for standards identification. The 10companies listed, which have easily accessed Web sites, sell products or services familiar to consumers inthe United States and around the world. Many of us would characterize companies 1 and 2 as Japanese, yettheir financial statements are described as being in accordance with U.S. standards. Companies 3 and 4presumably are German; however, since they have not provided audit reports, there is no indication of thesource of the standards. Company 5 is headquartered in Finland, but its financial statements are described asbeing in accordance with international standards. And, finally (and not surprisingly), the audit reports of thepresumably U.S. companies (6-10), do not indicate the source of the standards.Financial Reporting on the InternetCompany Internet Address  (http://www.)Source of Standards1. NEC nec.com (http://www.nec.com/) United States 2. Sony sony.com (http://www.sony.com/)United States 3. Bayer bayer.com(http://www.bayer.com/)Germany 4. Daimler-Benz daimlerbenz.com Germany 5. Nokia nokia.com(http://www.nokia.com/)International 6. Digital digital.com(http://www.digital.com/)United States 7. EDS eds.com (http://www.eds.com/) United States 8. MCI mci.com (http://www.mci.com/) United States 9. Motorola motorola.com(http://www.motorola.com/)United States 10. Netscape netscape.com(http://www.netscape.com/)United States The audit report was signed by a Big Six firm with a Tokyo letterhead. U.S. GAAP is specified asthe source of the accounting principles; however, the source of the GAAS is not indicated.  The audit report was not provided by the company; however, other factors imply the use ofGerman standards.  The audit report was not provided by the company; however, the financial statements aredescribed as international accounting standards financials.  The U.S. standard audit report was used and signed by auditors in the United States; therefore, itis assumed that U.S. GAAS and GAAP were involved.Note : Web site descriptions were accurate when the article was written, but sites are subject tofrequent changes.AN AUDIT REPORT FOR THE INFORMATION AGE From the late 1940s through the late 1980s, the standard audit report did not change. In 1988, SAS no. 58established a three-paragraph format, added additional content and changed some of the standard language.SAS no. 58 was one of nine expectation gap auditing standards intended to improve communicationsbetween auditors and the readers of financial statements.11223444441 2 3 4 8/25/2017 Global Auditing and Accounting Confusionhttp://www.journalofaccountancy.com/issues/1997/sep/global.html 4/4If the auditors report identified the source of GAAS and GAAP, financial statement readers would be betterable to judge the reliability and relevance of financial information. Companies could make this informationavailable in printed copies and on the Internet at little cost.PRIDE Expanding—that is, clearly labeling—the auditors report is important to users of financial statements so theycan effectively judge the assurance level of an entitys financial statements. We also see another reason tochampion specification, particularly regarding U.S. GAAS and U.S. GAAP. U.S. standards are arguably thebest in the world. Subtle endorsement of this opinion is provided by the results of a recent survey (see"Raising Capital Overseas," (/issues/1997/feb/raising.html) JofA, Feb.97), which showed that U.S. GAAPfinancial statements are accepted by many stock exchanges around the world. Past FASB chairman DennisBeresford recently commented on the great strength of U.S. standards (see "Beresford Looks Forward,"(/issues/1997/jul/beresfrd.html) JofA, July97).In a world market, investors will have a larger number of investment opportunities. The U.S. audit—once theassumed seal of approval on U.S. public companies—can no longer be taken for granted. Like all othercommodities, audits will have to be brand names. The companies whose statements follow U.S. GAAP, andthe auditors who mark them with U.S. GAAS, should clearly display on paper and online their endorsement ofa world-class process and product.© 2017 Association of International Certified Professional Accountants. All rights reserved.

Global Auditing and Accounting Confusion

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Global Auditing and Accounting Confusion

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