Problem

Inadequate international standards of financial accounting and reporting

Other Names:
Poor accounting controls among countries
Nature:
Accounting practices vary from country to country so that financial reports are rarely comparable. This contributes directly to the difficulties in developmental policy-making at national, regional and global levels. This applies mainly to accounting practices in business enterprises, which are designed for reporting to shareholders and for internal profit controls. It also applies to some extent in the accounting practices of governments and inter-governmental and non-governmental organizations.

Comparability of financial reports is important to all users - shareholders, lenders, creditors, employees, governments and the general public. Users also need financial reports to be reliable - which means that, as well as being comparable, financial reports must be based on relevant, balanced accounting standards. Governments need corporation reports which are comparable in order to be able to monitor volatile short-term movements of capital, to protect consumer interests, to regulate monopolistic practices, and to prevent artificial transfer pricing and tax evasion. Absence of standardized accounting may be used by corporations to avoid complete disclosure of information which would reveal the negative social impact of some policies. Progress in this area is particularly essential for a wide range of policies and programmes concerning multinational enterprises, as well as for general development. The lack of international standards for the accounts of governments impedes the evaluation task of international funding agencies of applications for developmental grants, aid and loans.

Incidence:
In 1993 it was reported by the European Court of Auditors that a combination of weak management, poor financial controls and fraud in member states cost European taxpayers over $131 million in 1992.
Problem Type:
F: Fuzzy exceptional problems
Related UN Sustainable Development Goals:
GOAL 10: Reduced Inequality
Date of last update
02.12.1999 – 00:00 CET