Inadequate international standards of financial accounting and reporting

It is possible to define a pyramid of problems regarding accounting discrepancies. At the base is the fact that accounting is not a science in the sense that it may not be possible to 'prove' one particular theory and eliminate all conflicting theories; some can and some cannot. The result is that when the annual statements of competitive firms are analyzed, one may be found to use one acceptable method of depreciation of assets, for example, while the other uses a completely different but equally acceptable method. Balance sheet impacts vary enormously, and financial analysts must recalculate or estimate to achieve comparable data. This level of problem relates to definitions of account use, account classifications, allowable computational methods, and statement presentation styles. At this level the accounting experts are said to agree on disagreeing. On the next level of problem the experts agree: namely that the governments' tax accounting methods do not satisfy the needs for financial statements in commerce. In effect, governments require another presentation of financial accounts for internal revenue, tax assessing purposes; and firms are obliged to employ tax accountants to maintain the accounts and books that governments need.

A third problem affects importers, exporters and transnationals: foreign currency translation accounting. The rules are burdensome, and transnationals keep separate books in local currencies in addition to those in the home country money values. Again, special accountants are needed to deal with foreign currency exchange and translation accounting requirements.

Finally, there has been the recent arrival of theories of inflation, or replacement cost accounting. Government tax specialists are pitted against private sector accounting firms; and accounting firm partners, economists, and corporate secretaries and treasurers debate among themselves the standards, or supposed correct methods of recording the apparent increase in value of assets as inflation proceeds. Different governments have different approaches but the net result has been still another set of books to be kept by companies, revealing assets and making other changes according to the prevailing standard. Governments' standards have been revised several times in the past few years, as have the standards recommended by the accounting profession: the resulting confusion, debate, and cost of maintaining the new accounts and new 'books', have been very high.