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International reporting Standards Over the last 15-20 years the financial world has undergone a major transformation These developments have been mainly attributable to dramatic changes in the business and political climates increasing global competition and rapid technological improvements whilst at the same time the worlds financial centres have grown increasingly interconnected Reinstein Weirich 2002 These developments have left financial managers facing several major issues One major issue that continues to re-emerge time and time again is the diversity of financial reporting standards between trading nations As the principle objective of financial accounting being to provide all the information required in making sound economic decisions companies are required to produce the following financial statements 1Trading profit and Loss Accounts 2Balance sheets 3Cash flow statements However even with these financial statements it is not always possible for financial managers to make sound economic decisions due to the differences that exist in accounting standards Blake 1997 Accounting Systems The modern day global market place has many different accounting systems that operate under their respective professional accounting bodies The major accounting practices are found in the US the UK and also Europe that operates under the control of several different accounting standards US The US Generally Accepted Accounting Principles GAAP is a largely rule based approach to financial reporting It is based on tens of thousands of pages of accounting rules that have been accumulated over decades For example there are around six hundred pages on derivatives alone US GAAP contains many so-called bright lines Nobes 1995 This system extends beyond the US into Canada Mexico and more recently Japan UK GAAP in the UK differs significantly than in the US largely due to the differences in the size of the economies While the US concept of GAAP draws on the a hierarchy of official recommendations headed up by the FASB Sauder 1991 this is in contrast to the UK standards that are
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