The way a country is and has been governed will have an influence on the development of financial and accounting concepts and practices as the government set policies to monitor the business activities closely. For example in the United Stated and Great Britain, the influence of tax provisions on the calculation of accounting income is minimal. Companies may report one set of figures in their financial statements and substantially different set on their tax returns. (Ferris, Haskins and Selling, 2000, p. 12)
Another example of political influences was the introduction of standardized plans of accounts into France from Germany in the 1940s. This political influence contributed to the post- war use by the French accountants and this accounting practice still continue until today In many other countries, however, taxable income is more closely related to accounting income. In Japan and Germany, for example, expenses must be recorded on the books of accounts- hence, included in financial statements- to qualify for deduction on a company's tax return.
(Ferris, Haskins and Selling, 2000, p. 13) Here we can understand that the government policy has set requirements that accounting and taxable income is substantially the same so as to measure income as conservatively as legally possible. The different forms of government policies and its level of control will affect the development of accounting and financial environment and practices in the country. Legal In many cases the legalistic orientation of the country can easily influence accounting practices and concepts and the most closely link will be the tax legislation.
Tax law is than formulated by legislative bodies in response to political issues and agendas and its influences is one of the most obvious and likely to be carried out, as they are part of a country's general legal system. Common law countries such as the United States, Canada and Great Britain tend to have more flexible accounting policies, as companies may report one set of figures in their financial statements and a substantially different set on their tax returns.
The countries that rely heavily on statutes and regulations will be countries like Japan, France and Germany where expenses must be recorded on the books of accounts to qualify for deduction on company's tax return and tax policy is so important that accounting information must follow the tax laws, or at least heavily influence by them. Business Environment Modern accounting and financial reporting springs from the development of publicly held corporations, those will clear-cut differences in ownership and management and
its liability exposure. The form of business in an economy can have an influential effect on the accounting and financial reporting standards and practices in the country. Every nation also understand and recognises that the distinguish differences between publicly and closely held corporations and large and small companies are only the reporting requirements between them. The capital market of the country is the next important thing to look at as it is closely related to the forms of business in the country.
The nature of financial reporting standards and the fundamental purpose of the entire financial reporting system depend on customary sources of capital. (Ferris, Haskins and Selling, 1996, p. 20) The development of stock exchanges, distribution of share ownership, domestic and international listings, regulations and banking system in the country also plays a important role in accounting and financial reporting and also not forgetting the quality of disclosure from the reports.
All accounting and financial reports around the world requires accounting professional that is well educated and have in- depth knowledge to ensure its proper functioning. For example countries such as Great Britain and United States, where professional accountants share responsibilities for creating accounting and financial reporting standards. Lastly, the influence of organised labour on accounting and financial reporting practices has taken a greater step forward.
It has taken the form of requiring disclosures like the compensation of directors and top management, creation of wealth and shows its distribution among stakeholders, employers and investors. Labour movement with its continual demands for companies to be more socially responsible has helped to ensure all accounting and financial reports to have more disclosure and be answerable for their actions.