Accounting rules are widely viewed to be very complex and sometimes even professional analysts cannot understand them. At present, there is not a fixed set of accounting rules and standards among different countries, but the two important accounting systems- U.S. GAAP (generally accepted accounting principles) and IFRS (international financial reporting standards) are commonly used. [1]
However, this week the company, Manulife Financial Corporation, shows how tough the Canadian accounting rules are, compared to the one in the south border. It also highlights the discrepancies in accounting rules between different countries can cause a huge problem. The company would have reported a $2.2 billion profit in they were located south of the border. The calculation ends up to be $1.28 billion loss, which result to a discrepancy of $3.4 billion. Manulife’s shareholder equity would also be $16 billion higher when it is calculated according to the American standards.
Fair value accounting and a standard accounting system should be considered as companies and markets are increasingly going to be globalized in the future. Any discrepancy can cause a huge different when the accounting statements are present to the investors, choices would be made differently, and companies in countries that have a tougher accounting systems will be in disadvantage when competing with other companies that show a better financial statements due to looser regulations in their countries. Differences in domestic standards might also influence a company’s performance in its international market.
(This is a blog comment on Rachel Lee’s blog-https://blogs.ubc.ca/rachlee/2011/11/14/can-canadian-losses-really-be-american-profits/)