REGIONAL COOPERATION AND ECONOMIC INTEGRATION

PART III:
Companies prepare and present financial statements in order to publish the effects of the
transactions and events inside and outside of them, and which are connected with their
financial positions and results. Whether transactions influence financial statements and on
which way, depends on the accounting policy chosen by the company’s management. For
each type of transaction, management has to decide how to reflect them in the financial
reports. Relating to this, certain frames, containing standards in different countries or
international accounting standards, promote methods of recognition and measurement,
consolidation and presentation. Some standards allow many options referring to above
topics. Others are very strict and allow only one specific method for measurement.
Companies located in countries where accounting regulation and standards (national or
international) allow various choices regarding to above mention topic have more flexibility
in accounting, referring to presentation and measurement of the ownership, results and
financial position. As a result of this, users of the financial reports from the companies in
countries with flexible accounting are going to face more problems comparing the operations
of the different companies in comparison with the users of the annual accounts from
companies located in countries with low flexibility of accounting. These differences in the
accounting system are obstacle for comparison of the financial results from companies that
use different accounting standards. Companies which operate in different countries insist
on harmonization of the accounting standards. Harmonization is going to make financial
information comparable and will improve transparency for the users of the financial reports.
This will reduce and information asymmetry between shareholders and management of the
companies. At the end, this will reduce the cost of the companies’ capital.
It is well known that shareholders use information from financial statements during
their decision making. Considering wide variety of projects or activities, usage of this
information is very similar, but method of calculation and cost and revenue formulas may
defer depending on the companies’ location, type of accounting standards used, or other
factors (for example, legal system, development of the capital market, culture, etc). All
this information gained from annual accounts is useful only if they can be matched against
certain benchmark. Matching will be difficult if level of accounting flexibility significantly
varies among companies. Accounting flexibility means that existing free choice, the same
type of transactions and events can reflect on different way in different companies. This
accounting flexibility is not an only problem connected with the comparability in those
countries where accounting standards allow freedom for decision making. The necessity
of foreign and domestic shareholders to compare financial statements of the companies
located worldwide was big problem in the past and in the present. Company’s profit or loss
can be taken as a measure for further assessment and consideration as a benchmark only
if matching is not impossible because of accounting flexibility, or other factors. Matching
of two financial statements based on different accounting policies, cannot be realized on
simple way. But in the comparison of the financial statements representing transactions
and events in accordance with certain accounting policy is very important the accounting
policies to do not be too much different, to level to which comparison will be meaningless.
Accounting policies and decisions of certain company are, and will be in the future, under
great influence of the rational environment and rational accounting standards and practice.
In the time when standardization and international harmonization are, at the first glance,
well accepted and developed, national differences still exists. Evidences from practice
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