Exercise 2-7
(a)Q: Which is the greatest problem arising from worldwide accounting diversity?
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A: Seeing as the essential function of accounting is to present accurate information about the status and operations of economic entities, the greatest problem arising from worldwide accounting diversity has to do with the implications it can hold for the quality of accounting information. While it’s not always the root cause, it’s safe to say that inadequate accounting information is often a contributing factor to the depth and breadth of many crises. Because whereas fair and accurate accounting procedures and presentation serves the primary function of reducing informational risk, low quality and inaccurate accounting has the effect of increasing informational risk. Moreover, it’s considered accepted knowledge that the mere threat of disclosure improves various elements of management, especially risk management. And in the absence of appropriate accounting practices, management is incentivized neither to employ adequate internal controls nor manage risk effectively. So because low quality accounting information and inadequate disclosure requirements entail heightened informational risk, the reduction of which being the main purpose of the accounting function, substandard accounting information should be considered the greatest problem arising from worldwide accounting diversity.

(b)Q: Which group is most affected by worldwide accounting diversity?
A: The answer to the question of which group is most affected by accounting diversity has to do with the context and scope of the problems arising from this diversity. In terms of preparing consolidated financial statements for foreign operations, the accounting professionals responsible for the presentation of the relevant information are perhaps the group most affected.