Chapter 2 enrironmental influence on accounting development



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2.3.2 Legal Factors


Legal factors are concerned with one country’s legal system, taxation, and/or accounting legislation. These factors may affect one’s country’s Source of or Authority for Accounting Standards, accounting function, accounting pattern, as well as the details of accounting regulation.

Legal system

Different countries have different national legal systems. It was suggested that many countries in the world can be put into one of two categories with respect to their main legal system: common law and Roman (or civil) law.

Civil law is a legislative system in which company law or commercial codes need to establish rules in detail for accounting and financial reporting. For example, in Germany, company accounting is to a large extent a branch of company law. Accounting becomes effectively a process of compliance with the laws of the country. Similarly, official audits is performed by statutory auditors in order to certify that financial statements have been prepared in accordance with the law.

Common law is basically non-legislative law whose rules seek to provide an answer to a specific case rather than to formulate a general rule for the future. This naturally influences company law, which traditionally does not prescribe a large number of detailed, all embracing rules to cover the behaviors of companies and how they should publish their financial statements. To a large extent, accounting within such a context is not dependent upon law. Other general differences include the size and sophistication of government and the proliferation of regulatory agencies and commissions. All these legal differences imply different accounting practices internationally since accounting may be used to implement some of these laws.






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