The accounting procedures used in the United States, which were adapted from Anglo Saxon accounting and are very detailed and strict, are strongly influenced by the accounting profession as well as other regulatory bodies. They tend to be less conservative and more transparent than the accounting systems of other countries. On the other hand, the accounting systems of Latin American countries have been influenced by the Roman concepts of law and are more conservative and secretive.

The reasons for the differences in the accounting systems of these two regions originates from the many environmental factors that influence them such as sociocultural factors, political systems, economics and legal systems. The changing environmental factors of today and of the future will continue to shape the accounting systems of all countries to meet the needs of business. As business expands into the global environment, the industrialized countries of the world one day may share a unified system of accounting in order to enhance the comparability of financial statements.

In August of 1492, Christopher Columbus departed from Palos, Spain and two months later sighted the New World. Unbeknownst to him, he had set in place the first link connecting very different parts of the world with a new region which would come to be known as the Americas. Although people had lived in the Western hemisphere for tens of thousands of years, they had never before experienced contact with Europe, Africa or Asia until the arrival of explorers, conquerors and settlers.

Business was the greatest motivator for the exploration of new lands as European countries searched for new trade routes and products to buy and sell. It was under colonialism in the 16^th and 17^th centuries that the first foreign investments were made in the New World and elsewhere. Accounting became a function of the business environment in which it operated as each country created its own unique accounting system. These accounting systems developed and evolved because of the economic influences, educational systems, legal systems, political systems, and sociocultural characteristics of each region.

Latin America and the United States may share the Western Hemisphere, but the cultures and other factors of these two regions that affect accounting systems are very different. For example, America, settled by the British, has adapted the Anglo-Saxon accounting system while the countries of Spain and France had a great influence on the systems of Latin America. Latin accounting is used by a more developed group of countries including Argentina and Brazil, as well as less developed countries including Chile, Columbia, Mexico, Peru, and Uruguay.

It is necessary to look at the environmental factors that have influenced the accounting practices and procedures of the United States and Latin America in order to determine why each region has its own unique system of accounting.

The culture of the United States was primarily influenced by the British, although many parts of the country were explored and settled by Spain, France, Portugal and Italy. This country started out as a refuge for oppressed people of all sorts and became a melting pot of the world. America became known as the "land of opportunity".

Britain left its mark on many aspects of the American culture including the English language and Common Law. The people who became Americans when they separated from Britain’s rule had a great desire for freedom. As a result, America today is a democratic country. The United States was also formed on religious freedom. Religion continues to be a great force shaping the society today.

Beginning as an agricultural society, the United States became industrialized in the late 19th century, which has affected the quality of life in this country ever since. Former U.S. President Calvin Coolidge once stated, "The business of America is business." Since business is of utmost importance, U.S. accounting practices and procedures have evolved as the most strict and detailed in the world. A "so-called" Second Industrial Revolution of the late 19th century involved technical innovations with high capital requirements, high energy consumption, and high-speed production. International markets have become a major focus of American businesses. Society and culture continue to shape the accounting systems of the United States.

Latin America comprises 20 of the independent republics of the New World of which eighteen of the countries speak Spanish. French is the national language of Haiti, and Portuguese is spoken in Brazil. Within the Latin American countries differences abound in all areas including the business and accounting practices followed by each country. Since the Spanish expanded into Central America, Mexico, and Peru and the Portuguese settled on the coast of Brazil, these regions have been influenced greatly by the Roman concepts of law, administration and justice. As a result, a highly bureaucratic colonial system was developed, and the Spanish and Portuguese language, culture, and institutions were imposed on the natives.

Although these nations share common experiences, including long periods of independence, the Roman Catholic religion, and a culture rooted in Roman Mediterranean traditions, there are numerous differences including economic conditions, political systems, geographic factors and social structures. These differences, of course, have affected the accounting practices of each country within this region.

The historical and cultural heritage of Latin America has contributed to the uniqueness of its accounting systems. Understanding how this heritage has contributed to the characteristics of Latin American accounting is shown by Hofstede’s analysis of individualism, power distance, uncertainty avoidance and masculinity. Hofstede identified these four factors as underlying societal value dimensions that affect accounting systems.

According to Hofstede, collectivism, the opposite of individualism, indicates the preference for a tightly knit social framework which encourages secrecy. In addition, collectivism does not promote independent professional judgment. Furthermore, a preference for uniformity is consistent with a preference for strong uncertainty avoidance, and a preference for more conservative measures of profits and assets is consistent with strong uncertainty avoidance as well.

How does this analysis apply to Latin America’s accounting practices? In this region, family and friends are preferred over outsiders. In other words, collectivism is present in Latin America. Analysts of Latin American business behavior agree that a principal concern of the typical entrepreneur is to maintain family prestige. Therefore, most firm owners are not willing to give up the family-owned and managed type of corporation. Distrust and perceived power loss are a consequence of the large power distance of collectivism.

According to Hofstede, a country’s degree of individualism can be determined by its wealth, the size of its middle class, the prevailing climate, and population growth. Hofstede cited a strong correlation between this and per-capita Gross National Product. According to Hofstede, "the establishment of an effective system of formal control and a unified legal codification set an uncertainty avoiding pattern which seems to have survived as a societal norm in the countries most affected by the empire’s inheritance." Power distance in Latin America was heavily influenced by the Roman Empire.

The exchange economy of the U.S. is sophisticated and highly developed. Many multinational firms exist within this highly industrialized country. In U.S. business, financial resources are more often obtained from equity transactions than from borrowing. As a result, the shareholders are the focus of the financial statements of publicly held corporations.

There was little organized effort to develop accounting standards in the U.S. until 1929 when the Great Depression necessitated meetings between representatives of the New York Stock Exchange and the American Institute of Accountants. The purpose of this meeting was to discuss accounting and reporting issues that involved the interests of investors, the New York Stock exchange, and accountants. Since that time the securities markets have been the most dominant influence on accounting regulation in the United States.

The securities markets in Latin America are not as advanced as those in the United States. Because of political instability in many of these countries and a high degree of state ownership in the past, a sophisticated securities market has not been able to develop. Therefore, the accounting systems in this region are more conservative and less transparent than those in the United States.

Shareholders are not the focus of financial statements in Latin America since the source of finance for Latin American companies continues to come primarily from private sources. For example, according to a survey by Mexico’s Central Bank, Mexican companies obtained more than 50% of their financing last year (1998) from their own suppliers or from sister firms within their corporate groups. Banco de Mexico’s quarterly survey of commercial credit markets revealed that on average, only 27% of companies’ financing came from domestic commercial banks, with foreign banks providing only another 9.6% of the total. The survey also revealed that the majority of Mexican firms obtained no credit at all, and the most common reasons were high interest rates, reluctance of banks to lend and uncertainty over Mexico’s economy.

Recently, the stock markets in Latin America have sunk in importance. Trading has shifted to Latin stocks listed in New York as American Depository Receipts. The reason for this is that the U.S. listed stocks offer better liquidity, lower commissions and accounting practices that meet the high standards of the U.S. In fact, the U.S. stock exchange lists 106 Latin American stocks including the biggest banks, utilities, retailers, and industrial companies.

In the United States, there is a free market economy driven by supply and demand. The country moved from a rural and agricultural society to one that was urban and industrial in the late 19^th century. At that time, public accounting became an emerging profession.

Changes in the economic environment are major factors in determining the important issues of financial accounting and reporting. For instance, the growth of multinational corporations in the 1960s changed the way the financial statements of foreign subsidiaries are translated into U.S. dollars. In addition, FASB issued Statements of Financial Accounting Standards in 1972, in order to address the accounting issues associated with foreign currency and translation.

The economic environment in the U.S. has also influenced the accounting for the employer-sponsored plans for pensions and other post retirement benefits to employees. Congress passed ERISA in 1974 making a significant impact on the private pension plans in the U.S. Because of the increase in the economic burden of employer sponsored post retirement benefit plans and the influence of ERISA, the APB issued Opinion No. 8 "Accounting for the Cost of Pension Plans’ in 1966. In 1985, two FASB Statements of Standards were issued. The FASB issued yet another statement concerning post retirement benefits in 1990. These statements caused unreported or understated expenses and liabilities to appear in the employer’s financial statements.

Democracy has allowed private enterprises to flourish in the United States. The Industrial Revolution, with its mass production and the need for fixed assets, changed the needs of accounting systems.

In contrast to the political policies of the United States, Latin America has experienced central planning, although many countries have been successfully transforming their political systems in recent years. Some countries have progressed further than others towards democracy, but overall, the politics in the region have stabilized significantly in the past 15 years. Argentina, Brazil, Costa Rica and Mexico standout as role models in this area.

A shift from military rule to democratically elected governments have made possible social and economic programs creating growth in the region. Foreign investment in Latin America, much of it by U.S. companies investing in Venezuela, Mexico and Brazil, increased by 28% between 1996 and 1997.

Many of the democracies that have sprung up in Latin America are very fragile. Confidence in the honesty and integrity of company management in the handling of finances must be built up because of the distrust of all government leaders which is caused by decades of governmental corruption.

Distrust also stems from the governments belief that international corporations have exploited their resources and that international lending institutions, such as the IMF, have infringed on their sovereignty by demanding economic reform in exchange for loans.

Latin America began with a centralized trading system designed to exclude foreigners, but the gold and silver tempted outsiders. In the 18^th century the emphasis was on agricultural exports, mining, administrative efficiency, defense and expansion of production. By the 19^th century, countries were ruled by conservative dictators, and British commercial power became dominant in this region of the World.

The U.S. succeeded Britain as Latin America’s principal market and source of investment capital. In addition, privatization of major industries has become a recent trend. In fact, privatization programs have brought large amounts of capital to governments which has encouraged internal economic activity. By the late 1990s, as most Latin American countries became democratic and had a large urban middle and working class, there was a push to abolish custom barriers and create free trade throughout the Americas.

The North American Free Trade Agreement, implemented in 1994, promotes the free flow of goods between Canada, Mexico and the U.S. by eliminating tariff and non tariff barriers over a period of 15 years. Regional customs unions already in effect included the Central American Common Market, the Andean Common Market, the Caribbean Community (CARICOM) in the Caribbean and Mercosur in the Rio de la Plata basin of South America.

High population growth, unequal land distribution, and illegal drug production continue to be obstacles to a capital-intensive, technologically sophisticated economy in many of the Latin American countries. Furthermore, high debt levels in Latin American countries hinder development efforts and complicate relations with creditor nations. Still, the Latin American countries continue to strive for democracy, a stable economic environment, privatization of business and expansion into the global environment. All of these political and economic changes bring with them a need to change Latin American accounting systems in order to compete in the world market.

In the United States, CPAs are well educated and respected as professionals. By the year 2000, CPA’s must have 150 hours of college education in order to sit for the exam. In addition, those candidates who have passed the exam and want to be licensed must have one year of public accounting experience or two years of experience employed in another industry in an auditing or accounting position under the supervision of a CPA.

In the United States, the AICPA Code of Professional Conduct addresses the need for ethics in the accounting profession. This involves dealing with environmental issues and increased profits at the expense of society such as lake pollution, hazardous products, and false advertising just to name a few. The AICPA Code of Professional Conduct defines ethical behavior as consistent with the values of society. The values of society may differ from nation to nation, but in the United States the Code of Professional Conduct lists six principles of ethical and professional conduct which "call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage."

Qualifications of accounting professionals vary between the United States and Latin American countries, and even within the Latin American countries themselves. The following describes a more developed accounting profession found in Mexico:

The accounting profession is well established in Mexico and has been recognized since 1907. All companies are required to keep at least a basic set of books and financial statements in Spanish and Mexican currency. Along with the different accounting and tax rules for Mexico, the currency issue makes the understandability of the financial statements for foreigners very difficult without the assistance of a local accountant.

The governing body of the Mexican accountants is the Mexican Institute of Public Accountants (MIPA) founded in 1923. It is a federation of 55 state and local associations of registered public accountants and is an independent, non governmental professional organization. This organization has 15,000 members which represent the majority of public accountants. In fact, 40% of the members actively practice public accounting.

Committees of the MIPA establish accounting principles, auditing standards, and accounting ethic rules for Mexico. The MIPA Accounting Principles Commission develops and proposes standards, but the MIPA National Executive Committee has actual authority to issue the accounting pronouncements.

Mexico’s accounting practices are influenced heavily by U.S. GAAP, and are considered to be in compliance with the International Accounting Standards. In fact, MIPA is a founding member of the IASC and translates IAS’s into Spanish. An accounting bulletin requires mandatory application of IAS’s whenever Mexican GAAP has not addressed an issue.

The title of Public Accountant is a degree given by Mexican universities upon graduation of four or five years of courses and other requirements, including a thesis and a verbal test. Despite these strict requirements, there is concern about how well-prepared students are because of the lack of computer education and of well-trained teachers (only 20% of the faculty teach full-time and for low wages).

A university degree allows the public accountant to put CP before or after his/her name. If the CP wants to practice, he or she must register at the licensing office of the Federal Ministry of Education. In addition, if the CP wants to practice before tax authorities, membership in the local association of public accountants is required. Furthermore, the CP must fulfill continuing professional education requirements of 60 hours every 2 years.

The role of a company CPA is different in Mexico than in the U.S. The CPA, or auditor, who audits the books in Mexico is required by law to produce a Dictamin Fiscal which is a personal guarantee to Hacienda, the Mexican tax authority, that all the taxes of the company have been properly reported and paid. An auditor who issues a Dictamin Fiscal and is later found to have been incorrect can lose his license as well as suffer penalties. Therefore, the company’s auditor is of little use in any strategic tax planning because he or she tends to be extremely conservative.

Inflation influences financial accounting in the way a company reports data during periods of high inflation. The U.S. is currently experiencing a period of relatively low inflation, but it has suffered from high inflation in the 1970s and early 1980s. FASB’s 1979 Statement of Financial Accounting Standards No. 33 was issued during this period and required disclosure of both historical cost data and current cost data. Enthusiasm for this data on changing prices decreased as the inflationary period passed, and in 1986 the FASB issued Statement of Standards No. 89 which made supplementary reporting of data on changing prices voluntary.

The World Bank annual report for 1997 stated that inflation slowed down during 1990, and a number of countries have committed to economic reform and resulting growth, particularly Argentina, Brazil, El Salvador, Mexico and Peru. Inflation had fallen to around 10%.

Some kind of inflation accounting system is used in two of the Latin American countries, Argentina and Brazil. In Argentina, the financial accounts are produced in a two-stage process: (1.) historic-cost accounts are adjusted on a current-purchasing-power basis, enabling identification of gains and losses on monetary items and (2.) non-monetary items are restated at current values.

In Brazil, historical cost is seen as unusable. The usefulness of an accounting system is limited by the combination of hyper-inflation, political instability, and economic volatility. In addition, because of the size of the country and the diverse markets, general price indexes are meaningless and only specific price adjustments can give useful information.

In Peru, costing records normally follow the national accounting plan, which is based on the French model. In large companies the budgets are revised frequently because of inflation.

As stated earlier, there is a great influence on standard setting by the accounting profession in the United States. Company law is supplemented by professional regulation.

Because of the democratic system in place in the U.S., accounting standards developed in an efficient way with due process and in a public setting. Since accounting is a part of a broader social system in this country, the standards are not always perfect because of the influence of the external user groups. Proposed standards are often changed because of written comments, public hearings, and lobbying. Some people argue that the setting of standards has become more political than technical. Nevertheless, the Financial Accounting Standards Board (FASB) is always developing new accounting standards and continuing or changing existing ones in order to meet the best interests of financial statement users. FASB has been delegated the authority for standard setting by the Securities and Exchange Commission (SEC) which was created to administer securities acts under power provided by Congress. FASB is part of the private sector.

U.S. Generally Accepted Accounting Principles (GAAP) include guidelines, procedures, and practices that a company is required to use in the recording and reporting of accounting information in audited financial statements. Financial statements must follow the rules set out by the pronouncements issued by policy making groups.

In addition to the influence of the SEC and FASB on U.S. GAAP, other organizations and regulatory agencies that have had an effect on financial accounting and reporting are the American Institute of Certified Public Accountants (AICPA), FASB’s Emerging Issues Task Force, the Internal Revenue Service (IRS), Congress, and the International Accounting Standards Committee (IASC).

The Internal Revenue Service needs further comment. The federal income tax law, created in 1913, had an important impact on the financial reporting practices in the United States. Although the Internal Revenue Code does not directly affect financial accounting practices, U.S. companies adopt methods and procedures resulting in the lowest taxable income.

The differences between FASB and the IRS can be described as differences in objectives. Tax accounting has a purpose of equitable collection of revenue, while financial accounting provides useful information to management and other users of financial statements. These differences require that a company keep two different sets of books - one for income tax purposes; another for financial statement use.

There is little guidance on financial reporting from either legislation or the accounting profession in Brazil and Columbia. Although the Brazilian government is promoting a National Accounting Commission, the main influence on the accounting practice in Brazil is from the authorities. Basic legal requirements regarding most accounting recommendations come from the accounting profession in Chile, El Salvador, Mexico, and Paraguay.

In five of the Latin American countries there is some form of official guidance on cost or management accounting practices. Three of those countries, Cuba, Guatemala, and Peru have received guidance through a detailed chart of cost accounts in the "accounting plan". The Institute of Accountants in Chile publishes a series of technical bulletins on management accounting issues.

In Argentina, the Ministry for the Economy has commissioned the Institute Argentina de Profesores Universitarios de Castes (IAPUCO) to provide recommendation on the best practice in cost accounting. There is no form of official guidance on cost or management accounting in Brazil, Columbia, Ecuador, El Salvador, Mexico, or Paraguay.

Concerning the tax authority and the influence it exerts over accounting systems, in Latin America the financial accounting standards closely follow the tax rules established by the governments. What procedures and principles apply for taxes often apply as well for the balance sheet and the income statement.

Hacienda, the Mexican tax authority, requires more documentation than the IRS. Documentation is required for transactions such as sales, purchases, invoices, and bills of sales. It requires a lot of work to maintain transaction documentation in Mexico.

Mexican tax law has a built-in inflation adjustment factor. This means that a company’s net income will be adjusted for tax purposes based on inflationary gains or losses on its balance sheet.

The FASB has joined with the standard setters in Mexico and Chile to explore the areas in which these countries can cooperate on minimizing the differences in accounting standards. The organization assigned to work on this project is the American Free Trade Agreement Committee for Cooperation on Financial Reporting. It strives to serve the information needs of users by providing them more ability to compare and analyze businesses as a result of unified standards and procedures.

NAFTA encourages the professional organizations in the three regions (United States, Canada, and Latin America) to work toward common standards and criteria for licensing, including education, examinations, experience, conduct and ethics, and continuing education. It also encourages the countries to develop an approach to mutual recognition of professional credentials.

The Mexican Institute of Public Accountants and the FASB have been conducting a joint project comparing the conceptual frameworks from which their accounting standards are formed.

The Mexican National Securities Commission is comparable to the U.S. SEC. It issues accounting rules for companies listed on the Mexican Stock Exchange in order to facilitate the comparability of financial statements of publicly traded companies. In addition, statements on accounting principles are issued through the Accounting Principles Commission (APC) made up of public accountants and representatives of the National Securities Commission, Stockbrokers Association, banks, and other financial organizations. Most large Mexican companies comply with Mexican GAAP, and those quoted on the stock exchange are required by law to comply. Mexican GAAP prepared by the APC is less comprehensive, less detailed, and less specific than U.S. GAAP.

Accounting to record business transactions dates way back to 3600 BC, although double entry accounting wasn’t developed until somewhere between the 13^th and 15^th centuries. Accounting began to adapt to entirely new needs of business with the onset of the Industrial Revolution in the 1900s, which gave birth to the technology of mass production and the use of fixed assets. Accounting today continues to adapt in even new ways with the emergence of mergers, acquisitions, multinational corporations, and world trade.

There are many obvious differences between the United States and Latin America, including the imbalance of size, wealth, and the level of development of these two regions of the Western Hemisphere. For example, U.S. GNP is approximately 10 times that of Brazil, 22 times that of Argentina, 110 times that of Venezuela, and 4 times that of the region as a whole.

The currency used in Latin America is not only different from that used in the United States, but also from that used country to country within Latin America. Even the terminology used in the financial statements is different, as well as the amounts of information disclosed and the procedures used to arrive at the final figures (rules of valuation, recognition, realization).

The United States continues to be a world model for accounting, while Latin America struggles for political and economic stability as it strives to be a player in the global markets. As change continues in the economy and politics of Latin America, the accounting systems will continue to evolve as well. The environmental influences of the past have developed the accounting systems of the United States and Latin America. The influences of today and tomorrow will continue to shape those systems.