International Versus U.S. Accounting Standards

Abstract

Accounting practices require high adherence to the standards because standards are critical in the determination of the performance of any company. Companies that produce goods and services of high standards attract their customers because they are satisfied with that company’s products. This customer satisfaction also helps attract investors, as they are sure the company can generate profits. This paper aims to review the company’s financial statements in adherence to the GAAP. It aims to discuss the international factors found in the compliance and the cost issues between the two companies and therefore analyze any potential causes of the increase in the prices or even decrease in the prices, and the problems, which may arise from any of these.

Introduction

There are different standards of the products in the United States and International sector because the standards of the products in the public sectors in the U.S. is determined by the Generally Accepted Accounting Principle, denoted by GAAP, which was established by the Government Accounting Standards Board and the Federal Accounting Standard Advisory Board (Barth et al., 2016). The GASB regulates state and local standards, and the FASAB regulates federal standards. The measures in the international level sectors must adhere to the regulations of the International Financial Reporting Standards, IFRS, and the International Public Sector Accounting Standards, which also play a critical role in ensuring that the international standards are acceptable (Weygandt et al., 2018). In this paper, we will compare the U.S. and an international company by looking at Tesla Company in the U.S. and NIO. This Chinese international company deals with electric car manufacturing.

Part 1: Comparison of financial statement.

A comparison of the financial statements of the two companies is necessary when analyzing the similarities and differences between the two companies in determining the accounting standards. Tesla is a U.S. company that deals with the manufacturing of electric cars, which is often based in Austin and TX and operates under the regulation of the GAAP to ensure that the products, which are cars, are in the required standards. NIO is also an electric car manufacturing company headquartered in Shanghai, China. The financial statements of this company need to show better which accounting standards regulate this company, as per their Q1 2021 note; there is a non-GAAP disclosure in the company, which cannot be known as to which accounting standards regulate this company. The non-GAAP are supplements to the financial standards of the company.

Numerous differences can be observed when the financial statements of the two companies are analyzed. Delivery of the financial statements is the first notable difference that can be observed between the two companies. The financial statement of the NIOs opened with the Q1 2020 to Q1 2021 highlights and the highlights of Q1 2021. The financial statements of the Tesla Company opened with the complete sales data set (Kikkas, 2020). This data has yet to be discussed, taking concern of the NIOs financial statement, which can be considered that the company may be hiding some financial and other sales data because of this manner of presenting data. There is also another difference in the financial statements of the two companies, considering Tesla’s indication of the projection of future innovations and improvements in the company. NIOs company financial statements only focused on discussing sales and unaudited financial records, as shown in Tesla’s financial statements. There is also another difference shown at the end of the financial statement. In the closure of their financial statements, Tesla also focuses on discussing their outlook, future growth plans, cash in hand that can fund their growth plans, and introducing new lines at different locations to ensure that they expand their operations.

After analyzing these financial statements, it is clear that the financial statements for Tesla are easy to understand because, compared to NIOs, the Teslas data even provides the most accurate cost data. The financial statements could be more precise due to the diluting highlights and variations in the revenues and losses, making them difficult to understand. The financial data for the NIOs is similar to that of Tesla. However, the way this company presents this data needs to be more apparent to the audience, making it difficult to understand. The financial statement for the Tesla Company is under4stable to the audience and the stockholders.

Part 2: International factors.

Internal factors in companies also play a critical role in determining the price of the products, as they can increase or decrease the cost. Three major internal factors were identified for these companies, which are;

1. Economic factors

There was a worldwide shortage of products due to the increased demand for semiconductors and the Covid 19 pandemic (Ramani et al., 2022). This is seen by the microchip’s increase in prices, which makes the cars or the products from the company expensive. When the demand for the product is high, the product may be highly purchased so that it is less in the market supply, which will make the product sellers increase their price for that product. The final product from it is also expected to be high. The cars in both companies increased in price following this kind of demand increase in the microchips.

2. Political factors

Changes in the policies for external trades, restrictions and tariffs in the country’s government also lead to an increase in the prices of the products (Le et al., 2021). Any additional tariffs and restriction charges against the product will be responsible for pricing. Both companies sell their products in the local market within the based countries, and therefore increasing the costs for exports will lead to an increase in the prices of the company’s product.

3. Environmental factors

The increase in renewable energy has caused a reduction in the usage of fossil fuels, which has made electric cars to be the only alternative (Zhao, 2021). This has drastically led to an increase in the demand for these cars, which has increased the prices for the cars.

Part 3: Compliance or regulatory issues.

GAAP has pointed to compliance issues in the NIO company because it must abide by the accounting standards. This may cause severe problems for the company even if it intends to sell electric cars worldwide because it is essential to consider the regulations for the GAAP and IFRS (Turlington, 2020). The European Union has also laid forward regulations for producing the batteries which run these electric cars, storage and their care. These regulations should also be considered to ensure all products are produced to an acceptable standard.

Conclusion and Recommendations

The accounting policy standards differ in different countries and companies, but they are very critical in the growth of the company and also fundamental for all companies. From the review of the U.S. adherence to the GAAP and the NIO’s failure to abide by the GAAP, it is clear that these regulations are very crucial in determining the performance of the company and the company that sets forward abiding by this regulation of the GAAP is competitive in the market. This also benefits the stockholders and the company because the customers for the products are assured of the product. Companies should therefore consider operating under the rules and regulations of these accounting standards policies such as GAAP and IFRS (Barth et al., 2018). NIO should adopt standard accounting practices to ensure that the customers are assured of its product. Through this, the company can expand its operation and realize more profits.

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