Accounting for securities investments are different for US GAAP and foreign GAAPs. This difference can create advantages or disadvantages for companies based on where they are located. It is important to understand the differences and the economic affect they can have on investments.
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The takeover battle for Gerber Products Co. included bids by a number of U.S. companies, including Quaker Oats (now part of PepsiCo), which entered a bid of $35 per share. Swiss drug giant Sandoz Ltd. won the battle quickly, however, by raising the ante to $53 per share. Some investment bankers claimed that the favorable accounting treatment for acquisitions practiced in Switzerland gave Sandoz the advantage it needed to outbid Quaker Oats.
Accounting differences also seem to discourage certain large foreign companies from raising capital on the U.S. stock exchanges. For example, Nestle, a Swiss food giant, says it is not willing to redo its financial statements to conform to U.S. GAAP (a requirement of the U.S. stock exchanges). Some offer that the main reason is that its earnings would look much lower.
Accounting differences across countries have elicited complaints from U.S. businesses that certain foreign countries allow liberal accounting methods that provide unfair trade advantages for their local companies and capital markets.
Is it ethical for the government or stand-setting body in a particular country to set accounting standards that are designed to provide international economic advantages enjoyed solely by the companies and capital markets in that country?