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Capital structures in different countries


You have recently obtained a new position as a manager of an international accounting firm, Smith, Lindsey, and Lueders, CPA (SLL). SLL is primarily an auditing firm. Part of your duties will be to analyze the current state of accounting with an emphasis on the international environment. An additional responsibility is that you are in charge of training the new hires for the year. The advantage of having these two responsibilities is that you can use the information gained in your accounting analysis to train your new hires.

Library Research Assignment

The new hires have been debating capital structure and its relationship to countries accounting practices. You write your notes before tomorrows' training session and include the following:

* An explanation of the 3 capital structures.
* An explanation of at least 2 causes or reasons for differences in capital structure.
* A comparison of the accounting systems in 2 countries with different capital structures, including why each country's system is the way it is.
* Pick 1 country, and explain how the capital structure they use affects their accounting system in terms of (at minimum) transparency, tax accounting, financial accounting, and regulations.

Solution Preview


Definition: The permanent long term financing of a company includes long term debt, common stock, preferred stock and retained earnings. It differs from financial structure which includes short term debt and accounts payable.

Three capital structures:

Long term debt
Amount owed for a period exceeding 12 months from the date of the balance sheet. It could be in the form of a bank loan, mortgage bonds, debenture, or other obligations not due for one year. A firm must disclose its long-term debt in its balance sheet with its interest rate and date of maturity. Amount of long-term debt is a measure of a firm's leverage, and is distinguished from long term liabilities which may include supply of services already paid for.

Common Stock
Type of security that serves as an evidence of proportionate ownership, imparts proportionate voting rights, and gives its holder unlimited ...

Solution Summary

Capital structures in different countries are examined.