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Financial accounting issues in commercial lending institutions: across-cultural study

As the number and complexity of financial reporting standards (generally accepted accounting principles [GAAP]) continue to grow, non publicly-traded companies find it increasingly expensive to use the GAAP-basis of accounting. Likewise, small and medium-sized businesses often see no benefits in seeking the services of independent certified public accountants (CPAs) to audit or review their financial statements. Previous research reveals some evidence that small businesses are turning away from the GAAP-basis and find appeals in using other bases of accounting. This study investigates the significance of using alternative accounting basis as well as the extent of CPAs involvement with small or medium-sized firms for commercial banks’ lending decisions. Because banks represent a significant source of credit in most countries, particularly for small and medium-sized companies, bankers’ perceptions of reliability of financial statements has been used as the basis for this investigation.The study uses a cross-cultural design in order to detect any significant differences between the lending practices of the American and Asian-Pacific bankers. The results indicate that while both American and Asian banks require balance sheets and income statements in considering all commercial loan applications, variations abound with respect to other financial reporting issues. However, no cross-cultural differences were found concerning the choice of the accounting basis orthe required extent of financial statement verification.

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