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Western GAAP versus Asian GAAP

The most widely accepted method of bookkeeping in the Western world is the US GAAP (Generally Accepted Accounting Principles). Because the US form the largest capital market in the world, they also set the accounting rules in many cases. But the US GAAP method of bookkeeping is just one of many and Asian entrepreneurs normally maintain a totally different view on this issue.

Most Asian companies base their cost-calculation and profitability on the principle of cash flow. As long as a positive cash flow can be maintained they will regard a product or even entire operation worthwhile to pursue.

Abstract principles like depreciation and calculated market interest cost (fiscally-acceptable market interest percentage vs. actually paid [lower] interest cost) are normally not elements that are taken into account. Only real cost forming a direct burden on the cash flow will be considered.

This can lead to situations whereby Asian companies offer a similar product as a Western competitor against a much lower price and still make a profit because the method of profit calculation differs so greatly.

This is not a matter of unfair competition. It is only a matter of different (unwritten) GAAP. The Western countries have come to accept the US methods of bookkeeping as more or less universal. But this is a matter of cultural identification. There is no reason why Western (US) GAAP should be the global standard and the Asian methods regarded as unfair.

Doing business in Asia, with Asian partners, customers, suppliers, and Asian competitors, must also mean an acceptance of the Asian rules.