2 Why jurisdictions have different rules
2.1 Accounting rules and reality
In a seminal article, Hines (1988) demonstrates that when we draw up accounting rules, we determine what view of reality we present. At its simplest, if we decide that internally-generated intangibles should not be measured, we also determine that a whole class of assets owned by a company is not part of the picture given by the balance sheet, and therefore the ‘reality’ that the balance sheet is supposed to reflect is shaped by our decision on the accounting rules.
Those who make the accounting rules determine which aspects of the company are highlighted, and which are neglected, in financial reporting. Of course, they do not create something that does not exist (although some companies do try to use the rules that way!), but accounting rules always reflect some perception of which aspects of a company can and should be measured.