Chapter 3 Comparative International Financial Accounting I.

Chapter 3

Comparative International Financial Accounting I

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

Founding Members of the IASC and IASB

Exhibit 3.1 Economic Data for Developed Countries

GDP PPP(in billions)

GDP Per Capita

Population (in

millions)

Unemployment

Inflation Area per sq km(in

thousands)

Imports (in

billions)

Exports (in

billions)

U.S $10,990.0 $37,800 293.0 6.0% 2.3% 9,631.4 $,1260.0 $714.5

U.K. $1,666.0 $27,700 60.3 5.0% 1.4% 244.8 $363.6 $304.5

Australia $571.4 $29,000 19.9 6.0% 2.8% 7,686.9 $82.9 $68.7

Netherlands $461.4 $28,600 16.3 5.3% 2.1% 41.5 $217.7 $253.2

Sweden $238.3 $26,800 9.0 4.9% 1.9% 450.0 $83.3 $102.8

Germany $2,271.0 $27,600 82.4 10.5% 1.1% 357.0 $585.0 $696.9

Switzerland $239.3 $32,700 7.4 3.7% 0.6% 41.3 $102.2 $110.0

France $1,661.0 $27,600 60.4 9.7% 2.1% 547.0 $339.9 $346.5

Italy $1,550.0 $26,700 58.1 8.6% 2.7% 301.2 $271.1 $278.1

Spain $885.5 $22,000 40.3 11.3% 3.0% 504.8 $197.1 $159.4

Japan $3,582.0 $28,200 127.3 5.3% -0.3% 337.8 $346.6 $447.1


Anglo-American Accounting Less conservative and more transparent

Pre-Sarbanes Oxley – what about post? United States

Focused on large corporations and interests of investors Securities markets are the dominant influence on

accounting regulation SEC has authority to formulate and enforce accounting

standards Delegated to the FASB

Only listed corporations are required by law to comply with GAAP

Very public standards-setting process – solicit input before rules go into place – Example, SFAS 96 v. 109.


Anglo-American Accounting

United Kingdom Focus on information needs of investors Securities markets dominate the process of acctg.

Regulation. Commercial/Company law has a much wider remit Accounting requirements are for all LLCs and corporations

Why LLCs too? Accounts present a “true and fair view” of company results Accounting Standards Board (ASB) recently incorporated

International Financial Reporting Standards (IFRS)


Anglo-American Accounting

Australia English influence Focus on investors rather than tax needs Australian Securities & Investments Commission

Regulate and enforce company law Australian Accounting Standards Board – creates

standards Urgent Issues Group (UIG) Financial Reporting Council oversees AASB Provides guidance for public and private sector


The Netherlands Though Nordic, more similar in approach to U.S. and U.K. Business economics approach to accounting – focus on investors and

other uses access and disclosure - voluntarily Tradition of

Public ownership of shares International business outlook

“Generally Acceptable Accounting Principles” – mandating true and fair concept in financial reporting. Provided by Council for Annual Reporting

Members from the accounting profession (NIVRA) and others Not mandated by law, but followed by most companies

Influence of Commercial law supplemented by case law is increasingly present in setting accounting standards.

IFRS required for listed companies in 2005


Nordic Accounting Nordic Countries: Denmark, Finland, Iceland, Norway, and

Sweden Sweden

Focus on creditors, government, and tax authorities Also heavily involves accounting profession in standard setting. Capital Markets important to accounting and disclosure req’ts Two-tier approach

Individual accounts – traditional basis Consolidated accounts of major groups – international capital

market needs The law provides a framework rather than detailed requirements

Accounting Standards Board and Accounting Council provide guidance in the context of company law

IFRS required for listed companies in 2005


Germanic Accounting Germany / Austria

Focus on needs of creditors and tax authorities MNEs are becoming more investor-oriented Commercial law is predominant influence

Accounting rules amend the Commercial Code Annual accounts are the basis for tax accounts

Tax rules dominate legal accounting issues Limited impact of accounting profession

German Accounting Standards Board Fair and true standard = transparent and reliable for in

German viewpoint. IFRS required for listed companies in 2005


Germanic Accounting Switzerland -

Favors needs of creditors and authorities More companies are making further voluntary disclosures – as

Swiss Securities Markets grow./ Swiss companies face competition

Very secretive and conservative system Dominated by commercial law and tax regulations

New law – 1992 Improved disclosure and protection for investors

Secret reserves are still allowed Accounting profession consists of – still relatively small

Foundation for Accounting and Reporting Recommendations – supervises the Accounting Standards Board

Recommendations elaborate and supplement company law


Latin Accounting France

Focus on needs of creditors and tax authorities Consolidated groups can report in U.S. GAAP or IAS Commercial law/tax law are the predominant influences

Focus on national economic planning Tax laws tend to override accounting rules

Small accounting profession established by law OECCA and CNCC for public accounting and auditing

Small stock market Most capital contributed by banks, government, or family French equivalent of the SEC – Commission des Opérations de

Bourse (COB) IFRS required for listed companies in 2005


Latin Accounting Italy

Focus on interests of government and tax authorities Focus is shifting because of globalization

Accounts are used as the basis for taxation Tradition of conservatism to minimize taxes

Italian equivalent of the SEC – CONSOB Slow to adopt EU directives because

External investor interests are seen as less important than family and state interests

Tendency to protect the right of companies to keep business secrets

Professional accounting bodies are advisory IFRS required for listed companies in 2005


Asian Accounting Many countries have a colonial accounting history or

foreign influence Japan

Focus on needs of creditors and tax authorities Commercial Code (similar to Germany) Corporate tax law is very influential

Leads to conservative accounting Government institutions are directly involved in standard-

setting Ministry of Finance – responsible for securities and

exchange law Ministry of Justice – responsible for application of

Commercial Code


Asian Accounting Japan continued

Accounting for business combinations is a source of concern Keiretsu – system of interlocking directorates of related

businesses formed to work together Small accounting profession

Makes recommendations on the practical application of legal accounting rules

Tendency for secrecy and a lack of disclosure Increased international focus

ASBJ in Japan is similar to the FASB in the U.S. Approximately 30 Japanese companies listed in the U.S.

prepare financial statements in accordance with U.S. GAAP.

Chapter 3 Comparative International Financial Accounting I.

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