The International

Accounting Environment

Chapter 9

C9 2

Scope of International Business Activity• Can range from export/import activity to

operations of a multinational enterprise

• Growth of the European Union (EU)

• North American Fair Trade Agreement (NAFTA)

C9 3

The Need for International Accounting• Need for comparable data

• Information to serve international capital markets

C9 4

The Focus of International Accounting

• Identification and understanding of the various organizations and their interests involved in the process of establishing international accounting and auditing principles and standards

Primary Areas of Interest Include:

C9 5

International Accounting Focus, continued• Identification and understanding of principles

of financial, managerial, and taxation accounting used in different nations, especially how they differ between those nations

• Special accounting valuation and recognition principles associated with foreign currency transactions

• The translation of financial statements to different currencies

C9 6

Factors Influencing the Development of Accounting

• Social and cultural values

• Political and legal systems

• Types of business activities and economic conditions

• Standard setting processes

• Forms of ownership and capital markets

• Cooperative efforts between nations

C9 7

International AccountingClassification Systems• Help in understanding accounting differences

between countries

• Can center around various characteristics including cultural differences

C9 8

Classification Basedon Cultural Differences

• Anglo-Saxon accounting

• Germanic accounting

• Nordic accounting

• Latin accounting

• Asian accounting

C9 9

Harmonization of Accounting Principles• The goal is a flexible approach to improving

comparability of financial information, including the adoption of international accounting standards

• The benefits of harmonization would extend to a variety of users including governments, regulatory agencies (SEC), individual investors, and trading partners

C9 10

Approaches to Harmonization

• Bilateral agreements between two or more countries

• Single economic trading environments, such as the European Union

• International standard setting involving professional accounting organizations

C9 11

The International Accounting Standards Committee (IASC)

• An independent private organization founded in 1973

• Taking a global approach to standard setting

• Membership consists of professional accountancy organizations representing over 100 countries

• Business is conducted by a Board and a consulting group

C9 12

Major Objectives of the IASC

• Formulate and publish standards on financial accounting and reporting and to promote their worldwide acceptance

• Work for the harmonization of accounting standards and procedures relating to the presentation of financial statements

C9 13

International Accounting Standards (IAS)• Issued by the IASC

• In some instances the standards differ from U.S. GAAP

• Promulgated standards are being accepted by a number of countries and organizations

• Standards serve as a benchmark against which developing and established accounting principles may be evaluated

C9 14

International Federation of Accountants (IFAC)

• A private organization whose membership is the same as that of the IASC

• Concerned with aspects of the professional practice of accountancy

• The leading organization for the international accounting profession

• Not involved in the establishment of international financial accounting standards to the same degree as the IASC

C9 15

Other Issues of International Importance• Transfer pricing strategies

• Differences in tax systems