Chapter 3
Comparative International
Financial Accounting I
Strategic Decision Point

IASB was created to increase comparability



How will differing cultures interpret standards?
Will standards be applied consistently?
What can the IASB do to mitigate this issue?
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
Populatio
n (in
millions)
Unemplo
yment
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
$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
Switzerland
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
Anglo-American Accounting


Less conservative and more transparent
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
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
Anglo-American Accounting

United Kingdom





Focus on investors
Company law has a much wider remit
Accounting requirements are for all LLCs and
corporations
Accounts present a “true and fair view” of
company results
Accounting Standards Board (ASB) will
incorporate International Financial Reporting
Standards (IFRS) by 2005
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
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
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
The Netherlands


Business economics approach to accounting
Tradition of



“Generally Acceptable Accounting Principles”




Public ownership of shares
International business outlook
Provided by Council for Annual Reporting
 Members from the accounting profession (NIVRA) and
others
Not mandated by law, but followed by most
companies
Company law is supplemented by case law
IFRS required for listed companies in 2005
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
Nordic Accounting


Nordic Countries: Denmark, Finland, Iceland, Norway, and
Sweden
Sweden


Focus on creditors, government, and tax authorities
Two-tier approach



The law provides a framework rather than detailed requirements


Individual accounts – traditional basis
Consolidated accounts of major groups – international capital
market needs
Accounting Standards Board and Accounting Council provide
guidance in the context of company law
IFRS required for listed companies in 2005
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
Germanic Accounting

Germany






Focus on needs of creditors and tax authorities
MNEs are becoming more investor-oriented
Company 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
IFRS required for listed companies in 2005
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
Germanic Accounting

Switzerland




Favors needs of creditors and authorities
More companies are making further voluntary disclosures
Very secretive and conservative system
Dominated by company law and tax regulations
 New law – 1992



Improved disclosure and protection for investors
Secret reserves are still allowed
Accounting profession consists of
 Foundation for Accounting and Reporting
Recommendations – supervises the Accounting Standards
Board
 Recommendations elaborate and supplement company law
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
Latin Accounting

France






Focus on needs of creditors and tax authorities
Consolidated groups can report in U.S. GAAP or IAS
Company law and 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
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
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
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
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 standardsetting
 Ministry of Finance – responsible for securities and
exchange law
 Ministry of Justice – responsible for application of
Commercial Code
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
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.
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
Chapter 4
Comparative International
Financial Accounting II
Strategic Decision Point

Developing nations







Questionable integrity and transparency in financial reports
Being left behind in creation of international standards
Trouble in obtaining international capital
Trouble reaching full potential
What can the accounting profession do to aid these
developing countries?
What can be done to ensure proper compliance in
these countries?
IASB is discussing standards for small MNEs
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Comparative Information
Exhibit 4.1 Economic Data for Developing Countries
GDP PPP
(in
billions)
GDP Per
Capita
Populatio
n (in
millions)
Unemplo
yment
Inflation
Area per sq
km
(in
thousands)
Imports
(in
billions)
Exports
(in
billions)
$3,033.0
$2,900
1,065.1
9.5%
3.8%
3,287.6
$74.2
$57.2
$207.8
$9,000
23.5
3.6%
1.1%
329.8
$74.4
$98.4
$1,375.0
$7,600
184.1
12.3%
14.7%
8,512.0
$48.3
$73.4
Argentina
$435.5
$11,200
39.1
17.3%
13.4%
2,767.0
$13.3
$29.6
Mexico
$941.2
$9,000
105.0
3.3%
4.5%
1,972.6
$168.9
$164.8
$6,449.0
$5,000
1,298.8
10.1%
1.2%
9,597.0
$397.4
$436.1
Indonesia
$758.8
$3,200
238.5
8.7%
6.6%
1,919.4
$40.22
$63.89
Thailand
$477.5
$7,400
64.9
2.2%
1.8%
514.0
$65.3
$76.0
Poland
$427.1
$11,100
38.6
20%
0.7%
312.7
$63.7
$57.6
Russia
$1,282.0
$8,900
143.8
8.5%
13.7%
17.075.2
$74.8
$134.4
$161.1
$15,700
10.2
9.9%
0.1%
78.9
$50.4
46.8%
India
Malaysia
Brazil
China
Czech
Republic
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Comparative Information
Exhibit 4.2 Number of Companies in Developing Countries listed on Foreign Exchanges
NYSE
NASDAQ
London Stock Exchange
India
8
3
17
Malaysia
0
0
3
Brazil
37
1
0
Argentina
10
3
1
Mexico
22
3
0
China
17
0
5
Indonesia
2
0
2
Thailand
0
0
0
Poland
0
0
8
Russia
6
0
4
Czech Republic
0
0
3
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Comparative Information
Exhibit 4.3 IFRS Acceptance
Not Permitted for Permitted for
Domestic
Domestic
Listed
Listed
Companies
Companies
India
?
Malaysia
X
Brazil
X
Argentina
X
Mexico
X
China
?
Required for Some
Domestic
Companies
Required for All
Domestic Listed
Companies
?
X
Indonesia
X
Thailand
X
Poland
Russia
?
X
X
Czech
Republic
X
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Comparative Information
Exhibit 4.4 Other Country Data
Legal Origin
Income Group
Rating on Accounting
Standards*
India
English
Low
45
Malaysia
English
Upper Middle
76
Brazil
French
Lower Middle
54
Argentina
French
Upper Middle
45
Mexico
French
Upper Middle
60
China
German
Lower Middle
52
Indonesia
French
Low
65
Thailand
English
Lower Middle
64
Poland
German
Upper Middle
36
Russia
Socialist
Lower Middle
32
Czech Republic
German
Upper Middle
38
*Higher scores indicate higher rating on accounting standards
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Anglo-American Influence


Less conservative and more transparent than
German and Latin countries
India



Significantly improved economy over past decade
Focus on needs of investors
Institute of Chartered Accountants in India (ICAI)
and the Accounting Standards Board (ASB)


Create and modify accounting standards
Give consideration to IAS and IFRS issued by IASB
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Anglo-American Influence

Malaysia





Rapid growth over the last 30 years
Anticipated growth in GDP, private consumption,
and private investment
Focus on needs of investors
Financial Reporting Foundation (FRF) oversees
the MASB
MASB tries to converge with IFRS
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Latin Accounting


More conservative and secretive compared to
Anglo-American accounting
Brazil


Focus on needs to creditors and tax authorities
Government, company law, and tax regulations influence
accounting
 Corporation law of 1976
 IBRACON and the Federal Accounting Council issue
accounting standards
 CVM – Securities Exchange Commission



Sets standards for listed companies
Approves IBRACON and FAC standards
Brazil has one of the major markets in Latin America
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Latin Accounting

Argentina
 Focus on needs of creditors and tax authorities
 Standards set by the Argentine Federation of Expert
Councils in Economies (FACPCE)


Confusion on what standard to follow in regard to
General Price Level (GPL) accounting




Councils may ratify or amend each Technical Resolution (TR)
Takes inflation into account
Government no longer accepts GPL adjusted financials
FACPCE – GPL is optional is inflation is below 8%
FACPCE works toward harmonization with IFRS, but
believes differences should still exist
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Latin Accounting

Mexico




Focus on needs of creditors and tax authorities
Economic development has improved since NAFTA was
created
Strongly influenced by U.S. GAAP and GAAS
Professional accountancy
 IMCP – similar to AICPA




Issues standards and professional code of conduct
Formed the Mexican Council for Research and Development of
Financial Reporting Standards (CINIF)
CINIF issues Mexican standards inline with IFRS
70% in line with international standards at beginning of
2005
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Asian Accounting

China





Focus is shifting from government to investors, creditors,
and management
Information must now meet more than the needs of
macroeconomic control
The Accounting Law of the People’s Republic of China
 Established principles on nature & role of accounting
 Ministry of Finance empowered to issue standards
New standards are unified and market-oriented
Accounting Society of China and Deloitte Touche
Tohmatsu have aided in reforming accounting
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Asian Accounting

Indonesia




Dutch influence in the beginning
Focus on needs of investors
Asian crisis hurt Indonesia, but reforms have
returned Indonesia to pre-crisis levels
Financial Accounting Standards Board (DSAK) of
the Indonesian Institute of Accountants

Working to harmonize standards with IFRS
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Thailand





Accounting system values transparency
Focus on needs of investors
Asian crisis
 Implemented reforms to increase corporate governance and
competition
 Economy recovered quickly and has since sustained growth
Accounting standards issued by
 Institute of Certified Accountants and Auditors of Thailand
(ICAAT)
 Standards approved by the Ministry of Commerce
Thai SEC
 Requires all listed companies on the Exchange of Thailand to be
reviewed by independent auditors
 Supervises all listed companies
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Eastern-European Accounting

Poland





Attempted the shock therapy model – 1990
 All reforms made at once
A leader among the transition countries
Transition made in three stages
 1991 – Decree issued by Ministry of Finance establishing
rules for transition to market economy
 1994 – “True and fair view” adopted
 2002 – Standards more in line with IFRS
Became EU member in 2004
Will adopt IFRS in 2005
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Eastern-European Accounting

Russia



Differs from other transition economies
 Share of new enterprises is low compared to other
economies
 Many soviet-style units still exist that are operating at
losses
 Growth is constrained by reliance on oil and gas
 Dominated by unreformed monopolies
Accounting rules created by Ministry of Finance
Central Bank of Russia creates standards for
 Banks
 Credit institutions
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Eastern-European Accounting

Russia





Focus on taxation needs of the country
Highly reflects the result of a planned economy
Consolidated statements prepared using IFRS
Individual company statements prepared with
antiquated Russian Accounting Standards (RAS)
Purpose of conversion to IFRS is to


Increase transparency
Encourage investment
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black
Eastern-European Accounting

Czech Republic





Gained independence in 1993
Tried the shock therapy method
 Ran into problems with inflation
Working to conform with IFRS
 Accounting Act of 2002 – companies can opt for IFRS over
Czech rules
 Will adopt IFRS by 2005 as a member of the EU
More market-driven accounting standards exist
Tax system still depends on accounting rules
 Government must change this or lose power over tax base
International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black