Chapter 3
Comparative International
Financial Accounting I
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


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.
International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black
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)
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



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
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
Also heavily involves accounting profession in standard setting.
Capital Markets important to accounting and disclosure req’ts
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 / 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
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 – 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
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
 Commercial law/tax law are the predominant influences



Small accounting profession established by law


OECCA and CNCC for public accounting and auditing
Small stock market



Focus on national economic planning
Tax laws tend to override accounting rules
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