Chapter One

Presentations in
Prepared by
James Myers, C.A.
University of Toronto
© 2010 McGraw-Hill Ryerson
Chapter 1, Slide 1
© 2010 McGraw-Hill Ryerson Limited
Chapter 1
A Survey of
International Accounting
Chapter 1, Slide 2
© 2010 McGraw-Hill Ryerson Limited
Learning objectives
To identify factors that can influence a country’s
accounting standards
To describe areas where Canada’s accounting
standards differ from those used in other countries
To identify the role the IASB intends to play in the
establishment of uniform worldwide accounting
To identify the direction that the CICA intends to follow
for public and private companies
To identify the direction that the FASB intends to
follow for public companies
Chapter 1, Slide 3
© 2010 McGraw-Hill Ryerson Limited
GAAP variances and standardization
Past GAAP variations between countries caused
financial measurement and presentation
GAAP differences have included incomesmoothing techniques, variances in asset
measurement and revaluations, and the differing
nature and extent of disclosures.
Globalization of commerce and capital has
increased the number of multinational
companies and therefore the need to
standardize financial reporting.
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Chapter 1, Slide 4
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Comparability and cost-benefit constraint
The comparability objective of financial reporting is
impaired by differing standards.
For example, to improve comparability to U.S. public
companies, the U.S. Securities and Exchange
Commission (SEC) has required Canadian
companies that trade on U.S. exchanges to
reconcile their net income from Canadian GAAP to
The cost of preparing financial statements under
multiple GAAP standards is significant and hinders
the international flow of capital.
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Chapter 1, Slide 5
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Factors that Influence a Country’s Accounting Standards
The following factors can affect national accounting standards:
 Taxation: how closely is taxable income based on accounting
 Capital markets: in countries where publicly traded debt and
equity are the major source of business financing, disclosure
standards are greater.
 Legal systems: Code law countries set GAAP in legal statutes;
private bodies (e.g. CICA or FASB) set GAAP in common law
 Ties between countries: GAAP can be similar between
countries with political or economic ties.
 Inflation levels: Countries with high inflation often diverge from
historical cost.
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Chapter 1, Slide 6
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Harmonization in the European Union
27 European Union (EU) member countries in
2009, 17 of which use the Euro as a common
EU has attempted to harmonize accounting
principles of member countries by issuing
“directives” which often allowed flexible,
alternative reporting practices.
A 1983 EU directive required the consolidation of
subsidiaries, a change in practice for a number of
member countries.
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Chapter 1, Slide 7
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International Accounting Standards Board (IASB)
Successor in 2001 to International Accounting Standards
Committee (IASC). Canada was a founding member of the
IASC in 1973.
Current IASB objectives:
To develop a single set of high-quality, global accounting standards that
require transparent and comparable information in general purpose
financial statements
To cooperate with various national accounting standard-setters in order
to achieve convergence in world standards
38 IASB standards in force as of 2009.
IASB will introduce new International Financial Reporting
Standards (IFRSs) and International Accounting Standards
(IASs) in the future.
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Chapter 1, Slide 8
© 2010 McGraw-Hill Ryerson Limited
International adoption of principles-based IFRS
As of 2009, 93 countries including Canada either
currently require or have announced a future
requirement for the use of IFRSs for all publicly traded
domestic companies.
The U.S. does not permit its domestic public companies
to report using IFRS.
The EU adopted IFRS in 2005 for all publicly traded
companies (over 8,000) in EU countries.
IFRSs are broad-based principles requiring the use of
judgment in application, resulting in some differences in
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Chapter 1, Slide 9
© 2010 McGraw-Hill Ryerson Limited
The United States
Standards set by Financial Accounting
Standards Board (FASB), a private
FASB pronouncements are detailed and rulebased, compared to more general and
principle-based standards of the IASB.
In 2002 FASB agreed with the IASB to
develop and maintain compatible accounting
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Chapter 1, Slide 10
© 2010 McGraw-Hill Ryerson Limited
The United States
By December 2009 FASB had issued new or amended
standards to converge with some of IASB’s standards for
inventory, asset exchanges, accounting changes,
financial instruments, business combinations, and
subsequent events.
IASB issued new or amended standards to converge
with FASB’s standards for borrowing costs and
segmented reporting.
In 2007 the Securities Exchange Commission (SEC)
permitted qualifying foreign companies listed on U.S.
exchanges to report using IFRS without reconciling to
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Chapter 1, Slide 11
© 2010 McGraw-Hill Ryerson Limited
The United States
SEC has issued 7 milestones that could lead to
adoption of IFRS by U.S. public companies by
Milestones 1-4 focus on improvements in IFRSs and
IASB accountability, and U.S. education on IFRS
Milestones 5-7 provide a transition plan for the
potential mandatory adoption of IFRS in the U.S.
More than 200 differences between U.S. GAAP
and IFRS existed in 2008.
Will rules-based U.S. GAAP or principles-based
IFRS become the international standard?
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Chapter 1, Slide 12
© 2010 McGraw-Hill Ryerson Limited
Where is Canada going?
CICA announced in 2006 a strategic plan to
harmonize CICA Handbook with IFRSs.
All Canadian publicly accountable enterprises
the debt or equity of which is traded in public markets,
that hold assets in fiduciary capacity for the public
have to use IFRS effective January 1, 2011.
From 2006-2011, any converged standards
issued by FASB and IASB under their
convergence project will be adopted by CICA.
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Chapter 1, Slide 13
© 2010 McGraw-Hill Ryerson Limited
Where is Canada going?
2008 and 2009 financial statements must disclose
estimates effect of the future change to IFRSs In 2010
public companies will have to keep dual records in
Canadian GAAP and IFRSs, in order to provide IFRS
comparatives in 2011 financial statements and a
reconciliation of 2010 GAAP income to IFRS income.
Private for-profit companies may choose new Canadian
GAAP for Private Enterprises beginning 2011 (2009
early adoption permitted).
Non-profit organizations will continue to use existing notfor-profit GAAP (Handbook sections 4400) pending CICA
determination in 2010.
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Chapter 1, Slide 14
© 2010 McGraw-Hill Ryerson Limited