International Accounting - The Issues National differences lead to different accounting systems Reasons for differences in financial reporting Attempts to reduce national differences International analysis of financial statements Country studies

National differences lead to different accounting systems Importance of family Family run businesses(e.g. France) Maximisation of profit not necessarily the main priority The firm has a responsibility to society (e.g. Germany) Separation of ownership and control Need for a “true and fair view” (e.g. UK)

Why do Accounting Systems Vary from Country to Country? The national legal system The way in which industry is financed The relationship between the tax and the reporting systems The influence and status of the accounting profession The extent to which accounting theory is developed Accidents of history Language

The national legal system Roman law system set of defined rules code of accounts little flexibility Common law system encourages flexibility case law companies acts - true and fair view in 1981 the European Fourth Directive was incorporated into UK companies legislation a specified format of accounts for the first time

The way in which industry is financed USA, UK, and Sweden heavy reliance on individual investors (equity) registered shareholders active stock markets developed need for stewardship accounting France and Germany much less equity investment more loan capital heavy bank involvement bearer shares

The relationship between the tax and the reporting systems USA and UK separate rules for computing taxable profit and profit for financial reporting purposes tax rules more prescriptive financial reporting rules require more disclosure France and Germany tax rules effectively become the financial reporting rules

The influence and status of the accounting profession Development of capital markets leads to the development of the accountancy profession The need for audit in an advanced capital market environment accountants held in high esteem In countries where capital markets have not developed (Eastern Europe) accountants seen as book-keepers Accountancy profession develops accounting standards

The extent to which accounting theory is developed Accounting theory can influence accounting practice Theory may be developed at an academic or practice level Netherlands - accountants receive both academic and professional training UK - too many practising accountants see academic development as irrelevant to practice

Accidents of history Occupation during war Membership of the EU Effects of scandals associated with company failures

Language Difficulty in translating concepts from one language to another

IASC established in 1973 by the accounting professions in: ( now the IASB ) Japan Mexico Netherlands UK USA Australia Canada France Germany Ireland

Support around the world International Accounting Standards International Financial Reporting Standards Support around the world

Some countries that have adopted IASs / IFRSs Kenya Kuwait Malta

Some countries that have permitted listed companies to prepare their consolidated accounts in accordance with IASs / IFRSs Austria Belgium Germany France Finland Italy Luxembourg Russia Switzerland

Some countries that have permitted foreign listed companies to apply IASs / IFRSs without reconciliation to national GAAP Netherlands New Zealand Norway South Africa Sweden

Some countries that have permitted companies to apply IASs / IFRSs provided there is a reconciliation to national GAAP Denmark Hong Kong Poland Spain USA

Some countries that have taken IASs / IFRSs into account when formulating their own financial reporting standards Australia Malaysia Singapore Sri Lanka UK

A strong desire for international harmonisation Reduce costs for the preparation of accounts Reduce pressure on auditors Reduce criticisms of financial regulators Improve decision usefulness for investors

International Analysis of Financial Statements Language Format and extent of disclosure Currency Valuation and profit measurement Taxation

Major financial reporting issues Accounting for groups of companies Accounting for assets Accounting for inventories Substance over form Capital instruments Accounting for employee costs