International Developments in Accounting ACFI 3217 Dr. Samuel Owusu-Agyei HU 3.40 samuel.owusu-agyei@dmu.ac.uk

International Developments in Accounting ACFI 3217 Dr. Samuel Owusu-Agyei HU 3.40 samuel.owusu-agyei@dmu.ac.uk

United States of America

Development of accounting regulation No regulation in early years 1929 stock market crash Strict accounting rules, no revaluation AICPA set standards (professional body) until 1972 subject to SEC regulations FASB independent standard setter from 1972

Regulation after Enron Sarbanes–Oxley (SoX) Major legislation on corporate governance of listed companies Rules versus principles SoX criticized rules-based accounting standards FASB to develop objectives-oriented standards

Consolidated accounts Business combinations – acquisition only. No ‘pooling of interests’ allowed effective mid 2001 Impairment testing of goodwill replaces policy of amortization

Institutions Economy: free market Legal system: Federal law, state law. Common law family Business corporations (Inc.) Chief Executive Officer (CEO) is a strong influence

Institutions (Continued) Corporate finance: major equity markets regulated by SEC (Security Exchange Commission) Banks not as close to companies as they would be in Europe Tax rules separate from accounting rules Accounting profession: AICPA (American Institute of Certified Public Accountants).

External influences Importing ‘know-how’, initially UK Exporting ideas to other countries especially the rest of the American continent Founder member of IASC (international accounting standards consultancy), strong international influence

Accounting regulations and IASB Regulation lies with FASB and SEC SEC is concerned with disclosure Aim of FASB/IASB is convergence by 2009 and SEC acceptance of IFRS financial statement without US GAAP reconciliation SEC review of 2006 overseas company fillings

Current regulation Accounting standards from FASB Independent board of experts ‘Due process’ is very thorough Fair presentation ‘Safe harbor’ protection Special Industry standards Emerging Issues Task Force

Professionalism v statutory control Professional but with detailed rules Generally accepted accounting principles (US GAAP) Accounting standards Technical bulletins Practice bulletins Accounting interpretations

Professionalism v statutory control (Continued) Fair presentation: rules will give fair presentation Professional discretion over formats. They are not fixed but tend to look similar. Assets start with the most liquid asset.

Uniformity v flexibility Tax law and accounting rules are separate but accountants may choose tax approach Uniformity Merger accounting not allowed Capitalization is required for some items, e.g. software development costs

Conservatism v optimism Cautious on tangible fixed asset valuation But some less conservative aspects, e.g. capitalization of borrowing costs Optimism Fair values of financial instruments

Secrecy v transparency SEC regulates disclosure by listed companies Detailed information required Management discussion and analysis Proxy statement + annual report + Form 10-K (comprehensive summary of financial performance) Proxy statement- Statement required when soliciting for shareholder votes as required by the SEC.

Abs GAAP- Generally Accepted Accounting Principles FASB- Financial Accounting Standards Board IASB- International Accounting Standards Board