The International Accounting Environment Chapter 9 The International Accounting Environment

Scope of International Business Activity Can range from export/import activity to operations of a multinational enterprise Growth of the European Union (EU) North American Fair Trade Agreement (NAFTA) C9

The Need for International Accounting Need for comparable data Information to serve international capital markets C9

The Focus of International Accounting Primary Areas of Interest Include: Identification and understanding of the various organizations and their interests involved in the process of establishing international accounting and auditing principles and standards C9

International Accounting Focus, continued Identification and understanding of principles of financial, managerial, and taxation accounting used in different nations, especially how they differ between those nations Special accounting valuation and recognition principles associated with foreign currency transactions The translation of financial statements to different currencies C9

Factors Influencing the Development of Accounting Social and cultural values Political and legal systems Types of business activities and economic conditions Standard setting processes Forms of ownership and capital markets Cooperative efforts between nations C9

International Accounting Classification Systems Help in understanding accounting differences between countries Can center around various characteristics including cultural differences C9

Classification Based on Cultural Differences Anglo-Saxon accounting Germanic accounting Nordic accounting Latin accounting Asian accounting C9

Harmonization of Accounting Principles The goal is a flexible approach to improving comparability of financial information, including the adoption of international accounting standards The benefits of harmonization would extend to a variety of users including governments, regulatory agencies (SEC), individual investors, and trading partners C9

Approaches to Harmonization Bilateral agreements between two or more countries Single economic trading environments, such as the European Union International standard setting involving professional accounting organizations C9

The International Accounting Standards Committee (IASC) An independent private organization founded in 1973 Taking a global approach to standard setting Membership consists of professional accountancy organizations representing over 100 countries Business is conducted by a Board and a consulting group C9

Major Objectives of the IASC Formulate and publish standards on financial accounting and reporting and to promote their worldwide acceptance Work for the harmonization of accounting standards and procedures relating to the presentation of financial statements C9

International Accounting Standards (IAS) Issued by the IASC In some instances the standards differ from U.S. GAAP Promulgated standards are being accepted by a number of countries and organizations Standards serve as a benchmark against which developing and established accounting principles may be evaluated C9

International Federation of Accountants (IFAC) A private organization whose membership is the same as that of the IASC Concerned with aspects of the professional practice of accountancy The leading organization for the international accounting profession Not involved in the establishment of international financial accounting standards to the same degree as the IASC C9

Other Issues of International Importance Transfer pricing strategies Differences in tax systems C9