Chapter 4 Comparative International Financial Accounting II

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Comparative Information Exhibit 4.1 Economic Data for Developing Countries

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Comparative Information Exhibit 4.2 Number of Companies in Developing Countries listed on Foreign Exchanges 300Czech Republic 406Russia 800Poland 000Thailand 202Indonesia 5017China 0322Mexico 1310Argentina 0137Brazil 300Malaysia 1738India London Stock ExchangeNASDAQNYSE

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Comparative Information Exhibit 4.3 IFRS Acceptance XCzech Republic XRussia XPoland XThailand XIndonesia XChina XMexico XArgentina XBrazil XMalaysia ????India Required for All Domestic Listed Companies Required for Some Domestic Companies Permitted for Domestic Listed Companies Not Permitted for Domestic Listed Companies

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Comparative Information Exhibit 4.4 Other Country Data 38Upper MiddleGermanCzech Republic 32Lower MiddleSocialistRussia 36Upper MiddleGermanPoland 64Lower MiddleEnglishThailand 65LowFrenchIndonesia 52Lower MiddleGermanChina 60Upper MiddleFrenchMexico 45Upper MiddleFrenchArgentina 54Lower MiddleFrenchBrazil 76Upper MiddleEnglishMalaysia 45LowEnglishIndia Rating on Accounting Standards* Income GroupLegal Origin *Higher scores indicate higher rating on accounting standards

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Anglo-American Influence Less conservative and more transparent than German and Latin countries India Significantly improved economy over past decade Focus on needs of investors Institute of Chartered Accountants in India (ICAI) and the Accounting Standards Board (ASB) Create and modify accounting standards Give consideration to IAS and IFRS issued by IASB

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Anglo-American Influence Malaysia Rapid growth over the last 30 years Anticipated growth in GDP, private consumption, and private investment Focus on needs of investors Financial Reporting Foundation (FRF) oversees the MASB MASB tries to converge with IFRS

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Latin Accounting More conservative and secretive compared to Anglo-American accounting Brazil Focus on needs to creditors and tax authorities Government, company law, and tax regulations influence accounting Corporation law of 1976 IBRACON and the Federal Accounting Council issue accounting standards CVM – Securities Exchange Commission  Sets standards for listed companies  Approves IBRACON and FAC standards  Brazil has one of the major markets in Latin America

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Latin Accounting Argentina Focus on needs of creditors and tax authorities Standards set by the Argentine Federation of Expert Councils in Economies (FACPCE) Councils may ratify or amend each Technical Resolution (TR) Confusion on what standard to follow in regard to General Price Level (GPL) accounting Takes inflation into account Government no longer accepts GPL adjusted financials FACPCE – GPL is optional is inflation is below 8% FACPCE works toward harmonization with IFRS, but believes differences should still exist

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Latin Accounting Mexico Focus on needs of creditors and tax authorities Economic development has improved since NAFTA was created Strongly influenced by U.S. GAAP and GAAS Professional accountancy IMCP – similar to AICPA  Issues standards and professional code of conduct  Formed the Mexican Council for Research and Development of Financial Reporting Standards (CINIF)  CINIF issues Mexican standards inline with IFRS 70% in line with international standards at beginning of 2005

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Asian Accounting China Focus is shifting from government to investors, creditors, and management Information must now meet more than the needs of macroeconomic control The Accounting Law of the People’s Republic of China Established principles on nature & role of accounting Ministry of Finance empowered to issue standards New standards are unified and market-oriented Accounting Society of China and Deloitte Touche Tohmatsu have aided in reforming accounting

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Asian Accounting Indonesia Dutch influence in the beginning Focus on needs of investors Asian crisis hurt Indonesia, but reforms have returned Indonesia to pre-crisis levels Financial Accounting Standards Board (DSAK) of the Indonesian Institute of Accountants Working to harmonize standards with IFRS

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Thailand Accounting system values transparency Focus on needs of investors Asian crisis Implemented reforms to increase corporate governance and competition Economy recovered quickly and has since sustained growth Accounting standards issued by Institute of Certified Accountants and Auditors of Thailand (ICAAT) Standards approved by the Ministry of Commerce Thai SEC Requires all listed companies on the Exchange of Thailand to be reviewed by independent auditors Supervises all listed companies

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Eastern-European Accounting Poland Attempted the shock therapy model – 1990 All reforms made at once A leader among the transition countries Transition made in three stages 1991 – Decree issued by Ministry of Finance establishing rules for transition to market economy 1994 – “True and fair view” adopted 2002 – Standards more in line with IFRS Became EU member in 2004 – harmonize with other EU countries Adopted IFRS in 2005

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Eastern-European Accounting Russia – Government has control over the accounting system – socialist background. Differs from other transition economies Share of new enterprises is low compared to other economies Many soviet-style units still exist that are operating at losses Growth is constrained by reliance on oil and gas Dominated by unreformed monopolies Accounting rules created by Ministry of Finance Standards reflect little of value and profits. Central Bank of Russia creates standards for Banks Credit institutions

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Eastern-European Accounting Russia Focus on taxation needs of the country Highly reflects the result of a planned economy Consolidated statements prepared using IFRS Individual company statements prepared with antiquated Russian Accounting Standards (RAS) Purpose of conversion to IFRS is to Increase transparency Encourage investment

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gray, Black Eastern-European Accounting Czech Republic Gained independence in 1993 Tried the shock therapy method Ran into problems with inflation Working to conform with IFRS Accounting Act of 2002 – companies can opt for IFRS over Czech rules Will adopt IFRS by 2005 as a member of the EU More market-driven accounting standards exist Tax system still depends on accounting rules Government must change this or lose power over tax base