Chapter 3

Comparative International
Financial Accounting I

Strategic Decision Point

IASB

was created to increase comparability

How will differing cultures interpret standards?

Will standards be applied consistently?
What can the IASB do to mitigate this issue?

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Founding Members of the

IASC and IASB
Exhibit3.1 EconomicDataforDevelopedCountries
GDPPPP
(inbillions)

GDPPer
Capita

Populatio
n(in
millions)

Unemplo
yment

Inflation

Areapersq
km
(in
thousands)

Imports
(in
billions)

Exports
(in
billions)

U.S

$10,990.0

$37,800

293.0

6.0%

2.3%

9,631.4

$,1260.0

$714.5

U.K.

$1,666.0

$27,700

60.3

5.0%

1.4%

244.8

$363.6

$304.5

Australia

$571.4

$29,000

19.9

6.0%

2.8%

7,686.9

$82.9

$68.7

Netherlands

$461.4

$28,600

16.3

5.3%

2.1%

41.5

$217.7

$253.2

Sweden

$238.3

$26,800

9.0

4.9%

1.9%

450.0

$83.3

$102.8

Germany

$2,271.0

$27,600

82.4

10.5%

1.1%

357.0

$585.0

$696.9

$239.3

$32,700

7.4

3.7%

0.6%

41.3

$102.2

$110.0

France

$1,661.0

$27,600

60.4

9.7%

2.1%

547.0

$339.9

$346.5

Italy

$1,550.0

$26,700

58.1

8.6%

2.7%

301.2

$271.1

$278.1

Spain

$885.5

$22,000

40.3

11.3%

3.0%

504.8

$197.1

$159.4

Japan

$3,582.0

$28,200

127.3

5.3%

0.3%

337.8

$346.6

$447.1

Switzerland

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Anglo-American Accounting

Less conservative and more transparent

United States

Focused on large corporations and interests of investors

Securities markets are the dominant influence on
accounting regulation
SEC has authority to formulate and enforce accounting
standards
Delegated to the FASB
Only listed corporations are required by law to comply with
GAAP
Very public standards-setting process

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Anglo-American Accounting
United

Kingdom

Focus on investors
Company law has a much wider remit
Accounting requirements are for all LLCs and
corporations
Accounts present a true and fair view of
company results
Accounting Standards Board (ASB) will
incorporate International Financial Reporting
Standards (IFRS) by 2005

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Anglo-American Accounting
Australia

English influence
Focus on investors rather than tax needs
Australian Securities & Investments Commission

Regulate and enforce company law

Australian Accounting Standards Board creates

standards

Urgent Issues Group (UIG)

Financial Reporting Council oversees AASB
Provides guidance for public and private sector

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

The Netherlands

Business economics approach to accounting

Tradition of

Generally Acceptable Accounting Principles

Public ownership of shares

International business outlook
Provided by Council for Annual Reporting
Members from the accounting profession (NIVRA) and
others
Not mandated by law, but followed by most companies

Company law is supplemented by case law

IFRS required for listed companies in 2005

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Nordic Accounting

Nordic Countries: Denmark, Finland, Iceland, Norway, and

Sweden
Sweden

Focus on creditors, government, and tax authorities

Two-tier approach

The law provides a framework rather than detailed requirements

Individual accounts traditional basis

Consolidated accounts of major groups international capital
market needs
Accounting Standards Board and Accounting Council provide
guidance in the context of company law

IFRS required for listed companies in 2005

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Germanic Accounting
Germany

Focus on needs of creditors and tax authorities

MNEs are becoming more investor-oriented
Company law is predominant influence
Accounting rules amend the Commercial Code
Annual accounts are the basis for tax accounts
Tax rules dominate legal accounting issues
Limited impact of accounting profession
German Accounting Standards Board
IFRS required for listed companies in 2005

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Germanic Accounting

Switzerland

Favors needs of creditors and authorities

More companies are making further voluntary disclosures
Very secretive and conservative system
Dominated by company law and tax regulations
New law 1992

Improved disclosure and protection for investors

Secret reserves are still allowed

Accounting profession consists of
Foundation for Accounting and Reporting
Recommendations supervises the Accounting Standards
Board
Recommendations elaborate and supplement company law

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Latin Accounting

France

Focus on needs of creditors and tax authorities

Consolidated groups can report in U.S. GAAP or IAS
Company law and tax law are the predominant influences
Focus on national economic planning
Tax laws tend to override accounting rules
Small accounting profession established by law
OECCA and CNCC for public accounting and auditing
Small stock market
Most capital contributed by banks, government, or family
French equivalent of the SEC Commission des
Oprations de Bourse (COB)
IFRS required for listed companies in 2005

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Latin Accounting

Italy

Focus on interests of government and tax authorities

Focus is shifting because of globalization
Accounts are used as the basis for taxation
Tradition of conservatism to minimize taxes
Italian equivalent of the SEC CONSOB
Slow to adopt EU directives because
External investor interests are seen as less important than
family and state interests
Tendency to protect the right of companies to keep
business secrets
Professional accounting bodies are advisory
IFRS required for listed companies in 2005

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Asian Accounting

Many countries have a colonial accounting history or

foreign influence
Japan

Focus on needs of creditors and tax authorities

Commercial Code (similar to Germany)
Corporate tax law is very influential
Leads to conservative accounting
Government institutions are directly involved in standardsetting
Ministry of Finance responsible for securities and
exchange law
Ministry of Justice responsible for application of
Commercial Code

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr

Asian Accounting

Japan continued

Accounting for business combinations is a source of

concern
Keiretsu system of interlocking directorates of related
businesses formed to work together
Small accounting profession
Makes recommendations on the practical application of
legal accounting rules
Tendency for secrecy and a lack of disclosure
Increased international focus
ASBJ in Japan is similar to the FASB in the U.S.
Approximately 30 Japanese companies listed in the U.S.
prepare financial statements in accordance with U.S. GAAP.

International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gr