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Please review your book shopping experience with SolutionInn. Have more feedback? Please give some rating or feedback before submit. Thank you for your feedback. Boyacigiller, N. Brownell, P. Chan, K. Chenhall, R. Chow, C. Demirag, I. Edmunds, J. Franke, R. Franco, M. Frucot, V. Furnald, G.
Granlund, M. Gupta, A. Hamilton, G. Harrison, G. Hawkins, C. Hofstede, G. Jaeger, A. Kaplan, R. Kobrin, S. Landry S. Lau, C. Marr, B. Melville, R. Merchant, K. Morsicato, H. Ouchi, W. Robbins, S. Salter, S. Ueno, S. Vance, C. Waweru, N. Wickramasinghe, D. Which ones are found in practice?
We include international terms and those relating to the countries that we refer to in detail in Parts II to IV of the book. Parker, R. Answer The domination by the US of the non-communist post-war world has meant that capitalist countries have been strongly influenced by US GAAP, especially as propagated by the international accounting firms.
Countries such as Canada and Australia have been especially open to US influence. However, despite the break-up of the British Empire, British-style accounting has continued in countries such as India and Nigeria. Similarly, former colonies of France and other European countries continue to follow the accounting styles of the former imperial power. The creation and expansion of the European Union from onwards has helped to preserve continental European accounting concepts and practices, albeit increasingly diluted after the entry of the UK in The creation of the International Accounting Standards Committee now the International Accounting Standards Board , also in , can be seen politically both as an attempt to counter US influence and as an attempt to infiltrate Anglo-Saxon concepts and practices.
Central and Eastern European countries dominated by the USSR, the other post-war political superpower, used communist accounting until the collapse of Soviet power from onwards. All have undergone rapid accounting change and many joined the EU in They have both reverted to continental European accounting and imported IFRS for their listed companies.
In East Asia, US-style institutions were introduced into occupied Japan after the Second World War, but were much modified after Japan regained its political and economic independence. The political decision of the Chinese government to move its economic system closer to capitalism has led to corresponding changes in its accounting systems. From what countries have they mainly originated? The firms mainly originate from those home countries of MNEs that have well-developed accountancy professions, notably the United Kingdom and the United States.
The last two do not have such well-developed accountancy professions; the first two countries are much smaller commercially than the United Kingdom or United States.
A more sophisticated answer will be possible after study of Chapter 20 International auditing. Answer Accounting and financial reporting practices in any given country may differ because the needs of users of accounting information differ. For example, tax authorities may stress objectivity, banks with secured loans may stress conservatism, and shareholders may stress the predictability of future cash flows.
Unlike loan creditors and shareholders, tax authorities have the force of government power to back up their demands and are likely to dominate financial reporting if unopposed.
Nevertheless, the style of financial reporting imposed by government bodies will probably reflect the strength of the capital markets. Furthermore, strong capital markets may lead to commercial accounting largely outside of government control. For example, in Germany in , the law was changed to allow listed companies to depart from normal German principles in their consolidated statements. Within the EU, the national differences are now confined largely to unconsolidated financial reporting.
Governments, through the EU legal apparatus, have interfered jointly to require IFRS for the consolidated statements of listed companies. Professional accountants as well as governments can be seen by some observers to be interfering in financial reporting practices.
Sometimes specific standards applying to each of the main problems taken in isolation are worked out by the accounting profession, which may consult other interested parties but remains solely responsible for the decisions taken. On the contrary, accounting may be purely and simply government-regulated.
Lastly, an intermediate method is adopted in some countries, including France, with systematic consultations among all the parties concerned. In many cases a consensus can be reached. Where this is not possible, government intervention preserves the public interest.
Germany on France, United States on Japan. For a country that is heavily influenced by another e. However, in other countries, accounting may be driven by the type of capital market and the nature of regulation. See also the answer to Question 2. Use international differences in financial reporting as an illustration of your answer. Answer As the chapter suggests, classification might be helpful to: a sharpen description and analysis; b reveal underlying structures; c enable prediction of properties of an item from its position in a classification; d predict missing items; e trace the evolution of items.
Answer Many classifications have been based on data which were not compiled for the purpose of classification. For example, reliance on data in Price Waterhouse surveys, with all questions given equal weight, might lead to the problem that important questions are swamped by unimportant ones.
Also, one has to ask whether the data relates to all companies or mainly to Price Waterhouse as it was then clients. Further, it seems likely that different questions would be asked by a German compiler of questions compared with an American compiler.
There are also many examples of errors in these databases. Of course, not all classifications have used this sort of data. Scientists in other areas put a great deal of judgement into choosing which characteristics to measure for the purpose of classifications.
Some accounting studies have also done that. Correct data on relevant criteria will lead to better classifications. There are, of course, problems other than data. For example, it is vital to decide what the purpose of the classification is, and what exactly is being classified.
Explain your reasoning. Answer Success could be looked for in several areas. This question is fairly well covered in the chapter in the text.
Indications of success might be sought in the following places: a issue of standards; b refinement of standards; c backing from other international bodies e. IOSCO endorsement in ; d backing from national bodies e.
Germany ; h acknowledgement of conformity with IASs by companies e. EU Seventh Directive ; j compulsory use in the EU for the consolidated statements of listed companies already announced as a proposal by the Commission in What are they doing to achieve it? Answer This question is addressed in the chapter in the text. The beneficiaries might be split into a users and b preparers. Governments might be seen to be users for the purposes of tax collection, but they also might wish to help users and preparers.
The same applies to intergovernmental organizations, such as the EU. Users include investors and lenders who operate across national borders.
These would include institutions, such as banks. Companies, in their capacity as purchasers of shares in other companies or as analysts of suppliers or customers, would also gain from harmonization.
Preparers of multinational financial statements would gain from simplifications, and they would also benefit as users of their own accounting information from various parts of the group. Accountancy firms are sometimes seen as beneficiaries but at present they gain work as auditors and consultants from the existence of international differences. In terms of who is doing what to bring about harmonization, the picture is initially confusing, because the greater beneficiaries seem to be doing little.
That is, users are not sufficiently aware or sufficiently organized to address the problem. Preparers are too busy to act because they are trying to cope with, or to take advantage of, all the differences. However, some senior businessmen put public and private pressure on accountants to reduce differences. This is most notable in the case of companies such as Shell which are listed on several exchanges and try to produce one annual report for all purposes.
Governments are acting. For example the harmonization programme in the EU was active in the s and s. Perhaps the harmonizing body with the highest profile in the s was the IASC which was a committee of accountancy bodies, largely controlled by auditing professions. Of course, the international differences do severely complicate the work of some auditors. However, there is an element of paradox in the fact that auditors are the most active in trying to remove lucrative international differences.
In , the profession handed over responsibility for international standard setting to the IASB, an independent body. The IASB is supported by donations from large companies, audit firms and investor organizations. However, standardization implies a narrowing down to one policy for any accounting topic, whereas harmonization implies that differences could be allowed to remain as long as the users of financial statements have a means of getting similar information from different statements.
Both harmonization and standardization can refer to rules de jure or to practices de facto. Chapter 4 discusses these issues. Adoption of IFRS means abandoning national rules as opposed to changing them. Answer The reconciling items reveal the most important practical differences. These depend on the year in question, and of course on the GAAP that one starts from.
Adjustments for minority interests are large but, confusingly, German and IFRS rules were the same treat them as part of equity and US and UK rules were the same show them outside equity. Answer The main purpose of a conceptual framework is to guide the standard-setters when setting accounting standards.
It may be useful because it limits the scope for disagreement and for political interference. If all standards can be made to comply with the framework, then they are more likely to fit together coherently. Nevertheless, certain features of the existing frameworks are vague, so disagreements can continue even among adherents Naturally, sometimes the standard-setters question elements of their own frameworks, and sometimes they override the frameworks for political or other reasons.
Another purpose of frameworks is to enable preparers of financial statements to interpret standards, to choose from among options in them, and to establish accounting policies in the absence of standards.
The auditors and interpreters of statements may also benefit from understanding this context. Question 6. Prudence is a bias. It is not possible to embrace both conventions in one coherent framework. Answer If good accounting is largely about disclosure, and more disclosure is better than less disclosure, then perhaps it is easy to agree with the quotation.
An examination of full-scale US annual reports including Form K and other documentation shows that the sheer volume of information is considerably greater than in any other jurisdiction.
Analysts and academic proponents of the efficient markets hypothesis often argue that disclosure is more important than particular accounting rules. However, it should be noted that these full-scale rules apply compulsorily only to about 14, SEC-registered corporations, although many other US corporations adopt some or all of these procedures. Here, again, it is hard to deny that accounting developments tend to start in the United States and then travel elsewhere.
This includes consolidation, lease accounting, segment reporting and many detailed accounting practices. A potential criticism of US rules is that they are so numerous and detailed that accountants and auditors are left with no scope for judgement, and that the accounting is therefore sometimes wrong. For example, the detailed technical definition of a subsidiary allowed Enron to hide liabilities in thousands of unconsolidated but controlled entities.
One other concern about US accounting is its traditional opposition to current value information and to the capitalization of certain intangibles e. This may deprive the user of accounts of helpful information. However, recent changes to US rules e. SFAS required the use of current values for certain investments, and this was the beginning of a trend. It should be noted that certain features of US accounting could be criticized e.
Also, it would be easy to argue that UK cash flow statements are better than US ones. This is a strong influence. However, for most of the twentieth century, the United States has seen itself as a leader rather than a follower, and so influences from abroad may have been slight.
Also, the United States has generally had an enormously larger population of academic accountants than other countries. This has provided both ideas and criticisms. This was given formal agreement by the two boards in The first became standards in What is the historical background to the present situation? Answer Both the making and the enforcement of financial reporting rules for publicly traded companies in the US is the responsibility of the Securities and Exchange Commission SEC , set up as a federal agency in the early s as a result of the stock market crash of From the start the SEC has exercised a strict enforcement role but has preferred to supervise standard-setting by an authorized private-sector body currently the Financial Accounting Standards Board rather than making the rules itself.
This strategy has the advantages of leaving the technical details to the experts and shielding the SEC from criticism. Answer Proactive surveillance requires an organizational set-up and budget which may not be initially available to an enforcement body. Further, resources may be used in investigating companies unlikely to be breaching the rules.
On the other hand, awareness that all listed companies may be investigated may deter companies from transgressing and may strengthen the hands of their auditors. Answer The answer depends on which country we are talking about. In a tax-dominated setting e. Earnings reduction might also be relevant for regulated industries in any country. However, most of Chapter 9 is set in the context of the consolidated statements of listed companies in major capital markets.
Here, the lobbying mostly concerns trying to increase or stabilize earnings. Answer The chapter lists examples in 9. Sign Up Already have an access code? Instructor resource file download The work is protected by local and international copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning.
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