ACC384 Topic 1

1、Comparative International AccountingTopic 1Introduction to International AccountingWhat about my Assessments?Your are required to pass both the Assignmentand the Examination.Each is worth 50%Read the Study Guide on CSUs Interact and make sure you know what is required to pass the Assignment and the

2、Examination2Why study Comparative International Accounting?Because the World has Changed.We no longer live within the boundaries of our own countries. When we conduct business it is in an international arena. Large companies MNEsexploit competitive advantages, or differences in laws and stakeholders

3、 especiallyshareholders need to hold them to account. 3What is requiredto understand Comparative International Accounting?Attend the Lectures and TutorialsAsk questions in class, tutorials and outside of class. Your Lecturers will be willingto help with your questions. But you must make the effort.R

4、ead all the Text as prescribed and ReferencesThe more you read and study, the more confidence you gainResearch each Topic Use your research to form your own opinions and do not plagiarize 4Essential Reading Text Book: Chapter 1: especially pages 1-15, 18-21 and 24-26Objectives for Topic 1: to be abl

5、e to- explain why differences continue to persist in financial reporting across the globe, in spite of adoption on international reporting standards (IFRS)demonstrate the impact of world politics, growth of trade, foreign direct investment, globalization of stock markets, variations in share ownersh

6、ip and the international monetary system has had on international accountingexplain the nature and growth of MNEsexplain the historical, comparative & harmonization reasons for understanding comparative international accounting5Variation in Financial ReportingAccountants within a country or betw

7、een countries will not necessarily produce identical financial statements even if all are presented with the same transaction information. Why? Because no one set of rules will cover every eventuality.“ Accountants use professional judgements, and this depend on laws & rules within each country

8、and between countries”Rules may differ for private companies compared to company groups like MNEsThere has been intensive attempts to reduce these differences globally by IASB (International Accounting Standards Board) and UE *European Union. The IASB issues International Financial Reporting Standar

9、ds (IFRS) and EU issues Directives & Regulations on accounting & financial reporting6Differences in financial reporting If a number of accountants from different countries, or even from one country, are given a set of transactions from which to prepare financial statements, they will not pro

10、duce identical statements. Why? there is always rooms for professional judgement. the accounting rules themselves may differ not just between countries but also within countries. Multinational enterprises (MNEs) which operate as company groups in more than one country may find inter-country differen

11、ces particularly irksome. Awareness of these differences has led in recent decades to impressive attempts to reduce them, in particular, by the International Accounting Standards Board (IASB) and by the European Union (EU). The work of all these regulatory agencies has certainly led to a lessening o

12、f international differences but, as this book will show, many still remain and some will always remain.Variations in Financial ReportingThe US, and the US stock market use the best known set of rules, called Generally Accepted Accounting Principles (GAAP). This has had a significant impact globally.

13、So IASB, EU and GAAP as regulatory agencies have lessened the differences globally, but many different rules and practices remain and some will never alter 10The Global Environment of AccountingThe globalization of accounting rules and practices have become paramount, such that national rules &

14、practices can no longer be sustained.Political issues: dominance of the US and expansion of EULiberalization of and increase in international trade and direct investmentEmergence of global financial marketsPatterns of share ownership and influence of privatizationChanges in international financial s

15、ystemGrowth of MNEsThese have all affected the financial reporting and transfer of accounting technology from one country to another11Impact of world politics on AccountingThe rise of US and Soviet Union, the collapse of European empires (British & Continental Europe) and the creation of the EU

16、have influenced global thinking on financial reporting.Since the collapse of Enron, the demise of Arthur Andersons auditors, the world has changed how it looks at financial reporting. But the US remains very influentialThe development of international accounting standards emerged from the Internatio

17、nal Accounting Standards Committee (IASC) and its successor IASBFormer British Colonies formed Institutes of Charted Accountants, like CPAAccounting rules & practices have been influenced by the harmonization program of the EU, and its adoption of IFRSThe reunification of Germany strained the Ge

18、rman economy. So German companies needing to raise money abroad had to change their financial reporting proceduresThe collapse of communism in Central and Eastern Europe led to a transformation of accounting and auditing in many former communist countries.12Impact of Economic Globalization, Internat

19、ional Trade & Foreign Direct InvestmentThe economic globalization has meant the spread of goods, services, people, technologies, distribution of wealth and innovation & conceptsThe most significant impact to globalization has come from international trade and FDI (foreign direct investment)T

20、rade organizations like NAFTA, GATT and WTO have increased trade and helped the rise of MNEsMNE companies like Royal Dutch Shell, BP, & Vodafone operating around the world bring ambiguity to concept of “home country”Where are they listed on stock markets? What currency do they report in? Where i

21、s their head office? Where are their auditors?13Impact of Globalization on Stock MarketsExercise: Read pages 9, 10,11, 12 and 13 Refer to the following tables.Why has London Stock Exchange become the dominant Exchange market compared to New York?Some MNEs like Volvo are listed on many exchanges. Why

22、 would MNEs list on more than one market?What is the downside of listing on more than exchange market?14 Precise measures of the internationalization of the worlds stock markets are hard to construct. Two crude measures are cross-border listings and the extent to which companies translate their annu

23、al reports into other languages for the benefit of foreign investors. One of the main reasons for foreign listing: to attract extra investors and widen the pool of shareholders. Another reason for foreign listing is that the company wishes to raise its profile in a foreign country among potential cu

24、stomers, employees or regulators. Of course, as well as potential benefits from foreign listing, there are also costs. Some companies publish their annual reports in more than one language.Major stock Exchanges, January 201116Top twelve Exchanges for new Equity listings, 200917Foreign company listin

25、g on major stock exchanges, January 201118Impact of Shared OwnershipInvestor behavior has also changed due to globalization.La Porta et al. (1999) identified company share holders by families, by state control or by financial institutions. 30% were family controlled, 18% were state controlledFamily

26、controlled countries were Mexico, Hong Kong & ArgentinaState controlled were Austria, Israel, Singapore, Italy, Finland & Norway Financial Institutions control were Belgium, Germany, Portugal & SwedenIt appears that the split between “owners” and “managers” has driven the need for indepe

27、ndent financial audited statements.The greater the split between the owners and managers of these companies, the greater the need for publicly available and independently audited financial statements.19Impact of International Financial SystemThe international monetary system has changed dramatically

28、 since Bretton Woods Agreement .Major currencies floated against each other in 1973Exchange rates have become very volatileAcross the EU, countries adopted the “Euro” with the exception of the “Pound Sterling” in 1999The worlds financial system become toxic after 2008/9 financial crisis.The result w

29、as many countries want a new Bretton Woods arrangementThe crisis put renewed focus on regulations of the stock markets because the use of market valuations in accounting were blamedToday EU is still in crisis as political governments change and threaten to ignore their debt obligations that bailed t

30、hem out20Comparative & International aspects of AccountingHistory has shown that many countries have contributed to the development of Accounting Romans developed elementary bookkeeping and calculating profitMuslim developed arithmetic & bookkeeping techniquesThe Italians started to use and

31、develop “double entry” bookkeepingIn the 19th Century, Britain took the lead followed by the US.Today English has become the established world language of accounting (Parker 2000)International Institutes have emerged around the world.Most recent is China “Chinese Institute of Certified Public Accountants” in 1988Table in text (p. 20) demonstrates British & American origins of the world of the four major accountancy firms.The growing strength of