Professional Documents
Culture Documents
Topic 2
Reference:
Chapter 4, International
accounting
Copyright 2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
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Learning objectives
In this chapter you will be introduced to:
an appreciation that there are many differences between
some countries in the accounting policies and practices
adopted
various explanations about why countries adopt particular
accounting practices in preference to others
some of the arguments that suggest that it is appropriate
that there are international differences in accounting
practices
the background to recent actions by the IASB and FASB
to further standardise international accounting
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Standardisation versus
harmonisation
In relation to international accounting, two terms that are
commonly used are standardisation and harmonisation.
We can define harmonisation as a process of increasing the
compatibility of accounting practices by setting bounds to
their degree of variation.
Standardisation, by contrast, appears to imply the
imposition of a more rigid and narrow set of rules [than
harmonisation].
Therefore, the term harmonisation appears to allow more
flexibility than standardisation.
What is happening through the efforts of the IASB is a
process of standardisation.
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Objectives of IASB
The body at the centre of international standardisation is the
IASB
It seeks to formulate and publish accounting standards and
to promote their worldwide acceptance
It seeks to work on the improvement and standardisation of
regulations, accounting standards and procedures
The IASB does not appear to believe that the many reasons
provided as to why different nations should have different
accounting standards (e.g. tied to differences in culture,
religion and so forth) outweigh the benefits of international
standardisation (we will consider some arguments against
international standardisation shortly)
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International differences in
implementation and enforcement
Ball discussed the 'free rider' problem associated with
IFRS.
If a 'symbol of legitimacy' - such as IFRS - can be acquired
at low cost then some countries with low accounting
proficiency will make the choice to adopt IFRS because of
the reputational benefits such a choice may generate.
Such a choice will have costly implications for countries with
higher levels of accounting proficiency and who put in place
appropriate implementation, monitoring and enforcement
mechanisms.
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Given the arguments just provided we might question the belief that
the global adoption of IFRS will lead to consistency in international
accounting practices.
There will arguably continue to be international differences in
accounting practice and such differences will continue to provide an
interesting area of research for accounting academics.
However, at a more fundamental level, is it really a good idea that
there should be global consistency in accounting practice anyway?
Is it appropriate to have a global 'one-size-fits-all' approach to
financial reporting when there are international differences:
The next part of this lecture explores various reasons why, in the
absence of globalisation efforts such as those being undertaken by
the IASB, we would expect to find international differences in
accounting practices
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Colonial inheritance
Taxation
Culture
History
Language
Religion
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Power Distance
Power Distance is the extent to which members of
a society accept that power in institutions and
organisations is distributed unequally
Large Power Distance societies accept a hierarchical
order in which everyone has a place
Small Power Distance societies strive for power
equalisation
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Uncertainty Avoidance
The degree to which the members of a society feel
uncomfortable with uncertainty and ambiguity
Strong Uncertainty Avoidance societies maintain rigid
codes of belief and behaviour
Weak Uncertainty Avoidance societies maintain a more
relaxed atmosphere where practice counts more than
principles
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Grays hypotheses
H1: The higher a country ranks in terms of
Individualism and the lower it ranks in terms of
Uncertainty Avoidance and Power Distance, the
more likely it is to rank highly in terms of
Professionalism
H2: The higher a country ranks in terms of
Uncertainty Avoidance and Power Distance and
the lower it ranks in terms of Individualism, then
the more likely it is to rank highly in terms of
Uniformity
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Legal systems
Another factor that will cause international
differences in accounting is the legal system in
operation
Legal systems can be broadly divided into
common law and Roman law systems
in Roman Law systems the law tends to be very detailed
in Common Law systemswhich is how Australia can be
classifiedlaw typically evolves from the ruling of judges
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Taxation systems
Differences in accounting methods internationally
have also been linked to differences in taxation
systems
Where there are insider systems of finance
(common in continental European countries)
financial accounting practices have typically been
linked to taxation law
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