Chapter 12

International
Accounting
PowerPoint Presentation
by Matthew Tilling
2012 John Wiley & Sons Australia Ltd

DEFINITION OF
INTERNATIONAL ACCOUNTING
International accounting refers to a
description or comparison of
accounting in different countries and
the accounting dimensions of
international transactions.

DEFINITION OF
INTERNATIONAL ACCOUNTING
Can be defined at three levels:
1. Supranational, universal or world
accounting
2. The company level standards,
guidelines and practices that
companies follow relating to their
international business activities and
accounting for foreign subsidiaries;
and
3. Comparative or international

DIVERSITY OF INTERNATIONAL
ACCOUNTING PRACTICE
Variation in accounting requirements can
result in significant differences being recorded
in company accounts when they are required
to report under the rules of different
jurisdictions.
While there have been some moves to
harmonise accounting practices globally,
there are still a number of environmental and
cultural factors which are likely to lead to
diversity in accounting practices around the
world.

ENVIRONMENTAL INFLUENCES
ON ACCOUNTING

ENVIRONMENTAL INFLUENCES
ON ACCOUNTING
In some countries financial reports are
used to directly determine an entitys tax
liabilities.
This leads to variations in accounting policy
choice even when the same standards are used.

Sources of finance differ across countries.

Major sources of finance may be banks,
government, families and shareholders.
This leads to a difference in financial statement
orientation

ENVIRONMENTAL INFLUENCES
ON ACCOUNTING
Different countries will have different
Political philosophies and objectives
Levels of economic growth and development
Economic systems
Legal systems
Codified or civil law
Common law

All of which will influence accounting

practice.

Cultural Impact on
Accounting Practice
Hofstedes identified five cultural
dimensions that could be used to
describe general characteristics of
cultures around the world
1.
2.
3.
4.
5.

Individualism versus collectivism

Large versus small power distance
Strong versus weak uncertainty avoidance
Masculinity versus femininity
Long-term versus short-term orientation

Cultural Impact on
Accounting Practice
Gray adapted Hofstedes categories
to identify four accounting values
1.
2.
3.
4.

Professionalism versus statutory control

Uniformity versus flexibility
Conservatism versus optimism
Secrecy versus transparency

Religion and How it Affects

Accounting Practice
Religion is often seen as a subset of culture.
It can have a significant effect on business
practice

For example in Islam

Islamic law regulates all aspects of life.
In addition certain Islamic economic and
financial principles have a direct impact on
accounting practices. Particularly
Requirement for zakat (a religious levy)
Prohibition on riba (usury)

INTERNATIONAL ADOPTION
OF IFRSs
Worldwide accounting diversity creates
challenges for international business
operations and investment.
It is costly for multinational enterprises to
restate their accounts to meet the requirements
of every jurisdiction in which they report
Investors also incur costs in comparing results
of companies when their financial reports are
prepared using different rules.

There has been a growing demand for

international accounting standards.

Harmonisation, Convergence and

Adoption - Whats the Difference?

An number of approaches have been

taken to bring about adoption of
international accounting
Harmonisation
implies reconciling different points of view and
reducing diversity, while allowing countries to
have different sets of accounting standards.

Convergence
A process that takes place over time, implies
the adoption of one set of standards across
the globe.

Benefits of IFRS
Adoption
The adoption of IFRS provides a
number of benefits including:
Providing a cost-effective way to
institute a comprehensive system of
accounting standards.
Especially for developing countries.

Enhanced the operation and

globalisation of capital markets.
Reduced costs for financial report
preparation.
Transportable accounting skills

Limitations of IFRS
adoption
The adoption of IFRS may have
limitations primarily concerning
differences in business, financial and
accounting culture from one country
to another.
Certain standards and requirements
may not reflect local situations. E.g.
Consolidation standards
Fair value rules
Implicit interest rate requirements

Adoption of IFRSs
Around the World
Table 12.1 lists a selection of IFRS users
around the globe.
Jurisdictions will have differing degrees of
convergence with IFRSs.
Nobes suggests that the factors that have
previously been associated with
international differences in accounting still
can be used to explain differences in IFRS
adoption practices across jurisdictions.

Use of IFRSs
All EU listed companies are required
to adopt IFRSs for reporting
purposes.
Publicly accountable Canadian
entities are required to apply IFRSs.
The countries of South America are
in various stages of the adoption
process.
Asian jurisdictions take a range of
approaches to IFRS adoption.

Use of IFRSs
Though widely adopted questions have been
raised about whether adoption leads to
convergence.
It has been pointed out that standards
developed by the IASB are primarily aimed at
countries with highly developed capital
markets, and it can be questioned whether
the resulting standards are optimal for
developing and transitional economies that
lack the infrastructure to monitor financial
reporting decisions.

FASB AND IASB

CONVERGENCE
IFRS cannot be considered truly global
until adopted by the United States.
This has not happened to date.
The key issue that has stood in the way
of convergence is that IASB standards
are principles-based, while the FASB
have previously taken a rules-based
approach to standard setting.

FASB AND IASB

CONVERGENCE
Since 2002 efforts have been made to
harmonise IFRS and FASB standards.
At various times it has looked more or less
likely that convergence would be achieved.
At present there appears to be significant
resistance to the adoption of certain IFRS
standards in the US including
Accounting for Leases
Accounting for Income Tax

MULTINATIONAL
ORGANISATIONS
Multinational enterprises are particularly
affected by the range of environmental factors
and accounting systems in the different
countries in which they operate.
They tend to be larger and have more complex
business operations than their domestic
counterparts.
There are particular issues around
Organisational culture
Intra-entity transactions
Transfer pricing

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