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1079 - International Differences in Accounting-Final
1079 - International Differences in Accounting-Final
Harmonization Process?
by Irena Jindrichovska
Charles University, Prague; Anglo-American University, Prague
Abstract
This paper is based on recent academic literature and focuses on international differences in
accounting. A hot topic of the last twenty-five years has been international accounting harmonization.
This paper sees accounting harmonization as a common movement among accounting regulators,
standard setters and educators in different nations towards the same goal. As a result EU companies
working in different accounting environments with different emphases on particular issues using
different accounting concepts with different traditions have been building new common standards of
reporting.
The first part of the paper discusses necessary features of accounting and its purpose, as it is
understood at present. The later part focuses on differences in accounting practice, due to differences
in funding mechanisms, legal systems and tax regulation, as seen through different national
accounting arrangements. The paper presents comparisons of different accounting practices at the start
of a new accounting era. The article provides topics for further research in the area of cultural
differences and their affect on accounting harmonization and hence on the business life of the
community.
Corresponding author:
Ing. Irena Jindrichovska, CSc.
Institut ekonomických studií
Fakulta sociálních věd University Karlovy
Opletalova 26
Praha 1
E-mail irenajindrich@tiscali.cz
This short paper was prepared for the conference: “Trendy ve výuce účetnictví na vysokých
školách neuniverzitního směru” organized by Soukromá vysoká škola ekonomických studií,
Praha, on 14.1.2004
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1. Introduction
Financial reporting now concerns all listed companies in the EU. By the year 2005 all of
them will be reporting according to the International Accounting Standards that are uniform
throughout the EU.
This is quite a radical change from the past. For continental Europe IAS is very much an
Anglo-Saxon inspired reporting model. Applying and understanding IAS in other European
countries requires considerable effort in getting to know the new concepts and the approach
of the standard setters. On the other hand, there is virtually no UK listed company yet that
already applies IAS. (Alexander et al, 2003)
Although the requirement to apply IAS does not extend to small and medium sized
companies (at least not as an EU requirement), many member states of the EU will, as a
result of the modernization of their Accounting Directives, amend their national accounting
legislation in a manner which brings it closer to IAS.
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Eg 1. What people have; 2. What they used to have, 3. The change in what they have got, 4. What
they may get in the future (Alexander at al, 2003).
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Again, going back to the drawing board, the information accounting offers needs to be
relevant. The accounting report must give the user what he/she wants. Further requirements
are understandability (different levels of complexity for different users) and reliability
(preferably independently verified by a qualified auditor). The information should be
complete and objective: It should provide a total picture of the reporting business, which
implies a large and complex collection of data that may in the end create a conflict with
understandability. Objectivity is a confused notion with several different possible meanings.
This concept means that reports should not be biased by personal perceptions. A further
requirement is timeliness: the information needs to be conveyed to the user in time for use to
be made from it. Approximate information available on time for decision about some action
is more valuable than precise and accurate information presented after the decision has been
made. Last but not least, the comparability of accounting information is a vital feature.
Consistency of treatment is very important here implying application of generally accepted
regulatory standards. We could state at this place that it was the need for comparability that
brought about the idea of common accounting standards.
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4. Differences in accounting
Among the most important causes of differences referred to in the literature are: 1) sources of
finance, 2) the existing legal system, 3) the link between accounting and taxation, and 4)
cultural differences between societies.
Sources of finance (Provision of finance)
‘This difference in providers of finance (creditors/insiders) versus (equity/owners) is the key
cause for international differences in financial reporting’ (Nobes and Parker, 1998).
Companies in different countries responded differently to the increased need for finance. In
Germany, France, Italy, Belgium, banks became the major supplier of additional funds. Thus
companies relied more on debt financing. On the contrary, in the UK and in the US
shareholders provided extra funds, which has given rise to active stock exchanges.
Existing legal system
In the past two types of legal system have developed in the West: 1) the common law system
(zvykové právo), and 2) the code law system (kodifikovaný systém).
The common law system originated in England and developed from case law. Common law
is characterized as a legal system which develops case by case and which does not prescribe
general rules, which could be applied to all cases. In common law countries accounting
regulation is in the hands of professional organizations in the private sector. Company law is
kept to a minimum and detailed regulation is produced by the private standard setter.
The code law system originated in Roman law and has developed in continental Europe. It is
characterized by a wide set of rules which attempt to give guidance in all situations. In the
code law countries the company law is very detailed and accounting standards are often
embodied in the company law. Accounting regulation in code law countries is in the hands of
the government and financial reporting is in those circumstances often reduced to complying
with a set of very detailed legal rules. (Alexander et al, 2003)
Link between accounting and taxation
In some countries fiscal authorities use information provided in the financial statements to
determine taxable income. In some countries the costs are only tax deductible if they are also
recognized in the P&L account. This may lead to the danger, that financial reporting becomes
tax influenced or even tax biased. This link is often found in those countries that do not have
an explicit investor approach, e.g. Germany, Belgium, and the Czech Republic.
In the UK, the US and in the Netherlands the link between taxes and accounting is much
weaker. Separate accounts are filed for tax purposes. The measurement and recognition rules
are different from the valuation rules used in financial reporting.
This relation between accounting income and tax income varies over time.
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Cultural differences
Cultural differences between nations are identified as an important influencing factor on
reporting and disclosure behavior with regard to financial statements. (E.g. individualism
versus collectivism, strong versus weak uncertainty avoidance, professionalism versus
statutory control, uniformity versus flexibility, secrecy versus transparency.)
6. Summary
This paper strived to characterise from the normative standpoint the major features of
international accounting regulation and explored the differences between the reporting styles
of different nations growing from their traditions. The recent empirical evidence suggests that
the differences in provision of finance, the legal system, the link between accounting and
taxation and cultural values can explain the differences between the financial reporting,
accounting and economic behaviour of companies around the world. A study taking a
longitudinal approach to the development of differences after the institution of accounting
harmonization could be an interesting topic for future research.
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For examination of these features in the Czech environment see Jindrichovska (2001, 2002).
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References:
Alexander, D, Britton, A, and Jorissen A (2003) International Financial Reporting and
Analysis, Thomson Learning, London
Ali, A and Hwang, L (2000) Country specific factors related to financial reporting and the
value relevance of accounting data. Journal of Accounting Research, 38, (1), Spring
Ball, R., Kothari, S.P. and Robin A. (2000) ‘The Effect of International Institutional Factors
on Properties of Accounting Earnings’, Journal of Accounting and Economics, 29: 1-51.
Basu, S. (1997) ‘The Conservatism Principle and the Asymmetric Timeliness of Earnings’,
Journal of Accounting and Economics, 24: 3-37.
Guenther, D. and Young, D. (2000) The association between financial accounting measures
and real economic activity: A multinational study. Journal of Accounting and Economics, 29,
53-72.
Jindrichovska, I. (2001) ‘The Relationship between Accounting Numbers and Returns: Some
Empirical Evidence from the Emerging Market of the Czech Republic’, The European
Accounting Review, 10:1, 107-131.
Jindrichovska, I. (2002) “Conservatism and Timeliness of Earnings and Impact of Losses on
the Czech Market: An Empirical Study”. Project financed by EC (European Commission) No.
HPRN-CT-2000-00062 "Harmonia" Accounting Harmonisation and Standardisation in
Europe: Enforcement, Comparability and Capital Market Effects.
Nobes, W. and Parker, R. (1998) Comparative International Accounting. 5th ed, Prentice Hall,
London
Sucher, P. and Alexander, D. (2002) IAS: issues of country, sector and audit firm compliance
in emerging economies, London: Centre for Business Performance of the Institute of
Chartered Accountants in England and Wales.
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Shrnutí
Tento článek se zabývá rozdíly mezi systémy národního účetnictví. Horkým tématem dnešní doby je
harmonizace účetnictví. V této práci srovnáváme účetní praktiky na počátku nové éry. Článek
poskytuje náměty pro další výzkum národních rozdílů ve vztahu k účetní harmonizaci a jejího vlivu
na hospodářský život společnosti.
Finanční výkaznictví se nyní dotýká všech kotovaných společností v Evropské unii. Přestože se
požadavek vykazování v mezinárodním formátu zatím netýká malých a středních podniků, členské
státy chtětí přizpůsobit národní účetní legislativu tak, aby se přiblizovala mezinárodním standardům
IAS/IFRS.
Účetnictví slouží různým uživatelům a různým účelům, přesto však se všichni shodnou na společných
požadavcích, které by mělo plnit a na charakteristikách jaké by mělo mít (má být: relevantní,
srozumitelné, spolehlivé, úplné, objektivní, všasné, srovnatelné,...)
Historicky se účetnictví vyvíjelo v tůzných zemích nezávisle a často velmi odlišně. Finanční
účetnictví bylo zprvu komunikačním prostředkem mezi vlastníky a manažery podniků. K tomu došlo
asi na začátku 19. století, kdy se v důsledku rozvoje průmyslu oddělila funkce vlastníka a manažera.
Do té doby řídily podniky vlastníci sami, ale s rozvojem výroby bylo třeba získat více kapitálu a tak
vlastníci delegovali řídící pravomoci na manažery podniků. A účetnictví získalo novou funkci –
informovat vlastníky podniků o výsledcích.
Úprava účetnictví však nebyla jednotná protože výroba zřídka přesahovala hranice země nebo státu.
Proto jsou v úřetnictví ropzdíly které vznikly v důsledku odlišných vlivů prostředí a kultury.
Z odborné literatury můžeme identifikovat několik příčin těchto rozdílů:
1. Zdroje financování (věritelé/insideři versus akcionáři/vlastníci)
2. Platný právní systém (zvykové právo versus kodifikovaný právní systém)
3. Vztah mezi účetnictvím a daněmi
4. Kulsturní rozdíly (individualismus vs kolektivismus, uniformita vs flexibilita...)
Empirické studie ukázaly, že rozdíly stále existují i přes sbližování účetnictních systémů. Např. Ali, A
and Hwang, L (2000) - rozdíly v důsledku různých zdrojů financování; Ball, R., Kothari, S. and Robin
A. (2000) – rozdíly v se stupni konzervativismu a včasnosti v důsledku rozdílných právních systémů;
a Guenther, D. and Young, D. (2000) – rozdíly v reakcích na reálné ekonomické události v důsledku
rozdílných právních systémů a různých zdrojů financování.
Pomocí identifikace těchto vlivů lze vysvětlit rozdíly ve vztahu mezi finančním účetnictvím a
ekonomickým chovaním většiny společností. Zajímavým námětem je sledovat vývoj těchto rozdílů v
delším časovém horizontu a ověřit zda se účetní systémy v důsledku mezinárodní harmonizace
sbližují.