FINANCIAL ACCOUNTING

THEORY AND ANALYSIS:

TEXT AND CASES
11TH EDITION

RICHARD G. SCHROEDER
MYRTLE W. CLARK
JACK M. CATHEY
CHAPTER 3
INTERNATIONAL ACCOUNTING
CH03: International Accounting

I. International Business Accounting Issues.

II. The Development of Accounting Systems.
III. Preparation of Financial Statements for Foreign
Users.
IV. The International Accounting Standards
Committee
V. The Uses of International Accounting Standards.
VI. Standards Overload.
VII. IAS No. 1 & IFRS No. 1
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International Accounting
Standards
 Financial accounting is influenced by the environment in
which it operates
 Companies develop financial reports directed at their
primary users
 Previously most were residents of the same country as the corporation
 Transnational financial reporting has become more commonplace
because of the European Union, GATT and NAFTA
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I. International Business Accounting

Issues
 A company’s first exposure to international
accounting is frequently the result of a
purchase or sale

 Problems:
1 Exchange gains or losses
2 Obtaining credit information
3 Evaluation of financial statements
 Next step may be to open an international division
 Another issue is raising capital in foreign markets
 Must prepare financial statements in a format
acceptable by appropriate securities market
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II. Factors Influencing the Development

of Accounting Systems:

Level of Political
Education System

Economic
Legal System
Development
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III. Approaches to Preparing Financial

Statements for Use in Other Countries:

1 Same to all
2 Translate language
3 Translate language and currency
4 Two sets
5 World-wide standards
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IV. The International Accounting

Standards Committee
 The preparation of financial statements for foreign users
under option #5 is being increasingly advocated

 IASC  International
 Formed in 1973 to Accounting Standards
aid in this process Board (IASB)
 Replaced IASC in 2001
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Restructuring the IASC

 In its early years, IASC acted mainly as a harmonizer

 Recently, it has begun to combine that role with the role of a
catalyst

Harmonizer Catalyst

Coordinator of national initiatives

Initiator of new work
at national level
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Restructuring the IASB

2001:
Responsibility for international standards-
setting was transferred to the to the
International Accounting Standards Board
(IASB)
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Restructuring the IASB

 The new structure:

The IASC Foundation
The International Accounting
Standards Board (IASB)
The International Accounting
Standards Advisory Council (IASAC)
International Financial Reporting
Interpretations Committee (IFRIC)
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Restructuring the IASB

The IASB’s aim:
 In the short-term, should be to effect the
convergence of national accounting standards
and international accounting standards around
high quality solutions
 In the long-term, should be global uniformity –
a single set of high quality accounting
standards for all listed and other economically
significant business enterprises around the
world.
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V. The Uses of International

Accounting Standards
 IASC noted that its standards are used in a variety of ways:
1 National requirements
2 Basis for national requirements
3 Benchmark to develop standards
4 By regulatory agencies
5 By companies

 Also International Organization of Securities Commissions

(IOSCO) looks to the IASC to provide standards that can be used
in multinational securities offerings
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V. The Use of IASC Standards

Adopted by approx. 120 countries

 EU
 Australia
 New Zealand
Planned option by others
 Canada
 Japan
 China
US (?)
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VI. Standards Overload

 2009: IASB published IFRS for small to medium-
sized businesses (SME).
 95% of all companies are SMEs
 Provide simplified standards for smaller,
unlisted companies and are based on full IFRSs
 Eliminating topics that aren’t generally relevant
to SMEs, and simplifying methods for
recognition and measurement.
 Allows easier option when IFRS permit
accounting policy choices.
 Requires significantly fewer disclosures.
 Now reviewing impact
 Another area of difference with U. S. GAAP
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IAS No. 1 “Presentation of Financial Statements”

 Considerations:
a Fair presentation and compliance with IASC definitions and
recognition criteria.
b Accounting policies
c Going concern
d Accrual basis of accounting
e Consistency of presentation
f Materiality and aggregation
g Offsetting
h Comparative information
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IFRS No. 1 “First Time Adoption of International

Reporting Standards”

 Compliance requirements
 Recognition of assets and liabilities
 Only when required by IFRSs
 Requires reclassifying if necessary
 Applies existing IFRSs in measuring