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INTERNATIONAL
ACCOUNTING

Orientation section
and an introduction
to international accounting

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Assessment
⚫Attendance and participation: 10%
◦ Attendance taking
◦ End of chapter quizzes and other instructor
determined activities
⚫Group work and mid term test 30%.
⚫Final test 60%

COURSE MATERIALS
◆ Handouts
◆ International accounting – Timothy Doupnik, Hector
Perera; 5th ed.; McGraw-Hill
◆ International accounting – Shahrokh
M.Saudagaran; 2nd ed.; Thomson South-Western
◆ VAS, IAS/IFRS

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COURSE OBJECTIVES
⚫ The course deals with accounting issues arising
when enterprises getting involved in
international trade and investment, including 2
major issues:
◦ Gaps among different accounting systems in the world
and harmornization trend of international accounting
systems and their implications to the preparation and
interpretation of financial statements.
◦ Accounting for main economic activities arising in
international trade and investment, including
accounting for foreign currency transactions, financial
investments and group accounting

COURSE OBJECTIVES
⚫ Concept of international accounting
⚫ Diversity of accounting around the world; the
harmonization and convergence trend in international
accounting.
⚫ Characteristics of accounting system in certain countries
in the world.
⚫ An overview of international financial reporting
standards (IFRS/IAS) and main differences between
IFRS/IAS and Vietnamese accounting standard
⚫ Issues arising in accounting for foreign currency
transactions and gains or losses from exchange rate
fluctuations.
⚫ Main issues in group accounting include: purchasing
method in accounting for combination, equity method
and cost method in accounting for associate and joint
venture; elimination of intra group transactions and
preparing a simple consolidated financial statements
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Content and progress

⚫Topic 1 Orientation section and an
introduction to international accounting
⚫Topic 2 Accounting diversity
⚫Topic 3 International Convergence of
Financial Reporting
⚫Topic 4 Multinational groups and
consolidated financial statements.
⚫Topic 5 Accounting for foreign currency
transactions and foreign trading activities

TOPIC 2

ACCOUNTING DIVERSITY

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ACCOUNTING DIVERSITY
⚫Accounting diversity: evidences and
problems
⚫Environmental factors leading to
accounting diversity
⚫National cultural and accounting systems
⚫C.Nobes’ simplified models in classifying
accounting systems.

Evidence of diversity

INESTMENT PROPERTY - VINGROUP

VAS: cost model

IFRS Fair value model
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Evidence of diversity

PPE - BAOVIET

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EVIDENCE OF DIVERSITY

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EVIDENCE OF DIVERSITY

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EVIDENCE OF DIVERSITY

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EVIDENCE OF DIVERSITY

Decreasing
Format of
liquidity
financial
statements

Increasing
liquidity

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Tower of Babel

Tháp Babel bởi Pieter Brueghel the Elder Engraving The Confusion of Tongues bởi
(1563). Gustave Doré (1865).
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Discussion
⚫Problems caused by international
accounting differences?
⚫Factors effecting to national accounting
systems/Origins of international
accounting differences?
◦ Legal system
◦ Sources of finance
◦ National culture

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Problems caused by international

accounting differences

⚫ Consolidated financial statements

⚫ Difficulties with access to foreign capital Markets
⚫ Non-comparability of financial statements
⚫ Lack of high-quality accounting information

International accounting differences

obstruct financial communication
between countries
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ENVIRONMENTAL FACTORS
LEADING TO ACCOUNTING
DIVERSITY
LEGAL SYSTEM
TAXATION
PROVIDERS OF FINANCING
INFLATION
POLITICAL AND ECONOMIC TIES

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Legal system and accounting

• How are the standards developed? State or private

sector? Detailed or not?
• How do the standards applied: uniformity or flexibility?
• Role of professional judgement? Role of professional
association? 20

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Environmental Factors
Leading to Accounting
Diversity
Taxation
⚫ U.S. taxable income and book income are
generally quite different => Independence leads
to accounting information which represents
more the underlying economic situation
⚫ Germany: rules governing taxable and book
income tend to be the same, which generally
results in more conservative accounting.
◦ Deferred taxes are less of an issue in code law
countries.
◦ Dependence leads to tax biased accounting
information
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Providers of finances or sources of

finances
Families,
Stock Providers banks, and
market of finances the
government.

Number of listed companies

Stock market Capitalization
to GDP ratio
The domestic credit to
private sector by banks
(%of GDP)
……

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Provision of finance and consequences

⚫ Levelof disclosure?
⚫ Conservatism or optimism?
⚫ High quality information?
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Environmental Factors Leading

to Accounting Diversity
Inflation
⚫ Some countries have historically high rates of
inflation.
⚫ Accounting in these countries often requires
adjustments to offset the impact of inflation.
⚫ This is common in Latin American countries.
⚫ Given extended periods of low inflation in the
U.S., inflation accounting is not required.

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Environmental Factors Leading to

Accounting Diversity

Political and economic ties

⚫ These linkages tend to make information
sharing easier.
⚫ Nations that share ties often have similar
accounting systems, such as France and
former colonies in western Africa.

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Correlation of factors

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Financial Reporting System

Classification
Accounting Clusters
Environmental factors related to accounting
diversity have been used to identify three
broad based clusters:

Fair presentation / full disclosure model

⚫ Oriented towards the information needs of
investors and creditors.
⚫ Most descriptive of the U.K. and U.S.
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Financial Reporting System

Classification
Accounting Clusters
Legal compliance model

⚫ Accounting heavily influenced by tax rules

and needs of government.
⚫ Commonly found in continental Europe and
other code law countries such as Japan.
⚫ Banks are primary source of financing.

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Financial Reporting System

Classification
Accounting Clusters
Inflation-adjusted model
⚫ Similar to the legal compliance approach.
⚫ Is distinguished by the requirement for
adjustments to mitigate the effects of
inflation.
⚫ As such, found mostly in South America.

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Financial Reporting System

Classification
Nobes’ judgmental classification
⚫ Shows how accounting systems in 14
developed countries relate to each other.
⚫ Classified by influences of government,
economics, taxes, legal systems and business
practices.

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Nobes’s Hierarchial Classification

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NATIONAL CULTURE
AND ACCOUNTING
SYSTEM

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The Influence of Culture on

Financial Reporting
⚫ Culture is also widely considered to influence
financial reporting systems.
⚫ Hofstede’s five cultural dimensions is the
most commonly used scheme to discuss
cultural influences.

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Cultural Influences on Accounting

Systems

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Cultural Influences on Accounting Systems

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Structural Elements of Culture

⚫Hofstede – 4 Underlying societal
dimensions
◦ Individualism vs. Collectivism
◦ Power Distance: Large versus Small
◦ Uncertainty Avoidance: Strong vs. Week
◦ Masculinity vs Femininity
⚫Countries grouped into culture areas
⚫Hofstede and Bond – 5th dimension
◦ Confucion Dynamism (Long-term Orientation)

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The Influence of Culture on Financial

Reporting
Hofstede’s Cultural Dimensions
Individualism (vs. Collectivism)

⚫ Preference for a loosely knit social fabric.

⚫ Collectivism represented by a tightly knit
social fabric.
⚫ People’s self-concept: “I” or “we”

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The Influence of Culture on Financial

Reporting
Hofstede’s Cultural Dimensions
• Power Distance
• Level of acceptance of unequally distributed
power within and across the society’s institutions
and organizations.
• How a society handles inequalities among people
• Uncertainty Avoidance
• Degree to which members of a society feel
threatened by uncertain or unknown situations.
• Control the future or just let it happen
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The Influence of Culture on Financial

Reporting
Hofstede’s Cultural Dimensions
⚫ Masculinity vs Femininity
◦ Emphasis on traditional masculine values of
performance and achievement vs. feminine
values of relationship, caring and nurturing.
◦ The way a society allocates social roles to
gender

⚫ Long-term Orientation
◦ The extent to which the society values
persistence, thrift, observing order and respect
for tradition.
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The Influence of Culture on Financial

Reporting
Gray’s Accounting Values

⚫ Professionalism vs. Statutory Control

⚫ Uniformity vs. Flexibility
⚫ Conservatism vs. Optimism
⚫ Secrecy vs. Transparency

Learning Objective 5
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The Influence of Culture on Financial

Reporting
Gray’s Accounting Values
Professionalism vs. Statutory Control
⚫ Professionalism is reflected by individual
professional judgment and self-regulation of the
profession.
⚫ Statutory control focuses on legal compliance
and legislative control of the profession.
⚫ The former is more indicative of the U.K. and
U.S. and the latter more so with continental
Europe.

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The Influence of Culture on Financial

Reporting
Gray’s Accounting Values
Uniformity vs. Flexibility
⚫ Uniformity indicates preference for standardized
accounting methods.
⚫ Flexibility is reflected in the varying of accounting
practices for differences between companies.
⚫ U.K. and U.S. approaches are examples of
flexibility.

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The Influence of Culture on Financial

Reporting
Gray’s Accounting Values
Conservatism vs. Optimism
⚫ Conservatism indicates preference for
caution and prudence.
⚫ Optimism tends more toward fair
presentation.
⚫ Germany has traditionally reflected a strong
tendency toward conservatism.

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The Influence of Culture on

Financial Reporting
Gray’s Accounting Values
Secrecy vs. Transparency
⚫ Secrecy reflects a preference for minimal
information disclosure.
⚫ Transparency reflects openness and full
disclosure.
⚫ Countries with predominantly family-owned
and bank-financed firms tend toward secrecy.

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Cultural and accounting values

Accounting values
Cultural
dimensions Professionalism Uniformity Conservatism Secrecy

Power distance

Uncertainty
Avoidance

Individualism

Masculinity
Long term
orientation
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Authority and Enforcement

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Accounting Values and Societal Values

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NOBES’ SIMPLIFIED
MODEL

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Nobes’ simplified model

⚫ Describes international differences as a

function of culture and the system of
financing.
⚫ Culture influences the development of the
system of financing which influences the
development of accounting.
⚫ Uses two classifications -- A and B.

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Nobes’ simplified model

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Nobes’ simplified model

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Nobes’ simplified model

Class A Accounting

⚫ Descriptive of Anglo-Saxon countries.

⚫ Strong outside shareholder equity-financing.
⚫ Optimism.
⚫ Transparency.

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Nobes’ simplified model

Class B Accounting

⚫ Descriptive of continental Europe.

⚫ Less widespread outside shareholder
equity-financing.
⚫ Conservatism.
⚫ Secrecy.

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Further Evidence of
Accounting Diversity
Additional differences between countries

⚫ Different financial statement formats.

⚫ Level of detail in financial statements varies
between countries.
⚫ Terminology, level of disclosure, and rules
governing recognition and measurement.
⚫ Different financial statements included in the
annual report.
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