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Financial Accounting: AND Text and Cases
Financial Accounting: AND Text and Cases
ACCOUNTING
THEORY AND
ANALYSIS:
TEXT AND CASES
11TH EDITION
RICHARD G. SCHROEDER
MYRTLE W. CLARK
JACK M. CATHEY
CHAPTER 3
INTERNATIONAL ACCOUNTING
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
U. S. companies must be able to compete in global
markets with transnational financial reporting
International Business
Accounting Issues
A companys 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
Factors Influencing the
Development of Accounting
Systems:
Level of Political
Education System
Economic
Legal
Development
System
Influences on the Development
of Financial Reporting
Agricultural
Type of Resource Based
economy Tourist Based
Manufacturing
Legal Codified
System Common Law
Political Democratic
System Totalitarian
Social Climate
Stability of currency
Sophistication of management
Sophistication of financial community
Existence of accounting legislation
Education System
Approaches to Preparing
Financial Statements for Use
in Other Countries:
Same to all
Translate language
Translate language and currency
Two sets
World-wide standards
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
aid in this process Standards Board
Replaced IASC in
2001
Standard Setting by the
IASC
Original intent:
Avoid complex details
Concentrate on basic standards
Steps in the process
Similar to FASB
Steering Committee
Identify issues and prepare point outline
Board prepares comments
Steering Committee prepares final Statement of Principles
Exposure Draft
Steering Committee reviews comments and prepares final standard
Standard Setting by the
IASC
Two treatments
Benchmark - point of reference
Alternative
Improvements Project
2003
Removed some of the existing alternative accounting
treatments
Where an IAS retains alternative treatments
IASB removed references to 'benchmark treatment'
Now termed 'alternative treatment'
Using descriptive references
Cost model'
Revaluation model'
Restructuring the IASC
Harmonizer Catalyst
3. Appointment.
The process for appointments to the IASB Board and key IASB
committees should be the responsibility of a variety of
constituencies
Those appointed must be competent , independent, and objective.
Restructuring the IASB
2001:
Responsibility for international standards-
setting was transferred to the to the
International Accounting Standards
Board (IASB)
Restructuring the IASB
IASB KEY:
Structure Reports To
Advises
Monitoring Board
Approve and Oversee Trustees
IASC Foundation
22 Trustees Appoint, Oversee, Raise Funds
IFRS Advisory
Council
Approx. 40 members IFRS Interpretations
Committee
(14 members)
Working Groups
For Major Agenda Projects
Revising the IASBs
Constitution
Key issues to be reviewed:
1. Whether the objectives of the IASC Foundation should
expressly refer to the challenges facing small and medium-
sized entities (SMEs)
2. Number of Trustees and their geographical and professional
distribution
3. The oversight role of the Trustees
4. Funding of the IASC Foundation
5. The composition of the IASB
6. The appropriateness of the IASB's existing formal liaison
relationships
7. Consultative arrangements of the IASB
8. Voting procedures of the IASB
9. Resources and effectiveness of the International Financial
Reporting Interpretations Committee (UMC):
10. The composition, role, and effectiveness of the SAC
The Uses of International
Accounting Standards
IASC noted that its standards are used in a variety of
ways:
National requirements
Basis for national requirements
Benchmark to develop standards
By regulatory agencies
By companies
Also International Organization of Securities Commissions
(IOSCO) looks to the IASC to provide standards that can
be used in multinational securities offerings
Other Issues
Partnership with the IOSCO
Generate standards acceptable to IOSCO
December 17, 2003
IASB published 13 revised International Accounting Standards
Reissued two others
Gave notice of the withdrawal of its standard on price level
accounting.
Revised and reissued standards mark near-completion of
the IASBs Improvements project
2005: reaffirmed support and development of IFRS
IASB Annual Improvements
Project
July 2006
Non-urgent issues
Amendments
The Use of IASC Standards
12/18/2002:
FASB and IASB held joint meeting in Norwalk, Connecticut
Both standard setting bodies acknowledged
Their commitment to the development of high-quality compatible
accounting standards that can be used for both domestic and
cross-border financial reporting.
Also committed to use their best efforts to make their existing
financial reporting standards compatible as soon as
practicable and to coordinate their future work programs to
help ensure that once compatibility is achieved, it will be
maintained.
The Norwalk Agreement
VS
Going concern
If that presumption is invalid, appropriate
disclosure and a different basis of
reporting are required.
The Elements of Financial
Statements
Asset
Liability
Equity
Income
Expense
The concept of recognition
Probable
Measurable
The Concepts of Capital
Maintenance
Concepts:
Financial capital maintenance
Physical capital maintenance
Selection of the measurement bases and the
concept of capital maintenance chosen will
determine the accounting model
IASC does not intend to prescribe a model
The IASBFASB Financial
Statement Presentation
Project
IASB and the FASB are undertaking a joint project to
develop a new joint standard for presenting financial
statements.
Ultimately, the new standard will replace IAS No. 1 ,
Presentation and IAS No. 7 ,
The main objective of this project is to address
fundamental issues relating to presentation and display
of information in the financial statements, including:
The relationship between items across financial statements
The disaggregation of information so that it is useful in predicting
an entitys future cash flows
The provision of information to help users assess an entitys
liquidity and financial flexibility
Future work program
In July 2011, the IASB requested
consultation on its future work plan.
This consultation sought input on the
direction and the overall balance of its work.
Culminated in the release of a Feedback
Statement issued by the IASB on December
18, 2012 that identified several key themes:
A period of calm.
Prioritize work on the Conceptual Framework
Targeted improvements to certain standards
Updates to assist implementation and
maintenance.
Updates to assist in improving the standard-setting
process.
Future work program
As a result, the following initiatives developed:
Improved implementation
Resume work the Conceptual Framework
Developed a list of nine research projects that it will
explore over the next three years
1. Emissions trading schemes
2. Business combinations under common control
3. Discount rates
4. Equity method of accounting
5. Intangible assets, extractive activities, and research and
development activities
6. Financial instruments with the characteristics of equity
7. Foreign currency translation
8. Nonfinancial liabilities (amendments to IAS No. 37 )
9. Financial reporting in high inflationary economies
Each research project will result in a report or discussion paper
IAS No. 1 Presentation of Financial
Statements
Considerations:
Fair presentation and compliance with IASC standards
Accounting policies
Going concern
Accrual basis of accounting
Consistency of presentation
Materiality and aggregation
Offsetting
Comparative information
IAS No. 1 Presentation of Financial
Statements
2003 Amendments
Presents fairly definition
Elaboration of misleading results
from complaince
Standards on selection of accounting
policies moved to IAS No. 8
Certain disclosures no longer
required
Specific disclosures required
Statement of Changes in Equity
disclosure requirements
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
End of Chapter 3
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