Worldwide Accounting

Diversity

PERTEMUAN #2

AKUNTANSI
INTERNASIONAL
Worldwide Accounting Diversity
Chapter Topics
Indicators of worldwide accounting diversity.
Problems caused by worldwide accounting diversity.
Environmental factors leading to accounting diversity.
Classification schemes of national accounting
systems.
The effects of culture on accounting.
International differences in accounting practice.

2-2
Worldwide Accounting Diversity
Learning Objectives
1. Provide evidence of the diversity that exists in
accounting internationally.
2. Explain the problems caused by accounting diversity.
3. Describe the major environmental factors that
influence national accounting systems and lead to
accounting diversity.

2-3
Worldwide Accounting Diversity
Learning Objectives
4. Present a judgmental classification of countries by
financial reporting system.
5. Discuss the influence that culture is thought to have
on financial reporting.
6. Describe a simplified model of the reasons for
international differences in financial reporting.
7.Categorize accounting differences internationally and
provide examples of each type of difference.

2-4
 What is Worldwide Accounting Diversity?
Worldwide Accounting Diversity
Differences in accounting and financial reporting
rules between countries. For example:
Accounting for Goodwill
U.S. -- goodwill is an asset on the purchaser’s books.
Germany – goodwill is often subtracted from
stockholders’ equity on the purchaser’s books.

Learning Objective 1
2-5
 What is Worldwide Accounting Diversity?
Worldwide Accounting Diversity
Asset revaluation
U.S. -- upward revaluation of fixed assets is not
generally allowed.
Mexico, Chile, and The Netherlands upward
revaluations are allowed and sometimes required.

Learning Objective 1
2-6
 What is Worldwide Accounting Diversity?
Worldwide Accounting Diversity
Inflation Accounting
U.S. (and many other countries) -- financial
statements are not adjusted for inflation.
Latin American countries -- experience significant
inflation, financial statements are adjusted for changes
caused by inflation.

Learning Objective 1
2-7
 Evidence of Diversity in International
Accounting
Additional evidence of differences in
accounting between countries
Form 20-F
Required by the SEC for companies using non-U.S.
GAAP.
Reconciles net income and stockholders’ equity from
the other GAAP to U.S. GAAP.

Learning Objective 1
2-8
 Problems Caused by Accounting Diversity
Consolidated financial statements
U.S. MNEs often have subsidiaries in a large number
of countries.
Accounting records in local GAAP and local currency
are rolled-up (i.e., consolidated) into U.S. GAAP.
Require conversion from local to U.S. GAAP.
Require translation from the local to U.S. currency.

Learning Objective 2
2-9
 Problems Caused by Accounting Diversity
Difficulties with access to foreign capital
markets
Companies often need to go outside their home
country in order to access financing.
Raising foreign capital often requires reconciliation to
comply with different accounting rules or needs of
investors and creditors.

Learning Objective 2
2-10
 Problems Caused by Accounting Diversity
Non-comparability of financial
statements
Accounting rules often differ between countries.
International investors need to make their own
reconciliations or adjustments to financial statements.
International investors also must face differing levels
of disclosure, quality of accounting standards, and
quality of auditing.

Learning Objective 2
2-11
 Environmental Factors Leading to
Accounting Diversity
Legal systems -- Common law
Has relatively fewer statutes and more interpretation
by courts to apply laws to specific situations.
Leads to the creation of precedents or case law.
Found most often in Great Britain and other English-
speaking countries.
In these countries, the source of accounting rules
tends to be non-governmental organizations.

Learning Objective 3
2-12
 Environmental Factors Leading to
Accounting Diversity
Legal systems -- Code law
Characterized by relatively more statutes or code law.
Found more often in non English-speaking countries.
Accounting rules in these countries tend to be
legislated (i.e., the source is the government).

Learning Objective 3
2-13
 Environmental Factors Leading to
Accounting Diversity
Taxation
U.S. -- taxable income and book income are generally
quite different.
Germany -- rules governing taxable and book income
tend to be the same, which generally results in more
conservative accounting.

Learning Objective 3
2-14
 Environmental Factors Leading to
Accounting Diversity
Providers of financing
In many countries major sources of capital are
families, banks, and the government.
Accounting and disclosure in those countries tend to
be less important.
In the U.S. and UK the providers of financing are
diverse shareholders, so accounting and disclosure are
more important.

Learning Objective 3
2-15
 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.

Learning Objective 3
2-16
 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.
Correlation of factors
In summary, correlations exist among these factors.
Code law countries tend to have accounting rules
based on tax rules, and providers of financing with
close ties to the company (i.e., family, banks,
government).

Learning Objective 3
2-17
 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

Gives primacy to the information needs of investors.
Most descriptive of the UK and U.S.

Learning Objective 4
2-18
 Financial Reporting System Classification
Accounting Clusters

Legal compliance
Accounting heavily influenced by tax rules and needs
of government.
Commonly found in continental Europe.

Learning Objective 4
2-19
 Financial Reporting System Classification
Accounting Clusters

Inflation-adjusted
Similar to the legal compliance approach.
Is distinguished by the requirement for adjustments to
mitigate the effects of inflation.

Learning Objective 4
2-20
 Financial Reporting System Classification
Nobes’ judgmental classification
Focuses on fair presentation / full disclosure and legal
compliance clusters.
Considers primary needs of information users.
Considers primary source of accounting rules.
Classifies countries into six different groups.

Learning Objective 4
2-21
 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.

Learning Objective 5
2-22
 The Influence of Culture on Financial
Reporting
Hofstede’s Cultural Dimensions
Individualism (vs. Collectivism)
Power Distance
Uncertainty Avoidance
Masculinity
Long-term Orientation

Learning Objective 5
2-23
 The Influence of Culture on Financial
Reporting
Hofstede’s Cultural Dimensions
Individualism (vs. Collectivism)
Degree of interdependence among individuals in a
society.
More interdependence equates to less individualism
(more collectivism).

Learning Objective 5
2-24
 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.
Uncertainty Avoidance – Degree to which
members of a society feel threatened by uncertain
or unknown situations.

Learning Objective 5
2-25
 The Influence of Culture on Financial
Reporting
Hofstede’s Cultural Dimensions
Masculinity – Emphasis on traditional masculine
values of performance and achievement vs.
feminine values of relationship, caring and
nurturing.
Long-term Orientation – The extent to which the
society values persistence, thrift, observing order
and respect for tradition.

Learning Objective 5
2-26
 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
2-27
 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 UK and U.S. and
the latter more so with continental Europe.

Learning Objective 5
2-28
 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.
UK and U.S. approaches are examples of flexibility.

Learning Objective 5
2-29
 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.

Learning Objective 5
2-30
 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.

Learning Objective 5
2-31
 A Model to Explain International
Differences in Financial Reporting
Nobes’ 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.

Learning Objective 6
2-32
 A Model to Explain International
Differences in Financial Reporting
Class A Accounting
Descriptive of Anglo-Saxon countries.
Strong outside shareholder equity-financing.
Optimism.
Transparency.

Learning Objective 6
2-33
 A Model to Explain International
Differences in Financial Reporting
Class B Accounting
Descriptive of continental Europe.
Less widespread outside shareholder equity-financing.
Conservatism.
Secrecy.

Learning Objective 6
2-34
 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.

Learning Objective 7
2-35
SEKIAN
DAN
TERIMA KASIH
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