Comparative

International
Accounting
Topic 1
Introduction to International
Accounting

What about my Assessments?

Your are required to pass both the Assignment

and the Examination.
Each is worth 50%
Read the Study Guide on CSUs Interact and make sure you know
what is required
to pass the Assignment and the Examination

Why study Comparative International

Accounting?

Because the World has Changed.

We no longer live within the boundaries of our own countries.
When we conduct business it is in an international arena. Large companies MNEs
exploit competitive advantages, or differences in laws and stakeholders especially
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shareholders need to hold them to account.

What is required
to understand Comparative International Accounting?

Attend the Lectures and Tutorials

Ask questions in class, tutorials and outside of class. Your Lecturers will be willing
to help with your questions. But you must make the effort.
Read all the Text as prescribed and References
The more you read and study, the more confidence you gain
Research each Topic
Use your research to form your own opinions and do not plagiarize
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Essential Reading
Text Book: Chapter 1: especially pages 1-15, 18-21 and
24-26

Objectives for Topic 1:

to be able to-

explain why differences continue to persist in financial reporting

across the globe, in spite of adoption on international reporting
standards (IFRS)

demonstrate the impact of world politics, growth of trade,

foreign direct investment, globalization of stock markets,
variations in share ownership and the international monetary
system has had on international accounting

explain the nature and growth of MNEs

explain the historical, comparative & harmonization reasons for

understanding comparative international accounting
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Variation in Financial Reporting

Accountants within a country or between countries will not necessarily

produce identical financial statements even if all are presented with the
same transaction information.
Why? Because no one set of rules will
cover every eventuality.
Accountants use professional judgements, and this depend on
laws & rules within each country and between countries
Rules may differ for private companies compared to company groups like
MNEs
There has been intensive attempts to reduce these differences globally by
IASB (International Accounting Standards Board) and UE *European Union.
The IASB issues International Financial Reporting Standards (IFRS) and EU
issues Directives & Regulations on accounting & financial reporting
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Variations in Financial Reporting

The US, and the US stock market use the best known set of
rules, called Generally Accepted Accounting Principles
(GAAP). This has had a significant impact globally.

So IASB, EU and GAAP as regulatory agencies have lessened

the differences globally, but many different rules and
practices remain and some will never alter

The Global Environment of Accounting

The globalization of accounting rules and practices have

become paramount, such that national rules & practices can no
longer be sustained.

Political issues: dominance of the US and expansion of EU

Liberalization of and increase in international trade and direct investment

Emergence of global financial markets

Patterns of share ownership and influence of privatization

Changes in international financial system

Growth of MNEs

These have all affected the financial reporting and transfer of accounting
technology from one country to another
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Impact of world politics on Accounting

The rise of US and Soviet Union, the collapse of European empires

(British & Continental Europe) and the creation of the EU have
influenced global thinking on financial reporting.

Since the collapse of Enron, the demise of Arthur Andersons auditors, the world
has changed how it looks at financial reporting. But the US remains very influential

The development of international accounting standards emerged from the

International Accounting Standards Committee (IASC) and its successor IASB

Former British Colonies formed Institutes of Charted Accountants, like CPA

Accounting rules & practices have been influenced by the harmonization program
of the EU, and its adoption of IFRS

The reunification of Germany strained the German economy. So German

companies needing to raise money abroad had to change their financial reporting
procedures
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Impact of Economic Globalization, International Trade &

Foreign Direct Investment

The economic globalization has meant the spread of goods,

services, people, technologies, distribution of wealth and
innovation & concepts

The most significant impact to globalization has come from

international trade and FDI (foreign direct investment)

Trade organizations like NAFTA, GATT and WTO have increased

trade and helped the rise of MNEs

MNE companies like Royal Dutch Shell, BP, & Vodafone operating
around the world bring ambiguity to concept of home country

Where are they listed on stock markets? What currency do they

report in? Where is their head office? Where are their auditors?
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Impact of Globalization on Stock Markets

Exercise: Read pages 9, 10,11, 12 and 13 Refer to the

following tables.

Why has London Stock Exchange become the dominant

Exchange market compared to New York?

Some MNEs like Volvo are listed on many exchanges. Why

would MNEs list on more than one market?

What is the downside of listing on more than exchange market?

11

Major stock Exchanges, January 2011

12

Top twelve Exchanges for new Equity listings, 2009

13

Foreign company listing on major stock

exchanges, January 2011

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Impact of Shared Ownership

Investor behavior has also changed due to globalization.

La Porta et al. (1999) identified company share holders by families,

by state control or by financial institutions. 30% were family
controlled, 18% were state controlled

Family controlled countries were Mexico, Hong Kong & Argentina

State controlled were Austria, Israel, Singapore, Italy, Finland &

Norway

Financial Institutions control were Belgium, Germany, Portugal &

Sweden

It appears that the split between owners and managers has

driven the need for independent financial audited statements.
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Impact of International Financial System

The international monetary system has changed dramatically since

Bretton Woods Agreement .

Major currencies floated against each other in 1973

Exchange rates have become very volatile

Across the EU, countries adopted the Euro with the exception of the Pound
Sterling in 1999

The worlds financial system become toxic after 2008/9 financial crisis.

The result was many countries want a new Bretton Woods arrangement

The crisis put renewed focus on regulations of the stock markets because the
use of market valuations in accounting were blamed

Today EU is still in crisis as political governments change and

threaten to ignore their debt obligations that bailed them out
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Comparative & International aspects of

Accounting
History has shown that many countries have contributed to the development
of Accounting
Romans developed elementary bookkeeping and calculating profit
Muslim developed arithmetic & bookkeeping techniques
The Italians started to use and develop double entry bookkeeping
In the 19th Century, Britain took the lead followed by the US.
Today English has become the established world language of accounting
(Parker 2000)
International Institutes have emerged around the world.
Most recent is China Chinese Institute of Certified Public Accountants in
1988
Table in text (p. 20) demonstrates British & American origins of the world of
the four major accountancy firms.

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Age and size of some members of IFAC

18

Leading International Accounting Firms,

2012

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Review topic 1

Research links:

www.accountingeducatin.com

www.ifr.org

www.worldbank.org

www.ifac.org

Do you understand the following terms?

IFRS

GAAP

Harmonization

Accounting ethnocentrism

Question to consider
Why is English the leading
language of international
corporate financial
reporting?

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