Accounting theory & Accountability essay on stock exchange
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Powerpointslides-InternationalAccountingPart21.pptxAccounting Theory
International Accounting, Part 2
The 5 key Learning Objectives in this lecture about International Accounting
Nature of International Accounting
Diversity of International Accounting Practice
IFRS
Cultural Impact in accounting practice
MNC
INTERNATIONAL ADOPTION OF IFRSs
Worldwide accounting diversity creates challenges for international business operations and investment.
It is costly for multinational enterprises to restate their accounts to meet the requirements of every jurisdiction in which they report
Investors also incur costs in comparing results of companies when their financial reports are prepared using different rules.
There has been a growing demand for international accounting standards.
Harmonisation, Convergence and Adoption - What’s the Difference?
An number of approaches have been taken to bring about adoption of international accounting
Harmonisation
implies reconciling different points of view and reducing diversity, while allowing countries to have different sets of accounting standards.
Convergence
A process that takes place over time, implies the adoption of one set of standards across the globe.
Benefits of IFRS Adoption
The adoption of IFRS provides a number of benefits including:
Providing a cost-effective way to institute a comprehensive system of accounting standards. (eliminate the set-up costs and immediately allow countries to become part of the mainstream of accepted international accounting standards)
Especially for developing countries.
Benefits of IFRS Adoption Cont
Enhanced the operation and globalisation of capital markets.
facilitate international transactions, pricing and resource allocation decisions and make international financial markets more efficient
increase the need for accounting standardisation for companies that raise outside capital
Reduced costs for financial report preparation.
Transportable accounting skills
Limitations of IFRS adoption
The adoption of IFRS may have limitations primarily concerning differences in business, financial and accounting culture from one country to another.
tax-collection systems are widely different in each country
political or economic accounting policy differences
strict national licensing requirements for auditors and accountants
still no guarantee of a high level of standardisation in financial reporting, even if IFRSs are adopted by all countries.
Limitations of IFRS adoption Cont
Certain standards and requirements may not reflect local situations.
E.g. Consolidation standards
Fair value rules
Implicit interest rate requirements
Adoption of IFRSs Around the World
Table 12.1 lists a selection of IFRS users around the globe.
Jurisdictions will have differing degrees of convergence with IFRSs.
Nobes suggests that the factors that have previously been associated with international differences in accounting still can be used to explain differences in IFRS adoption practices across jurisdictions.
Use of IFRSs
Though widely adopted questions have been raised about whether adoption leads to convergence.
It has been pointed out that standards developed by the IASB are primarily aimed at countries with highly developed capital markets, and it can be questioned whether the resulting standards are optimal for developing and transitional economies that lack the infrastructure to monitor financial reporting decisions.
FASB AND IASB CONVERGENCE
Since 2002 efforts have been made to harmonise IFRS and FASB standards (remove difference between international standards and US GAAP – Norwalk Agreement)
At various times it has looked more or less likely that convergence would be achieved.
At present there appears to be significant resistance to the adoption of certain IFRS standards in the US including
Accounting for Leases
Accounting for Income Tax
MULTINATIONAL ORGANISATIONS
Multinational enterprises are particularly affected by the range of environmental factors and accounting systems in the different countries in which they operate. (tax, legal, reporting, currency)
They tend to be larger and have more complex business operations than their domestic counterparts.
There are particular issues around
Organisational culture (what decision making should be held in few key centres or spread across large number of units)
Intra-entity transactions in different operating units in different countries.
Transfer pricing (pricing of goods and services transferred between members of a corporate family)
The End
