Chapter 3

1. Chapter 3 Comparative International Financial Accounting I

2. Founding Members of the IASC and IASB Exhibit 3.1 Economic Data for Developed Countries International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

3. Anglo-American Accounting • Less conservative and more transparent • Pre-Sarbanes Oxley – what about post? • United States • Focused on large corporations and interests of investors • Securities markets are the dominant influence on accounting regulation • SEC has authority to formulate and enforce accounting standards • Delegated to the FASB • Only listed corporations are required by law to comply with GAAP • Very public standards-setting process – solicit input before rules go into place – Example, SFAS 96 v. 109. International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

4. Anglo-American Accounting • United Kingdom • Focus on information needs of investors • Securities markets dominate the process of acctg. Regulation. • Commercial/Company law has a much wider remit • Accounting requirements are for all LLCs and corporations • Why LLCs too? • Accounts present a “true and fair view” of company results • Accounting Standards Board (ASB) recently incorporated International Financial Reporting Standards (IFRS) International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

5. Anglo-American Accounting • Australia • English influence • Focus on investors rather than tax needs • Australian Securities & Investments Commission • Regulate and enforce company law • Australian Accounting Standards Board – creates standards • Urgent Issues Group (UIG) • Financial Reporting Council oversees AASB • Provides guidance for public and private sector International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

6. The Netherlands • Though Nordic, more similar in approach to U.S. and U.K. • Business economics approach to accounting – focus on investors and other uses access and disclosure - voluntarily • Tradition of • Public ownership of shares • International business outlook • “Generally Acceptable Accounting Principles” – mandating true and fair concept in financial reporting. • Provided by Council for Annual Reporting • Members from the accounting profession (NIVRA) and others • Not mandated by law, but followed by most companies • Influence of Commercial law supplemented by case law is increasingly present in setting accounting standards. • IFRS required for listed companies in 2005 International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

7. Nordic Accounting • Nordic Countries: Denmark, Finland, Iceland, Norway, and Sweden • Sweden • Focus on creditors, government, and tax authorities • Also heavily involves accounting profession in standard setting. • Capital Markets important to accounting and disclosure req’ts • Two-tier approach • Individual accounts – traditional basis • Consolidated accounts of major groups – international capital market needs • The law provides a framework rather than detailed requirements • Accounting Standards Board and Accounting Council provide guidance in the context of company law • IFRS required for listed companies in 2005 International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

8. Germanic Accounting • Germany / Austria • Focus on needs of creditors and tax authorities • MNEs are becoming more investor-oriented • Commercial law is predominant influence • Accounting rules amend the Commercial Code • Annual accounts are the basis for tax accounts • Tax rules dominate legal accounting issues • Limited impact of accounting profession • German Accounting Standards Board • Fair and true standard = transparent and reliable for in German viewpoint. • IFRS required for listed companies in 2005 International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

9. Germanic Accounting • Switzerland - • Favors needs of creditors and authorities • More companies are making further voluntary disclosures – as Swiss Securities Markets grow./ Swiss companies face competition • Very secretive and conservative system • Dominated by commercial law and tax regulations • New law – 1992 • Improved disclosure and protection for investors • Secret reserves are still allowed • Accounting profession consists of – still relatively small • Foundation for Accounting and Reporting Recommendations – supervises the Accounting Standards Board • Recommendations elaborate and supplement company law International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

10. Latin Accounting • France • Focus on needs of creditors and tax authorities • Consolidated groups can report in U.S. GAAP or IAS • Commercial law/tax law are the predominant influences • Focus on national economic planning • Tax laws tend to override accounting rules • Small accounting profession established by law • OECCA and CNCC for public accounting and auditing • Small stock market • Most capital contributed by banks, government, or family • French equivalent of the SEC – Commission des Opérations de Bourse (COB) • IFRS required for listed companies in 2005 International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

11. Latin Accounting • Italy • Focus on interests of government and tax authorities • Focus is shifting because of globalization • Accounts are used as the basis for taxation • Tradition of conservatism to minimize taxes • Italian equivalent of the SEC – CONSOB • Slow to adopt EU directives because • External investor interests are seen as less important than family and state interests • Tendency to protect the right of companies to keep business secrets • Professional accounting bodies are advisory • IFRS required for listed companies in 2005 International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

12. Asian Accounting • Many countries have a colonial accounting history or foreign influence • Japan • Focus on needs of creditors and tax authorities • Commercial Code (similar to Germany) • Corporate tax law is very influential • Leads to conservative accounting • Government institutions are directly involved in standard-setting • Ministry of Finance – responsible for securities and exchange law • Ministry of Justice – responsible for application of Commercial Code International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black

13. Asian Accounting • Japan continued • Accounting for business combinations is a source of concern • Keiretsu – system of interlocking directorates of related businesses formed to work together • Small accounting profession • Makes recommendations on the practical application of legal accounting rules • Tendency for secrecy and a lack of disclosure • Increased international focus • ASBJ in Japan is similar to the FASB in the U.S. • Approximately 30 Japanese companies listed in the U.S. prepare financial statements in accordance with U.S. GAAP. International Accounting & Multinational Enterprises - Chapter 3 - Radebaugh, Gray, Black