Accounting 4570/5570 Chapters 3 and 4 – Comparative International Financial Accounting I and II Chapter 5 - International Financial Statement Analysis

Capital Markets and Accounting Differences Foreign listings - Exhibit 5.1, page 97 Problems –Home country perspective –Lack of knowledge of foreign GAAP –International comparability U.S. Stock Markets –Form 20-F Reconciliations –American Depositary Receipts (ADRs)

Comparisons Language Currency Professional Accountancy Bodies Accounting Standard Setting Bodies Environmental Factors –Economic Factors Predominant type of financing Influence of tax rules on accounting reporting –Political Factors –Socio-cultural Factors Legal Systems

Major Differences in Financial Reporting Measurement Practices –Methods of Measurement –Goodwill –Consolidation –Deferred taxes –Long-term leases –Discretionary reserves –Construction accounting –Foreign currency translation

Major Differences in Financial Reporting Measurement Practices –Depreciation –Inventory valuation –Research and development –Revaluation of fixed assets –Other practices Disclosure issues –Segmental reporting Interim reporting

Conservatism Index 1 - (RA-RD/|RA|) RA = adjusted earnings RD = original earnings Index > 1.00; less conservative Index < 1.00; more conservative Partial index 1 - (partial adjustment/ |adjusted earnings|)

Global Perspective Figure 5.2, page 109 U.K. least conservative Japan most conservative Continental European countries more conservative than U.S. but less conservative than Japan Trend towards compliance with International Accounting Standards or U.S. GAAP by foreign companies

Differences in Financial Statements Required statements Format of statements Group accounts Parent only statements Relevance of statements –Balance sheet more important –Income sheet more important

Case Assignments Matterhorn (Exercises 12-15, page 121) Hanson and ICI (Online) EACH CASE WORTH 2 POINTS.