1. International Accounting
Chapter 15
International Accounting

2. International accounting
International context of accounting now a central feature
Various catalysts:
globalization
international trade/MNEs/financial markets
technology
IASB and FASB now envisaging possibility of a single global accounting regime
harmonization/convergence
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© Philip O’Regan 2016

3. Accounting blocs
For historical, commercial, social and cultural reasons accounting practice varies
However, possible to identify 4 blocs:
Anglo-American
Continental European
Islamic
Marxist
Significant variations between, within these
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© Philip O’Regan 2016

4. European accounting Common origin in Italian double-entry
Governance cultures:
less emphasis on stock market
small family-based businesses predominate
less developed accounting profession
legalistic accounting perspective
Result is that financial reporting function less developed than Anglo-American model
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© Philip O’Regan 2016

5. Germany
Dominance of prudence and conservatism principles as a result of economic history
Subordination of accounting to tax law
Result is legalistic, conservative accounting system
Relative unimportance of stock market and accounting profession
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6. Germany ctd. B/S constructed on conservative value basis
aimed at government and creditors
not primarily for decision-making purposes
Handelsbilanz: commercial balance sheet
designed to calculate profits figure that can be distributed, without compromising creditors
Steuerbilanz: tax balance sheet
under Massgeblichkeits principle, tax accounts based primarily on Handelsbilanz
IFRS represents major catalyst
Chapter 15
© Philip O’Regan 2016

7. German corporate governance
Traditionally firms seek funds from banks, not stock market
Therefore, ownership structure much tighter
fewer owners
supervisory board with representatives of most significant investors
cross-investment
Experience of larger entities, e.g., Daimler-Benz, demonstrates limitations of this model
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© Philip O’Regan 2016

8. Recent developments Governance regime limiting German companies
EU and IFRS as catalysts
Structures beginning to change
broader shareholder base
growth of Frankfurt Stock Exchange
application of IFRS
Growing importance of accounting profession
Cromme Code of Corporate Governance
retains supervisory board
may impact Anglo-American Model
Impact of events at Volkswagen?
Chapter 15
© Philip O’Regan 2016

9. France Shares some common historical experiences with Germany
e.g., legacy of Italian double-entry method
Nevertheless, shows some significant accounting independence
central role of State in formulating practice
tightly regulated: Plan Comptable General
subordination of accounting to legislation
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© Philip O’Regan 2016

10. French corporate governance
As in Germany, a strong stock market culture does not exist
Ownership structure unique
state ownership of many enterprises
many small family-owned businesses
cross-ownership
strong influence of banks
Impact of IFRS is considerable
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© Philip O’Regan 2016

11. Recent developments Corporate governance regime limiting French firms
EU/IFRS acting as catalysts
Changes beginning to emerge
stronger stock exchange – Paris Bourse
companies now reporting on internal controls
state divesting from some larger entities
accounting profession becoming proactive
Vienot/Bouton Reports
strengthen role of independent directors/diversity
Updated governance code 2013
“comply or explain”
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© Philip O’Regan 2016

12. Harmonization & convergence
Greater awareness of international issues:
stronger financial markets/globalization/MNEs
Standardization: “uniform reporting rules”
too ambitious/inappropriate?
Harmonization: “reduction of reporting differences”
attainable goal?
Convergence
FASB/IASB: equivalence road map
SEC making concessions on US GAAP reconciliations
Mixed results: leasing, revenue recognition
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© Philip O’Regan 2016

13. Summary Different accounting cultures exist
Anglo-American / Continental European
significant common origins
important differences
Anglo-American seen as more mature
EU anxious to retain European aspect
Convergence “project” results mixed
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© Philip O’Regan 2016