1. INTERNATIONAL ACCOUNTING
CHAPTER 3
INTERNATIONAL ACCOUNTING 42 42 42

2. International Accounting Standards
Financial accounting is influenced by the environment in which it operates
Companies develop financial reports directed at their primary users
Previously most were residents of the same country as the corporation
Transnational financial reporting has become more commonplace because of the European Union, GATT and NAFTA
U. S. companies must be able to compete in global markets with transnational financial reporting 43 43 43

3. International Business Accounting Issues
A company’s first exposure to international accounting is frequently the result of a purchase or sale
Problems:
Exchange gains or losses
Obtaining credit information
Evaluation of financial statements
Next step may be to open an international division
Another issue is raising capital in foreign markets
Must prepare financial statements in a format acceptable by appropriate securities market 44 44 44

4. Factors Influencing the Development of Accounting Systems:
Political System
Level of Education
Legal System
Economic Development 45 45 45

5. Influences on the Development of Financial Reporting
Agricultural
Resource Based
Tourist Based
Manufacturing
Type of economy
Legal System
Codified
Common Law
Political System
Democratic
Totalitarian
Nature of Ownership
Private Enterprise
Socialist
Communist 46 46 46

6. Influences on the Development of Financial Reporting
Growth Pattern of economy
Growing
Stable
Declining
Social Climate
Stability of currency
Sophistication of management
Sophistication of financial community
Existence of accounting legislation
Education System 46 46 46

7. Spheres of Influence of Current Accounting Practices
Various attempts at groupings that have changed in response to changes in the environment such as NAFTA and EU
Current groupings
United States
UK/Netherlands
Continental/Japan
South American
Third World
Changing Economies
Communist 47 47 47

8. Translate language and currency Two sets World-wide standards
Approaches to Preparing Financial Statements for Use in Other Countries:
Same to all
Translate language
Translate language and currency
Two sets
World-wide standards 48 48 48

9. The International Accounting Standards Committee
The preparation of financial statements for foreign users under option #5 is being increasingly advocated
IASC
formed in 1973 to aid in this process
currently 134 sponsoring organizations from 104 countries
International Accounting Standards Board
replaced IASC in 2001 49 49 49

10. Standard Setting by the IASC
Original intent:
avoid complex details
concentrate on basic standards
Steps in the process
similar to FASB
Steering Committee
Identify issues and prepare point outline
Board prepares comments
Steering Committee prepares final Statement of Principles
Exposure Draft
Steering Committee reviews comments and prepares final standard 50 50 50

11. Standard Setting by the IASC
Two treatments
Benchmark - point of reference
Alternative
Improvements Project
2003
Removed some of the existing alternative accounting treatments 
Where an IAS retains alternative treatments
IASB removed references to 'benchmark treatment'
and allowed 'alternative treatment'
using descriptive references
'cost model'
'revaluation model'  51 51 51

12. Restructuring the IASC
In its early years, IASC acted mainly as a harmonizer
Recently, it has begun to combine that role with the role of a catalyst
Harmonizer
Catalyst
Coordinator of national initiatives
Initiator of new work at national level

13. Restructuring the IASC
Future IASC role as catalyst and initiator should become more prominent
Important for the IASC to focus objectives more precisely, as follows:
To develop international accounting standards that require high-quality, transparent, and comparable information that will help participants in capital markets and others to make economic decisions; and
To promote the use of international accounting standards by working with national standard setters.

14. Restructuring the IASC
Structural changes needed
so that IASC can anticipate the new challenges facing it and meet those challenges effectively.
Issues that need to be addressed:
Partnership with national standard setters.
IASC should enter into a partnership with national standard setters
so that IASC can work together with them to accelerate
convergence between national standards
and international accounting standards around solutions requiring high-quality, transparent, and comparable information
that will help participants in capital markets and others to make economic decisions.

15. Restructuring the IASC
Wider participation in the IASC Board.
A wider group of countries and organizations should take part in the IASC Board
Without diluting the quality of the Board's work
Appointment.
The process for appointments to the IASC Board and key IASC committees should be the responsibility of a variety of constituencies
Must that those appointed are competent

16. Restructuring the IASC
2001:
Responsibility for international standards-setting was transferred to the to the International Accounting Standards Board (IASB)

17. Restructuring the IASC
The following changes were adopted:
Steering Committees replaced by a Standards Development Committee
National standard setters will play a major role in developing international accounting standards for approval by the IASC Board
Standards Development Committee will also be responsible for approving the publication of final SIC Interpretations prepared by the Standing Interpretations Committee
Standards Development Committee supported by a Standards Development Advisory Committee
Acts as a channel of communication with those national standard setters who are unable to participate directly in the Standards Development Committee because of its limited size

18. Restructuring the IASC
IASC Board expanded from 16 to 25 countries and organizations
Without diluting the quality of the Board’s work
Advisory Council was replaced by 12 Trustees
Three appointed by the International Federation of Accountants
Three by other international organizations
Six by the Trustees to represent the world "at large"
Trustees appoint members of the Standards Development Committee, the Board, and the Standing Interpretations Committee
Trustees also have responsibility for monitoring IASC’s effectiveness and for financing the IASC’s activities

19. Restructuring the IASC
The new structure:
The IASC Foundation
The International Accounting Standards Board
The International Accounting Standards Advisory Council
International Financial Reporting Interpretations Committee

20. KEY: New Structure Appoints Reports To Advises IASC Foundation
19 Trustees Appoint, Oversee, Raise Funds
Board: 12 Full time & 2 Part Time
Set Technical Agenda
Approve Standards, Exposure Drafts, & Interpretations
Standards Advisory Council 49 members
International Financial Reporting Interpretations Committee (12 members)
Advisory Groups For Major Agenda Projects

21. Revising the IASB’s Constitution
Key issues to be reviewed:
Whether the objectives of the IASC Foundation should expressly refer to the challenges facing small and medium-sized entities (SMEs)
Number of Trustees and their geographical and professional distribution
The oversight role of the Trustees
Funding of the IASC Foundation
The composition of the IASB
The appropriateness of the IASB's existing formal liaison relationships
Consultative arrangements of the IASB
Voting procedures of the IASB
Resources and effectiveness of the International Financial Reporting Interpretations Committee (UMC):
The composition, role, and effectiveness of the SAC

22. The Uses of International Accounting Standards
IASC noted that its standards are used in a variety of ways:
National requirements
Basis for national requirements
Benchmark to develop standards
By regulatory agencies
By companies
Also International Organisation of Securities Commissions (IOSCO) looks to the IASC to provide standards that can be used in multinational securities offerings 52 52 52

23. Current Issues Partnership with the IOSCO December 17, 2003
Generate standards acceptable to IOSCO
December 17, 2003
IASB published 13 revised International Accounting Standards
Reissued two others
Gave notice of the withdrawal of its standard on price level accounting.
Revised and reissued standards mark near-completion of the IASBs Improvements project 54 54 54

24. Issues to Be Addressed by Standard Setting Bodies in Various Countries
Until recently, little impact in U. S.
Standard setters will need to focus on following questions:
Can international accounting standards be set voluntarily by organizations representing a broad set of sovereign nations?
What is the impact on standard setting of differing economies and social settings in various countries?
Can lessons be learned from other international world bodies with sovereign members having experience in bringing conflicting national laws into harmony? 55 55 55

25. IFRS No. 1: First-time Adoption of International Financial Reporting Standards
More than 90 countries will either require or permit the use of IFRSs during the next several years.
As a result, thousands of companies throughout the world will be making a transition in financial reporting by breaking away from national practices and changing to accounting standards set by the IASB.
The IASB issued IFRS No 1 to aid in this process

26. FASB Short-term International Convergence Project
The goal of this project is to remove a variety of individual differences between U.S. GAAP and International Financial Reporting Standards that are not within the scope of other major projects.
The project scope is limited to those differences in which convergence around a high-quality solution would appear to be achievable in the short-term, usually by selecting between existing IFRS and U.S. GAAP.

27. The Norwalk Agreement 12/18/2002:
FASB and IASB held joint meeting in Norwalk, Connecticut
Both standard setting bodies acknowledged…
their commitment to the development of high-quality compatible accounting standards that can be used for both domestic and cross-border financial reporting.
Also committed to use their best efforts to make their existing financial reporting standards compatible as soon as practicable and to coordinate their future work programs to help ensure that once compatibility is achieved, it will be maintained.

28. The Norwalk Agreement Both Boards agreed to:
Undertake a short-term project aimed at removing a variety of differences between U. S. GAAP and IFRSs.
Remove any other differences between IFRSs and U. S. GAAP that may remain on January 1, 2005 by undertaking projects that both Boards would address concurrently.
Continue the progress on the joint projects currently underway.
Encourage their respective interpretative bodies to coordinate their activities.

29. International vs. National Accounting Standards
Question: Should foreign companies be allowed to list their securities in United States markets
Form 20-F reconciliations
Pressure on the SEC to accept international accounting rules

30. The Financial Statement Impact of International Accounting Standards
FASB project:
Purpose of analysis
Identify similarities and differences of the IAS standard and U. S. GAAP
Assess the impact of these similarities and differences and their relative significance
Include examples wherever possible

31. Framework for the Preparation and Presentation of Financial Statements
Purpose - to set out concepts that underlie the preparation and presentation of financial statements by:
Assisting the IASC in developing future standards
Promoting harmonization of accounting standards
Assisting national standard setters
Assisting preparers in applying international standards
Assisting auditors in forming an opinion as to whether financial statements conform to international standards
Assisting users in interpreting financial statements prepared in conformity with international standards
Providing interested parties with information about the IASC’s approach to the formation of international accounting standards 57 57 57

32. Framework for the Preparation and Presentation of Financial Statement”
The Framework specifies:
Objective of financial statements
Qualitative characteristics
Elements
The concepts of capital maintenance 58 58

33. The Objective of Financial Statements
Information useful in making economic decisions
General purpose financial statements
The framework indicated that:
Users require evaluation of the ability of an enterprise to generate cash and the timing and certainty of that generation
The financial position of an enterprise is affected by the economic resources it controls, its financial structure, its liquidity and solvency and its capacity to adapt to change
Information on profitability is required to assess changes in the economic resources an enterprise controls in the future
Information of the financial position of an enterprise is useful in assessing its investing, financing and operating activities
Information about financial position is contained in the balance sheet and information about performance is contained in the income statement 59 59 59

34. The Objective of Financial Statements
Underlying assumptions for the preparation of financial statements
Accrual basis
Going concern 60 60

35. The Elements of Financial Statements
Asset
Liability
Equity
Income
Expense
The concept of recognition
Probable
Measurable 62 62 62

36. The Concepts of Capital Maintenance
Financial capital maintenance
Physical capital maintenance
Selection of the measurement bases and the concept of capital maintenance chosen will determine the accounting model
IASC does not intend to prescribe a model 63 63 63

37. Qualitative Characteristics
Attributes that make accounting information useful
Understandability
Relevance
Reliability
Comparability
Also recognized that timeliness and a balance between costs and benefits were constraints 61 61 61

38. IAS No. 1”Presentation of Financial Statements”
Considerations:
Fair presentation and compliance with IASC standards
Accounting policies
Going concern
Accrual basis of accounting
Consistency of presentation
Materiality and aggregation
Offsetting
Comparative information
FASB staff review

39. Prepared by Kathryn Yarbrough, MBA
End of Chapter 3
Prepared by Kathryn Yarbrough, MBA
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