WorldwideAccountingDiversityand InternationalAccountingStandards

Accountingandfinancialreportingrulesdifferacrosscountries. Thereareavarietyoffactorsinfluencingacountrysaccountingsystem.
Legalsystemprimarilyrelatestohowaccountingprinciplesareestablished;codelawcountries generallyhavinglegislatedaccountingprinciplesandcommonlawcountrieshavingprinciples establishedbynonlegislativemeans. Taxationfinancialstatementsserveasthebasisfortaxationinmanycountries.Inthose countrieswithacloselinkagebetweenaccountingandtaxation,accountingpracticetendstobe moreconservativesoastoreducetheamountofincomesubjecttotaxation. Financingsystemwhereshareholdersareamajorprovideroffinancing,thedemandfor informationmadeavailableoutsidethecompanybecomesgreater.Inthosecountriesinwhich familymembers,banks,andthegovernmentarethemajorprovidersofbusinessfinance,there tendstobelessdemandforpublicaccountabilityandinformationdisclosure. Inflationhascausedsomecountries,especiallyinLatinAmerica,todevelopaccounting principlesinwhichtraditionalhistoricalcostaccountingisabandonedinfavorofinflation adjustedfigures. PoliticalandeconomictiescanexplaintheusageofaBritishstyleofaccountingthroughout mostoftheformerBritishEmpire.TheyalsohelptoexplainsimilaritiesbetweentheU.S.and Canada,andincreasingly,theU.S.andMexico. Cultureaffectsacountrysaccountingsystemintwoways:(1)throughitsinfluenceona countrysinstitutions,suchasitslegalsystemandsystemoffinancing,and(2)throughits influenceontheaccountingvaluessharedbymembersoftheaccountingsubculture.

WorldwideAccountingDiversityand InternationalAccountingStandards
ProblemscreatedbecauseofdifferencesinAccountingacrosscountries
Consolidatingforeignsubsidiariesrequiresthatthefinancialstatementspreparedin accordancewithforeignGAAPmustbeconvertedintotheparentcompanysGAAP. Companiesinterestedinobtainingcapitalinforeigncountriesoftenarerequiredto providefinancialstatementspreparedinaccordancewithaccountingrulesinthat country,whicharelikelytodifferfromrulesinthehomecountry. Investorsinterestedininvestinginforeigncompaniesmayhaveadifficulttimein makingcomparisonsacrosspotentialinvestmentsbecauseofdifferencesinaccounting rulesacrosscountries. TheInternationalAccountingStandardsCommittee(IASC)wasformedin1973in hopesofimprovingandpromotingtheworldwideharmonizationofaccounting principles.ItwassupersededbytheInternationalAccountingStandardsBoard(IASB) in2001. TheIASBoriginallyconsistedof14members 12fulltimeand2parttime.The numberofboardmemberswasincreasedto16onlyfulltimemembersin2012.Full timeIASBmembersarerequiredtosevertheirrelationshipswithformeremployersto ensureindependence.

WorldwideAccountingDiversityand InternationalAccountingStandards
StrategyofConvergence
In2002,theIASBandFASBsignedthesocalledNorwalkAgreementto usetheirbesteffortsto(a)maketheirexistingfinancialreportingstandards fullycompatibleassoonasispracticableand(b)coordinatetheirwork programtoensurethatonceachieved,compatibilityismaintained. TheFASBhassixkeyinitiativestofurtherconvergencebetweenIFRSand U.S.GAAPincludingashorttermconvergenceprojectandjointprojectson broaderaccountingissues. Asaresultoftheshorttermconvergenceproject,theFASBhasrevised severalauthoritativepronouncementsthatarepartofU.S.GAAP,adopting theIASBtreatmentinthoseareas. Foritspart,theshorttermconvergenceprojecthasresultedintheIASB adoptingseveralaccountingpracticesusedinU.S.GAAP.

WorldwideAccountingDiversityand InternationalAccountingStandards
SecurityandExchangeCommission
Afterconsideringthisissueforseveralyears,in2007theSECamendedits rulestoallowforeignregistrantstopreparefinancialstatementsin accordancewithIFRSwithoutreconciliationtoU.S.GAAP. Since2007,foreigncompaniesusingIFRShavebeenabletolistsecuritieson U.S.securitiesmarketswithoutprovidinganyU.S.GAAPinformationintheir annualreports. ToleveltheplayingfieldforU.S.companies,inJuly2007,theSECissueda conceptreleasetodeterminepublicinterestinallowingU.S.companiesto choosebetweenIFRSandU.S.GAAPinpreparingfinancialstatements. ManycommentletterwriterswerenotinfavorofallowingU.S.companies tochoosebetweenIFRSandU.S.GAAPinsteadrecommendingthatU.S. companiesberequiredtouseIFRS.

WorldwideAccountingDiversityand InternationalAccountingStandards
SecurityandExchangeCommission(continued)
InNovember2008,theSECissuedthesocalledIFRSRoadmap. TheSECindicateditwouldmonitorseveralmilestonesuntil2011atwhichtimeit decidewhethertorequireU.S.companiestofollowIFRSoverathreeyear phaseinperiod. TheRoadmapindicated2014asthefirstyearofIFRSadoption,butasubsequent SECReleaseinFebruary2010pushedthatdatebacktoapproximately2015or 2016. 4.In2011,theSECStaffpublishedadiscussionpaperthatsuggestsanalternative frameworkforincorporatingIFRSintotheU.S.financialreportingsystem. ThisframeworkcombinestheexistingFASBIASBconvergenceprojectwiththe endorsementprocessfollowedinmanycountriesandtheEU. Somerefertothismethodascondorsement. TheframeworkwouldretainbothU.S.GAAPandtheFASBastheU.S. accountingstandardsetter.Attheendofatransitionperiod,aU.S.company followingU.S.GAAPalsowouldbeabletorepresentthatitsfinancialstatements areincompliancewithIFRS.

WorldwideAccountingDiversityand InternationalAccountingStandards
NumerousDifferencesExistBetweenIFRSandU.S.GAAP
Differencesexistwithrespecttorecognition,measurement, presentation,anddisclosure.Exhibit11.8listsseveralkey differences. IAS1,PresentationofFinancialStatements,providesguidancewith respecttothepurposeoffinancialstatements,componentsof financialstatements,basicprinciplesandassumptions,andthe overridingprincipleoffairpresentation.Thereisnoequivalentto IAS1 inU.S.GAAP. TheIASBfollowsaprinciplesbasedapproachtostandardsetting, ratherthanthesocalledrulesbasedapproachusedbytheFASB. TheIASBtendstoavoidtheuseofbrightlinetestsandprovidesa limitedamountofimplementationguidanceinitsstandards.

WorldwideAccountingDiversityand InternationalAccountingStandards
Evenifallcountriesadoptasimilarsetofaccountingstandards,two obstaclesremaininachievingthegoalofworldwidecomparabilityof financialstatements. IFRSmustbetranslatedintolanguagesotherthanEnglishtobeusable bynonEnglishspeakingpreparersoffinancialstatements.Itis difficulttotranslatesomewordsandphrasesintootherlanguages withoutadistortionofmeaning. Culturecanaffectthemannerinwhichanaccountantinterpretsand appliesanaccountingstandard.Differencesinculturecanleadto differencesinapplicationofthesamestandardacrosscountries.

WorldwideAccountingDiversityand InternationalAccountingStandards
References Hoyle,Schaefer&Doupnik AdvancedAccounting(11th ed.). McGrawHill.ISBN9780078025400