Chapter 4

Comparative International
Financial Accounting II

Strategic Decision Point

Developing nations

Questionable integrity and transparency in financial reports

Being left behind in creation of international standards
Trouble in obtaining international capital
Trouble reaching full potential

What can the accounting profession do to aid these

developing countries?
What can be done to ensure proper compliance in
these countries?
IASB is discussing standards for small MNEs

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Comparative Information
Exhibit4.1EconomicDataforDevelopingCountries

GDPPPP
(in
billions)

GDPPer
Capita

Populatio
n(in
millions)

Unemplo
yment

Inflation

Areapersq
km
(in
thousands)

Imports
(in
billions)

Exports
(in
billions)

$3,033.0

$2,900

1,065.1

9.5%

3.8%

3,287.6

$74.2

$57.2

$207.8

$9,000

23.5

3.6%

1.1%

329.8

$74.4

$98.4

$1,375.0

$7,600

184.1

12.3%

14.7%

8,512.0

$48.3

$73.4

Argentina

$435.5

$11,200

39.1

17.3%

13.4%

2,767.0

$13.3

$29.6

Mexico

$941.2

$9,000

105.0

3.3%

4.5%

1,972.6

$168.9

$164.8

$6,449.0

$5,000

1,298.8

10.1%

1.2%

9,597.0

$397.4

$436.1

Indonesia

$758.8

$3,200

238.5

8.7%

6.6%

1,919.4

$40.22

$63.89

Thailand

$477.5

$7,400

64.9

2.2%

1.8%

514.0

$65.3

$76.0

Poland

$427.1

$11,100

38.6

20%

0.7%

312.7

$63.7

$57.6

Russia

$1,282.0

$8,900

143.8

8.5%

13.7%

17.075.2

$74.8

$134.4

$161.1

$15,700

10.2

9.9%

0.1%

78.9

$50.4

46.8%

India
Malaysia
Brazil

China

Czech
Republic

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Comparative Information
Exhibit4.2NumberofCompaniesinDevelopingCountrieslistedonForeignExchanges

NYSE

NASDAQ

LondonStockExchange

India

17

Malaysia

Brazil

37

Argentina

10

Mexico

22

China

17

Indonesia

Thailand

Poland

Russia

CzechRepublic

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Comparative Information
Exhibit4.3IFRSAcceptance
NotPermittedfor Permittedfor
Domestic
Domestic
Listed
Listed
Companies
Companies
India

Malaysia

Brazil

Argentina

Mexico

China

RequiredforSome
Domestic
Companies

RequiredforAll
DomesticListed
Companies

Indonesia

Thailand

Poland
Russia
Czech
Republic

X
X
X

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Comparative Information
Exhibit4.4OtherCountryData

LegalOrigin

IncomeGroup

RatingonAccounting
Standards*

India

English

Low

45

Malaysia

English

UpperMiddle

76

Brazil

French

LowerMiddle

54

Argentina

French

UpperMiddle

45

Mexico

French

UpperMiddle

60

China

German

LowerMiddle

52

Indonesia

French

Low

65

Thailand

English

LowerMiddle

64

Poland

German

UpperMiddle

36

Russia

Socialist

LowerMiddle

32

CzechRepublic

German

UpperMiddle

38

*Higherscoresindicatehigherratingonaccountingstandards

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Anglo-American Influence
Less

conservative and more transparent than

German and Latin countries
India

Significantly improved economy over past decade

Focus on needs of investors
Institute of Chartered Accountants in India (ICAI)
and the Accounting Standards Board (ASB)

Create and modify accounting standards

Give consideration to IAS and IFRS issued by IASB

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Anglo-American Influence
Malaysia

Rapid growth over the last 30 years

Anticipated growth in GDP, private consumption,
and private investment
Focus on needs of investors
Financial Reporting Foundation (FRF) oversees
the MASB
MASB tries to converge with IFRS

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Latin Accounting

More conservative and secretive compared to

Anglo-American accounting
Brazil

Focus on needs to creditors and tax authorities

Government, company law, and tax regulations influence
accounting
Corporation law of 1976
IBRACON and the Federal Accounting Council issue
accounting standards
CVM Securities Exchange Commission

Sets standards for listed companies

Approves IBRACON and FAC standards
Brazil has one of the major markets in Latin America

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Latin Accounting

Argentina
Focus on needs of creditors and tax authorities
Standards set by the Argentine Federation of Expert
Councils in Economies (FACPCE)

Confusion on what standard to follow in regard to

General Price Level (GPL) accounting

Councils may ratify or amend each Technical Resolution (TR)

Takes inflation into account

Government no longer accepts GPL adjusted financials
FACPCE GPL is optional is inflation is below 8%

FACPCE works toward harmonization with IFRS, but

believes differences should still exist

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Latin Accounting

Mexico

Focus on needs of creditors and tax authorities

Economic development has improved since NAFTA was
created
Strongly influenced by U.S. GAAP and GAAS
Professional accountancy
IMCP similar to AICPA

Issues standards and professional code of conduct

Formed the Mexican Council for Research and Development of
Financial Reporting Standards (CINIF)
CINIF issues Mexican standards inline with IFRS

70% in line with international standards at beginning of 2005

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Asian Accounting

China

Focus is shifting from government to investors, creditors,

and management
Information must now meet more than the needs of
macroeconomic control
The Accounting Law of the Peoples Republic of China
Established principles on nature & role of accounting
Ministry of Finance empowered to issue standards
New standards are unified and market-oriented
Accounting Society of China and Deloitte Touche Tohmatsu
have aided in reforming accounting

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Asian Accounting
Indonesia

Dutch influence in the beginning

Focus on needs of investors
Asian crisis hurt Indonesia, but reforms have
returned Indonesia to pre-crisis levels
Financial Accounting Standards Board (DSAK) of
the Indonesian Institute of Accountants

Working to harmonize standards with IFRS

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Thailand

Accounting system values transparency

Focus on needs of investors
Asian crisis
Implemented reforms to increase corporate governance and
competition
Economy recovered quickly and has since sustained growth
Accounting standards issued by
Institute of Certified Accountants and Auditors of Thailand
(ICAAT)
Standards approved by the Ministry of Commerce
Thai SEC
Requires all listed companies on the Exchange of Thailand to be
reviewed by independent auditors
Supervises all listed companies

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Eastern-European Accounting

Poland

Attempted the shock therapy model 1990

All reforms made at once
A leader among the transition countries
Transition made in three stages
1991 Decree issued by Ministry of Finance establishing
rules for transition to market economy
1994 True and fair view adopted
2002 Standards more in line with IFRS
Became EU member in 2004
Will adopt IFRS in 2005

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Eastern-European Accounting

Russia

Differs from other transition economies

Share of new enterprises is low compared to other
economies
Many soviet-style units still exist that are operating at
losses
Growth is constrained by reliance on oil and gas
Dominated by unreformed monopolies
Accounting rules created by Ministry of Finance
Central Bank of Russia creates standards for
Banks
Credit institutions

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Eastern-European Accounting
Russia

Focus on taxation needs of the country

Highly reflects the result of a planned economy
Consolidated statements prepared using IFRS
Individual company statements prepared with
antiquated Russian Accounting Standards (RAS)
Purpose of conversion to IFRS is to

Increase transparency
Encourage investment

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr

Eastern-European Accounting

Czech Republic

Gained independence in 1993

Tried the shock therapy method
Ran into problems with inflation
Working to conform with IFRS
Accounting Act of 2002 companies can opt for IFRS over
Czech rules
Will adopt IFRS by 2005 as a member of the EU
More market-driven accounting standards exist
Tax system still depends on accounting rules
Government must change this or lose power over tax base

International Accounting & Multinational Enterprises - Chapter 4 - Radebaugh, Gr