Kế toán, kiểm toán - Chapter 2: Worldwide accounting diversity

Chapter 2:Worldwide AccountingDiversityLearning ObjectivesProvide evidence of the diversity that exists in accounting internationallyExplain the problems caused by accounting diversityDescribe the major environmental factors that influence national accounting systems and lead to accounting diversityDescribe a judgmental classification of countries by financial reporting systemDiscuss the influence that culture is thought to have on financial reportingDescribe a simplified model of the reasons for international differences in financial reportingCategorize accounting differences internationally and provide examples of each type of difference2-2Worldwide Accounting DiversityNature of diversity in accountingFormat TerminologyRecognition rules Measurement rules2-3Worldwide Accounting Diversity: ReasonsLegal systemsCommon lawFewer statutes—more court interpretationCreation of precedents or case lawsGreat Britain and other English-speaking countriesAccounting law is detailed and specificSources are nonlegislative organizationsCode lawMore statutes Non-English-speaking countriesLegislated accounting rules Accounting law is generalOther guidance required2-4Worldwide Accounting Diversity: ReasonsBasis for taxation Published financial statementsGermany—same taxable income and book incomeFinancial statements adjusted for tax purposes U.S.—different taxable income and book incomeDifference between tax and accounting income gives rise to deferred income taxesProviders of financing Accounting and disclosure is less important where major sources are families, banks, and the governmentAccounting and disclosure is more important where major sources are diverse shareholders2-5Worldwide Accounting Diversity: ReasonsInflationSome countries have historically high rates of inflationNecessitates adjustments to offset inflationCommon in Latin American countriesPolitical and economic ties affect how accounting rules are conveyedCorrelation of factors Common law countries have domestic listed companies relying on equity for capital.Code law countries tend to link taxation to accounting statements and rely less on financing provided by shareholders2-6Problems caused by Accounting DiversityPreparation of consolidated financial statementsAccess to foreign capital marketsComparability of financial statementsLack of high-quality accounting information2-7Preparation of Consolidated Financial StatementsProblems due to:Local regulationsBooks In local currency Local accounting principlesRequires:Considerable effort Additional costExpertise in different country’s accounting standards2-8Access to Foreign Capital MarketsRequires financial statements as per local accounting standardsConsiderable effort and cost involved2-9Comparability of Financial StatementsLack of comparability between financial statements from different countries This adversely affects:Investment decisionsLending decisionsPerformance analysisForeign acquisition decisions2-10Lack of High-Quality Accounting InformationLack of high-quality accounting standardsInadequate risk assessmentLack of appropriate disclosure requirementsDisclosure deficienciesRelated-party transactions and off-balance-sheet financingHigh exposure to foreign exchange riskInvestments in highly speculative assetsContingent liabilities guaranteeing foreign currency loansLoan loss provisions2-11Accounting ClustersAccounting models The Fair Presentation/Full Disclosure Model (Anglo-Saxon or Anglo-American model)Oriented toward the decision needs of large numbers of investors and creditorsUsed in English-speaking countries influenced by the United Kingdom or the United StatesThe Legal Compliance Model (Continental European model)LegalisticUsed to provide information for taxation and government-planningUsed in Europe, Japan, and code law countriesThe Inflation-Adjusted ModelResembles the Continental European modelRequires extensive use of adjustments for inflation2-12Judgmental Classification of Financial Reporting SystemsDeveloped by NobesMicro-based—Anglo-Saxon model Macro-uniform—Continental European model 2-13Micro-based accounting systemsFirst sub-class influenced byBusiness economics Accounting theoryExample: NetherlandsSecond sub-class influenced by Business practice PragmaticExample: British-originUnited Kingdom and United States dominated2-14Macro-uniform accounting systemsFirst sub-class:Aligned with national economic policiesExample: SwedenSecond sub-class:Continental: government, tax, legalExample: Continental European countriesLaw-based family: Germany, JapanTax-based family: Southern European countries2-15Exhibit—2.5 Nobes’s Judgmental Classification2-16Influence of Culture on Financial ReportingHofstede’s cultural dimensionsGray’s accounting valuesReligion and Accounting2-17Hofstede’s cultural dimensionsFour cultural dimensionsIndividualism (vs. collectivism)Preference for a loosely knit social fabricPower distance Acceptance of hierarchy and unequal power distributionUncertainty avoidanceComfort level with uncertainty and ambiguityMasculinityEmphasis on masculine values vs. feminine valuesLong-term orientationFocus on fostering virtues oriented towards future rewards2-18Gray’s Accounting ValuesFour widely recognized accounting values to describe a country’s accounting subcultureProfessionalism vs. Statutory ControlUniformity vs. FlexibilityConservatism vs. OptimismSecrecy vs. TransparencyBelieves that national cultural values affect accounting valuesAccounting values of conservatism and secrecy have the greatest relevanceGray extended Hofstede’s model to understand how culture influences the corporate reporting systems2-19Exhibit—2.8 Framework for Accounting Systems Development2-20Religion and AccountingReligion definesNational culture in many parts of the world It has significant effect on business practiceExample: Banking companies under Shariah, the Islamic law of human conduct derived from the Koran2-21A Simplified Model to Explain Financial Reporting International DifferencesNobes’s model argues that international reporting differences are due to different purposesCountry’s financing system is considered most relevant factor to determine the purpose of financial reportingNobes divides reporting systems into two classes—A and BClass AStrong equity-outsider systemLess conservative Extensive Disclosure Accounting practice differs from tax rulesClass BWeak equity-outside shareholder financingMore conservativeDisclosure is not extensiveAccounting practice follows tax rules2-22Further Evidence of Accounting DiversityCategories based on accounting differencesFinancial statements includedFinancial statement formatsLevel of detail in financial statementsTerminologyDisclosure Recognition and measurement2-23End of Chapter 22-24