Chapter 9
The International
Accounting Environment
Scope of International Business
Activity
• Can range from export/import activity to
operations of a multinational enterprise
• Growth of the European Union (EU)
• North American Fair Trade Agreement
(NAFTA)
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The Need for International Accounting
• Need for comparable data
• Information to serve international capital
markets
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The Focus of International Accounting
Primary Areas of Interest Include:
• Identification and understanding of the various
organizations and their interests involved in
the process of establishing international
accounting and auditing principles and
standards
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International Accounting Focus,
continued
• Identification and understanding of principles
of financial, managerial, and taxation
accounting used in different nations, especially
how they differ between those nations
• Special accounting valuation and recognition
principles associated with foreign currency
transactions
• The translation of financial statements to
different currencies
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Factors Influencing the
Development of Accounting
• Social and cultural values
• Political and legal systems
• Types of business activities and economic
conditions
• Standard setting processes
• Forms of ownership and capital markets
• Cooperative efforts between nations
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International Accounting
Classification Systems
• Help in understanding accounting differences
between countries
• Can center around various characteristics
including cultural differences
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Classification Based
on Cultural Differences
• Anglo-Saxon accounting
• Germanic accounting
• Nordic accounting
• Latin accounting
• Asian accounting
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Harmonization of Accounting
Principles
• The goal is a flexible approach to improving
comparability of financial information,
including the adoption of international
accounting standards
• The benefits of harmonization would extend
to a variety of users including governments,
regulatory agencies (SEC), individual
investors, and trading partners
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Approaches to Harmonization
• Bilateral agreements between two or more
countries
• Single economic trading environments, such
as the European Union
• International standard setting involving
professional accounting organizations
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The International Accounting
Standards Committee (IASC)
• An independent private organization founded
in 1973
• Taking a global approach to standard setting
• Membership consists of professional
accountancy organizations representing over
100 countries
• Business is conducted by a Board and a
consulting group
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Major Objectives of the IASC
• Formulate and publish standards on
financial accounting and reporting and to
promote their worldwide acceptance
• Work for the harmonization of accounting
standards and procedures relating to the
presentation of financial statements
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International Accounting Standards
(IAS)
• Issued by the IASC
• In some instances the standards differ from
U.S. GAAP
• Promulgated standards are being accepted by
a number of countries and organizations
• Standards serve as a benchmark against
which developing and established accounting
principles may be evaluated
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International Federation of Accountants
(IFAC)
• A private organization whose membership is
the same as that of the IASC
• Concerned with aspects of the professional
practice of accountancy
• The leading organization for the international
accounting profession
• Not involved in the establishment of
international financial accounting standards to
the same degree as the IASC
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Other Issues of International
Importance
• Transfer pricing strategies
• Differences in tax systems
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