Chapter 15
International Accounting
International accounting
International context of accounting now a
central feature
Various catalysts:
globalization
international trade/MNEs/financial markets
technology
IASB and FASB now envisaging possibility of a
single global accounting regime
harmonization/convergence
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Accounting blocs
For historical, commercial, social and cultural
reasons accounting practice varies
However, possible to identify 4 blocs:
Anglo-American
Continental European
Islamic
Marxist
Significant variations between, within these
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European accounting
Common origin in Italian double-entry
Governance cultures:
less emphasis on stock market
small family-based businesses predominate
less developed accounting profession
legalistic accounting perspective
Result is that financial reporting function less
developed than Anglo-American model
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Germany
Dominance of prudence and conservatism
principles as a result of economic history
Subordination of accounting to tax law
Result is legalistic, conservative accounting
system
Relative unimportance of stock market and
accounting profession
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Germany ctd.
B/S constructed on conservative value basis
aimed at government and creditors
not primarily for decision-making purposes
 Handelsbilanz: commercial balance sheet
designed to calculate profits figure that can be
distributed, without compromising creditors
 Steuerbilanz: tax balance sheet
under Massgeblichkeits principle, tax accounts based
primarily on Handelsbilanz
IFRS represents major catalyst
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German corporate governance
Traditionally firms seek funds from banks, not stock
market
Therefore, ownership structure much tighter
fewer owners
supervisory board with representatives of most
significant investors
cross-investment
Experience of larger entities, e.g., Daimler-Benz,
demonstrates limitations of this model
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Recent developments
Governance regime limiting German companies
EU and IFRS as catalysts
Structures beginning to change
broader shareholder base
growth of Frankfurt Stock Exchange
application of IFRS
Growing importance of accounting profession
Cromme Code of Corporate Governance
retains supervisory board
may impact Anglo-American Model
Impact of events at Volkswagen?
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France
Shares some common historical experiences with
Germany
e.g., legacy of Italian double-entry method
Nevertheless, shows some significant accounting
independence
central role of State in formulating practice
tightly regulated: Plan Comptable General
subordination of accounting to legislation
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French corporate governance
As in Germany, a strong stock market culture
does not exist
Ownership structure unique
state ownership of many enterprises
many small family-owned businesses
cross-ownership
strong influence of banks
Impact of IFRS is considerable
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Recent developments
Corporate governance regime limiting French firms
EU/IFRS acting as catalysts
Changes beginning to emerge
stronger stock exchange – Paris Bourse
companies now reporting on internal controls
state divesting from some larger entities
accounting profession becoming proactive
Vienot/Bouton Reports
strengthen role of independent directors/diversity
Updated governance code 2013
“comply or explain”
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Harmonization & convergence
Greater awareness of international issues:
stronger financial markets/globalization/MNEs
Standardization: “uniform reporting rules”
too ambitious/inappropriate?
Harmonization: “reduction of reporting
differences”
attainable goal?
Convergence
FASB/IASB: equivalence road map
SEC making concessions on US GAAP reconciliations
Mixed results: leasing, revenue recognition
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Summary
Different accounting cultures exist
Anglo-American / Continental European
significant common origins
important differences
Anglo-American seen as more mature
EU anxious to retain European aspect
Convergence “project” results mixed
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