Wolk 9e Instructor Materials 10.pdf - Chapter 10 International Accounting Instructors Manual CHAPTER HIGHLIGHTS Chapter 10 examines the standard-setting

Wolk 9e Instructor Materials 10.pdf - Chapter 10...

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Chapter 10: International Accounting Instructor’s Manual Accounting Theory (9 th edition) Page 1 of 13 C HAPTER H IGHLIGHTS Chapter 10 examines the standard-setting process in other English-speaking countries, and the attempt to achieve international harmonization, convergence, or equivalence (whatever the term du jour is) of accounting standards. There are subtle differences between the terms, but in practice they are increasingly used as having similar meanings. The chapter covers several pre-IFRS approaches to accounting. Students may question why we consider pre-IFRS; this lays the foundation for why variance from strict IFRS may occur. After adopting IFRS, the countries’ historical accounting approaches may affect how IFRS may be interpreted and comparability across countries may be affected. The Anglo-Saxon (also called the Anglo-American) and the continental approaches to accounting reflect some marked cultural differences within Western civilization. The Anglo- Saxon approach is grounded in strong equity capital markets and a strong accounting profession with accounting rule making usually centered in a quasi-private organization. For continental countries debt financing through major banks has been far more important than the use of equity capital though this is beginning to undergo change. In addition, the accounting profession has not been especially strong in continental countries and accounting rules have been determined by law. The formation of the European Union (EU) brought changes to this picture, first by the issuance of several directives that attempted to bring about harmonization of accounting to EU members. However, in 2005 all countries within the EU began using International Accounting Standards Board (IASB) standards for consolidated financial statements. EU standards are also allowed for financial reporting on the New York Stock Exchange without the need for reconciling to United States GAAP. The latter has come about as a result of an attempt to bring about “convergence,” a moving together between IASB standards and U.S. GAAP. This EU adoption gave legitimacy to the IASB as a global standards setter; it is now on equal ground with the FASB. For years, the U.S. was relatively passive about international standards with little need to go beyond U.S. GAAP. Without a doubt, U.S. GAAP provided the most developed and most broad set of standards in the world for the last century. However, the corporate accounting and auditing scandals left everyone reeling in the early 2000s. Hence, following directives from the SEC and Congress, the FASB’s newfound interest in convergence with IFRS blossomed. The IASB-FASB convergence projects started with the Norwalk Agreement of 2002 and are reaffirmed in the annual Memorandum of Understanding. The projects are both short-term and long-term in nature. The short-term projects are intended to remove numerous individual differences in standards between IFRS and US GAAP. The long-term projects include those areas where accounting guidance will be improved (e.g., share-based payments, revenue
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