IM_CH_10 - Chapter 10: International Accounting...

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Chapter 10: International Accounting Instructor’s Manual 7 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 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 will also be 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 US 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 half century. However, the corporate accounting and auditing scandals left everyone reeling. Hence, the FASB’s newfound interest in convergence with IFRS. 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 recognition). In 2004 the two bodies added a conceptual framework project to their joint work. They have started work on (1) the objectives and qualitative characteristics, (2) elements, recognition and de-recognition, and (3) measurements. Projects not yet started include: (4) reporting entity, (5) presentation and disclosure, (6) purpose and status, (7) applicability to not-for-profits, and (8) finalization of the complete framework.
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IM_CH_10 - Chapter 10: International Accounting...

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