1) Motivation for international accounting standardization National differences in accounting measurement, disclosure, and auditing caused great problems for companies seeking capital outside of their home markets and investors attempting to diversify their investments internationally. Thus, the substantial differences in financial reporting requirements and practices around the world, and the increasing need of financial statement users to compare information of companies from different countries motivated the standardization of crossborder accounting.
Trang 21 Motivation for international accounting
standardization
2 Advantages and disadvantages of international
accounting standardization
3 Classification of international accounting
standardization approaches
4 Overview of major international organizations
promoting international accounting standardization
Trang 31) Motivation for international accounting
standardization
-National differences in accounting measurement,
disclosure, and auditing caused great problems for
companies seeking capital outside of their home
markets and investors attempting to diversify their
investments internationally.
Thus, the substantial differences in financial
reporting requirements and practices around the
world, and the increasing need of financial statement
users to compare information of companies from
different countries motivated the standardization of
cross-border accounting
Trang 41) Motivation for international accounting
standardization
-Standardization may refer to the efforts to harmonize
or converge.
-Distinguish between harmonization and convergence
+ Harmonization was generally taken to mean the
elimination of differences between existing accounting standards
+ Convergence might also involve coming up with a
new accounting treatment not in any current standard
+ Neither process necessarily implies replacing
national standards with international ones; national
and international accounting standards can coexist.
Trang 52) Advantages and disadvantages of international
accounting standardization
2.1 Advantages
-Creat a common accounting language for readers and users
across countries reducing the cost of accessing the capital
markets around the world In short, convergence is good
business and good for investors
-A thriving capital market requires a high degree of investor
understanding and confidence Converging with or embracing a
common set of high quality accounting standards contributes
mmensely to this investor understanding and confidence
-Help investors better understand investment opportunities as
opposed to financial statements prepared under differing sets of
national accounting standards
Trang 6What happens for investors if accounting standards
which are not viewed as being of high quality or with
which the investor is unfamiliar are used?
Trang 72) Advantages and disadvantages of international
accounting standardization
2.1 Advantages
-What happens for investors if accounting standards
which are not viewed as being of high quality or with
which the investor is unfamiliar are used?
+ Make a wrong investment decision
+ Incur more time and cost to understand and convert
the financial statements
so that they can confidently compare opportunities
+ Lower investors’ confidence
Trang 82) Advantages and disadvantages of international
accounting standardization
2.1 Advantages
- Embracing a common set of accounting standards can
also lower costs for issuers When companies access
capital markets beyond their home jurisdiction, they incur additional costs of preparing financial statements using
different sets of accounting standards These include the
costs for company personnel and auditors to learn, keep
current with and comply with the requirements of multiple jurisdictions Similarly, use of resources dedicated
to standards writing could potentially be optimized if
fewer separate accounting models are pursued.
Trang 92) Advantages and disadvantages of international accounting
standardization
2.1 Advantages
-Other benefits:
+ High-quality financial reporting standards that are used consistently
around the world improve the efficiency with which capital is allocated The cost of capital will be reduced.
+ Investors can make better investment decisions Portfolios are more
diverse and financial risk is reduced There is more transparency and
comparability between competitors in the global markets.
+ Companies can improve their strategic decision-making in the merger and acquisition area.
+ Accounting knowledge and skills can be transferred seamlessly
around the world.
+ The best ideas arising from national standard-setting activities can be leveraged in developing global standards of the highest quality.
Trang 102) Advantages and disadvantages of international accounting
standardization
2.2 Disadvantages
-International standards are too simple for a complex problem,
since they are not flexible enough to handle differences in
national backgrounds, traditions, and economic environments,
and internationalization would be a politically unacceptable
challenge to national sovereignty
-Reflecting the underlying reality of a company’s performance and
financial position (that is, achieving a fair presentation) may be
sacrificed in pursuit of achieving comparability
- A global monopoly standard-setter will inhibit innovation and the development of better quality standards
-Comparability can only be achieved with proper enforcement and
as long as firms’ reporting incentives differ across countries
Trang 112) Advantages and disadvantages of international
accounting standardization
2.2 Disadvantages
-As international financial institutions and international
markets insist on the use of international standards,
only large international accounting firms will be able to meet the demand Harm other smaller accounting
service companies
-Some critics maintain that international standards are
not suitable for small and medium-sized companies,
particularly unlisted ones with no public accountability
Trang 123) Classification of international accounting
standardization approaches
- Use of international standards: International
convergence which comes up with a new accounting
platform for multinational companies to follow
Trang 133) Classification of international accounting
standardization approaches
- Mutual recognition: exists when regulators outside
the home country accept a foreign firm’s financial
statements based on home-country principles
Reciprocity does not improve the cross-country
comparability of financial
statements and can create an “unlevel playing field” in that it may allow foreign companies to apply standards less rigorous than those that apply to domestic
companies
Trang 143) Classification of international accounting
standardization approaches
- Reconciliation: foreign firms can prepare financial
statements using home-country accounting standards,
but also must provide a reconciliation between critical
accounting measures of the home country and the
country where the financial statements are being filed.
A
Trang 15Three solutions have been proposed for
resolving the problems associated with filing financial
statements across national borders: (1) reciprocity (also
known as mutual recognition), (2) reconciliation, and (3)
use of international standards.
What do you expect would be the preferred approach
from the perspective of each of the following: (1)
investors, (2) company management, (3) regulatory
authorities, (4) stock exchanges, and (5)
professional associations? Discuss your reasons for
each response Which approach do you predict will
eventually prevail?