International accounting

Transcription

1 International accounting - IASB and current international developments Gunnar Rimmel Associate professor Head of Financial Accounting and Reporting Group School of Business, Economics and Law University of Gothenburg Fall 2009 Special lecture on International Financial Accounting at Karlstad University Gunnar.Rimmel@handels.gu.se

2 Overview Origins of international accounting differences Harmonising or standardising? From EU directives to IFRS 2005 IASB IASB vs FASB = conergence?

3 Origin of international differences Existing law Provision of finance Country A Relationship between accounting and taxation Accounting regulation / profession Country B Coincidence and external influences Cultural differences

4 Common law versus code law countries Anglo-Saxon law tradition (common/case law countries) USA United Kingdom Australia New Zealand Canada Ireland Continental Roman-German law tradition (code law countries) Germany France Belgium Italy Spain Portugal Japan (trade law) Anglo-Saxon law tradition Laws are created and developed by case law practice Continental Roman-German law tradition Laws are written and developed by the state 4

5 5 Provision of finance - shareholder-oriented vs credit-oriented countries Shareholder oriented Credit/family/state oriented USA United Kingdom Netherlands Sweden Australia Canada Germany France Belgium Italy Spain Portugal A Initial classification Strong capital market Many outside shareholders Strong/large auditing profession Separate accounting and taxation rules B Weak capital market Main inside shareholder Weak/small auditing profession Taxation rules dominate accounting rules

6 General relationship between accounting and taxation Independence Denmark Ireland United Kingdom Netherlands Czech Republic Poland Dependence Germany France Belgium Italy Spain Norway Dependence Financial reporting purpose to protect creditors and the state Reporting independent from taxation Financial reporting purpose to increase disclosure and more detailed information as well as increased fair information fair => large number of outside owners require unbiased information about the success of a business and its state of affair.

7 Cultural differences Individualism versus collectivism Large versus small power distance Strong versus weak uncertainty avoidance Masculinity versus femininity Geert Hofstede: Organisations and culture

8 Dates of establishment of professional accounting bodies

9 Country classification 1980 Accounting Systems (corporate Financial accounting) Micro-fair-judgmental Commercially-driven Macro-uniform Government-driven Tax-dominated Classes Business economics Extreme judgmental Business practice Professional rules British origin Sub-classes Families UK influence Professional regulation US influence Professional regulation Code-based international influences Plan-based Statute-based Economic control Netherlands Australia NZ UK Ireland Canada USA Italy France Belgium Spain Germany Japan Sweden 9

10 Country classification 1998 Christopher Nobes (1998) Accounting Systems (corporate financial accounting) Equity, Class A Equity, Class B Classes Family Standard Dutch UK GAAP IAS GAAP US GAAP Standard Belgian Standard French Standard Germany Standard Italian Standard Japanese System Dutch accounts UK accounts 2. Irish accounts Singapore listed companies 2. Bayer (Germany) Nestlé (Switzerland) Nokia (Finland) 1 US SECregistered company accounts 2. Some Japanese group accounts Belgian accounts 1 French individual accounts and some French group accounts 1. German individual and group accounts, except for some group accounts of large listed companies 2 Austrian individual accounts Italian individual accounts or unlisted group accounts Japanese individual accounts and most group accounts Examples

11 Accounting harmonisation - three strategies to harmonise on de jure -level (VanHulle 1993) One should differentiate between harmonisation on the de jure-level (rules and regulation) and the de facto-level (how corporations use accounting in practice). Three strategies: 1. Standardisation with uniform rules without possibilities to choose. This model is applied by the FASB 2. equal rules with notes. This model has dominated the EU. 3. Choice alternatives, but desired alternative has been indicated. This model has dominated the IASB. Harmonisation Choice alternatives equal rules standardisation

12 Harmonisation problem a la Daimler-Benz

13 Historical development of IAS/IFRS and IASB Year What happened? 1972 Proposal to form International Accounting Standards Committee (IASC) inaugural meeting 29 June, London International Accounting Standards Committee (IASC). Members: Australia, Canada, France, Germany, Japan, Holland, UK, Ireland & USA 1975 First IAS published: IAS 1 Disclosure of Accounting Policies IAS 2 Valuation and Presentation of Inventories in the Context of the Historical Cost System European Accounting Federation (FEE) intend for international harmonisation and greater European involvement in IASC 1996 Development of main principles. EU:s Contact Committee makes a feasibility study Standing Interpretations Committee (SIC) forms to check IAS before endorsement International Organization of Securities Commissions (IOSCO) review of IASC core standards begins IASC member bodies approve IASC's restructuring and the new IASC Constitution European Commission announces plans to require IASC standards for all EU listed companies from no later than IASC forms IASB Foundation. IASC gives IASB responsibility to develop new IAS/IFRS. European Commission presents legislation to require use of IASC Standards for all listed companies no later than European Commission approves legislation to require IAS/IFRS. SIC transforms into International Financial Reporting Interpretations Committee (IFRIC) 2003 European Commission approves legislation on IAS/IFRS.

14 Historical development of EU-directives Directives on company law Draft dates Draft adopted Topic First Ultra vires rules Second 1970, Separation of public companies, minimum capital, distributions Third 1970, 1973, Mergers Fourth 1971, Formats and rules of accounting Fifth 1972, Structure, management and audit of companies Sixth De-mergers Seventh 1976, Consolidated accounting Eigth Qualifications and work of auditors Ninth - - Links between public company groups Tenth International mergers of public companies Eleventh Disclosures about branches Twelfth Single member company Thirteenth 1989, 1996, Takeovers

15 Implementation of EU-directives redovisningslagstiftning Fourth Denmark United Kingdom France Netherlands Luxembourg Belgium Germany Ireland Greece Spain Portugal Austria Italy Finland Sweden Seventh Norway

16 16 The IASB Foundation International Accounting Standards Committee Foundation (19 Trustees) National Standard setters and other interested parties Standards Advisory Council Advisory Groups International Accounting Standards Board (12+2 Board Members) Appoints Report to Membership links Advises Director of Operations and non-technical Staff International Financial Reporting Interpretations Committee (12) Director of Technical Activities and Technical staff

17 IASB Board members Sir David Tweedie, chairman (ex chairman ASB,UK) Thomas E.Jones (ex chairman IASC, CFO Citicorp) Mary E.Barth (Stanford University, ex AA partner) Steven Cooper (ex board member UBS Investment Bank) Phillipe Danjou (ex director of French securities regulator - AMF) Jan Engström (ex CFO Volvo Group) Gilbert Gélard (ex partner KPMG, ex IASC Board) Robert P.Garnett (ex CFO Anglo American plc, South Africa) James J.Leisenring (ex FASB) Warren McGregor (ex Australian Accounting Research Foundation) John T. Smith (partner Deloitte) Tatsumi Yamada (ex partner PwC Japan, ex IASC Board) Zhang Wei-Guo (ex Chief Accountant and Director General of the Department of International Affairs at the China Securities Regulatory Commission - CSRC)

18 International Financial Reporting Standards (IFRS) Content IASC Foundation Constitution IASB Framework for the Preparation and Presentation of Financial Statements Preface to International Financial Reporting Standards, Due Process Handbook for the IASB, Glossary of Terms Framework IAS 1 41 IFRS 1-8 IFRIC 1-17 SIC 1-33 The main changes 2009 one revised standard - IFRS 1 amendments to IFRSs that were issued as separate documents amendments to IFRSs issued in the first annual improvements project amendments to other IFRSs resulting from those revised or amended standards three new Interpretations - IFRICs 15-17

19 19 Standards Advisory Council - around 40 members Current composition of members 2 Africa 7 Asia / Oceania (Australia, China, India, Japan, Korea, 2 South- East Asia) 13 Europe (10 EU + Russia + Switzerland + CESR-fin) 3 Latin America 1 Middle East 4 North America 7 International organisations Basel Committee of Banking Supervisors International Association of Insurance Supervisors International Federation of Accountants International Monetary Fund International Organization of Securities Commissions United Nations Conference for Trade and Development World Bank 3 Official observers European Commission Financial Services Agency of Japan US Securities and Exchange Commission

20 Objectives of IASB MISSION STATEMENT The International Accounting Standards Board is an independent, privately-funded accounting standard setter based in London, UK. Board Members come from nine countries and have a variety of functional backgrounds. The Board is committed to developing, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements. In addition, the Board cooperates with national accounting standard setters to achieve convergence in accounting standards around the world.

21 IAS fundamental rule An enterprise whose financial statements comply with International Accounting Standards should disclose that fact. Financial statements should not be described as complying with International Accounting Standards unless they comply with all the requirements of each applicable Standard and each applicable interpretation of the Standing Interpretations Committee. (IAS1 11)

22 IASB s standard setting process 9 15 months 9 15 months Discussion paper Review of comments Exposure draft Review of comments IFRS Research Project Proposal - IASB Board - SAC - National standard setters

23 EU-endorsement of IFRS Endorsed, no directive! Endorsement 31 dec 2002 Group accounting 2005 according to IFRS (and EU-directive!) Mandatory for listed corporations, member states decide if unlisted corporations may report according to IFRS ARC - Accounting Regulatory Committee (politics) Technical level: EFRAG Modernisation of the Directives

24 Committees and organizations involved for standards EU approval (European Financial Reporting Advisory Group) Accounting Regulatory Committee EU-Commission CESR (The Committee of European Securities Regulators) Technical Expert Group (TEG) Supervisory Board EFRAG Consultation forum with European norm setter Observer status

25 EU s regulation process 2 m 1,5m 2 m + 1m IASB approval EFRAG advice EU Comm + ARC endorses Translation EU review EU-Parliament EU bureaus + C o Ministers Official translation Endorsed

26 Timetable for Application of Standards - no new standards until IAS IFRS 1 First Time Adoption of IFRS 2005 (Mandatory) Improvements Project Share-based Payment (IFRS 2) Amendments to IAS 32/39 Convergence Phase 1 (ED 4) Business Combinations Phase 1 (ED 3) Insurance Contracts Phase 1 (ED 5) 2005 (Optional) Business Combinations Phase II Consolidation, Including Special Purpose Entities Disclosure of Financial Risk and Other Disclosures about Financial Activities Comprehensive Income (Performance Reporting) Other Convergence Issues Revenue Recognition, Liabilities, and Equity

27 Improvements Project Exposure draft Improvements to IFRS was issued May 2002 Comment deadline: 16 September 2002 Final Standards were issued in December 2003 Revised IAS Resulting from the Improvements Project IAS 1 IAS 2 IAS 8 IAS 10 IAS 15 IAS 16 IAS 17 IAS 21 IAS 24 IAS 27 IAS 28 IAS 31 IAS 33 IAS 40 Presentation of Financial Statements Inventories Accounting Policies, Changes in Accounting Estimates and Errors Events after the Balance Sheet Date Information Reflecting the Effects of Changing Prices (Withdrawn) Property, Plant and Equipment Leases The Effects of Changes in Foreign Exchange Rates Related Party Disclosures Consolidated and Separate Financial Statements Investments in Associates Interests in Joint Ventures Earnings per Share Investment Property Effective dates: 2005 year ends

28 FASB vs. IASB

29 Remember the Titans? Sarbanes-Oxley Act (2002) Plenty of new rules and regulation on corporate governance and internal control The Norwalk Agreement (2002) IASB & FASB convergence of their accounting rules

30 Convergence project Objective identify differences between IFRS and US GAAP find the best global solutions to these differences to eliminate a variety of differences between International Financial Reporting Standards and US GAAP To save money by working on rules together Purpose To increase transparency of reports Tell it like it is David Tweedie To encourage investors to diversify To lower company s costs Timing Phase 1: ED 4 issued on 24 July 2003, final standard in Q would apply in 2005 Phase 2: mandatory after 2005, optional in 2005

31 Convergence topics for Phase 2 Classification of liabilities* (IAS 1) Inventories idle capacity and spoilage (IAS 2) Application of temporary difference approach (IAS 12) Asset exchanges* (IAS 16) Government grants (IAS 20) Joint ventures (IAS 31) Interim financial reporting (IAS 34) Research and development costs (IAS 38)

32 Convergence topics for Phase 2 Convergence Issues for Asset Disposals and Discontinued Operations: Project completed Convergence Issues for IAS 12 Income Taxes: Exposure draft expected 4th quarter 2005 Final standard timetable not yet announced Convergence Issues for IAS 14 Segment Reporting: Exposure draft expected 4th quarter 2005 Final standard timetable not yet announced

33 Convergence topics for Phase 2 Convergence Issues for IAS 19 Employee Benefits: Project completed (see Completed Projects below) Convergence Issues for IAS 20 Government Grants: Exposure draft on replacement of IAS 20 expected 4th quarter 2005 Final standard: timetable not yet announced Convergence Issues for IAS 37 Provisions: Exposure draft was issued 30 June 2005 Final standard expected 2nd half 2005

34 Some years ago JAPAN USA/FASB CANADA UK IASB AUS SPAIN FRANCE GERMANY

35 A couple of month ago JAPAN USA/FASB CANADA GERMANY IASB AUS SPAIN FRANCE UK

36 Current state JAPAN USA/FASB CANADA GERMANY IASB AUS SPAIN FRANCE UK

37 GLOBAL GAAP on its way? US GAAP IAS/IFRS CONVERGENCE GLOBAL GAAP JAPAN

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