Tenth Edition Christopher Nobes and Robert Parker Prentice Hall FINANCIAL TIMES /in/mprintof Pearson Education Harlow, England London New York Boston San Francisco Toronto Sydney Tokyo Singapore Hong Kong Seoul Taipei New Delhi Cape Town Madrid Mexico City Amsterdam Munich Paris Milan
Brief contents Contributors Preface xvi xviii Part 1 S ETTING THE SCEN E St I,,..,.X....,.-.:.N.'..,.....-..r^.,...-...'...f.L.»...'...,..ii l 1.," -,' '......I-.,-...'..,.;. JIL-W...' 1 Introduction 3 2 Causes and examples of international differences 24 3 International classification of financial reporting 51 4 International harmonization 74 Part II FINANCIAL REPORTING BY LISTEDJ3R0UPS 5 The context of financial reporting by listed groups 101 6 The requirements of International Financial Reporting Standards 117 7 Different versions of IFRS practice 145 8 Financial reporting in the United States 157 9 Enforcement of Financial Reporting Standards 189 10 Political lobbying on Accounting Standards - US, UK and international experience 206 Part III HARMONIZATION AND TRANSITION IN EUROPE AND EAST ASIA 11 Harmonization and transition in Europe 237 12 Harmonization and transition in East Asia 257 [PartisFlNANCIALj*fPORTING BY INDIVIDUAL COMPANIES 13 The context of financial reporting by individual companies 285 14 Making accounting rules for non-listed business enterprises in Europe ^ 293 15 Accounting rules and practices of individual companies in Europe 314 Part V MAJOR ISSUES IN FINANCIAL REPORTING BY MNEs 16 Key financial reporting topics 343 v
Brief contents 17 Consolidation 368 18 Foreign currency translation 384 r 19 Segment reporting 427 jpartvi ANALYSIS AND MANAGEMENT ISSUES 20 International financial analysis 457 21 International auditing 481 22 International aspects of corporate income taxes 510 23 Managerial accounting 531 Glossary of abbreviations, 558 Suggested answers to some of the end-of-chapter questions 563 Author index 583 Subject index 587 VI
Contributors Preface, xviii xvi Part I SETTING THE SCENE 1 Introduction 3 Contents 3 Objectives 3 1.1 Differences in financial reporting 4 1.2 The global environment of accounting 5 1.3 The nature and growth of MNEs 12 1.4 Comparative and international aspects of accounting 15 1.5 Structure of this book 18 Summary 21 References 21 Useful websites 22 Questions 22 2 Causes and examples of international differences 24 Contents 24 Objectives 24 2.1 Introduction^ 25 2.2 "Culture 25 2.3 Legal systems 28 2.4 Providers of finance. 29 2.5 Taxation 33 2.6/ Other external influences 35 2.7 The profession 36 2.8 Conclusion on the causes of international differences 37 2.9 Some examples of differences 38 Summary 46 References -p. 47 Questions,. " '.. 50 vii
International classification of financial reporting 51 Contents 51 Objectives " 52 j 3.1 Introduction 52 3.2 The nature of classification -\ 53 3.3 Classifications by social scientists 53 3.4 Classifications in accounting 55 3.5 Extrinsic classifications 56 3.6 Intrinsic classifications: 1970s and 1980s 60 3.7 Developments related to the Nobes classification 66 3.8 Further intrinsic classification, 67 3.9 Is there an Anglo-Saxon group? 69 3.10 A taxonomy of accounting classifications 69 Summary 70 References 71 Questions 73 International harmonization 74 Contents 74 Objectives 74 4.1 Introduction 75 4.2 Reasons for, obstacles to and measurement of harmonization 76 4.3 The International Accounting Standards Committee 78 4.4 Other international bodies 87 4.5 The International Accounting Standards Board 91 Summary 94 References 95 Useful websites 97 Questions k. 98 Part II FINANCIAL REPORTING BY LISTED GROUPS 5 The context of financial reporting by listed groups 101 Contents 101 Objectives c 101 5.1. Introduction 101 5.2 IFRS in the EU.'.. ' 102 5.3 Adoption of, and convergence with, IFRS ; 105 5.4 Foreign listing and foreign investing J 106 5.5 Reconciliations from national rules to US GAAP and IFRS 108 5.6 High-level IFRS/US differences 110 VIM
5.7 Reconciliations from-ifrs to US GAAP 5.8 Convergence of IFRS and US GAAP Summary References Useful websites Questions 111 113 114 115 116 116 6 The requirements of International Financial Reporting Standards Contents Objectives 6.1 Introduction 6.2 The conceptual framework and some basic standards 6.3 Assets 6.4 Liabilities 6.5 Group accounting 6.6 Disclosures 117 117 118 118 118 125 128 130 131 Summary 132 References 132 Further reading 133 Useful websites 133 Questions 133 Appendix 6.1 An outline of the content of International Financial Reporting Standards 134 7 Different versions of IFRS practice 145 Contents 145 Objectives 145 7.1 / l / Introduction 145 7.2 Motivations for different IFRS practice 146 7.3 Scope for different IFRS practice 148 7.4 Conclusion 154 Summary 155 References 155 Questions 156 8 Financial reporting in the United States 157 Contents f ' 157 Objectives " 158 8.1 Introduction 158 8.2 Regulator^ framework. 159 IX
8.3 Accounting standard-setters 163 8.4 The conceptual framework 166 8.5 Contents of annual reports 169 8.6 Accounting principles 174 8.7J Consolidation 181 8.8 Audit 183 8.9 Differences from IFRS 184 Summary,, 186 References 186 Further reading 187 Useful websites 188 Questions 5 188 9 Enforcement of Financial Reporting Standards 189 Contents 189 Objectives, 189 9.1 Introduction 189 9.2 Modes and models of enforcement 190 9.3 United States 194 9.4 European Union 195 9.5 Australia 201 Summary 202 References ' 202 Useful websites 204 Questions ( 205 10 Political lobbying on Accounting Standards - US, UK and international experience 206 Contents 206 Objectives. 206 10.1 Introduction 207 10.2 Motivations for political lobbying 208 10.3 Political lobbying up to 1990 210 10.4 US political lobbying from 1990 220 10.5 Political lobbying of the IASC/IASB 224 10.6 Preparer attempts to control the accounting standard-setter 228 10.7 Political lobbying of the FASB's convergence with the IASB 229 10.8 Some concluding remarks 231 Summary,, 231 References,r- 232 Useful websites 234 Questions 234
ipartlll HARMONIZATION AND TRANSITION IN EUROPE ' ' "" : I AND EAST ASIA j II Harmonization and transition in Europe 237 Contents 237 Objectives 237 11.1 Introduction 238 11.2 Harmonization within the European Union 238 11.3 Transition in Central and Eastern Europe 244 Summary " 253 References 253 Useful websites 256 Questions 256 12 Harmonization and transition in East Asia 257 Contents 257 Objectives 257 12.1 Introduction 258 12.2 japan 258 12.3 China 272 Summary 277 References 278 Further reading 280 Useful websites 280 Questions 280 Appendix 12.1 ASBE Standards 282 Part IV FINANCIAL REPORTING BY INDIVIDUAL COMPANIES 13 The context of financial reporting by individual companies 285 Contents 285 Objectives 285 13.1 Introduction 285 13.2 Outline of differences between national rules and IFRS or US GAAP 286 13.3 The survival of national rules 286 13.4 Financial reporting, tax and distribution 289 13.5 Special rulesfor small or unlisted companies 290 Summary 292 References 292 xi
Useful websites n 292 Questions 292 14 Making accounting rules for non-listed business enterprises in Europe 293 Contents 293 Objectives c 293 14.1 Introduction 293 14.2 Who makes accounting rules? 294 14.3 Which business enterprises are subject to accounting rules? 303 Summary _ 307 References 308 Further reading 309 Useful websites 310 Questions... 31T Appendix 1.4.1 Contents of the Plan comptable general 312 Appendix 14.2 A Financial accounting chart of accounts 313 15 Accounting rules and practices of individual companies in Europe 314 Contents 314 Objectives 314 15.1 Introduction 314 15.2 France 315 15.3 Germany 319 15.4 United Kingdom. 324 Summary 326 References 326 Further reading 327 Useful websites 327 Questions 327 Appendix15.1 Formats for French financial statements 328 Appendix 15.2 Formats for German financial statements 333 Appendix 15.3 Formats for British financial statements 336 Part V MAJOR ISSUES IN FINANCIAL REPORTING BY MNEs ; 16 Key financial reporting topics 343 Contents J _ 343 Objectives ^ " 343 16.1 Introduction 344 XII
16.2 Recognition of intangible assets 344 16.3 Asset measurement 345 16.4 Financial instruments 347 16.5 Provisions 350 16.6 Employee benefits 354 16.7 Deferred tax 358 16.8 Revenue recognition 362 16.9 Comprehensive income 364 c Summary 365 References 366 Questions 366 17 Consolidation 368 Contents 368 Objectives 368 17.1 Introduction 369 17.2 Rate of adoption 369 17.3 The concept of a'group' 370 17.4 Harmonization from the 1970s onwards 371 17.5 Definitions of group companies 375 17.6 Publication requirements and practices 376 17.7 Techniques of consolidation 377 Summary 381 References 382 Further reading 382 Questions 382 18 Foreign currency translation 384 Contents 384 Objectives 385 18.1 Introduction 385 18.2 Translation of transactions 389 18.3 Introduction to the translation of financial statements 395 18.4 The US initiative ' ; 398 18.5 The temporal method versus the closing rate method 401 18.6 FAS 52 406 18.7 IAS 21 409 18.8 Translation of comprehensive income 411 18.9 Accounting for translation gains and losses 413 18.10 Research findings^ 419 18.11 Analternative to exchange rates? 423 Summary 423 References 424 xiii
Further reading > 425 Questions 425 19 Segment reporting 427 Contents 427 Objectives 427 1,9.1 What is segment reporting?. 427 19.2 The need for segment information 432 19.3 Disclosure regulations 433 19.4 Evidence on the benefits of segment reporting 443 Summary 450 References {, 451 Questions 453 Part VI ANALYSIS AND MANAGEMENT ISSUES 20 International financial analysis 457 Contents, 457 Objectives 457 20.1 Introduction 458 20.2 Understanding differences in accounting 458 20.3 Disclosure practices in international financial reporting 463 20.4 Interpreting financial statements 470 20.5 Financial analysis and the capital market 474 Summary 477 References 478 Useful websites. 480 Questions 480 21 International auditing 481 Contents '. -... 481 Objectives. 481 21.1 Introduction.. 482 21.2 Reasons for the internationalization of auditing 484 21.3 Promulgating international standards. 489 21.4 The international audit process 495 Summary 507 References 508 Further J reading ' 508 Useful websites ii 508 Questions 509 XIV
22 International aspects of corporate income taxes 510 Contents 510 Objectives 510 22.1 Introduction 511 22.2 Tax bases 513 22.3 International tax planning 517 22.4 Transfer pricing 518 22.5 Tax systems 519 22.6 Harmonization 525 Summary 527 References 527 Further reading 529 Useful websites 529 Questions 529 23 Managerial accounting 531 Contents ~ 531 Objectives 531 23.1 Introduction 532 23.2 The balanced scorecard as an overview tool 533 23.3 Currency and control 535 23.4 Variances and foreign exchange 539 '23.5 Culture and management accounting 540 23.6 Control and performance 549 23.7 Looking forward 551 Summary 553 References 554 Questions, 557 Glossary of abbreviations 558 Suggested answers to some of the end-of-chapter questions 563 Author index 583 Subject index 587 xv