Guide to International
Accounting
A Nontechnical
Guide to International
Accounting
Roger Hussey
Audra Ong
A Nontechnical Guide to International Accounting
Copyright © Business Expert Press, LLC, 2020.
10 9 8 7 6 5 4 3 2 1
Keywords
accounting equation; balance sheet; cash flows; comprehensive income;
conceptual framework; consolidations; depreciation; fair value; financial
instruments; financial position; financial reporting; foreign exchange;
income taxes; interim reporting; international accounting standards;
intangible assets; inventories; profit; leases; revenue
Contents
Preface...................................................................................................ix
Acknowledgments....................................................................................xi
Chapter 1 The Growth of International Accounting...........................1
Chapter 2 Setting International Standards........................................15
Chapter 3 Measuring Profit and Income...........................................33
Chapter 4 The Statements of Financial Position (Balance Sheet)
and Changes in Equity.....................................................55
Chapter 5 The Timing of Events.......................................................77
Chapter 6 Intercompany Relations...................................................93
Chapter 7 Specific Situations..........................................................109
Chapter 8 Different Business Activities...........................................127
Chapter 9 Changing Values............................................................141
Chapter 10 Financial Instruments.....................................................153
References............................................................................................171
About the Authors................................................................................177
Index..................................................................................................179
Preface
Wherever you work, financial accounting is critical to measuring the
success or otherwise of the organization. If you are a retiree, a professional
investor, or an employee, the profitability of a company can be critical to
your lifestyle. If you sell goods to companies or buy from them, you need
to know their financial strengths and weaknesses. The information you
require may be in the newspapers and magazines, but the most complete
and detailed information will be in the annual report and accounts issued
by companies.
Unfortunately, much of this information will contain technical jargon
because companies’ financial publications are strictly regulated. Financial
reports issued by companies must comply with financial accounting stan-
dards. The standards that a company follows will depend on the country
in which it operates.
Some countries, such as the United States, issue their own standards.
However, many countries comply with international accounting standards
issued by the International Financial R eporting Standards (IFRS) Foun-
dation. This is a not-for-profit international organization that e stablishes
a single set of high-quality global a ccounting standards, known as IFRS
Standards. The IFRS was originally the International Accounting Stan-
dards Board and issued international accounting standards. Several of
these are still in force and are discussed in this book.
Our objective is to provide a broad understanding of international ac-
counting. It will assist readers in comprehending the financial statements
drawn up by companies to comply with international standards and to
understand articles concerned with the international world of accounting
and finance.
There are now over 50 standards dealing with different account-
ing topics. It would be impossible for us to provide the same detail in
our current book. Our aim is to give an understandable introduction
x PREFACE
to the various accounting issues and the requirements set by the inter-
national regulators to address them. Of course, regulators update their
requirements. Fortunately, at the international level, this does not occur
frequently. But to ensure you are up to date, we conclude each chapter
with information on the present status of the standards discussed in it.
Acknowledgments
In covering such a wide area as international accounting regulation, we
have been greatly assisted by students and professors at the University
of Windsor. Special thanks go to our research assistants, James Carlton
and Joshua Tarantola, who spent many hours enmeshed with accounting
standards.
Finally, our gratitude is given to Rene Caroline Balan and her team
for seeing the manuscript through the editing stages to final publication.
(continued )
xii ACKNOWLEDGMENTS
Strategic Report
Governance Report
Corporate Social Responsibility
Management Report
Report of the Chairman
Financial Statements (or Annual Report and Accounts)
in the U.K. or Japan, or any other country because they had different
methods for recognizing, measuring and disclosing financial transactions
and events.
Much has been written on the reasons for countries having differ-
ent financial accounting and reporting regulations (Frank 1979; Mueller
1967; Nair and Frank 1980; Nobes 1983). The main reasons would ap-
pear to be:
differences. New standards generally are in force on the date of annual pe-
riods beginning on or after January 1, but early applications are normally
permitted. The result is that two different versions can be in force at the
same time depending on the implementation year chosen by a particular
country compared to the choice by another country.
Year ends of companies can also differ. Some may find that a new
standard becomes applicable in their financial year. Others, with an earlier
year-end date, will not have to comply with the IFRS until the following
year’s financial statements. In some countries, for example, Australia and
the United Kingdom, corporate accounting periods do not necessarily
end on December 31. In other countries, that may be the usual year-end
date for all companies registered in that country.
Caution must also be used in assessing the extent of adoption. In
a comparison of India and China, the authors concluded that account-
ing estimates in India are useful in predicting future earnings and cash
flows, but accounting estimates in China are not. They conclude that
accounting quality varies with accounting systems and legal enforcement.
Accounting standards in China and India are converging to IFRS, but
both countries have not fully implemented IFRS (Eng and Vichitsara-
wong 2017).
The progress that had been made has been well documented by Kirsch
(2012) and one can only conclude that there was insufficient commit-
ment to full convergence. However, the debate on convergence has been
focused on the interactions of the FASB, the U.S. standard setter, and the
IASB. There are many countries involved in the convergence process and
Ruder, Canfield, and Hudson (2005) have argued that the IASB is subject
to influence by business interests and that business interest successes in
influencing endorsement or adoption of accounting standards are likely
to delay or impede convergence.
Both the FASB and the IASB would claim that they wished to pro-
duce high-quality standards. Although there is general agreement that
such standards would lead to comparability and transparency with the
qualities of relevance and reliability, nobody has been able to define pre-
cisely the characteristics of high-quality standards. It was really a case of
“we will know it when we see it.”
Another obstacle on the route to convergence was the differences in
the rules based versus the principles-based approach to establishing stan-
dards and enforcing them. The rules-based approach lays down specific,
detailed requirements in a standard to ensure that financial statements do
not mislead the users. Most would agree that the FASB inclines towards
this method for setting its standards. It can be argued that the rules-based
approach may result in financial statements that are consistent with the
rules but do not always provide the most reliable and relevant informa-
tion for users. Strict conformity with the rules may fail to capture fully the
complexities of business operations.
The principles-based approach sets out the general boundaries of the
standard’s requirements. It is the preparers and auditors who apply their
professional judgment and experience to ensure that the financial state-
ments do not mislead the users. This view was a basis for standard setting
in the UK and may have influenced the opinions of the IASB. It can be
argued that this approach gives too much scope to preparers and auditors
to select various methods for recording accounting transactions and this
may not be in the interests of the users.
Undoubtedly, the U.S. put considerable time and energy into the
Convergence project. In 2006 a “Road Map” was issued that set out its
strategy. The weaker international standards would be replaced by stron-
ger ones and more effort would be given to develop new high-quality
standards. In 2008 an update to the 2006 Road Map was issued. A series
of priorities and milestones were set out and it was made clear that the
U.S. would only adopt international standards if these targets were met.
In 2010 a strategic plan was issued which emphasized the need for
high-quality standards. The plan also stated that the decision for the U.S.
incorporating international standards would be made in 2011. In 2012
a Joint Progress Report was issued and it was anticipated that the SEC
would set out its plans for convergence. It did not do so.
The Growth of International Accounting 13
Conclusion
Companies have several groups interested in their financial performance
and positions. To meet the needs of the various users, companies provide
financial statements. It is essential that those financial statements come
under some form of regulation to ensure the reliability and relevance of
the information and to enable comparisons over time and with other
companies.
14 A NONTECHNICAL GUIDE TO INTERNATIONAL ACCOUNTING
• a one-time purchase,
• that is owned forever,
• allows for simultaneous readers,
• has no restrictions on printing, and
• can be downloaded as PDFs from within the library community.
Our digital library collections are a great solution to beat the rising cost of textbooks. E-books
can be loaded into their course management systems or onto students’ e-book readers.
The Business Expert Press digital libraries are very affordable, with no obligation to buy in
future years. For more information, please visit www.businessexpertpress.com/librarians.
To set up a trial in the United States, please email sales@businessexpertpress.com.