Chapter 15 International Accounting International accounting z International

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Chapter 15 International Accounting

Chapter 15 International Accounting

International accounting z International context of accounting now a central feature z Various catalysts:

International accounting z International context of accounting now a central feature z Various catalysts: yglobalization yinternational trade/MNEs/financial markets ytechnology z IASB and FASB now envisaging possibility of a single global accounting regime yharmonization/convergence Chapter 15 © Philip O’Regan 2016 2

Accounting blocs z For historical, commercial, social and cultural reasons accounting practice varies z

Accounting blocs z For historical, commercial, social and cultural reasons accounting practice varies z However, possible to identify 4 blocs: y. Anglo-American y. Continental European y. Islamic y. Marxist z Significant variations between, within these Chapter 15 © Philip O’Regan 2016 3

European accounting z Common origin in Italian double-entry z Governance cultures: yless emphasis on

European accounting z Common origin in Italian double-entry z Governance cultures: yless emphasis on stock market ysmall family-based businesses predominate yless developed accounting profession ylegalistic accounting perspective z Result is that financial reporting function less developed than Anglo-American model Chapter 15 © Philip O’Regan 2016 4

Germany z Dominance of prudence and conservatism principles as a result of economic history

Germany z Dominance of prudence and conservatism principles as a result of economic history z Subordination of accounting to tax law z Result is legalistic, conservative accounting system z Relative unimportance of stock market and accounting profession Chapter 15 © Philip O’Regan 2016 5

Germany ctd. z B/S constructed on conservative value basis yaimed at government and creditors

Germany ctd. z B/S constructed on conservative value basis yaimed at government and creditors ynot primarily for decision-making purposes z Handelsbilanz: commercial balance sheet ydesigned to calculate profits figure that can be distributed, without compromising creditors z Steuerbilanz: tax balance sheet yunder Massgeblichkeits principle, tax accounts based primarily on Handelsbilanz z IFRS represents major catalyst Chapter 15 © Philip O’Regan 2016 6

German corporate governance z Traditionally firms seek funds from banks, not stock market z

German corporate governance z Traditionally firms seek funds from banks, not stock market z Therefore, ownership structure much tighter yfewer owners ysupervisory board with representatives of most significant investors ycross-investment z Experience of larger entities, e. g. , Daimler-Benz, demonstrates limitations of this model Chapter 15 © Philip O’Regan 2016 7

Recent developments z Governance regime limiting German companies z EU and IFRS as catalysts

Recent developments z Governance regime limiting German companies z EU and IFRS as catalysts z Structures beginning to change ybroader shareholder base ygrowth of Frankfurt Stock Exchange yapplication of IFRS z Growing importance of accounting profession z Cromme Code of Corporate Governance yretains supervisory board ymay impact Anglo-American Model z Impact of events at Volkswagen? Chapter 15 © Philip O’Regan 2016 8

France z Shares some common historical experiences with Germany z e. g. , legacy

France z Shares some common historical experiences with Germany z e. g. , legacy of Italian double-entry method z Nevertheless, shows some significant accounting independence ycentral role of State in formulating practice ytightly regulated: Plan Comptable General ysubordination of accounting to legislation Chapter 15 © Philip O’Regan 2016 9

French corporate governance z As in Germany, a strong stock market culture does not

French corporate governance z As in Germany, a strong stock market culture does not exist z Ownership structure unique ystate ownership of many enterprises ymany small family-owned businesses ycross-ownership ystrong influence of banks z Impact of IFRS is considerable Chapter 15 © Philip O’Regan 2016 10

Recent developments z Corporate governance regime limiting French firms z EU/IFRS acting as catalysts

Recent developments z Corporate governance regime limiting French firms z EU/IFRS acting as catalysts z Changes beginning to emerge ystronger stock exchange – Paris Bourse ycompanies now reporting on internal controls ystate divesting from some larger entities yaccounting profession becoming proactive z Vienot/Bouton Reports ystrengthen role of independent directors/diversity z Updated governance code 2013 y“comply or explain” Chapter 15 © Philip O’Regan 2016 11

Harmonization & convergence z Greater awareness of international issues: ystronger financial markets/globalization/MNEs z Standardization:

Harmonization & convergence z Greater awareness of international issues: ystronger financial markets/globalization/MNEs z Standardization: “uniform reporting rules” ytoo ambitious/inappropriate? z Harmonization: “reduction of reporting differences” yattainable goal? z Convergence y. FASB/IASB: equivalence road map y. SEC making concessions on US GAAP reconciliations y. Mixed results: leasing, revenue recognition Chapter 15 © Philip O’Regan 2016 12

Summary z Different accounting cultures exist z Anglo-American / Continental European ysignificant common origins

Summary z Different accounting cultures exist z Anglo-American / Continental European ysignificant common origins yimportant differences y. Anglo-American seen as more mature y. EU anxious to retain European aspect z Convergence “project” results mixed Chapter 15 © Philip O’Regan 2016 13

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