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35 Cards in this Set
- Front
- Back
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Domestic Accounting |
an information specialty providinginformation about a firm to users of that information as a basis for economicdecisions. |
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International Accounting |
an information specialty providing information about a firm to users of that information as a basis for economic decisions and the firm is reported on is a multinational company withoperations and transactions that cross national boundaries or an entity withreporting obligations to non-domestic readers. |
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Reporting issues when business transcendsnational boundaries |
•Consolidationofforeign accounts •Accountingfor foreign currency fluctuations •Accountingfor changing prices •Internationalplanning and control •Performanceevaluation of foreign operations •Financialrisk management •Internationaltaxation and transfer pricing |
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Financial innovation |
•Identifyingpotential market risks •Quantifyingtrade-offs associated with alternative risk reduction strategies •Measuringrisk exposures •Accountingfor specific hedge products •Evaluatingthe effectiveness of hedging programs |
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Measurement |
process of identifying, categorizing , and quantifyingeconomic activities or transactions |
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Disclosure |
process by whichaccounting measurements are communicated to their intended users |
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Audit |
process by whichspecialized accounting professionals (auditors) attest to the reliability ofthe measurement and communication process |
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Transfer Prices |
the prices charged to business units for internaltransactions that cross national borders and set for tax minimization |
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Two Basic Orientations of Accounting |
Fair Presentation and Legal Compliance |
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Two main legal systems in the world |
Common Law and Code Law |
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Development |
•Helpsunderstand a nation’s accounting. •Explainsthe differences and similarities in accounting around the world. |
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Classification |
•Helpsunderstand why and how national accounting systemsdiffer. •Helpsanalyze whether these systems are converging or diverging. •Are away of viewing the world. •Revealswhat group members have in common, and •Whatdistinguishes groups from each other |
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Code Law |
•Lawsare all-embracing. •Accountingtends to be prescriptive and procedural. •Accountingfocuses on legal form. •Accountingstandards and procedures are incorporated into national laws. |
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Common Law |
•Lawsdevelop on a case-by-case basis. •Accountingdevelops from experience and judgment. •Accountingtends to be flexible, adaptive, and innovative. •Accountingfocuses on economic substance. •Accountingrules are established by private sector professional organizations. |
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Factors of Development that have significant influence on Accounting Policies |
1. Taxation 2. Sources of Finance 3. Legal System |
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Culture Values (Hofstede) |
•Individualism vs. collectivism •Power distance – high vs. low •Uncertainty avoidance – high vs. low •Masculinity vs. femininity |
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Accounting Values |
•Professionalism vs. statutory control •Uniformity vs. flexibility •Conservatism vs. optimism •Secrecy vs. transparency |
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Four approaches to accounting development |
1. Macroeconomic approach 2. Microeconomic approach 3. Uniform approach 4. Independent discipline approach |
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Macroeconomic approach |
•Accountingderived from and designed to enhance national macroeconomic goals. Example:Sweden |
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Microeconomic approach |
•Accountingderived from microeconomics. -Maintainingphysical capital -Separationof capital and income -Replacementcosts Example:the Netherlands |
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independent discipline approach |
Accountingderived from business practices, judgment, and trial-and-error. Examples:U.K. and U.S. |
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Uniform approach |
Accountingis standardized by central government and used as a tool for administrativecontrol. Example:France |
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Common Law Accounting |
•Orientedtoward fair presentation, transparency, and full disclosure •Separationbetween tax and financial accounting •Accountingstandard setting in private sector •Parallelsstockholder model of corporate governance |
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Code Law Accounting |
•Legalisticorientation, opaque with low disclosure •Alignmentbetween tax and financial accounting •Accountingstandard setting in public sector •Parallelsstakeholder model of corporate governance |
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Fair Presentation Accounting |
•Substanceover form. •Orientedtoward decision needs of external investors. -Helpsjudge managerial performance and predict future cash flows and profitability -Extensivedisclosures •IFRSare aimed at fair presentation. •Foundin U.K., U.S., Netherlands and countries influenced by them. •Thetrend for consolidated financial statements. |
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Legal Compliance Accounting |
•Designed to satisfy government-imposedrequirements, such as: -Calculating taxable income -Complying with macroeconomic plan •Conservative measurements •Income smoothing Will persist in code law countries forindividual-company financial statements |
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IFRS |
•standards based on fair presentation principles •may be overridden in rare circumstancesto achieve fair presentation |
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Accounting measurements for IFRS -Business Combinations -Goodwill -Investments in associates -Translation of financial statements of foreign operations -assets -research costs -lifo -finance leases -operating leases -provisions -deferred taxes |
-business combinations: purchase accounting -goodwill: annual impairments test -investments in associates: equity method -translation of financial statements of foreign operations: functional currency concept -assets: valued at historical cost or fair value -research costs: expensed -development costs: capitalized -lifo: not allowed -finance leases: capitalized -operating leases: expensed -provisions: recognized when probable and estimable -deferred taxes: recognized in full, using liability method |
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The Plan |
France's national uniform chart of accounts |
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Other influences of French accounting rules |
•commercial legislation •tax laws |
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unusual features of french financial reporting |
•must report results of environmental activities •reports aimed at preventing bankruptcies •social report |
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Creditor protection |
German rule of accounting where they present: •conservative balance sheet valuations •reserves as protection against unforeseen risks and insolvency •accounting is designed to compute a prudent income amount that leaves creditors unharmed after distributions are made to owners |
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determination principle |
Influence of tax law on German accounting standards; taxable income is determined by what is booked in a company's financial records |
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Unusual feature of German Financial reporting |
auditor's private report to board of directors and supervisor board on company's future prospects |
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True and Fair Override |
Unusual feature of British accounting; if what is presented does not give fair presentation of company, you can override |
