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Introduction to International Accounting



Purpose of International Accounting
Worldwide Accounting Diversity
Basic Terminology

International Accounting
The word International in International Accounting can be defined at three different levels.
1. The first level is the supranational accounting, which denotes standards, guidelines and rules
of accounting, auditing and taxation issued by supranational organisations (for example
European Union).
2. At the second level, the company level, international accounting can be viewed in terms of the
standards, guidelines and practices that company follows related to its international business
activities and foreign investments. These would include standards for accounting
denominated in foreign currency and techniques for evaluating the performance of foreign
operations.
3. At the third and broadest level, international accounting can be viewed as the study of the
standards, guidelines and rules of accounting that exist within each country and comparison
of these rules with International Financial Reporting Standards (IFRS) set by
International Accounting Standards Board.

Reasons for accounting diversity in the world
Legal system (common law or codified Roman law)
Taxation (in some countries, published financial statements form a basis for taxation)
Providers of financing (family members, banks, governments and shareholders)
Inflation (some countries, for example in Latin America apply so called Inflation Accounting)
Political and economic ties (for example through colonialism, England and France have
transferred their accounting systems to a variety of countries)
Language barriers

Problems caused by accounting diversity
Incomparability of financial statements and lack of high-quality accounting information in
some countries
Preparation of Consolidated financial statements
Access to Foreign capital markets

Supranational accounting EU Accounting Directives
1. Fourth Directive: annual accounts of companies with limited liability
2. Seventh Directive: consolidated accounts of companies with limited liability
3. Eight Directive: statutory audits of annual accounts and consolidated accounts

Fourth Directive (1978)
The Directive lay down the principles which govern the drawing up of the balance sheet and the profit and
loss account.
The balance sheet: the Directive provides for two balance sheet layouts, leaving it to the Member States to
choose. It then lists the balance sheet items and comments on them.
The profit and loss account: four layouts are proposed from which Member States are free to choose. The
Directive provides a commentary on certain items here too.
The Directive states general principles for the valuation of items in the annual accounts, such as prudence,
consistency in the application of the methods of valuation, etc. They also set out specific valuation rules.
The Directive lists the information which must be provided in the notes to the accounts: the valuation
methods applied to the various items, undertakings in which the company holds a certain percentage of the
capital, certain types of the company's debts, financial commitments not included in the balance sheet, etc.
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The annual report must include a fair review of the development of the company's business and of its
position. It must also provide information on any important events that have occurred since the end of the
financial year, the company's likely future development and activities in the field of research and
development.
The Directive lays down certain rules on publication (documents which must be published, etc.).
Lastly, the Directive provides for a system of auditing under which companies must have their annual
accounts audited by one or more persons authorised by national law to audit accounts. Such a person or
persons must also verify that the annual report is consistent with the annual accounts for the same financial
year.
Less strict rules are laid down for small and medium-sized companies. Member States may lighten their
obligations in respect of the publication of annual accounts or dispense small companies from the
requirement that the annual accounts be audited.

Seventh Directive (1983)
This Directive defines the circumstances in which consolidated accounts are to be drawn up. Any
company (parent company) which legally controls another company (subsidiary company) is under a duty
to prepare consolidated accounts. In most cases, legal control takes the form of the holding of a majority of
voting rights. Member States may also require consolidated accounts to be prepared in other cases where a
parent company has only a minority shareholding but exercises de facto control. They may provide for
exemption from this obligation.
The Directive sets out the methods of drawing up consolidated accounts:
Consolidated accounts comprise the consolidated balance sheet, the consolidated profit and loss
account and the notes to the accounts. Consolidated accounts must give a true and fair view of the
assets, liabilities, financial position and profit or loss of the companies included therein taken as a
whole.
The book values of shares in the capital of companies included in a consolidation must be set off
against the proportion which they represent of the capital and reserves of those companies. Such
set-off must be effected on the basis of book values as at the date on which the companies are
included in the consolidation for the first time.
The consolidated accounts must be drawn up on the same date and by the same methods as the
annual accounts of the parent company.
The Annex states that certain information must be provided in the notes, on such things as valuation
methods, the names and the registered offices of the undertakings included in the consolidation, total of
certain types of debts, etc.
The Directive also regulates the contents of the consolidated annual report. This must include at least a fair
review of the development of business and the position of the undertakings included in the consolidation
taken as a whole, and certain indications for each of those undertakings (number and nominal value of
shares, etc.).
The Directive establishes a system of auditing under which a company which prepares consolidated
accounts must have them audited by one or more persons authorised to audit accounts under the laws of the
Member State which govern that company. The person or persons responsible for auditing the consolidated
accounts must also verify that the consolidated annual report is consistent with the consolidated accounts
for the same financial year.

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IFRS International Financial Reporting Standards
IFRS began as an attempt to harmonise accounting across the European Union but the value of
harmonisation quickly made the concept attractive around the world. They are sometimes still called
by the original name of International Accounting Standards (IAS). IAS were issued between 1973
and 2001 by the Board of the International Accounting Standards Committee (IASC). On April 1,
2001, the new IASB took over from the IASC the responsibility for setting International Accounting
Standards. During its first meeting the new Board adopted existing IAS and Standing Interpretations
Committee standards (SICs). The IASB has continued to develop standards calling the new standards
International Financial Reporting Standards (IFRS).
IFRS due process
International Financial Reporting Standards (IFRSs) are developed through an international
consultation process, the "due process", which involves interested individuals and organisations from
around the world.
The due process comprises six stages:
1. Setting the agenda
2. Planning the project
3. Developing and publishing the discussion paper (DP)
4. Developing and publishing the exposure draft (ED)
5. Developing and publishing the standard
6. After the standard is issued
After an IFRS is issued, the staff and the IASB members hold regular meetings with interested parties,
including other standard-setting bodies, to help understand unanticipated issues related to the practical
implementation and potential impact of its proposals.
The IFRS Foundation also fosters educational activities to ensure consistency in the application of
IFRSs.

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Current use of IFRSs in the countries of the G20
Country Status for listed companies as of December 2013
Argentina Required for fiscal years beginning on or after 1 January 2012
Australia
Required for all private sector reporting entities and as the basis for public
sector reporting since 2005
Brazil
Required for consolidated financial statements of banks and listed companies
from 31 December 2010 and for individual company accounts progressively
since January 2008
Canada
Required from 1 January 2011 for all listed entities and permitted for private
sector entities including not-for-profit organisations
China Substantially converged national standards
European Union
All member states of the EU are required to use IFRSs as adopted by the EU
for listed companies since 2005
France Required via EU adoption and implementation process since 2005
Germany Required via EU adoption and implementation process since 2005
India India is converging with IFRSs at a date to be confirmed.
Indonesia Convergence process ongoing
Italy Required via EU adoption and implementation process since 2005
Japan Permitted from 2010 for a number of international companies
Mexico Required from 2012
Republic of
Korea
Required from 2011
Russia Required from 2012
Saudi Arabia
Required for banking and insurance companies; full convergence with IFRSs
currently under consideration
South Africa Required for listed entities since 2005
Turkey Required for listed entities since 2005
United Kingdom Required via EU adoption and implementation process since 2005
United States Allowed for foreign issuers in the US since 2007

Since 2001, almost 120 countries have required or permitted the use of IFRSs.
Source: http://www.ifrs.org/The-organisation/Documents/2013/Who-We-Are-English-2013.pdf
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List of IFRS and Interpretations in 2014
IFRS
Conceptual Framework for Financial Reporting
International Accounting Standards (IASs)
IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 7 Statement of Cash Flows
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10 Events after the Reporting Period
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 14 Segment Reporting
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefits
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates
IAS 23 Borrowing Costs
IAS 24 Related Party Disclosures
IAS 26 Accounting and Reporting by Retirement Benefit Plans
IAS 27 Separate Financial Statements
IAS 28 Investments in Associates
IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 31 Interests in Joint Ventures
IAS 32 Financial Instruments: Presentation
IAS 33 Earnings per Share
IAS 34 Interim Financial Reporting
IAS 36 Impairment of Assets
IAS 37 Provision, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IAS 40 Investment Property
IAS 41 Agriculture
International Financial Reporting Standards (IFRSs)
IFRS 1 First-time Adoption of International Financial Reporting Standards
IFRS 2 Share-based Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 Non current Assets Held for Sale and Discontinued Operations
IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value measurement


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Interpretations
SIC-7 Introduction of the Euro
SIC-10 Government Assistance No Specific Relation to Operating Activities
SIC-15 Operating Leases Incentives
SIC-25 Income Taxes Changes in the Tax Status of an Enterprise or its Shareholders
SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease
SIC-29 Service Concession Arrangements: Disclosures
SIC-31 Revenue Barter Transactions Involving Advertising Services
SIC-32 Intangible Assets Web Site Costs
IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities
IFRIC 2 Members` Shares in Co-operative Entities and Similar Instruments
IFRIC 4 Determining whether an Arrangement contains a Lease
IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation
Funds
IFRIC 6 Liabilities arising from Participating in a Specific Market Waste Electrical and Electronic
Equipment
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary
Economies
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction
IFRIC 15 Agreements for the Construction of Real Estate
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
IFRIC 17 Distributions of Non-cash Assets to Owners
IFRIC 18 Transfers of Assets from Customers
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
IFRIC 21 Levies



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US GAAP
Generally Accepted Accounting Principles are accounting rules used in the United States.
These are used to prepare, present and report financial statements for a wide variety of entities,
including publicly traded and privately held companies, non-profit organizations, and government
authorities, with the Financial Accounting Standards Board (FASB) establishing rules for public and
private companies, and non-profit organizations; the Governmental Accounting Standards Board
(GASB) determining a different set of assumptions, principles for local and state governments - and
the Federal Accounting Standards Advisory Board (FASAB) performing a similar role for federal
government entities.

These organizations influence the development of GAAP in the United States.
United States Securities and Exchange Commission (SEC)
The SEC was created as a result of the Great Depression. At that time there was no structure
setting accounting standards. The SEC encouraged the establishment of private standard-
setting bodies through the AICPA and later the FASB, believing that the private sector had the
proper knowledge, resources, and talents. The SEC works closely with various private
organizations setting GAAP, but does not set GAAP itself.
In the past: American Institute of Certified Public Accountants (AICPA)
In 1939, urged by the SEC, the AICPA appointed the Committee on Accounting Procedure
(CAP). During the years 1939 to 1959 CAP issued 51 Accounting Research Bulletins that
dealt with a variety of timely accounting problems. However, this problem-by-problem
approach failed to develop the much needed structured body of accounting principles. Thus, in
1959, the AICPA created the Accounting Principles Board (APB), whose mission it was to
develop an overall conceptual framework. It issued 31 opinions and was dissolved in 1973 for
lack of productivity and failure to act promptly.
Financial Accounting Standards Board (FASB)
FASB has 4 major types of publications:
1. Statements of Financial Accounting Standards (SFAS) - the most authoritative
GAAP setting publications. 168 SFAS have been issued to date.
2. Statements of Financial Accounting Concepts (SFAC) - first issued in 1978. They
are part of the FASB's conceptual framework project and set forth fundamental
objectives and concepts that the FASB use in developing future standards. However,
they are not a part of GAAP. There have been 7 concepts published to date.
3. Interpretations - modify or extend existing standards. There have been around 50
interpretations published to date.
4. Technical Bulletins - guidelines on applying standards, interpretations, and opinions.
Usually solves some very specific accounting issue that will not have a significant,
lasting effect.

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