Accounting theory and practice. I have attached additional info. Let me know if anything else is needed.
3101AFE Accounting Theory Workshop 6 International Accounting ___________________________________________________________________________ PART A: GENERAL QUESTIONS QUESTION 1: Identify some factors that might be expected to explain why different countries use different systems of accounting. QUESTION 2: After considering the Hofstede–Gray model, briefly explain the hypothesized link between society values, accounting values and accounting practice. QUESTION 3: Prior to recent international actions to adopt IFRSs, would you expect that large international companies domiciled in a particular country would have adopted different accounting policies from companies that operated only within the confines of that country? Explain your answer. QUESTION 4: Is it appropriate for accounting standard-setting bodies to consider culture and religion when devising accounting regulations, particularly given that the output of financial reporting is expected to be objective and unbiased? Explain your view. T1_2021 (Minimum word count = 80 words for this question 2 PART B: ANALYSIS QUESTIONS QUESTION 5: Word limit: Between 200 and 500 words. The study by Heidhues & Patel (2011) (refer article) highlights some limitations of Gray’s (1988) model of accounting values, as well as some concerns regarding the application of Gray’s model in accounting research. Required: a) Identify from the article, the concerns that have been raised regarding the use of Gray’s model as a theoretical basis for accounting research. b) Do you believe that these concerns are valid? The answers to this question will be discussed in class during the workshop. T 1 _202 1 1 3101AFE Accounting Theory Workshop 6 International Accounting ___________________________________________________________________________ PART A: GENERAL QUESTIONS QUESTION 1: Identify some factors that might be expected to explain why different countries use different systems of accounting. QUESTION 2: After considering the Hofstede – Gray model, briefly explain the hypothesized link between society values, accounting values and accounting practice. QUESTION 3 : Prior to recent international actions to adopt IFRSs, would you expect that large international companies domiciled in a particular country would have adopted different accounting policies from companies that operated only within the confines of that country? Expla in your answer. QUESTION 4 : Is it appropriate for accounting standard - setting bodies to consider culture and religion when devising accounting regulations, particularly given that the output of financial reporting is expected to be objective and unbiased? Explain your view. (Minimum word count = 80 words for this question T1_2021 1 3101AFE Accounting Theory Workshop 6 International Accounting ___________________________________________________________________________ PART A: GENERAL QUESTIONS QUESTION 1: Identify some factors that might be expected to explain why different countries use different systems of accounting. QUESTION 2: After considering the Hofstede–Gray model, briefly explain the hypothesized link between society values, accounting values and accounting practice. QUESTION 3: Prior to recent international actions to adopt IFRSs, would you expect that large international companies domiciled in a particular country would have adopted different accounting policies from companies that operated only within the confines of that country? Explain your answer. QUESTION 4: Is it appropriate for accounting standard-setting bodies to consider culture and religion when devising accounting regulations, particularly given that the output of financial reporting is expected to be objective and unbiased? Explain your view. (Minimum word count = 80 words for this question 3101AFE LECTURE/MODULE 7: INTERNATIONAL ACCOUNTING 3101AFE LECTURE/MODULE 7: INTERNATIONAL ACCOUNTING Deegan Ch 4 1 Learning objectives Understand the background to the adoption of a uniform set of accounting standards for worldwide use Understand some of the perceived advantages and disadvantages for countries that adopt IFRS. Appreciate that prior to many countries adopting IFRS there were a number of important differences between the accounting policies and practices adopted within various countries; Understand various theoretical explanations about why countries might adopt particular accounting practices in preference to others, and be able to evaluate whether, in light of the various theories, it is appropriate to have one globally standardised set of accounting standards. Be able to identify and explain some of the perceived benefits of harmonising or standardising accounting practices and the factors that influence accounting practice on an international scale. Understand the key factors that are leading to greater international harmonisation of accounting. 2 2 7.1 INTERNATIONAL ACCOUNTING PART 1 3 Comparison of Profit/Loss when applying Domestic Accounting Standards to U.S. GAAP – Identical underlying transactions & events!! Company Standards Applied Profit Reported Profit/(Loss) Under U.S. GAAP % Difference Daimler-Benz (1993) German $67.8 M $383.3 M LOSS!!!!! 665% AstraZeneca (2000) U.K. ₤9,521b ₤29,707 212% AstraZeneca (2003) U.K. ₤3,036m ₤2,268M 25% 4 Westpac 2007AIFRS$3,451M$3,824M$375M 10% of Net Profit 4 International Accounting Standards The IASB is an independent group of experts with a mix of recent practical experience in setting accounting standards, in preparing, auditing, or using financial reports, and in accounting education. Broad geographical diversity is also required. The IASB initially adopted International Accounting Standards (IASs) issued by its predecessor the IASC with some modifications Post 2001, new standards issued by the IASB are called International Financial Reporting Standards (IFRSs) As of June 2019, there are: 16 IFRS’s Approximately 29 IAS’s remaining (although numbers are not consecutive as old standards are withdrawn and replaced) 5 How many listed companies use IFRS Standards globally? https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/#development 6 6 Australian Accounting Standards Board The Australian Accounting Standards Board (AASB) issues accounting standards consistent with International Financial Reporting Standards (IFRSs) In Australia, accounting standards have the force of law under the Corporations Act 2001. The Australian Securities and Investments Commission (ASIC) is responsible for enforcement. Australian accounting standards are identical to their international equivalents, with two exceptions: AASBs contain additional paragraphs relevant to not-for-profit entities AASBs with no international equivalent may impose additional or reduced requirements e.g. AASB 1054 Additional disclosures 7 7 A brief history … Firms face challenges in capital markets beyond their domestic boundaries, be it equity, debt, or venture capital markets. 8 8 DRIVERS FOR ACCOUNTING STANDARDISATION Example 1- Firms Operating In Multiple Jurisdictions Face High Costs 9 9 Example 2 – firms need to raise capital in more than one market BHP Billiton Limited has a primary listing on the Australian Securities Exchange and a premium listing on the London Stock Exchange, with a secondary listing on the Johannesburg Stock Exchange. In addition BHP Billiton has two American Depositary Receipt listings on the New York Stock Exchange What would be the cost of compliance to different accounting standards with all of these listings? 10 10 Example 3 – regulators and stock exchanges need to compete for business Until 2007, the Americans required companies to provide a reconciliation between IFRS and US GAAP. 11 Until Nov 2014, mainland China did not permit IFRS but HK did and has many dual listings 11 Example 4 – investors need to be able to access and assess Investors seek to purchase securities to fit their portfolio according to the risk/return profile Having differences at a country level hampers their ability to discover the most fitting security 12 12 Example 5 – governance and transparency Some countries would like to encourage more foreign investment through growing their capital markets Which high quality accounting standards should they use to show a commitment to governance and transparency (which will usually help to attract foreign investment)? 13 13 Summary of factors that drove standardisation/harmonisation The lack of a unified set of accounting standards in all countries raises the following potential issues: Firms operating in multiple countries face high compliance conversion costs Firms wishing to raise capital on international financial markets have significantly higher costs Stock Markets and regulatory bodies struggle to compete to be attractive to firms and investors. Investors are not able to easily access and assess companies listed in different capital markets Which standards should countries seeking to develop their markets adopt? 14 14 Claimed benefits of standardisation Claimed benefits of international standardisation derive from solving the problems we have just identified on the last slide: 1. Lower compliance costs for international firms leads to lower cost of capital 2. & 3. Raising capital on international financial markets is facilitated by international comparability therefore in principal a lower cost of capital and more efficient competition in global capital markets 4. International comparability eliminates barriers to cross-border investment which reduces firms cost of capital 5. Improved quality of reporting (depending on country) and transparency of accounting information due to improved comparability therefore lower cost of capital 15 Comparability Lower COC 15 AASB RESEARCH REPORT NO 4: REVIEW OF ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS IN AUSTRALIA Evidence suggests that IFRS Standards adoption has largely been positive for listed companies More analyst following and greater analyst forecast accuracy. Improved value relevance of financial information and fewer firms engaging in earnings management. IFRS goodwill impairment and deferred taxes regimes were associated with improved accounting quality. Some studies however, suggested some measures of accounting quality have not improved …and that prior AGAAP treatments for identifiable intangible assets were more appropriate. Research suggests that annual reports have become longer but easier to read. Improved comparability with global peers for Australian entities’ financial reporting practices. Key benefits of IFRS Standards adoption identified were: cost savings for entities (with a foreign parent or with foreign-based subsidiaries) that previously required multiple national GAAPs to be applied across the group for larger private entities, adoption facilitated access to international capital markets for listed entities, adoption facilitated the activities of analysts by enhancing comparability of financial statements across borders the ability to readily assist subsidiaries in jurisdictions that have adopted IFRS Standards in recent years. 16 Are the claimed benefits real? (1) Comparability. “The notion that uniform standards alone will produce uniform financial reporting seems naïve, if only because it ignores deep-rooted political and economic factors that influence the incentives of financial statement preparers and that inevitably shape actual financial reporting practice.” (Ball, 2006 p.6) 17 Comparability 17 NEXT: INTERNATIONAL ACCOUNITNG PART 2 18 7.2 international accounting part 2 19 Are the claimed benefits real? (1) Comparability. “The notion that uniform standards alone will produce uniform financial reporting seems naïve, if only because it ignores deep-rooted political and economic factors that influence the incentives of financial statement preparers and that inevitably shape actual financial reporting practice.” (Ball, 2006 p.6) 20 Comparability 20 Obstacles to comparability Comparability 21 21 Taxation system Implementation and enforcement National modifications Culture Economic & Political system Obstacles to comparability (Slide 1 of 15) Differences in taxation systems Tax driven accounting choices, which are domestic, might flow through to IFRS statements Differences in economic and political influences on financial reporting Powerful local economic and political forces determine how managers, auditors, courts regulators and other parties influence the implementation of rules. These forces have exerted a substantial