comparative international accounting -...

COMPARATIVE INTERNATIONAL

ACCOUNTING

Christopher Nobes and Robert Parker

TENTH EDITION

obes

arker

COMPARATIVE INTERNATIONAL ACCOUNTING

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Tenth Edition

COMPARATIVEINTERNATIONAL ACCOUNTING

Christopher Nobes

and

Robert Parker

Pearson Education Limited

Edinburgh Gate

Harlow

Essex CM20 2JE

England

and Associated Companies throughout the world

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First edition published in Great Britain under the Philip Allan imprint 1981

Second edition published 1985

Third edition published under the Prentice Hall imprint 1991

Fourth edition published 1995

Fifth edition published under the Prentice Hall imprint 1998

Sixth edition published 2000

Seventh edition published 2002

Eighth edition published 2004

Ninth edition published 2006

Tenth edition published 2008

© Prentice Hall Europe 1991, 1995, 1998

© Pearson Education Limited 2000, 2002, 2004, 2006, 2008

Chapter 18 © John Flower 2002, 2004, 2006, 2008

The rights of Christopher Nobes and Robert Parker to be identified as authors

of this work have been asserted by them in accordance with the Copyright,

Designs and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted in any form or by any means, electronic, mechanical,

photocopying, recording or otherwise, without either the prior written permission of the

publisher or a licence permitting restricted copying in the United Kingdom issued by

the Copyright Licensing Agency Ltd, 6–10 Kirby Street, London EC1N 8TS.

ISBN: 978-0-273-71476-7

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

Comparative international accounting / [edited by] Christopher Nobes

and Robert Parker. – 10th ed.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-273-71476-7 (alk. paper) 1. Comparative accounting.

I. Nobes, Christopher. II. Parker, R. H. (Robert Henry)

HF5625.C74 2008

657—dc22

2008007524

10 9 8 7 6 5 4 3 2

12 11 10 09

Typeset in 9.5/12.5pt Stone Serif by 35

Printed by Ashford Colour Press Ltd., Gosport

The publisher’s policy is to use paper manufactured from sustainable forests.

v

Contributors xvi

Preface xviii

Part I SETTING THE SCENE

1 Introduction 3

2 Causes and examples of international differences 24

3 International classification of financial reporting 51

4 International harmonization 74

Part II FINANCIAL REPORTING BY LISTED GROUPS

5 The context of financial reporting by listed groups 101

6 The requirements of International Financial Reporting Standards 117

7 Different versions of IFRS practice 145

8 Financial reporting in the United States 157

9 Enforcement of Financial Reporting Standards 189

10 Political lobbying on Accounting Standards – US, UK and

international experience 206

Part III HARMONIZATION AND TRANSITION IN EUROPE AND EAST ASIA

11 Harmonization and transition in Europe 237

12 Harmonization and transition in East Asia 257

Part IV FINANCIAL REPORTING BY INDIVIDUAL COMPANIES

13 The context of financial reporting by individual companies 285

14 Making accounting rules for non-listed business enterprises in Europe 293

15 Accounting rules and practices of individual companies in Europe 314

Part V MAJOR ISSUES IN FINANCIAL REPORTING BY MNEs

16 Key financial reporting topics 343

Brief contents

Brief contents

vi

17 Consolidation 368

18 Foreign currency translation 384

19 Segment reporting 427

Part VI ANALYSIS AND MANAGEMENT ISSUES

20 International financial analysis 457

21 International auditing 481

22 International aspects of corporate income taxes 510

23 Managerial accounting 531

Glossary of abbreviations 558

Suggested answers to some of the end-of-chapter questions 563

Author index 583

Subject index 587

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Convenience. Simplicity. Success.

vii

Contributors xvi

Preface xviii

Part I SETTING THE SCENE

1 Introduction 3

Contents 3

Objectives 3

1.1 Differences in financial reporting 4

1.2 The global environment of accounting 5

1.3 The nature and growth of MNEs 12

1.4 Comparative and international aspects of accounting 15

1.5 Structure of this book 18

Summary 21

References 21

Useful websites 22

Questions 22

2 Causes and examples of international differences 24

Contents 24

Objectives 24

2.1 Introduction 25

2.2 Culture 25

2.3 Legal systems 28

2.4 Providers of finance 29

2.5 Taxation 33

2.6 Other external influences 35

2.7 The profession 36

2.8 Conclusion on the causes of international differences 37

2.9 Some examples of differences 38

Summary 46

References 47

Questions 50

Contents

Contents

viii

3 International classification of financial reporting 51

Contents 51

Objectives 52

3.1 Introduction 52

3.2 The nature of classification 53

3.3 Classifications by social scientists 53

3.4 Classifications in accounting 55

3.5 Extrinsic classifications 56

3.6 Intrinsic classifications: 1970s and 1980s 60

3.7 Developments related to the Nobes classification 66

3.8 Further intrinsic classification 67

3.9 Is there an Anglo-Saxon group? 69

3.10 A taxonomy of accounting classifications 69

Summary 70

References 71

Questions 73

4 International harmonization 74

Contents 74

Objectives 74

4.1 Introduction 75

4.2 Reasons for, obstacles to and measurement of harmonization 76

4.3 The International Accounting Standards Committee 78

4.4 Other international bodies 87

4.5 The International Accounting Standards Board 91

Summary 94

References 95

Useful websites 97

Questions 98

Part II FINANCIAL REPORTING BY LISTED GROUPS

5 The context of financial reporting by listed groups 101

Contents 101

Objectives 101

5.1 Introduction 101

5.2 IFRS in the EU 102

5.3 Adoption of, and convergence with, IFRS 105

5.4 Foreign listing and foreign investing 106

5.5 Reconciliations from national rules to US GAAP and IFRS 108

5.6 High-level IFRS/US differences 110

Contents

ix

5.7 Reconciliations from IFRS to US GAAP 111

5.8 Convergence of IFRS and US GAAP 113

Summary 114

References 115

Useful websites 116

Questions 116

6 The requirements of International Financial Reporting Standards 117

Contents 117

Objectives 118


6.2 The conceptual framework and some basic standards 118

6.3 Assets 125

6.4 Liabilities 128

6.5 Group accounting 130

6.6 Disclosures 131

Summary 132

References 132

Further reading 133

Useful websites 133

Questions 133

Appendix 6.1 An outline of the content of International

Financial Reporting Standards 134

7 Different versions of IFRS practice 145

Contents 145

Objectives 145


7.2 Motivations for different IFRS practice 146

7.3 Scope for different IFRS practice 148

7.4 Conclusion 154

Summary 155

References 155

Questions 156

8 Financial reporting in the United States 157

Contents 157

Objectives 158


8.2 Regulatory framework 159

Contents

x

8.3 Accounting standard-setters 163

8.4 The conceptual framework 166

8.5 Contents of annual reports 169

8.6 Accounting principles 174

8.7 Consolidation 181

8.8 Audit 183

8.9 Differences from IFRS 184

Summary 186

References 186

Further reading 187

Useful websites 188

Questions 188

9 Enforcement of Financial Reporting Standards 189

Contents 189

Objectives 189


9.2 Modes and models of enforcement 190

9.3 United States 194

9.4 European Union 195

9.5 Australia 201

Summary 202

References 202

Useful websites 204

Questions 205

10 Political lobbying on Accounting Standards – US, UK and international experience 206

Contents 206

Objectives 206


10.2 Motivations for political lobbying 208

10.3 Political lobbying up to 1990 210

10.4 US political lobbying from 1990 220

10.5 Political lobbying of the IASC/IASB 224

10.6 Preparer attempts to control the accounting standard-setter 228

10.7 Political lobbying of the FASB’s convergence with the IASB 229

10.8 Some concluding remarks 231

Summary 231

References 232

Useful websites 234

Questions 234

Contents

xi

Part III HARMONIZATION AND TRANSITION IN EUROPE AND EAST ASIA

11 Harmonization and transition in Europe 237

Contents 237

Objectives 237


11.2 Harmonization within the European Union 238

11.3 Transition in Central and Eastern Europe 244

Summary 253

References 253

Useful websites 256

Questions 256

12 Harmonization and transition in East Asia 257

Contents 257

Objectives 257


12.2 Japan 258

12.3 China 272

Summary 277

References 278

Further reading 280

Useful websites 280

Questions 280

Appendix 12.1 ASBE Standards 282

Part IV FINANCIAL REPORTING BY INDIVIDUAL COMPANIES

13 The context of financial reporting by individual companies 285

Contents 285

Objectives 285


13.2 Outline of differences between national rules and

IFRS or US GAAP 286

13.3 The survival of national rules 286

13.4 Financial reporting, tax and distribution 289

13.5 Special rules for small or unlisted companies 290

Summary 292

References 292

Contents

xii

Useful websites 292

Questions 292

14 Making accounting rules for non-listed business enterprises in Europe 293

Contents 293

Objectives 293


14.2 Who makes accounting rules? 294

14.3 Which business enterprises are subject to accounting rules? 303

Summary 307

References 308

Further reading 309

Useful websites 310

Questions 311

Appendix 14.1 Contents of the Plan comptable général 312

Appendix 14.2 Financial accounting chart of accounts 313

15 Accounting rules and practices of individual companies in Europe 314

Contents 314

Objectives 314


15.2 France 315

15.3 Germany 319

15.4 United Kingdom 324

Summary 326

References 326

Further reading 327

Useful websites 327

Questions 327

Appendix 15.1 Formats for French financial statements 328

Appendix 15.2 Formats for German financial statements 333

Appendix 15.3 Formats for British financial statements 336

Part V MAJOR ISSUES IN FINANCIAL REPORTING BY MNEs

16 Key financial reporting topics 343

Contents 343

Objectives 343


Contents

xiii

16.2 Recognition of intangible assets 344

16.3 Asset measurement 345

16.4 Financial instruments 347

16.5 Provisions 350

16.6 Employee benefits 354

16.7 Deferred tax 358

16.8 Revenue recognition 362

16.9 Comprehensive income 364

Summary 365

References 366

Questions 366

17 Consolidation 368

Contents 368

Objectives 368


17.2 Rate of adoption 369

17.3 The concept of a ‘group’ 370

17.4 Harmonization from the 1970s onwards 371

17.5 Definitions of group companies 375

17.6 Publication requirements and practices 376

17.7 Techniques of consolidation 377

Summary 381

References 382

Further reading 382

Questions 382

18 Foreign currency translation 384

Contents 384

Objectives 385


18.2 Translation of transactions 389

18.3 Introduction to the translation of financial statements 395

18.4 The US initiative 398

18.5 The temporal method versus the closing rate method 401

18.6 FAS 52 406

18.7 IAS 21 409

18.8 Translation of comprehensive income 411

18.9 Accounting for translation gains and losses 413

18.10 Research findings 419

18.11 An alternative to exchange rates? 423

Summary 423

References 424

Contents

xiv

Further reading 425

Questions 425

19 Segment reporting 427

Contents 427

Objectives 427

19.1 What is segment reporting? 427

19.2 The need for segment information 432

19.3 Disclosure regulations 433

19.4 Evidence on the benefits of segment reporting 443

Summary 450

References 451

Questions 453

Part VI ANALYSIS AND MANAGEMENT ISSUES

20 International financial analysis 457

Contents 457

Objectives 457


20.2 Understanding differences in accounting 458

20.3 Disclosure practices in international financial reporting 463

20.4 Interpreting financial statements 470

20.5 Financial analysis and the capital market 474

Summary 477

References 478

Useful websites 480

Questions 480

21 International auditing 481

Contents 481

Objectives 481


21.2 Reasons for the internationalization of auditing 484

21.3 Promulgating international standards 489

21.4 The international audit process 495

Summary 507

References 508

Further reading 508

Useful websites 508

Questions 509

Contents

xv

22 International aspects of corporate income taxes 510

Contents 510

Objectives 510


22.2 Tax bases 513

22.3 International tax planning 517

22.4 Transfer pricing 518

22.5 Tax systems 519

22.6 Harmonization 525

Summary 527

References 527

Further reading 529

Useful websites 529

Questions 529

23 Managerial accounting 531

Contents 531

Objectives 531


23.2 The balanced scorecard as an overview tool 533

23.3 Currency and control 535

23.4 Variances and foreign exchange 539

23.5 Culture and management accounting 540

23.6 Control and performance 549

23.7 Looking forward 551

Summary 553

References 554

Questions 557

Glossary of abbreviations 558

Suggested answers to some of the end-of-chapter questions 563

Author index 583

Subject index 587

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