This is the first topic and the introduction to International Accounting. Three major concepts are tackled beginning with globalisation which refers to the exchange of views, ideas, products and other cultural aspects among different people resulting in international integration. The main focus was on the interdependence of economies through movement of goods, services, technologies and capital across borders, otherwise known as economic globalisation. The second concept was international trade which is the exchange, across international borders, of capital, goods and services and one of the factors leading to globalisation. Lastly accounting harmonization was covered. With the increased cross border interactions, there was need to regulate the accounting practises of different countries thus the need for accounting harmonization. This is the attempt to bring together different accounting practices and create an organized structure or system.
These three concepts form the foundation from which other topics in the course will be handled. I found the first two subtopics to be easier than the third since I had prior knowledge of the topics which though basic, helped form a basis for the incoming new information. Accounting harmonization was an entirely new concept especially since I never considered the difference in accounting practices. I always assumed accounting was just, well, accounting. Nevertheless, the concept turned to be just as interesting as the first two. I look forward to learning more about the different accounting practices and more interestingly how accountants of the time were able to harmonise the different practices and come up with an agreeable system.
Topic: Accounting differences and classification
This chapter picks up from the previous one looking at the reasons for the differences in accounting practices. The differences are attributed to different factors including culture (here we looked at the Gray’s four cultural variables), legal systems, provision of finance, taxation and external factors such as socio-political events and inflation. Examples of the differences were provisions and reserves, conservatism and accruals, measurement of assets and financial statements formats.
The next concept learnt was the international classification of financial reporting. The classifications are divided into two, the extrinsic which refer to those based on external practises and the intrinsic which are based on accounting practices. Under the extrinsic, Professor Gerhard Mueller’s classification consisting of four groups is introduced. This classification stresses the idea that a country’s socio-political environment influences the nature of the system hence different countries have different systems. Intrinsic classifications were made either by clustering countries according to their geographical positions or using a model and data. Classifications have also been made by degree of standardization of accounting in the different countries.
The most interesting part of this chapter for me was the causes and examples of differences in accounting practices. The concept was made easier to understand by the examples. The second part of the topic was a bit more challenging. There definitely is a lot more content that I am yet to put together and understand. I plan on revisiting this part to try and understand it better. I also plan on going to the library for further reading.
Topic: The International Accounting Standards Board
Following the differences in the accounting practices and the need to harmonize these practices, an international body was formed for this purpose. At the beginning of this topic, this independent international body which is the International Accounting Standard Board (IASB) is covered. The IASB sets standards for accounting practices by following a six step process, two of which involve public consultation.
The second concept covered is an introduction to the International Financial Reporting Standards conceptual framework. The framework, which is a project of IASB aims to improve financial reporting by providing a set of concepts that are clear, complete and regularly updated. The IASB is achieving this by following a five step process. Lastly, I learnt about the public accountability of the IASB. The board is transparent in its work and consults with the public during the standard setting process and maintains formal accountability links to the public.
I found it is interesting how the IASB is able to achieve international harmonization. The differences in accounting practices covered in the previous chapter seemed to make harmonization impossible but it interesting how the Board is coming up with ways to harmonize them and set internationally acceptable standards. The IASB basically makes international accounting possible. The concepts covered in this topic were very straight forward and easy to understand. I look forward to learning more about the IFRS and about the works and achievements of the IABS which I hope will be covered in future chapters.
International Financial Reporting Standards Foundation 2016, IFRS home page. Available from www.ifrs.org. [28 June 2016]
Nobes, C & Parker, R 2008 Comparative International Accounting, Pearson, London.