International Accounting, 6/e

1. International Accounting, 6/e Frederick D.S. Choi Gary K. Meek Chapter 2: Development and Classification

2. Learning Objectives • Identify and understand the importance of the eight factors that have a significant influence on accounting development. • Understand the four approaches to accounting development found in market-oriented以市场为导向的 Westerneconomies and identify countries in which each approach is prevalent. • Have a basic working knowledge应用知识 of accounting classifications and how they compare with one another. • Explain the difference between the “fair presentation” and “legal compliance遵纪守法” orientations of accounting and identify nations in which each is prevalent. • Explain why distinctions of accounting at the national level are becoming blurred模糊.

3. Accounting must respond to society's ever-changing informational needs and reflect the cultural, economic, legal, social, and political conditions within which it operates.

4. The history of accounting and accountants reveals continuing change. • At first, accounting was little more than a recording system for certain banking services and tax-collection schemes. • Double-entry bookkeeping systems were later developed to meet the needs of trading ventures. • Industrialization and division of labor made cost-behavior analysis and managerial accounting possible. • The rise of the modern corporation stimulated periodic financial reporting and auditing. • In keeping with society‘s increased concerns about the environment and about corporate integrity, accountants have found ways to measure and report environmental remediation环境修复 liabilities and to uncover money laundering洗黑钱 and other white-collar crimes白领犯罪. • Accounting provides decision information for huge domestic and international public securities markets. It extends into management consulting and incorporates ever-increasing information technology within its systems and procedures.

5. Why Study Development and Classification? • Development • Helps understand a nation’s accounting. • Explains the differences and similarities in accounting around the world. • Classification • Helps understand why and how national accounting systems differ. • Helps analyze whether these systems are converging 聚合的or diverging分散的. • Are a way of viewing the world. • Reveals what group members have in common共同之处, and • What distinguishes groups from each other

6. Development • Sources of finance – who, how many, how close? • Equity markets • Profits measure how well managers have run the company. • Accounting is used to assess cash flows, risks, and to value the firm. • Extensive disclosures. • Banks • Conservative earnings for creditor protection. • Less extensive disclosures.

7. Legal system • Code law成文法 • Laws are all-embracing. • Accounting tends to be prescriptive and procedural. • Accounting focuses on legal form. • Accounting standards and procedures are incorporated into national laws. • Common law不成文法（习惯法） • Laws develop on a case-by-case具体分析 basis. • Accounting develops from experience and judgment. • Accounting tends to be flexible, adaptive, and innovative. • Accounting focuses on economic substance. • Accounting rules are established by private sector professional organizations.

8. Taxation • Must companies record revenues and expenses in their accounts to claim them for tax purposes? • Are financial accounting and taxation the same? • Or are they different? • Political and economic ties • Accounting ideas and technologies are transferred through conquest, commerce, and other forces. • Inflation • Inflation distorts historical cost measurements. • Countries with high inflation often require that companies incorporate price changes into the accounts.

9. Level of economic development • Affects the types of transactions and which ones are most prevalent in the economy which, in turn, • Affects the accounting issues that are faced. • Educational level • Affects the capability for professional accounting training. • Where education levels are low, countries import accounting training or send citizens elsewhere to get it. • SUMMARY • Several variables are closely associated. • Common law legal system, strong equity markets, and separation of financial and tax accounting. • Code law legal system, credit-based financing, and accounting rules that conform to tax law. • Result is two basic orientations of accounting. • Fair presentation • Legal compliance

10. Development (contin) • Culture and accounting values • Culture (Hofstede) • Individualism vs. collectivism集体主义 • Power distance – high vs. low • Uncertainty avoidance – high vs. low • Masculinity阳刚 vs. femininity阴柔 • Accounting values (Gray) • Professionalism vs. statutory法律的 control • Uniformity一致性 vs. flexibility灵活性 • Conservatism谨慎性 vs. optimism乐观性 • Secrecy保密性 vs. transparency

11. Development (contin) • Linking the two:

12. Classification • International accounting classifications fall into two categories: judgmental and empirical. • Judgmental classifications rely on knowledge, intuition, and experience. • Empirically derived classifications apply statistical methods to databases of accounting principles and practices around the world

13. Classification • The pioneering classification is the one proposed by Mueller in the mid-1960s. He identified four approaches to accounting development in Western nations with market-oriented economics systems. • Under the macroeconomic approach. • Under the microeconomic approach. • Under the independent discipline approach. • Under the uniform approach.

14. Classification • Four approaches to accounting development (Mueller1967) • Macroeconomic approach: Accounting derived from and designed to enhance national macroeconomic goals. Example: Sweden • Microeconomic approach: Accounting derived from microeconomics. • Maintaining physical capital • Separation of capital and income • Replacement costs Example: the Netherlands • Independent discipline approach: Accounting derived from business practices, judgment, and trial-and-error. Examples: U.K. and U.S. • Uniform approach: Accounting is standardized by central government and used as a tool for administrative control. Example: France

15. Legal systems:common law vs. code law accounting • Common law accounting • Oriented toward fair presentation, transparency, and full disclosure • Separation between tax and financial accounting • Accounting standard setting in private sector • Parallels stockholder model of corporate governance • Code law accounting • Legalistic orientation, opaque不透明 with low disclosure • Alignment对齐 between tax and financial accounting • Accounting standard setting in public sector • Parallels stakeholder model of corporate governance

16. Practice systems: fair presentation versus legal compliance accounting • Why national accounting distinctions are becoming blurred • Importance of stock markets as a source of finance is growing. • Dual financial reporting is becoming more common, particularly where duality双重性 is sanctioned受到制裁的. • Some code law countries are shifting responsibility for accounting standard setting to the private sector. • Fair presentation accounting

17. Fair presentation accounting • Substance over form. • Oriented toward decision needs of external investors. • Helps judge managerial performance and predict future cash flows and profitability • Extensive disclosures • IFRS are aimed at fair presentation. • Found in U.K., U.S., Netherlands and countries influenced by them. • The trend for consolidated financial statements.

18. Legal compliance accounting • Designed to satisfy government-imposed requirements, such as: • Calculating taxable income • Complying with macroeconomic plan • Conservative measurements • Income smoothing • Will persist in code law countries for individual-company financial statements

19. Other Chapter Exhibit