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Ian P. N. Hague York University

International Convergence in international accounting standards and consequences for Canadian standard setting. Ian P. N. Hague York University. Objectives. Diversity in environments -> diversity of accounting Accounting differences National & international standard setting processes

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Ian P. N. Hague York University

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  1. InternationalConvergence in international accounting standards and consequences for Canadian standard setting Ian P. N. Hague York University

  2. Objectives • Diversity in environments -> diversity of accounting • Accounting differences • National & international standard setting processes • Current developments Ian P.N. Hague York University

  3. Approaches to International Accounting • World accounting - one best way • International accounting - legitimate ways by country • Entity accounting - differences between parts of entity in different jurisdictions Ian P.N. Hague York University

  4. International AccountingEnvironmental Factors [Choi & Mueller, 1992] • Legal system • Political system • Nature of business ownership • Size and complexity of organizations • Social climate • Sophistication of preparers & users Ian P.N. Hague York University

  5. International AccountingEnvironmental Factors [Choi & Mueller, 1992] • Legislative interference • Accounting legislation • Speed of business innovation • Stage of economic development • Growth stage of economy • Status of professional education and organization Ian P.N. Hague York University

  6. Classification of accounting systems [Mueller, 1968] • U.S. / Canada / Netherlands • British Commonwealth (excl. Canada) • Germany / Japan • Continental Europe • Scandinavia Ian P.N. Hague York University

  7. Classification of accounting systems [Mueller, 1968] • Israel / Mexico • South America • Developing nations of Near and Far East • Africa (except South Africa) • Communist nations Groups changing now Ian P.N. Hague York University

  8. Classification of accounting systems [Mueller, Gernon & Meek, 1991] • British American • Continental European • South American + Islamic & Communistic Ian P.N. Hague York University

  9. Balance Sheet Similarities • Historical cost • Current / non-current classification • Inventory flow and valuation assumptions • Asset write downs for depreciation • Operating leases v capital leases Ian P.N. Hague York University

  10. Balance Sheet Similarities • Mark-to-market/revaluation • Generally conservative • But may wait for realization • Some upward revaluation • Goodwill - many different methods • Owners equity and reserves Many differences within the basics Ian P.N. Hague York University

  11. Balance Sheet Differences • Financial instruments • Impairment losses • Provisions • Employee benefit liabilities • Income taxes • Business combinations Ian P.N. Hague York University

  12. Income Statement • Objectives: • fair presentation (Canada & U.S.) • taxable income (Germany) • distributable income (Japan) • Operating v Extraordinary • Changes in accounting principles • Performance statement Ian P.N. Hague York University

  13. Performance Statement Operating / Business xx Financing / Treasury xx Net Income xx? Other gains and losses xx Total Performance xx __________________________________ Delete other? Separately classify re-measurements? Ian P.N. Hague York University

  14. Consolidation/Joint Ventures • Different concepts of control • Different extents to which consolidation required • Parent company reporting • Different bases for joint ventures Ian P.N. Hague York University

  15. Foreign Currency Translation • Current method • Current / non-current methods • Monetary / non-monetary methods • Temporal method Convenience translation v revision of underlying GAAP Ian P.N. Hague York University

  16. Accounting Standards Today Canada - Canadian GAAP US - US GAAP • Rest of world - National or IASB GAAP (+ some US GAAP) Is this the most useful information? Ian P.N. Hague York University

  17. High quality financial reporting is essential to an efficient capital market Ian P.N. Hague York University

  18. Convergence - Why? Capital Markets: Greater transparency • Less uncertainty • Reduced cost of capital Also: reduced costs of compliance Ian P.N. Hague York University

  19. What is Convergence? • Goal of convergence • different standard setters arriving at high-quality national or international standards on the same topic that areas similar as possible • Process of convergence • using all reasonable efforts to arrive at consensus Ian P.N. Hague York University

  20. Convergence - What? • One set of high quality standards • comprehensive standards • leading to comparable and transparent reporting • rigorously interpreted and applied Ian P.N. Hague York University

  21. The Players • IOSCO (including OSC and SEC) • Standard setters (including IASB, FASB and AcSB) • Investors, preparers, etc. Ian P.N. Hague York University

  22. IASC • Established 1973 • Early role - “easy” standards, many alternatives - codify practice • 1989 - improvements project • Since 1995: IOSCO agreement • 2001: Restructured as IASB Ian P.N. Hague York University

  23. IASC / IOSCO Agreement • “Core” standards by 1998 • to be considered by IOSCO for acceptance for cross-border listings Ian P.N. Hague York University

  24. Income taxes Earnings per share Segments Presentation of F/S Discontinuing operations Interim reporting Investment property Intangible assets Employee benefits Provisions Leases Impairment Post B/S events Financial instruments IASC / IOSCO Agreement“Core” standards by 1998 Ian P.N. Hague York University

  25. IASB Standards Today • 41 Standards • Interpretations programme • Similar concepts & style to Canada • Handbook Section 1501 analyzes differences Ian P.N. Hague York University

  26. IASC Old Structure • IASC Board - approves Standards • Standing InterpretationsCommittee - develops Interpretations • Advisory Council - oversight, policy, and fund raising • Consultative Group - link to non-accounting bodies Ian P.N. Hague York University

  27. 16 Members Australia Canada France Germany India / Sri Lanka Japan Malaysia Mexico Netherlands Nordic S. Africa/Zimbabwe Swiss Industrials U.K. U.S.A. F.E.I. (Preparers) Analysts IASC Board - old structure Ian P.N. Hague York University

  28. Concerns about old structure Key attributes should be • Independent • Open • Technically expert Result: High quality standards Ian P.N. Hague York University

  29. IASB New Structure • Full - time Board members • Link to national standard setters • Independent trustees Ian P.N. Hague York University

  30. National standard setters (Australia/NZ, Canada, France, Germany, Japan, UK, US.) Trustees (19) (appoint Board, IFRIC and SAC) (6 North America, 6 Europe, 4 Asia/Pacific, 3 Other) IASB New Structure Standards Advisory Council (SAC) (advises Board) Board (14) (approves IAS [IFRS], ED, SIC [IFRIC]) 7 Liaison Members Intnl. Financial Reporting Interpretations Committee (12+1) (publishes draft Interpretations and prepares draft of final Interpretations) Ian P.N. Hague York University

  31. IOSCO Endorsement • Recommendation to allow use of IASC 2000 standards for cross-border offerings and listings • Supplemental treatments to address outstanding substantive issues • limited reconciliations • additional disclosures • limits on choice of alternatives Ian P.N. Hague York University

  32. Europe • 2005: All public companies follow IAS for consolidated accounts • Those using US GAAP allowed until 2007 • Also Australia Ian P.N. Hague York University

  33. IASB - Relevance to Canada? • IASB liaison role • partnership with national standard setters to promote convergence of national and international standards • align agendas as far as possible • key communication link with national board and constituents • regular meetings of liaison members and national board chairs Ian P.N. Hague York University

  34. IASB - Relevance to Canada? • IOSCO responsibilities - questions • Should Canadian regulators accept IASs for foreign issuers? • If foreign issuers can use IASs should Canadian issuers also be able to do so? • What about US GAAP? • Use US GAAP in Canada? • Reconcile US to IAS in Canada? Ian P.N. Hague York University

  35. More Questions! • Confusion in the Canadian market? • Unlevel playing field? • Infrastructure? • Interest in pursuing the issues? Ian P.N. Hague York University

  36. What Next? SEC Concepts release issued 2000 CSA Discussion paper - March 16, 2001 Continuous Disclosure proposals – 2002 (see www.osc.gov.on.ca) Likely to be some allowance of US GAAP in Canada. Maybe some allowance of IAS in US? Ian P.N. Hague York University

  37. Canadian Standard Setting? • International harmonization – but with who? • U.S.? • IASC? TFOSS v CGA Canada Canada Ian P.N. Hague York University

  38. AcSB Harmonization Policy • Harmonization with US – eliminate significant unjustifiable differences • Global convergence with highest quality US and international standards –improvements to existing standards and development of new standards Ian P.N. Hague York University

  39. AcSB PrioritiesConvergence • Share-based payments • Impairment, disposals, discops. • Asset retirement obligations • Financial instruments incl. hedging • Business combinations – phase II • Reporting financial performance Ian P.N. Hague York University

  40. Other projects in the AcSB pipeline • Oil and gas guideline • Rate-regulated operations • Consolidations • Insurance contracts • Intangible assets - disclosure • Liabilities and equity • Revenue / Liability recognition Ian P.N. Hague York University

  41. Other AcSB Priorities • Differential reporting • Cash flow per share • GAAP Ian P.N. Hague York University

  42. IASB Work Programme • Convergence / Improvements – EDs 2003 • Including employee benefits & joint ventures • Financial activities Ian P.N. Hague York University

  43. IASB Research Projects • Accounting measurements – impairment • Lease accounting • Intangibles (incl. R&D) • Small and medium sized enterprises • Financial instruments – further aspects • Extractive industries Ian P.N. Hague York University

  44. Summary • Considerable differences in different environments • To extent reflect environments are legitimate • Move to converge Ian P.N. Hague York University

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