International Accounting

Raid Fattani

MSA-650-01

D. Wong

4/8/2017

Mid-term Exam

Question 1)

Analyze the five national accounting practice systems summarized in this chapter.

Answer:

1. In France:

(A & b) Liabilities for post-employment profits do not have to be recognizable and finance leases do not have to be capitalized. This is the deference between France and the international norms. Both accounting treatments are instances of form over substance and disrupt fair presentation, so therefore I included this here.

 (C & d) The treatment of post-employment profits will understate reported earnings and understate reported liabilities, so the debt to asset ratio will be understated. Because of this, it is unlikely that an analyst will be able to adjust to this variance to achieve “apples to apples” comparison.  In addition, the treatment of leases understates assets, liabilities, and the debt to asset ratio.  The consequence on income rely on how much lease payments vary from the amount of depreciation that would be recognized had the leased property been capitalized.  Thus, it is unlikely that an analyst can adjust to this variance to achieve “apples to apples” comparison.

1. In Germany: 

(A & b) Dual different purchase methods are allowed, but the left over from the revaluation method is treated as goodwill. Thus, goodwill can be treated several ways. Those are the causes for the inclusion here.

  (C & d) The difference between Germany and the international norms is the two-different purchase method and the new treated for goodwill. In this difference, the assets, the liabilities, and earnings cannot be determined. As a result, the effects on reported earnings and the debt to asset ratio are uncertain and it is unlikely that an analyst can adjust for these variances.

1. In Czech Republic: 

(A & b) Goodwill might be written off in the first year of consolidation or capitalized and amortized over a maximum of twenty years.  The international norm is now to capitalize goodwill and impairments test it each year.  If goodwill is written off directly, there will be no effect on income compared to the international norm, excluding in a year where an impairments write-down would happen. That was my reason for the inclusion.

 (C & d) The debt to asset ratio will be greater compared to the international norm.  If goodwill is capitalized and amortized, reported earnings will be lesser than what it would be under the international norm.  As goodwill becomes amortized, the debt to asset ratio will rise compared to the international norm.  Analysts should be able to adjust to achieve “apples to apples” comparisons if the effects of the goodwill accounting are revealed by Czech companies.

1. In the Netherlands: 

(A & b) Comprehensive current value accounting. Though only used by a minority of Dutch companies, this microeconomics method to measurement is encouraged in the Netherlands to a level not seen elsewhere. Expenses would be higher under current value accounting, particularly for cost of goods sold and depreciation, which means that reported earnings will be lower.

(C & d) With greater asset values, the debt to asset ratio will reduced.  Mostly, the effects of using current value accounting are disclosed in notes, so analysts must be able to adjust for this variance.

1. In the United Kingdom: 

(A & b) The difference between the United Kingdom and the international norms is that in UK assets may be valued at historical cost, current cost, or a combination of the two, but in the international norms this cannot be happen. Thus, this is my reason to include this here.  

(C & d) if the coverage that current cost is used, the effects on reported earnings and the debt to asset ratio will be the similar to described for Dutch current value accounting.  Indeed, analysts will be able to adjust for this variance to the level that the effects of using current costs are disclosed in the footnotes.

Question 2)

Accounting standard setting in most countries involves a combination of private and public sector groups. The private sector includes the accounting profession and other groups affected by the financial reporting process, such as users and prepares of the financial statements and organized labor. The public sector includes government agencies, such as tax authorities, ministries responsible for commercial law, and securities commissions. The stock market is another potential influence.

Answer:

• Matrix of public sector groups:

• USA:

• The Financial Accounting Standard Board (FASB). (Private Sector).
• The Securities and Exchange Commission (SEC). (Public Sector).

• Mexico:

• The Council for Research and Development of Financial Information Standards (CINIF). (An independent public/private sector partnership)

• Japan:

• Accounting Standard Board of Japan (ASBJ). (Private Sector)
• Business Accounting Council (BAC). (Public Sector)
• Financial Accounting Standard Foundation (FASF). (Public Sector)
• Financial Services Agency (FSA). (Public Sector)

• China:

• Accounting Standard for Business Enterprises (ASBE). (Public Sector )
• The China Accounting Standard Committee (CASC). (Public Sector)
• The China Securities Regulatory Commission (CSRC). (Public Sector)
• Financial Accounting and Reporting Rules for Enterprises (FARR). (Public Sector)

• India:

• The Institute of Chartered Accounting of India (ICAI). (Private Sector) 
• The Securities and Exchange Board of India (SEBI). (Public Sector)

• Influence of each one of these groups in yes or no in accounting standard setting:

Question 3)

Corporate social responsibility (CSR), as practiced by business, means many different things. Consider the following: “At one end of the broad span of CSR lie corporate policies that any well-run company ought to have in place anyway, Policies that are called for on any sensible view of business ethics or good management practice. These include not lying to your employees, for instance, not paying bribes, and looking farther ahead than the next few weeks. At the other end of the range are the more ambitious and distinctive policies that differentiate between leaders and laggards in the CSR race-- large expenditures of time and resources on charitable activities, for instance, or binding commitments to ethical investment, or spending environmental protection beyond what regulators demand.”