Advanced Financial Accounting I
ADMS 4520 – Winter 2012 – Patrice Gelinas
Lecture 1 Part 1 – A Survey of International Accounting – Jan 6
GAAP Variances and Standardization
Past GAAP variations between countries caused financial measurement and presentation
GAAP differences have included incomesmoothing techniques, variances in asset
measurement and revaluations, and the differing nature and extent of disclosures.
Globalization of commerce and capital has increased the number of multinational
companies and therefore the need to standardize financial reporting.
Comparability and CostBenefit Constraint
The comparability objective of financial reporting is impaired by differing standards.
For example, to improve comparability to U.S. public companies, the U.S. Securities and
Exchange Commission (SEC) has required Canadian companies that trade on U.S.
exchanges to reconcile their net income from Canadian GAAP to U.S. GAAP.
The cost of preparing financial statements under multiple GAAP standards is significant
and hinders the international flow of capital.
Factors that Influence a Country’s Accounting Standards
The following factors can affect national accounting standards:
o Taxation – How closely is taxable income based on accounting income?
o Capital Markets – In countries where publicly traded debt and equity are the
major source of business financing, disclosure standards are greater.
Harmonization in the European Union
27 European Union (EU) member countries in 2009, 17 of which use the Euro as a
EU has attempted to harmonize accounting principles of member countries by issuing
‘directives’ which often allowed flexible, alternative reporting practices.
In 1983 EU directive required the consolidation of subsidiaries, a change in practice for a
number of member countries.
International Accounting Standards Board (IASB)
Successor in 2001 to International Accounting Standards Committee (IASC). Canada was
a founding member of the IASC in 1973.
Current IASB objectives: o To develop a single set of highquality, global accounting standards that require
transparent and comparable information in general purpose financial statements.
o To cooperate with various national accounting standardsetters in order to achieve
convergence in world standards.
38 IASB standards in force as of 2009.
IASB will introduce new International Financial Reporting Standards (IFRSs) and
International Accounting Standards (IASs) in the future.
International Adoption of PrinciplesBased IFRS
As of 2009, 93 countries including Canada either currently require or have announced a
future requirement for