COMPARATIVE INTERNATIONAL ACCOUNTING Christopher Nobes and Robert Parker TENTH EDITION Christopher Nobes is Professor of Accounting at Royal Holloway, University of London. From 1993 to 2001 he was a representative on the board of the International Accounting Standards Committee. Robert Parker is Emeritus Professor of Accounting at the University of Exeter, UK. He was formerly editor of the journal, Accounting and Business Research. Both authors have received the American Accounting Association’s award of ‘outstanding international accounting educator’. Revised resources for lecturers are available to download at www.pearsoned.co.uk/nobes. an imprint of www.pearson-books.com Front cover image: © Getty Images/Iconica Now in its tenth edition, Comparative International Accounting by Nobes and Parker is renowned for its depth of discussion and comprehensive coverage of the international dimensions of nancial accounting and reporting. It uncovers the conceptual and contextual foundations of the increasingly used International Financial Reporting Standards (IFRS) and contrasts them with US generally accepted accounting principles (GAAP). Nobes and Parker examine the key issues inherent in the subject, such as transition, harmonization and political lobbying, and the international dierences that remain. They also look at the special accounting problems of multinational companies. Comparative International Accounting has been extensively revised for the many changes in international accounting since the last edition. New to this edition are: An additional chapter on how the practice of IFRS can vary within a country and between countries Updated case studies and an increased number of real-world examples New information on pension accounting, auditing standards and IFRS 8 Increased coverage of China and of small and medium enterprises (SMEs) Contributions from a diverse group of international practitioners and academics, which are updated every two years to incorporate the latest developments in the eld • • • • • COMPARATIVE INTERNATIONAL ACCOUNTING TENTH EDITION Nobes Parker CVR_NOBE4767_10_SE_CVR.indd 1 25/3/08 14:50:00 COMPARATIVE INTERNATIONAL ACCOUNTING CIA_A01.qxd 12/14/08 11:15 AM Page i We work with leading authors to develop the strongest educational materials in business and finance, bringing cutting-edge thinking and best learning practice to a global market Under a range of well-known imprints, including Financial Times Prentice Hall, we craft high quality print and electronic publications which help readers to understand and apply their content, whether studying or at work To find out more about the complete range of our publishing, please visit us on the World Wide Web at: www.pearsoned.co.uk CIA_A01.qxd 12/14/08 11:15 AM Page ii Tenth Edition COMPARATIVE INTERNATIONAL ACCOUNTING Christopher Nobes and Robert Parker CIA_A01.qxd 12/14/08 11:15 AM Page iii Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk First edition published in Great Britain under the Philip Allan imprint 1981 Second edition published 1985 Third edition published under the Prentice Hall imprint 1991 Fourth edition published 1995 Fifth edition published under the Prentice Hall imprint 1998 Sixth edition published 2000 Seventh edition published 2002 Eighth edition published 2004 Ninth edition published 2006 Tenth edition published 2008 © Prentice Hall Europe 1991, 1995, 1998 © Pearson Education Limited 2000, 2002, 2004, 2006, 2008 Chapter 18 © John Flower 2002, 2004, 2006, 2008 The rights of Christopher Nobes and Robert Parker to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, 6–10 Kirby Street, London EC1N 8TS. ISBN: 978-0-273-71476-7 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Comparative international accounting / [edited by] Christopher Nobes and Robert Parker. – 10th ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-273-71476-7 (alk. paper) 1. Comparative accounting. I. Nobes, Christopher. II. Parker, R. H. (Robert Henry) HF5625.C74 2008 657—dc22 2008007524 1098765432 12 11 10 09 Typeset in 9.5/12.5pt Stone Serif by 35 Printed by Ashford Colour Press Ltd., Gosport The publisher’s policy is to use paper manufactured from sustainable forests. CIA_A01.qxd 12/14/08 11:15 AM Page iv v Contributors xvi Preface xviii Part I SETTING THE SCENE 1 Introduction 3 2 Causes and examples of international differences 24 3 International classification of financial reporting 51 4 International harmonization 74 Part II FINANCIAL REPORTING BY LISTED GROUPS 5 The context of financial reporting by listed groups 101 6 The requirements of International Financial Reporting Standards 117 7 Different versions of IFRS practice 145 8 Financial reporting in the United States 157 9 Enforcement of Financial Reporting Standards 189 10 Political lobbying on Accounting Standards – US, UK and international experience 206 Part III HARMONIZATION AND TRANSITION IN EUROPE AND EAST ASIA 11 Harmonization and transition in Europe 237 12 Harmonization and transition in East Asia 257 Part IV FINANCIAL REPORTING BY INDIVIDUAL COMPANIES 13 The context of financial reporting by individual companies 285 14 Making accounting rules for non-listed business enterprises in Europe 293 15 Accounting rules and practices of individual companies in Europe 314 Part V MAJOR ISSUES IN FINANCIAL REPORTING BY MNEs 16 Key financial reporting topics 343 Brief contents CIA_A01.qxd 12/14/08 11:15 AM Page v Brief contents vi 17 Consolidation 368 18 Foreign currency translation 384 19 Segment reporting 427 Part VI ANALYSIS AND MANAGEMENT ISSUES 20 International financial analysis 457 21 International auditing 481 22 International aspects of corporate income taxes 510 23 Managerial accounting 531 Glossary of abbreviations 558 Suggested answers to some of the end-of-chapter questions 563 Author index 583 Subject index 587 Supporting resources Visit www.pearsoned.co.uk/nobes to find valuable online resources For instructors ■ Complete, downloadable Instructor’s Manual, including answers to the end of chapter questions in the text, additional questions for further study and multiple choice questions (with answers). ■ PowerPoint slides of the figures and tables in the book that can be downloaded and used as OHTs For more information please contact your local Pearson Education sales representative or visit www.pearsoned.co.uk/nobes. 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CIA_A01.qxd 12/14/08 11:15 AM Page vi vii Contributors xvi Preface xviii Part I SETTING THE SCENE 1 Introduction 3 Contents 3 Objectives 3 1.1 Differences in financial reporting 4 1.2 The global environment of accounting 5 1.3 The nature and growth of MNEs 12 1.4 Comparative and international aspects of accounting 15 1.5 Structure of this book 18 Summary 21 References 21 Useful websites 22 Questions 22 2 Causes and examples of international differences 24 Contents 24 Objectives 24 2.1 Introduction 25 2.2 Culture 25 2.3 Legal systems 28 2.4 Providers of finance 29 2.5 Taxation 33 2.6 Other external influences 35 2.7 The profession 36 2.8 Conclusion on the causes of international differences 37 2.9 Some examples of differences 38 Summary 46 References 47 Questions 50 Contents CIA_A01.qxd 12/14/08 11:15 AM Page vii Contents viii 3 International classification of financial reporting 51 Contents 51 Objectives 52 3.1 Introduction 52 3.2 The nature of classification 53 3.3 Classifications by social scientists 53 3.4 Classifications in accounting 55 3.5 Extrinsic classifications 56 3.6 Intrinsic classifications: 1970s and 1980s 60 3.7 Developments related to the Nobes classification 66 3.8 Further intrinsic classification 67 3.9 Is there an Anglo-Saxon group? 69 3.10 A taxonomy of accounting classifications 69 Summary 70 References 71 Questions 73 4 International harmonization 74 Contents 74 Objectives 74 4.1 Introduction 75 4.2 Reasons for, obstacles to and measurement of harmonization 76 4.3 The International Accounting Standards Committee 78 4.4 Other international bodies 87 4.5 The International Accounting Standards Board 91 Summary 94 References 95 Useful websites 97 Questions 98 Part II FINANCIAL REPORTING BY LISTED GROUPS 5 The context of financial reporting by listed groups 101 Contents 101 Objectives 101 5.1 Introduction 101 5.2 IFRS in the EU 102 5.3 Adoption of, and convergence with, IFRS 105 5.4 Foreign listing and foreign investing 106 5.5 Reconciliations from national rules to US GAAP and IFRS 108 5.6 High-level IFRS/US differences 110 CIA_A01.qxd 12/14/08 11:15 AM Page viii Contents ix 5.7 Reconciliations from IFRS to US GAAP 111 5.8 Convergence of IFRS and US GAAP 113 Summary 114 References 115 Useful websites 116 Questions 116 6 The requirements of International Financial Reporting Standards 117 Contents 117 Objectives 118 6.1 Introduction 118 6.2 The conceptual framework and some basic standards 118 6.3 Assets 125 6.4 Liabilities 128 6.5 Group accounting 130 6.6 Disclosures 131 Summary 132 References 132 Further reading 133 Useful websites 133 Questions 133 Appendix 6.1 An outline of the content of International Financial Reporting Standards 134 7 Different versions of IFRS practice 145 Contents 145 Objectives 145 7.1 Introduction 145 7.2 Motivations for different IFRS practice 146 7.3 Scope for different IFRS practice 148 7.4 Conclusion 154 Summary 155 References 155 Questions 156 8 Financial reporting in the United States 157 Contents 157 Objectives 158 8.1 Introduction 158 8.2 Regulatory framework 159 CIA_A01.qxd 12/14/08 11:15 AM Page ix [...]... University (Chapter 10) xvii CIA_A01.qxd 12/14/08 11:15 AM Page xviii Preface Purpose Comparative International Accounting is intended to be a comprehensive and coherent text on international financial reporting It is primarily designed for undergraduate and postgraduate courses in comparative and international aspects of accounting We believe that a proper understanding requires broad overviews (as in... in financial reporting The global environment of accounting 1.2.1 Accounting and world politics 1.2.2 Economic globalization, international trade and foreign direct investment 1.2.3 Globalization of stock markets 1.2.4 Patterns of share ownership 1.2.5 International monetary system The nature and growth of MNEs Comparative and international aspects of accounting Structure of this book 1.5.1 An outline... disappear in the future, is one of the main themes of comparative international accounting In the next two sections of this chapter we look at the global environment of accounting and financial reporting, and in particular at the nature and growth of multinational enterprises We then explore in more depth the reasons for studying comparative international accounting In the last section we explain the structure... the internationalization of auditing Promulgating international standards The international audit process Summary References Further reading Useful websites Questions 507 508 508 508 509 xiv CIA_A01.qxd 12/14/08 11:15 AM Page xv Contents 22 International aspects of corporate income taxes 510 Contents Objectives 510 510 22.1 22.2 22.3 22.4 22.5 22.6 511 513 517 518 519 525 Introduction Tax bases International. .. companies, where large international differences remain There are three chapters: context, regulatory styles, and accounting differences Part V examines, broadly and comparatively, particular major financial reporting topics: key non-consolidation issues, consolidation, foreign currency translation and segment reporting Part VI considers four issues of international analysis and management: international financial... reporting Part VI considers four issues of international analysis and management: international financial analysis, international auditing, international aspects of corporate income taxes, and managerial accounting At the end of the book, there is a glossary of abbreviations relevant to international accounting, suggested answers to some chapter questions, and two indexes (by author and by subject) Publisher’s... Nobes Professor of Accounting at Royal Holloway College, University of London He has also taught in Australia, Italy, the Netherlands, New Zealand, Scotland, Spain and the United States He is currently a visiting professor at the Norwegian School of Management He was the 2002 ‘Outstanding International Accounting Educator’ of the American Accounting Association He was a member of the Accounting Standards... direct investment, the globalization of stock markets, varying patterns of share ownership, and the international monetary system; l outline the nature and growth of multinational enterprises (MNEs); l explain the historical, comparative and harmonization reasons for studying comparative international accounting 3 CIA_C01.qxd Part I 10/03/2008 16:30 Page 4 Setting the scene 1.1 Differences in financial... impressive attempts to reduce them, in particular, by the International Accounting Standards Board (IASB), which issues International Financial Reporting Standards (IFRS), and by the European Union (EU), which has issued Directives and Regulations on accounting and financial reporting The importance of American stock markets has meant that US generally accepted accounting principles (GAAP), the most detailed... practised or taught in Nigeria, Australia, France and Scotland and was editor or joint editor of Accounting and Business Research from 1975 to 1993 He was the British Accounting Association’s ‘Distinguished Academic of the Year’ in 1997, and the 2003 ‘Outstanding International Accounting Educator’ of the American Accounting Association Authors of other chapters Jan Buisman IFRS Senior Technical Partner for . the international dierences that remain. They also look at the special accounting problems of multinational companies. Comparative International Accounting. • • • • • COMPARATIVE INTERNATIONAL ACCOUNTING TENTH EDITION Nobes Parker CVR_NOBE4767_10_SE_CVR.indd 1 25/3/08 14:50:00 COMPARATIVE INTERNATIONAL ACCOUNTING CIA_A01.qxd