10/04/2025
Contemporary Issues in
Accounting and Auditing
HARMONISATION
Learning outcomes
• Explain why international differences matter
• Understand the various ways in which differences could be reduced
• Explain how well the EU’s approach has worked
• Explain how well the IASB’s approach has worked
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A focus on key questions
1. How large are the international differences?
2. Why do they matter?
3. What causes them?
4. Can countries/systems be put into groups by similar accounting
practices?
5. How can the differences be reduced?
6. How successful has harmonisation been?
7. How widespread is the use of IFRS?
Examples of Reconciliation of Earnings to US Rules
Domestic Earnings US Adjusted Difference
Astra-Zeneca: 1999 £1,143m £(3,539)m -410%
(UK-Sweden) 2002 £2,836m £2,307m -19%
2003 £3,036m £2,268m -25%
British Airways: 2000 £(21m) £(451m) -2048%
(UK) 2001 £114m £226m +98%
2002 £(142m) £(119m) +16%
2003 £72m £(128m) -278%
2004 £130m £396m +205%
Glaxo (UK): 1997 £1,850m £952bn -49%
1998 £1,836m £1,010m -45%
1999 £1,811m £913m -50%
Daimler-Benz: 1993 DM615m DM(1,839m) -399%
(Germany) 1994 DM895m DM1,052m +18%
1995 DM(5,734m) DM(5,729m) +0%
Alcatel: 2001 €(4,963m) €(4,937m) +0%
(France) 2002 €(4,745m) €(11,511m) -143%
2003 €(1,944m) €(1,721m) +11%
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Why do differences matter?
To investors – differences affect decisions, e.g. in building diversified
portfolio; note the effects of the previous slides on ‘gearing’
(debt/equity) and ‘return on assets’
Companies – differences can increase costs
Governments – differences reduce ability to collect tax revenues
Workers – differences reduce bargaining power
Societies – differences impede regulation of business practices, e.g.
environmental concerns
Terminology
Harmonisation or standardisation – do we allow some differences
that fit together (EU harmony), or do we want everyone doing the
same accounts (US standardization)?
de jure or de facto – Which matters more: law or practice?
Convergence – the ‘politically correct’ term
Adoption – voluntary by companies; compulsory by countries
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Words
Long
Harmonisation
Convergence
Amortisation
Capitalise
Development
Auditing profession
Voluntary; Mandatory
Financial instruments
International Accounting
Standards Committee
Words
Short Long
Earth Harmonisation
Sky Convergence
Air Amortisation
Fire Capitalise
Food Development
Eat Auditing profession
Dog Voluntary; Mandatory
God Financial instruments
Death International Accounting
Standards Committee
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Words
Short (Anglo-Saxon; 410+) Long (French; 1066+)
Earth Harmonisation
Sky Convergence
Air Amortisation
Fire Capitalise
Food Development
Eat Auditing profession
Dog Voluntary; Mandatory
God Financial instruments
Death International Accounting
Standards Committee
Some factors driving harmonisation
Creation of global capital market; building a ‘global portfolio’
Need to ‘discipline’ management
Other beneficiaries: unions, governments, NGOs, society
Bodies dedicated to ‘best practice’ accounting (for investors?),
particularly IASB
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Legal Systems
Common law Codified law (Roman origin)
England and Wales France
Ireland Italy
United States Germany
Canada Spain
Australia South America
New Zealand Netherlands
India Portugal
Hong Kong (SAR) Japan (commercial)
Singapore China
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Ways of Harmonising by Types of Law
English Roman
Start date
In Charge
Workers
Output
Location
Language
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Ways of Harmonising by Types of Law
English Roman
Start date 1972 1968
In Charge IASB EU
Workers Accountants Lawyers
Output Standards Laws
Location London Brussels
Language English French
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Company Law Directives/Regulations
Number Topic Drafts Adoption
Second D. Names of companies, 1970, 72 1976
capital requirements
Fourth D. Formats, valuation 1971, 74 1978
Seventh D. Group accounting 1976, 78 1983
Eighth D. Audit 1978 1984
Regulation 1606 IAS 2001 2002
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Implementation of Accounting Directives as Laws, pre-2004
Fourth
Denmark 1981
United Kingdom 1981
France 1983
Netherlands 1983
Luxembourg 1984
Belgium 1985
Germany 1985
Ireland 1986
Greece 1986
Spain 1989
Portugal 1989
Austria 1990
Italy 1991
Finland 1992
Sweden 1995
Norway 1998
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Implementation of Accounting Directives as Laws, pre-2004
Fourth Seventh
Denmark 1981 1990
United Kingdom 1981 1989
France 1983 1985
Netherlands 1983 1988
Luxembourg 1984 1988
Belgium 1985 1990
Germany 1985 1985
Ireland 1986 1992
Greece 1986 1987
Spain 1989 1989
Portugal 1989 1991
Austria 1990 1990
Italy 1991 1991
Finland 1992 1992
Sweden 1995 1995
Norway 1998 1998
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Results of Fourth Directive
Formats harmonised
Measurement rules largely carry on as before
Many topics not mentioned, e.g. revenue, long-term contracts,
foreign currency, leases
Disclosures increased
Audit and publication increased
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Results of the Seventh Directive
Great extension of consolidation (not previously done in
Belgium, Portugal, etc)
Some harmonisation (on UK lines) of consolidation
techniques
Treatment of goodwill not harmonised
Choice of proportional consolidation or equity
accounting for joint ventures
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Problems with “Roman” route
(a) Compromises: - options
- omissions
(b) Slow
(c) Stuck in the past
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Mission of IASB
The ‘levelling-up’ of global accounting standards became the mission
“To support both domestic and cross-border investment and
financing decisions, the world needs a single, uniform, high quality,
globally applied and enforced set of standards of financial
accounting and reporting” ([Link])
The project of putting the whole world into the market portfolio? An
institution committed to ‘public interest’?
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Founders of IASC, and Board Members to March 2001
Founder countries Board members 2001
Australia Australia
Canada Canada
France France
Germany Germany
Japan Japan
Mexico Mexico
Netherlands Netherlands
UK UK
US US
India
Malaysia
Nordic Federation
South Africa
Investment Analysts
Swiss Holding Companies
Financial Executives
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The World of International Standards
1973: IASC founded by accountancy bodies from 9 countries
Activity till late 1980s was codifying best practice, including many national options
1989: publication of a conceptual framework and initial discussions with International
Organization of Securities Commissions (IOSCO)
1994+: IASs used by German companies for consolidated statements (1998: law permits this)
2000: IOSCO endorses IASs
2001: IASB takes over
2002: EU requires IFRS for listed companies by 2005; Australia adopts; convergence with
FASB announced
2007: SEC accepts IFRS for foreign registrants
2008: SEC proposes end of US GAAP for 2014, but later abandons this
2010: Japan allows IFRS
2011: Canada adopts (Russia, 2012; Saudi Arabia, 2017)
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IASs
IAS 1 Presentation of financial statements
IAS 2 Inventories
IAS 7 Statement of cash flows
IAS 8 Accounting policies, changes in accounting estimates and errors
IAS 10 Events after the reporting period
IAS 12 Accounting for taxes on income
IAS 16 Property, plant and equipment
IAS 19 Employee benefits
IAS 20 Accounting for government grants …..
IAS 21 The effects of changes in foreign exchange rates
IAS 23 Borrowing costs
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IASs (contd)
IAS 24 Related party disclosures
IAS 26 Accounting and reporting by retirement benefit plans
IAS 27 Separate financial statements
IAS 28 Investments in associates and joint ventures
IAS 29 Financial reporting in hyperinflationary economies
IAS 32 Financial instruments: presentation
IAS 33 Earnings per share
IAS 34 Interim reporting
IAS 36 Impairment of assets
IAS 37 Provisions, contingent liabilities and contingent assets
IAS 38 Intangible assets
IAS 39 Financial instruments: measurement (replaced by IFRS 9)
IAS 40 Investment property
IAS 41 Agriculture
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IFRSs
IFRS 1 First-time adoption
IFRS 2 Share-based payments
IFRS 3 Business combinations
IFRS 4 Insurance contracts (being replaced by IFRS 17)
IFRS 5 Non-current assets held for sale and discontinued operations
IFRS 6 Exploration for and evaluation of mineral resources
IFRS 7 Financial instruments: disclosures
IFRS 8 Operating segments
IFRS 9 Financial instruments
IFRS 10 Consolidated financial statements
IFRS 11 Joint arrangements
IFRS 12 Disclosure of interests in other entities
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IFRSs (continued)
IFRS 13 Fair value measurement
IFRS 14 Regulatory deferral accounts
IFRS 15 Revenue recognition
IFRS 16 Leases
IFRS 17 Insurance contracts
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EU Developments
Fourth Directive amended (2001) to allow ‘fair value accounting’ and to
remove other incompatibilities with IFRS
Proposal by Commission in 2000 that all EU listed companies should use
IFRS for consolidated statements by 2005. Regulation adopted in 2002.
Individual standards must be ‘endorsed’by the Commission before they
become part of the Regulation
In 2005, parts of IAS 39 were not endorsed. In 2022, IFRS 17 endorsed, but
with a ‘carve-out’
Endorsement takes more than one year
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Variations persist
US, China and Japan do not require IFRS
Continuing use of national rules in many countries (e.g. UK, France, Germany)
for purposes other than the consolidated statements of listed companies
Different national approaches to monitoring and enforcement of IFRS
Different national versions of IFRS practice (e.g. Italian companies use cost for
investment properties, but UK companies use fair value)
Translation (see next lecture)
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Summary
Many parties are interested in harmonisation (though for
different reasons), including investors, stock exchanges and
their regulators, MNEs, accounting firms, unions, tax
authorities, and wider societies
The fundamental causes of difference remain
From the 1970s, a number of bodies were working for the
harmonisation of practices and disclosures
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Summary continued
Old IASs contained many options and gaps, but IASs improved by the
end of the 1990s
They were adopted by some countries and, in other countries, by some
companies
There are other bodies concerned with harmonisation on a global or
regional level (e.g. the EU)
The IASC was replaced by the IASB in 2001, which has been influenced
by its relationship with FASB and EU
As a result of the factors we have discussed, the IASB has become the
world standard setter
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