InternationalAccounting,6/eFrederickD.S.ChoiGaryK.MeekChapter2:DevelopmentandClassificationChoi/Meek,6/e1LearningObjectivesIdentifyandunderstandtheimportanceoftheeightfactorsthathaveasignificantinfluenceonaccountingdevelopment.Understandthefourapproachestoaccountingdevelopmentfoundinmarket-orientedWestern

economiesandidentifycountriesinwhicheachapproachisprevalent.Choi/Meek,6/e2Haveabasicworkingknowledgeofaccountingclassificationsandhowtheycomparewithoneanother.Explainthedifferencebetweenthe“fairpresentation”and“l(fā)egalcompliance”orientationsofaccountingandidentifynationsinwhicheachisprevalent.Explainwhydistinctionsofaccountingatthenationallevelarebecomingblurred.Choi/Meek,6/e3WhyStudyDevelopmentandClassification?DevelopmentHelpsunderstandanation’saccounting.Explainsthedifferencesandsimilaritiesinaccountingaroundtheworld.Choi/Meek,6/e4ClassificationHelpsunderstandwhyandhownationalaccountingsystemsdiffer.Helpsanalyzewhetherthesesystemsareconvergingordiverging.Areawayofviewingtheworld.Revealswhatgroupmembershaveincommon,andWhatdistinguishesgroupsfromeachotherChoi/Meek,6/e5DevelopmentSourcesoffinance–who,howmany,howclose?EquitymarketsProfitsmeasurehowwellmanagershaverunthecompany.Accountingisusedtoassesscashflows,risks,andtovaluethefirm.Extensivedisclosures.BanksConservativeearningsforcreditorprotection.Lessextensivedisclosures.Choi/Meek,6/e6Development(contin)LegalsystemCodelawLawsareall-embracing.Accountingtendstobeprescriptiveandprocedural.Accountingfocusesonlegalform.Accountingstandardsandproceduresareincorporatedintonationallaws.Choi/Meek,6/e7CommonlawLawsdeveloponacase-by-casebasis.Accountingdevelopsfromexperienceandjudgment.Accountingtendstobeflexible,adaptive,andinnovative.Accountingfocusesoneconomicsubstance.Accountingrulesareestablishedbyprivatesectorprofessionalorganizations.Choi/Meek,6/e8Development(contin)TaxationMustcompaniesrecordrevenuesandexpensesintheiraccountstoclaimthemfortaxpurposes?Arefinancialaccountingandtaxationthesame?Oraretheydifferent?Choi/Meek,6/e9PoliticalandeconomictiesAccountingideasandtechnologiesaretransferredthroughconquest,commerce,andotherforces.InflationInflationdistortshistoricalcostmeasurements.Countrieswithhighinflationoftenrequirethatcompaniesincorporatepricechangesintotheaccounts.Choi/Meek,6/e10Development(contin)LevelofeconomicdevelopmentAffectsthetypesoftransactionsandwhichonesaremostprevalentintheeconomywhich,inturn,Affectstheaccountingissuesthatarefaced.EducationallevelAffectsthecapabilityforprofessionalaccountingtraining.Whereeducationlevelsarelow,countriesimportaccountingtrainingorsendcitizenselsewheretogetit.Choi/Meek,6/e11SUMMARYSeveralvariablesarecloselyassociated.Commonlawlegalsystem,strongequitymarkets,andseparationoffinancialandtaxaccounting.Codelawlegalsystem,credit-basedfinancing,andaccountingrulesthatconformtotaxlaw.Resultistwobasicorientationsofaccounting.FairpresentationLegalcomplianceChoi/Meek,6/e12Development(contin)CultureandaccountingvaluesCulture(Hofstede)Individualismvs.collectivismPowerdistance–highvs.lowUncertaintyavoidance–highvs.lowMasculinityvs.femininityChoi/Meek,6/e13Accountingvalues(Gray)Professionalismvs.statutorycontrolUniformityvs.flexibilityConservatismvs.optimismSecrecyvs.transparencyChoi/Meek,6/e14Development(contin)Linkingthetwo:Choi/Meek,6/e15ClassificationFourapproachestoaccountingdevelopment(Mueller1967)MacroeconomicapproachAccountingderivedfromanddesignedtoenhancenationalmacroeconomicgoals.Example:SwedenChoi/Meek,6/e16MicroeconomicapproachAccountingderivedfrommicroeconomics.MaintainingphysicalcapitalSeparationofcapitalandincomeReplacementcostsExample:theNetherlandsChoi/Meek,6/e17IndependentdisciplineapproachAccountingderivedfrombusinesspractices,judgment,andtrial-and-error.Examples:U.K.andU.S.UniformapproachAccountingisstandardizedbycentralgovernmentandusedasatoolforadministrativecontrol.Example:FranceChoi/Meek,6/e18Classification(contin)Legalsystems:

commonlawvs.codelawaccountingCommonlawaccountingOrientedtowardfairpresentation,transparency,andfulldisclosureSeparationbetweentaxandfinancialaccountingAccountingstandardsettinginprivatesectorParallelsstockholdermodelofcorporategovernanceChoi/Meek,6/e19CodelawaccountingLegalisticorientation,opaquewithlowdisclosureAlignmentbetweentaxandfinancialaccountingAccountingstandardsettinginpublicsectorParallelsstakeholdermodelofcorporategovernanceChoi/Meek,6/e20Classification(contin)Practicesystems:fairpresentationversuslegalcomplianceaccountingWhynationalaccountingdistinctionsarebecomingblurredImportanceofstockmarketsasasourceoffinanceisgrowing.Dualfinancialreportingisbecomingmorecommon,particularlywheredualityissanctioned.Somecodelawcountriesareshiftingresponsibilityforaccountingstandardsettingtotheprivatesector.Choi/Meek,6/e21FairpresentationaccountingSubstanceoverform.Orientedtowarddecisionneedsofexternalinvestors.Helpsjudgemanagerialperfo