Aantekeningen / Notes
-
International Financial Reporting
(EBM045A05)
Lecturers: Semester 2B year 2023/2024
- Dr. S. Rusanescu
- Dr. S. Gebraiel
Index
Lecture 1 – Introduction to international financial reporting & accounting and accounting diversity .. 2
Introduction to international financial reporting ................................................................................ 2
Lecture 1 –Accounting diversity .......................................................................................................... 4
Tutorial 1 – Questions Chapter 2 .......................................................................................................... 11
Slides Tutorial 1 ................................................................................................................................. 11
Answers to Questions Chapter 2 (Tutorial 1) .................................................................................... 14
Lecture 2 – International financial and non-financial reporting ........................................................... 18
Convergence of international financial reporting ............................................................................. 18
International non-financial reporting................................................................................................ 21
Lecture 3 – Corporate governance and analysis of financial statements ............................................. 29
International auditing practice and Corporate Governance ............................................................. 29
Basic Financial Statement Analysis.................................................................................................... 34
Lecture 4 – Foreign currency transactions, translation, and hedge risk ............................................... 38
Tutorial 3 (week 4) - Questions ............................................................................................................. 47
Lecture 5 – Consolidation, inflation, and segment reporting ............................................................... 52
Consolidation & inflation................................................................................................................... 52
Segment reporting............................................................................................................................. 57
Tutorial 4 (week 5) – Questions ............................................................................................................ 59
Tutorial 4 (week 5) – Extra Exercise ...................................................................................................... 63
Lecture 6 – International taxation and transfer pricing ........................................................................ 65
International Taxation (ch. 8) ............................................................................................................ 65
International Transfer pricing (ch. 9)................................................................................................. 68
Lecture 7 – Q&A session........................................................................................................................ 71
,Lecture 1 – Introduction to international financial reporting &
accounting and accounting diversity
Introduction to international financial reporting
Aim of the course
Introduction to international financial reporting, namely:
- Accounting diversity and classification of accounting systems
- International convergence of financial reporting
- International developments regarding sustainability reporting
- International aspects related to the analysis of financial statements
- Corporate governance in the context of multinational corporations
- Accounting for foreign currency transactions
- Hedge accounting
- Inflation accounting
- Segment reporting
Course organization
- 7 teaching weeks on Campus:
o 6 lectures
o A Q&A session (last lecture week)
o 3 tutorials (exercises to be prepared at home, see course manual)
Group assignments
Two group assignments:
- Groups consist of (in principle) 5-6 members
- Self-enrollment to a group via Brightspace until Wednesday, April 17 th at 5 p.m. (!)
- Students who handed in the assignments in block 1.2. should not enroll in a group
- Plagiarism and self-riding behavior
Deadlines for group assignments:
- Assignment 1: Monday, May 6th at 9 a.m.
- Assignment 2: Monday, June 3rd at 9.a.m.
- The grades of the group assignment expire on August 30 th, 2024
- Assignment grades from prior years are considered expired.
Group meetings
- For the first assignment, each group is entitled to one 15-minute session with the instructor
to soundboard ideas regarding the assignment.
- You can register online for a specific time for this meeting (Google sheet). It is up to you
whether you make use of this possibility. All team members are obviously welcome to
attend; the minimum number of members required to attend, however, is two.
, Example spreadsheet
Assessment
- The final grad for this course is calculated as the weighted average of:
1. Grad of the final exam (75%); and
2. The average grade of the two group assignments (25%).
- Students must obtain at least 50 out of 100 points (i.e., 5.0 out of 10) in the final exam in
order for the grade of the group assignments to be included in the final grade. If the final
exam grade is lower than 50 points (i.e., 5.0), the grade of the course equals the final exam
grade.
Literature
1. Doupnik, T., M. Finn, G. Gotti, And H. Perera, International Accounting, 5th edition, McGraw
Hill, 2020, ISBN 978-1-260-54798-6.
2. Academic papers (see course manual; all papers can be downloaded via, f.i., the UB-library
site)
3. Hennie van Greuning, and World Bank staff, International Financial Reporting Standards: A
Practical Gruide, E-book available at the University library, download Part V (Chapter 35
Operating segments (IFRS 8)).
NB: The course is base on the 5th edition of Doupnik et al. which is significantly different from the
4th edition.
,Lecture 1 –Accounting diversity
Literature
- Doupnik, Finn, Gotti, & Perera (DFGP) Ch. 1, 2
- Han, S., Kang, T., Salter, S., & Yoo, Y.K. (2010). A cross-country study on the effects of
national culture on earnings management. Journal of International Business Studies, 41, 123–
141. Doi: https://doi.org/10.1057/jibs.2008.78.
- Hooghiemstra, R.B.H., Hermes, C.L.M., & Emanuels, J.A. (2015). National culture and internal
control disclosures: A cross-country analysis. Corporate Governance: An International
Review, 23, 357-377. Doi: https://doi.org/10.1111/corg.12099.
What are we going to do?
- International perspective to accounting
o Financial reporting, managerial accounting, auditing, taxation
- Different layers
o Comparative accounting
Standards, accounting rules, auditing rules, taxation of different countries
o Supranational accounting
Standards, accounting rules, auditing rules, taxation rules issued by
supranational organizations (e.g. IASB)
o International business activities and foreign investments
Accounting standards, guidelines, and practices of multinational
corporations (MNCs)
Why is it relevant?
- Global economy
o International trade
https://www.wto.org/english/res_e/statis_e/wts2021_e/wts2021chapter02
_e.pdf
o Foreign direct investment (FDI/MNCs
https://www.oecd.org/investment/investment-policy/FDI-in-Figures-
October-2021.pdf
https://unctad.org/system/files/official-document/wir2021_en.pdf
o International capital markets
Cross-listings (e.g. AkzoNobel)
Accounting diversity
- An accounting system = a collection of accounting standards, rules, guidelines, practices, and
institutions
- Accounting systems arise from and reflect the environment in which they operate
Diversity in accounting systems worldwide
Potential influential factors
(Radebaugh, Gray & Black, 2006)
,Main influential factors (1)
Legal system
- Common versus code law
- Common law
o English-speaking countries
o Limited amount of statutory law
o Case law (based on precedent)
supplementary to statutory law
- Code law (codified or civil law
o Non-English-speaking countries
o More comprehensive, continuously
updated statutory law
Shareholder rights (protection of small shareholders)
- “One-share-one-vote”
Protection of small, private investors against manager’s misbehaviours
- Conclusions
o Good protection in ‘common law’-countries
o Equity markets are particularly developed in common law countries
o Has consequences for ownership and accounting
Influence of legal system
Influence on Accounting
- Code law
o Government governs accounting practices by law
o Corporation law (Commercial law/companies act)
o Accounting law is rather general
o Use of other sources for guidance (tax law, auditing profession, academicians)
- Common law
o Corporation law might exist
o Non-governmental organizations govern accounting practices by rules
o More detailed accounting rule
o More influence from professional accounting bodies
Main influential factors (2)
Taxation
- Differences between financial and tax accounting (base for taxation)
- GAAP determine taxable income or separate tax rules do
- Examples:
o France, Germany: financial statements are the basis for taxation
o US: separate tax rules (exception: LIFO)
- Influence on accounting
o Incentive to minimize reported income for tax purposes
,Main influential factor (3)
Providers of finance
- Banks, government, family and external shareholders
- Influence on accounting
o Dispersed ownership: information disclosure and public accountability
o Orientation towards:
Profits (equity) or
Solvency and liquidity (debt)
o Incentives for aggressive vs. conservative accounting
Relationships between some factors
More companies in common law countries, suggest that equity is “more” in common law
Main influential factor (4)
Inflation
- Inflation accounting (adjustments of historical cost for increasing prices)
- High relevance if financial statements are the basis for taxation (fictitious profits)
- Example: South America
Political, economic, and historic ties
- EU: IFRS used by listed firms from member states
- US: Dominant economy worldwide, influence on IFRS
- Colonialism (e.g.: British, French inheritance)
Main influential factors (5)
Culture
- Social values influence humans, thus accounting practice
Hofstede’s cultural dimensions
- Dimensions of social values that can describe differences in cultures
o Individualism vs. collectivism
o Large vs. small power distance
o Strong vs. weak uncertainty avoidance
o Masculinity vs. femininity
o Long-term vs. short-term orientation
o Indulgence vs restraint (new)
Main influential factors (6)
Culture
Gray’s cultural accounting framework
- Accounting values (Gray 1988)
o Professionalism vs. statutory control
o Uniformity vs. flexibility
o Conservatism vs. optimism
o Secrecy vs. transparency
, Accounting values and cultural
dimensions
Gray’s accounting framework
(1988)
Uniformity & Professionalism Conservatism & Secrecy
Culture & reporting: Some evidence
- Han et al. (2010)
o Related to measurement
- Hooghiemstra et al. (2015)
o Related to secrecy / disclosure
Han et al. (2010)
- Earnings management
o The choice by a manger of accounting policies, or real actions, affecting earnings so
as to achieve some specific reported earnings objective
o Various forms (accruals, real, classification shifting)
o Potential motives:
Contractual reasons (bonus and/or debt contracts)
Political reasons
Meeting/beating analyst forecasts
-
International Financial Reporting
(EBM045A05)
Lecturers: Semester 2B year 2023/2024
- Dr. S. Rusanescu
- Dr. S. Gebraiel
Index
Lecture 1 – Introduction to international financial reporting & accounting and accounting diversity .. 2
Introduction to international financial reporting ................................................................................ 2
Lecture 1 –Accounting diversity .......................................................................................................... 4
Tutorial 1 – Questions Chapter 2 .......................................................................................................... 11
Slides Tutorial 1 ................................................................................................................................. 11
Answers to Questions Chapter 2 (Tutorial 1) .................................................................................... 14
Lecture 2 – International financial and non-financial reporting ........................................................... 18
Convergence of international financial reporting ............................................................................. 18
International non-financial reporting................................................................................................ 21
Lecture 3 – Corporate governance and analysis of financial statements ............................................. 29
International auditing practice and Corporate Governance ............................................................. 29
Basic Financial Statement Analysis.................................................................................................... 34
Lecture 4 – Foreign currency transactions, translation, and hedge risk ............................................... 38
Tutorial 3 (week 4) - Questions ............................................................................................................. 47
Lecture 5 – Consolidation, inflation, and segment reporting ............................................................... 52
Consolidation & inflation................................................................................................................... 52
Segment reporting............................................................................................................................. 57
Tutorial 4 (week 5) – Questions ............................................................................................................ 59
Tutorial 4 (week 5) – Extra Exercise ...................................................................................................... 63
Lecture 6 – International taxation and transfer pricing ........................................................................ 65
International Taxation (ch. 8) ............................................................................................................ 65
International Transfer pricing (ch. 9)................................................................................................. 68
Lecture 7 – Q&A session........................................................................................................................ 71
,Lecture 1 – Introduction to international financial reporting &
accounting and accounting diversity
Introduction to international financial reporting
Aim of the course
Introduction to international financial reporting, namely:
- Accounting diversity and classification of accounting systems
- International convergence of financial reporting
- International developments regarding sustainability reporting
- International aspects related to the analysis of financial statements
- Corporate governance in the context of multinational corporations
- Accounting for foreign currency transactions
- Hedge accounting
- Inflation accounting
- Segment reporting
Course organization
- 7 teaching weeks on Campus:
o 6 lectures
o A Q&A session (last lecture week)
o 3 tutorials (exercises to be prepared at home, see course manual)
Group assignments
Two group assignments:
- Groups consist of (in principle) 5-6 members
- Self-enrollment to a group via Brightspace until Wednesday, April 17 th at 5 p.m. (!)
- Students who handed in the assignments in block 1.2. should not enroll in a group
- Plagiarism and self-riding behavior
Deadlines for group assignments:
- Assignment 1: Monday, May 6th at 9 a.m.
- Assignment 2: Monday, June 3rd at 9.a.m.
- The grades of the group assignment expire on August 30 th, 2024
- Assignment grades from prior years are considered expired.
Group meetings
- For the first assignment, each group is entitled to one 15-minute session with the instructor
to soundboard ideas regarding the assignment.
- You can register online for a specific time for this meeting (Google sheet). It is up to you
whether you make use of this possibility. All team members are obviously welcome to
attend; the minimum number of members required to attend, however, is two.
, Example spreadsheet
Assessment
- The final grad for this course is calculated as the weighted average of:
1. Grad of the final exam (75%); and
2. The average grade of the two group assignments (25%).
- Students must obtain at least 50 out of 100 points (i.e., 5.0 out of 10) in the final exam in
order for the grade of the group assignments to be included in the final grade. If the final
exam grade is lower than 50 points (i.e., 5.0), the grade of the course equals the final exam
grade.
Literature
1. Doupnik, T., M. Finn, G. Gotti, And H. Perera, International Accounting, 5th edition, McGraw
Hill, 2020, ISBN 978-1-260-54798-6.
2. Academic papers (see course manual; all papers can be downloaded via, f.i., the UB-library
site)
3. Hennie van Greuning, and World Bank staff, International Financial Reporting Standards: A
Practical Gruide, E-book available at the University library, download Part V (Chapter 35
Operating segments (IFRS 8)).
NB: The course is base on the 5th edition of Doupnik et al. which is significantly different from the
4th edition.
,Lecture 1 –Accounting diversity
Literature
- Doupnik, Finn, Gotti, & Perera (DFGP) Ch. 1, 2
- Han, S., Kang, T., Salter, S., & Yoo, Y.K. (2010). A cross-country study on the effects of
national culture on earnings management. Journal of International Business Studies, 41, 123–
141. Doi: https://doi.org/10.1057/jibs.2008.78.
- Hooghiemstra, R.B.H., Hermes, C.L.M., & Emanuels, J.A. (2015). National culture and internal
control disclosures: A cross-country analysis. Corporate Governance: An International
Review, 23, 357-377. Doi: https://doi.org/10.1111/corg.12099.
What are we going to do?
- International perspective to accounting
o Financial reporting, managerial accounting, auditing, taxation
- Different layers
o Comparative accounting
Standards, accounting rules, auditing rules, taxation of different countries
o Supranational accounting
Standards, accounting rules, auditing rules, taxation rules issued by
supranational organizations (e.g. IASB)
o International business activities and foreign investments
Accounting standards, guidelines, and practices of multinational
corporations (MNCs)
Why is it relevant?
- Global economy
o International trade
https://www.wto.org/english/res_e/statis_e/wts2021_e/wts2021chapter02
_e.pdf
o Foreign direct investment (FDI/MNCs
https://www.oecd.org/investment/investment-policy/FDI-in-Figures-
October-2021.pdf
https://unctad.org/system/files/official-document/wir2021_en.pdf
o International capital markets
Cross-listings (e.g. AkzoNobel)
Accounting diversity
- An accounting system = a collection of accounting standards, rules, guidelines, practices, and
institutions
- Accounting systems arise from and reflect the environment in which they operate
Diversity in accounting systems worldwide
Potential influential factors
(Radebaugh, Gray & Black, 2006)
,Main influential factors (1)
Legal system
- Common versus code law
- Common law
o English-speaking countries
o Limited amount of statutory law
o Case law (based on precedent)
supplementary to statutory law
- Code law (codified or civil law
o Non-English-speaking countries
o More comprehensive, continuously
updated statutory law
Shareholder rights (protection of small shareholders)
- “One-share-one-vote”
Protection of small, private investors against manager’s misbehaviours
- Conclusions
o Good protection in ‘common law’-countries
o Equity markets are particularly developed in common law countries
o Has consequences for ownership and accounting
Influence of legal system
Influence on Accounting
- Code law
o Government governs accounting practices by law
o Corporation law (Commercial law/companies act)
o Accounting law is rather general
o Use of other sources for guidance (tax law, auditing profession, academicians)
- Common law
o Corporation law might exist
o Non-governmental organizations govern accounting practices by rules
o More detailed accounting rule
o More influence from professional accounting bodies
Main influential factors (2)
Taxation
- Differences between financial and tax accounting (base for taxation)
- GAAP determine taxable income or separate tax rules do
- Examples:
o France, Germany: financial statements are the basis for taxation
o US: separate tax rules (exception: LIFO)
- Influence on accounting
o Incentive to minimize reported income for tax purposes
,Main influential factor (3)
Providers of finance
- Banks, government, family and external shareholders
- Influence on accounting
o Dispersed ownership: information disclosure and public accountability
o Orientation towards:
Profits (equity) or
Solvency and liquidity (debt)
o Incentives for aggressive vs. conservative accounting
Relationships between some factors
More companies in common law countries, suggest that equity is “more” in common law
Main influential factor (4)
Inflation
- Inflation accounting (adjustments of historical cost for increasing prices)
- High relevance if financial statements are the basis for taxation (fictitious profits)
- Example: South America
Political, economic, and historic ties
- EU: IFRS used by listed firms from member states
- US: Dominant economy worldwide, influence on IFRS
- Colonialism (e.g.: British, French inheritance)
Main influential factors (5)
Culture
- Social values influence humans, thus accounting practice
Hofstede’s cultural dimensions
- Dimensions of social values that can describe differences in cultures
o Individualism vs. collectivism
o Large vs. small power distance
o Strong vs. weak uncertainty avoidance
o Masculinity vs. femininity
o Long-term vs. short-term orientation
o Indulgence vs restraint (new)
Main influential factors (6)
Culture
Gray’s cultural accounting framework
- Accounting values (Gray 1988)
o Professionalism vs. statutory control
o Uniformity vs. flexibility
o Conservatism vs. optimism
o Secrecy vs. transparency
, Accounting values and cultural
dimensions
Gray’s accounting framework
(1988)
Uniformity & Professionalism Conservatism & Secrecy
Culture & reporting: Some evidence
- Han et al. (2010)
o Related to measurement
- Hooghiemstra et al. (2015)
o Related to secrecy / disclosure
Han et al. (2010)
- Earnings management
o The choice by a manger of accounting policies, or real actions, affecting earnings so
as to achieve some specific reported earnings objective
o Various forms (accruals, real, classification shifting)
o Potential motives:
Contractual reasons (bonus and/or debt contracts)
Political reasons
Meeting/beating analyst forecasts
