International Finance and Accounting Handbook

12.4 CONSEQUENCES OF INTERNATIONAL ACCOUNTING DIVERSITY. Users
who are not sensitive to international accounting differences may make less-than-
prudent business decisions. For example, an analyst may have certain “rules of
thumb” or benchmarks against which to measure a company’s price/earnings ratio,
debt-to-equity ratio, or working-capital ratio. These benchmarks were likely devel-

12.4 CONSEQUENCES OF INTERNATIONAL ACCOUNTING DIVERSITY 12 • 7

United States

United Kingdom

Germany

Japan

China

Brazil

Exhibit 12.3. Countries IAS Transition Plans.

As U.S. GAAP is an internationally accepted body of accounting

principles, there is no immediate plan to adopt IAS as United

States’ national accounting standards. However, there has been in-

creased pressure to simplify U.S. GAAP to adopt a more principles-

based approach and to revisit its requirements for non-U.S. filers,

especially for those that report under IAS.

As part of the European Union (EU), IAS will be required for listed

companies in the United Kingdom beginning in 2005. IAS are ex-

pected to be introduced as national standards in 2005.

As part of the EU, IAS will be required for listed companies in Ger-

many beginning in 2005. The German stock exchanges currently

allow IAS an alternative to German GAAP. However, reporting

under IAS is not compulsory under German law, and there is no in-

dication that IAS will replace its national standards.

There has been enormous pressure for structural reform of the Japan-

ese financial system during the recent economic downturn. The re-

form initiatives led to the establishment of a new independently

funded commission, the Accounting Standards Board of Japan (ASBJ).

The ASBJ will continue to focus on reshaping the Japanese standard-

setting system in line with the International Accounting Standards

Board and Japanese GAAP in line with IAS. While there is growing

support for convergence and improved transparency, the practical

implications are proving difficult for Japanese companies to accept.

Even though the exchanges in China still require Peoples Republic

of China (GRC) GAAP, the Ministry of Finance has established tran-

sition rules to gradually reduce the differences between PRC GAAP

and IAS. Before 1997, there were different accounting standards for

different industries and enterprises with different legal forms. with

the 16 accounting standards issued in 1997 and the new account-

ing regulation for financial institutions issued in 2001. The Chinese

accounting regulators have made significant steps toward unifying

the accounting standards in China across industries and with IAS.

How rigorous these standards are applied/interpreted will be criti-

cal in achieving harmonization with IAS.

The professional bodies and the regulators in Brazil support harmo-

nization with IAS. New standards have been developed based on

IAS and the old standards are being reviewed to bring them into

line. To support this initiative, the corporate law is being reviewed

by Congress and there is a project, supported by the Brazilian Secu-

rities Commission, to create a Brazilian Accounting Standard Board.

Country IAS Transition Plan