Unit 1: International accounting diversity and IFRS
International Accounting notes · PTU syllabus (MCOPAF311-18)
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Unit summary
Accounting differs from country to country, which complicates global investment. This unit covers worldwide accounting diversity, the causes of international differences, international convergence of financial reporting, an overview of IFRS, and the nature and structure of the IASB and the IFRS Foundation.
After this unit you can
- Explain the nature and consequences of worldwide accounting diversity
- Identify the causes of international differences in accounting
- Explain the process of international convergence
- Describe IFRS and the structure of the IFRS Foundation and IASB
PTU syllabus topics
- Worldwide accounting diversity
- international convergence of financial reporting
- causes of international differences
- IFRS overview
- nature and structure of the IASB/IFRSF
Legal system
Common law vs code law
Sources of finance
Equity markets vs banks
Taxation
Link between tax and accounting
Inflation
High inflation needs adjustments
Culture
Secrecy, conservatism
Politics and economic ties
Topic 1
Worldwide accounting diversity
- Countries historically differed in recognition (what is recorded — e.g., development costs), measurement (historical cost vs fair value, LIFO), presentation (formats) and disclosure (segment, related parties).
- Consequences: costly multiple reporting for MNCs, difficulty comparing companies across borders, higher cost of capital, consolidation problems, lack of high-quality information in some markets.
Example
Daimler-Benz's 1993 NYSE listing showed a profit of DM 168 million under German GAAP but a loss of DM 949 million under US GAAP — a famous illustration of diversity.
Topic 2
Causes of international differences
Legal system
Common law (case law, private standard setters — UK, USA) vs code law (statutory rules — Germany, France)
Providers of finance
Equity markets (investor-oriented disclosure) vs banks/families (creditor- and tax-oriented)
Taxation
Tax-driven accounting where tax and book figures must agree
Inflation
Price-level accounting in high-inflation countries
Culture
Gray's accounting values — professionalism vs statutory control, uniformity vs flexibility, conservatism vs optimism, secrecy vs transparency
Political and economic ties
Colonial heritage, economic blocs
Level of development of the profession
- Classification: Nobes' classification — micro-based (Anglo-Saxon) vs macro-uniform (continental European) systems.
Topic 3
International convergence of financial reporting
- Harmonisation reduces differences; standardisation imposes uniform standards; convergence brings national standards into line with IFRS; adoption uses IFRS directly.
- 1
1973
IASC formed by professional bodies of nine countries
- 2
2001
IASB replaces IASC
- 3
2002
Norwalk Agreement — FASB and IASB commit to convergence
- 4
2005
EU listed companies adopt IFRS
- 5
2007
SEC allows foreign private issuers to file IFRS statements without reconciliation
- 6
2016
India adopts Ind AS (IFRS-converged) in phases
- 7
2021
ISSB formed for sustainability standards
- Status: IFRS required for most listed companies in over 140 jurisdictions; the USA still uses US GAAP for domestic issuers; India uses Ind AS with carve-outs; China uses converged standards.
Topic 4
IFRS: overview
- IFRS (International Financial Reporting Standards) include IFRS 1–18, older IAS 1–41 still in force, and IFRIC/SIC interpretations.
- Conceptual Framework (2018): objective of financial reporting, qualitative characteristics, elements, recognition, measurement, presentation and disclosure, capital maintenance.
| Key standard | Subject |
|---|---|
| IAS 1 / IFRS 18 | Presentation of financial statements (IFRS 18 replaces IAS 1 from 2027) |
| IFRS 9 | Financial instruments |
| IFRS 15 | Revenue from contracts with customers |
| IFRS 16 | Leases |
| IFRS 10, 3, 11, 12 | Group accounting |
| IAS 21 | Foreign exchange |
| IFRS 13 | Fair value measurement |
| IFRS 17 | Insurance contracts |
Topic 5
Nature and structure of the IASB and IFRS Foundation
Monitoring Board
Public authorities (IOSCO, SEC, EC, FSA Japan) — oversight of trustees
Trustees
Governance, funding, appointments
International Accounting Standards Board (IASB)
Develops IFRS Accounting Standards (14 members)
International Sustainability Standards Board (ISSB)
Develops IFRS Sustainability Disclosure Standards
IFRS Interpretations Committee
Interprets standards
Advisory bodies
IFRS Advisory Council, consultative groups
- 1
Research and agenda
- 2
Discussion paper
- 3
Exposure draft with public comment
- 4
Redeliberation
- 5
Final IFRS issued
- 6
Post-implementation review
Key terms
- Accounting diversity
- Differences in accounting practices across countries
- Convergence
- Aligning national standards with IFRS
- IFRS
- International Financial Reporting Standards issued by the IASB
- IFRS Foundation
- Body overseeing the IASB and ISSB
- Due process
- Consultative procedure for developing standards
Quick revision
- Diversity in recognition, measurement, presentation, disclosure.
- Causes: legal system, finance providers, tax, inflation, culture (Gray), politics.
- Convergence milestones: IASC 1973, IASB 2001, Norwalk 2002, EU 2005, Ind AS 2016.
- IFRS = IFRS + IAS + interpretations; Conceptual Framework 2018.
- IFRS Foundation: Monitoring Board, trustees, IASB, ISSB, Interpretations Committee.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.What is accounting diversity?
- Q2.Distinguish common-law and code-law accounting systems.
- Q3.State Gray's accounting values.
- Q4.What was the Norwalk Agreement?
- Q5.What is the IASB?
- Q6.State the steps in the IASB due process.
Long-answer questions
- Q1.Explain worldwide accounting diversity and its consequences.
- Q2.Discuss the causes of international differences in accounting.
- Q3.Explain the process of international convergence of financial reporting.
- Q4.Describe IFRS and the structure of the IFRS Foundation and IASB.
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