International Business Management

Unit 9

Unit 9

International Accounting Practices

Structure: 9.1 Introduction Objectives 9.2 International Accounting Standards Domestic vs. international accounting National differences in accounting Legal systems 9.3 Accounting for International Business Classification of accounting systems Harmonising of accounting systems 9.4 International Regulatory Bodies 9.5 International Financial Reporting Standards 9.6 Summary 9.7 Glossary 9.8 Terminal Questions 9.9 Answers 9.10 Case-Let

9.1 Introduction
In the previous unit you learned about international marketing, strategies, and branding for international markets. In this unit you will learn about international accounting standards, regulatory bodies, and international financial reporting standards. International accounting practices need certain publicly-traded companies to follow some accounting rules while presenting financial statements, so that the reader can easily compare between different companies. This unit covers various factors involved in accounting practices followed by MNCs. It explains various regulators and accounting standards followed by different countries and regions across the world. It discusses accounting in an international perspective. It includes international regulatory bodies and also the international financial reporting standards.

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Objectives: After studying this unit, you should be able to: explain international accounting practices. differentiate between the domestic and international accounting practices. describe the international regulatory bodies. discuss the international financial reporting standards.

9.2 International Accounting Standards

Accounting is understood as the language of business. International Accounting Standards is a set of standards, which state how certain types of transactions and other events should be reflected in financial statements. International accounting refers to international comparative analysis, accounting measurements, and reporting issues distinctive to multinational business connections. It also refers to harmonisation of global accounting and financial reporting through political, organisational, professional, and standard-setting activities. Accounting Standards are the key mandatory and regulatory mechanisms for training on financial reports and conducting successful audit for the same. It is used almost in all countries throughout the world. They are concerned with the structure of measurement and discover rules for preparation and arrangement of financial statements. They emerge as a set of authoritative statements related to exact type of transactions, events, and other costs that are recognised and reported in the financial statements. They are designed to supply practical information to diverse users of the financial statements such as shareholders, creditors, lenders, organisation, investors, suppliers, competitors, researchers, regulatory bodies, and so on. These statements are designed and approved to develop and benchmark the quality of financial reporting. A financial reporting system of international standard is required to attract foreign and also present and potential investors at home, which can be achieved by harmonising the accounting standards.

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9.2.1 Domestic vs. international accounting Different countries whether domestic or international, have different accounting standards. A common belief is that these differences reduce the quality and the importance of accounting information. Accounting standards determine the financial reporting quality and provides separately verified information about an organisation's financial performance to investors creditors. International businesses encounter number of accounting problems that do not stop domestic businesses. The accounting system of a domestic organisation must meet the specialised and regulatory standards of its home country. But, an MNC and its subsidiaries must meet differing accounting and auditing standards of all the countries in which it operates. This leads to a need for comparability between businesses in the group. In order to successfully manage and organise their operations, local managers require accounting information, which should be prepared according to the local accounting concepts and denomination in the local currency. Yet, for financial controllers, to measure the foreign subsidiarys performance and worth, the subsidiarys accounts must be translated into the organisations home currency. This translation is done using accounting concepts and measures, which are detailed by the organisation. Investors worldwide look for the highest possible returns on their capital, in order to interpret the track record, though they use a currency and an accounting system of their own. The organisation also has to pay taxes to the countries in which it does its business, based on the accounting statements it prepares in these countries. Besides this, when a parent corporation tries to combine the accounting records of its subsidiaries to produce consolidated financial statements, extra complexities occur because of the changes in the value of the host and home currencies in due course. There are many differences between Domestic Accounting Standards (DAS) and International Accounting Standards (IAS). Based on the list of differences between the DAS and IAS, two indices are created-'absence' and 'divergence'. Absence measures the differences between DAS and IAS as an extent to which, the rules on certain accounting issues are missed out in DAS and covered in IAS. Divergence represents the differences between DAS and IAS as an extent to which, the rules on the same accounting issue differ in DAS and IAS.
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Measurement of differences between IAS and DAS You can measure the differences between IAS and DAS in the following way: Literature on international accounting differences - You can use various data sources to measure international accounting differences in earlier literature. Most of the earlier studies understand international accounting differences as different options adopted by various nations for the similar accounting issues, which correspond to divergence concept. Framework of analysis - Earlier studies established various links between differences in accounting standards across countries and financial reporting quality. We should consider the institutional determinants of accounting differences such as legal origin, governance structure, economic development, and equity market.

9.2.2 National differences in accounting One of the major problems encountered by an international business is lack of consistency in accounting standards of various countries. Organisations show opposite financial results because of the differences in accounting standards. Differences in accounting standards exist because of diverse political, legal, economic, and cultural systems existing across the countries. Accounting standards and practices are also prejudiced by the sources of capital used to fund business. Figure 9.1 shows the influencing factors on a countrys accounting practices.

Figure 9.1: Influences on a Countrys Accounting System Sikkim Manipal University Page No. 181

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You might think that certain historical developments had a uniform effect on accounting systems all over the world. Of course there are some similarities and also there are many accounting systems, as much as countries and no two systems are alike. The main reason for these differences is basically environment. Accounting systems develop from and reflect the environments they serve. The reality of the world is that, environments have not evolved equally. While accounting practices were developing, there were differences in the private ownership, industrialisation, inflation, and so on. When there are differences in economic conditions, it is not surprising to find differences in accounting practices. However, economic factors are not the only influences you find. Educational systems, legal systems, political systems, and socio cultural features also influence the need for accounting and the direction and speed of its development. Today, the key reason for understanding different national accounting systems lies in the increasing globalisation of business. 9.2.3 Legal systems Law system is divided into civil law and common law countries worldwide. In countries like US, Australia, UK and New Zealand accounting procedures originate from decisions of independent standards setting boards, such as US Financial Accounting Standards Board (FASB), and so on. Each board works with professional accounting groups. The common law countries accountants follow, Generally Accepted Accounting Principles (GAAP), which provides a 'true and fair view' of the organisation's performance, based on the standards approved by these professional boards. Many civil law countries also have a similar approach of GAAP. Functioning within the limitations of these standard accountants provides freedom to implement their professional judgment in reporting a 'true and fair' representation of the organisation's performance. Countries following civil law are likely to codify their national accounting measures and standards. In these countries, accounting practices are determined by the law. To assist the legal role, all business accounting records must be officially registered with the government. The way in which the accounting practices are imposed depends on the legal system. Most of the developed countries depend on both private and public enforcement of business performance, even though the public or
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private combination varies from country to country. The degree of the legal system is a major restriction in the growth of accounting standards by the accounting profession. In some countries, the accounting policies are restricted to detailed legislation, which is passed by governments. This restriction forms a major problem to the international accounting bodies that are determined to increase harmonisation of national accounting frameworks. This is because, such government-controlled regimes are inclined to be less flexible, and discover private sector influences as less acceptable. Self Assessment Questions 1. Accounting Standards are the key mandatory and regulatory mechanisms for training on financial reports and succeeding audit of the same. (True/False) 2. __________ and ___________ are the two indices created based on the differences between IAS and DAS. 3. GAAP stands for generally accepted accounting principle. (True/False) Activity 1 The link below provides an article on International Accounting Standards. Find out how the standards helped to bring financial stability in the market and also discuss how it affected the companies. Hint: Refer link: www.iasplus.com/dttpubs/dtiias.pdf

9.3 Accounting for International Business

In the previous section you learnt about international accounting standards and the national differences between accounting standards. In this section you will cover accounting for international business. An organisation's first contact to international accounting occurs as an outcome of an import or export opportunity. In exports, a domestic organisation may receive an unwanted inquiry, or obtain order from a foreign buyer. If this foreign buyer needs an addition of credit, then the buyer is examined once before exporting. This process is not as easy as it appears.

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The buyer is not always a scheduled buyer in the international credit rating directories. Either the seller will have to ask its bank to have foreign affiliations to check the buyer's credibility or the seller can ask the buyer to supply financial information. The buyer might be ready to supply financial statements, but these statements might be complicated for domestic organisations to understand. The statements might be in a foreign language, and based on accounting assumptions and measures that are strange to the organisation's accountants. Most of the organisations that are new to international business must get assistance either from a bank or from an accounting organisation with international proficiency. If the foreign buyers pay in their own currency, the selling organisation becomes familiar with the possible gains and losses from changes in the exchange rate that occurs between the moment the order is booked and the moment the payment is received. The selling company also has to deal with many international details, such as special international shipping and insurance documents, customers declaration forms, international legal documents, and so on. Here, again the services of lawyers, shippers, bankers, and accountants with international knowledge are essential. In case of a probable import, the foreign seller has all the responsibilities, therefore the international accounting aspects are not disturbed. Yet, if the foreign seller requires payments in his or her currency, or if the domestic buyer wishes to gain information about the dependability of the foreign supplier, the buyer might consult an international bank, lawyer, or accounting firm. 9.3.1 Classification of accounting systems All accounting systems are planned to supply information to people who take decisions. So, it is essential to classify accounting systems. The classification of accounting systems in financial and cost systems leads to this difference between the people, who take decisions. Investors, creditors, government agencies, tax authorities and others are people who involve in the accounting systems, but are outside the organisation. Whereas, managers are within the organisation and they also take part in the accounting decisions.

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Financial accounting Information in financial accounting is planned for decision makers and not for people who manage the organisation daily. These users are normally outside the organisation. The information for public organisations is public, and normally available on the websites of the organisations. Managers in the organisation are sincerely concerned about reports that produce the financial accounting, but the information would not be sufficient for making operational decisions of the organisation. Individuals, who take decisions by using information from the financial accounts, are normally interested in comparing their own organisation with other firms. For example, deciding whether to invest in the organisations like Apple Computer or Microsoft. An important characteristic of financial accounting information is that, it is comparable between organisations. This means that, when an investor looks at revenues from Apple Computers, these revenues signify the same thing for Microsoft. Due to this, financial accounting systems are characterised by a series of regulations that describe how transactions should be treated. Cost accounting Cost accounting information is planned for managers. As managers take decisions only about their own organisation, there is no need for the information to be compared with similar information from other organisations. Instead, the significant principle is that the information must be appropriately decided. Cost accounting information is generally used in financial accounting information, but first we should concentrate on its benefit to managers in making decisions. The accountants handle the cost accounting information, and add value by providing excellent information to managers who take decisions. The cost accounting system results from the decisions made by managers about an organisation. Some aspects of cost accounting in regard to its clients, with GAAP and ethics are given below: Cost accounting and GAAP - The key principle of financial accounting is to supply information about the organisation and the performance of the management to the investors or creditors. The financial information organised for this purpose is governed by the Generally Accepted Accounting Principles (GAAP), which supply consistency in the accountancy data used for the purpose of reporting from one organisation to another. The information of cost accounting used to
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estimate the expenditure of goods sold, inventory assessment, accounting and other financial information used for external reports should be arranged in accordance with GAAP. Clients of cost accounting - The administration must consider customer as important out of all the participants in a business. Without customers, the organisation loses its capability and reason to exist. The cost information itself is a product with its individual customers. The major problem with accounting system occurs, when managers utilise accounting information that was designed for external reporting, in decision-making. Cost accounting and ethics - The design of costing systems is finally about the payment of costs to various activities, products, projects and corporate units, and people. The method in which this is done, affects prices, reimbursement and payment. Based on the events, the cost accounting systems plan the potential to misuse and fraud the customers, employees or shareholders. As user or preparer of the cost information, you should be aware of what it implies, and how the information is utilised. The most important point is that, you should be aware of when the system has the potential to be ill-treated.

9.3.2 Harmonising of accounting systems Though there are many differences in accounting standards and practices, a number of forces are leading to harmonisation. Some of these forces are: A movement to present information well-matched with the requirements of investors. The global mixing of capital markets, which means that investors have easier and quicker access to investment opportunities around the world, and thus require financial information that is more equivalent to other accounting standards. The need of MNCs to increase the capital outside their home-country capital markets, while generating few diverse financial statements. Regional, political and economic harmonisation, such as, the hard work of the European Union (EU), which affects accounting, trade and investment issues.

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Pressure from MNCs for consistent standards, which allows for reduced costs in each country, and in reporting that is used by investors in the organisations home-country.

Differences in accounting systems are confusing and expensive to international business. Superiority in these systems makes it complex for organisations to examine their foreign operations and for investors to understand the relative performance of organisations that are based in different countries. To help in solving such problems, many accounting professionals and national regulatory bodies are trying to harmonise diverse national accounting practices. It is also important to understand the arguments in favour of harmonisation. Arguments supporting harmonisation Harmonisation of accounting and exterior financial reporting assists in the optimal global delivery of private-sector finance. Harmonisation is concerned with reducing the diversity that exists between accounting practices, in order to improve the comparability of financial reports prepared by companies from different countries. Investors should be able to realise a more proficient portfolio of organisations on national, as well as, international scale. This will benefit the investor. When global capital markets operate properly, then the financial information disclosed to the market-place must be global. Figure 9.2 highlights for and against harmonisation.

Figure 9.2: Arguments for and Against Harmonisation Sikkim Manipal University Page No. 187

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The standard of accounting disclosure needs and auditing vary from country to country, and makes cross-border investigation very difficult. These differences present a barrier to investors as they feel uncomfortable about the information presented to them, which is very different from what exists in their home-country. Harmonisation of accounting and auditing practices help to reduce the size of the barrier. Investors must deal with diverse accounting practices and disclosures, and have trust in the figures presented by accepting the standard of auditing. Harmonisation programme helps in this task. Self Assessment Questions 4. Information in _______________ is planned for decision makers and who are not involved in the daily management of the organisation. 5. Cost accounting information is planned for _________. 6. Customer is important of all the participants in a business whom the administration must consider. (True/False)

9.4 International Regulatory Bodies

In the previous section we covered accounting for international business. In this section you will learn about the various international regulatory bodies. Certain regulatory bodies are active in bringing out harmonisation of accounting standards. Efforts of some of the bodies are explained. European Union The most obvious effort towards harmonisation is seen in the European Union. The European Commission sets directives, which are orders to the member countries, to bring their laws inline with EU needs, within some transition period. The earlier accounting directives addressed the following: The nature and design of financial statements. The measurement support on which the financial statements are to be organised. The significance of consolidated financial statements. The need that auditors must make sure that the financial statements reflect a true perspective of the operations of the organisation that is being audited.
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Though the EU has enhanced the comparability of financial statements, the directives do not cover several essential issues. Additionally, some directives provide options, and member countries understand the directives differently. Thus, EU organisations listing outside their home countries must supply the following two sets of financial statements, they are: Home country statements. Reconciliation statements. United Nations The United Nations is interested in international accounting since the early 1970s, under a 'Group of Eminent Persons'. This further led to the establishment of Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) by the UN Economic and Social Council. The ISAR attempts to support the developing countries, by creating recommendations on the accessibility and comparability of information disclosed by international businesses. The discussions of the ISAR are reported in annual publications, and cover the accounting developments worldwide, and also reports on accounting issues of significance to global accounting. The ISAR is presently concerned about developing discussions on the international environment reporting, and the role and responsibilities of accountants and auditors. Organisation for Economic Cooperation and Development (OECD) The OECD was established by world's 24 developed countries such as Australia, Austria, Belgium, Canada and so on, for promoting world trade and international economic growth. It considers the matters from the perspective of economically developed countries. The council of OECD has established a committee on International Investment and Multinational Enterprises (MNEs). This committee has established a Working Group on Accounting Standards. The Working Group has recently published a 'Clarification of the OECD Guidelines', and published reports as an element of an 'Accounting Standards Harmonisation' series. Most recently, the OECD has established a 'Centre for European Economies in Transition', which along with Working
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Group has prepared workshops, seminars, and meetings, to recognise the purpose and constituents of accounting systems in these countries. International Accounting Standards Committee (IASC) International Accounting Standards Committee was created in the year 1973. It has issued a series of standards planned to harmonise the national management of accounting issues. The chief objective of IASC is the encouragement of comparability of financial statements between countries, by establishing standards for inventory assessment, depreciation, delayed income taxes, and so on. An important accomplishment of the IASC has been the creation of the International Accounting Standards (IAS). The publication and global recognition of these standards is necessary for the harmonisation efforts of the IASC. The International Federation of Accountants (IFA) The International Federation of Accountants was founded in the year 1977. It completely supports the work of the IASC, and recognises the IASC as having responsibility and authority to issue rules on international accounting standards. IFA has parallel responsibility of IASCs objective of developing international guidelines for auditing, ethics, education and management accounting. Other international regulatory bodies are Governmental Accounting Standards Board, Independence Standards Board, International Accounting Standards Board, International Organisation for Securities Commission, National Association of State Boards of Accountancy, Public Company Accounting Oversight Board, UK Accounting Standards Board and so on. Self Assessment Questions 7. The European Commission sets directives which are orders to member countries to bring their laws inline with EU needs within some transition period. (True/False) 8. _____________________considers the matters from the perspective of economically developed countries. 9. The International Federation of Accountants was founded in the year ______________.
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Activity 2 The link below provides an article on various International Regulatory Bodies. Find out the responsibilities of OECD and WHO. Hint: Refer link: http://www.iraup.com/results.php?page_name=int_org

9.5 International Financial Reporting Standards

After learning about the different international regulatory bodies, we shall now discuss about reporting standards used in international finance. International Financial Reporting Standards (IFRS) are principle-based values; interpretations and the structure followed by the International Accounting Standards Board (IASB). Structure of IFRS International Financial Reporting Standards comprise of the following: International Financial Reporting Standards (IFRS) - standards issued after 2001. International Accounting Standards (IAS) - standards issued before 2001. Interpretations developed from the International Financial Reporting Interpretations Committee (IFRIC) - issued after 2001. Standing Interpretations Committee (SIC) - issued before 2001. Framework for the Preparation and Presentation of Financial Statements (1989). Framework The framework used for the preparation and presentation of financial statements states the basic rules for IFRS. Objective of financial statements A financial statement should reproduce true and fair view of the business dealings of the organisation, because these statements are used by different constituents of the society. They should reflect the true vision of the financial situation of the organisation. Underlying assumptions IFRS approved two basic accounting models, which are: Financial capital preservation in nominal monetary units. Financial capital preservation in units of invariable purchasing power.
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The four underlying assumptions in IFRS are given below: Accrual basis - The result of dealings and other measures are recognised when they happen. Going concern - An entity will persist for the predictable future. Stable measuring unit assumption - Financial capital safeguarding in nominal monetary units or in conventional historical cost accounting. That is, accountants believe that changes in the purchasing power of the functional currency will be up, but not adequately significant for them to decide on financial capital safeguarding in the units of regular purchasing power during low inflation and deflation as authorised in IFRS, in the Framework. Units of constant purchasing power - Financial capital preservation in units of regular purchasing power during low inflation and deflation, that is, the denial of the constant measuring unit statement. Measurement in units of constant purchasing power (inflation - adjustment) remedies the destruction caused by historical cost accounting.

Qualitative characteristics of financial statements There are some qualitative characteristics of financial statements. These are as given below: Understandability. Reliability. Comparability. Relevance. True and fair view or fair presentation. Elements of financial statements The financial position of an enterprise is mainly provided in the Statement of Financial Position. The fundamentals of financial statements are given below: Asset - An asset is a resource guarded by the enterprise as an effect of past procedures, from which potential economic benefits are likely to flow to the enterprise. Liability - A liability is a present requirement of the enterprise that is rising from the past procedures, the conclusion of which is likely to result in an outflow from the enterprise' possessions, that is, assets.
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Equity - Equity is the outstanding concentration on the assets of the enterprise after subtracting all the liabilities under the historical cost accounting model. Equity is well-known as owner's equity. Under the units of invariable purchasing power model, equity is the regular real value of shareholders equity. The financial performance of an enterprise is mainly provided in an income statement or profit and loss statement. The elements of an income statement or the elements that determine the financial performance are as follows: Revenues - Increase in economic profit during an accounting period, in the type of inflows or enhancements of assets, or diminishing of liabilities that effect to increase equity. But it does not comprise the contributions made by the equity participants, that is, owners, partners and shareholders. Expenses Reduction in economic benefits in an accounting period, in the form of outflows, or reduction of assets or committing to liabilities that effect in decreasing equity.

Measurement of the elements of financial statements Measurement is the method of determining the monetary amounts. But it does not comprise the contributions made by the equity participants, that is, owners, partners and shareholders. The components of the financial statements are documented and approved in the balance sheet and income statement. A number of diverse measurement bases are engaged in various degrees, and in changing combinations in financial statements. These measurements include the following: Historical cost - Assets are entered at the amount of cash or cash equivalents paid or the fair cost of the consideration given to obtain them at the time of their purchase. Liabilities are recorded at the amount of earnings received in exchange for the commitment, or in some situations (for example, income taxes), at the amounts of cash or cash equivalents likely to be paid to convince the liability in the normal course of business. Current cost - Assets are approved at the amount of cash or cash equivalents that needs to be paid, if the similar or an equivalent asset was acquired at present. Liabilities are approved at the undiscounted
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amount of cash or cash equivalents that would be necessary to settle the requirement at present. Realisable (settlement) value - Assets are approved at the amount of cash or cash equivalents that could, at present, be obtained by exchanging the asset in a methodical removal. Assets are accepted at the current discounted value of the future net cash inflows that the item is likely to produce in the typical course of business. Liabilities are carried at the current discounted value of the future net cash outflows that are likely to be essential to resolve the liabilities in the typical course of business.

The measurement basis that is generally adopted by entities in preparing their financial statements is historical cost. This is generally combined with other measurement bases. Self Assessment Questions 10. _______________ is one of the underlying assumptions of IFRS. 11. Equity is the outstanding concentration on the assets of the enterprise after subtracting all the liabilities under the historical cost accounting model. (True/ False) 12. Which among the following is not an element of financial statements? a) Asset b) Liability c) Equity d) Accountability

9.6 Summary
Let us now summarise the salient points you learnt in this unit on the international accounting practices: Accounting standards are the type of compulsory and regulatory mechanisms for training on financial reports and conducting successful audit for the same. It is used in almost all countries. International businesses meet number of accounting problems that do not stop domestic businesses. There are many differences between both Domestic Accounting Standards (DAS) and International Accounting Standards (IAS). Considering the list of differences, two indices are created-'absence' and 'divergence'.
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Law system is divided into civil law and common law countries in the world. Harmonisation of accounting and exterior financial reporting helps in the best international delivery of private-sector finance. Harmonisation of accounting and auditing practices help to diminish the size of the barrier. Certain regulatory bodies are dynamic in bringing harmonisation of accounting standards. Some of them are European Union, United Nations, and so on. International Financial Reporting Standards (IFRS) are principle-based values; interpretations and the arrangement followed by the International Accounting Standards Board (IASB).

9.7 Glossary
Benchmark - It is used to evaluate performance in the organisation. Depreciation - it refers to the decrease in price or value. Harmonisation - It refers to the process of making a pleasing or consistent whole.

9.8 Terminal Questions

1. Explain briefly how the differences between IAS and DAS be measured. 2. Explain briefly about accounting for international business. 3. Explain the forces that lead to harmonisation of accounting system. 4. Explain briefly the work of United Nation as one of the international regulatory bodies. 5. How do you measure the elements of financial statements of IFRS?

9.9 Answers
Self Assessment Questions 1. True 2. Absence, divergence 3. True 4. Financial accounting 5. Managers
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6. 7. 8. 9. 10. 11. 12.

True True OECD 1977 Going concern True Accountability

Terminal Questions 1. You can measure the differences between IAS and DAS in the following way: Literature on international accounting differences, Framework of analysis. These are explained in sub section 9.2.1 of this unit. Refer the same for details. 2. An organisation's first contact to international accounting occurs as an outcome of an import or export opportunity. In exports, a domestic organisation may receive an unwanted inquiry or obtain order from a foreign buyer. This is explained in the section 9.3 of this unit. Refer the same for details. 3. Though there are many differences in accounting standards and practices, a number of forces are leading to harmonisation: A movement to present information well-matched with the requirements of investors. These are explained in sub-section 9.3.2 of this unit. Refer the same for details. 4. The United Nations is interested in international accounting since the early 1970s under a 'Group of Eminent Persons'. This further led to the establishment of Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) by the UN Economic and Social Council. These are explained in the section 9.4 of this unit. Refer the same for details. 5. Measurement is the method of determining the monetary amounts at which the elements of the financial statements are to be documented and approved in the balance sheet and income statement. A number of diverse measurement bases are engaged in various degrees and in changing combinations in financial statements. They include the following: historical cost, current cost, and realisable (settlement) value. These are explained in the section 9.5 of this unit. Refer the same for details.
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9.10 Case-Let
Application of International Accounting Standards to Central Banks As the financial markets are becoming internationalised, the international accounting standards are applied to central banks. The primary objective of these entities is to maintain the value of the country's currency. The idea of applying IAS is to guarantee a high degree of transparency and comparability among financial statements and can find an efficient operation of the Community's capital market and the domestic market also. A sample of accounting and financial information were published on the websites of 19 central banks to know as to how the IASs are being applied to the accounting policies and practices used by central banks in the region. The findings of the analysis are described as follows: 1. Accounting standards governing the preparation of financial statements - It was found that there was a beginning of an alignment with International Accounting Standards. 2. Publication of financial statements - IAS states that a total set of financial statements should include a balance sheet, an income statement, and changes in equity statement, a cash flow statement and a summary of accounting policies. It was found out that the biggest problem for central banks was to prepare statements of changes in equity and cash flow statements. 3. Proper disclosure of information - According to IAS, a business is appreciative to disclose the accounting policies used and other explanatory notes. The study show that the central banks reveal accounting policies and practices in their notes. 4. Use of ultimate exchange rates and fair value - AS states that in each balance sheet, the dates of the items in foreign currency must be reported at closing rate. The findings about central bank focuses on the use of closing rates for assets and liabilities decreased in foreign currency and on the use of reasonable values for portfolios in both foreign and domestic currency.

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5. Reporting changes in the exchange rate - According to IAS, exchange differences that happen when monetary items are developed, must be reported as fixed cost or income for the phase in which they appeared. Through the study, it was found out that the central banks apply diverse policies and procedures to proof their exchange differences. All these helped in internalisation of central banks and helped in maintaining the international accounting standards on the domestic currency. Discussion Question 1. Discuss the application of international accounting standards to central bank. (Hint: Accounting Standards Governing the Preparation of Financial Statements) Source: www.cemla.org/pdf/acp/acp_9_Jairo_Contreras.pdf References Aswathappa. K. (2008). International Business. Tata McGraw Hill Education: New Delhi. Paul Rodgers (2007), International Accounting Standards, From UK Standards to IAS An Accelerated Route for Understanding the Key Principles, Elsevier Ltd. International Accounting Standards Committee (2000), International Accounting Standards Explained, Chichester: Wiley.

E-References media.wiley.com/product_data/excerpt/22/EHEP0005/EHEP000522.pdf http://www.indianmba.com/faculty_column/fc137/fc137.html http://www.loscostos.info/english/accsyst.html Retrieved on October 31st, 2010

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