Діордіященко О.В., Компанійченко Г.О.

Первомайський факультет Харківського державного університету харчування та торгівлі

Setting Accounting and Auditing Standards Internationally

Accounting standards are the rules for preparing financial statements: that is, the "generally accepted accounting principles" (GAAP) that specify the type of information that financial statements ought to contain and how that information ought to be prepared. Accounting standards define what acceptable and unacceptable financial accounting practices are.

Auditing standards are the rules governing how an "audit" is performed. An audit of financial statements is the technical process by which an independent person (the auditor) gathers evidence to form an opinion about how well a set of financial statements conforms to GAAP. In most countries a particular group of accountants is legally sanctioned to conduct financial statement audits. In the United States, for example, it is the certified public accountant (CPA). In the United Kingdom it is the chartered accountant; in the Netherlands, the register accountant; and in Germany, the Wirtschaftspriifer. Financial statements conforming to GAAP are said to be "reliable," and reliable information is an important ingredient in good decision making.

Accounting standards and auditing standards are interrelated. Accounting standards presumably define what «useful» financial information is. Auditing standards guide an auditor in determining whether it is also "reliable." Useful and reliable financial information puts investors, creditors, and others in a position to make better decisions.

Accounting has been called the language of business. That analogy is accurate since accounting is a form of communication. As with all types of communication, though, misunderstandings can arise unless meanings are reasonably clear.

This article explains how certain environmental variables shape the development of accounting in a particular country. It also provides a rationale for the worldwide diversity of accounting practices— since accounting reflects the environment in which it operates and since environments differ around the world, it follows that accounting will also be different around the world.

Unfortunately, this diversity of accounting practices results in a general lack of comparability in financial reports from one country to the next. As a result an opportunity for misunderstanding arises when financial statements are communicated transnational.

The problem of different auditing standards is more subtle. Fundamentally, an audit assures users that they can trust the information communicated by the financial statements. However, if auditors around the world are not comparably trained or if they do not observe comparable standards, then their work varies in quality. As a result the inherent reliability of financial statements also varies.

The existence of different accounting and auditing standards affects the decisions of resource providers to the extent that they fail to either understand or trust the messages communicated by financial statements. A number of international and regional organizations recognize this problem and are endeavoring to harmonize accounting and auditing standards to the extent possible. This chapter discusses the work of these organizations. First, however, we quickly review the three major bodies that influence financial accounting in the United States. These organizations indirectly influence accounting in other countries as well due to the United States' leading position in the accounting world.

The U.S. Securities and Exchange Commission (SEC) is a U.S. government agency charged with ensuring adequate accounting and reporting standards for companies whose common stock shares are publicly traded in the United States. The SEC's primary concern is to protect investors from potential losses resulting from insufficient or incorrect financial information. The SEC is empowered to write accounting standards for so-called publicly held companies although it has typically deferred this task to the Financial Accounting Standards Board. Any corporation whose shares are publicly traded in the United States (even a non-U.S. firm) must abide by the rules of the SEC. The SEC's reporting requirements for non-U.S. firms are similar, though not identical, to the reporting requirements for U.S. com-

panies. In this way it also exerts influence over the financial reporting of some companies from other countries.

The Financial Accounting Standards Board (FASB) is the principal body that writes the generally accepted accounting principles by which the financial statements of U.S. companies must be prepared. The official pronouncements that establish GAAP are known as Statements of Financial Accounting Standards, and those issued so far concern such diverse topics as accounting for leases, reporting the effects of changing prices, and foreign currency translation. The FASB is also working on a "conceptual framework project," which deals with theoretical and conceptual issues and is intended to provide an underlying structure for future accounting standards. The pronouncements from the conceptual framework project are called Statements of Financial Accounting Concepts.

The FASB is a private-sector body (i.e., not a government agency) supported financially by several professional business and accounting groups. The board is composed of seven full-time members who are aided by a staff of 45 technical specialists plus administrative and other support personnel.

The American Institute of Certified Public Accountants (AICPA) is an organization of more than 200,000 CPAs. CPAs engage in a number of accounting activities including preparing tax returns, giving tax advice, and conducting audits of financial statements. The AICPA publishes standards to aid auditors in their examinations. Statements on Auditing Standards cover such issues as how to plan an audit and supervise assistants, how to report audit findings, the use of statistical sampling on an audit, and what to do when the auditor discovers fraud. Like the FASB, it is a private-sector body.