Kyle T. Welch and Dr. Kay Stice, School of Accounting and Information Systems

Objective

The project objective is to observe the international accounting standards community responses to the recent Enron and Anderson collapse.

Background

Throughout time, various generations have been characterized by influential business philosophies and inventions. From a McDonalds in Moscow to the Coke machine in Zimbabwe, globalization of businesses has become one of the key attributes of this generation. Companies are finding that tapping into untouched foreign markets is a key element to success. The globalization of financial markets has stimulated investors to consider investing in companies that are lo cated in other nations than their country of residence. Traditionally, such movements were complicated by international accounting diversity—hence, the increasing importance of an internationally accepted accounting framework.

Paul Volcker, an internatio nal accounting professional explained that “obtaining a strong global consensus on a single set of accounting standards will be very difficult.” He explained the difficulties come from, “the technical challenges facing the profession…different traditions… approaches…and degrees of professional development.” Thus almost every country has its own rules for accounting standards.

Results

There have been several significant changes in the realm of accounting standards over the past year (2003). The approach taken to this project was to find out how the American Financial Accounting Standards Board (FASB) was affecting the world’s view of accounting standards. A year ago this prospective seemed to be reasonable viewing historical information that demonstrated accounting standards in the US as being the most strict and technical. American accountants are almost proud of how strict and representative the standards are. However over the course of the year with additional research, it has become evident that the tides are changing for influence.

There is additional value in accounting standards beyond the quality of presentation and might lean towards comparability. Indeed it seems the opposite is true as the International accounting Standards Committee (IASC) is gaining significant acceptance. It appears that the international market is gaining influence over the FASB.

With the pressures of globalization and strengthening international market forces—the United States is not the only power house for investor influence. The market is continuing to push for convergence of international standards. Through the research performed it appears that International Accounting Standards (IAS) are increasingly looked to for comparability over the FASB’s Financial Accounting Statements (FAS) statements; at least with accounting principles. Typically the IAS has taken an accounting principles based approach to setting standards. This provides some flexibility and is not nearly as extensive as FAS statements. Typically country might adopt IAS and have a home based bored that is given the responsibility to interpret the board statements to more specific requirements. The IAS appears to becoming the authority and the ruler to be measured by. Mexican GAAP is the typical model beginning to be seen throughout the world for establishing GAAP.

The Mexican Institute of Public Accountants (IMCP) has the responsibility to build Mexican GAAP. Currently, the standards issued by the IMCP are prepared in accordance with Mexican standards, approximately 70% of which are already in line with international standards.1 Mexico is trying to get on the road towards international uniformity through the IAS. Though the Mexican standards are not yet aligned with the International Accounting Standards, Mexican CPA’s are instructed to apply IAS as supplementary. 2 In fact The IMCP is a member of the Standards Advisory Council.

In order for Mexico to successfully adopt and apply the International Accounting Standards, and as part of the strategy to achieve convergence, on 25 April 2001 the IMCP and other institutions launched an initiative to form the Mexican Council for Research and Development of Financial Reporting Standards (CINIF), which will be responsible for issuing financial reporting accounting standards that are in line with International Accounting Standards (IAS). CINIF members have resolved to continue with the strategy of making the accounting standards that govern Mexico’s economic activities in the future fully consistent with IAS.

The pattern followed by Mexico is similar to most of the emerging markets wanting to experience growth. In the past the FASB has been the trend setter and the standard for international reporting; it appears now that the IASC has taken over that responsibility and is now the leader in effecting international standards.