The document discusses concerns about whether International Financial Reporting Standards (IFRS) appropriately account for the cooperative business model. While IFRS standard setters have aimed to treat all businesses similarly, cooperatives differ in having member ownership and control rather than ownership for profit. The document outlines key differences between cooperatives and investor-owned companies and calls for IFRS to better accommodate cooperatives.
5. Globally uniform rules? “ The … Enron collapse revealed, as perhaps never before, the central role of financial reporting in a capitalist system . Where doubts and lack of confidence exist money will not be invested. Sir David Tweedie, Chairman, International Accounting Standards Board The role of the IASB is to ensure that the worldwide accounting method for dealing with any particular transaction is the same whether the event takes place in Stuttgart, Seoul, Seattle or Sydney . Our mission is to produce one set of high quality, global standards. Our aim is to converge on the best possible answer ”.
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8. IFRSs around the world Darker areas indicate countries that require or permit IFRSs. Lighter areas are countries seeking convergence IASB or pursuing adoption of IFRSs. In August 2008, the SEC announced that the US planned to adopt IFRS from 2014. “… the triumph of IFRS as the single global accounting language” ( Financial Times , 28th August 2008).
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10. Source: Brenner (2006), Table 1 - 1.7 3.4 Gross capital stock/hour - 3.2 5.4 Gross capital stock 0 2.2 1.6 Real wage (mfgr) 1.8 2.5 2.1 GDP/capita 1.2 2.6 2.2 GDP/hour 2.9 4.0 4.0 GDP 1973-1996 1950-1973 1890-1913 Average % change Long Booms and Downturns
16. Does it work? Sharpe Ratio = (Portfolio Return - Risk-Free Return) / Standard Deviation EAFE = Europe, Australia and Far East
17. The distribution of world GNP ( Each county's size is relative to its share of the world's GNP in 1991.) Source: http://www.developmenteducation.ie.
20. Shareholders’ equity in German and US GAAP “… support[s] the conservatism and smoothing hypotheses generally linked to German GAAP in the literature” (Radebaugh, Gebhardt and Gray, 1995, p.186). 0.6880 0.6904 0.7144 German GAAP/US GAAP 29,435 26,281 27,604 According to US GAAP 20,251 18,145 19,719 According to German GAAP DM millions DM millions DM millions 1994 1993 1992
23. Capital markets USA UK True & fair view ‘ Present fairly in accordance with GAAP’ Efficient capital markets Stewardship Agency problem Legal problem Auditors hired by management Auditors hired by shareholders
24. Stewardship (accountability) theory Principals use a mixture of all three Targets Accounts Punishments & rewards Supervision Law Contracts Physical constraint (e.g., buildings) Qualifications Tests Judgement Ideology Methods Control of unobserved behaviour Control of observed behaviour Dedicated, uncontrolled behaviour Aim Results controls Action controls Personnel controls
25. Judgements Punishments & rewards Accounts (results) Explanations Principal Agent Auditor Checks Produces Motivates Hands down Requires Hires Reports Hires Sets financial targets To audit the auditor, shareholders need a theory of accounting. To hold the agent accountable shareholders need objective accounts.
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28. Are US accounts the best? “ Because of a constitutional quirk, the US federal reporting model does not address in enforceable law the fundamental capitalist proposition ‘do the accounts show how efficiently a company is run on its capital resources?’ …Instead the federal model poses a legally very different, and actually far more ambiguous question, ‘are the accounts consistent in showing what a company might be worth when a share is exchanged?’” (Bush, 2005, p.2). The IASB shares the FASB’s aim: “… to help participants in the various capital markets of the world and other users of the information to make economic decisions ” (Preface to IFRSs, para.6).
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32. The circuit of capital after interest M Dividends Equity Debt Interest M ′ - i P C C '
35. Entity theory The entity Ordinary shares Preference shares Bonds Derivatives Perpetual debt Redeemable shares ‘Claims’ on the entity
36. Capital goods Flow of services (Psychic income) Capital value (PV) Income value (cash) The farmer The banker The balance sheet The income statement C-M-C ′ M-M ′
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41. 2008 amendment to IAS32 Liability Liability Any of the instruments described above issued by a subsidiary held by non-controlling parties, in the consolidated financial statements Equity Liability Share puttable at fair value only on liquidation, that is also the most subordinate, but contains a fixed discretionary dividend and does not contain any other obligation Compound (part equity, part liability) Liability Share puttable at fair value only on liquidation, that is also the most subordinate, but contains a fixed non-discretionary dividend Liability Liability Share puttable at fair value, that is not the most subordinate Equity Liability Share puttable throughout its life at fair value, that is also the most subordinate, does not contain any other obligation, with discretionary dividends based on profits of the issuer Classification under amended IAS 32 Classification under existing IAS 32 Issued financial instrument