This presentation is part of: I00-2 EU Integration and Socio-Economic Reforms in the Czech Republic

Comparative Analysis of National GAAP of Czech and Lithuania

Jiri Strouhal, Ph.D., Department of Financial Accounting and Auditing, University of Economics, W. Churchill Square 4, Prague, 130 67, Czech Republic, Svetlana Zverovich, Ph.D., University of the West of England - Bristol Business School, Frenchay Campus, Coldharbour Lane, Bristol, BS16 1QY, United Kingdom, and Jonas Mackevicius, Habil., Dr., Department of Accounting and Audit, Vilnius University, Sauletekio 9, Vilnius, LT-10222, Lithuania.

The globalization and the expansion of markets, as well as the general progress in the technologies available have brought new problems to the compilation of financial reports and to the ascertainment of trading income of supranational corporations and groups in accordance with statutory regulations of countries involved. From the year 2005 should public listed companies in the Czech Republic report under IFRS framework, while the non-listed companies still report under Czech accounting principles. Czech Accounting Act was adopted in 1992 and since that time was 15 times changed! Unfortunatelly these changes don’t comply with the necessity of the harmonisation of the Czech accounting with IFRS. Surprisingly the definition of the balance sheet items is still missing in Czech GAAP. Paper stress the attention on the discrepancies between reporting under IFRS in the Czech Republic and the reporting under Czech GAAP.

The EU motivates the regulation by referring to the enhanced international comparability and transparency of financial statements and improved access to the international capital markets resulting from IFRS usage (Cuijpers and Buijink, 2005). The demand for detailed application guidance will increase substantially, as will the demand for uniform financial reporting enforcement throughout the European Union. Schipper (2005) states “if the IASB declines to provide detailed implementation guidance for IFRS, I predict that preparers and auditors will turn elsewhere, perhaps to US GAAP or perhaps to jurisdiction-specific European GAAP, for that guidance”.

Prior studies show that the level of disclosure (Cooke, 1992; Meek et al., 1995) and the probability of using non-local GAAP (El-Gazzar et al., 1999; Murphy, 1999; Ashbaugh, 2001; Dumontier and Raffournier, 1998; Leuz and Verrecchia, 2000; Leuz, 2003) are positively associated with the number of foreign stock exchange listings of a firm. The impact on financial reporting of cultural differences has been well documented (Nobes and Parker, 2002; Radebaugh and Gray, 2002). There may be more disclosure by UK or US companies that have a culture of disclosure of information than by companies that have not traditionally aimed to produce especially transparent financial statements (e.g. companies from transitional economies such as Czech Republic).

The most significant problem of financial statements and items shown is the complete inconsistency of measurement bases and the application of the historic (acquisition) cost, fair value and the present value (Buus, Strouhal, Brabenec, 2007). At present, the principle of measurement based on the historical cost fades out as it is being gradually replaced by the IFRS trend of reporting fair values, which are, however, difficult to measure in less transparent markets. At the same time, the reporting based on fair value is includes a hidden danger of future volatility of such values and the consequent impact of the changes on financial statements.

Key words:                           Financial Reporting, European Union, Czech Republic, IFRS, Czech GAAP

JEL classification:             M41 (G30)