International Accounting, 7/e

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International Accounting, 7/e

• Frederick D.S. Choi
• Gary K. Meek

Chapter 4 Comparative
Accounting The Americas and Asia
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Learning Objectives

• Understand how financial reporting is regulated
  and enforced in five countries of the Americas
  and Asia the U.S., Mexico, Japan, China, and
  India.
• Describe the key similarities and differences
  among the accounting systems of these five
  countries.
• Describe the auditor-oversight mechanisms in
  these five countries.
• Explain the difference between principles-based
  and rules-based accounting standards.

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United States

• Overview
• Financial Accounting Standards Board (FASB)
• Private-sector organization that determines
  accounting standards
• The Securities and Exchange Commission (SEC) a
  governmental agency underpins FASBs authority
• Public Company Accounting Oversight Board (PCAOB)
• Private organization overseen by the SEC
• Regulates audits and auditors of public companies
• In 2002, took over the responsibility for setting
  auditing standards from the American Institute of
  Certified Public Accountants (AICPA)
• Financial statements present fairly
• Compliance with GAAP is the test for fair
  presentation

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United States (contin)

• Accounting regulation and enforcement
• Securities and Exchange Commission
• Has jurisdiction over listed companies
• Relies on private sector (FASB) to set accounting
  standards
• Pressures FASB on the direction of accounting
  standards
• Financial Accounting Standards Board
• Conceptual Framework is a significant feature of
  accounting standard setting
• Standard setting in the U.S. is both political
  and technical
• Generally accepted accounting principles (GAAP)
  are voluminous and detailed
• Committed to converging U.S. GAAP with IFRS
• Sarbanes-Oxley Act (2002)
• Expanded requirements on corporate governance,
  disclosure and reporting, and the regulation of
  the audit profession
• Established PCAOB
• Sets standards for auditors
• Oversees and inspects audit firms
• Sanctions auditors for defective work
• CEO and CFO must certify financial statements
• Management must assess internal controls
• Auditors express an opinion on internal controls

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United States (contin)

• Unusual features of U.S. financial reporting
• No federal law for preparing financial statements
  or having them audited, except for listed
  companies
• LIFO
• Rules-based GAAP versus principles-based GAAP
• Rules-based
• More specific requirements
• More detailed implementation guidance
• May result in more comparability
• May foster check-the-box mentality
• Principles-based
• Sets forth broad objectives and fundamentals
• Requires professional judgment for implementation
• More flexible
• May result in more divergence in practice

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Mexico

• Overview
• Accounting is oriented toward fair presentation
  despite code law legal system
• General price-level accounting (inflation-adjusted
  financial statements) was a fundamental feature
  until 2008
• Listed companies will use IFRS starting in 2012
• Accounting profession is well-developed and
  influential in setting accounting and auditing
  standards
• Accounting regulation and enforcement
• Council for Research and Development of Financial
  Information Standards (CINIF)
• Independent public/private-sector partnership
  patterned after FASB and IASB
• Determines Mexican GAAP
• Aim align Mexican GAAP with IFRS
• Mexican Institute of Public Accounting
• Issues auditing standards through its Auditing
  Standards and Procedures Commission
• Unusual features of Mexican financial reporting
• Financial statements are adjusted for inflation
  when three-year cumulative inflation rate equals
  or exceeds 26 percent

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Japan

• Overview
• Strong bureaucratic control over business,
  including accounting
• Structural reforms under way
• Keiretsu business model being transformed
• Accounting big bang to improve transparency
• Listed companies may voluntarily adopt IFRS
  starting in 2010 and required adoption expected
  around 2015

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Japan

• Accounting regulation and enforcement
• Triangular legal system
• Company Law
• Administered by Ministry of Justice
• Creditor and shareholder protection the
  fundamental principle
• Securities and Exchange Law
• Administered by Financial Services Agency
• For publicly owned companies
• Providing information for investment
  decision-making the main objective
• Corporate Income Tax Law
• Expenses must be booked to be claimed for tax
  purposes
• Accounting Standards Board of Japan
• Private-sector organization
• Responsible for developing accounting standards
• Modeled after FASB and IASB
• Convergence with IFRS a major goal
• Took over from the Business Accounting Council (a
  government agency) in 2001
• Japanese Institute of Certified Public
  Accountants
• Provides guidance on conduct of audit

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Japan (contin)

• Unusual features of Japanese financial reporting
• Forecasts of cash flows, capital investments, and
  production in statutory filings

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China

• Overview
• Embracing IFRS as part of structural market
  reforms
• Ministry of Finance responsible for all aspects
  of accounting and auditing

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China (contin)

• Accounting regulation and enforcement
• Chinese Accounting Standards Committee
• Under the Ministry of Finance
• Responsible for developing accounting standards
• Chinese Institute of Certified Public Accountants
• Under the Ministry of Finance
• Responsible for developing auditing standards and
  code of professional ethics
• China Securities Regulatory Commission
• Under Ministry of Finance
• Regulates Chinas two stock exchanges
• Accounting Standards for Business Enterprises
  (ASBE)
• Comprehensive framework for accounting and
  financial reporting
• Includes detailed implementation guidance on
  accounting issues
• Largely in line with IFRS
• First introduced in 1992 by Ministry of Finance
  and revised several times since
• Unusual features of Chinese financial reporting
• Startling changes since original ASBE in 1992

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India

• Overview
• British influence on accounting and auditing
  For example
• True and fair view
• Independent accounting profession

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India (contin)

• Accounting regulation and enforcement
• Companies Act
• Broad framework for accounting and auditing
• Institute of Chartered Accountants of India
• Supervised by Ministry of Company Affairs, a
  government agency
• Regulates profession of chartered accountancy
• Responsible for developing both accounting and
  auditing standards
• Accounting Standards Board
• Issues Indian Accounting Standards
• Auditing and Assurance Standards Board
• Issues Auditing and Assurance Standards
• Securities and Exchange Board of India
• Agency of the Ministry of Finance
• Oversees stock markets
• Unusual features of Indian financial reporting
• Some practices are behind developed world, but
  will roll out adoption of IFRS starting in 2011

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Other Chapter Exhibits
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Other Chapter Exhibits (contin)