International Accounting


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International Accounting

  1. 1. International Accounting, 7/e Frederick D.S. Choi Gary K. Meek Chapter 4: Comparative Accounting: The Americas and Asia
  2. 2. 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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  4. 4. 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 FASB’s 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
  5. 5. 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
  6. 6. 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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  9. 9. 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
  10. 10. 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
  11. 11. 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  Business Accounting Council  Responsible for auditing standards  Certified Public Accountant and Auditing Oversight Board  Government agency  Monitors and oversees the auditing profession
  12. 12. Japan (contin)  Unusual features of Japanese financial reporting  Forecasts of cash flows, capital investments, and production in statutory filings
  13. 13. China  Overview  Embracing IFRS as part of structural market reforms  Ministry of Finance responsible for all aspects of accounting and auditing
  14. 14. 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 China’s 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
  15. 15. India  Overview  British influence on accounting and auditing For example:  True and fair view  Independent accounting profession
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  17. 17. 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
  18. 18. Other Chapter Exhibits
  19. 19. Other Chapter Exhibits (contin)
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