International Accounting, 7/eFrederick D.S. ChoiGary K. MeekChapter 4: Comparative Accounting: The Americas and Asia

Learning ObjectivesUnderstand 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.

United StatesOverviewFinancial Accounting Standards Board (FASB)Private-sector organization that determines accounting standardsThe Securities and Exchange Commission (SEC) a governmental agency underpins FASBs authorityPublic Company Accounting Oversight Board (PCAOB)Private organization overseen by the SECRegulates audits and auditors of public companiesIn 2002, took over the responsibility for setting auditing standards from the American Institute of Certified Public Accountants (AICPA)Financial statements present fairlyCompliance with GAAP is the test for fair presentation

United States (contin)Accounting regulation and enforcementSecurities and Exchange CommissionHas jurisdiction over listed companiesRelies on private sector (FASB) to set accounting standardsPressures FASB on the direction of accounting standardsFinancial Accounting Standards BoardConceptual Framework is a significant feature of accounting standard settingStandard setting in the U.S. is both political and technicalGenerally accepted accounting principles (GAAP) are voluminous and detailedCommitted to converging U.S. GAAP with IFRSSarbanes-Oxley Act (2002)Expanded requirements on corporate governance, disclosure and reporting, and the regulation of the audit professionEstablished PCAOBSets standards for auditorsOversees and inspects audit firmsSanctions auditors for defective workCEO and CFO must certify financial statementsManagement must assess internal controlsAuditors express an opinion on internal controls

United States (contin)Unusual features of U.S. financial reportingNo federal law for preparing financial statements or having them audited, except for listed companiesLIFORules-based GAAP versus principles-based GAAPRules-basedMore specific requirementsMore detailed implementation guidanceMay result in more comparabilityMay foster check-the-box mentalityPrinciples-basedSets forth broad objectives and fundamentalsRequires professional judgment for implementationMore flexibleMay result in more divergence in practice

MexicoOverviewAccounting is oriented toward fair presentation despite code law legal systemGeneral price-level accounting (inflation-adjusted financial statements) was a fundamental feature until 2008Listed companies will use IFRS starting in 2012Accounting profession is well-developed and influential in setting accounting and auditing standardsAccounting regulation and enforcementCouncil for Research and Development of Financial Information Standards (CINIF)Independent public/private-sector partnership patterned after FASB and IASBDetermines Mexican GAAPAim align Mexican GAAP with IFRSMexican Institute of Public AccountingIssues auditing standards through its Auditing Standards and Procedures CommissionUnusual features of Mexican financial reportingFinancial statements are adjusted for inflation when three-year cumulative inflation rate equals or exceeds 26 percent

JapanOverviewStrong bureaucratic control over business, including accountingStructural reforms under wayKeiretsu business model being transformedAccounting big bang to improve transparencyListed companies may voluntarily adopt IFRS starting in 2010 and required adoption expected around 2015

JapanAccounting regulation and enforcementTriangular legal systemCompany LawAdministered by Ministry of JusticeCreditor and shareholder protection the fundamental principleSecurities and Exchange LawAdministered by Financial Services AgencyFor publicly owned companiesProviding information for investment decision-making the main objectiveCorporate Income Tax LawExpenses must be booked to be claimed for tax purposesAccounting Standards Board of JapanPrivate-sector organizationResponsible for developing accounting standardsModeled after FASB and IASBConvergence with IFRS a major goalTook over from the Business Accounting Council (a government agency) in 2001Japanese Institute of Certified Public AccountantsProvides guidance on conduct of auditBusiness Accounting Council Responsible for auditing standardsCertified Public Accountant and Auditing Oversight BoardGovernment agencyMonitors and oversees the auditing profession

Japan (contin)Unusual features of Japanese financial reportingForecasts of cash flows, capital investments, and production in statutory filings

ChinaOverviewEmbracing IFRS as part of structural market reformsMinistry of Finance responsible for all aspects of accounting and auditing

China (contin)Accounting regulation and enforcementChinese Accounting Standards CommitteeUnder the Ministry of FinanceResponsible for developing accounting standardsChinese Institute of Certified Public AccountantsUnder the Ministry of FinanceResponsible for developing auditing standards and code of professional ethicsChina Securities Regulatory CommissionUnder Ministry of FinanceRegulates Chinas two stock exchangesAccounting Standards for Business Enterprises (ASBE)Comprehensive framework for accounting and financial reportingIncludes detailed implementation guidance on accounting issuesLargely in line with IFRSFirst introduced in 1992 by Ministry of Finance and revised several times sinceUnusual features of Chinese financial reportingStartling changes since original ASBE in 1992

IndiaOverviewBritish influence on accounting and auditing For example:True and fair viewIndependent accounting profession

India (contin)Accounting regulation and enforcementCompanies ActBroad framework for accounting and auditingInstitute of Chartered Accountants of IndiaSupervised by Ministry of Company Affairs, a government agencyRegulates profession of chartered accountancyResponsible for developing both accounting and auditing standardsAccounting Standards BoardIssues Indian Accounting StandardsAuditing and Assurance Standards BoardIssues Auditing and Assurance StandardsSecurities and Exchange Board of IndiaAgency of the Ministry of FinanceOversees stock marketsUnusual features of Indian financial reportingSome practices are behind developed world, but will roll out adoption of IFRS starting in 2011

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