International Accounting 6e Frederick D S Choi Gary

International Accounting, 6/e Frederick D. S. Choi Gary K. Meek Chapter 4: Comparative Accounting: The Americas and Asia Choi/Meek, 6/e 1

Learning Objectives l l 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. Choi/Meek, 6/e 2

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United States l Overview l Financial Accounting Standards Board (FASB) l l l Public Company Accounting Oversight Board (PCAOB) l l Private-sector organization that determines accounting standards The Securities and Exchange Commission (SEC) – a governmental agency – underpins FASB’s authority 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” l Choi/Meek, 6/e Compliance with GAAP is the test for fair presentation 4

United States (contin) l Accounting regulation and enforcement l Securities and Exchange Commission l l Financial Accounting Standards Board l l l Has jurisdiction over listed companies Relies on private sector (FASB) to set accounting standards Pressures FASB on the direction of accounting standards 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) l l Expanded requirements on corporate governance, disclosure and reporting, and the regulation of the audit profession Established PCAOB § § § l l l Choi/Meek, 6/e 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 5

United States (contin) l Unusual features of U. S. financial reporting l No federal law for preparing financial statements or having them audited, except for listed companies l LIFO l Rules-based GAAP versus principles-based GAAP l Rules-based § § l Principles-based § § Choi/Meek, 6/e More specific requirements More detailed implementation guidance May result in more comparability May foster “check-the-box” mentality Sets forth broad objectives and fundamentals Requires professional judgment for implementation More flexible May result in more divergence in practice 6

Mexico l Overview l l Accounting is oriented toward fair presentation despite code law legal system General price-level accounting (inflation-adjusted financial statements) are a fundamental feature Accounting profession is well-developed and influential in setting accounting and auditing standards Accounting regulation and enforcement l Council for Research and Development of Financial Information Standards (CINIF) l l Mexican Institute of Public Accounting l l Independent public/private-sector partnership patterned after FASB and IASB Determines Mexican GAAP Aim – align Mexican GAAP with IFRS Issues auditing standards through its Auditing Standards and Procedures Commission Unusual features of Mexican financial reporting l Financial statements are adjusted for inflation Choi/Meek, 6/e 7

Japan l Overview l l Strong bureaucratic control over business, including accounting Structural reforms under way l l Choi/Meek, 6/e Keiretsu business model being transformed Accounting “big bang” to improve transparency 8

Japan l Accounting regulation and enforcement l Triangular legal system l l Accounting Standards Board of Japan l l l Provides guidance on conduct of audit Business Accounting Council l l 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 l l Company Law § Administered by Ministry of Justice § Creditor and shareholder protection the fundamental principle Securities and Exchange Law § 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 Responsible for auditing standards Certified Public Accountant and Auditing Oversight Board l l Choi/Meek, 6/e Government agency Monitors and oversees the auditing profession 9

Japan (contin) l Unusual features of Japanese financial reporting l Forecasts of cash flows, capital investments, and production in statutory filings Choi/Meek, 6/e 10

China l Overview l l Embracing IFRS as part of structural market reforms Ministry of Finance responsible for all aspects of accounting and auditing Choi/Meek, 6/e 11

China (contin) l Accounting regulation and enforcement l Chinese Accounting Standards Committee l l l Chinese Institute of Certified Public Accountants l l Under Ministry of Finance Regulates China’s two stock exchanges Accounting Standards for Business Enterprises (ASBE) l l l Under the Ministry of Finance Responsible for developing auditing standards and code of professional ethics China Securities Regulatory Commission l l Under the Ministry of Finance Responsible for developing accounting standards 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 l Startling changes since original ASBE in 1992 Choi/Meek, 6/e 12

India l Overview l British influence on accounting and auditing For example: l l Choi/Meek, 6/e True and fair view Independent accounting profession 13

India (contin) l Accounting regulation and enforcement l Companies Act l l Broad framework for accounting and auditing Institute of Chartered Accountants of India l l l Supervised by Ministry of Company Affairs, a government agency Regulates profession of chartered accountancy Responsible for developing both accounting and auditing standards § § l Securities and Exchange Board of India l l l Accounting Standards Board § Issues Indian Accounting Standards Auditing and Assurance Standards Board § Issues Auditing and Assurance Standards Agency of the Ministry of Finance Oversees stock markets Unusual features of Indian financial reporting l Some practices are “behind” developed world, but moving to adopt IFRS Choi/Meek, 6/e 14

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Other Chapter Exhibits Choi/Meek, 6/e 16

Other Chapter Exhibits (contin) Choi/Meek, 6/e 17