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International Accounting, 7/e


International Accounting, 7/e Frederick D.S. Choi Gary K. Meek Chapter 4: Comparative Accounting: The Americas and Asia Learning Objectives Understand how ... – PowerPoint PPT presentation

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Title: International Accounting, 7/e

International Accounting, 7/e
  • Frederick D.S. Choi
  • Gary K. Meek

Chapter 4 Comparative
Accounting The Americas and Asia
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
  • Describe the key similarities and differences
    among the accounting systems of these five
  • 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

United States (contin)
  • Accounting regulation and enforcement
  • Securities and Exchange Commission
  • Has jurisdiction over listed companies
  • Relies on private sector (FASB) to set accounting
  • Pressures FASB on the direction of accounting
  • 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

United States (contin)
  • Unusual features of U.S. financial reporting
  • No federal law for preparing financial statements
    or having them audited, except for listed
  • 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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  • 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
  • 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

  • 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

  • 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
  • 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
  • Provides guidance on conduct of audit

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

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

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
  • 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

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

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
Other Chapter Exhibits (contin)