International Accounting, 6/e
Frederick D.S. Choi
Gary K. Meek
Chapter 4:
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.
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”
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
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
Mexico
Overview
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
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
Japan
Overview
Strong bureaucratic control over business,
including accounting
Structural reforms under way
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
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
Japan (contin)
Unusual features of Japanese financial
reporting
Forecasts of cash flows, capital investments, and
China
Overview
Embracing IFRS as part of structural market reforms
Ministry of Finance responsible for all aspects of
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
India
Overview
British influence on accounting and auditing
For example:
True and fair view
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