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International Accounting, 6/e

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

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International Accounting, 6/e

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

  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.

  3. 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

  4. 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

  5. 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

  6. 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 • Financial statements are adjusted for inflation

  7. Japan • Overview • Strong bureaucratic control over business, including accounting • Structural reforms under way • Keiretsu business model being transformed • Accounting “big bang” to improve transparency

  8. 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 • Government agency • Monitors and oversees the auditing profession

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

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

  11. 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

  12. India • Overview • British influence on accounting and auditing For example: • True and fair view • Independent accounting profession

  13. 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 moving to adopt IFRS

  14. Other Chapter Exhibits

  15. Other Chapter Exhibits (contin)

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