Session 03 Comparative Accounting I

1. Session 03Comparative Accounting I Matakuliah : F0142/Akuntansi Internasional Tahun : September 2006

2. Introduction • Accounting Standards are the regulations or rules that govern the preparation of financial statements. • Standards setting is the process by which accounting standards are formulated. Thus, accounting standards are the products of standard setting. • Actual practice may deviate from what the standards require. There are four reason for this : • In many countries the penalties for non compliance with official accounting pronouncements are weak or ineffective • Companies may voluntarily report more information than required • Some countries allow companies to depart from accounting standards if doing so will better • In some countries accounting standards apply only to individual company financial statements, not to consolidated.

3. Six National Financial Accounting Systems France • Plan Comptable General (national accounting code) in September 1947. • A revised plan came into effect in 1957. • A further revision in 1982 under the influence of the Fourth Directive of The European Union (EU). • In 1986 the plan was extended to implement the requirements of the EU Seventh Directive on consolidated financial statements, and it was further revised in 1999. • The Plan Comptable General provides : • Objectives and principles of financial accounting and reporting • Definitions of assets, liabilities, shareholders’ equity, revenues and expenses • Recognition and valuation rules. • A standardized chart of accounts • Model financial statements and rules for their presentation.

4. Six National Financial Accounting Systems France • A feature of French accounting is : • dichotomy between individual company financial statements and those for the consolidated group. • The law allows French companies to follow International Financial Reporting Standards (IFRS) or US GAAP in their consolidated financial statements. • Major organizations are involved in setting standards : • Counseil National de la Comptabilite or CNC (National Accounting Board) • Counseil National de la Comptabilite or CNC (National Accounting Board) • Comite de la Reglementation Comptable or CRC (Accounting Regulation Committee) • Autorite des Marches Financiers or AMF (Financial Markets Authority) • Ordre des Experts Comptables or OEC (Institute of Public Accountants) • Compagnie Nationale des Commissaires aux Comptes or CNCC (National Institute of Statutory Auditors)

5. Six National Financial Accounting Systems France • French companies must report the following • Balance Sheet • Income Statement • Notes to Financial Statements • Directors’ Report • Auditor’s Report • Listed companies must provide half yearly interim reports and starting in 2003, the results of their environmental activities. Information must be given on : • Auditor’s Report • Water, raw material and energy consumption, and actions taken to improve energy efficiency • Activities to reduce pollution in the air, water, or ground, including noise pollution and their costs, and • Amount of provisions for environmental risks.

6. Six National Financial Accounting Systems Germany • In 1965 Corporation Law moved the German financial reporting system toward British American ideas. • The fourth, seventh and eighth EU directives all entered German law through the Comprehensive Accounting Act of December 19, 1985. • The fundamental characteristic of German accounting : • Creditor protection as embodied in the commercial law • The determination principle states that taxable income is determined by whatever is booked in a firm’s financial records. • Its reliance on statutes and court decisions

7. Six National Financial Accounting Systems Germany • The 1985 Accounting Act specifies the content and format of financial statements, which include : • Balance Sheet • Income Statement • Notes • Management Report • Auditor’s Report • A feature of the German financial reporting system is a private report by the auditors to a company’s managing board of directors and supervisory board. The report comments on the company’s future prospects and especially factors that may threaten its survival

8. Six National Financial Accounting Systems Japan • To understand Japanese accounting, one must understand Japanese culture, business practices and history. • Accounting regulation is based on three laws (a triangular legal system) : • The Commercial Code • Te Securities and Exchange Law • The Corporate Income Tax Law • The commercial code was enacted in 1890 but not implemented until 1899. Its developed from German commercial law • Publicly owned companies must meet the requirements of the Securities and Exchanges Law (SEL).

9. Six National Financial Accounting Systems Japan • The Business Accounting Deliberation Council (BADC) is a special advisory body to the Ministry of Finance responsible for developing accounting standards. • The Japanese Institute of Certified Public Accountants (JICPA) is the professional organization of CPA’s in Japan. • A major change in accounting standard setting in Japan occurred in 2001 with the establishment of the Accounting Standards Boards of Japan (ASBJ) and its related oversight foundation known as the Financial Accounting Standards Foundation (FASF). • Companies are required to prepare a statutory report, consist of : • Balance Sheet • Income Statement • Business Report • Proposal for Appropriation of Retained Earnings • Supporting Schedules

10. Six National Financial Accounting Systems The Netherlands • In 1970, the Act on Annual Financial Statements was enacted but accounting regulations remained liberal. • The act was amended in 1983 to incorporate the EU fourth directive. • Further amended in 1988 to incorporated the EU seventh directive • The council for annual reporting issues guidelines on generally acceptable (not accepted) accounting principles. The members are • Preparers of financial statements (employers) • Users of financial statements (representatives of trade unions and financial analysts) • Auditors of financial statements (The Netherlands Institute of Register Accountants or NIvRA)

11. Six National Financial Accounting Systems The Netherlands • Statutory financial statements should be filed in Dutch, but English, French and Germany are also acceptable. The statements must include : • Balance Sheet • Income Statement • Notes • Directors’ Report • Other Prescribed Information • A cash flow statement is not required, but is recommended by a council guideline, and most Dutch companies provide one • Dutch companies permitted to prepare financial statements using IFRS or US GAAP instead of Dutch accounting standards

12. Six National Financial Accounting Systems United Kingdom • In 1981 the EU Fourth Directive was implemented, adding statutory rules regarding formats, accounting principles and basic accounting conventions. The act set five basic accounting principles: • Revenues and expenses are matched on an accrual basis • Individual asset and liability are valued separately • The principles of conservatism is applied • Consistent application of accounting policies • The going concern principles is applicable

13. Six National Financial Accounting Systems United Kingdom • British financial reporting generally include : • Directors’ report • Profit and loss account and balance sheet • Cash flow statement • Statement of total recognized gains and losses • Statement of accounting policies • Notes that are referenced in the financial statements • Auditor’s Report

14. Six National Financial Accounting Systems United States • Accounting in the United States is regulated by • A private sector body (FASB) • A governmental agency (SEC) • Generally Accepted Accounting Principles are comprised of all financial accounting standards, rules, and regulations that must be observed in the preparation of financial report. • The Sarbanes Oxley Act was signed into law in 2002, significantly expanding US requirements on corporate governance, disclosure and reporting and the regulation of the audit profession. • Among its more important provisions is the creation of the PCAOB, a new non profit organization overseen by the SEC.

15. Six National Financial Accounting Systems United States • A typical annual financial report of a large US corporation includes the following : • Report of management • Report of independent auditors • Primary financial statements (income statement, balance sheet, statement of cash flows, statement of comprehensive income and statement of stockholders’ equity) • Management discussion and analysis of results of operations and financial condition • Disclosure of accounting policies • Notes to financial statements • Five or ten year comparison of selected financial data • Selected quarterly data

16. Summary of Significant Accounting Practices