International Accounting, 7/e

Frederick D.S. Choi

Gary K. Meek

Chapter 4:
Comparative Accounting: The
Americas and Asia
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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.

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United States

Overview

Financial Accounting Standards Board (FASB)

Public Company Accounting Oversight Board (PCAOB)

Private-sector organization that determines accounting standards

The Securities and Exchange Commission (SEC) a governmental
agency underpins FASBs 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

Compliance with GAAP is the test for fair presentation

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United States (contin)

Accounting regulation and enforcement

Securities and Exchange Commission

Financial Accounting Standards Board

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)

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

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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

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Mexico

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 standards

Accounting regulation and enforcement

Council for Research and Development of Financial Information Standards

(CINIF)

Mexican Institute of Public Accounting

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

Financial statements are adjusted for inflation when three-year cumulative

inflation rate equals or exceeds 26 percent

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Japan

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

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Japan

Accounting regulation and enforcement

Triangular legal system

Accounting Standards Board of Japan

Provides guidance on conduct of audit

Business Accounting Council

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

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 purposes

Responsible for auditing standards

Certified Public Accountant and Auditing Oversight Board

Government agency
Monitors and oversees the auditing profession
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Japan (contin)
Unusual

features of Japanese financial

reporting

Forecasts of cash flows, capital investments, and

production in statutory filings

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China

Overview

Embracing IFRS as part of structural market reforms

Ministry of Finance responsible for all aspects of
accounting and auditing

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China (contin)

Accounting regulation and enforcement

Chinese Accounting Standards Committee

Chinese Institute of Certified Public Accountants

Under Ministry of Finance

Regulates Chinas two stock exchanges

Accounting Standards for Business Enterprises (ASBE)

Under the Ministry of Finance

Responsible for developing auditing standards and code of professional ethics

China Securities Regulatory Commission

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

Startling changes since original ASBE in 1992

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India
Overview

British influence on accounting and auditing

For example:
True and fair view
Independent accounting profession

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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

Securities and Exchange Board of India

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

Some practices are behind developed world, but will roll out adoption of
IFRS starting in 2011

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Other Chapter Exhibits

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Other Chapter Exhibits (contin)

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