International Accounting, 6/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)
 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

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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

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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) 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

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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

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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
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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
 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

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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
 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

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Other Chapter Exhibits

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Other Chapter Exhibits (contin)

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