Bài giảng môn Kế toán, kiểm toán - Chapter 6: Comparative accounting

Chapter 6:Comparative AccountingChapter TopicsAccounting environment, profession, regulation, practices/principles and differences in national accounting practices with IFRS in:ChinaGermanyJapanMexicoUnited Kingdom6-2Learning ObjectivesDescribe some aspects of the environment in which accounting operates in five countries: China, Germany, Japan, Mexico, and the United KingdomExplain the nature of the accounting profession in the selected countriesDiscuss the mechanisms in place for regulating accounting and financial reporting in the selected countriesExamine some of the accounting principles and practices used by companies in these countries6-3Learning ObjectivesIdentify the areas where national accounting practices in these countries differ from International Financial Reporting Standards (IFRS)6-4PEOPLE’S REPUBLIC OF CHINA (PRC)BackgroundWorld’s largest country with population of 1.34 billion(2008)People’s Republic of China (PRC) established in 1949Politically:Communist, one-party stateEconomically: Until the 1980s, all firms state-ownedCurrently in transformation to socialist market economyWorld’s second largest economy (in terms of GDP) and fastest growing among large economies, and is largest recipient of FDI6-5PEOPLE’S REPUBLIC OF CHINA (PRC)BackgroundFirst securities regulations adopted in1984Two major stock exchanges: Shanghai and Shenzhen established in1990 and1991Government controls capital market via:Chinese Security Regulatory Commission (CSRC) similar to SECDomestic companies list four types of shares: A, B, C, HMarket characterized by speculation, high share turnover6-6PEOPLE’S REPUBLIC OF CHINA (PRC)Accounting ProfessionProfession less prestigious than in U.S./U.KAccounting and auditing have developed separatelyChinese Institute of Certified Public Accountants (CICPA) and Chinese Association of Certified Practicing Auditors (CACPA) merged in1998Economic reform and the large number of joint ventures with foreign companies has led to emergence of the audit professionIn October 2007, the ICAEW in the UK and CICPA set up a joint project for cooperation between the accounting professions in the two countries6-7PEOPLE’S REPUBLIC OF CHINA (PRC)Accounting ProfessionMost domestic Chinese accounting firms are “hooked up” to a government-sponsoring body, although the government has encouraged independence“Guanxi” or tight, close-knit networks Common way of doing business, but may collide ethically for accountants6-8PEOPLE’S REPUBLIC OF CHINA (PRC)Accounting RegulationGovernment continues to act as accounting regulatorRecent activity is focused on harmonizing variety of domestic systems which vary by industryCommitted to converging with IFRS, spurred by desired membership in World Trade Organization (WTO)Audits of financial statements widely requiredDeath penalty in an accounting fraud case suggests that it is taken very seriouslyMinistry of Finance (MoF) in similar role as FASBMoF has issued several pronouncements to achieve harmony6-9PEOPLE’S REPUBLIC OF CHINA (PRC)Accounting Principles and PracticesComputation of taxable income is of primary importanceConservatism is criticized as a method by which owners can understate income and justify low wagesLack of conservatism is still a major difference with IFRSLack of accounting infrastructure contributes to the gap between accounting principles and practicesAccounting System for Business Enterprises (ASBE) is followed by over 500,000 firms, including all listed companies6-10PEOPLE’S REPUBLIC OF CHINA (PRC)Differences with IFRSProperty, plant, and equipment:Historical cost, whereas IAS16 permits revaluationsAsset impairments:Chinese standards are silent, whereas IAS 36 requires impairment test and recognition of lossPre-operating expenses deferred, then expensed when operations begin, whereas, under IAS 38, expense immediatelyBusiness combinations:No specific rules, whereas IAS 22 specifically discusses accounting for business combinations6-11GermanyBackgroundEuropean Union’s largest country, population 82.2 millionWest Germany and East Germany established in 1949, were reunified in 1990Historically, banks have been primary source of finance via both loans and equitySince reunification, the economy has been affected by internationalizationGerman companies increasingly listing on foreign exchanges, e.g., New York Stock ExchangeMost common business forms are Aktiengesellschaft (AG) and Gesellschaft mit beschrankter Haftung (GMBH)6-12GermanyBackgroundAG are publicly traded/GMBH are non-publicly tradedHistorically had significant influence on accounting systems in a number of other countriesJapan’s commercial code is modeled on Germany’s commercial code6-13GermanyAccounting ProfessionProfession has traditionally been less influential than in U.S./U.KAuditing is dominant part of profession and certified auditors title of Wirtschaftsprufer (WP) was created in 1931Institut der Wirtschaftsprufer similar to the AICPAObtaining WP title is extremely rigorousWirtschaftspruferkammer (WPK) is a state-sponsored group that oversees auditing profession6-14GermanyAccounting RegulationCommercial code and tax laws are main sources of accounting rulesTraditionally has not used a system of independent institutional oversightStock exchange rules have less influence than in U.SPrudence (conservatism) is fundamental:Recognition of revenues only when realized losses when they appear possibleBegan change away from creditor orientation in 1960s towards shareholder orientationAs of 2009 the German Accounting Standards Board (GASB) worked on IASB projects relating to the financial crisis6-15GermanyAccounting Principles and PracticesHistorical cost attribute for measuring tangible assets is strictly adhered toTraditional focus on creditor protection is at odds with the true and fair view conceptImportance of tax laws led to the reverse authoritative principle Requires expenses to be deducted from accounting income if they are to be tax deductibleDifferences between accounting and tax income are minimal, thereby reducing need for deferred taxes6-16GermanyAccounting Principles and PracticesIn contrast to China, conservatism has been used to resist labor’s wage demandsStandards allow for income smoothing, frequently accomplished via early recognition of lossesEU fourth directive requires true and fair view, but Germans have a unique interpretation of the conceptCommitment to globalization reflected in rule that allows public companies to use IFRS for consolidated statementsMain intention of German Accounting Law Modernization Act is conformity with IFRSIn August 2010, only about 10 German companies were listed on the NYSE due to NYSE overregulation6-17GermanyDifferences with IFRSGoodwill:Deducted immediately against equity, whereas, under IFRS 3, accounted for as an indefinite life intangible assetInternally generated intangibles:Not recognized, whereas, under IAS 38, recognized as an asset under some conditionsLeases:Accounting uses tax rules, with capitalization rare, whereas IAS17 criteria result in more frequent capitalizationAccounting for subsidiaries:Allow exclusion of dissimilar subsidiaries, which are consolidated under IAS 276-18JapanBackgroundPopulation 127.2 million, world’s third largest economyBanks are primary source of finance via both loans and equity, and cross-corporate equity ownership is also commonKeiretsu (and predecessor Zaibatsu) emphasize close business ties and reflect cultural value of collectivism1990s recession led to an increase in Japanese firms’ attempts to obtain capital internationally6-19JapanAccounting ProfessionCertified Public Accountants Law (1948) established the professionJICPA is one of the nine founding members of the IASCProfession is significantly less influential than in U.S./U.K. and is also much smaller in numbers than U.SObtaining CPA title is extremely rigorous, as in GermanyLow status within Japanese society vs. engineers and scientistsCollectivism leads to lack of trust of auditorsTax advising is a much larger, separate, profession6-20JapanAccounting RegulationGovernment influences accounting via: Commercial Code, Corporate Income Tax Law and Securities and Exchange LawSimilar to Germany, strong creditor orientation and accounting rules closely tied to tax rules“Big Bang” financial reforms are leading to harmonization with international standardsThese reforms included requirements for consolidation and fair value accounting for tradable securitiesBusiness Accounting Principles issued by Ministry of Finance consist of 7 guidelines (the equivalent of a conceptual framework)6-21JapanAccounting RegulationIn December 2009, Japan Financial Services Agency (FSA) permitted domestic use of IFRS and established framework for voluntary adoption of IFRS starting with fiscal years ending on or after March 31, 20106-22JapanAccounting Principles and PracticesIn contrast to U.S., net income is less a measure of performance and seen more as funds available for dividendsSince providers of financing tend to be close to the firm, there has historically been little pressure for disclosureLack of disclosure is apparent in segment reporting2007 Tokyo Agreement goals to eliminate all Japanese GAAP and IFRS differences by June 2011 (except major new IFRS developed after 20116-23JapanDifferences with IFRSRevaluation of Land:Allowed, but updating not required, whereas, under IFRS16, revaluations require regular updatingPre-operating costs:Capitalization is allowed, whereas, under IAS 38, expensed immediatelyConstruction contracts:Completed contract method is allowed, whereas IAS11 essentially requires percentage-of-completionProvisions:Allows for provisions prior to actual obligation, whereas IAS 37 only allows for present obligations based on past transaction6-24MexicoBackgroundHistory of significant inflation: Government control of business is partially blamed Significant changes in1990s, including privatization of state-owned firms and NAFTAHistorically, most businesses family-owned--even the very large:Prefer to raise capital via debt vs. equityGradually changingMexico’s one stock exchange, the Bolsa Mexicana de Valores, is privately-ownedRepresents one of the largest U.S. trading partners (three-quarters of Mexico’s imports, more than 80% of her exports, and 60% of all FDI)6-25MexicoAccounting ProfessionThe Asociacion de Contadores Publicos, first professional accountant organization, established in 1917This group was succeeded by the Mexican Institute of Public Accountants (MIPA) in 1964MIPA establishes accounting and auditing principlesIn order to practice public accounting in Mexico, one needs a “professional diploma”Contador Publico Certificado (CPC) is equivalent of U.S. CPA:Can have reciprocal privileges in U.S. and Canada based on passing certain exams6-26MexicoAccounting RegulationThe Mexican Securities Law (1975), was amended in 1993 to comply with NAFTA issuesAccounting standards, grounded in a conceptual framework:Have four classes of Bulletins, A, B, C, and D, and, with few exceptions, are similar to U.S. GAAPFairness-oriented vs. legal complianceCorporate tax rules require a report in accordance with Mexican GAAP audited in accordance with Mexican GAASEnforcement mechanisms (e.g. for insider trading) not effective6-27MexicoAccounting Principles and PracticesMexican GAAP heavily influenced by U.S. GAAPDue to NAFTA, geographical proximity, and comprehensiveness of U.S. GAAPDespite international influences, Mexico’s Bulletin B-10 on inflation accounting shows how harmonized accounting may not be appropriate for all circumstancesIn November 2008, the Mexico Securities and Exchange Commission announced that all companies listed on the Mexican Stock Exchange will be required to use IFRS in 20126-28MexicoAccounting Principles and PracticesBulletin B-10, Recognition of the Effects of Inflation, reflects a major difference to U.S. GAAPNonmonetary assets and liabilities to be restated for purchasing power changes of the pesoInventory can be restated using current replacement costsRecognition in income (generally) of the gain or loss from the net monetary position, asset or liabilityIn line with IAS 29, Mexico has given up on inflation accounting recently, due to low rate of inflation6-29MexicoDifferences with IFRSStatement of cash flows:Statement of changes in financial position required, whereas IAS 7 requires a statement of cash flowsInflation Accounting:Requires inflation adjustments regardless of inflation rate, whereas IAS 29 required only for hyperinflationary countriesNegative Goodwill:Recorded as a deferred credit and amortized over a period of up to five years, whereas IFRS 3 requires immediate recognition of gain6-30United KingdomBackgroundPopulation of about 62 million, comprised of England, Northern Ireland, Scotland, and WalesAmong the five countries in this chapter, its financial structure is closest to the U.S15,000 Private Limited Companies (PLCs) with about 2,500 of these listed on the London Stock Exchange6-31United KingdomAccounting ProfessionWorld’s first association of professional accountants:The Society of Accountants in Edinburgh, established in 1853Six professional chartered bodies coordinated through Consultative Committee of Accountancy Bodies (CCAB)The profession developed in response to the needs of industry and has influenced the development of professions in a number of other countriesCompared to the U.S. the certification requirements focus more on work experience and less on university education6-32United KingdomAccounting RegulationThe Companies Act, accounting pronouncements, and stock exchange rules comprise accounting regulationSimilar to the U.S., and unlike Germany and Japan, tax rules do not significantly influence financial reportingStandard-setters have historically taken a principles-based approach using a statement of principles as a conceptual frameworkHas not historically had a strong, SEC type agency, but recent scandals have led to increased regulation6-33United KingdomAccounting RegulationThe Financial Reporting Council (FRC) annual report for 2008/2009-- key themes for 2009/2010 would be to influence:Market participants to high standards of reporting and governanceLegislators and standard-setters to encourage proportionate and principles-based approach in furtherance of the first goalInternational regulatory authorities to encourage effective cooperation6-34United KingdomAccounting Principles and PracticesA primary objective of accounting is to support an effective capital marketThe true and fair view principle is paramountTrue and fair view override requires that companies not comply with standards that would result in misleading financial statementsProfessional judgment is essential additional component to true and fair viewFinancial Reporting Review Panel 2010 annual report says there has been continuous improvement in the general quality of IFRS financial reporting6-35United KingdomDifferences with IFRSGoodwill:Amortization allowed, whereas IFRS 3 prohibits amortization and requires an annual impairment testRelated party disclosures:Requires disclosure of related party names, whereas IAS 24 requires disclosure by type, not name, of related partyRevaluation gains/losses:Generally not taken to income statement, whereas IAS 40 requires gains and losses to affect net income6-36End of Chapter 66-37