international accounting chap 005

7/25/2019 international accounting Chap 005

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McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc !ll

C$M%!&!TI'( !CC$)*TI*G

Chapter 5


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5-2

Chapter Topics:

Accounting environment, profession,regulation, principles/practices, and

differences with IFRS in China

Germany Japan Mexico United Kingdom

Comparative Accounting


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5-3

Learning !"ectives

#$ Describe some aspects of the environment inwhich accounting operates in five countries:

China Germany Japan Mexico and the

United Kingdom!

%$ "xp#ain the nature of the accounting professionin the se#ected countries!

&$ Discuss the mechanisms in p#ace for

regu#ating accounting and financia# reporting in

the se#ected countries!



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5-4

Learning !"ectives

'$ "xamine some of the accounting princip#esand practices used by companies in these

countries!

($ $dentify the areas where nationa# accounting

practices in these countries differ from$nternationa# %inancia# &eporting 'tandards

($%&')!



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5-5

China

)ac*ground *or#d+s #argest country with popu#ation of over ,!-

bi##ion .eop#e+s &epub#ic of China (.&C) estab#ished in ,/0/ .o#itica##y: Communist one1party state "conomica##y: Unti# the ,/23s a## firms state1owned Current#y in transformation to socia#ist mar4et economy *or#d+s fourth #argest economy and fastest growing

among #arge economies and is #argest recipient of %D$

5earning 6b7ective ,


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China

)ac*ground %irst securities regu#ations adopted in ,/20

8wo ma7or stoc4 exchanges 'hanghai and 'hen9henestab#ished in ,//3 and ,//,

Government contro#s capita# mar4et via Chinese 'ecurity&egu#atory Commission (C'&C) simi#ar to '"C

Domestic companies #ist four types of shares: ; C

Mar4et characteri9ed by specu#ation high share turnover



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China

Accounting +rofession .rofession #ess prestigious than in U!'!=U!K! ccounting and auditing have deve#oped separate#y!

Chinese $nstitute of Certified .ub#ic ccountants (C$C.) and Chinesessociation of Certified .racticing uditors (CC.) merged in ,//2!

"conomic reform and the #arge number of 7oint ventures with foreigners has#ed to emergence of the audit profession!

$n 6ctober -33> the $C"* ($nstitute of Chartered ccountants in "ng#andand *a#es) and C$C. #aunched a 7oint pro7ect for cooperation between theprofessiona# bodies in the two countries!

Most domestic Chinese accounting firms are ?hoo4ed up@ to a government1sponsoring body a#though the government has encouraged independence! ?Guanxi@ or tight c#ose14nit networ4s is common way of doing business

but may co##ide ethica##y for accountants!

5earning 6b7ective -


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China

Accounting Regulation Government continues to act as accounting regu#ator!

&ecent activity is focused on harmoni9ing variety of domesticsystems which vary by industry! Committed to converging with $%&' spurred by desired

membership in *or#d 8rade 6rgani9ation (*86) udits of financia# statements wide#y reAuired Death pena#ty in an accounting fraud case suggests that it is ta4en

very serious#y! Ministry of %inance (Mo%) in simi#ar ro#e as %';! Mo% has issued severa# pronouncements to achieve harmony!

5earning 6b7ective B


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China

Accounting +rinciples and +ractice Computation of taxab#e income is of primary importance!

Conservatism is critici9ed as a method by which ownerscan understate income and 7ustify #ow wages!

5ac4 of conservatism is sti## a ma7or difference with $%&'! 5ac4 of accounting infrastructure contributes to the gap

between accounting princip#es and practice!

ccounting 'ystem for ;usiness "nterprises (';") isfo##owed by over 33333 firms inc#uding a## #istedcompanies!

5earning 6b7ective 0


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China

ifferences with IFRS Property, plant, and equipment11 historica# cost whereas

$' , permits reva#uations!Aet impairmentE Chinese standards are si#ent whereas

$' B reAuires impairment test and recognition of #oss! Preoperatin! e"peneE deferred then expensed when

operations begin whereas under $' B2 expenseimmediate#y!

#uine $om%ination & no specific ru#es whereas $' --specifica##y discusses accounting for business combinations!

5earning 6b7ective


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Germany

)ac*ground "uropean Union+s #argest country popu#ation 2B mi##ion *est Germany and "ast Germany estab#ished in ,/0/

were reunified in ,//3!


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Germany

)ac*ground German companies increasing#y #isting on foreign

exchanges e!g! Few or4 'toc4 "xchange! Most common business forms are 4tiengese##schaft (G)

and Gese##schaft mit beschran4ter


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Germany

Accounting +rofession .rofession has traditiona##y been #ess inf#uentia# than in

U!'!=U!K!uditing is dominant part of profession and certified

auditors tit#e of *irtschaftprufer (*.) was created in ,/B, $nstitut der *irtschaftprufer simi#ar to the $C. 6btaining *. tit#e is extreme#y rigorous

*irtschaftprufer4ammer (*.K) is a state1sponsoredgroup that oversees auditing profession!



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5-14

Germany

Accounting Regulation Commercia# code and tax #aws are main sources of accounting

ru#es! 8raditiona##y has not used a system of independent institutiona#oversight

'toc4 exchange ru#es have #ess inf#uence than in U!'! .rudence (conservatism) is fundamenta#11recognition of revenues

on#y when rea#i9ed #osses when they appear possib#e!

;egan change away from creditor orientation in ,/3s towardsshareho#der orientation 'tarting in the ,/23s "U directives began having ma7or inf#uence!



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Germany

Accounting +rinciples and +ractices


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Germany

Accounting +rinciples and +ractices $n contrast to China conservatism has been used to resist

#abor+s wage demands! 'tandards a##ow for income smoothing freAuent#y

accomp#ished via ear#y recognition of #osses! "U fourth directive reAuires true and fair view but Germans

have a uniAue interpretation of the concept!

Commitment to g#oba#i9ation ref#ected in ru#e that a##owspub#ic companies to use $%&' for conso#idated statements! Main intention of German ccounting 5aw Moderni9ation ct

is conformity with $%&'



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5-17

Germany

ifferences with IFRS 'ood(illE deducted immediate#y against eAuity whereas

under $%&' B accounted for as an indefinite #ife intangib#easset! )nternally !enerated intan!i%leE not recogni9ed whereas

under $' B2 recogni9ed as an asset under some conditions! *eaeE accounting uses tax ru#es with capita#i9ation rare

whereas $' ,> criteria resu#t in more freAuent capita#i9ation!A$$ountin! +or u%idiarieE a##ow exc#usion of dissimi#ar

subsidiaries which are conso#idated under $' ->!

5earning 6b7ective


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Japan

)ac*ground .opu#ation ,-> mi##ion wor#d+s third #argest economy

;an4s are primary source of finance via both #oans andeAuity and cross1corporate eAuity ownership is a#socommon!

Keiretsu (and predecessor Haibatsu) emphasi9e c#osebusiness ties and ref#ect cu#tura# va#ue of co##ectivism!

,//3s recession #ed to an increase in Japanese firms+attempts to obtain capita# internationa##y!



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5-19

Japan

Accounting +rofession Certified .ub#ic ccountants 5aw (,/02) estab#ished the

profession! J$C. is one of the nine founding members of the $'C! .rofession is significant#y #ess inf#uentia# than in U!'!=U!K! and

is a#so much sma##er in numbers than U!'! 6btaining C. tit#e is extreme#y rigorous as in Germany! 5ow status within Japanese society vs! engineers and scientists

Co##ectivism #eads to #ac4 of trust of auditors! 8ax advising is a much #arger separate profession!



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5-20

Japan

Accounting Regulation Government inf#uences accounting via Commercia# Code

Corporate $ncome 8ax 5aw and 'ecurities and "xchange 5aw! 'imi#ar to Germany strong creditor orientation and accountingru#es c#ose#y tied to tax ru#es

;ig ;ang financia# reforms are #eading to harmoni9ation withinternationa# standards!

8hese reforms inc#uded reAuirements for conso#idation and fair

va#ue accounting for tradab#e securities! ;usiness ccounting .rincip#es issued by Ministry of %inanceconsist of > guide#ines (the eAuiva#ent of a conceptua# framewor4)



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Japan

Accounting +rinciples and +ractices $n contrast to U!'! net income is #ess a measure of

performance and seen more as funds avai#ab#e fordividends!

'ince providers of financing tend to be c#ose to thefirm there has historica##y been #itt#e pressure fordisc#osure!

5ac4 of disc#osure is apparent in segment reporting!



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5-22

Japan

ifferences with IFRS ealuation o+ *andE a##owed but updating not reAuired

whereas under $%&' , reva#uations reAuire regu#ar updating! Preoperatin! $otE capita#i9ation is a##owed whereas under$' B2 expensed immediate#y!

Contru$tion $ontra$tE comp#eted contract method is a##owedwhereas $' ,, essentia##y reAuires percentage1of1comp#etion!

ProiionE a##ows for provisions prior to actua# ob#igation

whereas $' B> on#y a##ows for present ob#igations based on pasttransaction!

5earning 6b7ective


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5-23

Japan

ifferences with IFRS $n ugust -33> $'; and ccounting 'tandards ;oard

of Japan agreed to acce#erate convergence betweenJapan G. and $%&' with goa# to e#iminate a##differences by June -3,,!

5earning 6b7ective


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Mexico

)ac*ground of Mexico+s

imports more than 23 of her exports and 3 of a## %D$



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Mexico

Accounting +rofession 8he sociacion de Contadores .ub#icos first professiona#

accountant organi9ation estab#ished in ,/,> 8his group was succeeded by the Mexican $nstitute of .ub#icccountants (M$.) in ,/0!

M$. estab#ishes accounting and auditing princip#es! $n order to practice pub#ic accounting in Mexico one needs a

?professiona# dip#oma!@

Contador .ub#ico Certificado (C.C) is eAuiva#ent of U!'! C. andcan have reciproca# privi#eges in U!'! and Canada based onpassing certain exams



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Mexico

Accounting Regulation 8he Mexican 'ecurities 5aw (,/>) was amended in ,//B to

comp#y with F%8 issues! ccounting standards grounded in a conceptua# framewor4 have

four c#asses of ;u##etins ; C and D and with few exceptions

are simi#ar to U!'! G.! %airness1oriented vs! #ega# comp#iance Corporate tax ru#es reAuire a report in accordance with Mexican

G. audited in accordance with Mexican G'! "nforcement mechanisms (e!g! for insider trading) not effective



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Mexico

Accounting +rinciples and +ractices Mexican G. heavi#y inf#uenced by U!'! G. due

to F%8 geographica# proximity andcomprehensiveness of U!'! G.!

Despite internationa# inf#uences Mexico+s ;u##etin ;1,3

on inf#ation accounting shows how harmoni9ed

accounting may not be appropriate for a##circumstances!



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Mexico

Accounting +rinciples and +ractices

;u##etin ;1,3 &ecognition of the "ffects of $nf#ation ref#ects a

ma7or difference to U!'! G.! Fonmonetary assets and #iabi#ities to be restated for purchasing

power changes of the peso

$nventory can be restated using current rep#acement costs!

&ecognition in income (genera##y) of the gain or #oss from the net

monetary position asset or #iabi#ity $n #ine with $' -/ Mexico has given up on inf#ation accounting

recent#y due to #ow rate of inf#ation!



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Mexico

ifferences with IFRS .tatement o+ $ah +lo(E statement of changes in

financia# position reAuired whereas $' > reAuires astatement of cash f#ows! )n+lation A$$ountin!E reAuires inf#ation ad7ustments

regard#ess of inf#ation rate whereas $' -/ reAuired on#y forhyperinf#ationary countries!

/e!atie 'ood(illE recorded as a deferred credit andamorti9ed over a period of up to five years whereas $%&' BreAuires immediate recognition of gain!

5earning 6b7ective


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United Kingdom

)ac*ground .opu#ation of about 3 mi##ion comprised of "ng#and

Forthern $re#and 'cot#and and *a#esmong the five countries in this chapter its financia#

structure is c#osest to the U!'! ,333 .rivate 5imited Companies (.5Cs) with about

-33 of these #isted on the 5ondon 'toc4 "xchange!



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United Kingdom

Accounting +rofession *or#d+s first association of professiona# accountants 8he

'ociety of ccountants in "dinburgh estab#ished in ,2B 'ix professiona# chartered bodies coordinated through

Consu#tative Committee of ccountancy ;odies (CC;) 8he profession deve#oped in response to the needs of

industry and has inf#uenced the deve#opment of professionsin a number of other countries!

Compared to the U!'! the certification reAuirements focusmore on wor4 experience and #ess on university education!



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United Kingdom

Accounting Regulation 8he Companies ct accounting pronouncements and

stoc4 exchange ru#es comprise accounting regu#ation! 'imi#ar to the U!'! and un#i4e Germany and Japan tax

ru#es do not significant#y inf#uence financia# reporting! 'tandard1setters have historica##y ta4en a princip#es1based

approach using a statement of princip#es as a conceptua#

framewor4!


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5-33

United Kingdom

Accounting +rinciples and +ractices primary ob7ective of accounting is to support an effective

capita# mar4et! 8he true and fair view princip#e is paramount! 8rue and fair view override reAuires that companies not

comp#y with standards that wou#d resu#t in mis#eading

financia# statements! .rofessiona# 7udgment is essentia# additiona# component

to true and fair view!



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United Kingdom

ifferences with IFRS 'ood(illE amorti9ation a##owed whereas $%&' B

prohibits amorti9ation and reAuires an annua#impairment test! elated party di$loureE reAuires disc#osure of

re#ated party names whereas $' -0reAuiresdisc#osure by type not name of re#ated party!

ealuation !ainloeE genera##y not ta4en toincome statement whereas $' 03 reAuires gains and#osses to affect net income!

5earning 6b7ective

international accounting chap 005

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