Chapter 6 Flashcards
How might the liberalization of accounting and auditing services in China result in an improved level of investor protection?
- Gradual capital market liberalization will open up international investment opportunities for national investors. Poor rating assignments of national firms could therefore trigger an immense outflow of investment capital providing national firms with strong incentives to implement sound and internationally comparable accounting practices.
How have economic reforms affected the demand for accounting services in China?
- The economic reforms have increased demand for accounting services in many ways. Key aspects of the economic reforms in China include privatization of SOEs, liberalization of controls, commitment to encourage private investment in business and to attract foreign investment, and emphasis on commercial viability and competition among businesses. All these are integral parts of a market system, and lead to increased demands for accounting services. For example, when businesses compete, they become increasingly cost conscious. Investors need accurate information about the financial performance and position of the businesses they have invested in. When Chinese companies seek to raise funds in overseas markets or the government attempts to attract foreign investors, it is important to ensure that proper financial records are kept, and information is disclosed using internationally acceptable standards. Further, various government regulations on the implementation of economic reforms require the involvement of independent auditors.
In what way has the development of accounting and auditing in China differed from other countries?
A unique feature in the development of accounting and auditing in China is that, unlike in many other countries, until recently (1998), these two areas developed as two rival disciplines competing with each other, supported by two separate government agencies.
What are the main pressures for accounting regulation in modern China?
The pressures arise from the need to change from an accounting system designed to provide information to government for planning purposes to a system that is capable of providing useful information for economic decision making. China has expressed a commitment to adopt IFRS. This is particularly important to China because of the requirement under WTO membership and the need to attract foreign investment. The ultimate objective of accounting regulation is to achieve a high level of compliance with the mandated reporting standards. This requires an adequate number of professionals who are willing and able to implement the standards. However, the accounting profession in China is still at the early stage of development, and a lack of skilled professionals will create problems for regulators. IFRS are based on western cultural values. Some of the concepts that are fundamental to IFRS, such as true and fair view or fair presentation and transparency, may not be clearly understood by Chinese accountants.
Identify three features of the Chinese accounting profession that are different from its counterparts in Anglo-American countries.
Features of the accounting profession in China, which are different from those of Anglo-American countries:
a. Following the revolution in 1949, the Chinese accounting profession was under bureaucratic control rather than market control. Consequently, accounting was focused on reporting compliance with state economic plans.
b. Education of accountants has not been well developed in China. For example, it was particularly disrupted during the cultural revolution in the 1960-70s.
c. Unlike in Anglo-American countries, accounting and auditing in China took different paths in their development processes. Traditionally, auditing firms in China mainly audited domestic companies, whereas accounting firms focused on companies using foreign investments. Further, accountants and auditors had their own rules issued by different government departments.
d. There are some differences in the evolution of the accounting profession in China compared to that in Anglo-American countries. For example, in the United Kingdom, auditors enjoyed good legislation and judicial environment during the early stages of development, whereas such an environment is yet to be developed in China.
How have cultural factors influenced accounting practices in Japan?
One of the distinct Japanese cultural values is collectivism or group consciousness. This has directly affected the Japanese attitude towards external auditors and the audit function. Prior to the American occupation of Japan after the Second World War, there was no external auditing profession. When it was introduced in 1949, Japanese corporations often considered it as unnecessary. Because of the cultural value orientation of not trusting someone from outside the group, independent auditors had difficulty being accepted by clients.
What was the accounting Big Bang in Japan?
In the 1990s, Japanese companies were compelled to seek finance from overseas markets due to various reasons, such as large scale losses among Japanese banks and other companies, and the collapse of Japanese asset prices. However, the financial reporting standards used by Japanese companies were criticized for their failure to produce information in a transparent manner. In the mid-1990s the Japanese government initiated a program of financial reform, which included a series of major changes aimed at aligning Japanese financial reporting regulations with internationally acceptable standards. The term “Accounting Big Bang” was used to describe this reform program because of the magnitude of the changes involved.
What is the Tokyo agreement?
In August 2007, the ASBJ and IASB jointly announced the Tokyo Agreement, highlighting the desire to accelerate the process of convergence between Japanese GAAP and IFRS. As part of the agreement the two boards agreed to eliminate by 2008 major differences between the two sets of standards, identified in 2005, with the remaining differences being removed by June 2011. The target date of 2011 does not apply to any major new IFRS that will become effective after 2011, and both boards agreed to work closely to ensure the acceptance of the international approach in Japan when new standards become effective.
Why is the principle of prudence clearly established in the German law?
The principle of prudence is firmly established in the German law mainly because of the heavy losses suffered by creditors of German companies during the Great Depression in the late 1920s and early 1930s. The accounting system at the time allowed companies to revalue assets as they wished, and was blamed for the losses as it failed to protect the creditors from becoming victims of companies, which adopted highly optimistic methods to value their assets. The objective of establishing the principle of prudence in the 1937 Stock Corporations Law was to ensure that the events of the 1920s and 1930s would not happen again. This is reflected in the strict adherence to the use of historical cost for measuring asset values.
Why does tax law have a strong influence on German accounting?
In Germany, tax law has a strong influence on accounting and financial reporting. The reason for this link between taxation and financial reporting is historical. When corporate income taxation was introduced in Germany in 1874, the requirement for annual accounting had already been codified in the Commercial Code in 1862. It was convenient to link corporate income taxation to existing financial statements.
What are the main external factors that have influenced financial reporting in Germany in recent years?
There are two main external factors that have influenced financial reporting in Germany in recent years. They are, EU Directives and the forces of globalization. The 1985 Accounting Act implemented the Fourth, Seventh, and Eighth Directives and transformed them into German Commercial Law. The EU’s decision to adopt IFRS from January 1 2005, was in recognition of the global trends in financial reporting. Even before the EU’s decision, large German companies like Daimler-Chrysler that had their shares listed on foreign stock exchanges were already using internally acceptable accounting standards.
What was the main focus of the GASB’s work in 2009?
DRSC/GASB in their annual report for the year 2009, provide a comprehensive overview of the national and the international activities of these bodies. Accordingly, the work of the GASB was essentially characterized by IASB projects relating to the financial crisis. Further, the Accounting Interpretation Committee (AIC) developed or amended interpretations and application advice on different topics in 2009. The issues for GASB/DRSC in 2009 were mainly the amendments of the German Accounting Standards as a consequence of the German Accounting Law Modernization Act (BilMoG).
What is the role of the National Banking and Securities Commission in the area of financial reporting by Mexican companies?
The NBSC’s role in the area of financial reporting by Mexican companies is similar to that of the U.S. SEC. It is a government body that regulates the operation of the Mexican stock exchange, including financial reporting by Mexican public companies. For example, NBSC’s permission is required for listing on the stock exchange.
What is Professional Mutual Recognition Agreement (PMRA) signed by NAFTA participants in September 2002?
The Professional Mutual Recognition Agreement (PMRA) signed by NAFTA participants (United States, Canada and Mexico) in September 2002 allows accountants in one participant country to practice in another participant country. For example, the Mexican CPCs are allowed to practice accounting in the United States subject to passing examinations on national legislation and standards.
The implementation of NAFTA - PMRA is an example of converging national licensing requirements into an international framework.
What is the significance of Bulletin A-8 of the Mexican Institute of Public Accountants?
The significance of Bulletin A-8 is that it requires Mexican companies to apply international accounting standards for issues that are not covered by Mexican GAAP.
