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ACCOUNTING
COMPARATIVE ACCOUNTING:
The Americas and Asia
GROUP 1
INTRODUCTION
Political and economic ties have been an important influence on accounting in these five
countries. U.S. accounting was originally imported from Great Britain (along with the
English language and the common law legal system). Most of the first accountants in the
United States were British expatriates. However, as a result of the growth of U.S.
economic and political power in the 20th century, U.S. ideas on accounting and financial
reporting have had substantial influence on the rest of the world for some time now.
Mexico’s close economic ties with the United States are why it has fairness-oriented
accounting despite being a code law country. India was once part of the British Empire. Like
the United States, India imported its accounting from Great Britain. In China, the effect
of political and economic ties is more anticipatory than historical. China is basing its new
accounting standards on International Financial Reporting Standards (IFRS) because it
hopes to better communicate with the foreign investors so vital to its economic
development plans.
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UNITED STATES
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…ACCOUNTING REGULATION AND ENFORCEMENT
The FASB was established in 1973 and as of June 2009 issued 165 Statements of
Financial Accounting Standards (SFASs). The objective of the SFASs is to
provide information that is useful to present a potential investors, creditors, and
others who make investment, credit, and similar decisions.
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• FINANCIAL REPORTING
A typical annual financial report of a large U.S. corporation includes the following
components:
1. Report of management
2. Report of independent auditors
3. Primary financial statements (income statement, balance sheet, statement of
cash flows, statement of comprehensive income, and statement of changes in
stockholders’ equity, etc.)
4. Management discussion and analysis of results of operations and financial
condition
5. Disclosure of accounting policies with the most critical impact on financial
statements
6. Notes to financial statements
7. Five- or ten-year comparison of selected financial data
8. Selected quarterly data
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• ACCOUNTING MEASUREMENTS
The United States relies on historical cost to value tangible and intangible assets.
Revaluations are permitted only after a business combination.
Both accelerated and straight-line depreciation methods are permissible. Estimated economic
usefulness determines depreciation and amortization periods.
All research and development costs are typically expensed as incurred, though there are special
capitalization rules for computer software costs.
LIFO, FIFO, and average cost methods are permissible and widely used for inventory pricing.
LIFO is popular because it can be used for federal income tax purposes.
However, if LIFO is used for tax purposes, it must also be used for financial reporting purposes.
Marketable securities are valued at market unless they are classified as held to- maturity and
valued at historical cost.
The costs of pensions and other post-retirement benefits are accrued over the periods in which
employees earn their benefits, and unfunded obligations are reported as a liability. Contingent
losses/ liabilities are accrued when they are probable and the amount can be reasonably estimated.
Income-smoothing techniques are not allowed
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MEXICO
The U.S. influence on Mexico’s economy extends to accounting. “any of the early
leaders of the Mexican profession grew up on ‘American accounting,’” and U.S.
textbooks and professional literature (either in the original English or translated
into Spanish) are used extensively in the education of accountants and as guidance
on accounting issues.
NAFTA accelerated a trend toward closer cooperation between professional
accounting organizations in Mexico, Canada, and the United States. As a founding
member of the International Accounting Standards Committee (now the
International Accounting Standards Board), Mexico is also committed to
convergence with IFRS. Mexico now looks to the IASB for guidance on accounting
issues, especially in cases where there is no corresponding Mexican standard
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• ACCOUNTING REGULATION AND ENFORCEMENT
Income tax laws contain requirements for keeping certain summary accounting
records and preparing financial statements, but their influence on financial reporting
is generally minimal. Accounting standards are issued by the Council for Research and
Development of Financial Information Standards.
Despite a legal system based on civil law, accounting standard setting in Mexico takes
a British-American, or Anglo-Saxon, approach rather than a continental European
one. The standard-setting process is well developed.
Before standards are finalized, exposure drafts of proposed standards are issued
for review and public comment. Accounting standards are recognized as
authoritative by the government, and in particular by the National Banking and
Securities Commission, which regulates the Mexican Stock Exchange. Mexican
accounting principles do not distinguish between large and small companies, and so are
applicable to all business entities
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• FINANCIAL REPORTING
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• ACCOUNTING MEASUREMENTS
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JAPAN
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• ACCOUNTING REGULATION AND ENFORECEMENT
• FINANCIAL REPORTING
Companies incorporated under the Company Law are required to prepare a statutory
report for approval at the annual shareholders’ meeting, consisting of the following:
1. Balance sheet
2. Income statement
3. Statement of changes in shareholders’ equity
4. Business report
5. Supporting schedules
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• ACCOUNTING MEASUREMENTS
Goodwill is measured on the basis of the fair value of the net assets
acquired and is amortized over 20 years or less and is subject to an
impairment test.
Inventory must be valued at cost or the lower of cost or net realizable value.
FIFO, LIFO, and average are all acceptable cost-flow methods.
Investments in securities are valued at market.
Fixed assets are valued at cost.
The declining-balance method is the most common depreciation method.
Fixed assets are also impairments tested.
Research and development costs are expensed when incurred. Finance leases
are capitalized and amortized, while the costs of operating leases are
expensed.
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CHINA
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• FINANCIAL REPORTING
The accounting period is required to be the calendar year. Financial statements consist
of:
1. Balance sheet
2. Income statement
3. Cash flow statement
4. Statement of changes in equity
5. Notes
• ACCOUNTING MEASUREMENTS
The purchase method must be used to account for business combinations.
Goodwill is the difference between the cost of the acquisition and the fair values of
the assets and liabilities acquired.
It is tested for impairment on an annual basis
The financial statements of an overseas subsidiary are translated based on the
primary economic environment in which it operates.
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…ACCOUNTING MEASUREMENTS
Historical cost is the basis for valuing tangible assets : revaluation are not allowed.
They are depreciated over their expected useful lives normally on a straight-line basis.
Accelerated and units-of-production depreciation are also acceptable.
FIFO and average are acceptable costing methods, and inventory is written down for
price declines and obsolescence.
Intangibles with an indefinite life are not amortized but are impairments tested at
least annually.
Because land and much of the industrial property in China are owned by the state,
companies that acquire the right to use land and industrial property rights show them
as intangibles.
Assets are revalued when a change in ownership takes place, as when a state-owned
enterprise is privatized. Certified asset assessment firms or CPA firms determine
these valuations.
Research costs are expensed, but development costs are capitalized if technological
feasibility and cost recovery are established.
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• ACCOUNTING REGULATION AND ENFORCEMENT
The Accounting Law, last amended in 2000, covers all enterprises and
organizations, including those not owned or controlled by the state. It outlines
the general principles of accounting and defines the role of the government and
the matters that require accounting procedures.
The State Council (an executive body corresponding to a cabinet) has also issued
Financial Accounting and Reporting Rules for Enterprises (FARR). These focus
on bookkeeping, the preparation of financial statements, reporting practices, and
other financial accounting and reporting matters. FARR apply to all enterprises
other than very small ones that do not raise funds externally.
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INDIA
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• FINANCIAL REPORTING
• ACCOUNTING MEASUREMENTS
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…ACCOUNTING MEASUREMENTS
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THANKS!
Any questions?
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