Accounting-standards

Tutorial6.–ComparativeAccountingSystems,China&EastAsia.SolutionNotes.SomenotesonJapaneseAccountingInfluentialroleofthecentralgovernmentPubliclylistedcorporationsmustfilestatementswiththeSecuritiesDivisionoftheMinistryofFinanceandfollowtherecommendationsoftheSecuritiesandExchangeLaw.TheDietobtainsadvicefromtheBusinessAdvisoryDeliberationsCouncil(BADC),abodycomposedofbusinesspeopleaccountantsandpeoplefromtheMinistryofFinance.BADCAccountingPrinciplesGeneralprinciples-TrueandFairView;OrderlyBookkeeping;DistinctionbetweenCapitalandEarnings;FairPresentation;Continuity;Conservatism;ConsistencyEmphasisonprofitmeasurementStrongadherencetocostsSourcesofRegulation–JAPANJapanemployswhathasbeencalleda“TriangularSystem”TherearethreelawswhichprescribefinancialaccountingandreportinginJapan;theCommercialCode,theSecuritiesandExchangeLaw,andtheCorporateIncomeTaxLaw.Severalrelatedlawsandregulationsforthemarealsoapplicable.AccountingCharacteristics–JAPANContributetonationaleconomyConformitywithtaxtreatmentLittledemandfordisclosurePrescriptiverulesjudgmentConservatism,incomesmoothingMultipleaccounts:oPercommercialcodeoPerSELoEnglishlanguageversionV.SlowdevelopmentofstandardsAccountingregulatoryshiftMoreaccountingstandardsestablishedChangesinaccountingstandardsettingprocessNewauditingstandards(2002)ReconciliationofdomesticstandardswithIAS(IFRS)Recognitionofaccountingasaninfrastructureofmarket-orientedeconomyPrivatestandardsettingorganization:ASBJSomeDifferencesinAccountingPractice.U.S.JapanRevenueRecognitionInstallmentandcostrecovery-firstmethodspermittedInstallmentmethodcommonwhencollectionperiodexceedstwoyearsInventoriesMostfirmsuseFIFOorLIFOMostfirmsuseweightedaveragemethodDepreciationStraightlineforfinancialreportingacceleratedmethodfortaxreportingDecliningmethodforfinancialreportingandtaxIntangibleassetsInternallydevelopedintangiblesexpensedInternallydevelopedandexternallypurchasedcanbeexpensedorcapitalisedandamortised.EmployeebenefitsLiabilityrecognisedforunfundedaccumulatedbenefitsSeverancebenefitsmorecommon.Estimatedamountexpensedeachperiod.IncomeTaxExpensebasedonbookincomeamounts.DeferredtaxexpenseNodeferredtax.Incometaxbasedontaxableincome.LeasesOperatingleasesnotcapitalised,capitalleasescapitalisedAllleasestreatedasoperatingleases.ReasonsfordifferencesinprofitabilityandriskratiosbetweenUSandJapanesecompanies.Differencesinaccountingpractice.TheroleoftheKeiretsuinbusinessstrategy,fundingandneedforconsolidationAttitudestoandavailabilityofdebt(rememberculturallythereweredifferentattitudestowardsriskanddebt).differentpatternsofstockownershipstockpricechangesappeartoberelatedmoretochangesinrealestatevaluesthantotheoperatingperformancesofindividualcompanies.KeiretsusManyJapanesecompaniesoperateincorporategroupscalledkeiretsus.Eachkeiretsutypicallycomprisesfirmsineightortendifferentindustries.Thecompaniesusuallyholdstockineachother(25%to30%)TheobjectisnotcontrolorinfluencebutoperatinglinksEachkeiretsunormallyincludesabankStockOwnershipThereareconsiderabledifferencesbetweentheUSandJapanintermsofstockownership.OnethirdofJapanesecompaniessharesisownedbythemembersofthekeiretsuOnethirdisheldbybanksandotherfinancialinstitutionsoutsidethekeiretsuOnethirdisheldbyotherindividualsThelargepercentageofinter-corporatedstockholdinghashistoricallyreducedtheconcernaboutkeepinginvestorshappybypayinglargedividendsorreportingincreasingearningspershare.TheemphasisinJapanhasbeentosecureanincreaseinmarketshare.TheJapaneseeconomyexperiencedsignificantrecessionsincethe1990’s.Japanesemanagementpracticeusedtobeemulatedacrosstheworldanddiscussedinmostoftheprestigiousjournalsandbusinessschools.Asaconsequencedoubtshaveemergedconcerning“Japanese-stylemanagement.HoweverwhiletheJapaneseeconomyhasstagnated,companiesintheU.S.,England,Australia,CanadaandotherAnglo-Saxoncountrieshavesignificantlyincreasedtheirearnings.Asaconsequence,therehasbeenaparadigmshiftfromso-called“Japanese-stylemanagement”to“Anglo-Saxon-stylemanagement,”astyleofmanagementthatmaximizesshareholdervalue.Accordingly,thisshiftinthinkingpointedtotheneedforJapanese-stylemanagementtobereformed.HoweverinlightofcorporatecollapseslikeEnronandWorldCom,JapanesecorporatemanagementhavepointedoutthattherearesignificantproblemswithAmerican-stylemanagement.TheysuggestthatitisdangeroustopromotetheAmericanstyleasawhole.SomenotesonJapaneseAccountingCulturalDifferencesCHINAUS/UKCOLLECTIVISMINIVIDUALISMLessMasculineMoreMasculineUNIFORMFLEXIBLESTATUTORYPROFESSIONALCONSERVATIVEOPTIMISTICSECRETTRANSPARENTCHOW,CHAU&GRAY(1995),TABLE3:MajorchangesinChineseaccountinginthepasttwodecades.ThekeyroleofaccountinghadbeenservingtheGovernment'splanningandcontrolneeds.Thepurposeisshiftingtoservingtheinformationneedsofdecision-makersinthemarket-place.China’sLiberalisationandPrivatisationTransformingSOE’sThereformofChina’sStateOwnedEnterprises(SOE’s)isamajorpartofChinasprogrammeofeconomicreforms.ThisrestructuringprimarilyinvolveschangingtheorientationofSOE’sfrombeing‘quasi-governmentagencies’with