2013 Illinois International Journal of
May 17-20, 2013
Symposium on Tax Research
September 19-20, 2013
V. K. Zimmerman Center
KPMG Intl Accounting Suite
University of Illinois
515 East Gregory Drive #2037
Champaign, Illinois 61820
The International Journal of Accounting
Environment of Financial Reporting Regulation in ASEAN
SHAHROKH M. SAUDAGARAN AND JOSELITO G. DIGA
Key Words: Accounting institutions in ASEAN; Financial reporting in emerging markets; Accounting in developing countries
Abstract: The growth of regional trading blocs and economic alliances such as the European Union (EU) and the North American Free Trade Agreement (NAFTA), has served to magnify interest in cross-national aspects of financial reporting regulation. While most of the extant literature has looked at developed industrialized countries, this article focuses on the principal features of the institutional environment for financial reporting in an economic bloc of developing countries – the Association of Southeast Asian Nations (ASEAN). These countries are currently the subject of much attention due to the Asian economic crisis. The article has several objectives. First, it highlights the principal features of the institutional structure of financial reporting regulation in ASEAN countries. Second, it helps understand how these features impact on and are affected by several issues, particularly the limits of private sector participation in regulatory affairs, and the need to improve the enforcement in these countries. Finally, it also studies the international dimensions of financial reporting regulation in ASEAN and considers whether ASEAN’s institutional arrangements provide an auspicious environment in which to pursue accounting harmonization.
the Acceptability of International Accounting Standards in the US: An Empirical
Study of the Materiality of US GAAP Reconciliations by Non-US Companies
Complying with IASC Standards
DONNA L. STREET, NANCY B. NICHOLS AND SIDNEY J. GRAY
Key Words: IASC; US GAAP reconciliations; Net income; IOSCO; SEC
Abstract: With the International Accounting Standards Committee (IASC) reaching the completion of its core standards program, the International Organization of Securities Commissions (IOSCO) is considering its response to the IASC’s application for endorsement of International Accounting Standards (IASs). A critical aspect of IOSCO’s acceptance of IASs is likely to be the extent to which such standards are compatible with US Generally Accepted Accounting Principles (US GAAP). This issue is explored by an empirical study of US GAAP reconciliations by non-US companies complying with IASC standards. The results indicate that the impact of accounting differences between IASs and US GAAP is narrowing and suggest that the Securities Exchange Commission (SEC) should consider accepting IASC standards without condition. Alternatively, an SEC endorsement could include a short list of IASs where acceptance is subject to additional disclosures.
The Effect of Accounting
Diversity on International Financial Analysis: Empirical Evidence
JOSE’ A. LAINEZ AND SUSANA CALLAO
Key Words: International comparability; Accounting diversity; International financial analysis; Financial ratios; Empirical evidence
Abstract: Business activity has expanded in recent years, crossing national borders to acquire an international dimension. As a result, financial information, as a communication vehicle, is used internally and needs to be understood both inside and outside its country of origin. The analysis and interpretation of this information at international level is hindered by a multitude of factors, such as the international diversity in accounting principles.
This paper seeks to ascertain, on an empirical basis, whether the existence of diversity in accounting principles has significant consequences for the interpretation of financial reporting at an international level and, therefore, for the decisions which may be taken on the basis of the conclusions drawn from an analysis of such information. To that end, we have examined the financial statements of a sample of Spanish listed companies and reformulated them using the GAAPs of other countries so as to understand how financial ratios derived from the Spanish GAAP would be affected as the basis of financial statement changes from Spain to other countries or by diverse national GAAPs.
We have found important differences in the situation of companies (liquidity, solvency, indebtedness and profitability) under different accounting principles. Consequently, accounting diversity can be considered as an important barrier for the international comparability of financial reporting.
Cross-Corporate Ownership, Information
Asymmetry and the Usefulness of Accounting Performance Measures in Japan
LI JIANG AND JEONG-BON KIM
Key Words: Cross-corporate ownership, Information asymmetry; Information sharing; Informational efficiency; Intertemporal return-earnings associations; Japan
Abstract: Using a large sample of Japanese firms, this paper examines the informational role of cross-corporate, interlocking ownership in Japan. We hypothesize that as the level of cross-corporate ownership increases, there will be less information asymmetry between the firm and market participants, and thus, stock prices of firms with high cross-corporate shareholdings incorporate information about future profitability earlier than do stock prices of firms with low cross-corporate shareholdings. Results of various tests strongly support the hypothesis, suggesting that cross-corporate shareholdings are an important institutional factor that alleviates the information asymmetry in the Japanese equity market.
The Entry of International CPA Firms into
Emerging Markets: Motivational Factors and Growth Strategies
ROBERT J. KIRSCH, KENNETH R. LAIRD, AND THOMAS G. EVANS
Key Words: International market entry and expansion; International marketing of accounting services; Marketing mix strategies of professional services firms; Eastern European and Baltic States; Commonwealth of Independent States; People’s Republic of China
Abstract: This article examines the entry of professional service firms, specifically the Big Six international accounting firms, into emerging foreign markets and explores how they develop and expand their business once established in those markets. The study is based on survey data (supplied by the Big Six) regarding their penetration of the People’s Republic of China, the Commonwealth of Independent States, and Central Europe. A conceptual model is employed to illustrate the interrelationship between a firm’s specific characteristics, the foreign environment, and foreign subsidiary intrafirm structure. Growth potential, client needs, favorable political/legal climate, and cultural considerations emerged as important factors in determining market entry and growth strategies for professional services firms. The research findings broaden our understanding of factors that influence professional services firms’ development of pricing and marketing mix strategies. While all firms surveyed offered a full range of services, their marketing mix strategy differed from domestic approaches because of various local constraints on pricing and promotion.
Audit Quality in ASEAN
Key Words: ASEAN; Audit quality; International auditing standards; Statutory auditors
Abstract: This study explores audit quality in ASEAN from an analysis of the legal environment faced by statutory auditors. First, it provides an overview of the national laws, regulations, professional codes and standards defining the legal environment. Second, it provides an economic analysis of the main differences among countries and relates those differences to the functioning of the audit markets, with a potential for uneven audit quality in the region.
Data were collected with questionnaires from national representatives of four “Big Five” firms, and accuracy of the information was reviewed by 15 governmental and professional bodies responsible for regulating the auditing profession in ASEAN.
Analysis of the data revealed a diverse legal environment among the ASEAN countries possibly creating a climate of differential audit quality. Many differences were observed in the competence requirements of auditors, the requirements regarding the conduct of statutory audits, and the reporting obligations. Further, audit quality in some countries in seriously compromised due to a lack of rules ensuring auditor’s independence. Finally, some of the liability regimes in ASEAN do not provide an incentive for statutory auditors to provide quality audit services. Several recommendations are made to improve the legal environment by bringing the national laws and regulations in line with international standards of auditing which would result in a more uniform audit quality throughout ASEAN.
The “Anti-Stapler” and
the Transfer of Social Sphere Functions from Federal Enterprises to Local
Governments: Lack of Accounting Rules Contributes to Russia’s Financial Woes
DEBORAH L. LINDBERG, WALTER F. LINDBERG, AND KHALID A. RAZAKI
Key Words: Russia; Performance budgeting; International accounting standards; Accounting in Russia; Raions and oblasts; Taxes
Abstract: This article focuses on funding issues facing local government in Russia during the current financial crisis. It concludes that efforts to develop a budget for the Lysogorski raion were hampered by (1) lack of generally accepted accounting principles, (2) the transfer of commercially unproductive assets from old Soviet enterprises to local authorities; (3) no funding for capital improvements; (4) unshared private information, (5) lack of economic resources to fund everyday purchases; (6) a return to the barter system, and (7) a chaotic system of raising and allocating tax revenue.
Volume 35 Number 2 2000
The Future of Financial Reporting in Europe: Its Role in Corporate Governance
C. RICHARD BAKER AND PHILIP WALLAGE
Key Words: Financial reporting; Financial accounting standards; International harmonization of accounting standards; Corporate governance; Accountability
Abstract: At a recent congress of the European Accounting Association, the President of the Belgian Institute of Registered Auditors, Paul Behets, delivered a plenary speech with the title: Are Financial Statements an Obsolete Product? Behets’ answer was “no,” that financial statements are an essential component of the financial reporting system that is necessary for the proper functioning of capital markets. In this article, we reach a similar conclusion, but for somewhat different reasons. A central argument of this article is that an effective system of corporate governance requires an effective financial reporting system, and that an effective financial reporting systems requires a well-ordered system of financial accounting. Behet’s speech provides evidence that financial reporting, and the role of traditional audited financial statements within financial reporting, are undergoing a period of change. The future of financial reporting is difficult to predict with any degree of certainty, but it is likely to be a future marked by change. One possible path for change has been suggested by Elliott (1994), who has indicated that the currently accepted model of financial reporting might be replaced by electronic information systems providing financial and other forms of information about companies, not necessarily in the form of audited financial statements, which would be widely available via the Internet. Under this scenario, decision-makers could decide on the types information that are important, and then arrange the information in the ways they see fit. Financial reports in their present form (i.e. audited financial statements) might become obsolete as users decided individually on the types of information that are important to them. If this scenario were to come into being, the question arises as to whether there would be a continuing need for financial reports as presently constituted. It is the argument of this article that even if it is technologically feasible for financial reports to be changed from their present form, there would still be a need for financial reports as an important component of corporate governance.
A Further Examination of Income Shifting Through Transfer Pricing Considering Firm Size and/or Distress
TERESA L. CONOVER AND NANCY B. NICHOLS
Key Words: Transfer pricing; Income shifting; Global taxes; Firm size
Abstract: This study evaluates the effect of firm size on income shifting between tax jurisdictions through the use of transfer prices both before and after the passage of the Tax Reform Act of 1986 (TRA86). Prior research addressing income shifting through transfer pricing anlayzes larger, financially sound firms. This empirical study extends the transfer pricing literature by including smaller and some cases financially distressed firms in the sample and testing the effect by firm size on income shifting. Our findings suggest that smaller and/or distressed firms are less likely to shift income through transfer pricing than larger firms.
The Reintroduction of the True and Fair Override and Harmonization with IASC Standards in Austalia: Lessons From the EU and Implications for Financial Reporting And International Trade
ALAN S. DUNK AND ALAN KILGORE
Key Words: True and fair view; Override; Harmonization; Accounting directives; Internationalization
Abstract: Two issues currently facing Australia having implications for financial reporting and trade are first, calls for the reintroduction of the true and fair view (TFV) override and second, the move to harmonize Australian accounting standards with those of the International Accounting Standards Committee (IASC). The purpose of the article is to examine the likely effects of such moves given the increasing globalization of both financial and product markets. The conclusions of the article suggest first, a reintroduction of the TFV override would be consistent with its role in the Fourth Directive as the fundamental principle of financial reporting. Second, harmonization with IASs by default will allow an override, as IAS 1 now provides for one. Third, Australia’s harmonization of financial reporting requirements with the wider global community may be impeded because of inconsistencies between IASs, US GAAP, and EU Directives. Hence, the proposed reintroduction of the TFV override together with IASC reporting is unlikely to enhance Australia’s link to the wider global community, leading to potential negative consequences in both financial and product markets.
Fundamental Analysis and the Valuation of IPOs in the Construction Industry
DIMITRIOS C. GHICAS, NIKOLAOS IRIOTIS, APHRODITI PAPADAKI, AND MARTIN WALKER
Key Words: IPOs; Construction industry; Fundamental analysis; Valuation
Abstract: This study shows that (1) In addition to past earnings, incomplete contracts disclosed in the prospectuses of construction firms’ IPOs is an important explanatory variable of earnings forecasts made by investment bankers. (2) Earnings forecasts can explain the offer prices set by investment bankers in the IPOs of construction firms. (3) Stock returns subsequent to the initial public offering are predictable on the basis of incomplete contract information available in the prospectuses. This last finding is robust to the inclusion of control variables for ex ante uncertainty, size, book-to-market, leverage, and earnings-to-price effects. The association between stock returns subsequent to the equity offering and incomplete contracts is consistent with both market inefficiency and the presence of risk factors for which investors expect greater underpricing of the IPO.
Accounting for Intangible Assets in Scandinavia, the UK,
the US, and by the IASC: Challenges and a Solution
NILES E. JOACHIM HǾEGH-KROHN AND KJELL-HENRY KNIVSFLǺ
Key Words: Intangible assets; Value-relevance; International accounting practice
Abstract: Improved accounting for intangible assets is one of the major challenges to future financial reporting. Conventionally, resources spend on intangibles such as knowledge, design, licenses, and trademarks have been expensed and hence treated merely as costs and not as investments with book values. Such an arbitrary way of dealing with intangible resources is believed to have increasingly reduced the value-relevance of financial reporting as the importance of intangibles in the economy has increased over time. Intangible resources that meet certain criteria for asset recognition should be capitalized as assets and their costs amortized over the best estimate of their useful lives. In this article, we argue that the value-relevance of financial statements would be further improved if previously expensed costs are partly reversed and capitalized if, at a later period, the intangible item in question meets the asset recognition criteria. The increased income variation due to reversed expenses would be a signal of earnings potential and risk.
The Relevance and Observance of the IASC Standards in
Developing Countries and the Particular Case of Zimbabwe
EDWARD E. CHAMISA
Key Words: Developing countries; Harmonization; International Accounting Standards (IASs); International Accounting Standards Committee (IASC); Compliance with; Zimbabwe
Abstract: An important outgrowth of the International Accounting Standards Committee’s (IASC) international accounting harmonization program is the adoption of its standards by a considerable and increasing number of accounting professional bodies in developing countries. This has taken place against the backdrop of academic arguments suggesting that the IASC standards are irrelevant and/or even harmful to these countries. This contradiction and the question of the relevance of the IASC standards to developing countries are evaluated and explored further (in this article), using Zimbabwe as a case study. The article also examines de facto compliance with the IASC standards by a sample of listed Zimbabwe companies. The results of both the compliance level and the impact of the IASC standards on the reporting practices of listed Zimbabwe companies (a) appear to be significant; and (b) seem to buttress the conclusion that the IASC standards are relevant to Zimbabwe and similar capitalistic developing countries where the “shareholder/fair view” is paramount. These results suggests important implications for the IASC’s standardization program.
Disclosure Level and Compliance with IASs: A
Comparison of Companies With and Without U.S. Listings and Filings
DONNA L. STREET AND STEPHANIE M. BRYANT
Key Words: International accounting standards; Compliance with IASs; IASC; Voluntary disclosure
Abstract: This research investigates the extent to which the disclosure requirements of the IASC are complied with or exceeded for companies claiming to use International Accounting Standards (IASs). Additionally, the research seeks to identify significant differences between those companies with U.S. listings, U.S. filings, and those with no U.S. listings or filings with regard to (1) compliance with IASC-required disclosures, and (2) level of disclosure (including both mandatory and voluntary items). The findings reveal the overall level of disclosure is greater for companies with U.S. listings. Additionally, greater disclosure is associated with an accounting policies footnote that specifically states that the financial statements are prepared in accordance with IASs and an audit opinion that states that International Standards of Auditing (ISAs) were followed when conducting the audit. Further, the findings indicate the extent of compliance with IASs is greater for companies with U.S. listings or filings. A higher level of compliance is associated with an audit opinion that states the financial statements are in accordance with IASs and that ISAs were followed when conducting the audit.
The research highlights the significance of the enforcement issue for the International Accounting Standard Committee (IASC) as it seeks an International Organization of Securities Commissions (IOSCO) endorsement. The findings indicate enforcement of IASs may be less of an issue for companies with listings and filings in the U.S. However, for companies without U.S. listings and filings, compliance is indeed of great concern.
Corporate Ownership and Governance in Russia
Key Words: Russia; Corporate ownership; Managers’ behavior
Abstract: This article investigates the impact of privatization on managers’ behavior, considering both the unique features of the Russian reality and general theoretical issues in property rights and economic behavior. Our analysis was primarily concentrated on corporate ownership structure as the derivative of managers’ primary interest in corporate control, on the approaches they employ in order to satisfy their primary interests, and on sources on managers’ power. Attention then was directed to the relationship between the ownership structure and governance potentials of different groups of investors.
The results of the study conclude that (1) the initial attempt to separate ownership and control in order to increase managers’ incentives to be concerned about accounting numbers has not been successful; (2) currently, managers have a negative attitude toward any actions, which could alter their powerful position and the distinctive socio-economic environment in Russia provides enough incentives to ensure that the managers’ behavior remains consistent with their desire to keep control of the corporate leadership; (3) corporate behavior during the transition period will not necessarily vary with changes in the structure of corporate ownership toward giving a greater power to outsiders, due to the very specific relationship between inside and outside owners.
The Determination of a Group for Accounting Purposes in
the UK, Poland, and the Czech Republic in a Supranational Context
JOHN CRANER, DANUTA KRZYWDA, JIRI NOVOTNY, AND MAREK SCHROEDER
Key Words: Groups, United Kingdom; Poland; Czech Republic
Abstract: A detailed cross-national and supranational comparison of the de jure requirements for the determination of a group for accounting purposes in the United Kingdom (UK), Poland, and the Czech Republic establishes differences at both levels. The analysis identifies cross-national differences that cannot be fully explained by non-equivalencies between relevant International Accounting Standards (IAS) and the European Commission (EC) 7th Directive on consolidated accounts. These differences are non-trivial and more numerous than the research literature suggests and provide evidence of the prolonged nature of the accounting reforms in economies in transition. In the absence of a theoretical framework for determining the content and sequence of accounting reform in transition, accounting change defaults to an iterative process of learning by doing.
Problems in Comparing Financial Performance Across International Boundaries: A Case Study Approach
Key Words: International accounting practices; Financial reporting issues; Dual listed companies
Abstract: In increasingly global markets for finance, goods, and services, a variety of decision makers need to assess companies from numerous countries on a common basis. Differences between national and international accounting principles and practices make such a task difficult, if not impossible.
This article considers the contribution of previous research to resolving this problem. Much of the earlier work in this area has used metrics based on a broad database of companies from many different industries and worked out conservatism indices based on a comparison of profit levels of companies reporting in two generally agreed accounting principles and practices (GAAPs). While useful, this does not address the problems of conversion for any one industry or company. In order to examine the implications of GAAP differences for international comparisons, a case study approach is adopted, considering two of the major players in the European steel industry. Accounting information is produced for both companies under their domestic GAAPs and under United States (US) GAAP, thus allowing for an analysis based on a common, US, GAAP. As a part of this analysis, a time series approach is taken.
The article concludes that there are additional factors that may affect the evaluation of relative conservatism and the financial comparison of individual companies even when carried out on a common GAAP basis.
Controlling Multinational Companies: An Attempt to
Analyze Some Unresolved Issues
HANNE NOERREKLIT AND HANNS-MARTIN W. SCHOENFELD
Key Words: Control in multinationals; Control theory; Cross-cultural understanding; Dialogue method, Enculturation; Managerial accounting; Models of thinking; Performance evaluation
Abstract: Controlling multinationals with managerial accounting often is inefficient due to lack of understanding. Language, external variables, and headquarters decisions create distortions, which prevent comparison with domestic data and require subsidiary accounting adjustments. Furthermore, background and national cultural value systems let individuals perceive and react non-uniformly to similar issues. Therefore, steps are needed to assure cross-cultural understanding for communications. This suggests that some accounting problems may be communications and understanding issues, which need to be resolved first. This article described a method to enhance understanding in cross-cultural management. This is demonstrated for the management accounting, control, and performance evaluation process.
Accounting Practices and the Market Valuation of
Accounting Numbers: Evidence from Indonesia, Korea, Malaysia, the Philippines,
Taiwan, and Thailand
ROGER C. GRAHAM AND RAYMOND D. KING
Key Words: International accounting practices; Valuation; Asia; Clean surplus; Conservatism
Abstract: This study examines the relation between stock prices and accounting earnings and book values in six Asian countries: Indonesia, South Korea, Malaysia, the Philippines, Taiwan, and Thailand. The analysis is based on a residual earnings model that expresses the value of the firm in terms of book value and residual income. The model holds for any clean surplus accounting system. However for finite time horizons, biased accounting may affect model estimates. The six countries examined in this study differ in faithfulness to clean surplus accounting as well as bias (conservatism). The study addresses two questions. First, are there systematic differences across countries in the value relevance of accounting, and are these differences related to accounting differences? Second, are there systematic differences in the incremental and relative information content of book value per share (BVPS) and abnormal (residual) earnings per share (REPS) across the countries, and are such differences related to accounting differences? We find differences across the six countries in the explanatory power of BVPS and REPS for firm values. Explanatory power for Taiwan and Malaysia is relatively low while for Korea and the Philippines is relatively high. These differences are generally consistent with differences in accounting practice; however, since Korean accounting practice is strongly influenced by tax law, we did not expect the high association for Korea. Second, with respect to the incremental and relative explanatory power of BVPS and REPS, we find BVPS to have high explanatory power in the Philippines and Korea but little in Taiwan. In all six countries REPS has less explanatory power than BVPS in most years. Again, the evidence may be interpreted as suggesting accounting practice affects valuation (with Korea again as the exception). Finally, we provide evidence on the sensitivity of the timing of comparisons of stock prices and accounting values. We find that comparing prices at year-end (even though annual accounting information has not been released at that time), in general, provides the highest correlation between market and accounting numbers.
The Impact of Adopting International Accounting
Standards on the Harmonization of Accounting Practices
ANN B. MURPHY
Key Words: International accounting standards; Comparability; Harmonization
Abstract: Over the past few decades numerous organizations have been actively participating in the efforts to improve the comparability of financial reporting. Many studies have discussed the benefits and drawbacks of comparability. This study investigated the affect on the harmonization, or comparability, of accounting practices when a sample of companies choose to use international accounting standards (IASs) when preparing financial reports.
This study analyzed trends in the I index, a measure of concentration for the use of a particular accounting practice introduced by van der Tas, to determine if the choice of accounting methods by a sample of Swiss companies became more aligned with a sample of companies from three other countries. The study included a control sample of Swiss companies that did not switch from reporting using local Swiss standards during the same time period, 1988 through 1995. Four accounting practices were included; depreciation, inventory, financial statement cost basis, and consolidation practices. The practices were compared with a sample of companies from three countries; Japan, the UK, and the US.
The results indicated that across the 8-year period, the majority of the I indices comparisons were positive and statistically significant. However, the results did not support that these increases were due primarily to the adoption of IASs.
Impact of Culture, Market Forces, and Legal System on Financial Disclosures
BIKKI JAGGI AND PEK YEE LOW
Key Words: Financial disclosures; Culture; Legal systems; Multinationals
Abstract: This study examines the impact of legal systems (LSs) on financial disclosures by firms from different countries. The results indicate that firms from common law countries are associated with higher financial disclosures compared to firms from code law countries. The findings also reveal that cultural values have an insignificant impact on financial disclosures by firms from common law countries, and the results on firms from code law countries provide mixed signals. The results for multinationals are similar to the results for the total sample. The cultural values have no impact on financial disclosures of multinationals from common law countries, and there are mixed signals for multinationals from code law countries.
The Influence of Culture on Pension Plans
KAREN S. CRAVENS AND ELIZABETH GOAD OLIVER
Key Words: Culture; Pension plans; International accounting standards; Multinational firms
Abstract: It is widely recognized that culture is a dimension affecting a vast array of management and social choices. However, we know little about the effect of culture on choices that combine both business and social issues in an accounting setting. Employee benefit choices by managers reflect both the business choices of a firm in the selection and retention of employees and social choices in the type and extent of benefits provided to employees. The objective of this study is to investigate the extent to which culture affects employee benefits as manifested in pension plans. In a comparison of plans that differ according to the home country of the parent firm and are offered in the regulated environment of the United States, results indicate an effect of culture on pension plan choices. In particular, culture plays a role in determining the finding level percentage of the plan, employer contributions receivable, and revenues received or receivable from employers.
On the Myth of “Anglo-Saxon” Financial Accounting
DAVID ALEXANDER AND SIMON ARCHER
Key Words: Anglo-Saxon; Financial reporting; Myth; IASC
Abstract: The term “Anglo-Saxon accounting” (ASA) is used by a number of academic writers on the subject of International Accounting to refer to an approach to financial accounting and reporting that is supposedly common to the UK and Ireland, the USA and other English-speaking countries including Canada, Australia, and New Zealand. While most of the writers we cite as using this term are continental Europeans, they also include an Englishman, J. Flower. The term is typically used to imply not just similar conceptual and technical approaches, but also a hegemonic alliance in the international politics of accounting regulation.
This article seeks to establish that ASA in this sense is a myth. We do this first by critically examining four putative commonalities that are frequently attributed to the UK and USA approaches to financial accounting and that form the basis of the myth, and second by indicating the unfeasibility of such a hegemonic alliance within the IASC. A myth may have some factual foundations, but belief in it rests also on bases that are non-factual. So it is with ASA. In particular, analysis of the terms “true and fair view” (TFV) and “fair presentation (FP) in accordance with generally accepted accounting principles (GAAP)” shows that, far from their possessing a semantic equivalence that constitutes a commonality between UK and US financial approaches. What UK and US financial reporting have historically shared is a micro- and capital market orientation that lends itself to international accounting regulation in a context of global capital markets. But with such an orientation now being generally accepted internationally, the differences between UK and US financial reporting are taking on an increased significance that this article seeks to highlight.
Auditing Standards in China –
A Comparative Analysis with Relevant International Standards and Guidelines
KENNY Z. LIN AND HUNG CHAN
Key Words: Chinese auditing standards; International Standards on Auditing; Chinese professional ethics; International Federation of Accountants; Code of Ethics for Professional Accountants; Chinese accounting industry.
Abstract: The continuing and deepening economic reforms in China have brought many changes both socially and economically to the society. The primary function of auditing in China has begun to shift away from the traditional tax compliance assessment towards the credibility lending to financial statements. The economic reforms and the development of the Accounting Standards for Business Enterprises have necessitated the parallel development of auditing standards in China. While some significant differences exist, the new Chinese auditing standards are, in a number of important aspects, similar to the professional standards promulgated by the International Federation of Accountants. The development of a comprehensive body of standards, auditor independence, the role of certain auditing techniques, and certified public accountant (CPA) population are the major areas that China needs to improve. Opening up the Chinese accounting industry will trigger significant advances in the implementation of Chinese standards and the development of the Chinese accounting profession.