ACCT 3510ACCT 3510International International Accounting Accounting

KOKUSAI KOKUSAI KAIKEIGAKUKAIKEIGAKU

Bringing International Bringing International Accounting Issues into Accounting Issues into

the Classroom: the Classroom: The Case of JapanThe Case of Japan

Hassan A. Said, PhDHassan A. Said, PhD

School of BusinessSchool of BusinessAustin Peay State Austin Peay State

UniversityUniversity

"Land of the Rising Sun".

日本国 Nihon-koku Japan

Bamboo Forest, Kyoto

Tokyo From Above

Environmental InfluencesEnvironmental Influences

Political legal Economic Cultural Infrastructure/Natural and

Created

Political, Economic, Cultural and Infrastructure Influences on: External Reporting

Taxes/Capital Markets/Gov. Regulation/Standard Setting/Reporting Requirements/Users

Internal Reporting Planning and Decision Making Control Performance Evaluation

KeyKey to Understanding to Understanding International International AccountingAccounting

Accounting TopicsAccounting Topics

External Accounting Standard Setters, Preparers and Users Underlying Institutional Structures Required reports

Internal Accounting Decision Rights Assignment Planning and Control Performance Measurement and Evaluation

External Accounting

Internal Accounting

Political

Regulatory Structure

Market Entry /tax impacts

Economic Cost of Capital Risk Management

Cultural Secrecy-disclosure

Budgeting

Infrastructure Availability of Auditors

Cost Drivers

Topics-Environment Topics-Environment MatrixMatrix

Japan Japan has three laws that has three laws that

are firmly interrelated in are firmly interrelated in

their accounting their accounting

objectives and often objectives and often

referred to as the referred to as the

Triangular Legal SystemTriangular Legal System.

ABOUT JAPAN (NIHON NI ABOUT JAPAN (NIHON NI TSUITE )TSUITE )

These Triangular Legal Triangular Legal laws prescribe the financial accounting and reporting system in Japan: The Commercial Code, The Securities and Exchange Law The Corporate Income

Tax Law.

1890-Commercial Code of Japan 1890-Commercial Code of Japan was enacted.was enacted.1948-Securities and Exchange Law 1948-Securities and Exchange Law was enacted, and CPA Law was was enacted, and CPA Law was enacted.enacted.1973-The International Accounting 1973-The International Accounting Standards Committee (IASC) was Standards Committee (IASC) was established, of which the JICPA was established, of which the JICPA was one of the founding member.one of the founding member.2001-The Accounting Standards 2001-The Accounting Standards Board of Japan (of the Financial Board of Japan (of the Financial Accounting Standards Foundation) Accounting Standards Foundation) was established as an accounting was established as an accounting standards setter of Japanstandards setter of Japan

U.S.-Japan ComparisonU.S.-Japan ComparisonComparison between U.S. Comparison between U.S. and Japanese GAAP is the and Japanese GAAP is the most frequently asked most frequently asked question. Many of the question. Many of the differences have been differences have been eliminated, yet many eliminated, yet many differencesdifferences still present still present, , especially in especially in rules rules implementation and implementation and interpretations of similar interpretations of similar literature literature

The Accounting The Accounting Standards Board of Japan Standards Board of Japan

(ASBJ)(ASBJ)

Established in July 2001 Established in July 2001 as aas a

private-sector private-sector organizationorganization

Accounting standards Accounting standards developed by the ASBJ developed by the ASBJ are to be authorized by are to be authorized by the the Financial Financial Services Agency Services Agency

In 2001, the Financial In 2001, the Financial Accounting Standards Accounting Standards Foundation (FASF) was Foundation (FASF) was established through ten established through ten leading private-sector entities leading private-sector entities including the JICPA. The ASBJ including the JICPA. The ASBJ was organized under the was organized under the auspices of the FASF as an auspices of the FASF as an independent and private-independent and private-sector entity to develop sector entity to develop accounting standards in accounting standards in Japan. Japan.

ASBJ ContinuedASBJ Continued

External Accounting-External Accounting-EnvironmentEnvironment

Standard Setting Process U.S. -- FASB – ‘Private’-

http://www.fasb.org/ China, Korea & Japan – varying levels

of govt. controlhttp://en.casc.gov.cn/internet/internet/en/newsreview/2006nzhrhkjzhzzhdjghyhdbg.html

International Accounting Standards Board /http://www.iasb.org/Home.htm Use of

comment letters for current projects Users of Statements

legal/cultural driven Compliance - Culture driven

http://www.geert-hofstede.com/

External Accounting-TopicsExternal Accounting-Topics

External Reporting Differences U.S., U.K. -- Tax Financial Japan, Germany -- Tax = Financial

Differences in Debt and Equity Classifications Korea vs. U.S. (short vs. long term)

Differences in goodwill treatment U.S. vs. Japan

Differences in asset revaluation US. vs. Brazil or Mexico (or IFRS)

Internal Accounting Internal Accounting

Decision Rights AssignmentNegotiating Joint Ventures – China and India

Planning and ControlComplications of Global Operations-foreign

exchange issuesCo-location of Knowledge and Rights=Joint

ventures vs. wholly owned subsidiaries

Performance EvaluationMultiple Currency Issues-

operating risk managementCross-border Decision Rights Issues-FCPATransfer Pricing in International Settings

Internal Accounting-Internal Accounting-EnvironmentEnvironment

Economic/Political-Planning and Control International Taxes and Treaties

NAFTA (http://www.dfait-maeci.gc.ca/nafta-alena/menu-en.asp/)

Foreign Trade Zones (http://ia.ita.doc.gov/ftzpage/)

Transfer Pricing Decision Rights Issues- APA

agreements: (www.irs.gov/businesses/international/)

Political/economic- treaties (www.state.gov/) https://www.cia.gov/library/publications/

the-world-factbook

Internal Accounting-Internal Accounting-EnvironmentEnvironment

Economic/Political Continued Risk Management- e.g. threat of

nationalization Financial --

http://www.eiuresources.com/ras/help_about.asp

Operational – http://www.irmba.com/

Corruption Foreign Corrupt Practices Act –ethics

issues http://www.usdoj.gov/criminal/fraud/fcpa/

Corruption index--http://www.transparency.org/

Internal Accounting-Internal Accounting-TopicsTopics

Performance Evaluation (Inter.J. of Acct., 34, #1, pp.49-70) Japan ROA < U.S. ROA

low margins, focus on market share, emphasize

target cost Japan ROE > U.S. ROE

high debt levels keiretsu organization or chaebol (korea)

The Solution to Minimize The Solution to Minimize Differences!Differences!The ASBJ and the The ASBJ and the International Accounting International Accounting Standard Board (IASB) Standard Board (IASB) announce Tokyo Agreement announce Tokyo Agreement on achieving convergence on achieving convergence of accounting standards by of accounting standards by 20112011

Where to get more Where to get more informationinformation

Journals - International International Journal of Accounting Journal of International Accounting

Research Advances in International Accounting Journal of International Business

Studies Journals - AAA

Accounting Horizons Issues in Accounting Education

Other Management Accounting Journal of Accountancy Economist

For more information For more information about the ASBJ, visitabout the ASBJ, visitwww.asb.or.jp/index_e.htmlwww.asb.or.jp/index_e.html

For more information For more information about the FASB, visitabout the FASB, visitwww.fasb.orgwww.fasb.org..