国际会计第七版课后答案(第四章)作者：弗雷德里克

Chapter4ComparativeAccounting:TheAmericasandAsiaDiscussionQuestionsPublicandprivatesectorbodiesareinvolvedinregulatingandenforcingfinancialreportingintheUnitedStates.TheFinancialAccountingStandardsBoardisaprivatesectorbodythatdeterminesU.S.generallyacceptedaccountingprinciples.TheSecuritiesandExchangeCommissionhastheauthoritytodetermineU.S.GAAPforpubliclyheldcompanies,butdeferstotheFASB.TheFASBandSEChaveacloseworkingrelationshipthatensuresthatFASBstandardsareacceptabletotheSEC.TheSECenforcesfinancialreportingrulesforpubliclyheldcompanies.Itactivelyreviewsthefilingsthatcompaniesmake.Auditorsaretheenforcersfornon-publiclyheldcompanies.AccountingstandardsinMexicoareissuedbytheCouncilforResearchandDevelopmentofFinancialInformationStandards(CINIF),anindependentpublic-privatesectorbodypatternedaftertheU.S.FASB.ItsauthorityforissuingMexicanaccountingstandardsisrecognizedbytheNationalBankingandSecuritiesCommission,thegovernmentagencythatregulatestheMexicanStockExchange.TheCommissionisresponsibleforenforcingfinancialreportingstandardsforlistedcompanies.However,itisunclearhowproactivetheCommissionisininvestigatingfilingsthatitreceives.Enforcementoffinancialreportingfornon-listedcompanieseffectivelyrestswithauditors.Japaneseaccountingstandardsaresetbyaprivatesectorbody,theAccountingStandardsBoardofJapan.TheestablishmentoftheASBJisarecentdevelopmentinJapan.Before,accountingstandardsettingwasagovernmentactivity.Enforcementoffinancialreportingeffectivelyrestswithauditors.ThestockexchangeisregulatedbytheFinancialServicesAgency,agovernmentbody.However,itisunclearhowproactivetheFSAisinmonitoringfinancialreportingbyJapanesecompanies.AccountingstandardsettingisagovernmentactivityinChina.TheChinaAccountingStandardsCommitteeistheauthoritativebodywithintheMinistryofFinanceresponsiblefordevelopingaccountingstandards.TheChinaSecuritiesRegulatoryCommitteeisthegovernmentagencythatregulatesChina’twsostockexchanges.TheCSRCisalsoresponsibleforenforcingfinancialreportingforlistedcompanies.ManyquestiontheeffectivenessoftheChineseenforcementmechanism.TheInstituteofCharteredAccountantsinIndia,aprivatesectorprofessionalbody,developsaccountingstandardsinIndia.TheSecuritiesandExchangeBoardofIndia,anagencyoftheMinistryofFinance,regulatesIndia’22sstockexchangesandisresponsibleforenforcingfinancialreportingrules.However,itisunclearhowproactivetheboardisinmonitoringfinancialreportingbyIndiancompanies.Overall,thefivecountriesvaryintermsofprivateversuspublicsectorresponsibilityforregulatingandenforcingfinancialreporting.Enforcementisquestionableinseveralcountries.TheUnitedStateshasthestrongestmechanismforregulatingandenforcingfinancialreportingofthefivecountries.TheUnitedStatesandIndiaarecommonlawcountriesthathavefairpresentationorientedfinancialreporting.MexicoalsohasfairpresentationorientedfinancialreportingbecauseofU.S.influence.Inaddition,Mexicohasinflation-adjustedaccounting,incontrasttotheotherfourcountries.Japanisacodelawcountryanditsaccountinghastraditionallybeencharacterizedasconservativeandtax-driven,justlikeothercodelawcountries(suchasFranceandGermanydiscussedinChapter3.)However,itismovingtofairpresentationbecauseofitscommitmenttoconvergeJapaneseaccountingstandardswithIFRS.ChinaislikewisemovingtowardfairpresentationorientedaccountingbyadoptingIFRSasChineseGAAP.Despiteadoptingfairpresentationprinciples,onecanquestionwhethertheChineseachieveitinapplication.ThereisanacuteshortageoftrainedaccountantsinChinaandtheprofessionremainsundeveloped.Theaccountingprofessionisstrongintheotherfourcountries,includingthe “developinofIndiaandMexico..Theauditoroversightbodiesdiscussedinthischapterare:UnitedStates—PublicCompanyAccountingOversightBoardJapan—CertifiedPublicAccountantandAuditingOversightBoardTherecentestablishmentofindependentauditoroversightbodiesintheUnitedStatesandJapanisinresponsetorecentworldwideaccountingscandals.Bothrepresenttighteningcontroloverauditors..Taxlegislationpaysalimitedroleinallfivecountries,withtheexceptionofJapan.IntheUnitedStates,financialandtaxaccountingareseparateexceptforLIFO.TaxlegislationhaslittleinfluenceonfinancialreportingpracticesinMexico.Forexample,therearenumerousdifferencesbetweenfinancialandtaxaccounting,suchasthecalculationofcostofsales,depreciation,andgoodwillamortization.Taxlegislationhastraditionallybeenonesideofthe“triangularlegalsystem”inJapan,exertinganinfluenceonJapaneseaccountingstandards.However,theinfluenceoftaxationisdecliningwiththealignmentofJapaneseaccountingstandardstoIFRS.Severalyearsago,taxlegislationhadsomeinfluenceinChina,butthishaswanedasChinadevelopsamorecompletesetoffinancialreportingstandards.India,likeothercommonlawcountries,separatesfinancialandtaxaccounting..Thisquestionhasbeenofinterestinacademiaforquitesometime.Isaccountingexpertiseanecessarypreconditionforeconomicdevelopment,orcananeconomyadvancewithoutit?Itwouldseemthataneconomycannotadvanceveryfarwithoutaccountingexpertise.Buttherelationshipprobablyworksbothways,justlikedemandcreatessupplyandvice-versa.TheexampleofChinademonstratestheimportanceofdevelopingaccounting(standards,knowledge,etc.).AccountingisapartofthemarketreformpackagesinChina,sotheneedhasbeenrecognizedfromthestart.MexicoandIndiahavebeenmarket-orientedlongerthanChina,andtheiraccountingismoredeveloped.Butagain,itisapparentinthesetwocountriesthataccountingsupportseconomicdevelopment.U.K.standards(Chapter3)andIFRS(Chapter8)aresaidtoreflectprinciples-basedstandards,whileU.S.standards(thischapter)aresaidtoberules-based.Generallyspeaking,principles-basedstandardssetforthbroadobjectivesandfundamentalsandrequireprofessionaljudgmentfortheirimplementation.Theyaremoreflexiblethanrules-basedstandardsandarelikelytoresultinmoredivergenceinpractice.Rules-basedstandardsaremorespecificintheirrequirementsandhavemoredetailedimplementationguidancethanprinciples-basedstandards.Theyarelikelytoresultinmorecomparabilitythanprinciples-basedstandards,butaresaidtofostera“checkthebox”mentality.ThechaptersaysthatU.S.GAAPis“probablymorevoluminousthanintherestoftheworldcombinedandsubstantiallymoredetailedthaninanyothercountry.”Thus,onecanarguethatU.S.GAAPisr-ublaessed.TheU.K.andU.S.bothfollowfairpresentationaccounting,reflectingeconomicsubstanceratherthanlegalform.BoththeU.K.“trueandfair”andtheU.S.“presentsfairlyr”eflectfairpresentation.However,theU.K.hasatrueandfairoverride-accountingstandardscanbeoverriddenifnecessarytoachieveatrueandfairview.IntheU.S.,presentsfairlymeansthatgenerallyacceptedaccountingprincipleshavebeenfollowed.Themostimportantreconcilingitem(i.e.,themostsignificantdifferencebetweenMexicanandU.S.accounting)relatestotheuseofgeneralpricelevelaccountinginMexico.StricthistoricalcostisusedintheU.S.Twootherdifferencesnotedinthechapterare(a)Mexicoappliestheequitymethodat10percent,whereastheU.S.appliesitat20percentand(b)inMexicodevelopmentcostsarecapitalizedandamortizedaftertechnologicalfeasibilityhasbeenestablished;intheU.S.,theyareexpensed.TheburstingoftheJapanesebubbleeconomyinthe1990spromptedareviewofJapanesefinancialreportingstandards.ItbecameclearthatmanyaccountingpracticeshidhowbadlymanyJapanesecompanieswereactuallydoing.Theaccounting wasd“esbiiggnbeadntgom”akethefinancialconditionofJapanesecompaniesmoretransparentandbringJapaneseaccountingmoreinlinewithinternationalnorms.Practicechangesincludethefollowing:Requiringlistedcompaniestoreportastatementofcashflows.Subsidiarycompaniesareconsolidatedbasedoncontrolratherthanownership.Affiliatedcompaniesareaccountedforusingtheequitymethodbasedoninfluenceratherthanownership.Investmentsinsecuritiesarevaluedatmarketratherthancost.Deferredtaxesarefullyprovided.Pensionandotherretirementobligationsareaccruedinfull.Fullandcompletedisclosureofreliable,evenhandedinformationisnecessarytodevelopafairandefficientstockmarket.The“Anglo-Saxon”modelofaccounting(discussedinChapter2),emphasizingafairpresentationoffinancialconditionandresults,andemphasizingstewardship,alsofostersthedevelopmentofafairandefficientstockmarket.Countrieswiththisaccountingorientation(suchastheU.S.andU.K.)haveactive,fairandefficientstockmarkets.Thereisalsoalegalstructureandaneffectiveenforcementoflawsandaccountingdisclosurestomakeitallwork.Chinaisdevelopingaccountingstandardswiththestockmarketorientationdiscussedabove.SoChinaisontherighttrackhere-thestandardsthemselveswillsupportthedevelopmentofastockmarket.Inaddition,investorsmusthaveconfidencethatthestandardsarebeingfollowed,i.e.,thattheinformationdisseminatedbycompaniesisreliable.Thus,goodauditingbywell-trainedaccountingprofessionalsisimportant.Chinamayhavedifficultydevelopinganaccountingprofession,whichwouldinturnbeahindrancetostockmarketdevelopment.Chinamustalsoovercomethecultureofsecrecydevelopedundercommunism.ThechaptermentionsanumberofexampleswhereChineseaccountingstandardsareconsistentwithworldclasspractices.Aselectivelistofthemoreimportantonesarethefollowing:Comparative,consolidatedfinancialstatementsincludingabalancesheet,incomestatement,cashflowstatement,andnotes.Accrualbasisforrecognizingrevenuesandexpenses,matching,andconsistency.Purchasemethodforbusinesscombinationswithannualimpairmentstest.Equitymethodfornonconsolidatedaffiliates.Useofhistoricalcost.Financeleasescapitalized.TheBritishinfluenceonaccountinginIndiaisclear.Indiahasacommonlawlegalsystemandfairpresentationaccountingthataccompaniesit.LikeBritain,financialstatementsmustgiveatrueandfairviewandthereisastrongself-regulatedaccountingprofession.Professionalaccountants(auditors)arecalledcharteredaccountantsinbothcountries.ThefinancialreportingandaccountingmeasurementsdescribedinthischapterforIndiaareverysimilartothosedescribedinChapter3fortheUnitedKingdom.ExercisesUnitedStatesFinancialAccountingStandardsBoard.SecuritiesandExchangeCommission.MexicoTheCouncilforResearchandDevelopmentofFinancialInformationStandards.Thereisnodefinitiveenforcementagency.However,theNationalBankingandSecuritiescommissionregulatestheMexicanStockExchange.JapanTheAccountingStandardsBoardofJapan.TheFinancialServicesAgencyforlistedcompaniesunderthesecuritieslawandtheMinistryofJustice,whencompanylawisinvolved.ChinaTheChineseAccountingStandardsCommitteeundertheMinistryofFinance.TheChineseInstituteofCertifiedPublicAccountants,underthejurisdictionoftheMinistryofFinance,regulatesauditing.IndiaInstituteofCharteredAccountantsofIndia.InstituteofCharteredAccountantsofIndia..Atthetimeofwriting,thefollowingorganizationswerelinkedtoIFAC’swebsite:UnitedStatesInstituteofManagementAccountantsAmericanInstituteofCertifiedPublicAccountantsNationalAssociationofStateBoardsofAccountancyMexicoInstitutoMexican。deContadoresPblicosuJapanJapaneseInstituteofCertifiedPublicAccountantsChinaChineseInstituteofCertifiedPublicAccountants.Thequestionaskedforfiveexpressions,terms,orshortphrasesunfamiliarorunusualinthestudent’shomecountry.TakingtheUnitedStatesasthehomecoyu,nhterrearetwelve:Triangularlegalsystem-AdescriptionofaccountingregulationinJapanconsistingoftheinteractingCompanyLaw,SecuritiesandExchangeLaw,andCorporateIncomeTaxLaw.Socialistmarketeconomy—UsedinChinatodescribeitsplannedeconomywithmarketadaptations.Landandindustrialpropertyrights-StillownedbytheChinesegovernment,privatecompaniesacquiretherighttousetheseindustrialassets.Pesosofcurrentpurchasingpower-AtermtodescribegeneralpricelevelaccountinginMexico.Taxcomplianceauditreport-Mexicanauditorsmustattestthatnoirregularitieswereobservedregardingcompliancewithtaxlaws.Statementofchangesinfinancialposition—thefinancialstatementinMexicothatcorrespondstothestatementofcashflow.However,thestatementofchangesinfinancialpositionispreparedinconstantpesos(adjustedforinflation),whilethecashflowstatementuseshistoricalcost.Senioritypremiums-compensationpaidinMexicoattheterminationofemploymentbasedonhowlongtheemployeehasworked.Keiretsu-InterlockinggiantconglomeratesinJapan.Guanxi-RelationshipcultureinChinathatisbasedonmutualityandmutualduties.B-shares-SharesissuedtoforeigninvestorsbyChineselistedcompanies.Trueandfairview-TherequirementinIndiathatfinancialstatementspresentatrueandfairviewcamefromBritain.Amalgamation-ThetermusedinIndiaforamerger.Themostimportantfinancialaccountingpracticeorprincipleatvariancewithinternationalnormsisprobablythefollowing:UnitedStates-LIFO.Drivenbytaxlawconsiderations,noothercountryusesLIFOtotheextentfoundintheU.S.LIFOreducesreportedearnings.Becauseolder,lowercostsofinventoryareshownonthebalancesheet,thedebttoassetratiowillbehigher.CompaniesusingLIFOmustreportso-calledLIFOreservesthatenableananalysttoconvertLIFOamountstoFIFOamounts.Mexico-Inflationadjustments.Mostcountriesintheworldvalueassetsandrelatedexpensesathistoricalcost;fewcountriesincorporateinflationadjustments.Withinflationadjustments,earningswillbelowerandthedebttoassetratiowillprobablybeloweraswell.ItisunlikelythatananalystwillbeabletoadjustMexicanaccountstohistoricalcost.Ofcourse,suchanadjustmentisunwise,givenhighinflation.Japan-Poolingofinterestsmethodforbusinesscombinationswherenopartyobtainscontrolovertheother.Theinternationalnormistotreatallbusinesscombinationsasapurchase.Comparedtopurchaseaccounting,poolingresultsinhigherincomeandlowerassetvalues.Therefore,thedebttoassetratiowillbehigher.Ananalystwillbeunabletoadjustforthisaccountingmethod.China-Showingtherighttouselandandindustrialpropertyownedbythegovernmentasanintangibleasset.Chinaisunusualintheextenttowhichthegovernmentownslandandindustrialproperty.Aslongastheseintangiblesarefairlyvalued,therewillbenoeffectonreportedearningsorthedebttoassetratio.However,theanalystmustrealizethattheintangibleassetshownonaChinesecompany’sbalancesheetisatangibleassetonthebalancesheetsofcompaniesfromothercountries.India-Poolingofinterestsmethodforamalgamations(mergers).AsnotedaboveforJapan,theinternationalnormistotreatallbusinesscombinationsasapurchase.Comparedtopurchaseaccounting,poolingresultsinhigherincomeandlowerassetvalues.Therefore,thedebttoassetratiowillbehigher.Ananalystwillbeunabletoadjustforthisaccountingmethod.Atthetimeofwriting,thefollowingnumbersarereportedbytheWorldFederationofStockExchanges:CountryNo.ofdomesticlistedfirmsNo.offoreignlistedfirmsUnitedStates:?AmericanSE495100?Nasdaq2,832332?NYSE1,818452Mexico150176Japan:?Osaka1,0631?Tokyo2,32328China:?ShanghaiSE8330?ShenzhenSE5440India:?Bombay4,7630?National1,0340ThesignificantnumberoflistedcompaniesinIndiamaybesurprising.ItmayalsobesurprisingthatthenumberoflistedJapanesecompaniesmatchesthenumbersfortheUnitedStates.AnotherpotentialsurpriseisthefactthattheMexicanStockExchangehasmoreforeignlistedfirmsthandomesticlistedfirms.StudentswillprobablyspeculatethatmostoftheforeignlistedfirmsinMexicoarefromotherLatinAmericancountries,astatementthatisinfacttrue.ThelackofforeignlistedfirmsinChinaandIndiahastwopossibleexplanations-eitherthegovernmentdoesnotallowforeignfirmstolistondomesticexchanges,orcompaniesdonotseethesestockmarketsasanattractiveplacetoraisecapital.ThelatterexplanationiswhytherearesofewforeignlistedfirmsinJapan..AcomparisonofthecountriesinExhibit4-5revealsfewdifferencesamongtheUnitedStates,Mexico,andChina.Thus,allthreecountriescanclaimthattheirGAAParecomparablyorientedtowardequityinvestors.However,ofthethreecountries,theUnitedStatescanprobablyclaimtohaveGAAPmostorientedtowardequityinvestors.ThechapternotesthattheU.S.hasthemostvoluminousanddetailedaccountingrequirementsintheworldandthattheyarerigorouslyenforced.Thus,thenodgoestotheUnitedStates.IndiaandJapanbothallowpoolingofinterestsaccounting,anaccountingtreatmentnowatvariancewithinternationalnorms.Thetreatmentofgoodwillinthesetwocountriesisalsoatvariancewithinternationalnorms.Inaddition,Japan'sleaaccountingtreatmentisatvariancewithinternationalnorms.Thus,JapanseemstobethecountrywhoseGAAPisleastorientedtowardequityinvestors..Atthetimeofwriting,thefollowingcompaniesarelistedontheNewYorkStockExchangefromMexico,Japan,India,andChina:MexicoAmericaMovilCemexCoca-ColaFEMSADesarrolladoraHomexEmpresasICAFomentoEconomicoMexicanoGRUMAGrupoAeroportuariodelPacificoGrupoAeroportuariodelSuresteGrupoCasaSabaGrupoRadioCentroGrupoTelevisaGrupoTMMIndustriasBachocoTelefonosdeMexicoVitroJapanAdvantestCannonHitachiHondaMotorKonamiKubotaKyoceraMatsushitaElectricIndustrialMitsubishiUFJFinancialGroupMizuhoFinancialGroupNidecNipponTelegraphandTelephoneNISGroupCo.NomuraHoldingsNTTDoCoMoOrixSonyTDKToyotaMotorIndiaDr.Reddy’sLaboratoriesHDFCBankICICIBankMahanagarTelephoneNigamPatniComputerSystemsSatyamComputerServicesTataMotorsVideshSancharNigamWiproWNSHoldingsChinaAluminumCorporationofChinaAmericanOrientalBioengineeringChinaEasternAirlinesChinaLifeInsuranceChinaMobileChinaNetcomGroupChinaPetroleumandChemicalChinaSouthernAirlinesChinaTelecomChinaUnicomGuangshenRailwayHuanengPowerInternationalMindrayMedicalInternationalNewOrientalEducationandTechnologyPetroChinaSemiconductorManufacturingInternationalSinopecShanghaiPetrochemicalSuntechPowerHoldingsTrinaSolarYanzhouCoalMiningMexicohas16companieslistedontheNYSE,rankingthirdafterBrazil(35)andChile(17).ThisisperhapssurprisinggiventhestrongeconomiclinksbetweentheUnitedStatesandMexicodiscussedinthechapter.OnewouldexpectMexicotohavethemostofanyLatinAmericancountry.OfthecountriesintheAsia-Pacificregion,ChinahasthemostnumberofcompanieslistedontheNYSE(20);Japanissecond(19);andIndiaisthird(10).Asdiscussedinthechapter,theeconomiesofChinaandIndiaaregrowingrapidly.TherelativelylargenumbersofNYSElistedChineseandIndiancompaniesprobablyreflectaneedforcapitalbytheirlargercompanies.ThatJapanhasapproximatelythesamenumberofNYSElistedcompaniesasChinaisperhapssurprising.However,thechapterdiscusseshowdebtfinancingdominatesequityfinancinginJapan.a.Thetwomajorareasofdifferenceareassetvaluationandaccountingforgoodwill.IntheU.K.,assetsmaybevaluedathistoricalcost,currentcost,oramixtureofthetwo.Whenfixedassetsarerevalued,depreciationandamortizationmustbecalculatedusingtherevaluedamounts.OnlyhistoricalcostisallowedintheU.S.IntheU.K.,goodwillcanbeimpairmentstested,asintheU.S.,butmayalsobeamortizedover20yearsorless.OtherdifferencesbetweenU.K.andU.S.GAAPrelatetoLIFOandthecalculationoflong-termdeferredtaxes.LIFOisrarelyusedintheU.K.,butisrelativelymorecommonintheU.S.IntheU.K.,long-termdeferredtaxesmaybevaluedatdiscountedpresentvalue.Finally,opportunitiesforincomesmoothingareprobablygreaterintheU.K.thanintheU.S.b.ResearchhasdocumentedthatU.S.GAAPearningsissystematicallymoreconservativethanU.K.GAAPearnings(see,forexample,P.WeetmanandS.J.Gray,InternationalFinancialAnalysisandComparativeCorporatePerformance:TheImpactofU.K.versusU.S.AccountingPrinciplesonEarnings,JournalofInternationalFinancialManagementandAccounting(Summer&Autumn1990),pp.111-130).However,manyoftheaccountingprinciplesonwhichthisresearchstudyisbasedhavenowchanged.GoodwillaccountingshouldresultinamoreconservativeincomeamountforU.K.companiesiftheysystematicallyamortizeitover20years.However,theoccasionalimpairmentswrite-downsthatU.S.companieswillhavewillresultinalowerincomeamountintheyearofwrite-down.TheuseofLIFOintheU.S.willresultinmoreconservativelymeasuredU.S.incomeamount.However,U.K.companieswillreportlowerearningsifassetsarerevalued,becausecorrespondingdepreciationchargeswillbehigher.TheeffectsofU.K.smoothingactivitiesareunclear,butitseemslikelythatcompanieswouldbemoreinclinedtosmoothtowardhigherearningsratherthanlower.Onbalance,wethinkthatU.S.companieswillhavesomewhatmoreconservativeearningsamounts,butU.KandU.S.GAAPareconverging.ThechapteridentifiesthefollowingmajorchangesthathaveoccurredsincetheJapanese“bigbang”:Largecompaniesmustprepareconsolidatedfinancialstatements,notjustlistedones.Listedcompaniesmustreportastatementofcashflows.Consolidationisbasedoncontrolratherthanownership.Useoftheequitymethodisbasedonsignificantinfluenceratherthanownership.Goodwilliscalculatedbasedonfairmarketvalueofnetassetsacquiredratherthanbookvalue.Goodwillisamortizedover20yearsratherthan5years.Itisalsoimpairmentstested.Investmentsinsecuritiesarevaluedatfairmarketvalueratherthancost.Inventoryisvaluedatthelowerofcostornetrealizablevalueratherthancost.Deferredtaxesarenowfullyprovided.Pensionandotherretirementobligationsarenowfullyaccrued.Researchanddevelopmentisnowexpensedratherthandeferredinsomecases.Forforeigncurrencytranslation,revenuesandexpensesarenowtranslatedattheaveragerate(ratherthanachoicebetweenyear-endoraveragerates)andthetranslationadjustmentisinstockholders’equity(ratherthanshownasanassetorliability).ThechapteridentifiesthefollowingmajorchangesthathaveoccurredinChineseaccountingsincethe1990s:TheASBEissuedin2006representacomprehensivesetofChineseaccountingstandardsthataresubstantiallyinlinewithIFRS.TheASBEissuedin2006alsocontainsauditingstandardssimilartoInternationalStandardsonAuditing.AllChineseaccountingfirmsandauditorsarerequiredtofollowtheseauditstandards.Acashflowstatementisnowrequired.Goodwillisimpairmentstestedratherthanamortized.Useoftheequitymethodisbasedoninfluenceratherthanownershippercentage.Consolidationofsubsidiarycompaniesisbasedoncontrolratherthanownershippercentage.Foreigncurrencytranslationofoverseassubsidiariesisbasedontheprimaryeconomicenvironmentinwhichtheyoperate.Tangibleassetsaredepreciatedovertheirexpectedusefullivesratherthanbasedontaxlaw.Lowerofcostormarketisnowusedtovalueinventory.LIFOisnolongeranacceptableinventorycostingmethod.Financeleasesarenowcapitalized.Deferredtaxesarenowprovidedinfullforalltemporarydifferences.Contingentobligationsarenowprovidedforwhentheyarebothprobableandareliableestimatecanbemadeoftheiramount.AccountingprofessionUsers/PreparersOrganizedLaborTaxAuthoritiesCommercialLawSecuritiesCommissionsStockMarketUnitedStatesYesYesNoNoNoYesYesMexicoYesYesNoNoNoNoNoJapanYesYesNoYes(some)YesYesNoChinaNoNoNoNoYesYesNoIndiaYesYesNoNoYesNoNoa.JapanandIndiaallowspooling,whiletheothersdonot.Poolingusuallyresultsinlowernoncurrentassetamountsandhigherincomeamounts.Goodwillandsubsequentamortizationisalsoexcludedunderpooling.TotheextentthatpoolingisusedbyJapaneseandIndiancompanies,theyarelikelytohavehigherdebttoequityanddebttoassetratios.Thenumerator(return)andthedenominators(assetsandequity)inthetwoprofitabilityratiosshouldallbehigher,buttheeffectontheratioisindeterminate.Liquidityratiosshouldbeunaffected.JapanandIndiabothrequiregoodwilltobecapitalizedandamortized.Thisshouldhavenoeffectontheeitherliquidityratio.Theamortizationwillresultinaloweramountofincomegoingtoretainedearnings.Thus,thedebttoequityratiowillbehigherthanwhatitwouldbewithoutamortization.Thedebttoassetratiowillalsobehigher.Theeffectontheprofitabilityratiosisunclear.Thenumerator(income)willbelowerthanwhatitwouldbewithoutamortization.Howeverthedenominatorsineachcase(assetsandequity)willalsobelower.Theequitymethodisusedinallfivecountries,sothereisnoeffectoncomparativeratios.Price-leveladjustedaccountingispracticedinMexicoandIndiancompaniesmayrevaluetheirtangibleassetstocurrentvalues.Theresultishigherassetvalues,higherequity,andlowerincome(becauseofhigherdepreciationandcostofgoodssoldcharges),comparedtohistoricalcost.Thecurrentratiowillbehigher,butcashflowfromoperationstocurrentliabilitieswillbeunaffected.Bothsolvencyratioswillbelowerbecausetheirdenominators(assetsandequity)willbehigher.Bothprofitabilityratioswillbelower.Thenumerator(income)willbelowerandthedenominators(assetsandequity)willbehigher.DepreciationinJapanistax-based,whichisnormallyhigherthaneconomics-baseddepre