Accounting Reporting Criteria (GM and Toyota) Team B Megan Wooliver September 7, 2010 Accounting Reporting Criteria In order to keep up with the times most organizations of today are finding themselves consistently coming up with different ways to keep accounting information personal as well as accurate. Providing good accounting information not only leads to better decisions but also increase in profit. Even two different organizations that provide a similar product or service have completely different ways of reporting their accounting information.
Throughout this essay, Team B will compare and contrast many issues involved in the reporting process of two different organizations that both provide a similar product, the automobile. The first organization is General Motors, a United States company, and the second is Toyota, a foreign company. While there are similarities, there are also key differences in the reporting methods. United States Accounting Standards Accounting standards are key in the dissemination of information.
When it comes to financial information these standards help regulate the industry and protect consumers. The United States has set specific standards that companies must meet in order to be legal within its borders. As a US born company, GM is held to these standards. The Standards include, GAAP, disclosures such as Sarbanes Oxley, and monitoring by the PCOAB. GAAP (Generally Accepted Accounting Principles) were established by the FASB, which has been given the authority to monitor and enforce these regulations.
These regulations include consistency, relevance, reliability and comparability. To be consistent, all information gathered must be the same throughout all periods and have relevant meaning so those using the information can make educated guesses regarding the stability of the company. In addition, the information must be verifiable and comparable to other companies in the industry. (Bradford, 2007). Meeting GAAP regulations is an organizational goal. However, organizations must also comply with the Sarbanes-Oxley Act.
This act requires all officers to review accounting documents before they have been submitted and sign off on them, make sure that all off balance sheets are reported, disclose to the public all material changes that have taken place within the company over a given year, and lays down penalties for those who do not follow these requirements. The Public Company Accounting Oversight Board monitors businesses to make sure they comply with the act. GM, although it has failed to comply with regulations and has filed for bankruptcy in 2009, is on track to fulfill these standards in 2010.
International Accounting Standards Toyota a foreign company based in Japan follows the reporting standards of the IASB or the International Accounting Standards Board. The IASB is an independent board that develops standards using due process. This process consists of six different stages, which have been taken directly from the IASB web site and are located below… 1. “Setting the agenda 2. Planning the project 3. Developing and publishing the discussion paper 4. Developing and publishing the exposure draft 5. Developing and publishing the standard 6. After the standard is issued” (IASB 2009 pg 2)
After such standards are set, the IASB also works with other boards in order to make sure that all the standards have been met and are being practiced effectively. Acts and Regulations In the United States, the Sarbanes-Oxley Act was passed to provide regulation and uniformity in corporate accounting practices. Aspects of the Sarbanes-Oxley Act include provisions for internal and external auditing of accounting records, full disclosure of financial documents, accountability to senior executives for accounting accuracy, and individual accountability for fraudulent practices in accounting.
The purpose of the Sarbanes-Oxley Act is to protect all internal and external stockholders. The passage of this act has influenced the accounting practices of other nations. However, the Sarbanes-Oxley Act in itself in a United States accounting practice and is not mandatory beyond international borders. Other nations have regulations or laws to govern accounting practices that are similar to the Sarbanes-Oxley Act in the intent to protect and serve shareholders within private and public organizations. In 2005, Japan enacted the Company Act, which “regulates dividends policies of companies. J-GAAP: Company Regulates Accounting for Equity, 2009, ¶ 1)” This is primarily focused on fair practices of reporting shareholders equity and protecting the investors in companies. The accounting practices of host nations affect the practice of international organizations. Many nations adhere to the standards set by the International Accounting Standards Board (IASB). However, convergence to the regulations of this board is voluntary, not mandatory by international standards. Similarities and Differences in Accounting Practices
There are many differences between the reporting criteria for the United States GAAP (FASB) and International (IASB). Issues related to foreign currency exchange is a dominating issue due to the fact that the exchange rate can fluctuate at any time. The actual time it can take by the time the purchased vehicle reaches its intended destination and all final contracts are signed, after of course verifying that the customer does in fact qualify, profit can be greatly affected if there has been a fluctuation in the currency exchange rate.
GM can however take measures to assist in a loss of profit from any fluctuation of the currency exchange rate such as applying the use of Foreign Currency Forward Contracts. One difference that is a major issue with some businesses in the GAAP is that the accounting standards of the FASB are actually much more detailed and conservative than that of the IASB. There are not as many differences of the regulatory environment of the FASB company GM and Toyota which is an IASB company.
A major reason for this is because the fact that Toyota is such a prom nary automobile company sold in the United States and must adhere to FASB guidelines the same that GM is required to. However, Toyota does have to adhere to the requirements set forth by the IASB since it is in fact manufactured in Japan. Entities that require Toyota to verify adherence as well as compliance with are United States Securities and Exchange Commission (SEC), the Public Company Oversight Accounting Board (PCOAB), the Financial Accounting Standards Board (FASB) in addition to IASB requirements. (Epstein, 2008) Conclusion
Although no mandatory standards have been internationally mandated, many nations in the global environment adhere to similar practices in accounting. GM and Toyota are two distinct organizations with a position in the global market. Domestic practices mandate the reporting practices that must be used by these organizations. However, both also adhere to the international standards set forth by the IASB. This provides consistency, reliability, and transparency to investors and stakeholders in the organizations while still practicing the accounting principles implemented by domestic bodies.
As globalization continues to grow and prosper, these regulatory bodies continuously strive for improvements to domestic and international accounting practices.