7.1.1 Accounting Regulation and Enforcement    To converge with International Accounting Standards, Mainland China's accounting system has experienced at least four major progressive reforms starting from 1990s. The first milestone reform was the issuing of the Enterprise Basic Accounting Standards (EBAS) in 1992, which provides the first conceptual framework of accounting standards in Mainland China.¹³ The Accounting System for Joint Stock Limited Enterprise (ASJSLE) replaced EBAS in 1998 to reduce the discrepancies between Mainland Chinese Accounting Standards and International Accounting Standards. In 2001, the Ministry of Finance (MOF) issued the Accounting System for Business Enterprises (2001 Accounting System) to further align Mainland Chinese Accounting Standards with International Accounting Standards. Despite these efforts, “these standards are highly prescriptive and largely rules based.”¹⁴ The most significant initiative to converge with IFRS was the introduction of the Accounting Standards for Business Enterprises (ASBE) (also referred to as the new Mainland Chinese Accounting Standards (CAS)) in 2006. All listed companies are required to adopt the ASBE effective from January 1, 2007. The ASBE consists of one basic standard, 38 specific standards, and adoption guidance. Like IFRS, fair value is adopted in the ASBE. To facilitate the implementation of the ASBE, several interpretations of standards were issued in 2007 and 2008. To improve the financial reporting quality, the Chinese Securities and Regulatory Commission (CSRC) issued a new set of auditing standards that are largely based on the International Auditing & Assurance Standards Board (IAASB), effective from January 1, 2007.

In Mainland China, the Accounting Law outlines the general principles of accounting and defines the role of government and matters relating to accounting principles, standards, and practices. The Ministry of Finance (MOF), supervised by the State Council, formulates accounting and auditing standards and regulates the accounting profession in Mainland China.

7.1.2 Factors that Influence Financial Reporting Quality in Mainland China    The effectiveness of the legal system in Mainland China is an important factor that affects the financial reporting quality of Mainland Chinese firms. Wong (2016) points out that Mainland China has promulgated sound laws but was unable to implement and enforce this legislation mainly because of its court system.¹⁵ There is no independent judiciary in Mainland China as the courts are controlled by either the central or the local government, which may directly or indirectly hold stock ownership of state-owned firms. This organizational structure leads to court proceedings that may be improperly influenced.¹⁶ The underdeveloped legal system and firms' dependence on connections with the government for protection and rent seeking render this relationship-based system of doing business a necessity in Mainland China.¹⁷

The role of the state in the financial market is also ambiguous. On the one hand, the state controls many firms (such as state-owned enterprises (SOEs)) in various ways. On the other hand, the state regulates the stock markets by setting accounting regulations and enforcing them. Such ambiguity results in conflicts of interest and impedes the objective enforcement of accounting regulations. The concentrated ownership in private firms also renders insiders less incentivized to provide high-quality financial reporting. The controlling shareholders have a strong incentive to mask their exploitation of the minority shareholders by reporting opaquely.

7.1.3 Differences Between Chinese GAAP and IFRS    Mainland China retained its domestic rules on accounting for related-party transactions, government subsidies, and reversal of impairments of depreciable assets. These are areas that have domestic political and economic significance in Mainland China. Especially for SOEs, the differences between the Mainland Chinese Generally Accepted Accounting Principles (GAAP) and IFRS treatments have substantial impacts on the financial statements.

7.1.4 Drivers of Convergence with IFRS    IFRS is established on the basis of accounting principles in developed countries and is now being adopted or is soon to be adopted in most countries around the world. To Mainland China, the adoption of IFRS enhances the transparency of its financial reporting, lowers the level of information asymmetry and improves the quality of accounting information.²² To the extent that IFRS adoption by a country leads to an increase in the transparency of financial reports, IFRS adoption provides incentives for businesses and individuals globally to invest in Mainland China.²³

7.1.5 Internal Control Report Required for Listed Companies    Similar to the rules of the internal control system in the US, Mainland China issued the Basic Standard for Enterprise Internal Controls (BSEIC) in 2008, mandating all listed firms (both on the Shanghai and Shenzhen Exchanges) to assess the effectiveness of their internal control systems and to publish auditors' opinions on the effectiveness of internal control along with the annual financial reports. With these efforts, the transparency of Mainland Chinese companies' reporting has improved significantly.

7.2.1 Accounting Regulation and Enforcement    Having been a British colony for around 100 years, the accounting standards and practices adopted in Hong Kong were heavily influenced by those of the UK. The accounting professional body, the Hong Kong Society of Accountants (HKSA), was incorporated by the Professional Accountants Ordinance (Chapter 50, Laws of Hong Kong) on January 1, 1973. The HKSA evolved to become the current Hong Kong Institute of Certified Public Accountants (HKICPA) on September 8, 2004. Prior to the adoption of International Accounting Standards (IAS)-based accounting standards in 1992, Hong Kong's accounting standards were very similar to those in the UK.

The Hong Kong Financial Reporting Standards (HKFRS) have fully converged with the International Financial Reporting Standards (IFRS), with annual reporting periods commencing from January 1, 2005.²⁴ The convergence results in a substantial increase in disclosure transparency, reporting quality and comparability. Although Hong Kong-based listed companies are required to provide financial statements based on HKFRS, companies that are domiciled in Hong Kong but incorporated outside Hong Kong are permitted to use either HKFRS or IFRS as their basis to prepare financial statements.

7.2.2 Drivers of Successful Implementation of IFRS

7.2.3 Internal Control Report Required for Listed Companies    In December 2014, HKEX published its corporate governance requirements—the Consultation Conclusions on Risk Management and Internal Control: Review of the Corporate Governance Code and Corporate Governance Report (“the Consultation Conclusions”). These requirements have affected all Hong Kong listed companies and come into effect for accounting periods beginning on or after January 1, 2016²⁸ (KPMG, 2016). That is, the listed companies have to prepare Risk Management and Internal Control report effective from 2016.

7.3.1 Accounting Regulation and Enforcement    India's accounting system has evolved over time tracing back to the early sixteenth century when the Silk Road became the key route to prosperity by connecting India and southern Europe. The subsequent entry of the East India Company had widespread influence on Indian commerce and soon the economy was virtually taken over by the company's owners. With the great potential of the East India Company in terms of business opportunities, natural resources and human resources, the British government decided to colonize India and took control of the company. The British rules serve to explain the almost identical pattern of accounting and financial reporting practices between India and England.²⁹ However, India attained independence in 1947 after a long struggle, with changes made to accounting practices to meet the needs of the Indian economy.³⁰

In India, there are 18 official languages and dozens of dialects which are distributed in 28 states and seven federal territories. The accounting practices of unorganized rural/agricultural sectors and small-scale urban industrial sectors vary greatly from one region to the other. It is difficult to establish a degree of uniformity in accounting and trade practices in these industries and sectors. In addition, many Indian companies are controlled by conservative families and are reluctant to disclose publicly financial information because of privacy and fear of competition.³¹

With the objective of simplifying accounting practice, in 1949 the Indian government established the Institute of Chartered Accountants of India (ICAI), passing the ICAI Act in the same year. The Accounting Standards Board was established by the ICAI in 1977 to coordinate accounting policies and practices in India. In 2006, a special working group was set up by ICAI with the goal of developing a roadmap for India's convergence with IFRS.³² Although this date was postponed because of pending resolution of several issues involving taxation laws, the co-existence of multiple regulatory frameworks, the lack of sufficient resources, insufficient awareness of IFRS and the incremental costs of the adoption of the Indian Accounting Standards (Ind-AS),³³ the adoption of the Ind-AS was announced on January 6, 2015 by the Ministry of Corporate Affairs (MCA) to be effective from the financial year 2016–2017.³⁴ For the first phase, the Ministry planned to start implementing IFRS for enterprises with a net worth of more than 100 billion rupees (around US$1.5 billion) from April 1, 2015. In the second phase, both listed and unlisted companies whose net worth is more than 50 billion rupees (around US$0.75 billion) and less than 100 billion rupees (around US$1.5 billion) have to merge with IFRS commencing from the financial year starting on April 1, 2016. In the third and fourth stages, small companies are required to prepare financial reports based on IFRS beginning April 1, 2017. Banks are exempted from complying with the IFRS.³⁵

7.3.2 Factors that Influence Successful Implementation of IFRS

7.3.3 Requirement for Internal Control    According to the Companies Act of 2013 (the 2013 Act), a company's auditor is required to state in its audit report whether the company has a sound internal financial control (IFC) system in place.³⁹ In addition, the 2013 Act requires listed companies to provide management discussions and analyses (MD&A) covering industry structure and development, opportunities and threats faced by the company, and internal control and risks affecting the performance of the business sector or products.⁴⁰ The directors of listed companies have to disclose whether they have a complete IFC system and whether such IFC is sufficient and effective.

7.4.1 Accounting Regulations and Enforcement    For more than 300 years, Indonesia was a Dutch colony. During this period, the first accounting legislation, Indische Compatibles Wet (ICW) (1864), was released, establishing a cash-based budget and trade reporting system. Indonesia has a diverse and isolated political system, which is the very first institution in Indonesian society. Therefore, accounting plays a crucial role in maintaining the colonial government.⁴¹ After World War II (1949), the Dutch, under international pressure, formally recognized Indonesia's independence. Driven by economic and political reforms in 1967, new accounting standards began to be implemented. The Indonesian Accounting Standards (PAI), the first US-based codified accounting system, was launched in 1973. Following the launch of the PAI, the Dewan Standar Akuntansi Keuangan (DSAK) (Indonesian Institute of Accountants (or Ikatan Akuntan Indonesia, IAI)), the national accounting profession body that oversees the setting of accounting standards in Indonesia, established a permanent standard-setting body within its organizational structure—the Indonesian Accounting Principles Committee (KPAI).⁴²

With significant developments in the Indonesian capital market, the government began to demand a higher level of accounting standards from the early 1990s. The IAI changed the basis for the establishment of accounting standards in 1994 from US GAAP to International Accounting Standards (IAS) and formally decided to support the coordination scheme initiated by the International Accounting Standards Committee (IASC).⁴³ In 1999, for the first time in its history, Indonesia introduced democratic principles, public elections, racial tolerance policies and civic pluralism.⁴⁴ As part of the greater democratic reforms, the Indonesian Central government also introduced public sector financial reporting reforms including accrual accounting and public reporting.^45,46 These systems were practiced until the adoption of Law No. 17 (2003) when the government adopted new accounting standards.⁴⁷ After the 1997 Financial Crisis, Indonesia began accepting financial support from the International Monetary Fund (IMF). The IMF required reform of the banking and financial systems, which has led to changes in accountability.^48,49 The legislation was passed in the late 1990s to meet the World Bank's expectations of “good governance,” to include public accountability and transparency, respect for the rule of law, anti-corruption measures, democratization, decentralization and local government reforms.⁵⁰ Between 1994 and 2007, the IAI published six revisions of the Indonesian Accounting Standards with codified pronouncements. These revisions were largely made to accommodate amendments to existing standards and to add new accounting standards to deal with changes in the business environment.⁵¹

7.4.2 Convergence to IFRS    Unlike the “big bang” approach adopted by the European Union member countries and developing economies, Indonesia adopted IFRS in a gradual manner. Indonesia incorporated IFRS into its local accounting standards with minor changes while taking local laws and the business environment into account. In 2008, the IAI officially announced full convergence toward IFRS. The IAI proposed to complete full convergence through three stages and expected to achieve the goal by 2012.⁵² The Indonesian Accounting Standards published on September 1, 2007 the beginning of this convergence plan, in which many Indonesian Financial Accounting Standards (PSAKs) were pronounced, and signified full adoption of IFRS. However, among a total of 33 standards, only 10 were adopted from IFRS by 2008. Due to the slow progress, IAI delayed the full convergence process until 2012.⁵³

The publishing of the Indonesian Accounting Standards on June 1, 2012 marked the completion of the first stage of the IFRS convergence process. Not all IFRS were adopted in this phase but there is progress toward Indonesia's accounting standards moving close to IFRS.⁵⁴ DSAK initiated the second stage of the IFRS convergence program in 2012 with the completion of the second stage on January 1, 2015, marked by 42 accounting standards, of which 38 were adopted from IFRS and four were developed by DSAK itself. This progress means that the gap between Indonesian Accounting Standards and IFRS has been reduced. As a result, the full convergence process is still pending.

7.4.3 Challenges and Drivers of Convergence with IFRS    Most of the economic incentives come from the globalization of the Indonesian economy. Foreign investors in the capital market owned about 64 percent of shares on the Indonesian stock exchange as at the end of 2015. The Indonesian capital market regulations allow foreign investors to hold 100 percent of its listed companies. Between 2005 and 2015, the amount of foreign direct investment (FDI) inflows into the country increased by nearly 100 percent (World Bank, 2016). Indonesia needs foreign investment to support its national economic growth. The adoption of IFRS and transparent financial reporting is crucial in supporting FDI growth.⁶¹

The political pressure for IFRS convergence may come from supranational institutions. For example, the IAI is a full member of the International Federation of Accountants (IFAC), and thus has the obligation to adopt IFRS as the national accounting standards. In addition, the status of Indonesia as a G20 member promoted the full integration of IFRS in the country. The adoption of IFRS is a commitment of G20 member states. Hence Indonesia is obligated to ensure that its national standards are consistent with IFRS. The IAI reports that the current Indonesian IFRS integration program is a response to agreements between G20 members.

7.4.4 Internal Control System    The National Committee on Corporate Governance (NCCG), established in 1999 by the Decree of the Coordinating Minister for Economy, Finance and Industry, is responsible for codifying corporate governance principles and implementing the code by developing an institutional framework in Indonesia.⁶² The NCCG published its first Code of Good Corporate Governance in the year of its establishment. In 2006, the NCCG revised the 2001 Code of Good Corporate Governance to incorporate new clauses. Indonesia's Code of Good Corporate Governance (2006) stipulates that a firm must have an effective internal control system in place.⁶³ The Code further specifies that the board of directors has responsibility to establish and maintain a sound internal control system within a company. To help the board of directors to achieve this goal, the Code requires the audit committee to assist the Board of Commissioners to ensure the effectiveness and adequateness of the internal control system.

7.5.1 Accounting Regulation and Enforcement    Accounting regulation in Japan is based on the Company Law, the Securities and Exchange Law (SEL), and the Corporate Income Tax Law. These three pieces of legislation are linked and apply in a connected way in regulating financial reporting in Japan. The Company Law is administered by the Ministry of Justice (MOJ) and its fundamental principle is creditor and shareholder protection. Disclosures on creditworthiness and the availability of earnings for dividend distribution are of primary importance. Publicly owned companies must meet the requirements of the SEL, which are administrated by the Financial Services Agency (FSA). The main objective of the SEL is to mandate listed companies to provide information for investor decision-making.⁶⁴ Finally, the Tax Law has significant influence on financial reporting as it stipulates accounting recognitions and treatments to determine taxable income.

7.5.2 Factors that Influence Successful Implementation of IFRS

7.5.3 Internal Control    The Financial Instruments and Exchange Act (2006) requires all listed companies to submit an annual assessment of the company's internal controls with an internal control assurance report by an auditor, beginning in 2008.⁷⁸

7.6.1 Accounting Regulations and Enforcement    After the 1997 Asian Financial Crisis, the Korea Accounting Institute (KAI) developed the K-GAAP based on the International Accounting Standards. Despite that, K-GAAP is quite different from IFRS. To further converge with IFRS, the South Korea IFRS Adoption Task Force was inaugurated in 2006. In 2007, the Task Force announced the IFRS adoption roadmap, specifying the scope of application, starting period, and implementation plans. According to the roadmap, non-financial listed companies are required to adopt IFRS from 2009 and financial firms would start adopting IFRS from 2011. In 2009, the IFRS Implementation Support Task Force was established to cope with the emerging practical issues for early-adopting firms. To minimize compliance costs, the roadmap required the South Korean IFRS (hereinafter, K-IFRS) to be ready before the end of 2007 and to translate the IFRS into Korean word by word. Organizations that had 2 trillion Korean Won (around US$1.78 billion) worth of assets were given an extra grace period for the adoption of IFRS in 2013 and were expected to publish quarterly and semi-annual financial reports.⁷⁹

7.6.2 Factors that Influence Successful Implementation of IFRS

7.6.3 Drivers of Convergence with IFRS    To mitigate the negative impacts of the Asian Financial Crisis in 1997, South Korea strategizes to attract more foreign direct investment through the promotion of transparency of South Korean companies' financial reporting. One initiative is to set up a private sector accounting standards board similar to the Financial Accounting Standards Board (FASB) in the US. The Korea Accounting Institute (KAI) was established to enhance the South Korean GAAP in meeting international standards. Regardless, the international community's assessment of the transparency of South Korean financial statements remains less than satisfactory. The government adopted IFRS (South Korea Accounting) in an effort to improve the quality of accounting standards and enhance the credibility of accounting information. Meanwhile, there was the global convergence of accounting standards toward IFRS as many countries at that time had either passed or started to adopt the IFRS.⁸²

7.6.4 Internal Control System    According to the South Korean Securities and Exchange Act in 2003, all security companies must establish basic internal control procedures and standards. Managers need to “observe statutes or subordinate statutes, operate the company's assets in a sound manner and protect its customers” in performing their duties. And at least one person (or “compliance officer”) is assigned to check if the internal control standards are in place and to investigate whether there are violations of the internal control standards. The designated person must report internal control assessment results to the auditor or the inspection committee if deviations are detected.⁸³

7.7.1 Accounting Regulation and Enforcement    Before its independence in 1957, Malaysia was under British rule for over 80 years, thus its accounting standards and reporting practices also originated from the UK. After early announcements about IAS were made in the 1970s, IAS took over as the major force shaping Malaysian formal accounting standards.⁸⁴ With Malaysia's early adoption of some IAS⁸⁵ standards during the period from 1978 until 1997, the Malaysia Accounting Standards Board (MASB) standards were already in line with those issued by IASB. However, the IASB standards were modified to adapt to the local environment and became national standards. The issuances made by the Malaysian Association of Certified Public Accountants (MACPA) together with the Malaysian Institute of Accountants (MIA) were not enforceable for companies in the early days. In 1997, a Parliamentary Act established MASB and conferred the MASB standards with legal standing for all firms. The standards issued by MASB became enforceable under the Companies Act 1965 as well as under other relevant Acts for specialized industries like insurance.⁸⁶

In 2005, MASB renamed the MASB standards to the Financial Reporting Standards (FRS), intending to align them with standards issued by the IASB except for some minor modifications. In January 2006, all Malaysian firms were required to converge the local reporting standards with IFRS by preparing financial statements according to IFRS. Instead of mandating the following of the whole set of accounting standards in the preparation of financial statements, Malaysia introduced a two-tier financial reporting framework whereby the IFRS framework is made mandatory for public entities while private entities can continue to use the old MASB standards (known as the PERS (Private Entity Reporting Standards) framework).

7.7.2 Factors that Influence Successful Implementation of IFRS    Although the Malaysian accounting system is influenced by the UK, the reporting environment shares features with other code law countries, such as the importance of banks as capital providers (Ball et al., 2003), high ownership concentration, insider governance, weak investor protection and enforcement and strong government intervention in the economy (Suto, 2003; Tam & Tan, 2007).^87,88 Malaysian financial reporting has therefore been criticized as being of low quality (Ball et al., 2003). Audit quality may also be compromised as there are fewer incentives for auditors to maintain independence.⁸⁹

The political economy in Malaysia is highly influenced by family ownership and political connection.⁹⁰ This type of political economy has enabled corporate entities in Malaysia to seek capital funds from “insiders” rather than from the capital market. Therefore, there is less demand for informative financial statements by the public. Being politically connected facilitates firms in getting private information. Hence any information asymmetry between shareholders and managers is settled through “insider communication” rather than through “public disclosure.” Abdullah et al. (2015) found a negative relationship between family control and IFRS disclosure levels in Malaysia. They also pointed out that the situation where family members in management positions hold board seats can lead to ineffective monitoring and poor governance, which is associated with low-quality financial reporting.⁹¹

7.7.3 Drivers of Convergence with IFRS    The Asian Financial Crisis in 1997 was an alarm bell for corporate governance reform in Asian countries including Malaysia. One such effort at reform was to effectively converge with IFRS to enhance reporting quality and facilitate effective monitoring. Another important driver of convergence is foreign direct investment, for which enhanced IFRS in financial reporting is essential. In 2007, total foreign direct investment in Malaysia was US$8,403 million while the total market capitalization of the Malaysian stock exchange was US$326 million. The average annual growth of market capitalization in Malaysia is 40 percent (Liew, 2007).⁹² In 2007, there were 1,036 companies listed on the Kuala Lumpur Stock Exchange (KLSE), which ranks 27th in terms of market capitalization (US$325,663) in the world (Standard & Poor's, 2008).⁹³ Malaysia is ranked 24th in the world for foreign direct investment (FDI). The growth in the market capitalization and inflow of capital have generated a need for the country to have sound financial reporting and disclosure of information.⁹⁴ Malaysia officially adopted IFRS in 2012, which is viewed as a step in the right direction toward improving the quality of the financial reporting process.

7.7.4 Internal Control Systems    In December 2000, Bursa Malaysia first issued its Statement on Internal Control: Guidance for Directors of Public Listed Companies.⁹⁵ The guidance is aimed at assisting Malaysian listed companies to disclose their internal control system in their annual reports and comply with the listing rules of the KLSE. In 2001, the Malaysian Securities Commission appointed the Institute of Internal Auditors Malaysia (IIAM) to form a taskforce to formulate guidelines to help the boards of directors of listed companies to effectively discharge their responsibilities pertaining to the establishment of internal audit. The guidelines highlight internal control as an important characteristic. In 2012, the taskforce revised the guidelines by referring to the Malaysian Code on Corporate Governance issued in March 2012.⁹⁶ The guidelines require boards to be responsible for establishing an effective internal control system, and the CEO and CFO to assure the board with respect to the adequateness and effectiveness of the internal control system within a company.

7.8.1 Accounting Regulation and Enforcement    From 1565 to 1571 the Spanish took over the Philippines islands, which they would hold for more than 300 years. However, the Philippines' long accounting history was formed from the need to trade with neighboring countries, long before it became a Spanish colony. The Philippines became an American colony in 1898 after the Philippine–American War. The enactment of the Accountancy Law in 1923 is a milestone in accounting history. It granted qualifications to professional accountants who had completed and passed the CPA exam, and established the Board of Accountancy (BOA) to regulate the accounting industry. In 1929, the Philippines Institute of Certified Public Accountants (PICPA), a private non-joint-stock company and one of the longest surviving professional accounting organizations in Asia, was founded. The PICPA has contributed immensely to the development of accounting standards in the Philippines.⁹⁷ Because Philippine foreign trade was conducted primarily with the United States between the 1920s and early 1970s, Philippine accounting standards were adapted from the US GAAP.⁹⁸

Even before the 1997 Asian Financial Crisis, the International Monetary Fund (IMF) forecast that the growth of the Philippine economy would be 6 percent in 1998, higher than most Asian countries with similar characteristics and stage of development. One important reason, as identified by Noland (2000), is that it has a sound financial system including accounting system, as compared with other Asian countries.⁹⁹

7.8.2 Move Toward IFRS    With increasing trade with European countries, Philippine accounting standard-setters announced in 1997 a gradual shift toward the International Financial Reporting Standards (IFRS). Soon after the 1997 Asian Financial Crisis, the Philippines introduced structural reforms on globalization and corporate governance to further improve its accounting system, including relating to financial disclosure.¹⁰⁰ The Accounting Standards Council (ASC) was founded in November 1981 by the PICPA, which oversees the formulation of general accounting principles in the Philippines.¹⁰¹ The official transition began in 2001 and was completed in 2005 (IASPlus, The Philippines, January and November 2005 updates).

In 2004, the Professional Regulatory Commission set up the Financial Reporting Standards Council (FRSC) under the Rules and Regulations of the Philippines Accountancy Act of 2004. The FRSC replaced the original ACS and aims to assist the BOA in carrying out functions such as enforcement and implementation of accounting standards in the Philippines. In November 2004, FRSC approved the Philippines Accounting Standard (PAS) and the new Philippines Financial Reporting Standard (PFRS) (equivalent to IAS and IFRS for IASB).¹⁰²

The Philippines Security Exchange Commission (SEC) together with other members of the International Securities and Commission Organization (IOSCO) agreed to adopt IFRS to maintain international standards in order to improve the reliability and integrity of the country's capital market.¹⁰³ However, listed companies and limited liability companies implement different accounting frameworks authorized by the SEC.¹⁰⁴ Being regulated by BOA, the Professional Regulation Commission (PRC) supports the adoption of IFRS because its duty is also to implement the General Agreement on Trade in Services (GATS).

Since 2005, listed and limited liability companies that exceed the financial limit set by the Philippines SEC were expected to adopt the Philippines Financial Reporting Standards (PFRS), which have converged fully with IFRS.¹⁰⁵ The Philippines Interpretations Committee (PIC) was later established by FRSC, in 2006, to further improve financial reporting standards in the Philippines.¹⁰⁶

7.8.3 Factors that Influence Successful Implementation of IFRS    The Philippines was rated one the highest in relative explanatory power of residual earnings among six other Asian countries. According to Graham & King (2000), this impressive performance may be due to the independence of its accounting standard-setting organization.¹⁰⁷ The organization in charge of standard-setting comprises both private and government members including representatives from various government and preparer groups. Given the colonial and economic ties of the Philippines with the US, it is not surprising that the Philippines' accounting practices are influenced by US GAAP.¹⁰⁸

Limitations faced by implementation bodies in the Philippines according to UNCTAD (2005) include (1) difficulty in adapting some international standards to the local business environment (2) late issuance guidance from regulatory bodies (3) high compliance cost and (4) inadequate training and education. The IASB intends to promote a “stable platform” of IFRS for 2005 and is expected to continue issuing new IFRS or amendments thereto.¹⁰⁹

SMEs in the Philippines account for 99 percent of businesses and the threshold for submitting audited financial statements was established many years ago. The audited financial statements submitted are fairly below standard. This suggests that the system indirectly promotes low audit standards. The main reason for this is lack of training and lack of qualified personnel to review these statements from the SEC and Bureau of Internal Revenue Unit. A high variance of audit quality in large and small audit firms exists in the industry. Some suggest that audit firms should be divided into different layers and that each layer would comply with different levels of quality control procedures.¹¹⁰

7.8.4 Internal Control System    The installation, implementation, and strengthening of internal control systems in Philippine bureaucracy has been mandated under the 1987 Philippine Constitution, existing laws and administrative rules and regulations. In 2002, the Philippines SEC stipulated that boards of directors should oversee firms' internal control systems and that CEOs are ultimately responsible for firms' internal controls.¹¹¹ The National Guidelines on Internal Control Systems (NGICS) is an initiative taken by the national government to affirm its commitment to the citizenry regarding accountability, effective operations, prudence in finances, and quality service. It unifies in one document existing Philippine laws, rules and regulations on internal controls to serve as a benchmark for designing, installing, implementing and monitoring internal controls in the public service.¹¹²

7.9.1 Accounting Regulation and Enforcement    The establishment of accounting standards in Singapore was highly related to its colonial history. In 1819, Singapore was colonized as a trading station of the British East India Company on the island. During World War II, Singapore was occupied by Japan between 1942 and 1945. After the war, Singapore gained independence from Britain by federating with other former British territories to form Malaysia. It separated from Malaysia two years later and became a sovereign nation in 1965.¹¹³ Lacking a formal accounting standard-setting agency before 1987, Singapore adopted British standards directly and customized them for its own economic environment. The Singapore Institute of Certified Public Accountants (SICPA), the national professional body for accountants in Singapore, was established in 1987 with IASC as the main reference in setting local accounting standards. All IAS standards were converted into accounting standards adapted to Singapore and most of them were adopted by the end of 1995 as the Singapore Financial Reporting Standards (SFRS).¹¹⁴

Singapore-incorporated companies that were listed on other stock exchanges requiring IFRS, foreign-owned companies listed in Singapore, or companies authorized by the Accounting and Corporate Regulatory Authority of Singapore (ACRA, a statutory board under the Ministry of Finance of the Singapore government) were allowed to use IFRS.¹¹⁵ In Singapore, convergence with IFRS began in 2002 while full convergence of SFRS with IFRS Standards for Singapore listed companies on the Singapore Exchange (SGX) was the strategic direction set by the 2009 Accounting Standards Board (ASC).¹¹⁶ The financial reporting standards issued by the ASC are largely consistent with the IFRS standards. The ASC is responsible for ensuring the reliability and comparability of financial statements so as to increase the credibility and transparency of Singapore's financial reports.¹¹⁷

On May 29, 2014, ASC announced that Singapore listed companies would adopt the new financial reporting framework, which is the same as the IFRS standards, starting from January 1, 2018. Unlisted companies can voluntarily apply for the new framework at the same time. Companies that have transitioned to the new financial reporting framework will adopt IFRS1 First-time Adoption of International Financial Reporting Standards. Because the new framework will be the same as the IFRS standards, companies will have the option of complying with IFRS standards or with the new Singapore financial reporting framework.¹¹⁸

7.9.2 Internal Control System    The Stock Exchange of Singapore (SES) was established in 1973 as a result of the disruption of currency exchange between Singapore and Malaysia. Companies on the main board of SES are divided into five categories, namely industrial and commercial, finance, real estate, hotels and plantations. In 1999, the SES and the Singapore International Currency Exchange merged into the SGX, the first comprehensive securities and derivatives exchange in Asia.¹¹⁹ To promote listed companies' corporate governance, SGX codified several corporate governance principles by including the requirement of internal control systems. SGX listing rule 719(1) requires that an issuer should establish a robust and effective internal control system within a company and the audit committee may commission an internal audit on internal control matters. In September 2011, SGX amended listing rules 1207(10) and 1204(10) and required the boards of listed firms to opine on the adequacy of internal controls within a company.¹²⁰

The Corporate Governance Committee (CGC) of Monetary Authority of Singapore (MAS) first issued the Code of Corporate Governance on March 21, 2001, mandating that boards maintain effective internal control systems and that audit committees review internal control systems.¹²¹ The 2012 revised version of the Code of Corporate Governance further stipulates the responsibilities of the board and management with respect to internal controls.¹²²

7.10.1 Accounting Regulation and Enforcement    In 1949, the Kuomintang government led by Chiang Kai-shek moved to Taiwan after the civil war in Mainland China.¹²³ After the war, Taiwan experienced rapid industrialization and economic growth and became one of the “Four Little Dragons of Asia.” From 1982 to 1998, Taiwan's accounting principles were characterized primarily by the US GAAP. In 1971, the Taiwan Accounting Review Committee passed the first accounting principles: the Generally Accepted Accounting Principles.¹²⁴

In the early 1980s, the Taiwan economy experienced a new turning point. Many foreign banks, such as Chase Bank of the United States, began to set up branches in Taiwan. However, these branch offices of foreign banks suffered bad debts arising from loans defaults due to unqualified opinions issued by local accounting firms. The foreign investors raised concerns about the quality of Taiwan's accountants. The poor development of accounting has constrained the development of the economy. The Minister of Finance held several meetings with the chairs of the National Federation of Certified Public Accountants Associations, the Taiwan Institute of Certified Public Accountants and the Taipei City Institute of Certified Public Accountants, and they collectively decided to set up the Accounting Research and Development Foundation (ARDF). The objective of the Foundation is to develop accounting and auditing standards through fair and independent institutions for financial accounting and auditing standards and to actively promote accounting education and training.¹²⁵

7.10.2 Drivers of Convergence with IFRS

7.10.3 Factors that Influence Successful Implementation of IFRS

7.10.4 Internal Control Report    According to the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies, TWSE/TPEx listed companies should take into account overall business activities in designing and implementing a comprehensive control system.¹³³ According to the Regulations Governing Establishment of Internal Control Systems by Public Companies,¹³⁴ listed companies must submit an internal control system statement, CPA audit report on the internal control system, and CPA checklist on the audit and review of the internal control system. The TWSE determines whether the company has complied in accordance with the Public Company Internal Control System Establishment Guidelines (the Guidelines, effective January 1, 2014, issued by TWSE).¹³⁵

7.11.1 Accounting Regulation and Enforcement    To promote the development of the accounting industry, Thai accountants proposed to establish an accounting professional organization in 1948. After being approved by the National Culture Council, the Accountant Association of Thailand (AAT) was founded on October 13, 1948.¹³⁶ The AAT developed the first version of the Accountant Act in 1953. After almost 10 years, a revised Act, the Public Accountant Act 2505 BE (1962) was promulgated and it took effect on November 2, 1962.¹³⁷ In 1975, the AAT was officially renamed to the Institute of Certified Accountants and Auditors of Thailand (ICAAT), expanding its scope to include more accounting professions among its members.¹³⁸ However, only ICAAT's members are bound by these standards.¹³⁹ While accounting standards in many Asian countries were heavily influenced by British accounting due to colonization, accounting standards in Thailand were affected by both British and American standards.¹⁴⁰ In 1972, the Recommended Accounting Concepts and Principles (1972) were issued, which established the US GAAP as an original basis for financial statements, apart from some concepts derived from the UK and Germany. Although Thailand continues to draw upon the US standards, it has gradually been adopting the International Accounting Standards (IAS) issued by the International Accounting Standards Committee (IASC).¹⁴¹

With the high interest rates in Thailand, the country has attracted a flood of foreign capital investors. From 1990 to 1996, Thailand enjoyed a decade of rapid growth and became widely known as the “fifth tiger” in Asia. The excellent performance of the global economy led investors to take an optimistic view of the Stock Exchange of Thailand (SET), whose index hit record levels in 1993. To improve Thailand's capital markets, the Securities Exchange Commission (SEC) was established in 1992 to take up supervisory responsibility in the Thailand security market.¹⁴²

The 1997 Asian Financial Crisis broke out and changed Thailand in a number of ways. As a result of liquidity problems, many financial institutions went bankrupt and were closed by the Bank of Thailand (BOT). With foreign money withdrawn from banks, the currency was under pressure and with an inadequate foreign currency reserve, the government had to abandon the peg dollar mechanism. The Thai currency crisis further spread to neighboring Asian countries.¹⁴³ After a series of rescue measures like reduction of tax and tariffs and capital refinancing and restructuring of small to medium enterprises, Thailand began recovering from the recession in 1999. The crisis of 1997 compelled the government to establish a healthy and stable market environment as the basis of economic development. In this period, it reformed monetary and financial policies, improved the quality of disclosure and restored trust and reputation in order to revive the domestic economy. The structure of Thailand's financial market has also changed radically since its collapse in 1997. The BOT has shut down 56 banks and financial institutions. Research on the impact of the economic crisis on Thailand shows that the financing source for companies in Thailand has shifted from banks to money markets.¹⁴⁴

Believing in the benefits of transparent disclosure, ICAAT and SET took steps to improve the disclosure quality of corporations in Thailand.¹⁴⁵ The ICAAT announced in 1998 that the Thai Accounting Standards (TAS) would be based on the International Accounting Standards (IAS). The changes in accounting standards, including the adoption of new accounting issues, had the potential to change the recognition criteria, the measurement criteria and the ways to disclose accounting information in Thailand.¹⁴⁶ With the development of the financial system and the openness of enterprises, a number of laws and regulations have been implemented to improve financial reporting practices in order to cope with potential economic crisis.¹⁴⁷ In 2000, the King issued the Accounting Act BE 2543 (2000), which was based on the advice and consent of the National Assembly. After the release of the new Act, all Thai companies were required to comply with the Thai Accounting Standards (TAS), and penalties were imposed for violations.¹⁴⁸ Subsequently, the Accounting Professions Act BE 2547 (2004) took effect in 2004, strengthening the role of the industry and clarifying the regulatory role of the Ministry of Commerce.¹⁴⁹ Under the new Act, the Federation of Accounting Professions (FAP) was named as the only professional accounting organization in Thailand, responsible for regulating the accountancy profession under oversight from the Accounting Professions Regulatory Commission.¹⁵⁰ Thailand has made great efforts to improve the quality of its financial reporting over the past decade. Considerable progress is evident in strengthening all aspects of the accounting and auditing framework and it is moving toward full convergence of Thai national accounting and auditing standards with international benchmarks.¹⁵¹

7.11.2 Convergence to IFRS    In 1998, the ICAAT announced that Thailand's Accounting Standards (TAS) would be based on International Accounting Standards (IAS). The changes in accounting standards including the adoption of new accounting issues that would change the recognition criteria, measurement criteria, and ways of disclosing accounting information in Thailand.¹⁵² The current Thai Financial Reporting Standards (TFRS) are prepared and promulgated by the Accounting Standards Committee (ASC), a subsidiary of FAP. Over the years, TFRS has been converging with IFRS. As of January 1, 2014, the TFRS has become a standard with word-for-word compliance with IFRS.¹⁵³ TFRS also revised standards to better adapt to the local environment, beyond the scope of the International Accounting Standards Board (IASB).¹⁵⁴ With respect to the continuing convergence with IFRS, FAP made a clear commitment to apply newly released IFRS into TFRS no later than one year from the effective date with the exception of the standards discussed below.

The “fair value” measurement of financial instruments is highly dependent on professional judgement. The relevant standards of financial instruments are not adopted by TFRS. The translation from IFRS into the Thai language needs to go through the FAP's due process. Thailand has been in the process of establishing a translation licensing agreement with IASB. A quick turnaround in translation will shorten the adoption lag time and may eliminate the one-year delay in adoption.¹⁵⁵

A timeline for convergence to IFRS in Thailand has been scheduled and announced by the FAP, with the first target in 2011. The FAP urged the top 50 companies in terms of market capitalization and liquidity on the Stock Exchange of Thailand (SET 50) to participate in the first stage of convergence to the IFRS scheme, followed by the SET 100. Subsequently, the IFRS were to be fully adopted in 2013. The remaining listed companies should adopt IFRS by 2015.¹⁵⁶ Due to numerous challenges arising during the transition process, the plan was not executed as scheduled.

7.11.3 Factors that Influence Successful Implementation of IFRS

7.11.4 Challenges and Drivers of Convergence with IFRS    In the wake of the 1997 Financial Crisis, there have been changes in the Thai economic environment. Before the crisis, Thailand's banks and companies had a very close relationship particularly in the authorization of loans. After the crisis, however, bankers and businesses developed some distance between them. Banks needed to recapitalize and allow more foreign equity investment, which resulted in an increase in the number of external shareholders. With the changes in the financial system and in enterprise operations, Thailand had to apply “high-quality” standards such as the IFRS to improve the comparability, reliability and decision-making usefulness of accounting information disclosed by business entities. More importantly, foreign direct investment (FDI) has been an essential driver of Thailand's economic development. However, FDI inflows have been falling since the peak of US$15.5 billion in 2013. In December 2014, the “Seven-Year Investment Promotion Strategy” (2015–2021) was approved by the Thailand Board of Investment (BOI) to attract more foreign investors. According to the estimation of the Bank of Thailand UNCTAD World Investment Report¹⁶³ in 2017, FDI fell sharply to US$3 billion in 2016, but bounced back to US$8 billion in 2017.¹⁶⁴

7.11.5 Internal Control System for Listed Companies    Assessing a company's internal control is an essential procedure in the SEC approving an IPO application. In an amendment to the Organic Act on Counter Corruption BE 2542¹⁶⁵ (1999), companies operating in Thailand are now required to have “appropriate internal control measures” in place to ensure compliance with the law and to limit their potential liability from acts of bribery carried out by connected persons for their benefit (including the potential liability of company directors).¹⁶⁶ According to the Best Practice Guidelines for Audit Committees required by SET,¹⁶⁷ an effective internal control system is required to ensure the effective operation of the company, which includes the provision of accurate and reliable financial reports.

7.12.1 Accounting Regulation and Enforcement    Vietnam is located in Southeast Asia and is bordered by Mainland China to the north. After the Vietnam War, Vietnam rebuilt its infrastructure, and established socialism from 1954. During this time, the Vietnamese economy operated as a centrally planned economy.¹⁶⁸ From 1960 to 1969, the accounting system in Vietnam was strongly influenced by Mainland China as a result of its similar planned economy regime. From 1969 to 1989, Vietnam changed to the Soviet Union's government-centralized system and the former Soviet Union began to influence the development of accounting in Vietnam.¹⁶⁹ With the opening of foreign trade in 1995 and commercial freedom in 1999, Vietnam opened its economy, and allowed private enterprises to engage in import and export activities. The Vietnamese accounting system was adjusted to serve a market economy instead of a planned economy.¹⁷⁰

From 1995 to 1998, the European project (EUROTAPVIET) provided Vietnamese accounting students with knowledge of the IAS. This project suggested to the Vietnamese government the benefits of convergence to IFRS. The EU was instrumental in assisting Vietnam to join the IFAC and it became a member of the international accounting professional associations.¹⁷¹ In 2003, the National Assembly passed the Accounting Law, which came into effect on January 1, 2004. Issuing the Accounting Law was a milestone in Vietnamese accounting history as it provided a legal basis for professional accounting activities for the public and private sectors, which became a solid foundation for later convergence to IFRS.

Vietnamese accounting activities are heavily regulated by the government and state authorities. The Vietnamese accounting system is rule based and has strict rules and low flexibility compared with principle-based IFRS. Related accounting standards in Vietnam clearly mandate the chart of accounts in the balance sheet and income statement while IFRS has no strict guidance, allowing different treatment methods to meet different needs.¹⁷² In converging toward IFRS, Vietnam's accounting has been continuously improved. Although there are no mandatory IFRS guidelines in Vietnam currently, many Vietnamese companies can selectively apply IFRS. In fact, Vietnamese publicly listed companies, especially cross listing companies in overseas stock markets, provide two separate financial statements, one based on the current Vietnamese Accounting Standards (VAS) and another based on IFRS.¹⁷³

7.12.2 Factors that Influence Successful Implementation of IFRS

7.12.3 Drivers of Convergence with IFRS    With the Doi Moi reform and opening (initiated in 1986), foreign direct investment in Vietnam experienced a sharp increase, driving the economy of Vietnam and contributing to the development of the domestic private sector. Through narrowing the differences between VAS and IFRS, Vietnamese companies can attract potential investors and compete with foreign competitors by adopting mandatory VAS for financial statements. This improves the quality of accounting reports and strengthens investor confidence. By incorporating IFRS, Vietnam's international reputation is enhanced by compliance with international rules and becomes a credible global trading partner. The shift from VAS to IFRS benefits Vietnam's accounting and academic communities.¹⁷⁷

7.12.4 Internal Control System    In 2000, the Ministry of Finance of Vietnam announced the second phase of the Vietnamese Audit Standards and stipulated that listed companies should establish and operate an appropriate and efficient internal control system. Auditors performing financial reporting auditing should not only gather auditing evidence from the accounting system but also ensure the effectiveness of the design and implementation of the internal control system.¹⁷⁸