8Ed.sol8.03 - CASE 8.3 KANSAYAKU Synopsis This case focuses...

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CASE 8.3 KANSAYAKU Synopsis This case focuses on Japan’s accounting profession and independent audit function. As this case documents, the accounting profession and independent audit function within the United States and Japan are very similar in many respects but very dissimilar in others. Similar to the United States, Japan’s accounting profession has historically been dominated by a small number of large accounting firms. In fact, each of Japan’s four largest accounting firms is affiliated with one of the Big Four accounting firms that are principally domiciled in the United States. The overall role and nature of the independent audit function in the two major industrialized countries are also very similar. One of the major differences between the accounting profession in Japan and the United States is the relatively small number of Japanese CPAs. On a per capita basis, the United States has more than ten times as many CPAs as Japan. Likewise, there is a large disparity in audit fees between the two countries. The annual audit fee for a U.S. company is typically ten times the size of the audit fee for a comparable Japanese company. Finally, the nature and structure of the regulatory function for the accounting profession and financial reporting system have historically been very different between the two countries. Similar to the United States, Japanese auditors have faced mounting criticism in recent years as a result of a series of high profile accounting and auditing failures. Much of this criticism stemmed from revelations that several of the large “mega banks” that have dominated Japan’s post-World War II economy were technically insolvent despite the fact that those banks had received unqualified audit opinions each year on their financial statements. As a result of the major financial crises within Japan’s banking industry, pervasive changes were made in the country’s regulatory infrastructure for its financial reporting system. Many of these changes directly impacted Japan’s accounting profession and independent audit function. The first major test of this new regulatory framework was posed by an accounting and auditing scandal involving a large cosmetics and apparel company, Kanebo Ltd. In fact, the Kanebo affair is often referred to by the Japanese press as “Japan’s Enron.”
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54 Case 8.3 Kansayaku Kansayaku—Key Facts 1. Similar to the United States, the public accounting profession and independent audit function in Japan are dominated by a small number of large accounting firms. 2. On a per capita basis, Japan has significantly fewer CPAs than any other industrialized country, including the United States; likewise, independent audit fees in Japan have historically been a small fraction of those in the United States.
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