ディスクロージャー研究学会
Ichiei Kohno (Translated by Kazuo Fujii)
1.Basic Philosophies U.S. Accounting Principles The ultimate objective of the Securities and Exchange commission (SEC) is to satisfy the disclosure requirements of the Securities Act of 1933 and the Secu- rities Exchange Act of 1934, which were enacted to prevent recurrences of the Stock Market Crash in 1929. The SEC issued accounting regulations and guidelines to achieve its objective.According to these regulations and guidelines, organizations such as the Finan- cial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA) established accounting standards, rules, procedures, etc., which are collectively called generally accepted accounting principles (GAAP). It should be noted that one of the basic philosophies underlying these princi-ples are to provide investors with accounting information that has good compara-bility. These principles enable investors to make accurate year-to-year compari-sons (horizontal analysis) and intercompany (industry) comparisons of companies'operating results. Among accounting measures that are used for reporting operating results, earnings per share is especially important because it greatly affects pricing ofthe stocks listed in securities markets. To be an accounting measure that allowsaccurate interperiod and intercompany comparisons,therefore, earnings per share should be an index number, rather than a mere dollar amount. To satisfy such comparability requirements for earnings per share, the U.S. accounting principles take the following measures: * The U.S. accounting standards do not accept the declining-balance method and practically enforce the straight-line method for depreciation of fixed assets. (In Japan, the declining-balance method is predominant.) However, the U.S. cor- poration tax laws accept accelerated depreciation methods such as the declining-balance method when taxable income is adjusted on tax returns. (This greatly differs from Japan's corporation tax laws that adhere to the definite settle- ments of accounts. This means that taxable income can be computed only from the financial statements approved by shareholders' general meetings.) See Table 4 for the depreciation methods used by U.S. companies. When depreciation methods of a company differ between financial reporting and income tax reporting, depreciation expense, taxable income, and income tax also differ between the two types of reporting. In such a case, FASB Statement No.109,Accounting for Income Taxes, forces the company to accurately recognize the am- ount of tax payable or tax refundable for the current period and to report de- ferred tax liabilities or assets on its balance sheet. In other words,this FASB statement forces interperiod income tax allocation for accurate interperiod com-parisons of per share earnings. . Table 4 Depreciation Methods Used by U.S. Companies . Number of companies . Year 1986 1987 1988 1989 Straight-line ------------------------ 561 559 563 562 Declining-balance -------------------- 49 44 44 40 Sum-of-the-year-digits --------------- 14 12 11 16 Accelerated method - not specified --- 77 76 70 69 Units-of-production ------------------ 48 51 53 50 Other -------------------------------- 12 12 9 8 Source: the Wall Street Journal * To prevent avoidance of the straight-line method that is possible by using leases instead of purchasing fixed assets, some restrictions are imposed. Lease transactions that pay a large amount of lease expense are regarded as purchases of fixed assets and accounting adjustments must be made. * For the valuation of inventories, the lower of cost or market rule is used based on net realizable values. * All the assets and liabilities denominated in a foreign currency must be translated into the reporting currency, using the current cxchange rate of the balance sheet date. * To recognize earnings from long-term construction contracts, the percentage-of-completion method is enforced rather than the completed contract method. (In Japan, the completed contract method is predominant.) See Table 5 for methods ofaccounting for long-term contracts. Table 5 Methods of Accounting for Long-Term Contracts Used in the United States Number of Companies Year 1986 1987 1988 1989 Percentage-of-completion -------------- 90 89 86 92 Units-of-delivery --------------------- 36 35 37 33 Completed contract--------------------- 9 6 8 6 Not determinable ---------------------- 4 2 3 2 Source: the Wall street Journal * Bonuses paid for corporate officers must be allocated through the accounting periods as period cost. Earnings per share that is given high comparability by the above-mentioned ac-counting standards is not a mere figure; it is now a meaningful index number. Inthe U.S. securities markets, the trends of earnings per share of companies are analyzed by using comparisons of five to ten years. Depending on whether the trend is upward or downward, the P/E ratio of each individual issue is deter- mined. In recent 60-odd years, the average P/E ratio of U.S. stocks has been ranging from 12 to 23, centering around a value of 15. U.S. stock prices are af-fected by these P/E ratios. The average P/E ratio 15 derives an average annual dividend yield of approxi- mately 3 percent when an average dividend payout ratio of 50 percent (this is the actual figure of U.S. corporations) is applied. It can be said that stock prices in the U.S. securities markets have been es- tablished on the average annual dividend yield 3 percent and the '/E ratio P/E ratio 15 over these 60-odd years since the early 1930s. This is one of the re- markable achievements of U.S. accounting principles. Thus, for more than 60 years, accounting standards of the United States have been persistently striving to improve comparability of earnings per share so that it can allow investors to make accurate interperiod and intercompany com- parisons for 5 to 10 years. Such efforts represent one aspect of the basic phi- losophies that underlie U.S. accounting principles. When considering the objectives of U.S. accounting principles for providing investors with accurate financial information, FASB Statement (SFAS) No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, must not be overlooked. This statement, issued in December 1990, mandates companies that have to pro- vide nonpension postretirement benefits for retirees and eligible dependents by union contracts to measure and recognize the cost of these benefits during the years that the employees render necessary service and report the cost on the fi-nancial statements. This makes a sharp contrast with the prevalent accounting practice that has been based on a cash basis. These benefits include health care,life insurance, and other welfare benefits and are often called postretirement health care benefits. SFAS No. 106 requires companies to report these benefit obligations as an ex- pense on the income statement and as a liability on the balance sheet from fis- cal years beginning after December 15, 1992. Along with SFAS No. 115 (Accountingfor Certain Investments in Debts and Equity Securities) which enforces fair val-ue accounting for valuing securities from fiscal years beginning after December 15, 1993, SFAS No. 106 requires companies to report relevant financial informa- tion. By the accounting change urged by SFAS No. 106, large corporations that prom- ised payments of postretirement health care benefits to their labor union (such as General Motors and IBM) recorded huge amounts of benefit costs in their fi- nancial statements. Tens of billions of dollars went south from the earnings of these corporations. (To cut such benefit costs, these corporations are continu- ing union negotiations.) Japan does not have such a strict accounting standard. Although Germany has a similar accounting standard, companies need not report these obligations in their financial statements for domestic investors. However, German companies that are listed in the U.S. stock exchanges are affected by SFAS No. 106. Daimler-Benz AG, which was listed in the New York Stock Exchange for the first time in October 1993, recorded a profit of DM615 million for 1993 according to lax German accounting standards. However, it recorded a loss of DM1.8 billion for the same year according to the strict U.S. accounting standards. The company,therefore, practically incurred a total loss of DM2.415 billion according to theU.S. accounting standards. (A large portion of this loss is due to the implemen-taion of SFAS No. 106.) It should be kept in mind that these strict U.S. accounting standards will have some influence on reserves for retirement allowance and contributions to benefit pension plans in Japan. One of the widest differences of accounting principles between the United States and Japan is that U.S. accounting principles require employers to recog- nize and measure postretirement benefit obligations for employees more severely than Japanese employers do. U.S. companies must measure such obligations and pension liabilities strictly and record them as liabilities in the balance sheet.In Japan, on the other hand, contributions to outside benefit pension plans are included in "assets off the book" and the book value of the assets for pension fund investments is reported only as notes to the financial statements. Even though losses arise in pension fund management or the market value of the pen- sion assets is lower than what is necessary for current pension payments, com- panies need not fund such liabilities. The era in which Japanese companies can take full advantage of lax accounting principles for recognizing reserves for retirement pay and pension liabilities is coming to an end, because it is difficult to expect high economic growth rates in the future. Japanese accounting principles should take the strengths ofthe strict U.S. accounting principles into consideration. 2.Basic Philosophies of Japanese Accounting Principles Throughtout the modern history of the Japanese economy - from the start of the industrialization in the Meiji Restoration and the reconstruction of the devas- tated postwar economy to today's growth, the principal goal of Japanese account-ing principles has been to develop and expand the domestic economy. To achieve this goal, Japanese accounting principles adhered to conservatism, because it was the best way to increase financial strengths of businesses. This produced the following results which make a sharp contrast with the U.S. accounting prin-ciples discussed earlier: * For depreciation of fixed asset, accelerated depreciation such as the declin- ing-balance method is strongly recommended. * For valuing marketable securities, a very strict lower of cost or market meth-od is enforced. This method is applied to individual issues. * For recognizing earnings from long-term construction contracts, the completed contract method is prevailing. Requiring businesses to report profits as an absolute yen amount rather than ameaningful index number which allows investors to make accurate comparisons of companies' performance, Japanese accounting principles encouraged modest presen-tation of earnings, low dividend payout ratios, intense accumulation of retainedearnings, large paper profits for assets, and low cash dividend. Accordingly, most companies made full use of a certain type of stock split and issued "free" stocks to shareholders to cut cash dividends. This lifted stock prices, and com-panies raised funs by equity financing, taking advantage of the high stock prices. Although these conservative accounting principles widely differd from U.S. ac-counting principles, they no doubt supported the rapid reconstruction of the devastated postwar economy and the subsequent economic growth. Recently, the Japanese securities market has been changing from a market of profit-sharing securities to a market of securities on property. In a market of profit-sharing securities, stockholders hold securities for profit sharing and stock prices are normally affected by dividend yields. In a market of securitieson property, however, stockholders hold securities for capital gains and stock prices are often affected by the value of paper profits from land and real es- tate owned by companies. In the Japanese securities market, therefore, dividend yields are falling, P/Eratio are climbing, and the average dividend payout ratio is centering around 20percent. And Japanese stock prices are significantly deviating from internation-al stock prices. To let the Japanese securities markets keep up with major international stock matkets and raise the position of the Tokyo Stock Exchange which should play a vital role along with the New York Stock Exchange in the world's securities mar-kets, the way stock prices are established and the current accounting principlesthat indirectly affect stock prices should be reexamined, taking the U.S. ac- counting principles into consideration. For this, the Japanese accounting principles are required to consider the use of the straight-line depreciation method, introduction of deferred tax conse- quences in the financial statements, use of lease accounting, translation of allthe assets and liabilities denominated in foreign currencies into the reporting currency (i.e., the yen) by using the current exchange rate of the balance sheetdate, and adoption of the percentage-of-completion method for recognizing earn- ings from long-term construction contracts. If the above improvements are made, per share earnings should be computed fromthe accounting figures on consolidated financial statements. Then, the per shareearnings should be fully diluted considering the related U.S. accounting princi-ples and disclosed in the notes to the financial statements. Probably drastic changes will not be realistic; these improvements need to be carried out by a step-by-step approach. At the same time, the Japanese accounting principles should take measures thatare effective for distributing huge paper profits of corporations to stockhold- ers. For example, when distributing paper profits to stockholders by stock splitsor scrip issues, middle-price issuing would satisfy stockholders. By this pric- ing scheme, stockholders can purchase newly-issued stocks at the middle price which is much lower than the market value. Table 6 and 7 list major differences of the accounting procedures and disclo- sure requirements between the United States and Japan. |
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Table 6 Comparisons of U.S. Accounting Procedures and Japanese Accounting Procedures +---------+------------------+------------------------+------------------------+ | Category| Item | U.S.Accounting | Japanese Accounting | | | | Procedures | Procedures | +---------+------------------+------------------------+------------------------+ | General |1.Chief |The Financial Accounting|*The Business Accounting| | | rule-making |Standards Board(FASB) |Deliberation Council | | | bodies |(establishes standards) |(issues and amends the | | | | |Financial Accounting | | | | |Standards for Business | | | | |Enterprises) | | | | |*The Ministry of Finance| | | | |(issues and amends the | | | | |Regulations Concerning | | | | |Terminology, Forms and | | | | |Methods of Preparation | | | | |of Financial Statements,| | | | |etc.) | | +------------------+------------------------+------------------------+ | |2.Degree of detail|Balance sheets and in- |Fairly detailed balance | | |required for fi- |come statements can be |sheets and income state-| | |nancial statements|simple. However,accurate|ments must be prepared. | | | |and detailed notes must | | | | |be added in one location| | | | |on the statements. | | | +------------------+------------------------+------------------------+ | |3.Separate(uncon- |Generally,they must be |Must be prepared. | | |solidated) state- |prepared. | | | |ments of the par- | | | | |ent company | | | +---------+------------------+------------------------+------------------------+ |Common to|1.Inventory pric |The lower-of-cost-or- |Cost basis,or"cost or | |separate |-ing |market method is |market,whichever is | |state- | |enforced. |lower" basis | | ments +------------------+------------------------+------------------------+ | |1a.Valuing debt |For fiscal years begin- |Cost basis,or"cost or | | |and equity securi-|ning after December 15, |market,whichever is | | |ties |1993,valuing at fair |lower"basis | | | |values(quoted market | | | | |prices)is enforced for | | | | |all debt securities and | | | | |equity securities that | | | | |have readily determina- | | | | |ble fair values. | | | +------------------+------------------------+------------------------+ | |2.Depreciation |Depreciation methods can|The declining-balance | | |methods for fixed |be used irrespective of |method and straight-line| | |assets |the depreciation methods|method are used in con- | | | |listed in tax laws. |formity with the corpo- | | | | |ration tax laws. | +---------+------------------+------------------------+------------------------+ (continued) Table 6 Comparisons of U.S. Accounting Procedures and Japanese Accounting Procedures (continued) +---------+------------------+------------------------+------------------------+ | Category| Item | U.S.Accounting | Japanese Accounting | | | | Procedures | Procedures | +---------+------------------+------------------------+------------------------+ |Common to|3.Gains from the |The total amount is |The amount of the gain | |separate |sale of land |recorded as gains from |can be used to reduce | |state- | |the sale of fixed assets|the book value of newly | | ments| | |purchased fixed assets | | | | |(i.e., used for an "ad- | | | | |vanced depreciation"). | | +------------------+------------------------+------------------------+ | |4.Treating the |The tax is treated as a |The enterprise tax is | | |bank and corpora- |reserve for tax payment.|included in administra- | | |tion franchise tax| |tive expenses. | | |or franchise tax | | | | |(in Japan, this | | | | |kind of local tax | | | | |is called the | | | | |enterpreise tax) | | | | +------------------+------------------------+------------------------+ | |5.Recognizing |Either the installment |The installment method | | |income from |method or the cost re- |is permitted. | | |installment sales |covery method is permit-| | | | |ted. However,when cash | | | | |collectibility is ex- | | | | |tremely uncertain,the | | | | |cost recovery method is | | | | |preferred.(APB Opinion | | | | |No. 10) | | | +------------------+------------------------+------------------------+ | |6.Foreign currency|Regardless of whether |Short-term assets and | | |translation |they are short-term ones|liabilities denominated | | | |or long-term ones, all |in foreign currencies | | | |the assets and liabili- |must be translated by | | | |ties denominated in |using the current ex- | | | |foreign currencies(in- |change rate of the end | | | |cluding corvertible |of the period covered by| | | |debentures)must be |the financial statements| | | |translated into the |Long-term assets and | | | |reporting currency, by |liabilities denominated | | | |using the current ex- |in foreign currencies | | | |change rate of the end |must be translated by | | | |of the period covered by|using the exchange rates| | | |the financial statements|of the transaction dates| | | |(SFAS No.52) | | +---------+------------------+------------------------+------------------------+ (continued) Table 6 Comparisons of U.S. Accounting Procedures and Japanese Accounting Procedures (continued) +---------+------------------+------------------------+------------------------+ | Category| Item | U.S.Accounting | Japanese Accounting | | | | Procedures | Procedures | +---------+------------------+------------------------+------------------------+ |Common to|7.Employers' - |Usually companies have |Usually companies have | |separate | accounting for |only pension plans. |both a retirement pay | |state- | pension |Accrual accounting is |plan and a pension plan.| | ments| obligations and |applied to pensions. |*For retirement pay | | | retirement pay |Pension costs for each | A company can credit a | | | |period are measured | certain amount to a | | | |based on an estimate of | retirement allowance | | | |the present value of a | reserve account for | | | |company's liability for | future payments of | | | |future pension payments.| retirement pay. | | | |Present values are | The company can add | | | |calculated using | some amount to this | | | |discount rates. | reserve each period | | | |When an estimated | until the amount | | | |benefit obligation | accumulated in this | | | |exceeds the fair value | reserve reaches 40% of | | | |of plan assets,the | the total amount of | | | |difference(i.e.,a lia- | retirement allowances | | | |bility)is reported as | that would be paid if | | | |unfunded accrued pension| all the company's | | | |cost on the balance | employees were to leave| | | |sheet. | the company voluntarily| | | |The fair value of pen- | at the end of the | | | |sion assets is reported | period. | | | |in the notes to the | (In reality,this | | | |financial statements. | accumulation is | | | |The makeup of net pen- | insufficient.) | | | |sion costs and of the |*For pension plans | | | |projected benefit obli- | The amount of pensions | | | |gation must be disclosed| that a company can pay | | | |(SFAS No.87) | is calculated based on | | | | | the book value of the | | | | | pension assets managed | | | | | by outside financial | | | | | institutions. | | | | | (In reality, the amount| | | | | calculated by this is | | | | | insufficient.) | +---------+------------------+------------------------+------------------------+ (continued) Table 6 Comparisons of U.S. Accounting Procedures and Japanese Accounting Procedures (continued) +---------+------------------+------------------------+------------------------+ | Category| Item | U.S.Accounting | Japanese Accounting | | | | Procedures | Procedures | +---------+------------------+------------------------+------------------------+ |Common to|8.Allowance for |Although SFAS No.5(Ac- |Most companies credit an| |separate |doubtful accounts |counting for Contin- |amount permitted by | |state- |(bad debts) |gencies)permits com- |corporation tax laws to | | ments| |panies to estimate an |a bad debt allowance | | | |allowance according to |account. | | | |the experience of com- | | | | |panies and information | | | | |about the ability of | | | | |individual debtors to | | | | |pay,etc.and deduct that | | | | |amount from account | | | | |receivables,tax laws do | | | | |not permit this allow- | | | | |ance. | | | +------------------+------------------------+------------------------+ | |9.Obligations |Although SFAS No.5 |For products for which | | |related to product|permits allowances for |written warranties are | | |warranties and |all products and serv- |provided,companies can | | |product defects |ices that have warranty |credit an amount permit-| | | |obligations, tax laws do|ted by corporation tax | | | |not permit suh allow- |laws to an allowance | | | |ances. |account(called "reserve | | | | |for repairs and guaran- | | | | |teeing certain manufac- | | | | |tured goods"). | +---------+------------------+------------------------+------------------------+ | |10.Recognizing |For orders that will |Lossese are recognized | | |losses from |positively result in |when gross loss on sales| | |received orders of|losses,losses are |is recorded. | | |products or |recognized when orders | | | |services |are received. | | | | |For orders other than | | | | |the above,losses are | | | | |recognized when their | | | | |occurrences become | | | | |probable. | | | +------------------+------------------------+------------------------+ | |11.Officers' |Included in |Treated as distribution | | | bonuses |administrative expenses.|of profit. | | +------------------+------------------------+------------------------+ | |12.Future tax |Must be recognized in |Recognizing tax | | |consequences of |financial reporting. |consequences is not | | |events |(SFAS No.109) |permitted. | +---------+------------------+------------------------+------------------------+ (continued) Table 6 Comparisons of U.S. Accounting Procedures and Japanese Accounting Procedures (continued) +---------+------------------+------------------------+------------------------+ | Category| Item | U.S.Accounting | Japanese Accounting | | | | Procedures | Procedures | +---------+------------------+------------------------+------------------------+ |Common to|13.The equity |Must be used.(APB |The use of the equity | |separate |method of |Opinion No.18) |method is not enforced. | |state- |accounting for | | | | ments|investments in | | | | |common stock | | | +---------+------------------+------------------------+------------------------+ |Common to|1.Conditions of |Ownership by one company|Same as the condition of| |consoli |consolidation |(parent),directly or |the United States de- | | -dated | |indirectly,of over 50 |scribed on the left. | |state- | |percent of the outstand-|However,when the ex- | | ments| |ing voting shares of |clusion of a majority- | | | |another company(subsidi-|owned subsidiary from | | | |ary).(ARB No.51) |consolidation does not | | | | |materially affect the | | | | |financial position and | | | | |results of operations of| | | | |the affiliated companies| | | | |that subsidiary need not| | | | |be consolidated. | | +------------------+------------------------+------------------------+ | |2.Offsetting |For example,accounts |Same as described on the| | |intercompany |receivable from a |left. | | |assets and |subsidiary must offset | | | |liabilities |accounts payable to the | | | | |parent company in the | | | | |consolidated financial | | | | |statements. | | | +------------------+------------------------+------------------------+ | |3.Elimination of |Gains and losses on |Same as described on the| | |unrealized |intercompany sales and |left. | | |intercompany gains|purchases of inventories| | | |and losses |and fixed assets must be| | | | |eliminated. | | | +------------------+------------------------+------------------------+ | |4.Gains on |When gains on disposal |Same as described on the| | |disposal of stocks|exceed the subsidiary's |left. | | |of subsidiary |net assets sold,the | | | |companies |difference is recorded | | | | |as profit on sale. | | +---------+------------------+------------------------+------------------------+ (continued) Table 6 Comparisons of U.S. Accounting Procedures and Japanese Accounting Procedures (continued) +---------+------------------+------------------------+------------------------+ | Category| Item | U.S.Accounting | Japanese Accounting | | | | Procedures | Procedures | +---------+------------------+------------------------+------------------------+ |Common to|5.Minority |When minority interests |Treating minority | |consoli |interests |exist, the elimination |interests by methods | | -dated | |of the intercompany |similar to those of the | |state- | |profit or loss may be |United States described | | ments| |allocated proportionate-|on the left is not | | | |ly between the majority |enforced. | | | |and minority interests. | | | | |When losses applicable | | | | |to the monority interest| | | | |in a subsidiary exceed | | | | |the minority interest in| | | | |the equity capital of | | | | |the subsidiary,such | | | | |excess and any further | | | | |losses applicable to the| | | | |minority interest should| | | | |be charged against the | | | | |majority interest.(ARB | | | | |No.51) | | | +------------------+------------------------+------------------------+ | |6.Future tax |Must be recognized in |Recognizing tax conse- | | |consequences of |financial reporting. |quences is permitted | | |events | |when preparing consoli- | | | | |dated financial state- | | | | |ments,but not enforced. | | +------------------+------------------------+------------------------+ | |7.Foreign currency|(1)For assets and lia- |(1)The modified temporal| | |translation for | bilities,the exchange| method is used for | | |the financial | rate at the balance | translating the | | |statements of | sheet date must be | financial statements | | |subsidiaries | used. For revenues, | of foreign subsidiary| | | | expenses, gains, and | companies. | | | | losses, the exchange |(2)Translation adjust- | | | | rate at the date on | ments are included in| | | | which those elements | determining net | | | | are recognized must | income for the period| | | | be used.(SFAS No.52) | | | | |(2)Translation adjust- | | | | | ments that arise from| | | | | translating a foreign| | | | | subsidiary's finan- | | | | | cial statements from | | | | | the functional cur- | | | | | rency to the re- | | | | | poting currency are | | | | | not included in | | | | | determining net | | | | | income for the period| | | | | but are disclosed and| | | | | accumulated in a | | | | | separate component of| | | | | consolidated equity. | | | | | (SFAS No.52) | | +---------+------------------+------------------------+------------------------+ Table 7 Comparisons of Disclosure Requirements between U.S. Companies' Annual Reports and Japanese Companies' Financial Statements +----------------------+---------------------------+---------------------------+ | Item | U.S. Companies' Annual | J apanese Companies' | | | Reports | Financial Statements | +----------------------+---------------------------+---------------------------+ |1.Standards or guide- |Conventions,practices,rules|Code or ordinances(Regu- | | lines for preparing |and procedures(generally |lations Concerning Termi- | | financial statements|accepted accounting |nology,Forms and Methods of| | |principles) |Preparation of Financial | | | |Statements, etc.(issued by | | | |the Ministry of Finance as | | | |Ordinance NO.59 in 1963)) | |----------------------+---------------------------+---------------------------+ | Auditing standards |Generally accepted auditing|*Standards of enterprise | | |standards | accounting generally | | | | acknowledged fair and | | | | proper | | | |*Methods of presenting | | | | financial information | | | | conform to Regulations | | | | Concerning Terminology, | | | | Forms and Methods of | | | | Preparation of Financial | | | | Statements, etc. | +----------------------+---------------------------+---------------------------+ |2.Makeup of the |Balance sheet,statement of |Balance sheet,income state-| | financial statements|income and retained earn- |ments,statement of appro- | | |ings,and statement of |priation of retained earn- | | |changes in financial po- |ings,and financial state- | | |sition(statement of cash |ment(supplementary) | | |flows) |schedules | +----------------------+---------------------------+---------------------------+ |3.Number of fiscal |*In the balance sheet |Two years | | years covered in the| 2 years| | | financial statements|*In the income statement | | | | 3 years| | +----------------------+---------------------------+---------------------------+ |4.Standard forms of |Not defined. |Defined(in Regulations | | statements | |Concerning Terminology, | | | |Forms and Methods of | | | |Preparation of Financial | | | |Statements, etc.).Sample | | | |forms are suggested for | | | |financial statement | | | |schedules. | +----------------------+---------------------------+---------------------------+ |5.Presenting account- | − |Regardless of amounts | | ing titles in the | |presented in the accounts, | | financial statements| |accounting titles are | | | |usually presented as | | | |separate items. Examples | | | |are treasury stock, | | | |intangible fixed assets, | | | |and long-term prepaid | | | |expenses. | +----------------------+---------------------------+---------------------------+ (continued) |