Accounting standard pronouncements are issued by the Institute of Certified Accountants and Auditors of Thailand (ICAAT). These pronouncements must be followed in the preparation of the financial statements and correlate very closely to International Accounting Standards and the United Statesï¿½ Generally Accepted Accounting Principles (GAAP). The IACCT has released about 16 accounting pronouncements in areas of accounting policies, accounting changes, earnings per share, and income recognition. The Board of Supervision of Auditing Practice acts as the control body to which auditing standards and professional ethics are proposed.
Thailand has close ties to the United States and has been influenced by Western values. Thailand's accounting policies do follow U.S. standards; however, Thailand is considered a less-developed county and as such, would be "most influenced by the accounting values of statutory control, uniformity, conservatism, and secrecy". Thailand would likely reflect the values of its fellow Asian neighbors.
Linking these accounting values through the societal values that influenced them, Thailand appears to possess the following strong values: collectivism, large power distance, strong uncertainty avoidance, and "femininity". In general, Thai people are often too modest and over conservative when forecasting to the point of over-prudence.
Thailand appears to be ripe for sustained economic growth and will most likely continue to follow International and United States accounting standards. Because of this, the International Standards Committee and the United States will probably provide an even greater source of influence in this area in the future.
Accounting and Auditing Standards in Thailand
Two organizations set the standard. The first is the "Institute of Certified Accountants" and the second is the "Auditors in Thailand". The second organization is comprised of registered and approved auditors and professional accountants. Its function is to establish new accounting standards, disseminate new professional information to its members, and to propose new auditing standards.
The Board of Supervision of Auditing Practice sets the auditing standards in Thailand. The Board is an arm of the Ministry of Finance. The Board has the authority to grant auditing licenses and is fully responsible for the regulation of auditors. In Thailand, each and every company must be audited annually, regardless of size, so there is a need for a large force of auditors.
Key Accounting and Disclosure Practices.
In general, companies must use the accrual method of accounting and historical-cost convention for preparing financial statements. Fundamental concepts of Thai accounting include consistency, prudence, matching and going concern. Any departure from these fundamental concepts must be disclosed in clearly written footnotes.
The following are the significant accounting principles and practices in Thailand:
Inventory: Inventory is valued at lower of cost or market. Although the last-in, first-out (LIFO) method is allowed, first-in, first-out or average cost methods are more commonly used by businesses to determine inventory cost.
Fixed Assets: Fixed assets are generally carried at historical cost less accumulated depreciation. As an alternative to the above method, value determined by an independent appraiser is also allowed providing that the basis of valuation is fully disclosed in the accounts.
Interest Capitalization: Interest on borrowings for the acquisition of assets is capitalized as part of the cost of the related assets. However, only interest incurred before the assets are substantially completed is capitalized.
Improvements: Asset improvement costs are generally capitalized.
Depreciation: Allowed fixed assets depreciation methods include straight-line, sum-of-the-years'-digits, declining-balance, or unit-of-production. Straight-line method is most widely used.
Long-term Investments in Securities: Long-term investments in marketable securities must be stated at the lower of cost or market. Long-term investments in other securities are stated at cost. However, a provision must be made for any permanent decline in value of an investment.
Accounting for Income Taxes: In general, income tax payable is expensed in the same year that liabilities incur. Deferred tax accounting is used primarily by listed companies.
Leases: Both operating lease and finance lease methods are used for accounting purposes. However, all leases are treated as operating leases for tax purposes. In general, income derived from hire-purchase sales is recognized in the year the sale is made. But the interest element of the income is deferred and amortized to income when installments are due.
Consolidation: Only companies listed on the SET prepare consolidated financial statements. Accounts of reporting company and its subsidiary companies (reporting companies hold an equity interest of 50% or more) are consolidated.
Foreign-Currency Translation: Foreign-currency transactions are translated into Thai Baht at the rates on the transaction dates. Foreign-currency assets and liabilities at year-end are translated at year-end rates. Foreign-exchange gains and losses are included on income Statements.
Land: Land is not depreciated.
There are two professional accounting and auditing bodies in Thailand: 1. The Institute of Certified Accountants and Auditors of Thailand and 2. The Board of Supervision of Auditing Practice.
Accountants and certified auditors are members of the Institute of Certified Accountants and Auditors of Thailand.
This institute establishes accounting and auditing standards and in that capacity also disseminates accounting knowledge and information. As of November 1995, 29 accounting standards and 41 auditing standards had been established (Ernst & Young–1996). This institute also proposes various ethical standards for the profession.
The Board of Supervision of Auditing Practice grants practicing licenses to qualified auditors, revokes and suspends auditors if their work is found to be deficient, and gives advice to educational institutions concerning the auditing profession. Below are the minimum requirements to qualify as certified public accountant in Thailand:
One key conservative standard in Thailand is the doctrine of "one share one vote". On the SET no stocks are allowed to trade unless all shares have equal voting rights. This is often an abused area in many developed countries and one thing I am proud about with the local stock exchange.
Noon, August 27, 2003
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Doing Business in Thailand, Ernst & Young's International Business Series, Ernst & Young International Ltd, 1989
Doing Business in Thailand, Ernst & Young's International Business Series, Ernst & Young International Ltd, 1996.
Nuntawan Polkwamdee, "Auditing Standards Again in Question: 'Improper Transfers' at Alphatec Highlight Problems" Bangkok Post, August 11, 1997. Business Section, pg. 1.
Radebaugh, Lee H. and Sidney J. Gray. International Accounting and Multinational Enterprises, Fourth Edition. Copyright 1997 by John Wiley & Sons, Inc.1997.