SUMAN ANIK
E-mail: sumananik@gmail.com
Skype: suman00057
Current City: Dhaka, Bangladesh
Tuesday, February 21, 2017
CPA
History
and Background: Development of CPA Profession
• 1. Introduction of Independent Audits
• 2. Major Reform
of the CPA Act
• 3.
Reorganization of JICPA
• 4. Introduction
of Audit Corporations
• 5. Development
of Audit Corporations
• 6. Introduction
of Audits under the Commercial Code
• 7. Problems
Emerging after the Bubble Economy Crash
• 8. Amendment of
the CPA Act in 2003
• 9. JICPA
Commitment to Restore Public Confidence in CPA Audits
• 10. Amendment of
the CPA Act in 2007
1. Introduction of Independent Audits
The first group of professional
accountants in Japan is said to have emerged around 1907, but it was not until
1927, when the Accountants Law was enacted, that a fledgling institute of
professional accountants came into existence. However, the formal establishment
of the audit profession had to wait until the enactment of the CPA Act in July
1948, following the enactment of the Securities and Exchange Law
("SEL") of that year. The first qualification examination under the
CPA Act took place the following year.
The CPA Act was designed primarily to
establish professional standards comparable to those in the U.S., and to
establish a publicly recognized status for CPAs. Many such measures were
introduced under the supervision of the GHQ during the period of occupation by
U.S. Forces after World War II. These measures were in response to the growing
post-war demand for the democratization of business, better disclosure of
corporate information following the dissolution of the zaibatsu (large
conglomerates), and the introduction of foreign capital. The JICPA started in
1949 as a voluntary association. In 1953 it was incorporated as an association
(shadan hojin) under the Civil Code.
The services provided by CPAs have
expanded greatly since July 1951, in conjunction with the requirements of the
amended SEL. Among other things, Article 193-2 of the SEL provided that
"balance sheets, income statements, and other schedules relating to
financial statements, which are filed in accordance with the provisions of this
law, shall be examined by an independent CPA who has no special interest or
connection therewith." It was under this Article that the examination of
corporate financial statements by CPAs began. Until then, the relevant
regulations and rules, which were the basis of audits by CPAs, were introduced
under the direction of the MOF. These regulations and rules included the
Auditing Standards, the Regulations on Auditors Certifying Financial
Statements, the Accounting Standards, and the Regulations Concerning the
Terminology, Forms, and Method of Preparation of Financial Statements.
Even though audits by CPAs began in 1951,
it was not until 1957 that full-scope audits were introduced. It took time for
audited firms to fully understand the requirements of the independent audit,
and CPAs were not yet sufficient in number to perform full-scope audits. When
audits were first conducted under the amended SEL, the number of companies
subject to audits was some 450, and the number of CPAs was less than 400. The
scope of audits expanded step by step, as follows:
Preliminary audits (1951-1956): Special
emphasis was placed on reporting on the appropriateness of accounting
procedures and internal controls.
1951 First-time audit
for companies that were subject to audit:
Reporting on the design and operating
effectiveness of internal controls.
1952 (Jan.) Second-time audit for
companies that were to be audited for the second time:
Reporting on compliance with accounting
procedures.
1952 (Jul.) Third-time audit
for companies that were to be audited for the third time:
Reporting on the appropriateness of
internal controls.
1953 (Jan.) Fourth-time audit:
• The examination of five important
balance sheet items was introduced for companies that had been audited before;
•
Limited-scope audit (reporting on the appropriateness of accounting procedures
and internal controls) for companies that were subject to audit for the first
time.
1955 (Jan.) Fifth-time
audit
• Some
balance sheet items were added to be subject to audit for companies that had
been audited before;
•
Limited-scope audit (reporting on the appropriateness of accounting procedures
and internal controls) for companies that were subject to audit for the first
time.
1957 (Jan.) Full-scope
audits for all companies subject to audit, reporting on the fairness of
presentation of financial statements.
2. Major Reform of the CPA Act
In 1965, after the introduction of
auditing by independent CPAs, the profession faced its first ordeal. The
business community was shocked by the accounting fraud and bankruptcy of Sanyo
Tokusyu-ko, which is often compared with the famous 1940 McKesson and Robbins
case in the U.S. In response, the Ministry of Finance ("MOF")
tightened supervision of the business community, initiating legislative
revisions and intensive administrative guidance. Its staff compiled a blacklist
of some 100 listed companies and performed focused inspections of registration
statements and annual securities reports. It soon became apparent that
accounting window-dressing was taking place in one out of two companies.
Independent auditors were questioned and, in a number of cases, these auditors
were reprimanded or suspended. The SEL was amended in 1971 in order to expand
audit requirements, as well as to clarify auditors' responsibility in the event
of bankruptcy accompanied by accounting fraud. Under the amended SEL, an
independent auditor could be sued for malpractice.
The focused inspection, which was
performed after the fact, did not solve the fundamental issues of insufficient
independent auditing. Several steps were taken to correct fraudulent accounting
and to improve auditing practices. By the end of the 1960s, it was a
requirement that any auditor's disclaimer or adverse opinion be disclosed to
the public. In most cases, the mere threat of public disclosure was sufficient
to convince management to heed the auditor's recommendations. Also, the
Auditing Standards and related rules were amended to tighten audit procedures.
Observation of physical counts of inventory, confirmation of receivables with
customers, and audit of subsidiaries all became mandatory. Further
administrative guidance came with an amendment of the CPA Act, designed (i) to
strengthen the self-regulatory function of JICPA as a special organization, and
(ii) to establish a system for audit corporations, in order to promote uniform
and systematic auditing among CPAs.
3. Reorganization of JICPA
Under the amended CPA Act in 1966, the
JICPA underwent a drastic change. In order to strengthen its self-regulatory
function, its legal form was changed from incorporated association to special
judicial entity (tokushu hojin), and all CPAs were required to become members.
Membership had formerly been voluntary, so that the JICPA had not been able to
oversee all audit practices performed by CPAs, resulting at times in uneven or
low quality practice. The JICPA was now patterned after the American Institute
of Certified Public Accountants ("AICPA"), with the difference that
it was to be closely supervised and guided by MOF.
4. Introduction of Audit Corporations
Another principal feature of the 1966
amendment was that CPAs were permitted to set up audit corporations (kansa hojin).
In order to promote the systematic and standardized audit of financial
statements, the CPA Act encouraged and facilitated the organization of
individual CPAs into corporations. An audit corporation is similar to a
partnership in Western countries in that all partners have to bear liabilities
of the firm jointly and severally.
The main requirements for an audit
corporation were established as follows:
1. Membership was
limited to CPAs;
2. There must have
been at least five members;
3. All members
must have had the right and duty to participate in the practice;
4. No member was
to be under suspension from practice or have contravened provisions of the law;
5. The corporation must have had
an organization, personnel, and facilities sufficient to ensure adequate
conduct of the practice.
Before systematic audits by audit
corporations were introduced, audits were performed mainly by sole
practitioners. It was difficult for a sole practitioner to marshal the
resources and expertise to audit large companies. Also, most sole practitioners
depended on a relatively small number of clients for their livelihood, which
could impair independence. Another problem was excessive continuity by a single
auditor on a given client.
The first audit corporation was founded in
1967. A few more soon followed. However, they were still not large enough to
perform systematic audits on large clients as contemplated under the CPA Act,
so the MOF revised the regulations in order to promote consolidation among
small corporations and/or sole practitioners. It took several years for the
development of audit corporations of considerable size.
The major advantages of an audit
corporation were: (i) a larger business base would justify the establishment of
larger professional firms with the requisite organization and competence, and
(ii) the audit corporations would assist CPAs in better maintaining their
independence and integrity as professionals and improve the public credibility
of the profession. The amendment paved the way for Japanese CPAs to render
services to international business on an equal footing with CPAs from other
countries.
5. Development of Audit Corporations
As Japanese corporate activities expanded
globally, so did their methods of financing, including the sale of equity and
debt securities overseas. In order to obtain global financing, it was necessary
that the company's financial statements be prepared in accordance with Japanese
or U.S. GAAP, and be examined in accordance with credible auditing standards.
In 1961, Sony offered, for the first time,
a new stock issue for sale in the U.S. and had to hire an American accounting
firm to certify its financial statements for filing with the U.S. SEC. Sony's
example was soon followed by a number of other Japanese companies offering
stocks and bonds in the U.S. and European countries. Suddenly, the clientele of
foreign auditing firms broadened to include Japanese companies. Until then,
major foreign firms had operated branch offices in Japan to serve only
subsidiaries of foreign multinational companies. On the other hand, after 1973,
when the first foreign company was listed on the Tokyo Stock Exchange, a number
of foreign companies followed, and engaged Japanese CPAs to examine their financial
statements. The need for international audit capabilities became imminent.
Japanese audit corporations became aware
of the need to enter into associations or affiliation agreements with foreign
accounting firms. Major foreign accounting firms (mainly the Big Eight at the
time) expanded business in Japan, and started to cooperate with Japanese audit
corporations. The first formal affiliation took place in 1975. Thus the audit
corporation, introduced by the amendment to the CPA Act, helped facilitate
global cooperation and affiliation among auditors, resulting in improvements in
Japanese auditing practices.
6. Introduction of Audits under the
Commercial Code
Discussions on expanding audit
requirements started long before the series of accounting fraud bankruptcies
that occurred in the 1960s. Before the introduction of audits under the
Commercial Code ("the Code") in 1974, statutory audits were required
only under the SEL. Audits under the SEL had serious flaws. For example,
auditors often had to audit the financial statements only after the
shareholders had approved them. Under this process, it was theoretically
impossible to reflect in the financial statements necessary adjustments that
were identified during the course of the audit. If the audit had been performed
prior to the shareholders' meeting, such adjustments could have been duly
reflected and the effectiveness of the audit would have improved significantly.
The Ministry with responsibility for the Code (the Ministry of Justice) and the
MOF both recognized the importance of expanding the requirements for
independent audits under the Code. However, under the Code, companies were
subject to audits by company auditors (kansa-yaku), which might overlap with
the audits by independent auditors. It was mainly this overlap problem that
delayed the introduction of independent audits under the Code.
During the course of the discussions in
the 1970s, there was another series of accounting fraud bankruptcies, including
the FujiSash and the Nihon Netsugaku failures. It was necessary to regain
public trust in audits. The MOF again conducted a focused inspection to confirm
whether adequate audit procedures were being performed, and facilitated
systematic audits by audit corporations. The JICPA conducted research on
auditing practices, and set up the Audit Practice and Review Committee to
encourage systematic audits and to strengthen and standardize audit procedures.
In 1979, the JICPA also started to develop Audit Manuals that stipulated
standard audit procedures for CPAs to refer to.
In 1974, after a number of years of
discussion and consultation, the Code was amended to require companies with a
capital stock of \1,000 million or more to be subject to audit by accounting
auditors. In 1981, in order to expand audit requirements, further amendments to
the Code were effected. The criteria for the requirement for an audit were
expanded to include companies with a capital stock of \500 million or more or
with total liabilities of \20 billion or more. Furthermore, other expansions of
the types of companies required to undergo audit under other laws and
regulations were undertaken.
7. Problems Emerging after the Bubble
Economy Crash
From the early postwar period, banks
played a major role in funding the growth of industry, and operated in an
environment protected by bureaucratic regulations that permitted them to enjoy
record growth and large margins. In turn, they were closely monitored and
subject to administrative guidance by the MOF.
Up until the middle of the 1970s, there
was keen demand from industry for funds for growth. However, after the period
of rapid economic growth ended, companies started accumulating surplus funds
and seeking financial investment opportunities. Since banks had mostly
accomplished their original objectives to fuel economic growth, they had to
find new borrowers to expand their business; and they lent money for client
investments. The trend to new types of lending was also spurred on by
deregulation in financial markets and innovation in financial instruments. Many
industrial companies invested their surplus funds, including funds borrowed
from banks, into Money Trust Funds comprised mostly of marketable securities.
They believed that the boom in the stock market would last forever. Industrial
companies enjoyed unrecognized stock price appreciation on their investments,
as did the financial institutions with equity stakes in companies.
Investments in real estate also increased.
Throughout the period of the bubble economy, most Japanese financial
institutions made loans indiscriminately, as long as the debtor provided real
estate as collateral, in the widespread belief that in the long run real estate
collateral would appreciate and the loans be recoverable. These assumptions
held until the bubble burst in 1990.
After the bubble economy crash, the sharp
drop in land and stock prices created enormous problems, both to those who had
invested directly and to those who had financed the investments. Unrealized
losses mounted to alarming levels. Several scandals emerged involving financial
institutions. Many securities companies, for example, were discovered to have
compensated favored customers for trading losses. In the 1990s, real estate
companies and construction companies went bankrupt because of the country's
tight monetary policy. Bad debts became a major issue for financial
institutions. Several financial institutions, including banks and housing loan
companies whose audits had been conducted mainly by audit corporations,
collapsed within less than a year after being given an unqualified opinion. The
public questioned the standards of disclosure of banks and especially the
adequacy of provisions for non-performing loans. Public criticism of audits for
not providing advance warning of such failures also intensified. At that time,
auditors' reports did not include an emphasis paragraph as to 'the ability to
continue as a going concern' when a company's ability to survive was in doubt.
In the late 1990s, the MOF changed its
approach to the supervision of banks from one that depended on
"administrative guidance" that was somewhat ambiguous and left room
for manipulation to a more transparent approach based on written rules and
regulations. Under the new approach, banks are to perform their own self assessment
of loans and loss allowances (which had been set by to direct supervision), and
these self assessments are to be subject to expanded audit procedures by the
independent auditors. Credit unions and credit associations were to be audited
and subject to the same discipline for loss allowances.
After the bubble burst, several important
amendments to disclosure rules were also effected to improve the quality of
disclosure in the depressed economic conditions. Information on the market
value of marketable securities was to be disclosed, and real property that had
incurred unrealized losses could be written down to reflect current market
values.
However, the MOF continued to have
considerable influence over banking accounting, and it exercised that influence.
In order to assist banks to satisfy the requirements set by the BIS (Bank for
International Settlements), the MOF manipulated certain accounting rules.
Formerly, banks had been required to recognize marketable securities on the
balance sheet at the lower of cost or market value, but in the prevailing
environment of extensive and significant unrealized losses, the MOF allowed
banks to recognize these securities at cost, so the banks did not have to
recognize the losses in their financial statements. The MOF also allowed banks
to write real property up when the market value was above cost, so as to
recognize an accounting gain. These treatments were contrary to global
accounting standards, which emphasize recognizing marketable securities at
their market values, but the MOF insisted that these treatments were intended
to protect the general public by protecting the banking system.
Internationally, questions about the integrity of Japanese accounting became
intensified. It was felt that these questionable accounting procedures would
delay the resolution of the non-performing loan problem. Under the close
supervision of MOF, the JICPA was in a difficult position.
Even so, to restore and enhance public
trust in the audit, the JICPA took the following steps:
• Established theSpecial Audit Committee on Financial Institutions in 1996 to discuss matters
concerning audit procedures specific to banks;
• Started research
on 'going concern' disclosures and issued a report in 1997;
• Reorganized
institutions supervising audit practice and set up the Task Force on Emerging
Issues, in order to respond to fundamental issues as they emerge, in 1997;
• Established the
Task Force to discuss issues in the construction industry in 1998.
The JICPA also responded to
recommendations proposed by the CPA Investigation and Examination Board, and
implemented the following measures:
• The CPE Program
was introduced in 1998;
• The Quality
Control Review was introduced in 1998;
• The Code of
Ethics was amended to further enhance professional ethics in 2000.
The process of setting accounting and
auditing standards, previously driven by the MOF, is gradually changing. Even
though the basic standards are to be set by the Business Accounting Council
("BAC"), an advisory body to MOF, the role of the JICPA in setting
standards has become more important because of continued international pressure
and forces encouraging deregulation in Japan. The JICPA is now authorized to
decide on the details of auditing standards. In 1992, the JICPA established the
Auditing Standards Committee. Since then the Committee has issued Standards to
guide audit practice. The Financial Accounting Standards Foundation
("FASF") was established in 2001, and the Accounting Standards Board
of Japan ("ASBJ") was organized under the auspices of the FASF as an
independent and private-sector entity to develop accounting standards in Japan.
8. Amendment of the CPA Act in2013
The amendment of the CPA Act, the biggest
change since the 1970s, was discussed for several years after the crash of the
bubble economy in the early 1990s and was strongly influenced by the U.S.
Sarbanes-Oxley Act of 2002.
The following features are included in the
amendment:
1. Auditor Independence Rules
a. Non-audit services
The prior CPA Act allowed CPAs to provide
their audit clients such services as preparation of financial statements,
researching or planning financial matters, and providing consultation on
financial matters to the extent that it did not impede the performance of the
audit.
The amended CPA Act, put into effect in
April 2004, prohibits an audit corporation from providing certain non-audit
services to any audit client, in addition to tax services which had been
prohibited by the prior act.
Non-audit services prohibited in the
amendment include the following:
• Services related
to book keeping, financial documents, and accounting books,
• Design of
financial or accounting information systems,
• Services related
to appraisal of contribution-in-kind reports,
• Actuarial
services,
• Internal audit
outsourcing services,
• Securities
brokerage services,
• Investment
advisory services,
• Other services
that are equivalent to the above listed services and that involve management
decisions or lead to the self-audit.
It is prohibited to provide these
non-audit services to any clients that are required to be audited in accordance
with the SEL and certain large companies that are audited in accordance with
the Code.
b. Audit partner rotation
Prior to the amendment, engagement partner
rotation was required under the JICPA's Auditing Standards Committee Statement
as a seven-years term with a two-years time-out period. Under the amended CPA
Act, all engagement partners are legally required to rotate after serving for
no more than seven years with time-out periods that are prescribed in a cabinet
order (two years). The amended partner rotation rules apply to statutory audit
engagements that are required under the SEL and the Code for the certain large
companies. In this respect, the audit engagements to which the partner rotation
rule is applied are the same as those for which the rules as to the prohibition
of certain non-audit services apply.
c. Cooling off
The prior CPA Act had no prohibitions as
to audit clients hiring a retired partner of the audit corporation.
Under the amended CPA Act, an engagement
partner who performs audit services to a client is prohibited from joining the
management of the audit client as a director or other important position until
at least one year after the end of the accounting period during which the
partner was involved in auditing this client.
2. Strengthening Auditor Oversight
Prior to the amendment, the Financial
Services Agency ("FSA") oversaw auditors and the JICPA to protect the
public interest. The FSA's CPA Investigation and Examination Board oversaw the
CPA examination and disciplinary actions against CPAs.
The amended CPA Act directed that the
Certified Public Accountants and Auditing Oversight Board ("CPAAOB")
be established within the FSA by reorganization of the former CPA Investigation
and Examination Board in order to enhance the monitoring and oversight of CPAs
and the JICPA quality control review. The CPAAOB consists of ten members who
are nominated by the Prime Minister with consent by the Diet. At least the
chairperson and one member of the board serve full-time.
The amendment also mandated the
performance of quality control reviews and grants the legal authority for the
JICPA to conduct quality control reviews.
3. Reform of CPA Examination
The amended CPA Act contains reforms of
the CPA examination system that became effective as of January 2006. The new
CPA examination was simplified to a single-step examination from the former
three-step examination.
In order to obtain their certification as
CPAs, All candidates who have passed the CPA examination are also required to
have two years practical experience, which can be taken either before or after
sitting for the examination, three year professional accountancy education
program, and a final assessment provided by the JICPA.
4. Introduction of Limited Liabilities of
Partners
Prior to the amendment, every partner of
an audit corporation was jointly and severally liable for liabilities without
limitation. Under the amended CPA Act, a new category of 'designated partner'
was created to alleviate the legal burdens of partners who are not designated
as engagement partners. Only the partners who perform audits (the
"designated partners") are jointly and severally liable for
misconduct and negligence, and other partners who are not involved in the
audits in question are liable at a maximum, to the extent of their interest in
the audit corporation with regard to the liabilities claimed by audit clients.
This designated partner system is
different from a limited liability partnership. Non-engagement partners are
still liable for third-party claims. In this respect, non-engagement partners
are jointly and severally liable, without limitation, for third party claims
together with the engagement partner(s).
5. JICPA Commitment to Restore Public
Confidence in CPA Audits
Corporate scandals relating to financial
reporting involving listed companies have come out one after another since
2004; these scandals have undermined public confidence in the disclosure system
in Japan. The growing public distrust in CPA audits hit a peak when the Kanebo
scandal was revealed in 2005. Kanebo had a long history as a household goods
and cosmetics conglomerate and was delisted from the Tokyo Stock Exchange after
admitting to accountancy fraud over a four-year period. In association with
this accountancy fraud, four CPAs were arrested for allegedly aiding and
abetting Kanebo executives in the falsification of financial reports.
Before the Kanebo scandal was disclosed to
the public, the JICPA has already taken several steps to enhance auditing
practices. Some of these measures included:
An increase in full time quality control
reviewers from 10 to 20 to reinforce the effectiveness of JICPA quality control
reviews to maintain and improve the quality of auditing practices at individual
audit firms. An information technology expert was also hired to assist in these
reviews;
Creation of the Disciplinary Committee and
the Appeals Committee and improved transparency in disciplinary processes by
making these committees independent from the Executive Board and assigning
members from outside the accountancy profession; and
Establishment of audit hotlines to collect
information on audits from CPAs and relevant people in companies.
Subsequent to the indictment of Kanebo's
former auditors, the Chairman and President of the JICPA released a statement
on October 25, 2005, entitled "Toward the restoration of confidence in
audits by CPAs." In this statement, the JICPA indicated it was determined
to take the following actions in response to the public scrutiny towards CPAs:
Request for the immediate implementation
of audit partner rotation by the Big 4 audit corporations and revision of the
rotation rule of lead audit partners in certain large audit corporations as a
five-year engagement with five-year cooling-off period;
Make mandatory requirements in the taking
of certain subjects such as the Code of Ethics and audit quality control out of
the total Continuing Professional Education ("CPE") credits (40 hours
annually);
Conduct urgent quality control reviews for
the Big 4 and provide full cooperation to the monitoring of the CPAAOB; and
Address issues related to the Quality
Control Standards of audit firms issued by the BAC.
The Chairman and President urged all
members who perform audits to realize what the public expects of CPAs and to
perform their audits fairly and strictly as independent auditors.
Further to these measures, the JICPA also
announced its plan to set up a registration system of listed company audit
firms and the establishment of a comprehensive Code of Ethics on April 6, 2006.
One month after the above announcement,
the FSA announced that it had decided to take administrative action against the
audit corporation which Kanebo's former auditors belonged to. The audit
corporation was to suspend part of its business for two months between July and
August 2006, and ordered the revocation of certification, or one-year
suspension, of CPAs who were partners in connection with the alleged misconduct
connected with Kanebo.
The Chairman and President reaffirmed this
statement by stating that the JICPA would make every effort to strengthen
self-regulatory function through various measures including a registration
system of listed company audit firms and establishment and enhancement of a
comprehensive Code of Ethics.
At a special assembly on December 11,
2006, the JICPA approved the amended JICPA Code of Ethics and resolved to
introduce the registration system of listed company audit firms. The
registration system of listed company audit firms has been in place since April
2007. JICPA set the deadline as July 15 for the registration of audit firms
that audit listed companies (as of April 1, 2007). After deliberations by the
Quality Control Committee and the JICPA Quality Control Oversight Board, 196
firms were allowed to register at the time of the deadline. No non-registered
audit firms were identified. The final register has been released for public
viewing.
6. Amendment of the CPA Act in 2007
Following these accounting and auditing
scandals, the subcommittee on CPAs in the Financial System Council under the
FSA began deliberations on a wide variety of issues including reinforcement of
audit corporations' governance and further enhancement of auditor's
independence. Based on the subcommittee conclusion, a further amendment of the
CPA Act was proposed to the National Diet and enacted on June 20, 2007.
The revision of the Act includes measures
(a) to enhance the quality control, governance, and disclosure of audit
corporations, (b) to reinforce the independence of auditors, and (c) to strengthen
oversight of auditors and revise auditor's liability. Major amendments are as
follows:
1. Enhancing the quality control,
governance, and disclosure of audit corporations
a. Establishment of an appropriate
operational control system of audit corporations
The previous CPA Act required audit
corporations to maintain sufficient operational control systems to perform
audit engagements fairly and properly. In addition to the requirements, the
amendment specifies the following obligations of audit corporations in the
establishment of operational control systems.
• To ensure
appropriate management of audit corporations;
• To establish and
implement appropriate quality control policies.
b. Enlargement of qualification for
partners of audit corporations
The amendment relaxes qualification for
partners of audit corporations to include non-CPAs under the following
conditions:
• Non-CPA partners
shall register with the JICPA;
• The percentage
of non-CPA partners amongst partners in audit corporations shall be limited to
a certain level (this is up to 25% as specified by the Cabinet Office
Ordinance).
c. Disclosures by audit corporations and
certain CPAs
Audit corporations are required to
disclose documents explaining their operations and financial information to the
public. Individual CPAs who audit listed companies and certain large companies
are also required to disclose their operations to the public.
a. Review measures to enhance independence
The amendment provides the statutory
principles covering the duties of CPAs that CPAs and audit corporations shall
act in an independent manner in the performance of their work.
b. Expansion of the scope of restrictions
on employment with audit clients
Under the previous CPA Act, engagement
partners were prohibited to join the management ranks of audit clients as a
director or other important position during a certain period. The amendment
expands the scope of the restriction on employment to prohibit the engagement partner
from joining the management of the parent company, consolidated subsidiaries,
or sister companies of the audit client.
c. Strengthening the rotation rule
The JICPA established a self-regulatory
rotation rule for large audit corporations that audit 100 or more listed
companies in Japan to follow a five-year rotation rule with a five-year
cooling-off period for the lead engagement partners and engagement quality
control review partners. JICPA made this rule effective in April 2006. The
amendment has made it a legal requirement.
d. Report to the FSA about fraudulent
conduct by management
Along with the amendment of the CPA Act,
the Financial Instruments and Exchange Act ("FIEA") was also amended
to require auditors to report to the board of company auditors or the audit
committee when auditors discover a fraudulent conduct that materially affects
the fair presentation of financial statements. Auditors would be required to
report to the FSA if the client fails to take necessary action or if the
auditor believes preventative action is needed.
3. Strengthening of oversight on auditors
and revision of auditor liability
a. Enhancement of disciplinary actions
Disciplinary actions against audit
corporations were previously limited to censure, suspension orders, and
dissolution orders. The amendment added an order to improve the operational
management system of audit corporations. It will be within the remit of the FSA
to order an audit corporation to improve its quality control and management,
and to forbid any partners who are found to be responsible for seriously
inappropriate conduct from further execution of audit, quality control, and
management of the audit corporation. Furthermore, the FSA may impose a monetary
sanction upon an audit failure: the amount may be equal to the audit fee when a
partner of an audit corporation is found to have been negligent, or equal to
the audit fee plus 50 percent when an audit corporation partner's conduct is
found to be willful (i.e. 1.5 times the audit fee). The monetary sanctions are
administrative actions and would not be considered a criminal penalty.
b. Introduction of limited liability
company (LLC) structure
The previous CPA Act only allowed general
partnership as a legal form of audit corporations. The amendment allows an
audit corporation to be formed as an LLC if certain conditions such as minimum
capitalization and mandatory deposit requirements, are satisfied.
c. Introduction of oversight on foreign
audit firms
Foreign audit firms that audit companies
listed in Japanese capital markets were not subject to supervision of Japanese
authority under the previous CPA Act. The amendment requires audit firms that
provide audit attestation to foreign issuers whose securities are publicly
traded in Japanese capital markets, to notify the FSA of their identities and
be subject to the oversight of Japanese authorities.
Sunday, February 19, 2017
The History of SEO
The
History of Search Engine Optimization [SEO ]
A
difficult problem with writing a history of search engine optimization (SEO) is
the obscure etiology of its birth. By default, the term search engine
optimization implies a relevant history must be considered after the
development of search engines. A troublesome aspect of this implication is the fact
that search engines and the Internet did not always have their modern form. For
example, the Internet arguably can trace its roots back to 1958 when AT&T
introduced the first commercial modem, enabling remote computers to communicate
over ordinary telephone lines. While the Internet’s technical roots were
already in use, the term “Internet” did not actually come into existence until
December 1974 when the term was adopted in Request for Comments (RFC) 675
published on the Internet Transmission Control Program. Around this same time,
“an Internet” gained more common use as ARPANET was interlinked with NSFNet to
mean any internetwork using TCP/IP.
As
the Internet evolved, greater insight into the need to organize and find
distributed data inspired developers to create some means to search for
information. In 1990, the first identified search engine was created as a
school project and was a text-based index of “archived” and shared File
Transfer Protocol (FTP) files – thus came the name “Archie” because the name
fit length parameters. This tool did not resemble today’s modern form of a
search engine with a front-end graphical user interface and back-end complex
algorithms finding, collecting and organizing information. Like the Internet,
search engines evolved as advances were made in technology, and as needs arose.
For
example, in 1992, Gopher became the first search engine using a hypertext
paradigm. Only a year later, the graphical Mosaic web browser improved Gopher’s
primarily text-based interface. About the same time, Wandex became the first
search engine to crawl the web indexing and searching indexed pages on the web.
By 1998, the major search engines found today were in development.
SEO
symptomatically grew out of the development of search engines and the World
Wide Web. As natural language search capabilities were designed in search
engine tools, relevancy of ranked results was discovered to have significance
on traffic coming to web pages. Rather than the web just being a collection of
shared files, the World Wide Web opened up concepts of e-commerce and internet
marketing. With new avenues of sales to be gained, companies found value in
creating and promoting their websites.
The
earliest pioneers in the field of SEO also found the Internet not only
interesting, but a viable industry money maker. For example in 1994, Greg Boser
discovered that he could use the Internet to sell protective foam equipment to
fight fires. He built a website and started seeking ways to drive potential
customers to his site for sales. Likewise in 1996, Christine Churchill
discovered the potential of Internet marketing after she built websites for her
employer and noticed the intensive labor involved with maintenance. Her husband
and a friend developed software tools to reduce the burden. Soon, she created
an online company selling these software tools. These early stories explored
are in the collection of interviews on The History of SEO.
Many
of these early pioneers eventually met up and learned from each other either in
person or via subscriptions to email marketing newsletters related to this new
field of Internet search marketing. For example in 1995, John Audette formed
Multi-Media Marketing Group (MMG) in Lake Oswego, Oregon on the sale of 4,000
copies of his $30 online book about marketing on the World Wide Web. He
recruited many future SEO pioneers including Marshall Simmonds and Derrick
Wheeler who eventually relocated with John to Bend, Oregon in 1997. John
originally planned to assist companies with multi-media projects, but with the
growing use of the web for online marketing, he discovered great opportunities
therein. For example, MMG created the famous early I-Search Internet marketing
newsletter with at one time had 15 to 20,000 subscribers.
John
also recruited famed early pioneer Danny Sullivan to teach his staff his
knowledge of the tricks of the search ranking trade, and during that meeting he
coined the phrase “search engine optimization.” Whether or not it was the first
use of the term is not known. It is valid to state that the early pioneers were
all discovering the importance of Internet marketing of websites and the need
for optimizing them for higher rank by search engines and increased traffic.
These pioneers were unknowingly engaged in an activity that would be known as
“search engine optimization.” Today SEO is sometimes used jointly with “search
engine marketing;” a like term that evolved over the last decade.
SEO
pioneers learned from each other and sometimes competed against each other
while discovering new methods for optimizing search. Like the discovery of the
Internet, the technology was growing and in use, but the concepts related to
the growth of these new tools and industries were not fully conceptualized.
While it is almost 20 years after the birth of search engines, not all of the
facts are known about the history of SEO and our goal is to interview early
pioneers to share and learn more. Like the evolution of the Internet from its
birth in 1958, to its first semantically representation in 1974, and on until
now, the history of SEO will continue evolving into new form out of the work of
both early and modern pioneers.
Crucia Rules For Dominating Google'sSearch Results
From its earliest days, Google's core
search algorithm offered the most relevant and most organic search results
quickly and accurately on a simple site with an iconic logo that has now become
synonymous with the search giant's business. Searching amidst the world's vast
data, Google cleverly cataloged and categorized pages using its PageRank
formula, which assessed the quantity and power of links to any given webpage.
For a few years, Google's search
worked seamlessly, repeatedly predicting the most relevant search results every
single time, again and again. In fact, it was so good that it sent shockwaves
through the internet, digitally obliterating its rivals over time. However, as
Google's clever search engine grew into a colossus corporation, and both
individuals and businesses realized the inherent power of appearing organically
at the top of any search, things began to change.
The changes occurred at the behest of
some unscrupulous characters who were hell-bent on gaming the system. With so
much money at stake, do you really blame them? Once they learned the majority
of the rules, they began poking and prodding Google's innards by building
massive link farms and content farms, spinning low-quality articles, and
auto-generating links in an effort to outgun other listings and secure the top
spots on Google's lucrative Search Engine Results Pages (SERPs).
As a result, Google introduced
several that went by the names of Panda,
Penguin and Hummingbird, just to name a few. As the less-than-savory characters
began dominating Google's search by supposedly gaming the system, Google had to
act or risk losing its relevancy. These algorithm adjustments were intended to
both weed out the spoofs and scammers, while also fine-tuning its semantic
search.
The Fundamental Components Of Search
Before we dive into some of the
crucial rules for succeeding in SEO, we need to take a closer look at the
fundamentals of Google's search engine. In my recent book called, not only do I
give an extensive overview of how search works, but I also look closely at the
strategies that can be implemented to quite literally dominate the playing
field.
The truth? Most people look at SEO
the wrong way. They look at ways to do the least amount of work for the
greatest initial return, when in fact, it's quite the opposite. Obviously that you can possibly learn, but in order to
succeed with it, you need to do the most amount of work for the least initial
return. It's a slow, steady and painful process, but that's also the nature of
the beast.
Simply put, in the beginning, Google
doesn't trust you. If Google doesn't trust you, you're not going to rank on
those lucrative first-page SERPs. You'll be lost in the fray amidst millions of
others who're trying to claw their way to the top. So, the first real guiding
principle of SEO is trust. When you have Google's trust, you'll consistently
rank highly. When you lack its trust, you'll be lost in an abysmal sea of
low-ranking webpages. And no one wants that.
In my SEO book, I cover the three
components that comprise Google's trust. Each of the components has many
factors that influence it, but these are the specific foundational building
blocks of just how Google's trust works. And, considering that trust is an
inherent part of Google's relevancy equation, everything that you do should
revolve around building Google's trust rather than losing it and having it
taken away.
Trust Component of Indexed Age
Google cares deeply about the indexed
age of both your site and its content. A brand new site that's a newcomer to
Google is going to have a far harder time ranking on its SERPs than a site that
has indexed age. Indexed age refers to the date that Google discovered the
domain or webpage in question, not when it was originally registered or
released.
Trust Component of Authority Profile
Google wants to see a healthy link
profile that signifies authority. This means quality links coming from quality
content across the web with a healthy diversity. It cares about the importance
of the sites that are linking to your domain, but also the quality of the
content those links are coming from. Further, it's looking for IP-diverse
links, meaning they shouldn't all be coming from the same source. And it's
looking for a healthy link velocity where high-quality links are being created
with increased frequency over time.
Trust Component of Underlying Content
The underlying content is extremely
important. Too many people skimp on content, but it's one of the major anchors
that tether you to Google's relevancy algorithms. Thin content with errors, or
duplicate content and spun content can really hurt you. Instead, the content
not only has to be lengthy, but it has to be well-written, keyword centric and
highly engaging where readers are spending a good amount of time digesting and
consuming that content.
How to Dominate SEO
Like everyone else, you're likely
wondering how you can appear relevantly and organically on Google's SERPs.
Well, whether you're doing SEO in 2017 or any other year, it's important to pay
homage to the components of trust. But, there are in fact 200+ factors that
attribute to your rank in Google's current algorithm. You can discover those 200+
algorithm factors in any of my SEO books. However, on a more general note,
there are some rules you should be following.
The following rules will help you to
dominate SEO. And no matter what Google changes moving forward, these rules
will still provide the bedrock that you should govern your online activities
around in order to make the greatest progress on those all-important SERPs.
Follow these rules and you'll find yourself inching closer and closer to SEO
domination on Google. Just remember that it won't happen overnight. It'll take
time.
Rule-1: Always Work To Gain Google's
Trust
If you want to succeed in SEO, you
need Google's trust. This has been true for years now, but too many people
overlook this guiding principle. However, the question then becomes, how do you
get Google to trust you? Clearly, it isn't easy. Let's think about any
relationship here for a moment. How does anyone trust anyone else in this
world?
There are plenty of dimensions to
Google's trust, but to take a real-world scenario for a moment, let's briefly
look at the plight of a new business that opens up shop. Let's just say for a
moment that this new business needs working capital, and the founder walks into
a bank for a meeting with the bank manager.
Being a new business, this company
will naturally face some bias. How can they expect the bank to give them a loan
for their business when they have no track record? This is somewhat of a
Catch-22, isn't it? In order to start and grow the business, it needs capital,
but in order to get that capital, it needs to have been in business for quite
some time, with a proven track record.
This is the same dilemma that will
face any newly-formed website or domain on the internet. If Google just found
out about you, no matter when you first registered that domain name, it's going
to look at you with suspect. It won't trust you, thus, you won't rank high, no
matter what strategy you attempt to implement.
This is the greatest barrier to entry
in SEO that possibly exists, but there's a method to the search engine's
madness, and much of it has to do with those unsavory characters who were so
hell-bent on bending the rules. Today, Google knows about all your schemes, so
don't even bother with them if you're looking to build its trust.
Rule-2: Age Always Comes Before
Beauty
Your website's age if more important
than its beauty. No matter how good your site looks, what Google is really
looking for is link-consistency over time. How much time? We're talking years
here. Even if you have a healthy link profile and your site looks amazing,
loads quickly and is easy to navigate, it will fall short without age.
What do I mean really when I talk
about age? I'm talking about the indexed age of your site, its content and the
links that are pointing to it. It's an amalgamation of all these factors that
relate to age. What's the velocity of links being created over time? How much
high-quality content is linking to your site and on what schedule?
Whether you're just learning SEO in
2017, or any other year for that matter, what's important to keep in mind is
that Google's algorithms are always logging, analyzing and judging any behavior
related to your site, its links, content and so on. If you do a lot of work for
a month or two then completely abandon your site, you won't help your efforts,
you'll hinder them.
This has to do with both the freshness
of content, and the indexed age of the site. If Google only recently found out
about your site within the last 2 years, but you haven't developed a healthy
link profile, you still won't have Google's trust. Remember, trust is the first
rule. But building trust comes through age.
Think about one of your oldest
friends whom you've known for over ten years now and that you trust with your
life. Did you trust that person on the day you met them? How about a few months
after? What about a year after that? Trust develops slowly and it comes through
age. Keep that in mind and don't get discouraged in the short term.
Rule-3: Quality Will Trump Quantity
Every Single Time
When it comes to doing anything on
the Web, one of the steadfast rules is that quality trumps quantity every
single time. Don't focus on doing something so many times, rather focus on
doing it the right way enough times. For example, don't worry so much about
pushing out a certain amount of content every singled day; worry about pushing
out good content every single week. That's what Google cares about -- quality.
When it launched its Panda algorithm,
Google was really going after quality through the user experience. Most
importantly, it was looking for poor quality user experiences, or sites that were
simply meant to garner traffic and then deceitfully push visitors through some
means to buy a product or a service through an affiliate link, or to bombard
them with advertisements.
Google wasn't too happy about that.
It wasn't happy about it then, and it certainly won't be happy about it in 2017
and beyond. In fact, as the web ages, it's Google's aim to increase the overall
quality of not just its search engine, but of all the information on the web.
It's cleverly devised these rules and ranking factor to ensure that quality
increases over time rather than decreases.
No matter what type of SEO strategy
you want to employ, no matter what type of link-building efforts you're looking
to engage in, ensure that it's about the quality not the quantity. Don't use
link-generating software, article spinners, or anything else like that if
you're serious about achieving any respectable rank on Google's SERPs. Put in
the work and put in the time, elevating quality over quantity.
On my blog, Wanderlust Worker, which is
arguably one of the most popular inspirational blogs on the web, I don't focus
on pushing out tons of content; I simply focus on pushing on very good content
as often as possible. And, I continuously outrank sites that have far more age
and authority due to the underlying quality of the content. Engagement levels
count, so the longer visitors spend reading your content, the stronger those
all-important quality signals that are sent to Google.
Rule-4: Content Will Always Be King
The underlying content of a site will
always be king. If the content falls short, so will the SERP rankings. Google's
aim to deliver the most relevant results in the quickest manner possible has
much to do with delivering the best possible content. If the content is no
good, how can it be relevant?
Keep in mind that most people have
now automatically become reliant on Google, knowing that the first result will
likely be the best result. In turn, everyone wants that top spot, but you
simply won't get it if your content isn't good enough. The truth is that great
content is shared often. Everyone wants to share something that delivers real
value. So put the time into the content, because that's what counts.
Yes, other factors matter. But,
without great content, you can forget about your chances to rank. I'm not just
talking about creating great anchor content on your site. I'm also talking
about going out there and building equally-great content that links to the
great content on your site -- also known as content marketing.
Clearly, in order to succeed with
content marketing, you need to deliver enormous amounts of value. You need to
genuinely assist people with answering a question or understanding a topic. You
can't do that if you skimp on the content. Great content can come in a number
of forms, but I'm primarily speaking about written content here.
Great content, when crafted the right
way, can send you skyrocketing up Google's SERPs, but only if you stay
consistent. You can't deliver great content one week, subpar content the next
week, then not deliver anything for a few weeks and expect to rank. Learn how
to write compelling copy that sells, but also copy that delivers enormous
amounts of value.
Rule-5: Regardless Of What You've
Heard, Size Really Does Matter
One of the things that Google has
been battling against on the web is something called thin content. Thin content
is content without much meat on the bones. Not only is it short on length, but
it's short on value because of it. You can't expect to deliver big on value
when you write a 500-word article. Even when you write an article that's less
than 1,000 words, it's hard to compete against those who are delivering far
more than that.
One sprcific study on Google's
rankings determined that the first page of its SERPs with the top spots were
all above 2,000 words. In fact, I rank #1 for so many of the most competitive
searches, and almost all of those articles are over 2,000 words. But they're
not superfluous.
The goal isn't to simply write 2,000
words of rambling content. No, size matters, but so does the quality in that
size. It needs to be well written for starters, and it can't go off on
tangents. The content has to be laser-focused. Writing substantial,
laser-focused content can be difficult even for seasoned writers.
There's an enormous difference
between being a great writer and being a great SEO writer. The latter requires
the former as a prerequisite, but it's a far more developed skill. Sure your
prose needs to be on point. But if you're serious about search engine
optimization in the slightest, the content also has to be specifically tailored
for a given topic or keyword.
Rule-6: Keywords, Keywords, Keywords,
But Don't Overdo It
Creating great SEO content in 2017
has so much to do with keywords, but also so little to do with them. Google
wants content made for humans. But you also have to tailor the content for
search engines like Google. The distinction here, however, is a very difficult
one to make, and it's very easy to cross the line.
What often ends up happening is that
people overstuff keywords in an effort to rank. This triggers Google's Penguin
algorithm, which can decimate your listings on its SERPs. You don't want that.
What you want are not only exact-match keywords in your article, but also
Latent Semantic Indexing (LSI) keywords.
Google's Hummingbird engine uses LSI
as a way to determine the similarities between words and phrases. So, something
like "best diets for losing weight quickly" would be semantically
similar to "top weight loss diets that work fast." LSI keywords are relevant
and similar keywords that make the writing more organic in nature.
Your aim? Make your content
keyword-centric, but don't bombast the exact keywords over and over again. Use
a healthy ratio of 70 to 80% LSI keywords to the 30 to 20% of exact match
keywords. What you want is your content to sound natural and organic, and not
have to force keywords. But you also want to ensure that similar phrases to
your primary keyword appear enough times.
Yes, it can be difficult to do. But
with practice comes perfection. With over 200+ factors involved in Google's
core algorithms, it's easy to get overwhelmed. But if you stick to creating
amazing content that delivers enormous amounts of value, and is also lengthy
enough to clearly convey the purpose or the answer to the questions that people
are seeking, you'll win the ranking game over time. Not overnight. Over time.
Rule-7 Step Up Your Mobile Game
Today, if your site doesn't have a
mobile design and it's extremely difficult to navigate or load the content on mobile
devices, you're essentially shooting yourself in the foot. Mobile searches are
now outpacing desktop searches, and Google is furiously focused on mobile.
In fact, it's so focused on mobile
that it's helped to launch the Accelerated Mobile Pages (AMP) project into the
mainstream. What you'll notice on most mobile devices, is a little tag that
says 'AMP' meaning that the post adheres to the AMP specifications, which you
can find here.
This is similar to Facebook's push
into Instant Articles. What this should all convey is the importance of a
mobile-first design and to ensure that your site is responsive across a number
of platforms that include desktop, tablet, and of course, mobile. Select a
theme, or develop a design that will work seamlessly across any device and
platform.
By building a mobile-first design,
you're looking into the future and ensuring that you're conforming to Google's
wishes. Those wishes are steeped in reality because mobile devices have become
so important in our lives, that you simply can't overlook mobile usability when
thinking about SEO, especially when talking about SEO for the future.
Rule-8 Location, Location, Location
(Of Your Links, Of Course)
In real estate, they say that it's
all about location. Well, when it comes to SEO, it's also about location, when
speaking about your links of course. You want people that are linking to you
from all over the world, but you also want to ensure that relevant,
high-quality content is linking to you rather than low-quality garbage.
What websites those links are coming
from is extremely important. For example, a link from Forbes is far more
valuable than thousands of low-quality links, especially when that link is
coming from relevant content. That doesn't mean you need a link from Forbes to
excel with SEO, but it certainly doesn't hurt to find authority domains that
will link to you.
Building a healthy link profile is a
difficult thing. If you focus your efforts on great content, those links will
come naturally over time. It might take a very long time, but they'll
eventually come. However, you also want to help speed things up if you're
looking to make faster progress.
The number one strategy that I used
to propel my site, Wanderlust Worker to number one on hundreds of the most
competitive searches, was content marketing. Sure, I developed excellent anchor
content on the site. But I also worked tirelessly on developing external
content on authority sites that I would then link to my content, delivering
enormous amounts of powerful link juice.
Focus on the content, but also focus
on the links. Not low-quality links; high-quality authority links from amazing
content. It's not easy. Not by any means. If it were, everyone would be doing
it. No, it's going to be a massive headache and tremendous amounts of work, but
very much well worth it when near-limitless amounts of free organic traffic
come flooding into your site over time.
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