1 international accounting marcin jędrzejczyk (jedrzejm@uek.krakow.pl)jedrzejm@uek.krakow.pl

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INTERNATIONAL ACCOUNTING

Marcin Jędrzejczyk (jedrzejm@uek.krakow.pl)

http://www.jedrzejczyk.com.pl/ina - working :)http://janek.uek.krakow.pl/~zkrachhttp://gat.uek.krakow.pl

Environmental InfluencesExamples

Political/legal statutory audits-accounting reports/tax issues

Economic sources of capital

Cultural budgetary control

Infrastructure communication infrastructure education of population

External Accounting Reports Standard Setters, Preparers and Users Underlying Institutional Structures Required reports

Internal Accounting Reports Decision Rights Assignment Planning and Control Performance Measurement and Evaluation

Environmental Matrix External

Accounting Internal Accounting

Political

Regulatory Structure

Market Entry

Choice/tax impacts

Economic Capital Acquisition

Risk Management

Cultural Secrecy-disclosure

Budgeting

Infrastructure Availability of Auditors

Cost Drivers

External Accounting-Environment Standard Setting Process

U.S. -- FASB - Private-www.accounting.rutgers.edu/raw/fasb/

Japan -- Ministry of Finance -www.jicpa.or.jp/

International Accounting Standards Board /www.iasb.org.uk/ Use of comment letters

Users of Statements legal/cultural driven

External Accounting External Reporting Differences

U.S., U.K., Poland -- Tax Financial Japan, Germany -- Tax = Financial

Differences in Debt and Equity Differences in goodwill treatment Differences in asset revaluation

Internal Accounting Decision Rights Assignment Planning and Control

Complications of Global Operations Co-location of Knowledge and Rights

Performance Evaluation Multiple Currency Issues Cross-border Decision Rights Issues

International Accounting Key to Understanding International

Accounting Political, Economic, Cultural and

Infrastructure Influences on: External Reporting

Taxes/Capital Markets/Gov. Regulation/Standard Setting/Reporting Requirements

Internal Reporting Planning and Decision Making Control Differences Performance Evaluation Differences

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CONSOLIDATION OF THE FINANCIAL STATEMENTS

Marcin Jędrzejczyk (jedrzejm@uek.krakow.pl)

http://www.jedrzejczyk.com.pl/inahttp://janek.uek.krakow.pl/~zkrachhttp://gat.uek.krakow.pl

10CAPITAL GROUP

HOLDINGCOMPANYSubsidiary (subsidiaries)

An enterprise that is controlled by another enterprise

CONTROL: over more than a half of voting rights among investors, power to govern the financial and operating policies under a statue or an agreement, power to appoint or move majority of the members of the board, power to cast the majority of votes at meetings of the board of directors of the governing body

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Consolidated accounts – an overview

GROUP FINANCIAL STATEMENTS

JOINTLY CONTROLLED ENTITY

ASSOCIATE SUBSIDIARY

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Consolidated accounts – an overview

ASSOCIATE JOINTLY CONTROLLED ENTITY

SUBSIDIARY

Features Significant influence over the financial and operating policy decisions

Joint control over the financial and operating policy decisions

Control – power to govern the financial and operating policies

Accounting treatment

Equity method (IAS 28), share of net assets and profits

Proportionate consolidation (benchmark) or equity method (IAS 31)

IAS 22, IAS 27

Short revision: value and measureShort revision: value and measure

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FINANCIAL STATEMENTFINANCIAL STATEMENT

MEASURE of particular assets, liabilities, profits, losses or MEASURE of particular assets, liabilities, profits, losses or cash flows - depending on the statement - presented as a cash flows - depending on the statement - presented as a systematically ordered sum of all separately recorded valuessystematically ordered sum of all separately recorded values

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BALANCE SHEETBALANCE SHEET

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Accounting treatment of the subsidiaries

Consolidation of 100% of assets Cancellation of intra-group items Minority interest shown separately Uniform accounting policies

(ACQUISITION METHOD, UNITING OF INTERESTS)

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Accounting treatment of the subsidiaries

ACQUISITION UNITING OF INTERESTS

Features: Not a merger/acquiring a company’s benefit

Features: Combine control with mutual sharing of risks and benefits

Accounting treatment: adjustments to fair value, post acquisition results only are consolidated, goodwill arises

Accounting treatment: Pooling of resources at book value, comparatives restated, difference on consolidation adjusted against equity

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CONSOLIDATION

The process of adjusting and combining financial information from the financial statements of the parent undertaking and its subsidiary undertaking to prepare consolidated financial statements that present financial information for the group as a single enterprise

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Consolidated Balance SheetPurpose: To show assets and liabilities which it controls and the ownership of those assets and liabilities

Assets and liabilities: Always 100% Parent plus 100% of the BOOK VALUE of Subsidiary

Share capital: Parent ONLY

Reserves: 100% Parent plus group share of post acquisition retained reserves of Subsidiary plus/less consolidation adjustments

Minority interest: minority % x book value of the acquiree’s identifiable assets less liabilities, ignoring fair value adjustments and any goodwill on the acquisition of subsidiaries

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Consolidated Balance Sheet

The company „Parent” acquired 100% of „Subsidiary” for $40000m. Ordinary Share Capital was equal to $25000m. Providing that pre-acquisition revenue reserves of „Subsidiary” stood at $6000m, there were no intra-group transactions and no intra-group dividends paid, prepare a consolidated balance sheet of the new capital group at the acquisition date using the acquisition method. (100%)

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  Parent ($) Subsidiary ($)

ASSETS 115000 65000

Tangible Assets 50000 40000

Intangible Assets 0 0

Investment in „Subsidiary” company 40000  -

Inventory 3000 18000

Receivables 20000 7000

Cash 2000 0

LIABILITIES 115000 65000

Share Capital 45000 25000

Reserves 12000 5000

Revenue Reserves 30000 23000

Current Liabilities 28000 12000

22

Calculating the goodwill

Cost of investment

40000

Ordinary Share Capital

25000

Capital reserves on acquisition

5000

Revenue reserves on aquisition

6000

23

  Consolidated ($)

ASSETS 144000

Tangible Assets 90000

Intangible Assets 4000

Inventory 21000

Receivables 27000

Cash 2000

LIABILITIES 144000

Share Capital 45000

Reserves 12000

Revenue Reserves47000 =

17000 + 30000

Current Liabilities 40000

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Consolidated Balance Sheet - Cancellation

The company „Parent” acquired 100% of „Subsidiary” for $40000m. Ordinary Share Capital was equal to $40000m. Providing that there were no pre-acquisition revenue reserves of „Subsidiary” stood at $6000m, there was no intra-group dividends paid, prepare a consolidated balance sheet of the new capital group at the acquisition date using the acquisition method. NOTE: Receivables of „Subsidiary” ($2000m) cancels with „Parent” liability payables ($2000m).

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  Parent ($) Subsidiary ($)

ASSETS 100000 66000

Tangible Assets 35000 45000

Intangible Assets 0 0

Investment in „Subsidiary” company 40000  -

Inventory 16000 12000

Receivables 8000 9000

Cash 1000 0

LIABILITIES 100000 66000

Share Capital 70000 40000

Reserves 16000 19000

Revenue Reserves 0 0

Current Liabilities 14000 7000

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  Consolidated ($)

ASSETS 124000

Tangible Assets 80000

Intangible Assets 0

Inventory 28000

Receivables 15000

Cash 1000

LIABILITIES 124000

Share Capital 70000

Reserves 35000

Revenue Reserves 0

Current Liabilities 19000

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THE AREAS OF TRANSLATION

• Language• Accounting concepts• Currency

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CURRENCY TRANSLATION

“restating an amount of foreign currency in terms of equivalent number of dollars” (Meigs, 1986, p. 521)

In consolidated statements it means also restating all the assets and liabilities present in the balance sheet into dollars

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Subsidiary (€)

Parent (zloty)

30

Subsidiary (zloty)

Parent (€)

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TRANSLATION in Consolidated Balance Sheet – Case Study

The company „Poland” located in Poland acquired 100% of „USA” for 136000m złotych. Ordinary Share Capital of „USA” was equal to $25000m. Providing that there was no intra-group transactions and no intra-group dividends paid, prepare a consolidated balance sheet of the new capital group at the acquisition date using the acquisition method (exchange rate 3,4 zł/$).

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  Parent (zł) Subsidiary ($)

ASSETS 249000 65000

Tangible Assets 50000 40000

Intangible Assets 0 0

Investment in „Subsidiary” company 136000  -

Inventory 3000 18000

Receivables 20000 7000

Cash 40000 0

LIABILITIES 249000 65000

Share Capital 179000 25000

Reserves 12000 5000

Revenue Reserves 30000 23000

Current Liabilities 28000 12000

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Calculating the goodwill ($)

Cost of investment

40000

Ordinary Share Capital

25000

Capital reserves on acquisition

5000

Revenue reserves on acquisition

6000

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  Consolidated (zł)

ASSETS 368000

Tangible Assets 186000

Intangible Assets 34000

Inventory 64200

Receivables 43800

Cash 40000

LIABILITIES + OE 368000

Share Capital 179000

Reserves 12000

Revenue Reserves 108200

Current Liabilities 68800

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  Consolidated (zł)

ASSETS 293 450

Tangible Assets 100 800

Intangible Assets 97 900

Inventory 25 860

Receivables 28 890

Cash 40 000

LIABILITIES + OE 293 450

Share Capital 179000

Reserves 12000

Revenue Reserves 59 210

Current Liabilities 43 240