copyright © 2013 pearson education, inc. publishing as prentice hall 18-1 international business...
TRANSCRIPT
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
18-1
International Business
Environments & Operations
14e
Daniels ● Radebaugh ● Sullivan
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18-2
Chapter 18
International Accounting Issues
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Learning Objectives To examine the major factors influencing the development
of accounting practices in different countries To examine the global convergence of accounting
standards To explain how companies account for foreign-currency
transactions and translate foreign-currency financial statements
To discuss different forms of performance evaluation of foreign operations and how foreign exchange can complicate the budget process
To explain how arbitrary transfer pricing can complicate performance evaluation and control
To introduce the balanced scorecard as an approach to evaluating performance
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Introduction Accounting provides information used by
CFOs to make decisions Accounting and finance rely on each other
to fulfill their responsibilities
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The Crossroads of Accounting and Finance
What the Controller Controls
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Accounting for International Differences
Financial statements differ by country Form Content Terminology
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Accounting Objectives The Financial Accounting Standards
Board (FASB) establishes accounting standards in the United
States The International Accounting
Standards Board (IASB) sets accounting standards for the broader
global community
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Accounting ObjectivesWho Uses Accounting Information?
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Factors in International Accounting Practices
Learning Objective 1: To examine the major factors influencing the development of accounting practices in different countries
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Factors in International Accounting Practices
Sources of Influence on Accounting
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Cultural Differences in Accounting
A Disclosure/Assessment Matrix for National Accounting Systems
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Cultural Differences in Accounting
Greater involvement in capital markets leads to a shift towards greater use of standards and practices according to U.S. Generally Accepted Accounting
Principles (GAAP) International Financial Reporting
Standards (IFRS)
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Classifying Accounting Systems
Weak vs. Strong Equity Markets and the Influence on Accounting Standards
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From Micro-Uniform to Micro-Based Systems
Macro uniform accounting system Government influenced
Japan, Germany, China, France Micro based system
Pragmatic business practices The U.S., Mexico, Canada, Australia
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Strong vs. Weak Equity Markets
Strong equity markets vs. weak equity markets Movement towards strong Transition towards IFRS
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Differences in Financial Statements
The financial statements of one country differ from those of another by Language Currency Statement type Underlying GAAP on which the statements are
based
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Differences in Financial Statements
Dealing with accounting and reporting differences Mutual recognition Reconciliation to local GAAP Recasting of financial statements in terms of
local GAAP
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18-18
International Standards and Global Convergence
Learning Objective 2: To examine the global convergence of accounting standards
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International Standards and Global Convergence
Forces leading to global convergence Investor orientation Global integration of capital markets MNE’s need for foreign capital Regional political and economic harmonization MNE’s desire to reduce accounting and
reporting costs Convergence efforts of standards-setting
bodies
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The First Steps in Convergence
International Organization of Securities Commissions (IOSCO) regulators of most of the world stock
markets endorses IASB
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The International Accounting Standards
Board FASB and IASB are working to achieve a
convergence of accounting standards The process has been slowed by
the credit crisis and global recession the new SEC chairman who is less committed
to the process
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Transactions in Foreign Currencies
Learning Objective 3: To explain how companies account for foreign-currency transactions and translate foreign-currency financial statements
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Transactions in Foreign Currencies
Recording transactions exchange rate losses and gains reported on the income statement at
the end of the accounting period FASB Statement 52 is used in the U.S.
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Translating Foreign Currency Financial
Statements Translation
the process of restating foreign currency financial statements into U.S. dollars
Consolidation the combination of translated financial
statements into one
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18-25
Translating Foreign Currency Financial
Statements Translation methods
Current rate applies when the local currency is the
functional currency Temporal rate
applies when the parent’s reporting currency is the functional currency
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Management Accounting Issues
Learning Objective 4: To discuss different forms of performance evaluation of foreign operations and how foreign exchange can complicate the budget process
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Management Accounting Issues
MNEs must consider Performance evaluation and control The impact of transfer pricing on
performance evaluation Using the balanced scorecard
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Performance Evaluation and Control
Exchange Rates and the Budget
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Performance Evaluation and Control
Exchange Rates and the British MNE Budget
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Transfer Pricing and Performance Evaluation
Learning Objective 5: To explain how arbitrary transfer pricing can complicate performance evaluation and control
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Transfer Pricing and Performance Evaluation
Transfer pricing the pricing of goods and services that
are transferred between members of a corporate family
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Transfer Pricing and Performance Evaluation
Factors Influencing High and Low Transfer Prices
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The Balanced ScorecardLearning Objective 6: To introduce the balanced scorecard as an approach to evaluating performance
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The Balanced Scorecard The balanced scorecard
endeavors to link more closely the strategic and financial perspectives of a firm and takes a broad view of business performance
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Corporate Governance Corporate governance
refers to the combination of external and internal mechanisms implemented to safeguard the assets of a company and protect the rights of shareholders
External control mechanisms Sarbanes-Oxley
Internal control mechanisms Management and ownership structures
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Will IFRS Become the Global Accounting
Standard? IFRS is modeled after the capital market
orientation of the U.K. and the U.S. More companies are choosing to list on the
European stock markets Sarbanes-Oxley Act 2002
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