financial analisis (1) - radebaugh

7/23/2019 Financial Analisis (1) - Radebaugh

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Chapter 5

International Financial Statement

Analysis


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International Accounting & Multinational Enterprises - Chapter 5 - Radebaugh, ra

International Accounting Differences

and Financial Statement Analysis

#he "ey $uestion %o do di''erences in accounting a''ect earnings

and cash 'lo assessments ( are the di''erences

material in the decision process #hese assessments are important to

In)estors Corporations concerned ith 'oreign direct

in)estment

roing number o' companies are listing oninternational e*changes +ondon, e .or"/


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Stock Market Comparisons


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International Accounting Differences

and Financial Statement Analysis

A tendency e*ists to loo"s at earnings 'rom a

home country perspecti)e ( that may or may

not place a high )alue on accounting0 #his tendency may ignore accounting di''erences

A need e*ists to better understand 'oreign

accounting principles in the conte*t in hich

they are deri)ed International comparability is important in

considering alternati)e in)estments


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Major Differences in Accounting

Principles Around the World

In)entory measurement

enerally based on

1loer o' cost or

mar"et2 ith mar"etde'ined as either et reali3able )alue

Replacement cost

IF4 is permitted 'orta* purposes in 0S0

and 6apan, but not in

the E

Construction contracts

7ide usage o'

percentage-o'-

completion method ( isthis better 8 more

accurate9

Completed contract

method ( Sit3erland,China, 6apan


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Measurement basis

used %istorical cost is used in

the 0S0, !ra3il,Sit3erland, China, and

6apan0

More 'le*ible approach

ith some restatements

to mar"et )alue orreplacement cost ( 0:0,

%olland

;epreciation

accounting se'ul economic li'e

concept ( 0S0 and E Accelerated methods (

France, ermany,

Sit3erland, 6apan


7/20International Accounting & Multinational Enterprises - Chapter 5 - Radebaugh, ra



R&; costs E*pensed immediately in

Anglo-American and

ermanic countries !ra3il has a more 'le*ible

approach

Some countries allo

capitali3ing the borroed

cost o' assets

Retirement bene'its enerally accounted 'or

on the basis o' accrued

and8or pro





#a*ation Accounting income

strongly in'luenced by

the ta* system in France,ermany, !ra3il,

Sit3erland

!usiness Combinations >aries ith alloance o'

pooling-o'-interests

=urchase method isgenerally re$uired

oodill is amorti3ed in

!ra3il, China, and 6apan

oodill impairment

tests are used in 0S0,

0:0





Intangibles enerally are capitali3ed and sub



he Impact of !"S"#!"$" Accounting

Differences# A %uantitati&e 'ook

Inde( of conser&atism )*ray+ ,-./0

, 1 23A 1 3D 4 l 3A l

Where 3A 6 adjusted earnings )or returns0 )i"e" earnings con&erted toan alternate accounting system0

3D 6 disclosed earnings )firm earnings reported on the homecountries accounting system0"

herefore+

, 1 2!"S" *AAP 7arnings 1 !"$" *AAP 7arnings 4

l !"S" *AAP 7arnings l

If inde( &alue 8 ,+ !"$" *AAP earnings are less 9conser&ati&e: or moreoptimistic4aggressi&e

If inde( &alue ; ,+ !"$" *AAP earnings are more 9conser&ati&e:



he Impact of !"S"#!"$"

Accounting Differences

Example 1

!"$" earnings

BD million

!"S" earnings

BDD million

Inde(

( DD-DD8DD G 0

Example 2

!"$" earnings

BHD million

!"S" earnings

BDD million

Inde(

( DD-HD8DD G D0H





It is possible to establish the relati)e e''ect o'

indi)idual ad





Example

Millions o' =ounds

0:0 AA= earnings D

Ad





;i''erences beteen methods are illustratedin the Form D-F report

Form D-F can be used to test hoconser)ati)e 0S0 and 0:0 AA= are incomparison ith each other

Form D-F is reliable because it is pro)ided

by the company itsel'Research 'indings sho 0:0 AA= to be

less conser)ati)e



A *lo



Factors Influencing

Measurement Differences

0S0 and 0:0 Stoc" mar"et is the dominant in'luence

In'ormation needs o' in)estors encourage a more

1optimistic2 )ie o' earnings and higher share prices

Accounting principles are 'le*ible

Accounting pro'ession is independent

#a* rules ha)e a limited in'luence Cultural )alues moti)ate a less conser)ati)e

approach to measurement



Factors Influencing


Continental Europe and 6apan #a*ation and sources o' 'inance are in'luential

#radition o' commercial codes and accounting

plans

#endency to report loer earnings 'or ta*

purposes



Factors Influencing


Continental Europe and 6apan sers o' 'inancial in'ormation may be more

concerned ith balance sheet in'ormation

!lac" and 7hite +DD/ 'indings !alance sheet in'o is more in'ormati)e in ermany, 6apan

Income statement is more relati)e in the 0S0

=ro'essional in'luence is lo due to legal

re$uirements related to accounting

Cultural )alues moti)ate a more conser)ati)e

approach


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International Accounting & Multinational Enterprises - Chapter 5 - Radebaugh ra

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