Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-1 International Business Environments & Operations 14e Daniels ● Radebaugh ● Sullivan

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

18-1

International Business

Environments & Operations

14e

Daniels ● Radebaugh ● Sullivan


18-2

Chapter 18

International Accounting Issues


18-3

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


18-4

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


18-6

Accounting for International Differences

Financial statements differ by country Form Content Terminology


18-7

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?


18-9

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


18-11

Cultural Differences in Accounting

A Disclosure/Assessment Matrix for National Accounting Systems


18-12

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


18-16

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


18-17

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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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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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 the pricing of goods and services that

are transferred between members of a corporate family


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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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Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-1 International Business Environments & Operations 14e Daniels ● Radebaugh ● Sullivan