International Accounting and Multinational Enterprises 5/e By Lee H. Radebaugh and Sidney J. Gray PowerPoint Presentation by Kent W. Meyer, PhD

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International Accounting and International Business Chapter One

1 World Capital Markets North America Asia Australia Europe New York, San Francisco, Chicago, Toronto Asia Hong Kong, Tokyo Australia Sydney Europe London, Zurich, Frankfurt, Brussels, Milan, Paris, Amsterdam, Stockholm, Madrid South America Buenos Aires, Santiago, Mexico City Africa Johannesburg 1

Historical Development of Accounting Ancient World Mesopotamia, Egypt, India, China, Rome Middle Ages Genoa, Florence, Venice New World Maya, Inca, Aztec 2

3 Luca Pacioli (1445-1514) Published Summa de Arithmetica in 1494 First published text on double-entry accounting Introduced the “Memorandum Book,” “Journal,” and “Ledger” 3

National Differences in Accounting Systems Historical developments did not lead to uniformity in international accounting practice Despite similarities, no two systems are exactly alike Reasons for Differences: Economic, Educational, Legal, Political, and Social/ Cultural Factors 4

Implications of National Differences in Accounting Acts as a barrier to the free-flow of international business information 5

Evolution and Significance of International Business Greek Period First international sales of mass-produced products through Greece in 5 B.C. Roman Period First open market with political stability, better transportation, and few tariffs or restrictions Middle Ages Banking, Insurance, and trade fairs in Byzantium 6

The Preindustrial Period Europe: Rise of Mercantilism Right to trade regulated by the state, Colonialism driven by state’s direct investment in colonies and near-monopolistic control of trade, and Dominated by Western European Nations. 7

The Industrialization Period: 1780-1945 Technological inventions led to unprecedented mass production and standardization, Implementation of large-scale infrastructure between historically separate markets, and Birth of large multinational corporations such as: Singer, Ford, Dunlop, and Lever Brothers. 8

The Post-World War II Period Great Depression and WWII stunted international trade Following the end of the war, demand for products and services, trade and investment sharply increased. 9

The Multinational Era Involvement in International trade is essential for developing nations, and For the continued economic growth of developed nations. 10

What is International Business? All business transactions involving two or more countries. 11

Reasons for International Involvement Expand sales, Gain access to raw materials and other factors of production, and Obtain information, technical expertise (i.e. patents, licenses, “know-how”). 12

Forms of International Involvement Exporting and Importing of goods and services, Strategic alliances including licensing agreements, franchises, and joint ventures, (McDonalds, Holiday Inn, Pizza Hut), and Direct investment. 13

14 Global Enterprises Multinational enterprises are those which: Have a world-wide view of production, materials, components and final markets; Have over 10% of sales, assets, earnings, and employees abroad. 14

15 Large MNE’s Indicators: Sales and Market Value, Profits and Return on Shareholders Equity, and Worldwide stock market valuations. 15

The Decision to Become Global: External Environment v The Decision to Become Global: External Environment v. Internal Capabilities Environmental Constraints-International: May differ from domestic constraints and mostly concerned with nationalism Environmental Constraints-Domestic: Educational, Sociological (Socioculteral), Political/ Legal, and Economic. 16

Firm Specific Advantages Intangibles that provide a unique firm advantage, Examples include market-niche capabilities and personnel advantages. 17

Accounting Aspects of International Business Accounting requirements differ with each successive stage of international involvement, For example, import-export stage would require investigation of potential buyer or seller for purposes of determining credit-worthiness and capacity to perform. Initial Issues may include: statements written in foreign language, amounts in foreign currencies, and information produced using different standards. 18

Establishing an Internal International Accounting Capability Increased international involvement requires: Internal accounting resources, Creation of separate organization to handle international trade, and Creation of a foreign operation of some kind. Degrees of Involvement: International accounting knowledge may be necessary even with no direct international business involvement (I.e. company needs to borrow money or sell stock internationally). 19

The Field of International Accounting Increased need for accountants who understand the international accounting environment, International certification possibilities, and Fascinating career opportunities. 20