1. International Accounting

2. Accounting Standards
Important Note – Most countries use different accounting systems. Therefore – Accounting numbers are not comparable across countries without a great deal of correction

3. Accounting Systems in a Multinational
Most companies keep several sets of books including:
Tax Accounting System – Unique to each country
Public Accounting System – Unique elements in each country
Managerial Accounting System – Hopefully consistent across company

4. Accounting Standards
US – FASB and GAAP – “moving towards” IASB

5. Accounting Standards
Many others – Variations of IASB

6. Accounting Systems Vary Because of:

7. Accounting Systems Vary Because of
Political and economic ties with other countries

8. Accounting Systems Vary Because of
Relationships between businesses and providers of capital

9. Accounting Systems Vary Because of
Levels of inflation

10. Accounting Systems Vary Because of
National culture – optimism vs conservatism

11. Accounting Systems Vary Because of
Level of economic development

12. International Financial Management

13. Financial System Must Consider
Political risks
Variations in sources of funding
Foreign exchange rate fluctuations
Restrictions on capital, exchange and profit flows
Differences in tax systems faced
Variations in economic systems and economic conditions
Differences in inflation
Varying interest and discount rates

14. How Much Profits Should You Bring Home?
Remittance Strategy

15. How Much Profits Should You Bring Home?
Opportunities for growth outside country profits earned in

16. How Much Profits Should You Bring Home?
Firms objectives

17. How Much Profits Should You Bring Home?
Availability of capital from local sources

18. How Much Profits Should You Bring Home?
Stability of currency exchange

19. How Much Profits Should You Bring Home?
Economic and political conditions at home and abroad

20. How Much Profits Should You Bring Home?
Host government restrictions on remittance

21. How Much Profits Should You Bring Home?
Tax systems in host and home country

22. How Much Profits Should You Bring Home?
Impact on image in host country

23. Remittance Accomplished Through

24. Remittance Accomplished Through
Germany US
$100 Subcomponent Cost
$20 Labor
$30 Admin cost___________
$150 Sell to US
$50 Value added__________
$ % Value Added Tax on $50
$150 Cost of goods sold
$50 Marketing and admin cost
$200 total cost
$250 Sale Price____________
$50 profit
$ % Income Tax
$30 total tax paid on $250 TV sale
Transfer pricing (1)

25. Remittance Accomplished Through
Germany
Bermuda US
$100 Subcomponent Cost
$20 Labor
$30 Admin cost_______
$100 Sell to Bahamas
$0 Value added_______
$0 Value Added Tax
$100 Subcomponent Cost
$5 Labor_________
$105 Total cost
$200 Sell to US_____
$95 Profit
No VAT or Income Tax
$0 Taxs
$200 Cost of goods sold
$50 Marketing and admin cost
$250 total cost
$250 Sale Price____________
$0 profit
$0 Income Tax
$0 total tax paid on $250 TV sale
Transfer pricing (2)

26. Remittance Accomplished Through
ACME US
ACME Venezuela
$1m Startup Funding
$100,000 Profits a year
$50,000 50% Income Tax
Venezuela blocks remittance
Swaps (1)

27. Remittance Accomplished Through
ACME US
ACME Venezuela
Mega
Bank
International
$1m Deposit earning 9.5%
$1m loan charging 10%
$1m loan paying 10%
$100,000 interest payment
eliminates profit – no taxes,
no remittance problem
$95,000 “interest payment”
Keeps .5% profit
Swaps (2)

28. Remittance Accomplished Through
Italian Factory
US Corporate Office
$1m “surprise” profits
Pays 35% VAT
Provides accounting,
Management and
design consulting as part of corporate services
Unbundling (1)

29. Remittance Accomplished Through
Italian Factory
US Corporate Office
$1m charge for corporate service
No profits – No VAT
$1m profit on charge to Italy
No income or VAT Tax
Assigns corporate office personnel to Bahamas division
Unbundling (2)

30. Types of International Cash Flows

31. Types of International Cash Flows Intracompany
Netting - Cancelling inflows and outputs to reduce transactions

32. Types of International Cash Flows Intracompany
Pooling - Pooling all funds in subsidiary with best tax laws or security

33. Types of International Cash Flows Intercompany
Prevent other companies leading and lagging

34. Types of International Cash Flows Intercompany
Minimize currency exchange transaction costs