1. Agenda Must Have a Maryville Email Address How to Use Web Page Syllabus IMA CASE – Only if you want an A (88% to 100% will be a B+) Industry Presentation – you must fill out form or EMAIL ME International Accounting Overview

2. INTERNATIONAL ACCOUNTING

3. ANCIENT INFLUENCES CHINA INDIA MESOPOTAMIA BIBLICAL REFERENCES

4. EARLY ITALIAN INFLUENCE ITALY CENTER OF TRADE ROUTES GENOA FLORENTINE –GOLD FLORIN (EURO OF ITS DAY?) VENICE –PACIOLI

5. SUBSEQUENT DEVELOPMENTS Decline of Italy France Britain Scale of enterprises

6. Accounting systems Accounting systems evolve from and reflect the environments they serve.

7. International Business Grows Evolution of International Business Pre-Industrial Revolution Industrialization post-World War II Multinational Era

8. Why International Business Today? Expand Sales Gain Access to raw materials Gain Access to specialized labor Gain Access To knowledge & intangibles Gain Right to Trade Gain natural, comparative and specific advantages

9. Forms of International Involvement Export/Import Strategic alliance –licensing –franchising –custom contracts Direct Investment/Joint Venture

10. Accounting Aspects of International Business Import/Export - what do you need to know? May create an internal international accounting department Establish foreign operations Wholly owned subsidiaries Joint ventures

11. Field of International Accounting Descriptive/Comparative –attempt to understand the nature of accounting in different countries –we cannot know it all, but we can understand the forces that create differences Accounting issues for international transactions

12. Accounting issues for a Global Strategy Develop financial statements in each country where the MNE operates Prepare consolidated financial statements including operations from around the world Account for foreign currency transactions Establish management control system Pay taxes Audit financial statements & internal control

13. Models for explaining: Accounting systems evolve from and reflect the environments they serve.

14. Farmer-Richman Model Environmental variables –way business is conducted –explain differences Corporations can modify environment Cultural Relativism

15. Major Influences Environment - Culture Recognition of Corporations as legal entities with public ownership Growth of professional management Emergence of securities markets Role of Government

16. Pressure for Accounting Change Growing international economic and political interdependence New trends in foreign direct investment changes in multinational corporate strategy Accountability to employees Technology Environmental Impact Growth of financial markets Expansion of business services Actions of international regulatory organizations

17. Hofstede / Gray Business and managerial behavior is strongly influenced by culture –Individualism –Power/distance –uncertainty avoidance –masculinity Culture strongly influences accounting

18. Classifications Individualism v. Collectivism Large v. small power distance Strong v. weak uncertainty avoidance masculinity v. femininity short v. long term orientation

19. Accounting values Professionalism v. statutory control uniformity v. flexibility conservatism v. optimism secrecy v. transparency

20. Macroeconomic v. Microeconomic –US is Microeconomic Independent discipline approach v. uniform accounting approach –US is independent Uniform accounting Approach

21. United States Regulation & Enforcement –no general legal requirement to publish periodic statements (each state can do its own thing) SEC - companies listed on stock exchanges FASB - conceptual framework AICPA

22. Accounting Measurement Assume the company is a going concern Accrual method is widely used Historic cost is the basis for valuing assets Goodwill is capitalized IMPAIRMENT IS EXPENSED Depreciation is economically based (can be differences between book & tax)

23. United States Continued Research and Development is expensed when incurred Business Combinations: no pooling of interest, only purchase method FOR FUTURE LIFO is used but must be same for book and tax Financial leases are capitalized NO RESERVE FOR INCOME SMOOTHING

24. Around the World Business Combinations Goodwill Affiliated Companies Asset Valuations Depreciation Inventory Valuation Finance Leases Deferred Taxes Reserves for Income Smoothing

25. International Accounting Importance Growth of multinational operations Global Competition Internationalization of Capital Markets Cross Border Mergers & Acquisitions Advances in Financial Technology

26. Environmental influences on Accounting Legal System Economic Systems Nature of business ownership Fiscal legislation Stages of economic development Inflation Theory Speed of Business Innovations Size and complexity of business organizations Status of Professional Education & Organization