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

2. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-2 Chapter 18 International Accounting Issues

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

4. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-4 Introduction  Accounting provides information used by CFOs to make decisions  Accounting and finance rely on each other to fulfill their responsibilities

5. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-5 The Crossroads of Accounting and Finance What the Controller Controls

6. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-6 Accounting for International Differences  Financial statements differ by country Form Content Terminology

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

8. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-8 Accounting Objectives Who Uses Accounting Information?

9. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-9 Factors in International Accounting Practices Learning Objective 1: To examine the major factors influencing the development of accounting practices in different countries

10. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-10 Factors in International Accounting Practices Sources of Influence on Accounting

11. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-11 Cultural Differences in Accounting A Disclosure/Assessment Matrix for National Accounting Systems

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

13. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-13 Classifying Accounting Systems Weak vs. Strong Equity Markets and the Influence on Accounting Standards

14. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-14 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

15. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-15 Strong vs. Weak Equity Markets  Strong equity markets vs. weak equity markets Movement towards strong Transition towards IFRS

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

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

18. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-18 International Standards and Global Convergence Learning Objective 2: To examine the global convergence of accounting standards

19. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-19 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

20. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-20 The First Steps in Convergence  International Organization of Securities Commissions (IOSCO) regulators of most of the world stock markets endorses IASB

21. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-21 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

22. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-22 Transactions in Foreign Currencies Learning Objective 3: To explain how companies account for foreign-currency transactions and translate foreign-currency financial statements

23. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-23 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.

24. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-24 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

25. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-25 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

26. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-26 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

27. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-27 Management Accounting Issues  MNEs must consider Performance evaluation and control The impact of transfer pricing on performance evaluation Using the balanced scorecard

28. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-28 Performance Evaluation and Control Exchange Rates and the Budget

29. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-29 Performance Evaluation and Control Exchange Rates and the British MNE Budget

30. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-30 Transfer Pricing and Performance Evaluation Learning Objective 5: To explain how arbitrary transfer pricing can complicate performance evaluation and control

31. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-31 Transfer Pricing and Performance Evaluation  Transfer pricing the pricing of goods and services that are transferred between members of a corporate family

32. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-32 Transfer Pricing and Performance Evaluation Factors Influencing High and Low Transfer Prices

33. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-33 The Balanced Scorecard Learning Objective 6: To introduce the balanced scorecard as an approach to evaluating performance

34. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-34 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

35. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-35 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

36. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-36 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

37. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18-37 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.