1. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Financial & Managerial Accounting The Basis for Business Decisions FOURTEENTH EDITION Williams Haka Bettner Carcello

2. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin GLOBAL BUSINESS AND ACCOUNTING Chapter 15

3. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO1 To define four mechanisms companies use to globalize their business activities.

4. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Globalization Occurs as managers become aware of and engage in cross-border trade and operations. A high level of globalization is a multinational enterprise that begins with raw material extraction and ends with final product assembly and sales in multiple foreign locations.

5. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Globalization Globalization typically progresses through a series of stages that include: 1.Exporting 2.Licensing 3.Joint ventures 4.Wholly owned subsidiaries 5.Global sourcing. 1.Exporting 2.Licensing 3.Joint ventures 4.Wholly owned subsidiaries 5.Global sourcing.

6. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO2 To identify how global environmental forces — (a) political and legal systems, (b) economic systems, (c) culture, and (d) technology and infrastructure — affect accounting practices.

7. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Environmental Forces Shaping Globalization Globalization Political and legal system Economic system Culture Technology and infrastructure

8. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Environmental Forces Shaping Globalization Planned Economy Government owns factors of production Market Economy People owns factors of production

9. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Environmental Forces Shaping Globalization

10. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO3 To explain why there is demand for harmonization of global financial reporting standards.

11. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Harmonization of Financial Reporting Standards The International Accounting Standards Board (IASB) has as one of its stated goals the harmonization of accounting standards. Harmonization is used to describe the standardization of accounting methods and principles used in different countries throughout the world.

12. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Harmonization of Financial Reporting Standards

13. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO4 To demonstrate how to convert an amount of money from one currency to another.

14. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Foreign Currencies and Exchange Rates An exchange rate is the amount it costs to purchase one unit of currency with another currency. ¥1,000,000 × $0.00764 = $7,640

15. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO5 To compute gains or losses on receivables or payables that are stated in a foreign currency when exchange rates fluctuate.

16. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Accounting for Transactions with Foreign Companies On January 1, 2007, a U.S. company purchases equipment from an Italian company for €100,000. The amount is payable in full on that date. On January 1, 2007, the exchange rate is $0.97 per Euro. U.S. company purchases €100,000 from financial institution.

17. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Accounting for Transactions with Foreign Companies On January 1, 2007, a U.S. company purchases equipment from an Italian company for €100,000. The amount is payable in full on February 15, 2007. On January 1, 2007, the exchange rate is $0.97 per Euro. At 1/31/07 the spot exchange rate is €1 = $0.96. On 2/15/07, the exchange rate is €1 = $0.98.

18. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Accounting for Transactions with Foreign Companies On January 1, 2007, a U.S. company purchases equipment from an Italian company for €100,000. The amount is payable in full on February 15, 2007. On January 1, 2007, the exchange rate is $0.97 per Euro. At 1/31/07 the spot exchange rate is €1 = $0.96. On 2/15/07, the exchange rate is €1 = $0.98.

19. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Accounting for Transactions with Foreign Companies On January 1, 2007, a U.S. company purchases equipment from an Italian company for €100,000. The amount is payable in full on February 15, 2007. On January 1, 2007, the exchange rate is $0.97 per Euro. At 1/31/07 the spot exchange rate is €1 = $0.96. On 2/15/07, the exchange rate is €1 = $0.98.

20. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO6 To describe several techniques for “hedging” against losses from fluctuations in exchange rates.

21. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Hedging Fair Value Hedge Any gain or loss is recognized currently in earnings. If the hedge is on available-for-sale securities, any gain or loss is reported in other comprehensive income on the equity section of the balance sheet. Future contracts are the right to receive a specified quantity of foreign currency at a future date.

22. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Translation of Foreign Currency Financial Statements This is the first year of operations for a 100% owned Mexican subsidiary of the U.S. enterprise, Matrix, Inc.

23. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Translation of Foreign Currency Financial Statements

24. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Translation of Foreign Currency Financial Statements If dividends are paid, the translation is based on the historical rate when the dividend is paid. The translated ending retained earnings carries forward to the next accounting period.

25. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Translation of Foreign Currency Financial Statements The translation adjustment is reported in other comprehensive income in the equity section of the balance sheet

26. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO7 To discuss how global sourcing increases product cost complexity.

27. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Global Sourcing Differences in exchange rates in many different countries can create significant complexities for firms practicing global sourcing. Many companies underestimate the cost of globalizing their business operations because they are not familiar with the environmental characteristics previously discussed. Differences in exchange rates in many different countries can create significant complexities for firms practicing global sourcing. Many companies underestimate the cost of globalizing their business operations because they are not familiar with the environmental characteristics previously discussed. € ¥ £ ₣ ₧ Customs duties Import fees Multicountry tax laws Tax treaties

28. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO8 To explain the importance of the Foreign Corrupt Practices Act.

29. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin In many countries around the world, bribery is part of doing business. In many countries, this officially sanctioned corruption is not viewed as wrong or unethical. However, U.S.-based businesses are prohibited from influence peddling. The IMF and World Bank instituted policies to cut off funding to countries ignoring corrupt practices. Foreign Corrupt Practices Act

30. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Ethics, Fraud, and Corporate Governance The Foreign Corrupt Practices Act (FCPA) applies to U.S. companies and foreign companies operating in the United States, their affiliates, and their agents. Violations of the FCPA expose companies and individuals to both civil and criminal liability.

31. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin End of Chapter 15