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

INTERNATIONAL ACCOUNTING

ANCIENT INFLUENCES

• CHINA• INDIA• MESOPOTAMIA• BIBLICAL REFERENCES

EARLY ITALIAN INFLUENCE

• ITALY CENTER OF TRADE ROUTES• GENOA• FLORENTINE

– GOLD FLORIN (EURO OF ITS DAY?)

• VENICE– PACIOLI

SUBSEQUENT DEVELOPMENTS

• Decline of Italy• France• Britain• Scale of enterprises

Accounting systems

Accounting systems evolve from and reflect the environments they serve.

International Business Grows

• Evolution of International Business• Pre-Industrial Revolution• Industrialization• post-World War II• Multinational Era

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

Forms of International Involvement

• Export/Import• Strategic alliance

– licensing– franchising– custom contracts

• Direct Investment/Joint Venture

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

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

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

Models for explaining:

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

Farmer-Richman Model

• Environmental variables– way business is conducted– explain differences

• Corporations can modify environment

• Cultural Relativism

Major Influences

• Environment - Culture• Recognition of Corporations as

legal entities with public ownership• Growth of professional

management• Emergence of securities markets• Role of Government

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

Hofstede / Gray

• Business and managerial behavior is strongly influenced by culture– Individualism– Power/distance– uncertainty avoidance– masculinity

• Culture strongly influences accounting

Classifications

• Individualism v. Collectivism• Large v. small power distance• Strong v. weak uncertainty

avoidance• masculinity v. femininity• short v. long term orientation

Accounting values

• Professionalism v. statutory control• uniformity v. flexibility• conservatism v. optimism• secrecy v. transparency

• Macroeconomic v. Microeconomic– US is Microeconomic

• Independent discipline approach v. uniform accounting approach– US is independent

• Uniform accounting Approach

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

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)

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

Around the World

• Business Combinations• Goodwill• Affiliated Companies• Asset Valuations• Depreciation• Inventory Valuation• Finance Leases• Deferred Taxes Reserves for Income

Smoothing

International Accounting Importance

• Growth of multinational operations• Global Competition• Internationalization of Capital

Markets• Cross Border Mergers &

Acquisitions• Advances in Financial Technology

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