Transcript Global Accounting

International Accounting
and Multinational Enterprises 5/e
International Accounting
and International Business
Chapter One
Learning objectives:
 Identify
the key trends in the development of
accounting through history
 Introduce some of the key national differences
in accounting systems worldwide
 Highlight the evolution of business to modern
times
 Discuss the important accounting dimensions of
global business and the major topics that
comprise the field of international accounting
 Introduce the chapters in the textbook
Main contents of chapter one
1. Introduction
2. The International Development of the Accounting Discipline
(1) Early Italian Influence
(2) Luca Pacioli
(3) Subsequent Developments
3. National Differences in Accounting Systems
(1) Implications of National Differences in Accounting
4. The Evolution and Significance of International Business
(1) The Pre-Industrial Period
(2) The Industrialization Period
(3) The Post-World War II Period
(4) The Multinational Era
A. Reasons for International Involvement
B. Forms of International Involvement
C. Global Enterprises
D. Large MNEs
E. The Decision to Become Global
5. Accounting Aspects of International Business
(1) Establishing an Internal International Accounting Capability
6. The Field of International Accounting
(1) The Importance of Studying International Accounting
7. Overview of the Text
8. Summary
I.
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Introduction
Definition of International Accounting
The definition includes (1) international transactions (2)
comparative GAAP
(3) harmonization and (4) control of global operations.
International accounting encompasses all major areas of
accounting.
Why Study International Accounting?
Since the operating environments for economic entities are
dynamic, accounting must also stay current with changing
environments. Only then can it possibly retain its relevance and
reliability for economic decision-making. International
accounting is in direct response to the globalization
phenomenon.
I.
Introduction
The Reasons for Going International
 The greatest reason for becoming a participant in the
global economy is the growth opportunities. However,
there are several other reasons that need to be
mentioned.
 The problems encountered in international operations
should also be noted. The most serious problem found
while doing business in the Eastern European
countries is uncertain legislative and business
environment, while in the rest of the world it is
bureaucratic red tape.
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II. The International Development of the Accounting Discipline
 A.
Early Italian Influence
 1.Record keeping can be traced to 3600BC
 2.Italy became the center of trade routes
 3.Genoa in 1340AD -- double entry, business
entity, money
 4.Florentine -- development of large
corporations and compagnie (partnerships)
 5.Venice -- responsible for the spread of double
entry accounting
II. The International Development of the Accounting Discipline
 B.Luca
Pacioli
 1.Franciscan monk educated in mathematics
 2.Taught at several universities, turored three
sons of a Venetian merchant
 3.In 1494, published Summa de arithmetica
geometria proportioni et proportionalita
 4.Introduced three books of record -- the
memorandum book, the journal and the ledger
-- that required a debit and credit for the
transaction to remain in equilibrium
II. The International Development of the Accounting Discipline
C.Subsequent Developments
 1.Decline of Italy as a commercial power, shifting
influence to Atlantic
 2.Rise of the nation-state in the 1500s -- public finance
 3.French revolution in late 1700s brought Italy under
the influence of the French and Austrians, resulting in
some changes in accounting
 4.Scale of enterprises increased, followed by rapid
industrialization, and finally multinationalization
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III.
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National Differences in Accounting Systems
A. Accounting systems evolve from and reflect the
environments they serve
B. Legal, political, economic, cultural, educational
environments create differences
IV. The Evolution and Significance of International Business
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A.The Pre-Industrial Period
B.The Industrialization Period
C.The Post-World War II Period
D.The Multinational Era
1.Reasons for International Involvement
2.Forms of International Involvement
3.Global Enterprises
4.Large MNEs
5.The Decision to Become Global
i. Factors include environment constraints and firmspecific advantages
V. Accounting Aspects of International Business
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A.Establishing an internal international accounting capability
1.Different ways of operating abroad and the accounting
problems they create
VI. The Field of International Accounting
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A. Two major areas: Descriptive/comparative; accounting
dimensions of international transactions/MNEs
VII. Overview of the Textbook
A.Topical Organization
 1.Introduction (Chapter 1)
 2.Comparative Accounting and International
Harmonization (Chapters 2,3,5,&6)
 3.International Financial Reporting Issues (Chapters
7-11)
 4.International Financial Analysis (Chapters 4)
 5.External Auditing Issues (Chapter 12)
 6.International Management Accounting and Control
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(Chapters 13-14)
 7.Taxation (Chapter15)
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World Capital Markets
North America
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New York, San Francisco, Chicago,
Toronto
Asia
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Hong Kong, Tokyo
Australia
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Sydney
Europe
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London, Zurich, Frankfurt, Brussels,
Milan, Paris, Amsterdam, Stockholm,
Madrid
South America
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Buenos Aires, Santiago, Mexico City
Africa
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Johannesburg
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Historical Development of Accounting
Ancient World
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Mesopotamia, Egypt, India, China, Rome
Middle Ages
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Genoa, Florence, Venice
New World
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Maya, Inca, Aztec
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Luca Pacioli (1445-1514)
Published Summa de Arithmetica in
1494
 First published text on double-entry
accounting
 Introduced the “Memorandum
Book,” “Journal,” and “Ledger”
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National Differences in Accounting
Systems
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Historical developments did not lead to
uniformity in international accounting
practice
Despite similarities, no two systems are
exactly alike
Reasons for Differences:
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Economic,
Educational,
Legal,
Political, and
Social/ Cultural Factors
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Implications of National
Differences in Accounting
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Acts as a barrier to the free-flow of
international business information
5
Evolution and Significance
of International Business
Greek Period
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First international sales of mass-produced
products through Greece in 5 B.C.
Roman Period
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First open market with political stability,
better transportation, and few tariffs or
restrictions
Middle Ages
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Banking, Insurance, and trade fairs in
Byzantium
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The Preindustrial Period
Europe: Rise of Mercantilism
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Right to trade regulated by the state,
Colonialism driven by state’s direct
investment in colonies and nearmonopolistic control of trade, and
Dominated by Western European Nations.
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The Industrialization Period: 1780-1945
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Technological inventions led to
unprecedented mass production and
standardization,
Implementation of large-scale
infrastructure between historically separate
markets, and
Birth of large multinational corporations
such as: Singer, Ford, Dunlop, and Lever
Brothers.
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The Post-World War II Period
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Great Depression and WWII
stunted international trade
Following the end of the war,
demand for products and services,
trade and investment sharply
increased.
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The Multinational Era
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Involvement in International trade
is essential for developing nations,
and
For the continued economic growth
of developed nations.
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What is International Business?
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All business transactions involving
two or more countries.
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Reasons for International Involvement
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Expand sales,
Gain access to raw materials and
other factors of production, and
Obtain information, technical
expertise (i.e. patents, licenses,
“know-how”).
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Forms of International Involvement
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Exporting and Importing of goods
and services,
Strategic alliances including
licensing agreements, franchises,
and joint ventures, (McDonalds,
Holiday Inn, Pizza Hut), and
Direct investment.
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Global Enterprises
Multinational enterprises are those
which:
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Have a world-wide view of production,
materials, components and final markets;
Have over 10% of sales, assets, earnings,
and employees abroad.
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Large MNE’s
Indicators:
 Sales and Market Value,
 Profits and Return on Shareholders
Equity, and
 Worldwide stock market valuations.
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The Decision to Become Global:
External Environment v. Internal Capabilities
Environmental ConstraintsDomestic:
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Educational,
Sociological (Socioculteral),
Political/ Legal, and
Economic.
Environmental ConstraintsInternational:
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May differ from domestic constraints
and mostly concerned with
nationalism
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Firm Specific Advantages
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Intangibles that provide a unique
firm advantage,
Examples include market-niche
capabilities and personnel
advantages.
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Accounting Aspects
of International Business
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Accounting requirements differ with each
successive stage of international
involvement,
For example, import-export stage would
require investigation of potential buyer or
seller for purposes of determining creditworthiness and capacity to perform.
Initial Issues may include: statements
written in foreign language, amounts in
foreign currencies, and information
produced using different standards.
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Establishing an Internal
International Accounting Capability
Increased international involvement requires:
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Internal accounting resources,
Creation of separate organization to handle international
trade, and
Creation of a foreign operation of some kind.
Degrees of Involvement:
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International accounting knowledge may be necessary
even with no direct international business involvement
(I.e. company needs to borrow money or sell stock
internationally).
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The Field of International Accounting
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Increased need for accountants who understand the
international accounting environment,
International certification possibilities, and
Fascinating career opportunities.
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