1、1Chapter 1IntroductionDiscussion Questions1. In the domestic case, accounting is an information service that provides financial information about a domestic entity to domestic users of that information. International accounting is distinctive in that the entity being reported on is either a multinat
2、ional company with operations and transactions that transcend national boundaries or involves an entiiy with reporting obligations to readers who are located outside the reporting entitys country of domicile. 2. Advantage: Some might argue that measurement, disclosure, and external auditing are thre
3、e distinct (although related) processes, involving different members of the company. For example, corporate attorneys often are involved in disclosure issues, but seldom intervene in measurement issues. The Board of Directors works with the external auditors but not necessarily with the comptroller
4、s office. Thus, discussion of accounting requirements and voluntary accounting choices in different jurisdictions is simplified by focusing on the three components of accounting. Disadvantage: measurement, disclosure and auditing are interdependent, and should not be viewed in isolation of one anoth
5、er. A company choosing to disclose as little as possible, for example, may use accounting measurement approaches that reduce the information content of financial statements, and select an external auditor who will be relatively lenient in enforcing accounting requirements. One alternative classifica
6、tion might include accounting (measurement and disclosure), and auditing. A second classification might include financial reporting (annual and interim reporting, regulatory filings) and ad hoc disclosure (press releases, analyst meetings, etc). Any classification is arbitrary, and potentially usefu
7、l depending on its purpose.3. Factors contributing to the internationalization of the subject of accounting include: the growth and spread of multinational operations around the world, the phenomenon of global competition, the increasing number of cross-border mergers and acquisitions that occur alm
8、ost daily, continued advances in information technology, and the internationalization of the worlds capital markets. 4. International trade involves importing and exporting activities. The major accounting issue associated with foreign trade involves accounting for foreign currency transactions. For
9、eign direct investment, on the other hand, involves conducting operations abroad. This activity exposes accountants to a new set of issues that run the gamut from having to consolidate foreign currency accounts based on diverse measurement rules to issues of evaluating the performance of foreign sub
10、sidiary managers. 5. Students will overwhelmingly argue in favor of harmonization. This is probably a good starting point for the course. After they are introduced to the chapters leading up to Chapter 8, some may no longer feel that harmonization is necessarily the answer to all of their internatio
11、nal accounting problems. 6. Recent developments such as the growth and spread of multinational operations, Internationalization of the worlds capital markets, increased cross border mergers and acquisitions, the phenomenon of global competition and financial innovation have 2increased reader depende
12、nce on foreign financial statements. An understanding of accounting differences and their effect on reported measures of profitability, efficiency, solvency and liquidity are critical if proper decisions are to be made. International accounting issues have become more complex in recent years for sev
13、eral reasons. Financial transactions are becoming more complex, affecting both national and international accounting. For example, the use of complex financial instruments and developing accounting standards for these exotic instruments has been problematic. Global financial markets also are becomin
14、g more volatile, leading to large changes in asset and balance sheet amounts (such as related to investments) and major sources of income and expense. The related accounting issues are difficult. The growing internationalization of business also promotes complexity. Foreign currency transactions and
15、 translation have been troublesome accounting issues for years, and are becoming more important as cross-border business and finance increase. Also, differences in national accounting principles potentially are more troublesome as business becomes more international. However, as convergence efforts
16、worldwide accelerate, and more and more companies and countries adopt International Financial Reporting Standards (IFRS), complexity arising from differences in national accounting principles will decrease. 7. Examples of external reporting issues include:a. Does translation from one set of measurem
17、ent rules to another change the information content of the original message?b. Should accounts of foreign operations be translated to parent currency when consolidated statements are prepared?c. Which exchange rates should be employed when translating from one currency to another?Examples of interna
18、l reporting issues include:a. Which exchange rates should be used for budgeting purposes?b. Should foreign managers be evaluated in terms of parent currency or the local currency of the country in which the manager operates?c. Which prices should one use when transferring goods or services between m
19、embers of the multinational enterprise- cost, market, cost-plus or some other metric? 8. Global capital market activities and transactions reach beyond single political or legal jurisdictions. For example, global capital market transactions include the following: (1) an American tourist buying Austr
20、alian dollars for travel purposes in the South Pacific; (2) a Japanese insurance company buying German government bonds as an investment; and (3) a Nigerian agricultural development project receiving cash subsidies from the European Union (EU). The international equities market is one global capital
21、 market. A second such market covers foreign exchange transactions, that is, when one national currency is exchanged into, traded forward, hedged, swapped, or otherwise converted to another national currency. This market is estimated at hundreds of billions of U.S. dollars per day. The total world f
22、oreign exchange market is the largest market on earth. The international bond market is still another global capital market. The bonds constituting this market are underwritten by international syndicates of banks and are marketed and traded all over the world. Global capital markets are a vital par
23、t of the world economy.39. English should be designated as the formal international accounting language. Technical accounting terms ( terms of art) do not travel well internationally. Since technical accounting terms often have attributed meanings (for example, generally accepted accounting principl
24、es are neither generally accepted nor principles ), it is difficult or impossible to translate these terms into other languages and retain their original meanings. In other disciplines, such considerations have caused the establishment of Latin as the universal language for botanical classifications
25、, Italian as the language for specifying the tempo (and other matters of interpretation) of musical compositions, and English as the language of electronic computing. Since accounting is used worldwide, a single worldwide language for accounting makes sense. Why should English be the worldwide langu
26、age for accounting? English already has become the language of world commerce and multinational business. Thus, the universal use of English in accounting would parallel a well-established business practice. Also, the accounting discipline was in many respects developed as an offshoot of Anglo-Ameri
27、can economics, which means that the language roots of many accounting terms and concepts are English. Among non-English speaking people, English is the most common second language. The vast majority of the worlds accounting literature is written in English, and nearly all international accounting co
28、nventions and conferences use English as the official language. Multinational corporations generally use English in their accounting and financial operating manuals, as well as for corporate communications, without regard to national domiciles. Therefore, the worldwide benefits of adopting English a
29、s the universal language of accounting are likely to be greater than for any other language, and the worldwide costs are likely to be less. 10. Emerging markets are those whose financial systems are emerging from state domination through a process of liberalization. Developed countries are those wit
30、h liberalized financial systems. Many people believe that liberalization is highly beneficial to sustained economic growth. Many different classifications of developed versus emerging market countries are used, and often the terms are not defined, although no one correct set of definitions for devel
31、oped and emerging markets exists. Students should be encouraged to suggest their own criteria as to what constitutes a developed as opposed to an emerging market. The emerging market countries are in geographic regions that are generally not highly industrialized. But one cannot generalize here as e
32、xtensive economic liberalization is taking place in these countries (in some more than in others). For example, entry barriers to foreign businesses, government regulation of banking operations, and credit controls have been eased in many of the countries once classified as “emerging.” 11. Privatiza
33、tions of state-owned corporations have had dramatic effects on global capital markets. Often, the privatized entities are large, well-known companies in which the national government retains a large ownership interest, and retail (individual, non-institutional) investors often are encouraged to buy
34、shares in newly privatized entities. As a result, the shareholder base in the market grows dramatically, investors become more active market participants, and market capitalization increases.Privatizations also mean that management must now compete in the market place for market share, external capi
35、tal and corporate control. In such a world, accounting systems must properly motivate managers to work toward the accomplishment of the organizations overall goals in an efficient manner while putting together credible 4external financial statements that will enable it to secure the necessary capita
36、l to finance corporate growth. Many of these external and internal reporting issues are covered in the balance of the chapters in this book. 12. Those opposed to outsourcing see it as a threat to domestic jobs and a form of exploitation by companies engaged in the practice. Some even see it as a mor
37、al issue. However, they miss the point of international trade. While outsourcing may reduce jobs in one sector, they reflect differences in comparative advantage, which ultimately makes possible greater employment in other sectors and or lower consumer prices which increases real wealth. One need on
38、ly look at higher education in America. Whereas stenographers in the U.S. may be losing jobs to stenographers in India, more and more Indian families are sending their children to the U.S. for their higher education, increasing the demand for support services in the higher education sector. A look a
39、t Exhibit 1.2 shows that over time, countries with greater exports than imports eventually become net importers and vice versa. The importance of international accounting will not diminish. Countries have been trading with each other since antiquity and will continue to do. Even if the volume of tra
40、de were to diminish, an unlikely event, the network of trading partners continues to expand globally and with it accounting issues associated with international trade. Exercises1. For steps one and two in which the idea for the Proliant ML150 is spawned in Singapore and approved in Texas, difference
41、s in legal practices regarding rights and compensation schemes for intellectual property development may vary between the U.S. and Singapore as the latters legal system has been influenced by the U.K. system. International tax issues also surface in terms of royalty payment arrangements and their ta
42、x consequences in both Singapore and the U.S. For step 34, language communications between Singapore and Taiwan could pose some issues of interpretation. Production in Taiwan raises internal reporting issues such as should exchange rate fluctuations between the Taiwanese dollar and the U.S. dollar b
43、e incorporated into the cost of production or accounted for separately as a non-operating foreign exchange gain or loss. (I guess this is step 4) In evaluating the creditworthiness of the Taiwanese manufacturer, should the financial statements of the Taiwanese manufacturer be translated to U.S. GAAP
44、 or not. If a ratio analysis is performed, should Taiwanese liquidity and solvency ratios be interpreted based on U.S. financial norms or Taiwanese norms? For step 5, should clients in Southeast Asian countries be charged identical prices or should prices be flexed for differences in exchange rates,
45、 transportation arrangements and “facilitating” payments. What legal issues are raised in the case of bribes expected on the part of commercial buyers and how would these payments be treated under the U.S. Foreign Corrupt Practices Act? 2. A suggested index might look like the following. The instruc
46、tor should focus on the students rationale for his or her rating as some students may have more knowledge of specific country developments than others and students will naturally exhibit different degrees of risk-aversion.5Industrialized CountriesUnited States 1Canada 1Japan 1United Kingdom 1France
47、1Germany 1Italy 1Australia 2New Zealand 2East AsiaHong Kong 1Indonesia 3South Korea 2Malaysia 2Phillipines 1Singapore 1Taiwan 3Thailand 2Latin AmericaArgentina 2Brazil 2Chile 2Colombia 2Mexico 1Peru 1Venezuela 2Middle East and AfricaEgypt 3Israel 2Morocco 2South Africa 1Turkey 2South AsiaBangladesh
48、2India 2Nepal 3Pakistan 3Sri Lanka 33. The compounded annual growth rate for merchandise exports from 1985 to 2005 was approximately 8.7%. The growth rate for merchandise imports was also 8.7% . The comparable growth rates for exports of services was 9.6% over the same 20 year period. It was 9.2% fo
49、r imports. The outlook for accounting services to travel internationally are very good. Students interested in accounting careers should take note. 64. The purpose of this exercise to get students to check out the wealth of stock related information available on the web. They will probably choose the five whose countries are most familiar to them. Their exchanges will probably be located in highly industrialized economies and which afford access to relatively deep pools of capital. As one example, Luxembourg has long been
