International Accountingand Multinational Enterprises 5/e

By Lee H. Radebaugh and Sidney J. Gray

PowerPoint Presentationby Kent W. Meyer, PhD

Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her use only and not for distribution or resale. The publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

International Accounting and International Business

Chapter One

World Capital MarketsNorth America New York, San Francisco, Chicago,

Toronto

Asia Hong Kong, Tokyo

Australia Sydney

Europe London, Zurich, Frankfurt, Brussels,

Milan, Paris, Amsterdam, Stockholm, Madrid

South America Buenos Aires, Santiago, Mexico City

Africa Johannesburg

1

Historical Development of Accounting

Ancient World Mesopotamia, Egypt, India, China, Rome

Middle Ages Genoa, Florence, Venice

New World Maya, Inca, Aztec

2

Luca Pacioli (1445-1514)

Published Summa de Arithmetica in 1494

First published text on double-entry accounting

Introduced the “Memorandum Book,” “Journal,” and “Ledger”

3

National Differences in Accounting Systems

Historical developments did not lead to uniformity in international accounting practice

Despite similarities, no two systems are exactly alike

Reasons for Differences: Economic, Educational, Legal, Political, and Social/ Cultural Factors 4

Implications of National Differences in Accounting

Acts as a barrier to the free-flow of international business information

5

Evolution and Significance of International Business

Greek Period First international sales of mass-produced

products through Greece in 5 B.C.

Roman Period First open market with political stability,

better transportation, and few tariffs or restrictions

Middle Ages Banking, Insurance, and trade fairs in

Byzantium6

The Preindustrial Period

Europe: Rise of Mercantilism Right to trade regulated by the state, Colonialism driven by state’s direct

investment in colonies and near-monopolistic control of trade, and

Dominated by Western European Nations.

7

The Industrialization Period: 1780-1945

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.

8

The Post-World War II Period

Great Depression and WWII stunted international trade

Following the end of the war, demand for products and services, trade and investment sharply increased.

9

The Multinational Era

Involvement in International trade is essential for developing nations, and

For the continued economic growth of developed nations.

10

What is International Business? All business transactions involving

two or more countries.

11

Reasons for International Involvement Expand sales, Gain access to raw materials and

other factors of production, and Obtain information, technical

expertise (i.e. patents, licenses, “know-how”).

12

Forms of International Involvement Exporting and Importing of goods

and services, Strategic alliances including

licensing agreements, franchises, and joint ventures, (McDonalds, Holiday Inn, Pizza Hut), and

Direct investment.

13

Global Enterprises

Multinational enterprises are those which:

Have a world-wide view of production, materials, components and final markets;

Have over 10% of sales, assets, earnings, and employees abroad.

14

Large MNE’s

Indicators: Sales and Market Value, Profits and Return on Shareholders

Equity, and Worldwide stock market

valuations.

15

The Decision to Become Global: External Environment v. Internal Capabilities

Environmental Constraints-Domestic:

Educational, Sociological (Socioculteral), Political/ Legal, and Economic.

16

Environmental Constraints-International:

May differ from domestic constraints and mostly concerned with nationalism

Firm Specific Advantages

Intangibles that provide a unique firm advantage,

Examples include market-niche capabilities and personnel advantages.

17

Accounting Aspects of International Business

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 credit-worthiness and capacity to perform.

Initial Issues may include: statements written in foreign language, amounts in foreign currencies, and information produced using different standards.

18

Establishing an Internal International Accounting Capability

Increased international involvement requires: Internal accounting resources, Creation of separate organization to handle international

trade, and Creation of a foreign operation of some kind.

Degrees of Involvement: International accounting knowledge may be necessary

even with no direct international business involvement (I.e. company needs to borrow money or sell stock internationally).

19

The Field of International Accounting

Increased need for accountants who understand the international accounting environment,

International certification possibilities, and Fascinating career opportunities.

20