International Accounting Sue Haka Ernst & Young Professor Department of Accounting and Information Systems Michigan State University

Environmental Influences Examples u Political/legal F statutory audits-accounting reports/tax issues u Economic F sources of capital u Cultural F budgetary control u Infrastructure F communication infrastructure F education of population

Topics u External Accounting Reports –Standard Setters, Preparers and Users –Underlying Institutional Structures –Required reports u Internal Accounting Reports –Decision Rights Assignment –Planning and Control –Performance Measurement and Evaluation

Topics-Environment Matrix

External Accounting- Institutional Structures u Capital Market Requirements –Market Structure -- mergers in Europewww.iosco.org/ –Other Means of Raising Capital-debt market u Standard Setting Processes –Private vs. Public control –Accountability u Compliance

External Accounting-Environment u Standard Setting Process –U.S. -- FASB - Private- –Japan -- Ministry of Finance –International Accounting Standards Board F / Use of comment letterswww.iasb.org.uk u Users of Statements –legal/cultural driven u Compliance - Culture driven F

External Accounting-Topics u External Reporting Differences –U.S., U.K. -- Tax  Financial –Japan, Germany -- Tax = Financial u Differences in Debt and Equity Classifications --Korea vs. U.S. u Differences in goodwill treatment –U.S. vs. Japan u Differences in asset revaluation – US. Vs. Brazil

Internal Accounting u Decision Rights Assignment ( u Planning and Control F Complications of Global Operations F Co-location of Knowledge and Rights u Performance Evaluation F Multiple Currency Issues- operating risk managementoperating risk management F Cross-border Decision Rights Issues

Internal Accounting-Environment u Economic/Political-Planning and Control –International Taxes and Treaties F NAFTA ( F Foreign Trade Zones ( –Transfer Pricing F Decision Rights issues( F Political/economic ( –

Internal Accounting-Environment u Economic/Political Continued –Risk Management F Financial F Operational -- m m –Corruption F Foreign Corrupt Practices Act -- F Corruption index-- /

Internal Accounting-Topics u Performance Evaluation (Inter.J. of Acct., 34, #1, pp.49-70) –Japan ROA < U.S. ROA F low margins, F focus on market share, emphasize target cost –Japan ROE > U.S. ROE F high debt levels F keiretsu organization keiretsu organization

Internal Accounting u Performance Measurement & Evaluation –Multiple Currency Issues ( U.K. to U.S.) –Transfer Pricing Issues (U.K. to Germany) u Decision Rights Assignment –Knowledge Distribution (Mergers/Acquisition) –Control System (Conflict with Culture)

Summary u Key to Understanding International Accounting –Political, Economic, Cultural and Infrastructure Influences on: F External Reporting –Taxes/Capital Markets/Gov. Regulation/Standard Setting/Reporting Requirements F Internal Reporting –Planning and Decision Making –Control Differences –Performance Evaluation Differences

Where to get more information u Journals - International –International Journal of Accounting –Journal of International Accounting Research –Advances in International Accounting –Journal of International Business Studies u Journals - AAA –Accounting Horizons –Issues in Accounting Education u Other –Management Accounting –Journal of Accountancy –Economist

Where to get more information u Books – International Accounting and Multinational Enterprises, 5th Edition by Lee H. Radebaugh, Sidney J. Gray –Financial and Managerial Accounting: The Basis for Business Decisions,Williams, Haka, Bettner 13th edition, Irwin/McGraw-Hill, 2003 –Upper level - International Accounting: A User Perspective, 2ed. by S. Saudagaran, South-Western, 2004

Where to get more information u Case Books – International Accounting: A Case Approach edited by Schweikart, Gray and Roberts, McGraw-Hill u Cases - AICPA (