1. Dosen Pengampu: Dra. Siti Nurlalela,SE,M.Si.,Ak., CA
INTERNATIONAL ACCOUNTING
AND
INTERNATIONAL BUSINESS

2. International Accounting and International Business
Chapter 1
International Accounting
and
International Business
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

3. National Differences in Accounting Standards
Many different systems throughout the world
Reconciliation is still a challenge
Accounting systems
Evolve
Reflect the environments they serve
Development of accounting influenced by
Educational systems
Legal systems
Political systems
Sociocultural characteristics
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

4. Reasons for International Involvement
Expand sales
Excess capacity
Greater profit potential
Gain access to
Raw materials
Other factors of production (cheap labor)
Knowledge
New developments in technology
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

5. Forms of International Involvement
Exports and imports of goods and services
Strategic alliances
Licensing agreement (intangible property)
Franchise agreement (Holiday Inn, McDonald’s)
Investment abroad
Direct investment
Joint venture
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

6. Multinational Enterprises
Possess a worldwide view of
Production
Sourcing of raw materials and components
Final markets
Elite MNE
10% of a company’s overall assets, earnings, and employees are abroad
Significant geographical spread
International experience of executives
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

7. Multinational Enterprises
Firm Size and Saturation of Domestic Market
Probability of International Transactions
Small companies
Export and import
Manufacture products abroad or outsource production
Licensing agreements.
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

8. Large Multinational Enterprises
Top 10 Companies by Market Value in 2004
Source: Business Week Global 1000
Rank
Name
Country
Market Value
2004
2003
($ Billions)
 1  1
General Electric
U.S.  
328.11
 2  2
Microsoft
284.43
 3  3
Exxon Mobil
283.61
 4  4
Pfizer
269.66
 5  5
Wal-Mart Stores
241.19
 6  6
Citigroup
239.43 7 9
BP  
Britain
193.05 8 10
American International Group
191.18 13
Intel
184.66
Royal Dutch Petroleum
Netherlands
174.83
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

9. Large Multinational Enterprises
Top 10 Companies by Sales in 2003
Source: Fortune Global 500
Rank
Name
Country
Sales
2003
2002
($ Billions)
 1  1
Wal-Mart Stores
U.S.
263.00
 2  5 BP
Britain
232.57
 3  3
Exxon Mobil
222.88
 4  4
Royal/Dutch Shell Group
Britain/Neth.
201.73
 5  2
General Motors
195.32
 6  6
Ford Motor
164.51 7
DaimlerChrysler
Germany
156.60 8
Toyota Motor
Japan
153.11 9
General Electric
134.18 10 14
Total
France
118.44
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

10. Deciding to Become Global
Assessment of
External environment
Internal capabilities of the firm
Environmental constraints
Educational, sociological, political and legal, and economic
Country-specific advantages (cheap materials, labor)
Firm-specific advantages – intangible assets
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

11. Environmental Influences on Accounting
Enterprise ownership
Broad ownership
State ownership
Family ownership
Business activities influence the nature of the accounting system
Sources of finance and pressure for accountability
External shareholders
Banks
Family sources
Taxation
Accounting systems influenced by state objectives (France)
Accounting systems separate from state objectives (U.S.)
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

12. Environmental Influences on Accounting
Developed accounting profession
Judgmentally based accounting systems
Depends upon accounting education and research
Political system – accounting system reflects political philosophy
Social climate – level of employee awareness
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

13. Environmental Influences on Accounting
Economic growth and development
Inflation leads to alternative approaches
Legal system and regulation of accounting
Civil codes (France and Germany)
Common law (U.S. and U.K.)
Culture (societal or national values)
International factors
Colonial influence
Regional trade blocs (European Union)
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

14. Accounting Standards and Traditions
International Accounting Standards Board
Works for convergence
Former socialist economies are adjusting
Russia and Eastern Europe
British and continental European traditions are now being coordinated
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

15. Major Development Factors
Corporations recognized as legal entities with limited liability
Protects shareholders and creditors
Professional management
A point of controversy
Emergence of securities markets
Fundamental element of the transition to a market economy
Shows need to attract foreign investment
Broadened disclosure
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

16. Major Development Factors
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

17. Corporate Disclosure
Disclosure to finance providers can be seen as a spectrum
Least disclosure – shareholders and investors
Varied disclosure – depends on the purpose of the disclosure and the power of the finance provider
Accounting disclosure
Used as a means of national economic planning and control (Examples – France and Sweden)
Accounting professionals
Played a key role in developing accounting systems (Examples – U.S. and U.K.)
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

18. Trends in Securities Markets
Strong move to attract foreign companies to list on exchanges
2004 – trading volume of non-U.S. firms listed on NYSE was 10.5% of the Exchange’s total trading volume
Consolidation of exchanges
Exchanges in developing countries are growing
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

19. A Wider Audience Increased disclosure to other groups
Employees, trade unions, consumers, government agencies, and the general public
Expectations of nonfinance providers
Not clearly defined
Techniques to measure them do not exist
Less developed countries have less accountability and disclosure
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

20. Accountability and Multinational Enterprises
Demand for greater disclosure by the host country can be a bargaining tool
MNE view
Just a part of global operations
Some MNEs have acted in ways detrimental to a host country.
Host country’s view
Business activities of an MNE are of primary concern
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

21. Accountability and Multinational Enterprises
Domestic Corporations
Primary operations in one country
Cross-frontier relationships with unrelated parties
Multinational Enterprises
Operate in many countries with different laws and currencies
Significant volume of transactions between units located in different countries
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

22. Accounting Aspects of International Business
Exposure to International Accounting
Importing or exporting
Costs of outside expertise
Increase with increased trade
Should develop in-house experts
Separate organization to handle international trade
Establishment of a foreign unit
Awareness of international market conditions
Lower cost of capital
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

23. The Field of International Accounting
Descriptive/comparative accounting
Important issues
Forces and conditions that create international differences
Trend toward convergence
International transactions/multinational enterprises
Financial reporting problems
Translation of foreign currency financial statements,
Information systems
Budgets and performance evaluation
Audits
Taxes
International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black