1. Bringing International Accounting Issues into the Classroom Sue Haka Ernst & Young Professor Department of Accounting and Information Systems Broad School of Business Michigan State University

2. Environmental Influences Examples u Political/legal F statutory audits-accounting reports/taxes u Economic F sources of capital/cost of capital u Cultural F budgetary control/performance evaluation u Infrastructure F communication and education infrastructure

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

4. Topics-Environment Matrix

5. External Accounting- Institutional Structures u Capital Market Requirements –Market Structure -- www.iosco.org/ mergers in Europewww.iosco.org/ –Other Means of Raising Capital-debt market u Standard Setting Processes –Private vs. Public control- e.g. recent IASB initiative on standards for small and medium enterprises –Accountability u Compliance & Enforcement –Varies widely around the world

6. External Accounting-Environment u Standard Setting Process –U.S. -- FASB – ‘Private’- http://www.fasb.org/http://www.fasb.org/ –China, Korea & Japan – varying levels of govt. control http://en.casc.gov.cn/internet/internet/en/newsreview/20 06nzhrhkjzhzzhdjghyhdbg.htmlen.casc.gov.cn/internet/internet/en/newsreview/20 06nzhrhkjzhzzhdjghyhdbg.html –International Accounting Standards Board F /http://www.iasb.org/Home.htm Use of comment letters for current projectswww.iasb.org/Home.htm u Users of Statements –legal/cultural driven u Compliance - Culture driven –http://www.geert-hofstede.com/www.geert-hofstede.com

7. 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. (short vs. long term) u Differences in goodwill treatment –U.S. vs. Japan u Differences in asset revaluation – US. vs. Brazil or Mexico (or IFRS)

8. Internal Accounting u Decision Rights Assignment F Negotiating Joint Ventures – China and India u Planning and Control F Complications of Global Operations-foreign exchange issues F Co-location of Knowledge and Rights=Joint ventures vs. wholly owned subsidiaries u Performance Evaluation F Multiple Currency Issues- operating risk managementoperating risk management F Cross-border Decision Rights Issues-FCPA F Transfer Pricing in International Settings

9. Internal Accounting-Environment u Economic/Political-Planning and Control –International Taxes and Treaties F NAFTA (http://www.dfait-maeci.gc.ca/nafta- alena/menu-en.asp/)www.dfait-maeci.gc.ca/nafta- alena/menu-en.asp F Foreign Trade Zones (http://ia.ita.doc.gov/ftzpage/)ia.ita.doc.gov/ftzpage –Transfer Pricing F Decision Rights Issues- APA agreements: (www.irs.gov/businesses/international/)www.irs.gov/businesses/international F Political/economic- treaties (www.state.gov/)www.state.gov/ –https://www.cia.gov/library/publications/the-world- factbookhttps://www.cia.gov/library/publications/the-world- factbook

10. Internal Accounting-Environment u Economic/Political Continued –Risk Management- e.g. threat of nationalization F Financial -- http://www.eiuresources.com/ras/help_about.asp http://www.eiuresources.com/ras/help_about.asp F Operational – http://www.irmba.com/ http://www.irmba.com/ –Corruption F Foreign Corrupt Practices Act –ethics issues http://www.usdoj.gov/criminal/fraud/fcpa/www.usdoj.gov/criminal/fraud/fcpa/ F Corruption index-- http://www.transparency.org / http://www.transparency.org

11. 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 or chaebol (korea) keiretsu organizationchaebol

12. Internal Accounting- A pharmaceutical case example u Performance Measurement & Evaluation –Multiple Currency Issues ( U.K. to U.S.) –Transfer Pricing Issues (U.K. to Denmark) u Decision Rights Assignment –Knowledge Distribution (Mergers/Acquisition) –Control System (Conflict with Culture or operating environment)

13. 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/Users F Internal Reporting –Planning and Decision Making –Control –Performance Evaluation

14. 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

15. Where to get more information u Books –Introductory - International Accounting and Multinational Enterprises, 5th Edition by Lee H. Radebaugh, Sidney J. Gray –Integrated entry level - Financial and Managerial Accounting: The Basis for Business Decisions,Williams, Haka, Bettner, & Carcello 14th edition, McGraw-Hill/Irwin, 2008 –Upper level financial - International Accounting, Doupnik & Perera, McGraw-Hill Irwin, 2007

16. Where to get more information u Case Books – International Accounting: A Case Approach edited by Schweikart, Gray and Roberts, McGraw-Hill u Cases - AICPA (http://ceae.aicpa.org/Resources/Case+Studies/)http://ceae.aicpa.org/Resources/Case+Studies/) u suehaka@msu.edu suehaka@msu.edu