1. Accounting 6570 International Accounting and Business

2. What is International Accounting? First level – standards, guidelines, and rules of accounting, auditing, and taxation issued by supranational organizations Second level – Company level where international accounting is viewed as the accounting practices and guidelines used to do international business. Third level – Broadest level – study of the standards, guidelines, etc. each country uses to practice recording and interpreting business transactions.

3. International Development of the Accounting Discipline Pre-Italian Influence Italian influence Luca Pacioli (1494 book) Subsequent developments –1673 France: Balance sheet every two years –Industrial revolution beginning in late 1800s Fixed assets Corporate form of business Taxation

4. Additional Developments Mergers and acquisitions International commerce Technological changes Internal and external reporting and control systems Increased foreign trade and investment brought about regional economic groups

5. National Differences in Accounting Systems Accounting systems influenced by environmental factors –Economic factors –Educational systems –Legal systems –Political systems –Socio-cultural systems Implications - Language and currency differences

6. International Business All business transactions that involve two or more countries Reasons –Expand sales due to excess capacity or small domestic markets –Gain access to production factors including Raw materials Cheaper labor Knowledge –Protect domestic markets –Protect foreign markets

7. Forms of International Involvement Exports Imports Strategic Alliances –Licensing agreements –Franchising –Management contracts –Joint Ventures Foreign Direct Investment (FDI) Portfolio Investment

8. Foreign Direct Investment (FDI) and International Trade Acquisitions - Either purchase shares of stock or buy assets of companies in foreign countries Greenfield investment - construct a brand new operation in a foreign country Major host and investor nations are Luxembourg, France, the U.S., Belgium, and Spain Emerging markets- China, India, Russia U.S., Germany, Japan, France, U.K., China - largest importers and exporters Tennessee Trade

9. Characteristics of National Economies Gross National Product (GNP) - value of new goods and services produced by domestic factors of production. (can be produced outside the country by its citizens) Gross Domestic Product (GDP) - value of new goods and services produced within a country (produced by its citizens and non- residents)

10. Characteristics of National Economies GNP (GDP) per capita - crude measure of the standard of living in a country; ratio of that country’s GNP (GDP) to its population. Index of openness - a measure of the importance of international trade to an economy, calculated as the ratio of exports over total domestic production; higher values indicate more “open” markets

11. Gross Domestic Product per Capita (est. 2009) Liechteinstein (2007) $122,100 Qatar $119,500 Norway$57,400 United States (11 th )$46,000 Canada$38,200 United Kingdom$34,800 Germany$34,100 Japan$32,700

12. GDP (Per Capita) (est. 2009) Russia$15,100 Mexico$13,200 China$ 6,600 Iraq$ 3,800 India$ 3,100 Afghanistan$ 1,000

13. Gross Domestic Product (GDP) (est. 2009) U.S. – $14.140 trillion (307 million population) China - $8.758 trillion (1.3 billion population) Japan - $5.068 trillion (127 million population) India – $3.570 trillion (1.2 billion population) Germany - $2.810 trillion (82 million population) U.K. - $2.128 trillion (61 million population) Russia – $2,110 trillion (140 million population) France - $2.097 trillion (64 million population) Brazil - $2,013 trillion (199 million population)

14. Global Enterprises Multinational Enterprises (MNEs) –Have a worldwide view of production and markets –10% of total sales, net income or assets –Executives often have international experience

15. Foreign Currency Foreign currency markets –Spot rates –Forward rates –Direct/indirect rates How currency affects investment How currency affects exports/imports Devaluation

16. Global Players By market value By total sales By profits

17. Decision to Become Global Environmental Constraints –Educational - literacy, specialized and higher education, attitudes toward education –Socio-cultural - attitudes toward management, work and wealth, class structures, nationalism, attitudes toward foreigners –Economic - fiscal and monetary policy, capital markets, economic stability, openness of markets, balance-of-payments positions, infant industries, unemployment, industrialization objectives –Legal-political - trade restrictions, tariffs, non-tariff barriers (quotas), exchange control restrictions, political stability

18. Organizations to Reduce Trade Barriers World Trade Organization (WTO) –Formerly GATT Regional Cooperations –European Union (EU) 1993 Maastrict Agreement –North American Free Trade Agreement (NAFTA) January 1, 1994 –MERCOSUR (Argentina, Brazil, Paraguay, Uruguay are full members while Bolivia and Chile have associate status)

19. Global Corporate Strategy Polycentric attitude –All operating policies and procedures must be adjusted to the local environment Ethnocentric attitude –Everything the MNE does in the home country can be transferred to the foreign country, in spite of the environmental differences

20. Strategies Multidomestic - independent subsidiaries Global - worldwide view Accounting issues? –Financial statements for foreign countries –Consolidation issues –Foreign currency transactions –Management systems –Taxation –Audits and internal control systems