Bringing International Accounting Issues into the Classroom

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 Forces Impacting Globalization
3
Environmental InfluencesExamples

• Political/legal
• statutory audits-accounting reports/taxes
• Economic
• sources of capital/cost of capital
• Cultural
• budgetary control/performance evaluation
• Infrastructure
• communication and education infrastructure

4
Accounting Topics

• External Accounting
• Standard Setters, Preparers and Users
• Underlying Institutional Structures
• Required reports
• Internal Accounting
• Decision Rights Assignment
• Planning and Control (internal controls)
• Performance Measurement and Evaluation

5
Topics-Environment Matrix
6
External political environment-financial
accounting
7
External Accounting-Institutional Structures

• Capital Market Requirements
• Market Structure -- www.iosco.org/ mergers in
  Europe
• Other Means of Raising Capital-debt market
• Standard Setting Processes
• Private vs. Public control- e.g. recent IASB
  (www.iasb.org ) initiative on standards for small
  and medium enterprises
• Accountability
• Compliance Enforcement
• Varies widely around the world

8
External Accounting-Political/culture

• Standard Setting Process
• U.S. -- FASB Private- http//www.fasb.org/
• China, Korea Japan varying levels of govt.
  control
• http//http//en.casc.gov.cn/internet/internet/en
  /ZZWJJ.html International Accounting Standards
  Board
• /http//www.iasb.org/Home.htm Use of comment
  letters for current projects
• Users of Statements
• legal/cultural driven
• Compliance - Culture driven
• http//www.geert-hofstede.com/

9
External Accounting-Topics

• External Reporting Differences-IFRS adoption vs.
  convergence
• Canada, Australia have adopted, but
• China has converged, but allows pooling and
  purchase methods
• Differences in Debt and Equity Classifications
• Korea vs. U.S. (short vs. long term)
• Differences in asset revaluation
• US. vs. Brazil or Mexico (or IFRS)

10
Motivating International Management Accounting
Issues
11
Internal Accounting - examples

• Decision Rights Assignment
• Negotiating Joint Ventures Mexico, China, or
  India
• Planning and Control
• Complications of Global Operations-foreign
  exchange issues
• Cash flows, borrowing, tax minimization
• Co-location of Knowledge and RightsJoint
  ventures vs. wholly owned subsidiaries
• Performance Evaluation
• Multiple Currency Issues- operating risk
  management
• Cross-border Decision Rights Issues-FCPA
• Transfer Pricing in International Settings

12
Internal Accounting-Environment

• Economic/Political-Planning and Control
• International Taxes and Treaties
• NAFTA/ASEAN (www.nafta-sec-alena.org/en/view.aspx/
  or www.aseansec.org/74.htm)
• Foreign Trade Zones (www.naftz.org)
• Transfer Pricing
• Decision Rights Issues- APA agreements
  (www.irs.gov/businesses/international/)
• Political/economic- treaties (www.state.gov/)
• www.cia.gov/library/publications/the-world-factboo
  k/

13
Internal Accounting-Environment

• Economic/Political Continued
• Risk Management- e.g. threat of nationalization
• Financial -- www.eiuresources.com/ras/help_about.a
  sp
• Operational http//www.irmba.com/
• Corruption
• Foreign Corrupt Practices Act ethics issues
  http//www.usdoj.gov/criminal/fraud/fcpa/
• Corruption index--http//www.transparency.org/

14
Internal Accounting-Cultural

• Performance Evaluation (Inter.J. of Acct., 34,
  1, pp.49-70)
• Japan ROA lt U.S. ROA
• low margins,
• focus on market share, emphasize target cost
• Japan ROE gt U.S. ROE
• high debt levels
• keiretsu organization or chaebol (korea)

15
Internal Accounting- A pharmaceutical case example

• Performance Measurement Evaluation
• Multiple Currency Issues ( U.K. to U.S.)
• Transfer Pricing Issues (U.K. to Denmark)
• Decision Rights Assignment
• Knowledge Distribution (Mergers/Acquisition)
• Control System (Conflict with Culture or
  operating environment)

16
Summary

• Key to Understanding International Accounting
• Political, Economic, Cultural and Infrastructure
  Influences on
• External Reporting
• Taxes/Capital Markets/Gov. Regulation/Standard
  Setting/Reporting Requirements/Auditing/Users
• Internal Reporting
• Planning budgeting, market entry, borrowing
• Control global value chain, treasury function
• Performance Evaluationcurrency choice,
  expectations

17
Where to get more information

• Journals - International
• The International Journal of Accounting
• Advances in International Accounting
• Journal of International Business Studies
• Journals - AAA
• Journal of International Accounting Research
• Accounting Horizons
• Issues in Accounting Education
• Other
• Management Accounting
• Journal of Accountancy
• Economist

18
Where to get more information

• Books
• Introductory - International Accounting and
  Multinational Enterprises, 6th Edition by L.
  Radebaugh, S. J. Gray, E. Black
• Integrated entry level - Financial and Managerial
  Accounting The Basis for Business Decisions
  15th, or Financial Accounting 14th,Williams,
  Haka, Bettner, Carcello, McGraw-Hill/Irwin,
  2010
• Upper level financial - International Accounting,
  2nd edition Doupnik Perera, McGraw-Hill Irwin,
  2009 OR International Accounting, 6th edition, F.
  Choi and G. Meeks, Pearson, 2008

19
Where to get more information- AAACommons
20
The Teaching of IFRS Cyber-Guest Lecturers As a
Pedagogical Resource
Mark A. Holtzblatt, Ph.D., CPA Heller College of
Business Roosevelt University May 9, 2009 Ohio
Region, American Accounting Association, May 7-9,
2009
20
21
IFRS Cyber-Guest Lecturers
22
http//www.iasplus.com/index.htmsponsored by
Deloitte

• Table about use (adoption or convergence or) of
  IFRS by Jurisdiction http//www.iasplus.com/count
  ry/useias.htm
• Firms with web based IFRS material
• KPMG-http//www.kpmgifrsinstitute.com/
• Ernst Young-a private password protected
  website at www.ey.com/us/ifrs.  To request an
  account, please contact the EY ARC Program
  Director, Catherine Banks, at catherine.banks_at_ey.c
  om.
• PWC-www.pwc.com/extweb/aboutus.nsf/docid/70CCD8B6
  01397905852574910075A03D (IFRS Ready)
• Deloitte--www.deloitte.com/dtt/article/0,1002,cid
  253D206187,00.html
• (Deloittes IFRS University Consortium)

23
Where to get more information

• Case Books
• International Accounting A Case Approach
  edited by Schweikart, Gray and Roberts,
  McGraw-Hill
• Cases-AAA
• Issues in Accounting Education (November 2007,
  vol. 22, no. 4)
• Cases - AICPA (http//ceae.aicpa.org/Resources/)
• suehaka_at_msu.edu