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 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

3
Accounting Topics

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

4
Topics-Environment Matrix
5
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
  initiative on standards for small and medium
  enterprises
• Accountability
• Compliance Enforcement
• Varies widely around the world

6
External Accounting-Environment

• Standard Setting Process
• U.S. -- FASB Private- http//www.fasb.org/
• China, Korea Japan varying levels of govt.
  control
• http//en.casc.gov.cn/internet/internet/en/newsre
  view/2006nzhrhkjzhzzhdjghyhdbg.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/

7
External Accounting-Topics

• External Reporting Differences
• U.S., U.K. -- Tax ? Financial
• Japan, Germany -- Tax Financial
• Differences in Debt and Equity Classifications
• Korea vs. U.S. (short vs. long term)
• Differences in goodwill treatment
• U.S. vs. Japan
• Differences in asset revaluation
• US. vs. Brazil or Mexico (or IFRS)

8
Internal Accounting

• Decision Rights Assignment
• Negotiating Joint Ventures China and India
• Planning and Control
• Complications of Global Operations-foreign
  exchange issues
• 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

9
Internal Accounting-Environment

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

10
Internal Accounting-Environment

• Economic/Political Continued
• Risk Management- e.g. threat of nationalization
• Financial -- http//www.eiuresources.com/ras/help_
  about.asp
• 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/

11
Internal Accounting-Topics

• 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)

12
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)

13
Summary

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

14
Where to get more information

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

15
Where to get more information

• 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

• Case Books
• International Accounting A Case Approach
  edited by Schweikart, Gray and Roberts,
  McGraw-Hill
• Cases - AICPA (http//ceae.aicpa.org/Resources/Cas
  eStudies/)
• suehaka_at_msu.edu