GOING INTERNATIONAL AND INTERNATIONAL ACCOUNTING STANDARDS

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CHAPTER 15

• GOING INTERNATIONAL AND INTERNATIONAL
  ACCOUNTING STANDARDS

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FOCUS OF CHAPTER 15

• Globalization of Business
• Ways to Export
• Ways to Manufacture Overseas
• Reasons for Manufacturing Overseas
• International Accounting Standards
• The Diversity of Worldwide GAAP
• Efforts to Harmonize Worldwide GAAP

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Going International Ways to Export (Choices
Galore)

• Independent distributor
• Foreign commission agent.
• Foreign marketing branch.
• Foreign marketing subsidiary.
• Export trade vehicle (FSC or IC-DISC).

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Ways to Export The Concept of Physical Presence

• Defined Having an operation overseas.
  Examples SALES OFFICE, WAREHOUSE, FACTORY,
  EMPLOYING FOREIGN CITIZENS AS SALES PERSONNEL.
• To make a determination
• Review foreign tax laws.
• Review tax treaty.
• Significance Subject to taxation in the foreign
  country.

tax laws
File a foreign income tax return.
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Foreign Earnings DOUBLE Corporate Taxation???

• Income of foreign units are taxed overseas and in
  the U.S--BUT DONT PANIC.
• U.S. tax laws allow a foreign tax credit.

Tax Calculation for

Brazil
U.S. Pretax income of foreign unit... 100,000
100,000 Applicable tax rate.....................
.. 20 35 Income taxes
owed.................. 20,000
35,000 Less--Allowable tax credits........
(20,000) U.S. taxes
owed........................
15,000
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Foreign Earnings When Are U.S. Taxes Actually
Paid?

• 3 possibilities exist
• Foreign branches
• When INCOME is earned.
• Foreign subsidiaries
• When DIVIDENDS are paid.
• When INCOME is earned (applies to Subpart F
  income)

IRS
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Reasons for Manufacturing Overseas The List is
Long

• The lure of cheap labor.
• Tax holidays.
• To establish a visible presence.
• Lax environmental laws.

Taxes
Dumping allowed
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Reasons for Manufacturing Overseas The List is
Long

• High literacy rates safe environments.
• A Strong work ethic.
• Loan guarantees, grants, subsidies.
• The fluctuating exchange rate problem.

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Risks of Investing OverseasAll That Glitters Is
Not Gold

• Expropriation--the seizure of assets by the
  foreign government.
• Devaluations/weakening of the foreign currency.
• Currency transfer restrictions Wouldnt it be
  nice to be able to bring the profits home?
• Wars and civil disorders.
• Government mandated changes in the investment
  climate.

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The Diversity of Worldwide GAAP An Almost
Unbelievable Cornucopia

• Everything from soup to nuts.
• The United States is part of the problem--many
  U.S. standards are either rarely used or not used
  at all overseas
• LIFO inventory method.
• Deferred income taxes.
• Goodwill capitalization.

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Internationalize Accounting Standards The Grand
Dream

• World GAAP--so many hurdles.
• All are for it--BUT few countries are willing to
  change their own GAAP.

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International Accounting Standards World
GAAPs Advantages

• Having a Uniform World GAAP
• Would greatly streamline the quarterly and
  year-end consolidation process for the
  accountants of publicly-owned companies.

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Efforts To Internationalize Accounting Standards
Progress Has Been Slow

• The International Accounting Standards Board
  Committee prior to 2001 (created in
  1973--London based)
• IASB Standards to date Minimal impact--still
  fairly easy to comply with virtually all IASB
  Standards.

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Efforts To Internationalize Accounting Standards
Capital Market Forces

• The Capital Markets--A much-needed injection
• Relatively recent trend of raising capital in
  world markets has given greatly added emphasis to
  the desirability of having a world GAAP. The BIG
  advantage
• Would greatly streamline the process by
  eliminating the need to comply with multiple
  GAAPs in offering securities.

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Efforts To Internationalize Accounting Standards
The FASB Hops Aboard

• 2/97 FASB issues FAS 128Earnings Per Share
  conformingU.S. GAAP with world GAAP.
• 6/01 FASB abolished the pooling of interests
  method conforming U.S. GAAPwith world GAAP.

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End of Chapter 15

• Time to Clear Things Up--Any Questions?