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26 Cards in this Set
- Front
- Back
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What Is Accounting?
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Accounting is the language of business – it is the way firms communicate their financial positions
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Accounting is more complex for international firms because
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of differences in accounting standards
differences make it difficult for investors, creditors, and governments to evaluate firms |
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The International Accounting Standards Board (IASB) has made some attempts to
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establish common accounting and auditing standards across countries
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Five main variables influence the development of a country’s accounting system
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relationship between business and the providers of capital
Political and economic ties with other countries The level of inflation The level of a country’s economic development The prevailing culture in a country |
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The three main external sources of capital for firms are
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individual investors
banks government |
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How Do Political And Economic Ties Influence Accounting?
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Similarities in accounting systems across countries can reflect political or economic ties
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How Does Inflation Influence Accounting?
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inflation affects asset valuation
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How Does Culture Influence Accounting?
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Uncertainty avoidance - the extent to which cultures socialize their members to accept ambiguous situations and tolerate uncertainty
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Accounting standards
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rules for preparing financial statements
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Auditing standards
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specify the rules for performing an audit
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It is difficult to compare financial reports from country to country because of national differences in ...
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accounting and auditing standards
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International Accounting Standards Board
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(IASB) is a major proponent of standardization of accounting standards
common accounting standards will facilitate the development of global capital markets most IASB standards are consistent with standards already in place in the United States |
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About ____nations have adopted IASB standards or permitted their use in reporting financial results
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100
the EU has mandated harmonization of accounting principles for members |
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By 2010, there could be only two major accounting bodies with substantial influence on global reporting –
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FASB in the United States and IASB elsewhere
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What Is A Consolidated Financial Statement?
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combines the separate financial statements of two or more companies to yield a single set of financial statements
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Transactions among members of a corporate family are...
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not included in consolidated financial statementsthey are recorded in separate statements
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How Do MNCs Handle Currency Translation?
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Foreign subsidiaries usually keep accounting records and prepare financial statements in the local currency
To prepare consolidated financial statements, all local financial statements must be converted to the home currency |
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There are two methods to determine what exchange rate should be used when translating financial statement currencies
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The current rate method
The temporal method |
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What Is The Current Rate Method?
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the exchange rate at the balance sheet date is used to translate the financial statements of a foreign subsidiary into the home currency of the multinational firm
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What is The Temporal Method?
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translates assets valued in a foreign currency into the home currency using the exchange rate that exists when assets are purchased
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What System Do U.S. Firms Use?
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U.S. multinationals are required to follow FASB 52
balance sheets should be translated into the home currency using the exchange rate in effect at the end of the firm’s financial year income statements are translated using the average exchange rate for the firm’s financial year |
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How Does Accounting Influence Control Systems?
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The control process in most firms is usually conducted annually and involves three steps
Subunit goals are jointly determined by the head office and subunit management The head office monitors subunit performance throughout the year The head office intervenes if the subsidiary fails to achieve its goal, and takes corrective actions if necessary |
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How Do Exchange Rates Influence Control?
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Budgets and performance data are usually expressed in the corporate currency-normally the home currency
facilitates comparisons between subsidiaries but, can create distortions in financial statements |
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Donald Lessard and Peter Lorange - firms can deal with the problems of exchange rates and control in three ways
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The initial rate - the spot exchange rate when the budget is adopted
The projected rate - the spot exchange rate forecast for the end of the budget picture The ending rate - the spot exchange rate when the budget and performance are being compared |
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How Does Transfer Pricing Influence Control?
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The price at which goods and services are transferred within the firm is the transfer price
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Transfer prices can be manipulated to
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minimize tax liability
minimize import duties avoid government restrictions on capital flows |
