International Accounting and Multinational Enterprises 5e u u

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International Accounting and Multinational Enterprises 5/e u u By Lee H. Radebaugh and Sidney

International Accounting and Multinational Enterprises 5/e u u By Lee H. Radebaugh and Sidney J. Gray Power. Point Presentation by Kent W. Meyer, Ph. D

Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation

Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her use only and not for distribution or resale. The publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

International Accounting and International Business Chapter One

International Accounting and International Business Chapter One

World Capital Markets North America u New York, San Francisco, Chicago, Toronto Asia u

World Capital Markets North America u New York, San Francisco, Chicago, Toronto Asia u Hong Kong, Tokyo Australia u Sydney Europe u London, Zurich, Frankfurt, Brussels, Milan, Paris, Amsterdam, Stockholm, Madrid South America u Buenos Aires, Santiago, Mexico City Africa u Johannesburg 1

Historical Development of Accounting Ancient World u Mesopotamia, Egypt, India, China, Rome Middle Ages

Historical Development of Accounting Ancient World u Mesopotamia, Egypt, India, China, Rome Middle Ages u Genoa, Florence, Venice New World u Maya, Inca, Aztec 2

Luca Pacioli (1445 -1514) Published Summa de Arithmetica in 1494 u First published text

Luca Pacioli (1445 -1514) Published Summa de Arithmetica in 1494 u First published text on double-entry accounting u Introduced the “Memorandum Book, ” “Journal, ” and “Ledger” 3

National Differences in Accounting Systems u u Historical developments did not lead to uniformity

National Differences in Accounting Systems u u Historical developments did not lead to uniformity in international accounting practice Despite similarities, no two systems are exactly alike Reasons for Differences: u u u Economic, Educational, Legal, Political, and Social/ Cultural Factors 4

Implications of National Differences in Accounting u Acts as a barrier to the free-flow

Implications of National Differences in Accounting u Acts as a barrier to the free-flow of international business information 5

Evolution and Significance of International Business Greek Period u First international sales of mass-produced

Evolution and Significance of International Business Greek Period u First international sales of mass-produced products through Greece in 5 B. C. Roman Period u First open market with political stability, better transportation, and few tariffs or restrictions Middle Ages u Banking, Insurance, and trade fairs in Byzantium 6

The Preindustrial Period Europe: Rise of Mercantilism u u u Right to trade regulated

The Preindustrial Period Europe: Rise of Mercantilism u u u Right to trade regulated by the state, Colonialism driven by state’s direct investment in colonies and nearmonopolistic control of trade, and Dominated by Western European Nations. 7

The Industrialization Period: 1780 -1945 u u u Technological inventions led to unprecedented mass

The Industrialization Period: 1780 -1945 u u u Technological inventions led to unprecedented mass production and standardization, Implementation of large-scale infrastructure between historically separate markets, and Birth of large multinational corporations such as: Singer, Ford, Dunlop, and Lever Brothers. 8

The Post-World War II Period u u Great Depression and WWII stunted international trade

The Post-World War II Period u u Great Depression and WWII stunted international trade Following the end of the war, demand for products and services, trade and investment sharply increased. 9

The Multinational Era u u Involvement in International trade is essential for developing nations,

The Multinational Era u u Involvement in International trade is essential for developing nations, and For the continued economic growth of developed nations. 10

What is International Business? u All business transactions involving two or more countries. 11

What is International Business? u All business transactions involving two or more countries. 11

Reasons for International Involvement u u u Expand sales, Gain access to raw materials

Reasons for International Involvement u u u Expand sales, Gain access to raw materials and other factors of production, and Obtain information, technical expertise (i. e. patents, licenses, “know-how”). 12

Forms of International Involvement u u u Exporting and Importing of goods and services,

Forms of International Involvement u u u Exporting and Importing of goods and services, Strategic alliances including licensing agreements, franchises, and joint ventures, (Mc. Donalds, Holiday Inn, Pizza Hut), and Direct investment. 13

Global Enterprises Multinational enterprises are those which: u u Have a world-wide view of

Global Enterprises Multinational enterprises are those which: u u Have a world-wide view of production, materials, components and final markets; Have over 10% of sales, assets, earnings, and employees abroad. 14

Large MNE’s Indicators: u Sales and Market Value, u Profits and Return on Shareholders

Large MNE’s Indicators: u Sales and Market Value, u Profits and Return on Shareholders Equity, and u Worldwide stock market valuations. 15

The Decision to Become Global: External Environment v. Internal Capabilities Environmental Constraints. Domestic: u

The Decision to Become Global: External Environment v. Internal Capabilities Environmental Constraints. Domestic: u u Educational, Sociological (Socioculteral), Political/ Legal, and Economic. Environmental Constraints. International: u May differ from domestic constraints and mostly concerned with nationalism 16

Firm Specific Advantages u u Intangibles that provide a unique firm advantage, Examples include

Firm Specific Advantages u u Intangibles that provide a unique firm advantage, Examples include market-niche capabilities and personnel advantages. 17

Accounting Aspects of International Business u u u Accounting requirements differ with each successive

Accounting Aspects of International Business u u u Accounting requirements differ with each successive stage of international involvement, For example, import-export stage would require investigation of potential buyer or seller for purposes of determining creditworthiness and capacity to perform. Initial Issues may include: statements written in foreign language, amounts in foreign currencies, and information produced using different standards. 18

Establishing an Internal International Accounting Capability Increased international involvement requires: u u u Internal

Establishing an Internal International Accounting Capability Increased international involvement requires: u u u Internal accounting resources, Creation of separate organization to handle international trade, and Creation of a foreign operation of some kind. Degrees of Involvement: u International accounting knowledge may be necessary even with no direct international business involvement (I. e. company needs to borrow money or sell stock internationally). 19

The Field of International Accounting u u u Increased need for accountants who understand

The Field of International Accounting u u u Increased need for accountants who understand the international accounting environment, International certification possibilities, and Fascinating career opportunities. 20