International Accounting, Chapter 1 Ch 01
International Accounting, 6/e
Frederick D.S. Choi
Gary K. Meek
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Choi/Meek, 6/e 2
Learning Objectives
How is international accounting distinct from
domestic accounting?
What does international accounting diversity entail? Does international accounting have a history?
What factors are contributing to the importance of
international accounting as a field of study?
What external and internal reporting issues arise
when business and investing transcend national borders?
What is meant by the term, global capital markets,
and what does development mean for capital market participants?
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What is International Accounting?
Domestic accounting:
an information
specialty providing information about a firm to
users of that information as a basis for
economic decisions.
International accounting (defined):
same
as above except that the firm being reported
on is a multinational company with operations
and transactions that cross national
boundaries or an entity with reporting
obligations to non-domestic readers.
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Choi/Meek, 6/e 4
What Does International
Accounting Diversity Entail?
Measurement principles
Financial disclosure (corporate transparency)
Auditing practices
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Contributing Factors
Accounting’s international heritage
Double-entry originates in the Italian city states.
Bookkeeping spreads to Germany and assists the spread
of capitalism.
Dutch enhance income measurement.
French use accounting for governmental planning and
control.
Double entry assists the British in managing and controlling
commercial interests in the colonies.
Accounting plays a major role in the U.S. industrial
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Contributing Factors (contin)
Paradox of international accounting
In many countries, accounting remains a nationalistic
affair.
Accounting serves people and institutions whose
decisions are international in scope.
Accounting diversity creates a demand for
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Contributing Factors (contin)
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Contributing Factors (contin)
Reporting issues when business transcends
national boundaries
Consolidation of foreign accounts
Accounting for foreign currency fluctuations Accounting for changing prices
International planning and control
Performance evaluation of foreign operations Financial risk management
International taxation and transfer pricing Financial innovation
Identifying potential market risks
Quantifying trade-offs associated with alternative risk reduction strategies Measuring risk exposures
Accounting for specific hedge products
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Choi/Meek, 6/e 10
Contributing Factors (contin)
Global competition
Competitive
benchmarking necessitates international comparisons.
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Contributing Factors (contin)
Cross-border mergers and acquisitions
Corporate valuation is a function of accounting
measurements that vary from country to country.
E.g., the e in p/e valuation multiples.
Internationalization of capital markets
Raising external finance abroad means that
financial reports must increasingly travel internationally.
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Contributing Factors (contin)
Reporting issues associated with
internationalization of capital markets
How to analyze and interpret foreign accounts? How to report to foreign readers?
How to harmonize reporting standards
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Choi/Meek, 6/e 14
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Choi/Meek, 6/e 16
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Choi/Meek, 6/e 18
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Choi/Meek, 6/e 13
Contributing Factors (contin)
Reporting issues associated with
internationalization of capital markets
How to analyze and interpret foreign accounts? How to report to foreign readers?
How to harmonize reporting standards
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Choi/Meek, 6/e 14
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Choi/Meek, 6/e 15
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Choi/Meek, 6/e 16
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Choi/Meek, 6/e 17
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Choi/Meek, 6/e 18