Global Business and

Accounting
Chapter 15

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights

Globalization
Occurs as managers become aware of and
engage in cross-border trade and
operations. A high level of globalization is a
multinational enterprise that begins with raw
material extraction and ends with final
product assembly and sales in multiple
foreign locations.

15-2
Globalization

15-3
Globalization
Globalization typically progresses through
a series of stages that include:
1.
1. Exporting
Exporting
2.
2. International
International licensing
licensing
3.
3. International
International joint
joint ventures
ventures
4.
4. Wholly
Wholly owned
owned international
international subsidiaries
subsidiaries
5.
5. Global
Global sourcing.
sourcing.

15-4
Environmental Forces
Shaping Globalization
Political
Political and
and legal
legal Culture
Culture
system
system

Globalization
Globalization

Economic
Economic Technology
Technology andand
system
system infrastructure
infrastructure
15-5
Political and Legal Systems
• Threat of government control or seizure of assets.
• Differing taxes, tariffs and licensing fees.
• Restrictions on foreign ownership percentage.
• Restrictions on currency flows.
• Trade agreements specifying raw material sources
and labor content.
• Duty-free foreign trade zones.
• Tax incentives encouraging or discouraging stock
ownership.
• Policies affecting individual savings.
• Policies impacting educational level of citizens.

15-6
Economic Systems

Planned Economy
Government owns factors of production

Market Economy
People owns factors of production

15-7
Culture
Cultural Mindsets that Differ Significantly
Uncertainty Long-Term High Power
Country Individualism Avoidance Orientation Distance
Japan L H H M
South Korea L H H H
Brazil L H M H
Italy M H * M
Germany M M L L
United States H M L M
Great Britain H L L L
Sweden M L L L

H = High, M = Medium, L = Low.

*Not available

15-8
Technology and
Infrastructure
Difficulty transferring Differences in
knowledge and educational and
information training levels

Inadequate
transportation Unreliable utilities
systems

Differences in Poor access to

internal accounting communication
systems equipment

Lack of specialized
equipment
15-9
Harmonization of Financial
Reporting Standards
The
The International
International Accounting
Accounting Standards
Standards
Board
Board (IASB)
(IASB) has
has as
as one
one of
of its
its stated
stated goals
goals
the
the harmonization
harmonization ofof accounting
accounting standards.
standards.
Harmonization
Harmonization isis used
used toto describe
describe the
the
standardization
standardization of
of accounting
accounting methods
methods and
and
principles
principles used
used in
in different
different countries
countries
throughout
throughout the
the world.
world.

15-10
Harmonization of Financial
Reporting Standards

Global Variation in Accounting Practices

Asset Segment
Auditors per Valuation Depreciation Diclosure
Country/Standards 100,000 Method LIFO Used Basis Required
Revaluation Economic
IFRS allowed Used based Yes
Historic Economic
United States 168 cost Used based Yes
Revaluation Economic
United Kingdom 352 allowed Not Used based Yes
Historic
Germany 26 cost Not Used Tax based Limited
Revaluation Economic
Brazil 1 allowed Not Used based No
Historic
Japan 10 cost Used Tax based Yes

15-11
International Financial
Reporting Standards and
Budgeting
Two approaches to implementing
international financial accounting standards

Adoption Convergence

Europe 2005 Australia 2007

Chili 2009 China 2007

Canada 2011 Japan 2011

15-12
Foreign Currencies
and Exchange Rates
An exchange rate is the amount it costs to
purchase one unit of currency with another currency.

Foreign Exchange Rate

Exchange
Exchange Rate (in
Rate foreign
Country/Region Currency (in dollars) currency)
Britain Pound (£) $ 1.74250 0.534
Europe Euro (€) 0.89490 1.117
Japan Yen (¥) 0.00764 130.900
Mexico Peso ($) 0.10946 9.136
India Rupee (Rs) 0.02045 48.889

¥1,000,000 × $0.00764 = $7,640

15-13
Hedging
Future contracts are the right to
receive a specified quantity of
foreign currency at a future date.

Fair
Fair Value
Value Hedge
Hedge
Any
Any gain
gain or or loss
loss is
is recognized
recognized currently
currently in
in
earnings
earnings.. IfIf the
the hedge
hedge is is on
on available-for-sale
available-for-sale
securities,
securities, any any gain
gain oror loss
loss is
is reported
reported in
in
other
other comprehensive
comprehensive income income on on the
the equity
equity
section
section of of the
the balance
balance sheet.
sheet.

15-14
Global Sourcing
Differences
Differences inin exchange
exchange rates
rates in
in many
many different
different
countries
countries can
can create
create significant
significant complexities
complexities for
for
firms
firms practicing
practicing global
global sourcing.
sourcing.
Many
Many companies
companies underestimate
underestimate the the cost
cost of
of
globalizing
globalizing their
their business
business operations
operations because
because they
they
are
are not
not familiar
familiar with
with the
the environmental
environmental
characteristics
characteristics previously
previously discussed.
discussed.

Multico
Tax
untry
treat
Cust tax
ies Imp
oms laws
ort
dutie
s
fee £ € ¥
s 15-15
Foreign Corrupt Practices
Act
In many countries around the world,
bribery is part of doing business. In many
countries, this officially sanctioned
corruption is not viewed as wrong or
unethical. However, U.S.-based
businesses are prohibited from influence
peddling. The IMF and World Bank
instituted policies to cut off funding to
countries ignoring corrupt practices.

15-16
End of Chapter 15

15-17