International Accounting, 7/e

Frederick D.S. Choi

Gary K. Meek

Chapter 1: Introduction

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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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What Does International

Accounting Diversity Entail?
Measurement

principles
Financial disclosure (corporate transparency)
Auditing practices

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Contributing Factors

Accountings 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
revolution.

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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
harmonization.

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Contributing Factors (contin)

Growth and spread of multinational operations

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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
Evaluating the effectiveness of hedging programs

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Contributing Factors (contin)

Global competition

Competitive
benchmarking
necessitates
international
comparisons.

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Contributing Factors (contin)

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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
internationally?

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Other Chapter Exhibits

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Chapter Exhibits (contin)

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Chapter Exhibits (contin)

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Chapter Exhibits (contin)

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