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Bringing International Accounting Issues into the Classroom

Explore the impact of environmental forces on international accounting and learn about external and internal accounting topics. Discover the differences in reporting standards, decision rights assignment, planning and control, performance measurement, and more.

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Bringing International Accounting Issues into the Classroom

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  1. Bringing International Accounting Issues into the Classroom Sue Haka Ernst & Young Professor Department of Accounting and Information Systems Broad School of Business Michigan State University

  2. Environmental Forces Impacting Globalization

  3. Environmental InfluencesExamples • Political/legal • statutory audits-accounting reports/taxes • Economic • sources of capital/cost of capital • Cultural • budgetary control/performance evaluation • Infrastructure • communication and education infrastructure

  4. Accounting Topics • External Accounting • Standard Setters, Preparers and Users • Underlying Institutional Structures • Required reports • Internal Accounting • Decision Rights Assignment • Planning and Control (internal controls) • Performance Measurement and Evaluation

  5. Topics-Environment Matrix

  6. External political environment-financial accounting

  7. External Accounting-Institutional Structures • Capital Market Requirements • Market Structure -- www.iosco.org/ mergers in Europe • Other Means of Raising Capital-debt market • Standard Setting Processes • Private vs. Public control- e.g. recent IASB (www.iasb.org ) initiative on standards for small and medium enterprises • Accountability • Compliance & Enforcement • Varies widely around the world

  8. External Accounting-Political/culture • Standard Setting Process • U.S. -- FASB – ‘Private’- http://www.fasb.org/ • China, Korea & Japan – varying levels of govt. control http://http://en.casc.gov.cn/internet/internet/en/ZZWJJ.htmlInternational Accounting Standards Board • /http://www.iasb.org/Home.htm Use of comment letters for current projects • Users of Statements • legal/cultural driven • Compliance - Culture driven • http://www.geert-hofstede.com/

  9. External Accounting-Topics • External Reporting Differences-IFRS adoption vs. convergence • Canada, Australia – have adopted, but… • China – has converged, but allows pooling and purchase methods • Differences in Debt and Equity Classifications • Korea vs. U.S. (short vs. long term) • Differences in asset revaluation • US. vs. Brazil or Mexico (or IFRS)

  10. Motivating International Management Accounting Issues

  11. Internal Accounting - examples • Decision Rights Assignment • Negotiating Joint Ventures – Mexico, China, or India • Planning and Control • Complications of Global Operations-foreign exchange issues • Cash flows, borrowing, tax minimization • Co-location of Knowledge and Rights=Joint ventures vs. wholly owned subsidiaries • Performance Evaluation • Multiple Currency Issues- operating risk management • Cross-border Decision Rights Issues-FCPA • Transfer Pricing in International Settings

  12. Internal Accounting-Environment • Economic/Political-Planning and Control • International Taxes and Treaties • NAFTA/ASEAN (www.nafta-sec-alena.org/en/view.aspx/ or www.aseansec.org/74.htm) • Foreign Trade Zones (www.naftz.org) • Transfer Pricing • Decision Rights Issues- APA agreements: (www.irs.gov/businesses/international/) • Political/economic- treaties (www.state.gov/) • www.cia.gov/library/publications/the-world-factbook/

  13. Internal Accounting-Environment • Economic/Political Continued • Risk Management- e.g. threat of nationalization • Financial -- www.eiuresources.com/ras/help_about.asp • Operational – http://www.irmba.com/ • Corruption • Foreign Corrupt Practices Act –ethics issues http://www.usdoj.gov/criminal/fraud/fcpa/ • Corruption index--http://www.transparency.org/

  14. Internal Accounting-Cultural • Performance Evaluation (Inter.J. of Acct., 34, #1, pp.49-70) • Japan ROA < U.S. ROA • low margins, • focus on market share, emphasize target cost • Japan ROE > U.S. ROE • high debt levels • keiretsu organization or chaebol (korea)

  15. Internal Accounting- A pharmaceutical case example • Performance Measurement & Evaluation • Multiple Currency Issues ( U.K. to U.S.) • Transfer Pricing Issues (U.K. to Denmark) • Decision Rights Assignment • Knowledge Distribution (Mergers/Acquisition) • Control System (Conflict with Culture or operating environment)

  16. Summary • Key to Understanding International Accounting • Political, Economic, Cultural and Infrastructure Influences on: • External Reporting • Taxes/Capital Markets/Gov. Regulation/Standard Setting/Reporting Requirements/Auditing/Users • Internal Reporting • Planning –budgeting, market entry, borrowing • Control – global value chain, treasury function • Performance Evaluation—currency choice, expectations

  17. Where to get more information • Journals - International • The International Journal of Accounting • Advances in International Accounting • Journal of International Business Studies • Journals - AAA • Journal of International Accounting Research • Accounting Horizons • Issues in Accounting Education • Other • Management Accounting • Journal of Accountancy • Economist

  18. Where to get more information • Books • Introductory - International Accounting and Multinational Enterprises, 6th Edition by L. Radebaugh, S. J. Gray, & E. Black • Integrated entry level - Financial and Managerial Accounting: The Basis for Business Decisions 15th, or Financial Accounting 14th,Williams, Haka, Bettner, & Carcello, McGraw-Hill/Irwin, 2010 • Upper level financial - International Accounting, 2nd edition Doupnik & Perera, McGraw-Hill Irwin, 2009 OR International Accounting, 6th edition, F. Choi and G. Meeks, Pearson, 2008

  19. Where to get more information- AAACommons

  20. The Teaching of IFRS: Cyber-Guest Lecturers As a Pedagogical Resource Mark A. Holtzblatt, Ph.D., CPA Heller College of Business Roosevelt University May 9, 2009 Ohio Region, American Accounting Association, May 7-9, 2009 20

  21. IFRS Cyber-Guest Lecturers

  22. http://www.iasplus.com/index.htmsponsored by Deloitte • Table about use (adoption or convergence or…) of IFRS by Jurisdiction: http://www.iasplus.com/country/useias.htm • Firms with web based IFRS material: • KPMG-http://www.kpmgifrsinstitute.com/ • Ernst & Young-a private password protected website at www.ey.com/us/ifrs.  To request an account, please contact the EY ARC Program Director, Catherine Banks, at catherine.banks@ey.com. • PWC-www.pwc.com/extweb/aboutus.nsf/docid/70CCD8B601397905852574910075A03D (IFRS Ready) • Deloitte--www.deloitte.com/dtt/article/0,1002,cid%253D206187,00.html (Deloitte’s IFRS University Consortium)

  23. Where to get more information • Case Books • International Accounting: A Case Approach edited by Schweikart, Gray and Roberts, McGraw-Hill • Cases-AAA • Issues in Accounting Education: (November 2007, vol. 22, no. 4) • Cases - AICPA (http://ceae.aicpa.org/Resources/) • suehaka@msu.edu

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