Matakuliah
Tahun
: F0142/Akuntansi Internasional
: September 2006
Session 01
International Accounting
and
International Business
1
The International Development of the
Accounting Discipline
• Double-entry accounting
– Developed in Italy between the 13th and 15th
Centuries
– Spread to other European countries
• Luca Pacioli – Summa de Arithmetica
– Memorandum book, journal, and ledger
• Adapted due to changes in
– Business form
– Taxation
– Globalization
2
National Differences in Accounting
Standards
• Many different systems throughout the world
– Reconciliation is still a challenge
• Accounting systems
– Evolve
– Reflect the environments they serve
• Development of accounting influenced by
–
–
–
–
Educational systems
Legal systems
Political systems
Sociocultural characteristics
3
The Evolution and Significance of
International Business
• Began with the Greeks around the fifth
century B.C.
• Trade became a privilege granted by the
state
• 16th and 17th centuries saw the first major
foreign investments (colonies)
• Center of commercial and business
activity shifted westward
4
The Evolution and Significance of
International Business
• Industrial Revolution
– Multinational firms developed – Ford, Singer
– Foreign investments become more influential
• Post-World War II Period
– International business stunted
• Great Depression
• World War II
– Renewal in foreign trade and investment
• Formation of European Economic Community (now the
European Union)
• Greater stability
5
Reasons for International Involvement
• Expand sales
– Excess capacity
– Greater profit potential
• Gain access to
– Raw materials
– Other factors of production (cheap labor)
– Knowledge
– New developments in technology
6
Forms of International Involvement
• Exports and imports of goods and services
• Strategic alliances
– Licensing agreement (intangible property)
– Franchise agreement (Holiday Inn,
McDonald’s)
• Investment abroad
– Direct investment
– Joint venture
7
Multinational Enterprises
• Possess a worldwide view of
– Production
– Sourcing of raw materials and components
– Final markets
• Elite MNE
– 10% of a company’s overall assets, earnings,
and employees are abroad
• Significant geographical spread
• International experience of executives
8
Multinational Enterprises
Firm Size and
Saturation of
Domestic
Market
Probability of
International
Transactions
•Small companies
- Export and import
- Manufacture products abroad or outsource
production
- Licensing agreements.
9
Large Multinational Enterprises
Top 10 Companies by Market Value in 2004
Source: Business Week Global 1000
Rank
Name
Country
Market Value
($ Billions)
2004
2003
1
1
General Electric
U.S.
328.11
2
2
Microsoft
U.S.
284.43
3
3
Exxon Mobil
U.S.
283.61
4
4
Pfizer
U.S.
269.66
5
5
Wal-Mart Stores
U.S.
241.19
6
6
Citigroup
U.S.
239.43
7
9
BP
Britain
193.05
8
10
American International Group
U.S.
191.18
9
13
Intel
U.S.
184.66
10
8
Royal Dutch Petroleum
Netherlands
174.83
10
Large Multinational Enterprises
Top 10 Companies by Sales in 2003
Source: Fortune Global 500
Rank
Name
Country
Sales
($ Billions)
2003
2002
1
1
Wal-Mart Stores
U.S.
263.00
2
5
BP
Britain
232.57
3
3
Exxon Mobil
U.S.
222.88
4
4
Royal/Dutch Shell Group
Britain/Neth.
201.73
5
2
General Motors
U.S.
195.32
6
6
Ford Motor
U.S.
164.51
7
7
DaimlerChrysler
Germany
156.60
8
8
Toyota Motor
Japan
153.11
9
9
General Electric
U.S.
134.18
10
14
Total
France
118.44
11
Deciding to Become Global
• Assessment of
– External environment
– Internal capabilities of the firm
• Environmental constraints
– Educational, sociological, political and legal,
and economic
– Country-specific advantages (cheap
materials, labor)
• Firm-specific advantages – intangible
assets
12
Environmental Influences on Accounting
• Enterprise ownership
– Broad ownership
– State ownership
– Family ownership
• Business activities influence the nature of the accounting
system
• Sources of finance and pressure for accountability
– External shareholders
– Banks
– Family sources
• Taxation
– Accounting systems influenced by state objectives
(France)
– Accounting systems separate from state objectives (U.S.)
13
Environmental Influences on Accounting
• Developed accounting profession
– Judgmentally based accounting systems
– Depends upon accounting education and
research
• Political system – accounting system
reflects political philosophy
• Social climate – level of employee
awareness
14
Environmental Influences on Accounting
• Economic growth and development
• Inflation leads to
alternative
approaches
• Legal system and regulation of accounting
– Civil codes (France and Germany)
– Common law (U.S. and U.K.)
• Culture (societal or national values)
• International factors
– Colonial influence
– Regional trade blocs (European Union)
15
Accounting Standards and Traditions
• International Accounting Standards Board
– Works for convergence
• Former socialist economies are adjusting
– Russia and Eastern Europe
• British and continental European traditions
are now being coordinated
16
Major Development Factors
• Corporations recognized as legal entities
with limited liability
– Protects shareholders and creditors
• Professional management
– A point of controversy
• Emergence of securities markets
– Fundamental element of the transition to a
market economy
– Shows need to attract foreign investment
– Broadened disclosure
17
Major Development Factors
Exhibit 1.2: Market Capitalization by National
Securities Market (Top 5 Countries)
United States
26%
Great Britain
Japan
43%
France
Rest of the World
4%
7%
20%
18
Corporate Disclosure
• Disclosure to finance providers can be seen as a
spectrum
– Least disclosure – shareholders and investors
– Varied disclosure – depends on the purpose of the
disclosure and the power of the finance provider
• Accounting disclosure
– Used as a means of national economic planning and
control (Examples – France and Sweden)
• Accounting professionals
– Played a key role in developing accounting systems
(Examples – U.S. and U.K.)
19
Trends in Securities Markets
• Strong move to attract foreign companies
to list on exchanges
– 2004 – trading volume of non-U.S. firms listed
on NYSE was 10.5% of the Exchange’s total
trading volume
• Consolidation of exchanges
• Exchanges in developing countries are
growing
20
A Wider Audience
• Increased disclosure to other groups
– Employees, trade unions, consumers,
government agencies, and the general public
• Expectations of nonfinance providers
– Not clearly defined
– Techniques to measure them do not exist
• Less developed countries have less
accountability and disclosure
21
Accountability and Multinational
Enterprises
• Demand for greater disclosure by the host
country can be a bargaining tool
• MNE view
– Just a part of global operations
– Some MNEs have acted in ways detrimental
to a host country.
• Host country’s view
– Business activities of an MNE are of primary
concern
22
Accountability and Multinational
Enterprises
• Domestic Corporations
– Primary operations in one country
– Cross-frontier relationships with unrelated
parties
• Multinational Enterprises
– Operate in many countries with different laws
and currencies
– Significant volume of transactions between
units located in different countries
23
Accounting Aspects of International
Business
• Exposure to International Accounting
– Importing or exporting
– Costs of outside expertise
• Increase with increased trade
• Should develop in-house experts
• Separate organization to handle international trade
– Establishment of a foreign unit
– Awareness of international market conditions
• Lower cost of capital
24
The Field of International Accounting
• Descriptive/comparative accounting
– Important issues
• Forces and conditions that create international differences
– Trend toward convergence
• International transactions/multinational enterprises
– Important issues
•
•
•
•
•
•
Financial reporting problems
Translation of foreign currency financial statements,
Information systems
Budgets and performance evaluation
Audits
Taxes
25