INTERNATIONAL ACCOUNTING
Marcin Jędrzejczyk (jedrzejm@uek.krakow.pl)
http://www.jedrzejczyk.com.pl/ina - working :)
http://janek.uek.krakow.pl/~zkrach
http://gat.uek.krakow.pl
1
Environmental Influences
Examples

Political/legal
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Economic
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sources of capital
Cultural
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statutory audits-accounting reports/tax
issues
budgetary control
Infrastructure

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communication infrastructure
education of population
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External Accounting Reports
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Standard Setters, Preparers and Users
Underlying Institutional Structures
Required reports
Internal Accounting Reports
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Decision Rights Assignment
Planning and Control
Performance Measurement and Evaluation
Environmental Matrix
External
Internal
Accounting Accounting
Political
Regulatory
Structure
Economic
Capital
Acquisition
Cultural
Infrastructure
Market Entry
Choice/tax
impacts
Risk
Management
Secrecydisclosure
Budgeting
Availability of
Auditors
Cost Drivers
External Accounting-Environment

Standard Setting Process

U.S. -- FASB - Privatewww.accounting.rutgers.edu/raw/fasb/

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Japan -- Ministry of Finance -www.jicpa.or.jp/
International Accounting Standards Board

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/www.iasb.org.uk/ Use of comment letters
Users of Statements

legal/cultural driven
External Accounting

External Reporting Differences

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U.S., U.K., Poland -- Tax  Financial
Japan, Germany -- Tax = Financial
Differences in Debt and Equity
Differences in goodwill treatment
Differences in asset revaluation
Internal Accounting

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Decision Rights Assignment
Planning and Control
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Complications of Global Operations
Co-location of Knowledge and Rights
Performance Evaluation

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Multiple Currency Issues
Cross-border Decision Rights Issues
International Accounting

Key to Understanding International
Accounting

Political, Economic, Cultural and
Infrastructure Influences on:

External Reporting


Taxes/Capital Markets/Gov. Regulation/Standard
Setting/Reporting Requirements
Internal Reporting

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Planning and Decision Making
Control Differences
Performance Evaluation Differences
CONSOLIDATION OF THE
FINANCIAL STATEMENTS
Marcin Jędrzejczyk (jedrzejm@uek.krakow.pl)
http://www.jedrzejczyk.com.pl/ina
http://janek.uek.krakow.pl/~zkrach
http://gat.uek.krakow.pl
9
HOLDING
COMPANY
Subsidiary (subsidiaries)
An enterprise that is controlled by another enterprise
CONTROL: over more than a half of voting rights among investors,
power to govern the financial and operating policies under a statue
or an agreement, power to appoint or move majority of the
members of the board, power to cast the majority of votes at
meetings of the board of directors of the governing body
CAPITAL GROUP
10
Consolidated accounts – an
overview
GROUP FINANCIAL STATEMENTS
SUBSIDIARY
ASSOCIATE
JOINTLY CONTROLLED ENTITY
11
Consolidated accounts – an overview
Features
ASSOCIATE
JOINTLY
CONTROLLED
ENTITY
Significant influence
over the financial and
operating policy
decisions
Joint control over the
Control – power to
financial and operating govern the financial
policy decisions
and operating
policies
Accounting Equity method (IAS 28),
share of net assets and
treatment
profits
Proportionate
consolidation
(benchmark) or equity
method (IAS 31)
SUBSIDIARY
IAS 22, IAS 27
12
Short revision: value and measure
m: X R
x  X , r  R z  R m( x)  r  m( x)  z  r  z 
1
 x  X m( x)  0
2
XX mm((xx1 1x2x)2 )mm
 x11,, xx22
( x(1x)1) 
m(mx(2 x) 2 )
3
X , Y  R X  Y  m( x)  m( y)
FINANCIAL STATEMENT
MEASURE of particular assets, liabilities, profits, losses or
cash flows - depending on the statement - presented as a
systematically ordered sum of all separately recorded values
BALANCE SHEET
A1  m( A1 )
A2  m( A2 )
A3  m( A3 )
. . .
L1  m( L1 )
L2  m( L2 )
L3  m( L3 )
. . .
An  m( An )
n
A
i 1
i
Ln  m( Ln )
n
L
i 1
i
Accounting treatment of the
subsidiaries

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

Consolidation of 100% of assets
Cancellation of intra-group items
Minority interest shown separately
Uniform accounting policies
(ACQUISITION METHOD, UNITING OF
INTERESTS)
16
Accounting treatment of the
subsidiaries
ACQUISITION
UNITING OF
INTERESTS
Features: Not a merger/acquiring a
company’s benefit
Features: Combine control with
mutual sharing of risks and benefits
Accounting treatment: adjustments
to fair value, post acquisition results
only are consolidated, goodwill
arises
Accounting treatment: Pooling of
resources at book value,
comparatives restated, difference on
consolidation adjusted against
equity
17
CONSOLIDATION
The process of adjusting and combining financial
information from the financial statements of the
parent undertaking and its subsidiary undertaking
to prepare consolidated financial statements that
present financial information for the group as a
single enterprise
18
Consolidated Balance Sheet
Purpose: To show assets and liabilities which it controls and the
ownership of those assets and liabilities
Assets and liabilities: Always 100% Parent plus 100% of the BOOK
VALUE of Subsidiary
Share capital: Parent ONLY
Reserves: 100% Parent plus group share of post acquisition
retained reserves of Subsidiary plus/less consolidation adjustments
Minority interest: minority % x book value of the acquiree’s
identifiable assets less liabilities, ignoring fair value adjustments
and any goodwill on the acquisition of subsidiaries
19
Consolidated Balance Sheet
The company „Parent” acquired 100% of „Subsidiary” for
$40000m. Ordinary Share Capital was equal to $25000m.
Providing that
pre-acquisition revenue reserves of
„Subsidiary” stood at $6000m, there were no intra-group
transactions and no intra-group dividends paid, prepare a
consolidated balance sheet of the new capital group at the
acquisition date using the acquisition method. (100%)
20
Parent ($)
ASSETS
Subsidiary ($)
115000
65000
50000
40000
0
0
40000
-
3000
18000
20000
7000
2000
0
115000
65000
Share Capital
45000
25000
Reserves
12000
5000
Revenue Reserves
30000
23000
Current Liabilities
28000
12000
Tangible Assets
Intangible Assets
Investment in „Subsidiary” company
Inventory
Receivables
Cash
LIABILITIES
21
Calculating the goodwill
Cost of
investment
Ordinary Share 25000
Capital
Capital reserves 5000
on acquisition
Revenue reserves 6000
on aquisition
40000
22
Consolidated ($)
ASSETS
144000
Tangible Assets
90000
Intangible Assets
4000
Inventory
21000
Receivables
27000
Cash
LIABILITIES
2000
144000
Share Capital
45000
Reserves
12000
Revenue Reserves
47000 =
17000 + 30000
Current Liabilities
40000
23
Consolidated Balance Sheet - Cancellation
The company „Parent” acquired 100% of „Subsidiary” for
$40000m. Ordinary Share Capital was equal to $40000m.
Providing that there were no pre-acquisition revenue
reserves of „Subsidiary” stood at $6000m, there was no
intra-group dividends paid, prepare a consolidated balance
sheet of the new capital group at the acquisition date using
the acquisition method. NOTE: Receivables of
„Subsidiary” ($2000m) cancels with „Parent” liability
payables ($2000m).
24
Parent ($)
ASSETS
Subsidiary ($)
100000
66000
35000
45000
0
0
Investment in „Subsidiary” company
40000
-
Inventory
16000
12000
Receivables
8000
9000
Cash
1000
0
100000
66000
Share Capital
70000
40000
Reserves
16000
19000
Revenue Reserves
0
0
Current Liabilities
14000
7000
Tangible Assets
Intangible Assets
LIABILITIES
25
Consolidated ($)
ASSETS
Tangible Assets
Intangible Assets
124000
80000
0
Inventory
28000
Receivables
15000
Cash
LIABILITIES
1000
124000
Share Capital
70000
Reserves
35000
Revenue Reserves
0
Current Liabilities
19000
26
THE AREAS OF TRANSLATION
• Language
• Accounting concepts
• Currency
27
CURRENCY TRANSLATION
“restating an amount of foreign currency in terms of
equivalent number of dollars” (Meigs, 1986, p. 521)
In consolidated statements it means also restating all
the assets and liabilities present in the balance sheet
into dollars
zl
vUSA [$]  ER[ ]  vPoland [ zl ]
$
28
Parent (zloty)
Subsidiary (€)
29
Subsidiary (zloty)
Parent (€)
30
TRANSLATION in Consolidated
Balance Sheet – Case Study
The company „Poland” located in Poland acquired 100% of
„USA” for 136000m złotych. Ordinary Share Capital of
„USA” was equal to $25000m. Providing that there was no
intra-group transactions and no intra-group dividends paid,
prepare a consolidated balance sheet of the new capital
group at the acquisition date using the acquisition method
(exchange rate 3,4 zł/$).
31
Parent (zł)
ASSETS
Subsidiary ($)
249000
65000
50000
40000
0
0
136000
-
3000
18000
Receivables
20000
7000
Cash
40000
0
LIABILITIES
249000
65000
Share Capital
179000
25000
Reserves
12000
5000
Revenue Reserves
30000
23000
Current Liabilities
28000
12000
Tangible Assets
Intangible Assets
Investment in „Subsidiary” company
Inventory
32
Calculating the goodwill ($)
Cost of
investment
Ordinary Share 25000
Capital
Capital reserves 5000
on acquisition
Revenue reserves 6000
on acquisition
40000
33
Consolidated (zł)
ASSETS
368000
Tangible Assets
186000
Intangible Assets
34000
Inventory
64200
Receivables
43800
Cash
40000
LIABILITIES + OE
368000
Share Capital
179000
Reserves
12000
Revenue Reserves
108200
Current Liabilities
68800
34
Consolidated (zł)
ASSETS
293 450
Tangible Assets
100 800
Intangible Assets
97 900
Inventory
25 860
Receivables
28 890
Cash
40 000
LIABILITIES + OE
293 450
Share Capital
179000
Reserves
12000
Revenue Reserves
59 210
Current Liabilities
43 240
35