International Accounting Chapter 1: Introduction

Learning Objectives
1. How is international accounting distinct from domestic accounting?
2. What does international accounting diversity entail?
3. Does international accounting have a history?
4. What factors are contributing to the importance of international accounting as a field of study?
5. What reporting issues arise when business and investing transcend national borders?
LO#1 How is international accounting distinct from domestic 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.

LO#2 What Does International Accounting Diversity Entail?

Measurement principles
Financial disclosure (corporate transparency)
Auditing practices
LO#3 Does international accounting have a history?
Double-entry accounting
Developed in _______ between the 13th and 15th Centuries
Spread to other European countries
Adapted due to changes in
Business form
Taxation
Globalization
Paradox of international accounting
In many countries, accounting remains a nationalistic affair.
1

 Accounting serves people and institutions whose decisions are international in scope.
Accounting diversity creates a demand for harmonization.

LO#4 What factors are contributing to the importance of international accounting as a field of study?
1. Growth and spread of multinational operations

Reasons for International Involvement

Expand sales/Excess capacity Greater profit potential
Gain access to _____________________________________
Forms of International Involvement
Exports and imports of goods and services
Strategic alliances
Licensing agreement (intangible property)
Franchise agreement
Investment abroad
Direct investment/Joint venture

Multinational Enterprises
Possess a worldwide view of Production/Sourcing of raw materials and components/Final markets
Elite MNE: ____% of a companys overall assets, earnings, and employees are abroad
Significant geographical spread, International experience of executives
2. Cross-border mergers and acquisitions
Corporate valuation is a function of accounting measurements that vary from country to
country.
3. Internationalization of capital markets
Raising external finance abroad means that financial reports must increasingly travel
internationally.
LO#5 What reporting issues arise when business and investing transcend national borders?
Reporting issues when business transcends national boundaries
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