Dosen Pengampu Dra Siti Nurlalela SE M Si

Dosen Pengampu: Dra. Siti Nurlalela, SE, M. Si. , Ak. , CA INTERNATIONAL ACCOUNTING AND INTERNATIONAL BUSINESS

Chapter 1 International Accounting and International Business International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

National Differences in Accounting Standards l Many different systems throughout the world l l Accounting systems l l l Reconciliation is still a challenge Evolve Reflect the environments they serve Development of accounting influenced by l l Educational systems Legal systems Political systems Sociocultural characteristics International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Reasons for International Involvement l Expand sales l l l Excess capacity Greater profit potential Gain access to l l Raw materials Other factors of production (cheap labor) Knowledge New developments in technology International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Forms of International Involvement l l Exports and imports of goods and services Strategic alliances l l l Licensing agreement (intangible property) Franchise agreement (Holiday Inn, Mc. Donald’s) Investment abroad l l Direct investment Joint venture International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Multinational Enterprises l Possess a worldwide view of l l Elite MNE l l l Production Sourcing of raw materials and components Final markets 10% of a company’s overall assets, earnings, and employees are abroad Significant geographical spread International experience of executives International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Multinational Enterprises Firm Size and Saturation of Domestic Market l Probability of International Transactions Small companies l l l Export and import Manufacture products abroad or outsource production Licensing agreements. International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Large Multinational Enterprises Top 10 Companies by Market Value in 2004 Source: Business Week Global 1000 Rank Name Country Market Value 2004 2003 ($ Billions) 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 International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Large Multinational Enterprises Top 10 Companies by Sales in 2003 Source: Fortune Global 500 Rank Name Country Sales 2003 2002 ($ Billions) 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 Daimler. Chrysler Germany 156. 60 8 8 Toyota Motor Japan 153. 11 9 9 General Electric U. S. 134. 18 10 14 Total France 118. 44 International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Deciding to Become Global l Assessment of l l l Environmental constraints l l l External environment Internal capabilities of the firm Educational, sociological, political and legal, and economic Country-specific advantages (cheap materials, labor) Firm-specific advantages – intangible assets International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Environmental Influences on Accounting l l Enterprise ownership l Broad ownership l State ownership l Family ownership Business activities influence the nature of the accounting system Sources of finance and pressure for accountability l External shareholders l Banks l Family sources Taxation l Accounting systems influenced by state objectives (France) l Accounting systems separate from state objectives (U. S. ) International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Environmental Influences on Accounting l Developed accounting profession l l Judgmentally based accounting systems Depends upon accounting education and research Political system – accounting system reflects political philosophy Social climate – level of employee awareness International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Environmental Influences on Accounting l l l Economic growth and development Inflation leads to alternative approaches Legal system and regulation of accounting l l Civil codes (France and Germany) Common law (U. S. and U. K. ) Culture (societal or national values) International factors l l Colonial influence Regional trade blocs (European Union) International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Accounting Standards and Traditions l International Accounting Standards Board l l Former socialist economies are adjusting l l Works for convergence Russia and Eastern Europe British and continental European traditions are now being coordinated International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Major Development Factors l Corporations recognized as legal entities with limited liability l l Professional management l l Protects shareholders and creditors A point of controversy Emergence of securities markets l l l Fundamental element of the transition to a market economy Shows need to attract foreign investment Broadened disclosure International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Major Development Factors International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Corporate Disclosure l Disclosure to finance providers can be seen as a spectrum l l l Accounting disclosure l l Least disclosure – shareholders and investors Varied disclosure – depends on the purpose of the disclosure and the power of the finance provider Used as a means of national economic planning and control (Examples – France and Sweden) Accounting professionals l Played a key role in developing accounting systems (Examples – U. S. and U. K. ) International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Trends in Securities Markets l Strong move to attract foreign companies to list on exchanges l l l 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 International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

A Wider Audience l Increased disclosure to other groups l l Expectations of nonfinance providers l l l Employees, trade unions, consumers, government agencies, and the general public Not clearly defined Techniques to measure them do not exist Less developed countries have less accountability and disclosure International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Accountability and Multinational Enterprises l l Demand for greater disclosure by the host country can be a bargaining tool MNE view l l l Just a part of global operations Some MNEs have acted in ways detrimental to a host country. Host country’s view l Business activities of an MNE are of primary concern International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Accountability and Multinational Enterprises l Domestic Corporations l l l Primary operations in one country Cross-frontier relationships with unrelated parties Multinational Enterprises l l Operate in many countries with different laws and currencies Significant volume of transactions between units located in different countries International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

Accounting Aspects of International Business l Exposure to International Accounting l l Importing or exporting Costs of outside expertise l l l 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 l Lower cost of capital International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black

The Field of International Accounting l Descriptive/comparative accounting l Important issues l l l Forces and conditions that create international differences Trend toward convergence International transactions/multinational enterprises l Important issues l l l Financial reporting problems Translation of foreign currency financial statements, Information systems Budgets and performance evaluation Audits Taxes International Accounting & Multinational Enterprises - Chapter 1 - Radebaugh, Gray, Black