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PowerPointPowerPoint Presentation byPresentation by
Gail B. WrightGail B. WrightProfessor Emeritus of AccountingProfessor Emeritus of Accounting
Bryant UniversityBryant University
Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, andSouth-Western are trademarks used herein under l icense.
MANAGEMENT
ACCOUNTING8th EDITION
BY
HANSEN & MOWEN
1 INTRODUCTION
18 INTERNATIONAL ISSUES IN
MANAGEMENT ACCOUNTING
STUDENT EDITION
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1. Explain the role of the managementaccountant in the international environment.
2. Identify the varying levels of involvementthat firms can undertake in internationaltrade.
3. List the ways management accountants can
manage foreign currency risk.4. Explain why multinational firms choose to
decentralize.
LEARNING OBJECTIVES
continued
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5. Describe how environmental factors can
affect performance evaluation in the
multinational firm.6. Discuss the role of transfer pricing in the
multinational firm.
7. Discuss ethical issues that affect firms
operating in the international environment.
LEARNING OBJECTIVES
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MANAGEMENT ACCOUNTING
In an international environment requires a
shift in perspective. There are: Implications of foreign currency exchange
Differences in credit practices
Differences in cultural, legal, political, and
economic environments
LO 1
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INTERNATIONAL TRADE
Levels of involvement
Importing & exporting
Concern: Tariffs & foreign trade zones
Treaties
Wholly owned subsidiaries
Joint ventures
LO 2
Joint ventures
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TARRIFF:Definition
Is a tax on imported orexported goods.
LO 2
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FOREIGN TRADE ZONES
Are set up by government in US near ports of
entry but considered outside US commerce.
Goods imported into foreign trade zones are duty
free
Company can postpone payments of duty
No duty on defective materials
Imported goods can be modified to meet US
regulations
High tariff components can be assembled into
lower-tariff finished products
LO 2
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OUTSOURCING:Definition
Is payment by a company for
business functions formerly
done in-house.
LO 2
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JOINT VENTURE:Definition
Is a type of partnership in whichinvestors co-own the enterprise.
A special example is a
maquiladora, a manufacturingplant in Mexico.
LO 2
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FOREIGN CURRENCY RISK:
Definition
Refers to the companysmanagement of its transaction,
economic, & translation risks
due to exchange rate
fluctuations.
LO 3
economic
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MANAGING CURRENCY RISK
Transaction risk
Possibility that future cash transactions will be affected by
exchange rate fluctuations
Economic risk
Possibility that a firms present value of future cash flows
will be affected by exchange rate fluctuations
Translation (accounting) risk Degree to which firms financial statements are exposed to
exchange rate fluctuations
LO 3
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MANAGING TRANSACTION RISK
Companies face risk of currency appreciation
(depreciation). They can manage the effects
of fluctuating exchange rates on cashtransactions by using
Spot (immediate) rate
Hedging
Forward exchange contract for specified amount at
specified rate on specified future date.
LO 3
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MANAGING ECONOMIC RISK
Companies must manage risk to the presentvalue of future cash flows due to exchangerate fluctuations. The managementaccountant must:
Understand the companys position in a globaleconomy
Provide financial structure and communicationfor the firm
Encourage use of hedging
LO 3
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ADVANTAGES OF
DECENTRALIZATION Local level information is higher quality
Local managers can make a more timely
response in decision making Less likely to misinterpret instructions at local
level due to language differences
LO 4
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How do MNCs address
decentralization?
MNCs create different divisions
by 1) geographic lines, 2)
product lines, and 3) functionalmanagement lines.
LO 4
geographic lines
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EVALUATING PERFORMANCE
Managers should be evaluated only on those
factors that the manager has control over.
Evaluations based on revenues or costs are
not affected by currency fluctuations.
Comparative evaluations are difficult
because of cultural differences between
countries.
LO 5
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What measures are best for
performance evaluation in aninternational setting?
Multiple measures are the best
approach. Include EVA
(economic value added) or ROIfor short termmeasures.
LO 5
ROI
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OTHER PERFORMANCE
MEASURESTo discourage myopic behavior from relying
on short term performance measures,
include Market share
Customer complaints
Personnel turnover ratios
Personnel development
LO 5
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How can transfer pricing
affect the taxes a companypays?
Transfer pricing canshift
revenues and costs between
high & low tax countries.
LO 6
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What methods can be used
for transfer pricing?
Transfer pricingmethods
include 1) comparable
uncontrolled price, 2) resaleprice, and 3) cost-plus price.
LO 6
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THE END
CHAPTER 18