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Matakuliah : F0142/Akuntansi Internasional

Tahun : September 2006

Session 01International Accounting

andInternational Business

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• 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

The International Development of the Accounting Discipline

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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

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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

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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

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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

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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

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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

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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.

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Large Multinational Enterprises

Top 10 Companies by Market Value in 2004

Source: Business Week Global 1000Rank

Name CountryMarket 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

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Large Multinational Enterprises

Top 10 Companies by Sales in 2003

Source: Fortune Global 500Rank

Name CountrySales

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 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

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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

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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.)

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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

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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)

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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

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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

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Major Development Factors

Exhibit 1.2: Market Capitalization by National Securities Market (Top 5 Countries)

43%

20%

7%

4%

26%United States

Great Britain

Japan

France

Rest of the World

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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.)

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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

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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

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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

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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

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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

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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