MAHM8e Chapter18.Ab.az

8/8/2019 MAHM8e Chapter18.Ab.az

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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

MAHM8e Chapter18.Ab.az

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