Preface xvii
Chapter 1: Introduction 1
A Brief History of International Accounting 2
Role of Accounting in Business and Global Capital Markets
6
The Global Environment of Business 6
Capital Markets 7
An Introduction to Global Equity Markets 7
The Three Major Equity Market Regions 11
European Equity Markets - A Closer Look 15
Continental Europe's New Equity Culture 15
Convergence and Integration of Equity Markets 16
Stock Exchange Alliances and Mergers 17
Cross-Border Equity Listing and Issuance 18
An Example - Nikken Chemicals Co., Limited 19
Appendix 1-1 Stock Exchange Alliances and Mergers
21
Appendix 1-2 Financial Statement and Auditor's Report
from Nikken Chemical Co. Ltd.'s 2000 Annual Report 23
Appendix 1-3 Stock Exchange Web Sites 34
Selected References 36
Discussion Questions 36
Exercises 37
Case 1-1 e-centives, Inc - Raising Capital in Switzerland
39
Chapter 2: Development and Classification 41
Development 42
Comparative Development Patterns 47
Macroeconomic Pattern 48
The Microeconomic Pattern 48
The Independent Discipline Approach 49
The Uniform Accounting Approach 49
Classification 49
Judgmental Classifications 50
Empirically Derived Classifications 53
Conclusion 55
Selected References 58
Discussion Questions 59
Exercises 59
Case 2-1 Are Classifications of Accounting Outmoded?
62
Case 2-2 MAN AG 63
Chapter 3: Comparative Accounting I 65
Basic Concepts 67
Six National Financial Accounting Systems 68
France 68
Germany 73
Japan 77
The Netherlands 81
United Kingdom 86
United States 91
Selected References 95
Discussion Questions 97
Exercises 98
Case 3-1 A Rose by Any Other Name 100
Case 3-2 Kiwis Cannot Fly, But at Least When Troubles
Loom, They Keep Their Heads Out of the Sand 114
Chapter 4: Comparative Accounting II 118
Reasons for Choosing These Four Countries 119
Some Observations About the Four Countries and Their
Accounting 119
Four National Financial Accounting Systems 121
Czech Republic 121
China 125
Taiwan 130
Mexico 134
Selected References 138
Discussion Questions 139
Exercises 140
Case 4-1 Does Secrecy Pay? 142
Case 4-2 After NAFTA 143
Chapter 5: Reporting and Disclosure 145
Development of Disclosure 146
Voluntary Disclosure 146
Regulatory Disclosure Requirements 147
The U.S. SEC Financial Reporting Debate 149
Reporting Requirements for Listed Companies in Ten
Equity Markets 150
Prospectuses 150
China 151
Czech Republic 152
France 153
Germany 154
Japan 155
Mexico 157
The Netherlands 158
Taiwan 159
United Kingdom 160
United States 161
Reporting and Disclosure Practices 162
Disclosures of Forward-Looking Information 163
Segment Disclosures 167
Cash Flow and Funds Flow Statements 170
Social Responsibility Disclosures 172
Special Disclosures for Non-Domestic Financial Statement Users and Accounting Principles Used 178
Corporate Governance Disclosures 180
Internet Business Reporting and Disclosure 180
Annual Report Disclosures in Emerging Market Countries 194
Implications for Financial Statement Users and Managers 198
Selected References 199
Discussion Questions 201
Exercises 202
Case 5-1 Information Access in Mexico 204
Case 5-2 Netcom AB 205
Chapter 6: Foreign Currency Translation 207
Reasons for Translation 207
Background and Terminology 208
The Problem 209
Financial Statement Effects of Alternative Translation Rates 211
Foreign Currency Translation 216
Single Rate Method 216
Multiple Rate Method 217
Financial Statement Effects 219
Which Is Best? 222
Appropriate Current Rate 224
Translation Gains and Losses 224
Translation Accounting Debates 227
Pre - 1965 227
1965 - 1975 227
1975 - 1981 227
1981 - Present 228
Features of Standard No. 52 228
The Debate Continues 232
Reporting Perspective 232
What Happened to Historical Cost? 233
Concept of Income 233
Managed Earnings 233
Foreign Currency Translation and Inflation 234
Foreign Currency Translation Elsewhere 235
Current Trends 236
Appendix: Translation and Remeasurement Under FAS No. 52 236
Current Rate Method 237
Temporal Method 239
Selected References 241
Discussion Questions 242
Exercises 243
Case 6-1 Regents Corporation 247
Case 6-2 Managing Offshore Investments: Whose Currency? 248
Chapter 7: Accounting for Changing Prices 252
Why Are Financial Statements Potentially Misleading During Periods of
Changing Prices? 254
Types of Inflation Adjustments 255
General Price Level Adjustments 255
Price Indexes 255
Object of General Price Level Adjustments 256
Current Cost Adjustments 258
Which Method Is Best? 261
International Perspective on Inflation Accounting 261
International Accounting Standards Committee 267
Inflation Issues 268
Holding Gains and Losses 270
Accounting for Foreign Inflation 271
Avoiding the Double-Dip 272
Appendix 7-1 Supplementary Current Cost Disclosure 275
Appendix 7-2 Accounting for Foreign Inflation: A Case for Analysis
280
Selected References 283
Discussion Questions 283
Exercises 284
Case Study 7-1 Kashmir Enterprises 288
Case Study 7-2 Icelandic Enterprises, Inc. 289
Chapter 8: International Accounting Harmonization 291
Introduction 291
A Survey of International Harmonization 292
Advantages of International Harmonization 292
Criticisms of International Standards 293
Reconciliation and Mutual Recognition 294
Evaluation 295
Applicability of International Standards 295
Some Significant Events in the History of International Accounting Standard
Setting 296
Overview of Major International Organizations Promoting Accounting Harmonization
297
International Accounting Standards Board 298
IASC's Core Standards and the IOSCO Agreement 303
The New IASB Structure 303
Recognition and Support for the IASB 306
U.S. Securities and Exchange Commission Response to IAS 306
Comparisons Between IAS and Other Comprehensive Bodies of Accounting Principles 307
European Union (EU) 308
Fourth Directive 309
Seventh Directive 311
Eighth Directive 312
Have EU Harmonization Efforts Been Successful? 312
The EU's Approach and the Integration of European Financial Markets 313
Public Offers Directive 314
Investment Services Directive 314
EU Admission and Disclosure Directive 315
International Organization of Securities Commissions (IOSCO) 315
International Federation of Accountants (IFAC) 316
United Nations Intergovernmental Working Group of Experts on International
Standards of Accounting and Reporting (ISAR) 318
Organization for Economic Cooperation and Development (OECD) 318
Conclusion 319
Appendix 8-1 Comparison of IASB, U.S. and U.K. Standards 320
Appendix 8-2 Shanghai Tyre & Rubber Co., Ltd. and Subsidiaries Notes
to Consolidated Financial Statements 329
Selected References 337
Discussion Questions 338
Exercises 338
Case 8-1 Shanghai Tyre & Rubber Co., Ltd. 341
Case 8-2 Accounting Quality in East Asia 342
Chapter 9: International Financial Statement Analysis 344
Introduction 344
Challenges and Opportunities in Cross-Border Analysis 345
Business Analysis Framework 346
International Business Strategy Analysis 346
Information Availability 347
Recommendations for Analysis 347
Accounting Analysis 348
Suggestions for the Analyst 351
International Financial Analysis 351
Ratio Analysis 352
Cash Flow Analysis 357
Coping Mechanisms 358
International Prospective Analysis 360
Further Issues 362
Information Access 362
Timeliness of Information 366
Foreign Currency Considerations 368
Differences in Statement Format 372
Language and Terminology Barriers 372
Appendix 9-1 Illustration of Restatement of Japanese GAAP Financial Statements
to a U.S. GAAP Basis 374
Appendix 9-2 International Ratio Analysis 376
Selected References 378
Discussion Questions 379
Exercises 380
Case 9-1 Accounting Quality Analysis 383
Case 9-2 Restatement of International Accounting Standards to U.S. GAAP
384
Chapter 10: Managerial Planning and Control 385
Business Modeling 386
Planning Tools 386
Strategic Costing 388
Capital Budgeting 389
Financial Return Perspectives 390
Measuring Expected Returns 391
Multinational Cost of Capital 394
Management Information Systems and Control 396
Information and Information Systems 396
Information Issues 398
System Issues 399
Issues in Financial Control 400
Domestic Versus Multinational Control System 400
Operational Budgeting 402
Analysis of Exchange Rate Changes 405
Performance Evaluation of Foreign Operations 409
Consistency 409
Unit Versus Managerial Performance 410
Performance Criteria 411
Measurement Issues and Changing Prices in Evaluation 413
Inflation and Performance Measurement 415
Sales Revenue 417
Foreign Currency Translation 420
Performance Standards 421
A Multinational Comparison 423
System Objectives 423
Performance Criteria 423
Currency Volatility 424
Inflation and Performance Evaluation 424
Other Environmental Problems 425
Performance Standards 425
Satisfaction with Existing Systems 425
Selected References 425
Discussion Questions 426
Exercises 427
Case 10-1 Foreign Operations Disclosures: A Tangled Affair 431
Case 10-2 Assessing Foreign Subsidiary Performance in a World of Floating
Exchange Rates 432
Chapter 11: Financial Risk Management 435
Essentials 435
Why Manage Financial Risk? 436
Role of Accounting 437
Identifying Market Risk 437
Quantify Trade-Offs 438
Accounting for Hedge Products 438
Foreign Exchange Risk Management 439
Accounting and Conceptual Issues 440
Transactions Gains and Losses 440
Translation Gains and Losses 442
Economic Gains and Losses 442
Risk Management in a World of Floating Exchange Rates 443
Forecasting Exchange Rate Changes 443
Exposure Management 444
Translation Exposure 444
Transaction Exposure 448
Accounting Versus Economic Exposure 450
Protection Strategies 452
Balance Sheet Hedges 452
Operational Hedges 452
Contractual Hedges 453
Accounting and Control for Financial Derivatives 455
Foreign Exchange Forward Contracts 455
Currency Swaps 456
Financial Futures 457
Accounting Treatments 458
Hedge of a Recognized Asset or Liability or an Unrecognized Firm Commitment 459
Hedge of a Net Investment in a Foreign Operation 461
Speculating in Foreign Currency 461
Recent Reporting Developments 462
Fair Value Hedges 463
Cash Flow Hedges 463
Foreign Currency Net Investment Hedges 463
Comprehensive Income 463
Financial Control 464
Financial Control Points 464
Appropriate Benchmarks 465
Reporting Systems 465
Selected References 466
Discussion Questions 467
Exercises 467
Case 11-1 Value at Risk: What Are Our Options? 470
Case 11-2 Exposure Identification 471
Chapter 12: International Taxation and Transfer Pricing 472
Initial Concepts 473
Diversity of National Tax Systems 473
Types of Taxes 473
Tax Burdens 477
Tax Administration Systems 478
Foreign Tax Incentives 480
Harmful Tax Competition 480
International Harmonization 481
Taxation of Foreign Source Income and Double Taxation 481
Foreign Tax Credit 481
Limits to Tax Credits 484
Tax Treaties 485
Foreign Exchange Consideration 485
Tax Planning Dimensions 486
Organizational Considerations 486
Controlled Foreign Corporations and Subpart F Income 486
Offshore Holding Companies 487
Foreign Sales Corporations 487
Possession Corporation 488
Financing Decisions 489
Pooling of Tax Credits 489
Cost Accounting Allocations 490
Logistics and Transfer Pricing 490
International Transfer Pricing: Complicating Variables 491
Tax Considerations 491
Tariff Considerations 493
Competitive Factors 494
Environmental Risks 495
Performance Evaluation Considerations 495
Accounting Contributions 496
Transfer Pricing Methodology 496
Market Versus Cost Versus . . . ? 496
Arm’s-Length Principle 497
Comparable Uncontrolled Price Method& 497
Resale Price Method 497
Cost-Plus Pricing Method 499
Comparable Profits Method 501
Profits Splits Method 501
Comparable Uncontrolled Transaction Method 501
Other Pricing Methods 501
Advance Princing Agreements 502
Transfer Pricing Practices 503
The Future 505
Selected References 506
Discussion Questions 506
Exercises 507
Case 12-1 Muscle Max: Your Very Own Personal Traine 510
Case 12-2 Congress Giveth and Congress Taketh 511
Index 512
