Bringing International Accounting Issues into the Classroom

1. Bringing International Accounting Issues into the Classroom Sue Haka Ernst & Young Professor Department of Accounting and Information Systems Broad School of Business Michigan State University

2. Environmental InfluencesExamples • Political/legal • statutory audits-accounting reports/taxes • Economic • sources of capital/cost of capital • Cultural • budgetary control/performance evaluation • Infrastructure • communication and education infrastructure

3. Accounting Topics • External Accounting • Standard Setters, Preparers and Users • Underlying Institutional Structures • Required reports • Internal Accounting • Decision Rights Assignment • Planning and Control • Performance Measurement and Evaluation

4. Topics-Environment Matrix

5. External Accounting-Institutional Structures • Capital Market Requirements • Market Structure -- www.iosco.org/ mergers in Europe • Other Means of Raising Capital-debt market • Standard Setting Processes • Private vs. Public control- e.g. recent IASB initiative on standards for small and medium enterprises • Accountability • Compliance & Enforcement • Varies widely around the world

6. External Accounting-Environment • Standard Setting Process • U.S. -- FASB – ‘Private’- http://www.fasb.org/ • China, Korea & Japan – varying levels of govt. control http://en.casc.gov.cn/internet/internet/en/newsreview/2006nzhrhkjzhzzhdjghyhdbg.html • International Accounting Standards Board • /http://www.iasb.org/Home.htm Use of comment letters for current projects • Users of Statements • legal/cultural driven • Compliance - Culture driven • http://www.geert-hofstede.com/

7. External Accounting-Topics • External Reporting Differences • U.S., U.K. -- Tax  Financial • Japan, Germany -- Tax = Financial • Differences in Debt and Equity Classifications • Korea vs. U.S. (short vs. long term) • Differences in goodwill treatment • U.S. vs. Japan • Differences in asset revaluation • US. vs. Brazil or Mexico (or IFRS)

8. Internal Accounting • Decision Rights Assignment • Negotiating Joint Ventures – China and India • Planning and Control • Complications of Global Operations-foreign exchange issues • Co-location of Knowledge and Rights=Joint ventures vs. wholly owned subsidiaries • Performance Evaluation • Multiple Currency Issues- operating risk management • Cross-border Decision Rights Issues-FCPA • Transfer Pricing in International Settings

9. Internal Accounting-Environment • Economic/Political-Planning and Control • International Taxes and Treaties • NAFTA (http://www.dfait-maeci.gc.ca/nafta-alena/menu-en.asp/) • Foreign Trade Zones (http://ia.ita.doc.gov/ftzpage/) • Transfer Pricing • Decision Rights Issues- APA agreements: (www.irs.gov/businesses/international/) • Political/economic- treaties (www.state.gov/) • https://www.cia.gov/library/publications/the-world-factbook

10. Internal Accounting-Environment • Economic/Political Continued • Risk Management- e.g. threat of nationalization • Financial -- http://www.eiuresources.com/ras/help_about.asp • Operational – http://www.irmba.com/ • Corruption • Foreign Corrupt Practices Act –ethics issues http://www.usdoj.gov/criminal/fraud/fcpa/ • Corruption index--http://www.transparency.org/

11. Internal Accounting-Topics • Performance Evaluation (Inter.J. of Acct., 34, #1, pp.49-70) • Japan ROA < U.S. ROA • low margins, • focus on market share, emphasize target cost • Japan ROE > U.S. ROE • high debt levels • keiretsu organization or chaebol (korea)

12. Internal Accounting- A pharmaceutical case example • Performance Measurement & Evaluation • Multiple Currency Issues ( U.K. to U.S.) • Transfer Pricing Issues (U.K. to Denmark) • Decision Rights Assignment • Knowledge Distribution (Mergers/Acquisition) • Control System (Conflict with Culture or operating environment)

13. Summary • Key to Understanding International Accounting • Political, Economic, Cultural and Infrastructure Influences on: • External Reporting • Taxes/Capital Markets/Gov. Regulation/Standard Setting/Reporting Requirements/Users • Internal Reporting • Planning and Decision Making • Control • Performance Evaluation

14. Where to get more information • Journals - International • International Journal of Accounting • Journal of International Accounting Research • Advances in International Accounting • Journal of International Business Studies • Journals - AAA • Accounting Horizons • Issues in Accounting Education • Other • Management Accounting • Journal of Accountancy • Economist

15. Where to get more information • Books • Introductory - International Accounting and Multinational Enterprises, 5th Edition by Lee H. Radebaugh, Sidney J. Gray • Integrated entry level - Financial and Managerial Accounting: The Basis for Business Decisions,Williams, Haka, Bettner, & Carcello 14th edition, McGraw-Hill/Irwin, 2008 • Upper level financial - International Accounting, Doupnik & Perera, McGraw-Hill Irwin, 2007

16. Where to get more information • Case Books • International Accounting: A Case Approach edited by Schweikart, Gray and Roberts, McGraw-Hill • Cases - AICPA (http://ceae.aicpa.org/Resources/Case+Studies/) • suehaka@msu.edu