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Financial&managerial accounting_15e williamshakabettner chap 15

Financial&managerial accounting_15e williamshakabettner chap 15

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Global Business and Accounting

Chapter 15

McGraw-Hill/Irwin

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights

Globalization
Occurs as managers become aware of and engage in cross-border trade and operations. A high level of globalization is a multinational enterprise that begins with raw material extraction and ends with final product assembly and sales in multiple foreign locations.

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Globalization

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Globalization
Globalization typically progresses through a series of stages that include: 1. Exporting 1. Exporting 2. International licensing 2. International licensing 3. International joint ventures 3. International joint ventures 4. Wholly owned international subsidiaries 4. Wholly owned international subsidiaries 5. Global sourcing. 5. Global sourcing.

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Environmental Forces Shaping Globalization
Political and legal Political and legal system system Culture Culture

Globalization Globalization

Economic Economic system system

Technology and Technology and infrastructure infrastructure
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Political and Legal Systems
• Threat of government control or seizure of assets. • Differing taxes, tariffs and licensing fees. • Restrictions on foreign ownership percentage. • Restrictions on currency flows. • Trade agreements specifying raw material sources and labor content. • Duty-free foreign trade zones. • Tax incentives encouraging or discouraging stock ownership. • Policies affecting individual savings. • Policies impacting educational level of citizens.

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Economic Systems
Planned Economy Government owns factors of production

Market Economy People owns factors of production

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Culture
Cultural Mindsets that Differ Significantly
Country Japan South Korea Brazil Italy Germany United States Great Britain Sweden Individualism L L L M M H H M Uncertainty Avoidance H H H H M M L L Long-Term Orientation H H M * L L L L High Power Distance M H H M L M L L

H = High, M = Medium, L = Low. *Not available

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Technology and Infrastructure Difficulty transferring
knowledge and information Inadequate transportation systems

Differences in educational and training levels

Unreliable utilities

Differences in internal accounting systems Lack of specialized equipment

Poor access to communication equipment

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Harmonization of Financial Reporting Standards
The International Accounting Standards The International Accounting Standards Board (IASB) has as one of its stated goals Board (IASB) has as one of its stated goals the harmonization of accounting standards. the harmonization of accounting standards. Harmonization is used to describe the Harmonization is used to describe the standardization of accounting methods and standardization of accounting methods and principles used in different countries principles used in different countries throughout the world. throughout the world.

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Harmonization of Financial Reporting Standards
Global Variation in Accounting Practices
Country/Standards IFRS United States United Kingdom Germany Brazil Japan 168 352 26 1 10 Auditors per 100,000 Asset Valuation Method Revaluation allowed Historic cost Revaluation allowed Historic cost Revaluation allowed Historic cost LIFO Used Used Used Not Used Not Used Not Used Used Depreciation Basis Economic based Economic based Economic based Tax based Economic based Tax based Segment Diclosure Required Yes Yes Yes Limited No Yes

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International Financial Reporting Standards and Budgeting
Two approaches to implementing international financial accounting standards Adoption
Europe 2005 Chili 2009 Canada 2011

Convergence
Australia 2007 China 2007 Japan 2011
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Foreign Currencies and Exchange Rates
An exchange rate is the amount it costs to purchase one unit of currency with another currency.
Foreign Exchange Rate
Exchange Rate (in dollars) $ 1.74250 0.89490 0.00764 0.10946 0.02045 Exchange Rate (in foreign currency) 0.534 1.117 130.900 9.136 48.889

Country/Region Britain Europe Japan Mexico India

Currency Pound (£) Euro (€) Yen (¥) Peso ($) Rupee (Rs)

¥1,000,000 × $0.00764 = $7,640

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Hedging
Future contracts are the right to receive a specified quantity of foreign currency at a future date.
Any gain or loss is recognized currently in Any gain or loss is recognized currently in earnings.. If the hedge is on available-for-sale earnings If the hedge is on available-for-sale securities, any gain or loss is reported in securities, any gain or loss is reported in other comprehensive income on the equity other comprehensive income on the equity section of the balance sheet. section of the balance sheet.
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Fair Value Hedge Fair Value Hedge

Global Sourcing
Differences in exchange rates in many different Differences in exchange rates in many different countries can create significant complexities for countries can create significant complexities for firms practicing global sourcing. firms practicing global sourcing. Many companies underestimate the cost of Many companies underestimate the cost of globalizing their business operations because they globalizing their business operations because they are not familiar with the environmental are not familiar with the environmental characteristics previously discussed. characteristics previously discussed.
Tax treat ies Multico untry tax laws

Cust oms dutie s

Imp ort fee s

£ € ¥
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Foreign Corrupt Practices Act

In many countries around the world, bribery is part of doing business. In many countries, this officially sanctioned corruption is not viewed as wrong or unethical. However, U.S.-based businesses are prohibited from influence peddling. The IMF and World Bank instituted policies to cut off funding to countries ignoring corrupt practices.

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End of Chapter 15

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