International accounting M.

com semester 4

Presented By Ashish Siddiqui, Assistant professor, Sanskriti School of Business, AICTE Approved
compiled by Ashish Siddiqui, MBA

and taxation issued by supranational organizations. MBA . Such organizations include the United Nations. the accounting in international accounting encompasses the functional areas of financial accounting. Defined broadly. managerial accounting. and accounting information systems. auditing.1 The first level is supranational accounting. but many have only a vague idea of what international accounting is.Introduction  Most accounting students are familiar with financial accounting and managerial accounting. which denotes standards. the Organization for Economic Cooperation and Development. taxation. guidelines. and rules of accounting. and the International Federation of Accountants compiled by Ashish Siddiqui. • The word international in international accounting can be defined at three different • levels. auditing.

guidelines. auditing. MBA . (2) income and other tax rates. and (3) the requirements for becoming a member of the national accounting profession. international accounting can be viewed in terms of the standards. compiled by Ashish Siddiqui. The company level. • Examples would be cross-country comparisons of • (1) rules related to the financial reporting of plant. and equipment. guidelines. These would include standards for accounting for transactions denominated in a foreign currency and techniques for evaluating the performance of foreign operations  At the third and broadest level. property.  At the second level. and rules of accounting. and practices that a company follows related to its international business activities and foreign investments.Introduction cont. and taxation that exist within each country as well as comparison of those items across countries.. international accounting can be viewed as the study of the standards.

including such matters as accounting principles and reporting practices in different countries and their classification. patterns of accounting development. accounting in developing countries. international comparisons of consolidation accounting and inflation accounting. MBA . foreign exchange risk. accounting in communist countries. international and regional harmonization. performance evaluation of foreign subsidiaries. foreign currency translation.INTERNATIONAL ACCOUNTING DEFINITION • INTERNATIONAL ACCOUNTING is the international aspects of accounting. compiled by Ashish Siddiqui.

MNC contribution is 1/3rd of the world exports and also the contribution to the world GDP is Approx 10 %. development of world trade. Expansion of European union All these have emphasized the importance of International accounting recent years.  Emergence of MNC: Emergence of MNC on the international scène is one of the most important factors that has increased importance of international accounting.Importance of of International Accounting  Emergence of globalization. Internationalization of capital markets.  Development of world trade: In recent times international trade has increased to enormous figure and these lead to setting the transfer pricing for sale or transfer of raw materials between two international units compiled by Ashish Siddiqui.. growth of multinational corporation. MBA . The efforts that accountant has to put in preparing consolidation of financial statements if accounts all around the world are prepared on uniform basis.

MBA . compiled by Ashish Siddiqui.Importance of of International Accounting  Expansion of European union European union has come long way now a political and economic union of 27 independent sovereign states. This growth in size has also increased the EU economic dominance . financial reporting standard and insisted companies registered on regulated to prepare consolidated financial statements on the international reporting standard  Internationalization of capital markets: There has been tremendous increase in cross border financial transaction in the recent decade of two which has given rise to international capital market.The combined EU generates an estimated 30% share of world’s nominal GDP later to implement financial reporting strategy adopted the international. The estimated value of the world’s outstanding bonds equities and banking assets stood at whooping USD 190 trillion at the end of 2006. All these development has given rise to application of international accounting.

Scope of International Accounting  it covers a comparative study of financial accounting practices and principles in important countries of the world and similarities and diversities prevailing therein. integration of ethics and global joint ventures etc… compiled by Ashish Siddiqui. segment reporting and preparation of multi financial reporting. budgeting . forex risk management .  Analysis of new financial market issues and their managmetn through international derivative products.  Financial accounting coverage extends to problems foreign currency transactions and translation . MBA . environmental accounting . foreign investment analysis .global corporate governance.international taxation.accounting foreign inflation and consolidated financial reporting and its disclosure.  The management accounting coverage includes muitinational transfer.performance evaluation of foreign subsidiaries. Derivative accounting .

MBA .  Companies entering in to foreign capital market to list their securities in to foreign stock exchanges.  Rapid growth in international capital market  Increase of cross border merger and acquisition  Predominance of MNC  Reporting to existing and new investors spread world wide.NEED FOR TRANSNATIONAL REPORTING AND DISCLOSURE  The expanding horizon of business activity in recent years particularly as a consequences of opening up of economies has resulted in expansion in world trade. compiled by Ashish Siddiqui.  Submission of reports as per requirement of foreign securities exchanges.

Transnational reporting -complexities  Reporting financial statements across he border is not an easy task it requires lot of efforts and cost. Some of the complexities encountered during transnational reporting are as follows.  Language and currency  Accounting principles  Disclosure requirement  Audit requirement compiled by Ashish Siddiqui. MBA .

Transnational reporting -complexities • Language and currency An enterprise would generally prepare its financial reporting in the language that its local investors would understand for eg a Japanese company would prepare its financial statement in Japanese language and similarly in India few would like to have a translated version of non-indian companies financial statement in Hindi script. In short local investors would find difficult to understand financial statement of other country’s companies. Similarly a companies listed on as stock exchanges which have different language than the companies reporting have to send translated version of their financial statement reports. In the same way reporting companies also finds difficulties since every has unique currency. compiled by Ashish Siddiqui. MBA .

Transnational reporting -complexities • Accounting principles The more serious problem the reporting company faces is in contemplating the accounting principles of the another country. compiled by Ashish Siddiqui. MBA . Therefore U. For eg indian company would prepare its financial statement in accordance ti indian coimpanies act 1956 and in accordance Indian GAAP.S investors would find difficult to understand further certain information would be lacking as required by US GAAP.

Transnational reporting -complexities • Disclosure requirement Disclosure requirement is essential ingredient of proper functioning of capital market. However the problem is that every nation has different disclosure requirement and so reporting company finds it difficult to cope up with different disclosure requirement . Therefore it is utmost requirement of the company to disclose all required information in the financial statement to enable the investors to take appropriate decision. MBA . compiled by Ashish Siddiqui.

compiled by Ashish Siddiqui. MBA .Transnational reporting -complexities • Audit requirement The function of audit is to lend credibility to financial statement. However as we move towards harmonization and as international standard acquires authority auditors will have to conform the requirement of international standards of auditing. In order to do so auditing professionals itself need a set of well defined audit standards. This is particular so when financial statements are prepared in one country and used by users in another country. A great deal of diversity prevails in the international audit environment.

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