Professional Documents
Culture Documents
Hetal Rohini
Chapter Objectives
To examine the major factors influencing the development of accounting practices in different countries To examine the global convergence of accounting standards To explain how companies account for foreign-currency transactions and translate foreign-currency financial statements To discuss different forms of performance evaluation of foreign operations and how foreign exchange can complicate the budget process To explain how arbitrary transfer pricing can complicate performance evaluation and control To introduce the balanced scorecard as an approach to evaluating performance
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Controller
Treasure
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Cont.
Helping for Corporate strategy Accounting Standards &procedures Preparation of financial statements
Internal auditing
Controller
Evaluation Of operations
In British Company : Capital & Reserves= Fixed Assets + Current Assets Currents Liabilities - Non Current Liabilities. The format is known as ANALYTICAL FOMAT.
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Accounting Objectives
The accounting process identifies, records, and interprets economic events. The Financial Accounting Standards Board (FASB) sets accounting standards in the United States. FASB provides information for three purposes:1) investment & credit decisions 2) assessments of cash flow prospects 3) evaluation of enterprise resources, claims those resources & changes in them The International Accounting Standards Board (IASB) is an international private-sector organization that sets accounting standards.
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The Public
Employees
Customers
Cont
International influences 1) Foreign History 2) IASB 3) Regional Cooperation 4) Regional Capital Market Academic influences 1) Educational infrastructure 2) Basic & Applied Research 3) Academic associations Nature of the enterprise 1) Form of business Organization 2) Operating characteristics
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Cont
Characteristics of local environment. 1) Rate of economic growth 2) Inflation rate 3) cultural attitudes 4) public v/s private ownership & control of the economy Other external users. 1) Creditors 2) Institutional investors 3) Non institutional investors 4) securities exchange
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Cont.
British companies are optimistic when recognizing income. U.S companies are slightly less optimistic. Japanese and European companies are even less optimistic than U.S. companies.
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Financial Statements
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Cont
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Convergence is the process of bringing different national Generally Accepted Accounting Principles (GAAP) into line with International Financial Reporting Standards (IFRS) issued by the IASB.
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Investor orientation. Global integration of capital markets. MNEs need for foreign capital. Regional political and economic harmonization. MNEs desire to reduce accounting and reporting costs. Convergence efforts of standards-setting bodies.
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Foreign-currency receivables and payables give rise to gains and losses whenever the exchange rate changes. Transaction gains and losses must be included in the income statement in the accounting period in which they arise. The FASB requires that U.S. companies report foreign currency transactions at the original spot exchange rate and that subsequent gains and losses on foreigncurrency receivables or payables be put on the income statement. The same procedure must be followed according to IFRS.
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Translation: the process of restating foreigncurrency financial statements. Consolidation: the process of combining the translated financial statements of a parent and its subsidiaries into one set of financial statements.
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Translation Methods
The functional currency is the currency of the primary economic environment in which the entity operates. The current-rate method applies when the local currency is the functional currency. The temporal method applies when the parents reporting currency is the functional currency.
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With the current-rate method, the translation gain or loss is recognized in comprehensive income rather than net income, and therefore it goes to owners equity. With the temporal method, the translation gain or loss is recognized in the income statement.
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Performance evaluation and control The impact of transfer pricing on performance evaluation The use of the balanced scorecard
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Different measures are used to evaluate performance of foreign operations, including ROI, sales, cost reduction, quality targets, market share, profitability, and budget to actual. When using a budget, management must select a currency to set the budget and a currency to evaluate performance. The most widely used approaches to translate budgets and compare with performance use forecasts of the exchange rate.
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Transfer pricing refers to prices on intra company transfers of goods, services, and capital. There are conflicting reasons for setting transfer prices that make it difficult for top management to select the correct price.
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The balanced scorecard is an approach to performance measurement that closely links the strategic and financial perspectives of a business. Using the balanced scorecard helps management avoid using only one measure of performance.
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Corporate Governance
The external and internal factors designed to safeguard the assets of a company and protect the rights of shareholders. Corporate governance practices worldwide are partly a function of the legal environment in the countries where companies operate.
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Thank you
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