Contents
International Accountancy
Rationale
Obtaining an understanding of international accounting and financial reporting issues is fast becoming not only beneficial, but fundamental to developing into a successful member of the profession. Even if you don’t currently foresee a career working with multinational companies, your work experiences are likely to involve such organizations and will certainly be impacted by international accounting issues and the development of international accounting and reporting standards. The following excerpt from the Financial Accounting Standards Board’s report on its role in international accounting relates this point well:
"The evolution of a global society brings many implications for what, in the past, have been considered areas of strictly national authority or responsibility. It is increasingly difficult to think of an aspect of business that remains untouched by some level of international influence. As technology and the desire to tap the demands of nondomestic markets bring us closer together, formal and informal international groups are springing up to deal with demands for effective cooperation, for forums for national representation and input on international matters, for efficiency of global activities, for exchanging ideas internationally, and for conflict resolution. Existing organizations, whether national or international, are challenged to continually assess the relevance of their objectives, structures, and processes in the context of the international system of the future. Those that do not do so risk obsolescence in a global society.
Financial reporting and accounting standard setting are not immune to the changing times. We are beginning to see the emergence of a truly international accounting system—the emergence of international-level organizations and cooperative ventures among national organizations in the areas of accounting standard setting and financial statement preparation, auditing, regulation, and analysis—to deal effectively with the merging of national and international financial reporting issues."
(Excerpt from the US Financial Accounting Standards Board’s International Accounting Standard Setting: A Vision for the Future. Available for download at http:// www.rutgers.edu/Accounting/raw/fasb/index.html)
Chinese accounting standards are the accounting rules used in Chinese state owned corporations in mainland China . They are currently being phased out in favour of Generally Accepted Accounting Principles or International Accounting Standards .
Chinese accounting standards are unique because they originated in a socialist period in which the state was the sole owner of industry. Therefore unlike Western accounting standards, they are less a tool of profit and loss and an inventory of assets available to a company. In contrast to a Western balance sheet , Chinese accounting standards do not include an accounting of the debts that a corporation holds, and are less suitable for management control than for accounting for tax purposes.
This system of accounting is widely considered to be unsuitable for managing corporations in a market economy . As a result, Chinese corporations are gradually moving toward International Accounting Standards. This has proven to be a massive undertaking. One consequence of this system is that Chinese companies who offer shares for sale in the United States must prepare three sets of statements, one using Chinese accounting standards, one using international standards, and one using North American GAAP standards .
Learning Outcomes
On completion of the course:
1. The student will be able to identify the uses and purposes of financial statements prepared in the different accounting models.
2. The student will be able to cite differences in disclosures required in the accounting models and be able to describe the advantages and disadvantages of each model in today's business environment.
3. The student will be able to identify the audit opinions rendered by different model member audit firms.
4. The student will be able to identify similar and dissimilar approaches to preparation of the financial statements, journals and ledgers, point of recognition of sales and receivables, inventories, liabilities, and deferred taxes of these accounting models.
5. The student will be able to calculate ratios and analyze comparative financial statements between countries and, as part of the analysis cite why the ratios are misleading.
6. The student will be able to identify problems in international harmonization. The student will also be knowledgeable of the capital market efficiencies to be gained from harmonization.
7. The student will be able to explain the impact high inflation has on how financial statements are prepared.
8. The student will be able to identify needs for managerial accounting techniques in less developed countries and the cultural problems that might develop.
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Teaching and Learning Resources
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Financial Reporting in the Global Arena
Financial statements (or financial reports) are formal records of a business' financial activities.
In British English , including United Kingdom company law , financial statements are often referred to as accounts , although the term financial statements is also used, particularly by accountants .
Financial statements provide an overview of a business' financial condition in both short and long term. There are four basic financial statements: [1]
Balance sheet : also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and net equity as of a given point in time.
Income statement : also referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a period of time.
Statement of retained earnings : explains the changes in a company's retained earnings over the reporting period.
Statement of cash flows : reports on a company's cash flow activities, particularly its operating, investing and financing activities.
For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements.
- Purpose of financial statements
- Government financial statements
- Audit and legal implications
- Standards and regulations
- Inclusion in annual reports
- References
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Accounting & Business is ACCA's professional magazine, which is sent to all members and circulates widely within the international business and accountancy community. It addresses critical issues in international accountancy and business and contains the latest in news analysis and features.
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Harmonizing Financial Reporting Standards Globally
Tutorials
Readings
International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB).
Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the board of the International Accounting Standards Committee (IASC). In April 2001 the IASB adopted all IAS and continued their development, calling the new standards IFRS.
Harmonizing Disclosure of Corporate Finances to Reduce Risks to Investors
International rules for corporate financial disclosure evolved slowly in the 1990s as rapid integration of securities markets made compliance with widely varying national rules both costly and confusing for companies and regulators. By 2006, a limited effort by a small group of international accountants to write disclosure rules for companies that sold stock inmore than one country had become an unusual instrument of international governance. No treaty or international agreement provided a framework for financial disclosure rules. Instead, private efforts became public law by means of a slow process of government endorsement. More ...
Accounting for Currency Exchange Rate Changes
Tutorials
Readings
The foreign exchange ( currency or forex or FX ) market exists wherever one currency is traded for another. It is the largest financial market in the world, and includes trading between large banks, central banks , currency speculators , multinational corporations , governments , and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion. [1]
- Market size and liquidity
- Market participants
- Trading characteristics
- Factors affecting currency trading
- Algorithmic trading in forex
- Financial instruments
- Speculation
- References
Selected Financial Reporting and Disclosure Issues in the Global Context
Tutorials
Readings
Financial analysis refers to an assessment of the viability, stability and profitability of a business , sub-business or project .
It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports.
These reports are usually presented to top management as one of their bases in making business decisions. Based on these reports, management may:
- Continue or discontinue its main operation or part of its business;
- Make or purchase certain materials in the manufacture of its product;
- Acquire or rent/lease certain machineries and equipments in the production of its goods;
- Issue stocks or negotiate for a bank loan to increase its working capital .
- other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.
- Business valuation
- Fair value
- Fundamental analysis
- Optimism bias
- Reference class forecasting
- Return on capital
- Stock valuation
- Financial planning
- Ratios
- Notes
Using Corporate Financial Reports Across Borders
Tutorials
Readings
Aligning your Enterprise Financial Reporting Across Borders
20. July 2011
Enterprise financial reporting is a critical element of any successful business. It requires a high level of certainty, reliability, responsibility and sophistication. All of these requirements increase in complexity when you cross international borders. Many firms expand internationally before they really get their arms around the complexities of proper reporting. Here is one approach you may incorporate to align your enterprise financial reporting across borders.
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Economic Survey of the Euro Area 2009: Financial integration, innovation and the monetary policy transmission mechanism
Financial innovation and enhanced market integration have increased competitive pressures and facilitated financial deepening. But more needs to be done to foster integration, especially in mortgage markets.
Considerable progress has been made in integrating and deepening European financial markets during the first decade of monetary union, including the cross-border consolidation of financial companies and infrastructures. The introduction of the euro has created broader and deeper capital markets for debt securities and equity financing, and new policies have helped to bring down barriers to the provision of financial services across borders and create new common payments infrastructures. Financial innovation and enhanced market integration have increased competitive pressures and facilitated financial deepening. The assets and liabilities of households, businesses and financial institutions have risen markedly relative to incomes and output, and the geographical distribution of assets has become more dispersed. But, impediments to cross-border provision of financial services remain, especially in mortgage markets, and policy should do more to foster integration, for instance, by improving the access of foreign institutions to national credit and land registries and harmonising the cost and duration of foreclosure procedures. Supervisory and regulatory practices will have to keep pace with deeper cross-border integration.
Read More ...
- Financial integration across borders and across sectors: implications for regulatory structures
- Global Financial Stability
Financial Reporting in Emerging Capital Markets
Tutorials
Readings
Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. Based on data from 2006, there are around 28 emerging markets in the world[citation needed] (data from 2010 says there are 40 emerging markets[citation needed]). The economies of China and India are considered to be the largest.[1] According to The Economist many people find the term outdated, but no new term has yet to gain much traction.[2] Emerging market hedge fund capital reached a record new level in the first quarter of 2011 of $121 billion.[3]
Developing countries that are neither part of the least developed countries, nor of the newly industrialized
The ASEAN–China Free Trade Area, launched on January 1, 2010, is the largest regional emerging market in the world.[4]
- Terminology
- FTSE list
- MSCI list
- S&P list
- Dow Jones list
- Frontier Strategy Group (F10) list
- BBVA Research
- Emerging Markets Index
- Among the lists
- Global Growth Generators
- Six major emerging economies
- Next Eleven
- Emerging market debt
- Pre-emerging markets
- Developed market
- Frontier markets
- North-South divide
- Emerging Markets Index
- Tehran Stock Exchange
- Emerging and Growth-Leading Economies
- BRIC
- TIMBI
- References
- Sources
- What Are Emerging Markets? University of Iowa Center for International Finance and Development
- Emerging Markets Review Emerging Markets: A Review of Business and Legal Issues
- Emerging Markets & Hedge Funds Hedge Fund Strategy - Emerging Markets Fund
- Emerging Market Economies, Global Trade Imbalances, and the U.S. Dollar, Q&A with Pieter Bottelier (Johns-Hopkins-SAIS)
- Antoine Van Agtmael speaker biography and session description for the 2009 World Business Forum
- Emerging markets: leading the way to recovery Grant Thornton International Business Report
- Winning in Emerging Markets: Five Key Supply Chain Capabilities by Edgar E. Blanco. MIT Center for Transportation & Logistics.
- Emerging Money Education, trading analysis, and comprehensive views of global emerging markets.
- How multinationals and local companies can win in emerging markets
Financial Reporting in Emerging Capital Markets: Characteristics and Policy Issues
The institute of International Finance, a Washington-based research group, estimates that the flows of private capital into the worlds emerging economies will reach $231 billion in 1997. This figure does not include the flows of official capital to these countries, such as loans from the world Bank and the Asian Development Bank. For a group of countries whose political and economic importance has grown dramatically over the past two decades, relatively little has been written about financial reporting in these emerging economies. In this study, we analyze the characteristics of financial reporting in the "Emerging Capital Markets" (ECMs). ECMs refer to markets for long-term corporate securities in less-developed and transitional economies. Financial reporting has been increasingly viewed as vital infrastructure for the growth of emerging markets. As such, increasing attention must be devoted to how quality of financial reporting in these markets could be enhanced. We suggest that infomration availability, reliability and comparability provide useful criteria for evaluating and comparing the state of financial reporting in ECMs. Analysis revealed significant financial reporting diversity in ECMs with respect to these three criteria. Subsequent discussion of the regulatory options available to these markets also highlight the complexity and multifaceted nature of the relevant policy issues. We conclude by identifying areas of policy research in regard to financial reporting in ECMs. These research issues include the merits of alternative approaches to accounting regualtion and the value of achieving international comparability of financial reporting in those markets.
Read More ...
Managerial Issues in International Accounting
Tutorials
- Managerial Issues in International Accounting
- Bringing International Accounting Issues into the Classroom
Readings
Country risk refers to the risk of investing in a country, dependent on changes in the business environment that may adversely affect operating profits or the value of assets in a specific country. For example, financial factors such as currency controls, devaluation or regulatory changes, or stability factors such as mass riots, civil war and other potential events contribute to companies' operational risks. This term is also sometimes referred to as political risk; however, country risk is a more general term that generally refers only to risks affecting all companies operating within a particular country.
Political risk analysis providers and credit rating agencies use different methodologies to assess and rate countries' comparative risk exposure. Credit rating agencies tend to use quantitative econometric models and focus on financial analysis, whereas political risk providers tend to use qualitative methods, focusing on political analysis. However, there is no consensus on methodology in assessing credit and political risks.
- Country risk ratings
- Partial list of country risk premium
- Partial list of credit risk rating agencies
- Partial list of political risk analysis organizations
- Downloadable Country Analysis and Reports
- References
Foreign Corrupt Practices Act and Anti-corruption
The Independent Corrupt Practices Commission (ICPC), (in full the Independent Corrupt Practices and Other Related Offences Commission) is a Nigerian agency that was inaugurated on the 29th of September 2000 following the recommendation of President Olusegun Obasanjo. The mandate is to receive and investigate reports of corruption and in appropriate cases prosecute the offender[s], to examine, review and enforce the correction of corruption prone systems and procedures of public bodies, with a view to eliminating corruption in public life, and to educate and enlighten the public on and against corruption and related offences with a view to enlisting and fostering public support for the fight against corruption.[1] The Corrupt Practices and other Related Offences Act 2000 governs the committee's activities.[2]
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Resources
- Financial Accounting – International Accounting Standards
- International Accounting
- International Management Accounting
- The Theory of International Trade and Investment
