Bài giảng International Accounting - Chapter 1: Introduction to international accounting - Phạm Đức Cường

1/9/2021 1 1-1 International Accounting • Textbook:  Doupnik, T. and H. Perera, International Accounting (5th edition), McGraw-Hill Irwin, 2019  Others • • Lecturer: Assoc. Prof. Phạm Đức Cường, PhD. School of Accounting and Auditing The National Economics University 1-2 International Accounting_ Main contents • Topic 1 Accounting for Foreign Currency Transactions • Topic 2 Translation of Foreign Currency Financial Statements • Topic 3 International Financial Statement Analysis • Topic 4 Comparative Accounting • Topic 5 International Harmonization of Accounting Standards and Practices • Topic 6 International Transfer Pricing • Topic 7 International Taxation • Topic 8 Foreign Exchange Risk Management • First 9 chapters 1 2 1/9/2021 2 1-3 Assessment Scheme Assessment Items Value Note 1. Class participation 10% Continuous - class attendance and tutorial participation 2. Mid-term exam. 20% 60-minute test 3. Group Assignment 20% Group reports and Presentation 4. Final Exam 50% 90 minute-test 1-4 Definition  What is Accounting?  What is International Accounting? 3 4 1/9/2021 3 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 1: Introduction to International Accounting Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Learning Objectives  Discuss the nature and scope of international accounting  Describe accounting issues confronted by companies involved in international trade (import and export transactions)  Explain the reasons for, and the accounting issues associated with, foreign direct investment  Describe the practice of cross-listing on foreign stock exchanges  Explain the notion of global accounting standards  Understand the importance of international trade, foreign direct investment, and multinational corporations in the global economy 1-6 5 6 1/9/2021 4 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. International Accounting  Includes study of various functional areas of accounting  Focuses on the accounting issues unique to multinational corporations  Can be defined at three different levels 1) General level Study of standards, guidelines and rules of accounting, auditing and taxation within and across countries 2) Supranational accounting Standards, guidelines, and rules issued by supranational organizations such as IASB, IFAC, OECD 3) Company level Followed by company, specifically related to international business activities and foreign investments 1-7 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Accounting Issues Related to International Business—Sale to Foreign Customer  First encounter with international business occurs as sales to foreign customers  Credit sales are made to foreign customers who will pay in their own currency  Gives rise to foreign exchange risk 1-8 7 8 1/9/2021 5 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Accounting Issues Related to International Business—Sale to Foreign Customer (2)  Suppose that on February 1, 2018, Magnum., a U.S. company, makes a sale and ships goods to NMUK, a British customer, for £100,000 (UK)  However, it is agreed that NMUK will pay in Pound Sterling on March 2, 2018. The exchange rate as of February 1, 2018 is U.K. £1 = $1.35 dollars. How many dollars does NMUK agree to pay? 1-9 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Accounting Issues Related to International Business—Sale to Foreign Customer (3)  Even though NMUK agrees to pay £100,000 Magnum records the sale in U.S. dollars on February 1, 2018, as follows: [£1 = $1.35] 1-10 Dr. Accounts Receivable Cr. Sales Revenue 135,000 135,000 9 10 1/9/2021 6 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Accounting Issues Related to International Business—Sale to Foreign Customer (4)  Suppose that on March 2, 2018, the exchange rate for Pound Sterling is £1 =$1.30. Magnum will receive 100,000 Pound Sterling which are now worth $130,000 1-11 Dr. Cash Cr. Accounts Receivable 130,000 135,000 Dr. Loss on Foreign Exchange 5,000 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Hedges of Foreign Exchange Risk  Techniques to manage exposure  Foreign currency option  Right to sell foreign currency at a predetermined exchange rate and time  Forward contract  Obligation to exchange foreign currency at a future date 1-12 11 12 1/9/2021 7 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Foreign Direct Investment  Ownership and control of foreign assets  Two ways  Acquisition  Investment in existing operations in foreign countries  Greenfield investment  New operation in foreign countries 1-13 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Reasons for Foreign Direct Investment  Increase sales and profits  Enter rapidly growing or emerging markets  Reduce costs  Gain a foothold in economic blocs  Protect domestic markets  Protect foreign markets  Acquire technological and managerial know-how 1-14 13 14 1/9/2021 8 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Financial Reporting for Foreign Operations  Steps in reporting for Foreign Operations  Conversion from local to U.S. GAAP  Records prepared using local GAAP  Translate from local currency to U.S. dollars  Records are prepared using local currency 1-15 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. International Income Taxation  Double taxation  Foreign income taxes  The company’s profits taxed at foreign rates  U.S. income taxes  The U.S. will tax the company’s foreign-based income  Tax treaties provide relief from double taxation  Objectives  Legally minimize taxes in foreign countries and home country  Maximize after-tax cash flows 1-16 15 16 1/9/2021 9 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. International Transfer Pricing  Issue for multinational companies making intercompany sales  Companies’ use of discretionary transfer pricing  Price negotiation between buyer and seller not feasible due to tax rate differences  Companies shift profits from countries with high-tax rates to countries with low-tax rates  Countries regulate international transfer pricing to ensure companies pay their fair share of local taxes 1-17 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Performance Evaluation of Foreign Operations  Evaluation is through periodic reports on individual unit’s performance  Issues in evaluation  Translation from one currency to another  Inflated price paid in transfer pricing  Issues unique to foreign operations 1-18 17 18 1/9/2021 10 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. International Auditing  Internal auditing is an important component of management’s control process  Companies policies/procedures being followed  Uncover errors, inefficiencies, and possibly fraud  Abide by FCPA (Foreign Corrupt Practices Act)  Issues faced by internal and external auditors  Differences in language and culture  Differences in accounting standards and auditing standards 1-19 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Cross-Listing on Foreign Stock Exchanges  Cross-listing: stock listed and traded on several foreign stock exchanges  Issues  Listing regulations differ for foreign companies 1-20 19 20 1/9/2021 11 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Sustainability Reporting  Sustainability Value Report  Corporate Responsibility Report  Mostly voluntary but required in several countries  Provide information on:  Environmental impact  Labor practices  Product safety  Innovation 1-21 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Global Accounting Standards  Requires countries to adopt a common set of accounting rules  Advantages  Avoids GAAP conversion  Easier to evaluate foreign investment opportunities 1-22 21 22 1/9/2021 12 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The Global Economy  International trade constitutes a significant portion of the world economy  Largest exporters are China, the United States, and Germany  Largest importers are United States, Germany, and China  Foreign direct investment to retain advantage over competition  Multinational companies  International capital markets:  Help companies find capital at a reasonable cost  Help in having an “acquisition currency” for acquiring firms through stock swaps 1-23 End of Chapter 1 1-24 23 24