CHAPTER 1 Introduction 1
Historical Perspective 2
Contemporary Perspective 3
Growth and Spread of Multinational Operations 3
Global Competition 5
Cross-Border Mergers and Acquisitions 6
Financial Innovation 7
Internationalization of Capital Markets 7
North America 8
Asia 8
Western Europe 9
European Equity Markets—A Closer Look 10
Continental Europe's New Equity Culture 10
Cross-Border Equity Listing and Issuance 11
Where Are We? 12
Learning Objectives 13
Appendix 1-1 Stock Exchange Web Sites 17
Selected References 18
Discussion Questions 19
Exercises 20
Case 1-1 E-centives,Inc.—Raising Capital in Switzerland 22
CHAPTER 2 Development and Classification 24
Development 25
Classification 31
Four Approaches to Accounting Development 31
Legal Systems:Common Law versus Code Law Accounting 32
Practice Systems:Fair Presentation versus Legal Compliance Accounting 33
Selected References 35
Discussion Questions 36
Exercises 37
Case 2-1 Are Classifications of Accounting Outmoded? 40
Case 2-2 Volkswagen Group 41
CHAPTER 3 Comparative Accounting Ⅰ 44
Six National Financial Accounting Systems 46
France 46
Germany 51
Japan 56
The Netherlands 61
United Kingdom 65
United States 70
Selected References 76
Discussion Questions 76
Exercises 77
Case 3-1 Standing on Principles 81
CHAPTER 4 Comparative Accounting Ⅱ 83
Reasons for Choosing These Four Countries and areas 83
Some Observations About the Four Countries and areas and Their Accounting 84
Four National Financial Accounting Systems 86
Czech Republic 86
China 90
Taiwan 94
Mexico 98
Selected References 102
Discussion Questions 103
Exercises 104
Case 4-1 Does Secrecy Pay? 107
CHAPTER 5 Reporting and Disclosure 109
Development of Disclosure 110
Voluntary Disclosure 110
Regulatory Disclosure Requirements 111
The U.S.SEC Financial Reporting Debate 113
Reporting and Disclosure Practices 114
Disclosures of Forward-Looking Information 114
Segment Disclosures 116
Cash Flow and Funds Flow Statements 119
Social Responsibility Disclosures 119
Special Disclosures for Nondomestic Financial Statement Users and Accounting Principles Used 125
Corporate Governance Disclosures 126
Internet Business Reporting and Disclosure 126
Annual Report Disclosures in Emerging Market Countries 133
Implications for Financial Statement Users and Managers 135
Selected References 136
Discussion Questions 136
Exercises 137
Case 5-1 Information Access in Mexico 140
Case 5-2 Tele2 AB 141
CHAPTER 6 Foreign Currency Translation 142
Reasons for Translation 145
Background and Terminology 145
The Problem 147
Financial Statement Effects of Alternative Translation Rates 149
Foreign Currency Transactions 151
Single-Transaction Perspective 153
Two-Transaction Perspective 153
Foreign Currency Translation 155
Single Rate Method 155
Multiple Rate Methods 156
Financial Statement Effects 158
Which Is Best? 160
Appropriate Current Rate 162
Translation Gains and Losses 162
Deferral 163
Deferral and Amortization 163
Partial Deferral 164
No Deferral 164
Where Are We? 164
Translation Accounting Development 165
Pre-1965 165
1965-1975 165
1975-1981 165
1981-Present 166
Features of Standard No.52 166
Translation When Local Currency Is the Functional Currency 167
Translation When the U.S.Dollar Is the Functional Currency 167
Translation When Foreign Currency Is the Functional Currency 167
The Debate 170
Reporting Perspective 170
What Happened to Historical Cost? 171
Concept of Income 171
Managed Earnings 171
Foreign Currency Translation and Inflation 172
Foreign Currency Translation Elsewhere 173
Current Trends 174
Appendix:Translation and Remeasurement Under FAS No.52 174
Current Rate Method 175
Temporal Method 177
Selected References 179
Discussion Questions 180
Exercises 181
CHAPTER 7 Financial Reporting and Changing Prices 185
Changing Prices Defined 188
Why Are Financial Statements Potentially Misleading During Periods of Changing Prices? 190
Types of Inflation Adjustments 191
General Price-Level Adjustments 191
Price Indexes 191
Object of General Price-Level Adjustments 193
Current Cost Adjustments 195
Which Method Is Best? 196
International Perspective on Inflation Accounting 198
United States 198
United Kingdom 200
Brazil 201
International Accounting Standards Board 205
Inflation Issues 205
Inflation Gains and Losses 205
Holding Gains and Losses 206
Accounting for Foreign Inflation 207
Avoiding the Double-Dip 209
Appendix 7-1 Accounting for Foreign Inflation:A Case Analysis 211
Selected References 214
Discussion Questions 215
Exercises 216
Case 7-1 Kashmir Enterprises 220
CHAPTER 8 International Accounting Harmonization 221
Introduction 221
A Survey of International Harmonization 222
Advantages of International Harmonization 222
Criticisms of International Standards 223
Reconciliation and Mutual Recognition 224
Evaluation 225
Applicability of International Standards 225
Some Significant Events in the History of International Accounting Standard Setting 226
Overview of Major International Organizations Promoting Accounting Harmonization 227
International Accounting Standards Board 228
IASC's Core Standards and the IOSCO Agreement 232
The New IASB Structure 234
Recognition and Support for the IASB 235
U.S.Securities and Exchange Commission Response to IFRS 236
Comparisons between IFRS and Other Comprehensive Bodies of Accounting Principles 236
European Union(EU) 237
Fourth,Seventh,and Eighth Directives 238
Have EU Harmonization Efforts Been Successful? 239
The EU's New Approach and the Integration of European Financial Markets 240
International Organization of Securities Commissions(IOSCO) 241
International Federation of Accountants(IFAC) 243
United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting(ISAR) 245
Organization for Economic Cooperation and Development(OECD) 245
Conclusion 246
Selected References 247
Discussion Questions 248
Exercises 248
Case 8-1 Accounting Quality in East Asia 253
CHAPTER 9 International Financial Statement Analysis 255
Introduction 255
Challenges and Opportunities in Cross-Border Analysis 255
Business Analysis Framework 256
International Business Strategy Analysis 257
Information Availability 257
Recommendations for Analysis 258
Accounting Analysis 259
Suggestions for the Analyst 261
International Financial Analysis 262
Ratio Analysis 262
Cash Flow Analysis 265
Coping Mechanisms 265
International Prospective Analysis 266
Further Issues 269
Information Access 269
Timeliness of Information 272
Foreign Currency Considerations 273
Differences in Statement Format 276
Language and Terminology Barriers 278
Appendix 9-1 Illustration of Restatement of Japanese GAAP Financial Statements to a U.S.GAAP Basis 279
Selected References 284
Discussion Questions 285
Exercises 286
CHAPTER 10 Managerial Planning and Control 291
Business Modeling 292
Planning Tools 292
Capital Budgeting 294
Financial Return Perspectives 295
Measuring Expected Returns 296
Multinational Cost of Capital 299
Management Information Systems 301
Systems Issues 301
Information Issues 303
Management Information and Hyperinflation 304
Sales Revenue 305
Issues in Financial Control 308
Domestic Versus Multinational Control System 309
Operational Budgeting 311
Analysis of Exchange Rate Changes 315
Strategic Costing 318
Performance Evaluation of Foreign Operations 320
Consistency 320
Unit Versus Managerial Performance 321
Performance Criteria 322
Measurement Issues and Changing Prices in Evaluation 325
Performance Evaluation Practices:ICI 325
Foreign Currency Effects 327
Performance Standards 328
Selected References 330
Discussion Questions 331
Exercises 332
Case 10-1 Foreign Investment Analysis:A Tangled Affair 336
CHAPTER 11 International Taxation and Transfer Pricing 338
Initial Concepts 339
Diversity of National Tax Systems 339
Types of Taxes 339
Tax Burdens 340
Tax Administration Systems 343
Foreign Tax Incentives 344
Harmful Tax Competition 345
International Harmonization 345
Taxation of Foreign Source Income and Double Taxation 345
Foreign Tax Credit 346
Limits to Tax Credits 348
Tax Treaties 349
Foreign Exchange Considerations 349
Tax Planning Dimensions 350
Organizational Considerations 350
Controlled Foreign Corporations and Subpart F Income 350
Offshore Holding Companies 351
Foreign Sales Corporations 351
Financing Decisions 352
Pooling of Tax Credits 353
Cost Accounting Allocations 354
Location and Transfer Pricing 354
International Transfer Pricing:Complicating Variables 354
Tax Considerations 355
Tariff Considerations 357
Competitive Factors 358
Environmental Risks 359
Performance Evaluation Considerations 359
Accounting Contributions 359
Transfer Pricing Methodology 360
Market versus Cost versus...? 360
Arm's-Length Principle 361
Comparable Uncontrolled Price Method 361
Comparable Uncontrolled Transaction Method 361
Resale Price Method 361
Cost-Plus Pricing Method 363
Comparable Profits Method 364
Profit Split Methods 365
Other Pricing Methods 365
Advance Pricing Agreements 366
Transfer Pricing Practices 366
The Future 368
Selected References 368
Discussion Questions 369
Exercises 370
Case 11-1 Muscle Max:Your Very Own Personal Trainer 374
Case 11-2 Double Double:Tax Is Trouble 375