International Accounting, 6/e

Frederick D.S. Choi

Gary K. Meek

Chapter 1: Introduction

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Learning Objectives
 How is international accounting distinct from
domestic accounting?
 What does international accounting diversity entail?
 Does international accounting have a history?
 What factors are contributing to the importance of
international accounting as a field of study?
 What external and internal reporting issues arise
when business and investing transcend national
borders?
 What is meant by the term, global capital markets,
and what does development mean for capital market
participants?
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What is International Accounting?
 Domestic accounting: an information
specialty providing information about a firm to
users of that information as a basis for
economic decisions.
 International accounting (defined): same
as above except that the firm being reported
on is a multinational company with operations
and transactions that cross national
boundaries or an entity with reporting
obligations to non-domestic readers.
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What Does International
Accounting Diversity Entail?
 Measurement principles
 Financial disclosure (corporate transparency)
 Auditing practices

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Contributing Factors
 Accounting’s international heritage
 Double-entry originates in the Italian city states.
 Bookkeeping spreads to Germany and assists the spread
of capitalism.
 Dutch enhance income measurement.
 French use accounting for governmental planning and
control.
 Double entry assists the British in managing and controlling
commercial interests in the colonies.
 Accounting plays a major role in the U.S. industrial
revolution.

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Contributing Factors (contin)
 Paradox of international accounting
 In many countries, accounting remains a nationalistic
affair.
 Accounting serves people and institutions whose
decisions are international in scope.
 Accounting diversity creates a demand for
harmonization.

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Contributing Factors (contin)
 Growth and spread of multinational operations

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Choi/Meek, 6/e 8
Contributing Factors (contin)
 Reporting issues when business transcends national
boundaries
 Consolidation of foreign accounts
 Accounting for foreign currency fluctuations
 Accounting for changing prices
 International planning and control
 Performance evaluation of foreign operations
 Financial risk management
 International taxation and transfer pricing
 Financial innovation
 Identifying potential market risks
 Quantifying trade-offs associated with alternative risk reduction strategies
 Measuring risk exposures
 Accounting for specific hedge products
 Evaluating the effectiveness of hedging programs

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Contributing Factors (contin)
 Global competition
 Competitive
benchmarking
necessitates
international
comparisons.

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Contributing Factors (contin)
 Cross-border mergers and acquisitions
 Corporate valuation is a function of accounting
measurements that vary from country to country.
 E.g., the e in p/e valuation multiples.
 Internationalization of capital markets
 Raising external finance abroad means that
financial reports must increasingly travel
internationally.

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Choi/Meek, 6/e 12
Contributing Factors (contin)
 Reporting issues associated with
internationalization of capital markets
 How to analyze and interpret foreign accounts?
 How to report to foreign readers?
 How to harmonize reporting standards
internationally?

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Other Chapter Exhibits

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Chapter Exhibits (contin)

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Chapter Exhibits (contin)

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Chapter Exhibits (contin)

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Chapter Exhibits (contin)

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