In the domestic case, accounting is an information service that provides financial
information about a domestic entity to domestic users of that information.
accounting is distinctive in that the entity being reported on is either a multinational
company with operations and transactions that transcend national boundaries or involves
an entiiy with reporting obligations to readers who are located outside the reporting
entity’s country of domicile.
Advantage: Some might argue that measurement, disclosure, and external auditing are
three distinct (although related) processes, involving different members of the company.
For example, corporate attorneys often are involved in disclosure issues, but seldom
intervene in measurement issues. The Board of Directors works with the external auditors
but not necessarily with the comptroller s office.
Thus, discussion of accounting
requirements and voluntary accounting choices in different jurisdictions is simplified by
focusing on the three components of accounting. Disadvantage: measurement, disclosure
and auditing are interdependent, and should not be viewed in isolation of one another. A
company choosing to disclose as little as possible, for example, may use accounting
measurement approaches that reduce the information content of financial statements, and
select an external auditor who will be relatively lenient in enforcing accounting
requirements. One alternative classification might include accounting (measurement and
disclosure), and auditing. A second classification might include financial reporting
(annual and interim reporting, regulatory filings) and ad hoc disclosure (press releases,
analyst meetings, etc). Any classification is arbitrary, and potentially useful depending on
Factors contributing to the internationalization of the subject of accounting include:
growth and spread of multinational operations around the world, the phenomenon of
global competition, the increasing number of cross-border mergers and acquisitions that
occur almost daily, continued advances in information technology, and the
internationalization of the world’s capital markets.
International trade involves importing and exporting activities.
The major accounting
issue associated with foreign trade involves accounting for foreign currency transactions.
Foreign direct investment, on the other hand, involves conducting operations abroad.
This activity exposes accountants to a new set of issues that run the gamut from having to
consolidate foreign currency accounts based on diverse measurement rules to issues of
evaluating the performance of foreign subsidiary managers.