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International Accounting Choi SM

International Accounting Choi SM - Chapter 1 Introduction...

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Chapter 1 Introduction Discussion Questions 1. In the domestic case, accounting is an information service that provides financial information about a domestic entity to domestic users of that information. International 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. 2. 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 its purpose. 3. Factors contributing to the internationalization of the subject of accounting include: the 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. 4. 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. 5. Students will overwhelmingly argue in favor of harmonization. This is probably a good starting point for the course. After they are introduced to the chapters leading up to Chapter 8, some may no longer feel that harmonization is necessarily the answer to all of their international accounting problems.
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