ChoiSM_ch09 - Chapter 9 International Financial Statement...

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Chapter 9 International Financial Statement Analysis Discussion Questions 1. a. Business strategy analysis Difficulties in cross-border business strategy analysis: Identifying key profit drivers and business risk in two or more countries can be daunting. Business and legal environments and corporate objectives vary around the world. Many risks (such as regulatory risk, foreign exchange risk, and credit risk) need to be evaluated and brought together coherently. In some countries, sources of information are limited and may not be accurate. b. Accounting analysis Difficulties in accounting analysis: Two issues are important here. The first is cross-country variation in accounting measurement quality, disclosure quality, and audit quality. National characteristics that cause this variation include required and generally accepted practices, monitoring and enforcement, and extent in managerial discretion in financial reporting. The second issue concerns the difficulty in obtaining information needed to conduct accounting analysis. The level of credibility and rigor of financial reporting in Anglo-American countries generally is much higher than that found elsewhere. In fact, financial reporting quality can be surprisingly low in both developed and emerging-market countries. c. Financial analysis (ratio analysis and cash flow analysis) Difficulties in financial analysis: Extensive evidence reveals substantial cross-country differences in profitability, leverage, and other financial statement ratios and amounts that result from both accounting and non-accounting factors. Differences in financial statement items caused by national differences in accounting principles can be significant, and unpredictable in amount. Even after financial statement amounts are made reasonably comparable, interpretation of those amounts must consider cross-country differences in economic, competitive, and other conditions. d. Prospective analysis (forecasting and valuation) Difficulties in prospective analysis: Exchange rate fluctuations, accounting differences, different business practices and customs, capital market differences, and many other factors have major effects on international forecasting and valuation. Application of price multiples in a cross-border setting requires that the determinants of each multiple, and reasons why multiples vary across firms, be thoroughly understood. National differences in accounting principles are one source of cross-country variations in these ratios. Finally, all four stages of business analysis may be affected by: i. information access, ii. timeliness of information iii. foreign currency issues iv. differences in financial statement formats v. language and terminology barriers. 2.
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This note was uploaded on 04/07/2009 for the course ACT - taught by Professor Burks during the Spring '09 term at Troy.

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ChoiSM_ch09 - Chapter 9 International Financial Statement...

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