Chap019 - 19 Chapter Accounting in International Business...

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Chapter Accounting in International Business 19
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Case: Adoption of International accounting standards in Germany In Germany market for debt is expensive, limited possibility for raising additional equity German firms begin to raise equity on international capital markets only in 1990 Major German firms apply for listing on the US Securities and Exchange commission (SEC) SEC was not responsive because German accounting standards were not comparable to those in the US Not enough information to investors Adhering to generally accepted accounting principles ( GAAP) has its positives and negatives
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Accounting information and capital flows Fig19.1
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Determinants of national accounting standards Fig19.1
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Relationship between business and providers of capital Three external sources of capital: Individual investors Buying shares and bonds Banks. Loan capital Government Make loans or investment Importance of each varies from country to country
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Political and economic ties with other countries Accounting convergence: Influence of NAFTA Influence of the former British Empire Influence of the European Union
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Inflation accounting Historic cost principle : Assumes currency is not losing value to inflation Most significant impact in the area of asset valuation Appropriateness varies with inflation Current cost accounting : Factors out inflation Used in Great Britain until inflation rate declined
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Developed countries have more sophisticated accounting procedures Accounting problems are more complex Sophisticated capital markets Lenders require comprehensive reports
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Chap019 - 19 Chapter Accounting in International Business...

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