What is Domestic Accounting?
Domestic Accounting: an information specialty providing information about a firm to users of that information as a basis for economic decisions.
What is International Accounting?
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.
What Does International Accounting Diversity Entail?
- Measurement principles
- Financial disclosure (corporate transparency)
- Auditing practices
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.
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.
Growth and spread of multinational operations
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
- 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
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.
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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