1、 The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinGLOBAL BUSINESS AND ACCOUNTINGChapter15 The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinLearning ObjectiveLO1To define four mechanismscompanies use to globalizetheir business activities.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinGloba
2、lizationOccurs as managers become aware of and engage in cross-border trade and operations.A high level of globalization is a multinational enterprise that begins with raw material extraction and ends with final product assembly and sales in multiple foreign locations.The McGraw-Hill Companies,Inc.,
3、2008McGraw-Hill/IrwinGlobalizationGlobalization typically progresses through a series of stages that include:1.Exporting2.Licensing3.Joint ventures4.Wholly owned subsidiaries5.Global sourcing.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinLearning ObjectiveLO2To identify how globalenvironmental
4、 forces (a)political and legal systems,(b)economic systems,(c)culture,and(d)technologyand infrastructure affectaccounting practices.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinEnvironmental ForcesShaping GlobalizationGlobalizationPolitical and legalsystemEconomicsystemCultureTechnology andin
5、frastructure The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinEnvironmental ForcesShaping GlobalizationPlanned EconomyGovernment owns factors of productionMarket EconomyPeople owns factors of production The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinEnvironmental ForcesShaping Globalization
6、The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinLearning ObjectiveLO3To explain why there isdemand for harmonizationof global financialreporting standards.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinHarmonization of Financial Reporting StandardsThe International Accounting Standards Boar
7、d(IASB)has as one of its stated goals the harmonization of accounting standards.Harmonization is used to describe the standardization of accounting methods and principles used in different countries throughout the world.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinHarmonization of Financial R
8、eporting Standards Country/Standards Auditors per 100,000 Asset Valuation Method LIFO Used Depreciation Basis Segment Diclosure Required IFRS Revaluation allowed Used Economic based Yes United States 168 Historic cost Used Economic based Yes United Kingdom 352 Revaluation allowed Not Used Economic b
9、ased Yes Germany 26 Historic cost Not Used Tax based Limited Brazil 1 Revaluation allowed Not Used Economic based No Japan 10 Historic cost Used Tax based Yes Global Variation in Accounting Practices The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinLearning ObjectiveLO4To demonstrate how toconver
10、t an amountof money from onecurrency to another.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinForeign Currenciesand Exchange Rates Country/Region Currency Exchange Rate (in dollars)Exchange Rate(in foreign currency)Britain Pound()$1.74250 0.534 Europe Euro()0.89490 1.117 Japan Yen()0.00764 130
11、.900 Mexico Peso($)0.10946 9.136 India Rupee(Rs)0.02045 48.889 Foreign Exchange RateAn exchange rate is the amount it costs to purchase one unit of currency with another currency.1,000,000$0.00764=$7,640 The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinLearning ObjectiveLO5To compute gains or los
12、seson receivables or payablesthat are stated in aforeign currency whenexchange rates fluctuate.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinAccounting for Transactionswith Foreign CompaniesOn January 1,2007,a U.S.company purchases equipment from an Italian company for 100,000.The amount is pa
13、yable in full on that date.On January 1,2007,the exchange rate is$0.97 per Euro.DateDescriptionDebitCreditJan.1Equipment97,000 Cash97,000 (100,000 x$0.97)=$97,000U.S.company purchases 100,000 from financial institution.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinAccounting for Transactionswi
14、th Foreign CompaniesOn January 1,2007,a U.S.company purchases equipment from an Italian company for 100,000.The amount is payable in full on February 15,2007.On January 1,2007,the exchange rate is$0.97 per Euro.At 1/31/07 the spot exchange rate is 1=$0.96.On 2/15/07,the exchange rate is 1=$0.98.Date
15、DescriptionDebitCreditJan.1 Equipment97,000 Accounts payable97,000 (100,000 x$0.97)=$97,000 The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinAccounting for Transactionswith Foreign CompaniesDateDescriptionDebitCreditJan.31 Accounts payable1,000 Gain on rate fluctuation1,000 On January 1,2007,a U.
16、S.company purchases equipment from an Italian company for 100,000.The amount is payable in full on February 15,2007.On January 1,2007,the exchange rate is$0.97 per Euro.At 1/31/07 the spot exchange rate is 1=$0.96.On 2/15/07,the exchange rate is 1=$0.98.The McGraw-Hill Companies,Inc.,2008McGraw-Hill
17、/IrwinAccounting for Transactionswith Foreign CompaniesDateDescriptionDebitCreditFeb.15Accounts payable96,000 Loss on rate fluctuation2,000 Cash98,000 On January 1,2007,a U.S.company purchases equipment from an Italian company for 100,000.The amount is payable in full on February 15,2007.On January
18、1,2007,the exchange rate is$0.97 per Euro.At 1/31/07 the spot exchange rate is 1=$0.96.On 2/15/07,the exchange rate is 1=$0.98.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinLearning ObjectiveLO6To describe severaltechniques for“hedging”against lossesfrom fluctuationsin exchange rates.The McGra
19、w-Hill Companies,Inc.,2008McGraw-Hill/IrwinHedgingFuture contracts are the right toreceive a specified quantity offoreign currency at a future date.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinTranslation of Foreign Currency Financial StatementsZapato de Nationale,SARetained Earnings Statemen
20、tFor the Year Ended December 31,2007(000 Pesos)Retained earnings,January 1-Add:Net income6,800 6,800 Less:Dividends-Retained earnings,December 316,800 Zapato de Nationale,SAIncome StatementFor the Year Ended December 31,2007(000 Pesos)Revenues Service revenue17,000 Expenses Rent expense9,000 Insuran
21、ce expense1,000 Supplies expense200 Total expenses10,200 Net income6,800 PesoU.S.$January 1,200710.125$December 31,200710.100$Average for the year10.110$The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinZapato de Nationale,SAIncome StatementFor the Year Ended December 31,2007(000 Pesos)Revenues Se
22、rvice revenue17,000 Expenses Rent expense9,000 Insurance expense1,000 Supplies expense200 Total expenses10,200 Net income6,800 Translation of Foreign Currency Financial StatementsPesoU.S.$January 1,200710.125$December 31,200710.100$Average for the year10.110$The McGraw-Hill Companies,Inc.,2008McGraw
23、-Hill/IrwinTranslation of Foreign Currency Financial StatementsZapato de Nationale,SARetained Earnings StatementFor the Year Ended December 31,2007Retained earnings,January 1-$Add:Net income748 748 Less:Dividends-Retained earnings,December 31748$The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinPe
24、sosRateDollarsCash2,000 0.100$200$Receivables4,000 0.100 400 Inventory1,800 0.100 180 Equipment16,000 0.100 1,600 Total assets23,800 2,380$Translation of Foreign Currency Financial StatementsPesosRateDollarsAccounts payable2,000 0.100$200$Notes payable5,000 0.100 500 Common stock10,000 0.125 1,250 R
25、etained earnings6,800 748 Translation adjustments(318)Total assets23,800 2,380$Zapato de Nationale,SABalance SheetAt December 31,2007Cash200$Accounts receivable400 Supplies180 Equipment1,600 Total assets2,380$Liabilities Accounts payable200$Notes payable500 Total liabilities700$Stockholders equity C
26、ommon stock1,250 Retained earnings430 Total stockholders equity1,680 Total liabilities and stockholders equity2,380 AssetsLiabilities and Stockholders Equity The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinLearning ObjectiveLO7To discuss how globalsourcing increasesproduct cost complexity.The Mc
27、Graw-Hill Companies,Inc.,2008McGraw-Hill/IrwinGlobal SourcingDifferences in exchange rates in many different countries can create significant complexities for firms practicing global sourcing.Many companies underestimate the cost of globalizing their business operations because they are not familiar
28、 with the environmental characteristics previously discussed.Customs dutiesImport feesMulticountry tax lawsTaxtreaties The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinLearning ObjectiveLO8To explain the importanceof the Foreign CorruptPractices Act.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/
29、Irwin In many countries around the world,bribery is part of doing business.In many countries,this officially sanctioned corruption is not viewed as wrong or unethical.However,U.S.-based businesses are prohibited from influence peddling.The IMF and World Bank instituted policies to cut off funding to
30、 countries ignoring corrupt practices.Foreign Corrupt Practices Act The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinEthics,Fraud,andCorporate GovernanceThe Foreign Corrupt Practices Act(FCPA)appliesto U.S.companies and foreign companies operating in theUnited States,their affiliates,and their agents.Violations of the FCPAexpose companies and individualsto both civil and criminal liability.The McGraw-Hill Companies,Inc.,2008McGraw-Hill/IrwinEnd of Chapter 15
