1、,GLOBAL BUSINESS AND ACCOUNTING,Chapter15,Learning Objective,LO1,To define four mechanismscompanies use to globalizetheir business activities.,Globalization,Occurs as managers become aware of and engage in cross-border trade and operations. A high level of globalization is a multinational enterprise

2、 that begins with raw material extraction and ends with final product assembly and sales in multiple foreign locations.,Globalization,Globalization typically progresses through a series of stages that include:,Exporting Licensing Joint ventures Wholly owned subsidiaries Global sourcing.,Learning Obj

3、ective,LO2,To identify how globalenvironmental forces (a) political and legal systems,(b) economic systems,(c) culture, and (d) technologyand infrastructure affectaccounting practices.,Environmental ForcesShaping Globalization,Environmental ForcesShaping Globalization,Planned EconomyGovernment owns

4、factors of production,Market EconomyPeople owns factors of production,Environmental ForcesShaping Globalization,Learning Objective,LO3,To explain why there isdemand for harmonizationof global financialreporting standards.,Harmonization of Financial Reporting Standards,The International Accounting St

5、andards Board (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.,Harmonization of Financial Reporting Standards,Learning Objectiv

6、e,LO4,To demonstrate how toconvert an amountof money from onecurrency to another.,Foreign Currenciesand Exchange Rates,An exchange rate is the amount it costs to purchase one unit of currency with another currency.,1,000,000 $0.00764 = $7,640,Learning Objective,LO5,To compute gains or losseson recei

7、vables or payablesthat are stated in aforeign currency whenexchange rates fluctuate.,Accounting for Transactionswith Foreign Companies,On January 1, 2007, a U.S. company purchases equipment from an Italian company for 100,000. The amount is payable in full on that date. On January 1, 2007, the excha

8、nge rate is $0.97 per Euro.,U.S. company purchases 100,000 from financial institution.,Accounting for Transactionswith Foreign Companies,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 1, 2007,

9、 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.,Accounting for Transactionswith Foreign Companies,On January 1, 2007, a U.S. company purchases equipment from an Italian company for 100,000. The amount is payable in ful

10、l 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.,Accounting for Transactionswith Foreign Companies,On January 1, 2007, a U.S. company purchases equipment from an Italian compan

11、y 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.,Learning Objective,LO6,To describe severaltechniques for“hedging” against lossesfrom

12、 fluctuationsin exchange rates.,Hedging,Fair Value HedgeAny gain or loss is recognized currently in earnings. If the hedge is on available-for-sale securities, any gain or loss is reported in other comprehensive income on the equity section of the balance sheet.,Future contracts are the right torece

13、ive a specified quantity offoreign currency at a future date.,Translation of Foreign Currency Financial Statements,This is the first year of operations for a 100% owned Mexican subsidiary of the U.S. enterprise, Matrix, Inc.,Translation of Foreign Currency Financial Statements,Translation of Foreign

14、 Currency Financial Statements,If dividends are paid, the translation is based on the historical rate when the dividend is paid. The translated ending retained earnings carries forward to the next accounting period.,Translation of Foreign Currency Financial Statements,The translation adjustment is r

15、eported in other comprehensive income in the equity section of the balance sheet,Learning Objective,LO7,To discuss how globalsourcing increasesproduct cost complexity.,Global Sourcing,Differences in exchange rates in many different countries can create significant complexities for firms practicing g

16、lobal sourcing. Many companies underestimate the cost of globalizing their business operations because they are not familiar with the environmental characteristics previously discussed.,Customs duties,Import fees,Multicountry tax laws,Taxtreaties,Learning Objective,LO8,To explain the importanceof th

17、e Foreign CorruptPractices Act.,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 countries ignoring corrupt practices.,Foreign Corrupt Practices Act,Ethics, Fraud, andCorporate G