Intl acctg pahler ch15

15

CHAPTER 15
GOING INTERNATIONAL
AND
INTERNATIONAL ACCOUNTING
STANDARDS

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FOCUS OF CHAPTER 15
● Globalization of Business:

Ways to Export
■ Ways to Manufacture Overseas
■ Reasons for Manufacturing Overseas
■

● International Accounting Standards:

The Diversity of Worldwide GAAP
■ Efforts to Harmonize Worldwide GAAP
■

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Going International: Ways to
Export (Choices Galore)

Independent distributor:
Foreign commission agent.
Foreign marketing branch.
Foreign marketing subsidiary.
Export trade vehicle (FSC or IC-DISC).

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Ways to Export: The Concept of
Physical Presence

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● Defined: Having an “operation” overseas.
Examples: SALES OFFICE, WAREHOUSE, FACTORY,
EMPLOYING FOREIGN CITIZENS AS SALES PERSONNEL.
● To make a determination:
■
■

Review foreign tax laws.

Review tax treaty.

● Significance: Subject to taxation

tax laws

in the

foreign country.
File a foreign
income tax return.
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Foreign Earnings:
DOUBLE Corporate Taxation???

● Income of foreign units are taxed overseas and in
the U.S--BUT DON’T PANIC.
● U.S. tax laws allow a “foreign tax credit.”
Tax Calculation
for
Brazil
U.S.
Pretax income of foreign unit... 100,000 100,000
Applicable tax rate.......................
20%
35%

Income taxes owed..................
20,000 35,000
Less--Allowable tax credits........
(20,000)
15,000
SlideU.S.
15-5 taxes owed........................


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Foreign Earnings: When Are U.S.
Taxes Actually Paid?

●3 possibilities exist:
■ Foreign branches:
IRS
▲ When INCOME is earned.
■ Foreign subsidiaries:
▲ When DIVIDENDS are paid.
▲ When INCOME is earned (applies
to “Subpart F” income)
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Reasons for Manufacturing
Overseas: The List is Long

● The lure of cheap labor
.
● Tax holidays.
Taxes

● To establish a visible presence.
● Lax environmental laws.

Dumping allowed

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Reasons for Manufacturing
Overseas: The List is Long

● High literacy rates & safe environments.
● A Strong work ethic.
● Loan guarantees, grants, subsidies.
● The fluctuating exchange rate problem.

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Risks of Investing Overseas:
All That Glitters Is Not Gold

● Expropriation--the seizure of assets by the foreign
government.
● Devaluations/weakening of the foreign currency.
● Currency transfer restrictions Wouldn’t it be nice
to be able to bring the profits home?
● Wars and civil disorders.
● Government mandated changes in the investment
climate.

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The Diversity of Worldwide
GAAP: An Almost Unbelievable
Cornucopia

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● Everything from soup to nuts.
● The United States is part of the problem--many
U.S. standards are either rarely used or
used at all overseas:

LIFO inventory method.
■ Deferred income taxes.
■ Goodwill capitalization.
■

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Internationalize Accounting
Standards: The Grand Dream

●World GAAP--so many hurdles.
●All are for it--BUT few countries
are willing to change their own
GAAP.

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International Accounting
Standards: World GAAP’s
Advantages

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● Having a Uniform World GAAP:
■

Would greatly streamline the quarterly and
year-end consolidation process for the
accountants of publicly-owned companies.

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15 Efforts To Internationalize
Accounting Standards: Progress
Has Been Slow

● The International Accounting Standards Board
[“Committee” prior to 2001] (created in 1973--London
based)
● IASB Standards to date: Minimal impact-still fairly easy to comply with virtually all IASB
Standards.
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15 Efforts To Internationalize
Accounting Standards: Capital
Market
Forces
●
The Capital Markets-A much-needed injection:
■

Relatively recent trend of raising capital in
world markets has given greatly added
emphasis to the desirability of having a
world GAAP. The BIG advantage:
▲ Would greatly streamline the process
by eliminating the need to comply with
multiple GAAPs in offering securities.

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15 Efforts To Internationalize
Accounting Standards: The FASB
Hops Aboard
● 2/97: FASB issues FAS 128
“Earnings Per Share” conforming
U.S. GAAP with world GAAP.
● 6/01: FASB abolished the
pooling of interests method
conforming U.S. GAAP
with world GAAP.

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End of Chapter 15

●Time to Clear Things Up-Any Questions?

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