International finance and accounting handbook

international finance and accounting handbook 3rd edition pdf INTERNATIONAL FINANCE AND ACCOUNTING HANDBOOK THIRD EDITION Edited by FREDERICK D S CHOI JOHN WILEY & SONS, INC INTERNATIONAL FINANCE AND[.]

INTERNATIONAL FINANCE AND ACCOUNTING HANDBOOK THIRD EDITION Edited by FREDERICK D.S CHOI JOHN WILEY & SONS, INC INTERNATIONAL FINANCE AND ACCOUNTING HANDBOOK THIRD EDITION INTERNATIONAL FINANCE AND ACCOUNTING HANDBOOK THIRD EDITION Edited by FREDERICK D.S CHOI JOHN WILEY & SONS, INC ∞ This book is printed on acid-free paper.! Copyright © 2003 by John Wiley & Sons, Inc., Hoboken, New Jersey All rights reserved Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, e-mail: permcoordinator@wiley.com Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317572-3993 or fax 317-572-4002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our Web site at www.wiley.com Library of Congress Cataloging-in-Publication Data: International finance and accounting handbook / edited by Frederick D.S Choi.—3rd ed p cm Rev ed of: International accounting and finance handbook 2nd ed New York: Wiley, ©1997 Includes bibliographical references and index ISBN 0-471-22921-0 (cloth) International business enterprises—Accounting International business enterprises—Accounting—Standards Comparative accounting I Choi, Frederick D.S., 1942– II International accounting and finance handbook HF5686.I56H36 2003 657′.96—dc21 2002192266 Printed in the United States of America 10 To Lois— Thank you for being there always and all ways ABOUT THE EDITOR Frederick D.S Choi, is the Abraham L Gitlow Professor of Accounting and International Business and Dean of the Undergraduate College at the Stern School of Business at New York University He has served as chairman of NYU’s Department of Accounting, Taxation, and Business Law and its International Business Area and is former Director of the Vincent C Ross Institute of Accounting Research He has lectured at such institutions as the Cranfield School of Management (England), I.N.S.E.A.D (France), University of Washington, Japan America Institute of Management Science, University of Bocconi (Italy), and the Stockholm School of Economics (Sweden) and served as a member of the First American Visiting Team to establish the National Center for Industrial Science and Technology Management Development in the People’s Republic of China Professor Choi has contributed more than 100 pieces to the scholarly and professional literature including 20 books on the subject of international accounting and financial control The first edition of this Wiley publication, the Handbook of International Accounting, received the Most Outstanding Book Award, having been judged the best work on law and accounting for 1991 by the American Association of Publishers A Fellow of the Academy of International Business, he is a recipient of the Citibank Excellence in Teaching Award and the American Accounting Association’s Outstanding International Accounting Educator Award Currently serving as co-editor of the specialist journal, The Journal of International Financial Management and Accounting, Professor Choi joined NYU in 1981 vii ABOUT THE CONTRIBUTORS Carol Adams is a Professor of Accounting and Head of School of Business and Economics—Gippsland at Monash University She is a Council Member and Director of the Institute of Social and Ethical AccountAbility Linda Allen is a professor of finance at the Zicklin School of Business at Baruch College, City University of New York, and Adjunct Professor of Finance at the Stern School of Business New York University She is also the author of Capital Markets and Institutions: A Global View (Wiley) and co-author of Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms, 2nd edition (Wiley) She is an associate editor of the Journal of Banking and Finance, Journal of Economics and Business, Multinational Finance Journal, Journal of Multinational Financial Management, and The Financier, and has published extensively in top academic journals in finance and economics Edward I Altman, MBA, PhD, is the Max L Heine Professor of Finance at the Stern School of Business, New York University He is the Vice Director of the NYU Salomon Center and an international authority on credit risk management, corporate distress analysis, and fixed income valuation Paul M Bodner, Esq., CPA, is an attorney with offices in Great Neck, New York He has written and spoken extensively on international tax matters Paul Brunner, CPA, BCA (Hons), is a Partner in the Global Capital Markets Group of PricewaterhouseCoopers LLP and provides U.S accounting advice to non-U.S companies registered with the United States Securities and Exchange Commission and to companies seeking to undertake securities offerings, cross-border mergers and acquisitions, and structured transactions Mikelle A Calhoun, J.D., received her undergraduate degree and a master’s degree in speech communications and later obtained an MBA and a JD from the University of North Carolina As the result of her experience practicing law for ten years, Ms Calhoun’s interests are primarily in the areas of service and financial industry corporate strategy decisions and international operations Ya-Ru Chen, PhD, is currently an assistant professor of management and international business at New York University Her research has examined how fundamental processes of organizational behavior, such as feedback, intergroup processes, and conflict resolution, operate in various cultural settings She has published numerous articles in these areas She has also begun work exploring the social psychology of status, particularly with respect to its effects on behavior in negotiations ix x ABOUT THE CONTRIBUTORS Marcia Millon Cornett, PhD, is a professor of finance at Southern Illinois University, Carbondale She has written several articles in the areas of bank performance, bank regulation, corporate finance, and investments She has served as an associate editor for Financial Management and is currently an associate editor for the Multinational Finance Journal She is a member of the Board of Directors of the Southern Illinois University Credit Union Aswath Damodaran is a professor of finance at the Stern School of Business at New York University, and teaches the corporate finance and equity valuation courses in the MBA program He has published in the Journal of Financial and Quantitative Analysis, the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies, and has written three books on equity valuation (Damodaran on Valuation, Investment Valuation, The Dark Side of Valuation) and two on corporate finance (Corporate Finance: Theory and Practice and Applied Corporate Finance: A User’s Manual) He has co-edited a book on investment management with Peter Bernstein (Investment Management) He was profiled in BusinessWeek as one of the top 12 business school professors in the United States in 1994 William E Decker, CPA, is the senior partner and founder of PricewaterhouseCoopers LLP’s Global Capital Markets Group He has served on the AICPA’s International Practices Task Force and is the author of The Coopers & Lybrand SEC Manual, 7th ed (John Wiley & Sons, 1997) Gunter Dufey, DBA (University of Washington, Seattle), is an adjunct professor in banking and finance at Nanyang Technological University, Nanyang Business School, Singapore He also serves as a senior advisor with McKinsey and Company, supporting the corporate governance practice of the firm in Asia David K Eiteman, PhD, is emeritus professor in international finance at the John E Anderson Graduate School of Management at UCLA He has been a visiting professor at the National University of Singapore and the Hong Kong University of Science and Technology He is a past president of the Western Finance Association and the International Trade and Finance Association He is a co-author of Multinational Business Finance, Fundamentals of Multinational Finance, and Essentials of Investing Edwin J Elton, PhD, is a Nomura Professor of Finance at the Stern School of Business at New York University Professor Elton has authored or co-authored six books and over 90 articles, and is a former president of the American Finance Association Robert Feinschreiber is an attorney and counselor in Miami His firm, Feinschreiber & Associates, concentrates on international transfer pricing He has written and edited many books on taxation, including Transfer Pricing Handbook, Transfer Pricing International: A Country-by-Country Guide, and International Mergers: A Countryby-Country Tax Guide He is the editor of Interstate Tax Report and the founding editor of the International Tax Journal Lisa Filomia-Aktas is a partner in Ernst & Young’s New York Financial Services office She leads the On-Call Advisory Services group, which assists with evaluating ABOUT THE CONTRIBUTORS xi the accounting, tax, and regulatory aspects of derivative, securitization, corporate finance, M&A, leasing, compensation, and structured product transactions Lisa has advised a significant number of leading investment banks, global financial institutions, and Fortune 1000 corporations on capital market transactions She is a member of the accounting subcommittee for the American Securitization Forum and is a frequent speaker at conferences Carol A Frost, PhD, is president of Global Capital Markets Access, LLC, a consulting and research company based in Hanover, New Hampshire Prior to forming GCMA LLC, she was on the faculties of the Tuck School of Business at Dartmouth College and the Olin School of Business at Washington University (St Louis) She also is a member of the Nasdaq Listing and Hearing Review Council Geoff Frost is a senior lecturer in accounting at the University of Sydney His major research interests are environmental accounting and reporting Ian H Giddy, PhD, is a visiting associate professor of finance at New York University’s Stern School of Business and a consultant to multinational companies and banks Sidney J Gray is Professor of International Business and Associate Dean (Postgraduate) in the Faculty of Commerce and Economics at the University of New South Wales, Sydney, Australia He is also currently President of the Australia and New Zealand International Business Academy (ANZIBA) Martin J Gruber, PhD, is the past president of the American Finance Association, and the author of more than seven books and 75 articles The sixth edition of his book, Modern Portfolio Theory and Investment Analysis, has recently been published by John Wiley & Sons Sara Hanks is a partner with the international law firm Clifford Chance, where she practices international securities law She was formerly chief of the SEC’s Office of International Corporate Finance Seymour Jones is Clinical Professor of Accounting at the Stern School of Business, New York University Previously, he was a senior partner of Coopers & Lybrand (now PricewaterhouseCoopers) He teaches auditing, accounting, tax and legal issues for entrepreneurs, and international financial statement analysis Mr Jones has written several books and publications on accounting subjects and is also associate director of the Ross Institute of Accounting Research, New York University Margaret Kent is an attorney and counselor at Feinschreiber & Associates in Miami, Florida Stephen J Mezias, PhD, is a professor in the Department of Management at New York University His current research focuses on institutional processes, especially as they apply to public policy regarding financial reporting standards, simulation of organizational learning processes, and cultural differences and similarities in multinational corporations xii ABOUT THE CONTRIBUTORS James L Mills, PhD, is a professor of international finance and banking at Thunderbird—The American Graduate School of International Management He has served as visiting faculty at the Institute of International Studies and Training (Japan), McMaster University (Canada), and Stichting Nijenrode (Netherlands) In addition to teaching courses in international treasury management and financial engineering, he is co-author of Prime Cash: First Steps in Treasury Management (McGraw-Hill, 1993) Michael H Moffett, PhD, is a professor of international finance at Thunderbird— The American Graduate School of International Management He has served as visiting faculty and researcher at the Helsinki School of Economics (Finland), the International Center for Public Enterprises (Slovenia), Handelsjoskoen I Aarhus (Denmark), the University of Michigan, Ann Arbor (USA), and the Brookings Institution (USA) In addition to teaching classes in international corporate financial management, he is the co-author of Multinational Business Finance (Addison-Wesley, 1994) and International Business (Dryden, 1995) Patrice Murphy, PhD, holds degrees in business, labor relations, and political science Her research interests include cross-cultural issues in performance management, and the effects of diversity on intragroup processes She is a consultant with Robert H Shaffer and Associates, Stamford, Connecticut Paul Narayanan is an independent financial consultant He co-authored one of the pioneering works in business failure classification models, the Zeta score model (1977) Belverd E Needles Jr., PhD, CPA, is the Anderson LLP Distinguished Professor of Accountancy at DePaul University He is the author of many publications in the field of international accounting and auditing He has served as chair of the International Section of the American Accounting Association, has been on the Executive Committee of the European Accounting Association, and served on the Education Committee of the International Federation of Accountants He is currently president of the International Association for Accounting Education and Research and is senior vice chair of the Illinois CPA Society Paul Pacter, PhD, CPA, is director of the Global IAS Office of Deloitte Touche Tohmatsu He is based in Hong Kong His primary responsibilities at Deloitte are developing his firm’s responses to IASB proposals; responding to client technical questions; writing an IAS newsletter called IASPlus; managing the Website www.iasplus.com; training; and a project to assist the Ministry of Finance of China in developing accounting standards From 1996 to 2000 he was International Accounting Fellow at the International Accounting Standards Committee, London Previously, he worked for the U.S Financial Accounting Standards Board from its inception in 1973 and, for seven years, was Commissioner of Finance of the City of Stamford, Connecticut Paul was vice chairman of the Advisory Council to the U.S Governmental Accounting Standards Board (1984–1989) and a member of GASB’s pensions task force and FASB’s consolidation task force ABOUT THE CONTRIBUTORS xiii Lee H Radebaugh, DBA, is the KPMG Peat Marwick Professor of Accounting at Brigham Young University and Co-Director of the BYU–University of Utah Center for International Business Education and Research He is the author of International Business Environments Operations, 7th ed (Addison-Wesley) with John D Daniels, International Accounting and Multinational Enterprises (John Wiley & Sons, 3rd Edition) with S J Gray, and Introduction to Business: International Dimensions (South-Western Publishing Company) with John D Daniels Kurt P Ramin, MBA, CPA, CEBS, is commercial director, International Accounting Standards Committee Foundation, in London He is a former partner of PricewaterhouseCoopers LLP, New York He currently also acts as vice chair for XBRL International, a worldwide consortium to improve worldwide financial reporting James R Ratliff is a retired professor of accounting at the Leonard N Stern School of Business at New York University His professional interests include financial accounting, not-for-profit auditing, auditing, and ERISA Anthony Saunders is John M Schiff Professor of Finance and Chair of the Department of Finance at the Stern School of Business at New York University He holds positions on the Board of Academic Consultants of the Federal Reserve Board of Governors and the Council of Research Advisors for the Federal National Mortgage Association He is an editor of the Journal of Banking and Finance and Financial Markets, Instruments and Institutions Tony Shieh, PhD, is an assistant professor in the Department of Accountancy at the City University of Hong Kong Roy C Smith is the Kenneth Langone Professor of Entrepreneurship and Finance, and Clinical Professor of International Business and of Professional Responsibility at the Stern School of Business, New York University Prior to joining the faculty at Stern in 1987, he was a general partner of Goldman, Sachs & Co., specializing in international investment banking and corporate finance During his career at Goldman Sachs he served as President of Goldman Sachs International Corp while resident in the firm’s London office In addition to various articles in professional journals and op-ed pieces, he is the author of several books on financial topics Richard C Stapleton is professor of accounting and finance at Strathclyde University, Glasgow, United Kingdom Formerly, he taught at Lancaster University, University of Cambridge, Manchester Business School, and New York University He is a past president of the European Finance Association He has advised several global financial institutions in the area of derivatives He has also published extensively on asset pricing and financial markets, with particular reference to derivatives Donna L Street, PhD, is the Mahrt Chair in Accounting at the University of Dayton She is Vice President of Publications for the International Association for Accounting Education and Research and Secretary of the International Accounting Section of the American Accounting Association Professor Street has published several papers on segment reporting in journals including Journal of International Accounting Research; Accounting Horizons; Journal of International Accounting, Auditing, and Taxation; Accountancy; and Journal of Accountancy xiv ABOUT THE CONTRIBUTORS Marti G Subrahmanyam is the Charles E Merrill Professor of Finance, Economics, and International Business at the Stern School of Business, New York University He has been a visiting professor at leading schools in France, England, Germany, and India He has served as a consultant to several financial institutions in the United States and abroad, and sits on many board of directors He has a number of publications in leading academic journals in the areas of corporate finance, financial markets, asset pricing, and international finance Judy Tsui, PhD, is the Dean, Faculty of Business and Information Systems, and Chair Professor of Accounting at the Hong Kong Polytechnic University Jon A Turner, PhD, is Professor of Information Systems at the Stern School of Business, New York University, and Deputy Department Chair of the Information, Operations, and Management Sciences Department His current research involves studies of new forms of organizing work enabled by technology and studies of technology infrastructure Norman R Walker is a partner in the National Auditing Services Group for PricewaterhouseCoopers LLP He is a former director of MNC Client Services for Price Waterhouse World Firm Jeffrey B Wallace, CPA, is managing partner of Greenwich Treasury Advisors LLC, which he founded in 1992 GTA provides international treasury consulting, and is best known for its treasury benchmarking programs and risk management consulting He wrote The Group of 31 Report: Core Practices for Managing Multinational FX Risk (Association for Finance Professionals, 1999), which may be freely downloaded at www.greenwichtreasuryc.com Formerly, he was Vice President–International Treasury at American Express, an assistant treasurer at both Seagram and Dun & Bradstreet, and a CPA with PricewaterhouseCoopers Ingo Walter, PhD, is the Charles Simon Professor of Applied Financial Economics and director of the New York University Salomon Center, Leonard N Stern School of Business, New York University He has also held an appointment as Professor of International Management at INSEAD in Fontainbleau, France He has been a consultant to a number of corporations and banks and has authored some 27 books on international economics and finance as well as articles in various professional journals Peter Walton, PhD, FCCA, is a professor of accounting at ESSEC Business School, Paris, France His research centers on international accounting and comparative regulation of financial reporting He is editor of World Accounting Report and a founder and former co-editor of the European Accounting Review He is a consultant to the United Nations Intergovernmental Working Group of Experts in International Standards of Accounting and Reporting (ISAR) Harold E Wyman, PhD, is a retired professor of accounting and former dean of the College of Business Administration at Florida International University He was a Peat Marwick Fellow and head of the accounting department at the University of Connecticut PREFACE This handbook is intended as a reference for financial managers, credit and security analysts, bankers, lawyers, accountants, auditors, and educators, whose decisions encompass the international dimensions of financial analysis, reporting, and control It expands and updates the topical coverage of its award-winning predecessor, The Handbook of International Accounting, and, in its second edition, the International Accounting and Finance Handbook Its new title, International Finance and Accounting Handbook, emphasizes the fact that many of the decision models for accounting, auditing, and financial reporting come from finance As financial decisions are premised to a large extent on accounting data, providers of financial information cannot add value unless they are cognizant of the operating processes, products, and decision needs of the user The key ingredient of any successful handbook is the expertise of its contributors On this score, the element that binds the authors of this collaborative effort is their commitment to excellence It has been, and continues to be, a pleasure and a privilege to be associated with this elite group of authors who combine both technical know-how with practical experience Indeed, a distinctive feature of this work is the balance between academic and practicing contributors, with many chapters being a collaboration between town and gown This volume is divided into the following parts: • Part I: Globalization of Financial Markets A comprehensive examination of current trends in the international markets for financial capital, services, and regulation • Part II: Financial Analysis Examines the decision models of users in the areas of foreign investments, treasury management, risk management, corporate valuation, bankruptcy prediction, and portfolio analysis • Part III: World Scene of Accounting and Reporting Practices Details the diversity that characterizes accounting measurements, corporate financial disclosure, and auditing standards • Part IV: International Accounting Harmonization Describes the institutional responses to international accounting diversity at the regional and international levels • Part V: Reporting Issues Covers standards and practices applying to multinational consolidations, financial derivatives, changing prices, asset securitization, segmental and foreign operations, social and environmental disclosures, corporate governance, financial control, performance measurement, and information systems • Part VI: International Transfer Pricing and Taxation Comprehensive treatment of objectives, policies, worldwide regulations, and practice treatments xv xvi PREFACE • Part VII: International Auditing Provides insights into both internal and external auditing requirements in a post-Enron world I wish to thank Sheck Cho, Executive Editor at John Wiley & Sons, Inc., who has been with this volume from its inception, and whose encouragement, support, and patience is much appreciated I also thank Ms Mary-Grace Tomecki for her assistance in riding herd on late manuscripts Above all, I am indebted to the select group of contributors who unselfishly gave of their time to contribute to this distinctive undertaking and who add immeasurably to the success of this wonderful team effort FREDERICK D.S CHOI New York, New York July 2003 IMPORTANT NOTE: Because of the rapidly changing nature of information in this field, this product may be updated with annual supplements or with future editions Please call 1-877-762-2974 or e-mail us at subscriber@wiley.com to receive any current update at no additional charge We will send on approval any future supplements or new editions when they become available If you purchased this product directly from John Wiley & Sons, Inc., we have already recorded your subscription for this update service CONTENTS PART I GLOBALIZATION OF FINANCIAL MARKETS Integration of World Financial Markets: Past, Present, and Future ROY C SMITH New York University Globalization of the Financial Services Industry INGO WALTER New York University BIS Basel International Bank Capital Accords LINDA ALLEN Baruch College, CUNY ANTHONY SAUNDERS New York University PART II FINANCIAL ANALYSIS Foreign Investment Analysis DAVID K EITEMAN University of California, Los Angeles International Treasury Management MICHAEL H MOFFETT Thunderbird—The American Graduate School of International Management JAMES L MILLS Thunderbird-The American Graduate School of International Management Management of Corporate Foreign Exchange Risk GUNTER DUFEY University of Michigan and McKinsey & Co IAN H GIDDY New York University xvii