International Accounting (5th edition) by Doupnik, Finn, Gotti, Perera (McGraw Hill Education)

To my wife, Birgit, and children, Stephanie and Alexander —TSD To Kaori, Alisa, Monica, and George —MF To my parents, and to Martina, Maurizio, Nicola, and Sara2 —GG To my wife, Sujatha, and daughter, Hasanka —HBP About the Authors Timothy S Doupnik  University of South Carolina Timothy S Doupnik is a Distinguished Professor Emeritus of Accounting at the University of South Carolina, where he joined the faculty in 1982 He served as director of the School of Accounting from 2003 until 2010, and then as Vice Provost for international affairs until 2013 He has an undergraduate degree from California State University–Fullerton and received his master’s and PhD from the University of Illinois Professor Doupnik has published exclusively in the area of international accounting in various academic journals, including The Accounting Review; Accounting, Organizations, and Society; Abacus; Journal of International Accounting Research; Journal of Accounting Literature; International Journal of Accounting; and Journal of International Business Studies Professor Doupnik is a past president of the International Accounting Section of the American Accounting Association, and he received the section’s Outstanding International Accounting Educator Award in 2008 He has taught or conducted research in international accounting at universities in a number of countries around the world, including Austria, Brazil, China, Dominican Republic, Finland, Germany, and Mexico Mark Finn  Northwestern University Mark Finn is a Clinical Professor of Accounting at the Kellogg School of Management, Northwestern University, having served on the Kellogg faculty since 1996 Prior to ­Kellogg, Professor Finn was on the faculty of the University of Chicago’s Booth School of Business He has also been affiliated with the Sasin Graduate Institute of Business Administration, Chulalongkorn University (Bangkok, Thailand), since 2003 He has been a visiting professor at the Indian School of Business (Hyderabad and Mohali) and Keio University (Hiyoshi, Japan) From 2001 to 2008 he was director of Kellogg’s Global Initiatives in Management (GIM) program He received a PhD from Cornell University and a BA with honors from Stanford University Professor Finn teaches core financial accounting and advanced classes in financial reporting, taxation, international accounting, and sustainability reporting He received the Chairs’ Core Teaching Award in 1999, 2005, 2008, 2012, and 2014 and the Indian School of Business’s Teacher of the Year award in 2003, 2008, and 2009 Within the GIM program, he served as a faculty adviser to classes on China, Japan, India, and South Africa His primary research interests are related to the quality and credibility of financial disclosures, especially in non-U.S settings His research articles include “Market Rewards for Increasing Earnings Patterns,” published in the Journal of Accounting Research Giorgio Gotti  iv University of Texas at El Paso Giorgio Gotti is the Chair of the Accounting and Information Systems Department and holds the Dr Gary J Mann Family Distinguished Professorship in Accounting at the College of Business Administration, University of Texas at El Paso He received his PhD in Business Administration and his Master of Accountancy from the University of Tennessee and a Laurea in Economics from Bocconi University, Italy He is a Chartered Accountant and Statutory Auditor in Milan, Italy Professor Gotti’s research and teaching interests are in international and financial accounting His papers have been published in the International Journal of Accounting; Journal of Accounting, Auditing & Finance; Journal of International Accounting About the Authors v Research; Management International Review; Journal of Business Ethics; Research in Accounting Regulation; and Journal of Management and Governance He has taught international accounting to graduate students at various universities in Italy, Brazil, and the United States Professor Gotti is past president of the International Accounting Section of the ­American Accounting Association He is a member of the Editorial Board of the International Journal of Accounting and Associate Editor of the Journal of International Accounting, Auditing & Taxation He has been a member of the Scientific Committee of the European Accounting Association Annual Congress since 2016 He served as Associate Editor of the Journal of International Accounting Research in 2014–2017 Hector B Perera  Emeritus Professor Hector Perera is an Emeritus Professor at Massey University, New Zealand, where he taught and conducted research for 20 years He joined Macquarie University in Australia in 2007, and retired in 2012 He has an undergraduate degree from the University of Ceylon (Peradeniya), Sri Lanka and a PhD from the University of Sydney, Australia Professor Perera’s research has dealt mainly with international accounting issues and has been published in a number of scholarly journals, including Journal of International Accounting Research; Critical Perspectives on Accounting; Journal of Accounting Literature; International Journal of Accounting; Advances in International Accounting; Journal of International Financial Management and Accounting; Abacus; Accounting and Business Research; Accounting Historians Journal; Accounting, Auditing and Accountability Journal; Journal of Contemporary Asia; British Accounting Review; Accounting ­Education—An International Journal; Australian Accounting Review; International Journal of Management Education; Emerald Emerging Markets Case Studies; and Pacific Accounting Review In an article appearing in a 1999 issue of the International Journal of Accounting, he was ranked fourth equal in authorship of international accounting research in U.S journals over the period 1980–1996 Professor Perera served as chair of the International Relations Committee of the ­American Accounting Association’s International Accounting Section in 2003 and 2004 He was an associate editor for the Journal of International Accounting Research and was on the editorial boards of Accounting Horizons, Qualitative Research in Accounting and Management, and Pacific Accounting Review Preface ORIENTATION AND UNIQUE FEATURES International accounting can be viewed in terms of the accounting issues uniquely confronted by companies involved in international business It also can be viewed more broadly as the study of how accounting is practiced in each and every country around the world, learning about and comparing the differences in financial reporting, taxation, and other accounting practices that exist across countries More recently, international accounting has come to be viewed as the study of rules and regulations issued by international organizations—most notably International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) This book is designed to be used in a course that attempts to provide an overview of the broadly defined area of international accounting It focuses on the accounting issues related to international business activities and foreign operations and provides substantial coverage of the IASB and IFRS The unique benefits of this textbook include its up-to-date coverage of relevant material; extensive numerical examples provided in most chapters; two chapters devoted to the application of IFRS; and coverage of nontraditional but important topics such as management accounting issues in multinational companies, international corporate governance, and corporate social reporting This book contains several important distinguishing features: • Numerous excerpts from recent annual reports to demonstrate differences in financial reporting practices across countries and financial reporting issues especially relevant for multinational corporations • Incorporation of research findings into the discussion of many issues • Extensive end-of-chapter assignments that help students develop their analytical, communication, and research skills • Detailed discussion on the most recent developments in the area of international convergence of financial reporting standards • Two chapters on IFRS that provide detailed coverage of a wide range of standards and topics One chapter focuses on the financial reporting of assets, and the second chapter focuses on liabilities, financial instruments, and revenue recognition (IFRS related to foreign currency translation is covered in other chapters.) The IFRS chapters also include numerical examples demonstrating major differences between IFRS and U.S GAAP and their implications for financial statements • Separate chapters for foreign currency transactions and hedging foreign exchange risk and translation of foreign currency financial statements The first of these chapters includes detailed examples demonstrating the accounting for foreign currency derivatives used to hedge a variety of types of foreign currency exposure • Separate chapters for international taxation and international transfer pricing, with detailed examples based on U.S tax law The chapter on international taxation covers the international tax provisions in the new U.S tax law (Tax Cuts and Jobs Act of 2017) vi • A chapter devoted to a discussion of the management accounting issues facing multinational corporations, with a focus on issues important for strategy formulation and implementation Preface vii • Coverage of the importance of corporate governance in an international context and the role of auditing (external and internal) in enhancing it • A chapter on sustainability reporting, which is becoming increasingly more common among global enterprises and is now a mandatory part of the corporate reporting model in many countries CHAPTER-BY-CHAPTER CONTENT Chapter introduces the accounting issues related to international business by following the evolution of a fictional company as it grows from a domestic company to a global enterprise This chapter provides the context into which the topics covered in the remaining chapters can be placed Chapters and focus on differences in financial reporting across countries and the efforts at converging accounting standards internationally • Chapter presents evidence of the diversity in financial reporting that exists around the world, explores the reasons for that diversity, and describes the problems that are created by differences in accounting practice across countries In this chapter, we also describe several major models of accounting used internationally, discuss the potential impact that culture has on the development of national accounting systems, and present a simplified model of the reasons for international differences in financial reporting The final section of this chapter uses excerpts from recent annual reports to present additional examples of some of the differences in accounting that exist across countries • Chapter focuses on the major efforts worldwide to converge financial reporting practices, with an emphasis on the activities of the IASB We explain the meaning of convergence, identify the arguments for and against convergence, and discuss the use of the IASB’s IFRS internationally The universal recognition of IFRS as a set of global accounting standards is one of the most important trends in modern accounting IFRS are used as the primary set of reporting standards in a majority of the world’s economies In countries that continue to use national standards, including the U.S and India, IFRS provide a set of benchmarks toward which the national standards converge over time Chapters and introduce financial reporting under IFRS for a wide range of accounting issues • Chapter summarizes the major differences between IFRS and U.S GAAP It provides detailed information on selected IFRS, concentrating on standards that relate to the recognition and measurement of assets—including inventories; property, plant, and equipment; investment properties; biological assets; and intangible assets The chapter also provides a discussion of accounting for business combinations and the scope of consolidation Numerical examples demonstrate the application of IFRS, differences between IFRS and U.S GAAP, and the implications for financial statements • Chapter focuses on current liabilities, provisions, employee benefits, share-based payment, income taxes, revenue recognition, financial instruments, and leases, including major differences between IFRS and U.S GAAP. This chapter also describes the requirements of IFRS in a variety of disclosure and presentation standards Chapters and deal with financial reporting issues that are of particular importance to multinational corporations Two different surveys of business executives indicate that viii Preface the most important topics that should be covered in an international accounting course are related to the accounting for foreign currency.1 Because of its importance, this topic is covered in two separate chapters (Chapters and 7) • Chapter 6 begins with a description of the foreign exchange market and then illustrates the accounting for foreign currency transactions Much of this chapter deals with the accounting for derivatives used in foreign currency hedging activities We first describe how foreign currency forward contracts and foreign currency options can be used to hedge foreign exchange risk We then explain the concepts of cash flow hedges, fair value hedges, and hedge accounting Finally, we present examples of accounting for forward contracts and options used as cash flow hedges and fair value hedges to hedge foreign currency assets and liabilities, foreign currency firm commitments, and forecasted foreign currency transactions • Chapter 7  focuses on the translation of foreign currency financial statements for the purpose of preparing consolidated financial statements We begin by examining the conceptual issues related to translation, focusing on the concept of balance sheet exposure and the economic interpretability of the translation adjustment Only after a thorough discussion of the concepts and issues we then describe the manner in which these issues have been addressed by the IASB and by the U.S FASB We then illustrate application of the two methods prescribed by both standard-setters and compare the results We discuss the hedging of balance sheet exposure and provide examples of disclosures related to translation The appendix to this chapter covers the translation of foreign currency financial statements in hyperinflationary environments In terms of importance, business executives rank international taxation second only to foreign currency as a topic to be covered in an international accounting course.2 International taxation and tax issues related to international transfer pricing are covered in ­Chapters and • Chapter begins with a discussion of the types of taxes and different tax rates imposed on corporations by countries around the world We describe different approaches countries take with respect to tax jurisdiction, the problem of double taxation due to overlapping tax jurisdictions, and mechanisms through which countries provide relief from double taxation, focusing on foreign tax credits We summarize the U.S approach to taxing income earned by foreign operations of U.S corporations and provide an example to demonstrate application of this approach We also discuss benefits of tax treaties and the translation of foreign currency amounts for tax purposes The appendix to this chapter describes several issues related to U.S taxation of expatriate individuals • Chapter covers the topic of international transfer pricing, focusing on tax implications We explain how discretionary transfer pricing can be used to achieve specific cost minimization objectives and how the objectives of performance evaluation and cost minimization can conflict in determining international transfer prices We also describe government reactions to the use of discretionary transfer pricing by multinational companies, focusing on the U.S rules governing intercompany pricing T Conover, S Salter, and J Price, “International Accounting Education: A Comparison of Course ­ yllabi and CFO Preferences,” Issues in Accounting Education 9, no (Fall 1994); and T Foroughi and S B. Reed, “A Survey of the Present and Desirable International Accounting Topics in Accounting Education,” I­nternational Journal of Accounting 23, no (Fall 1987), pp 64–82 Ibid Preface ix Chapter 10 covers management accounting issues of particular relevance to multinational corporations This chapter covers multinational capital budgeting as a vital component of strategy formulation and operational budgeting as a key ingredient in strategy implementation, and it discusses issues that must be addressed in designing a process for evaluating the performance of foreign operations Chapter 11 explains the importance of corporate governance internationally and the role of auditing in enhancing it This chapter discusses the meaning of corporate governance and both external and internal auditing issues as they relate to corporate governance Chapter 11 also describes international diversity in external auditing and the international harmonization of auditing standards Chapter 12 introduces sustainability reporting, a system of measuring and disclosing an entity’s social and environmental performance using well-defined, internationally agreed-upon standards Sustainability reporting is now required of all large companies in the European Union Elsewhere, most large companies voluntarily publish annual sustainability reports that are analogous to traditional financial reports Chapter 12 describes the structure of the sustainability reporting system, including the Global Reporting Initiative at the international level and the Sustainability Accounting Standards Board in the United States CHANGES IN THE FIFTH EDITION Chapter Chapter • Updated statistics in the section titled “The Global Economy.” • Updated end-of-chapter assignments based on annual reports and replaced other dated material with the most current information available • Updated annual reports excerpts from various companies • Discussed FASB and IASB joint project for developing common conceptual framework and its current status and future prospects • Added new questions and new exercises and problems to the end-of-chapter material Chapter • Updated examples of accounting diversity drawn from corporate annual reports and added several new companies to provide examples of accounting diversity • Moved the discussion of national culture as an influence on accounting to the section titled “Reasons for Accounting Diversity” and added a subsection describing a modification to Gray’s cultural accounting framework • Deleted the paragraphs related to religion and accounting in the section titled “Reasons for Accounting Diversity.” • Retitled the section “Accounting Clusters” as “Classification of Accounting Systems.” • Streamlined the previous section “Empirical Test of the Judgmental Classification,” making it a subsection within “Classification of Accounting Systems.” • Added several new questions and one new exercise to the end-of-chapter assignments Chapter • Updated the section on inventories to reflect the convergence of U.S GAAP to the lower of cost or net realizable value rule • Substantially expanded the discussion of investment property • Added a section on biological assets • Expanded the discussion of intangible assets to provide an extensive discussion of the capitalization of development costs in the auto industry • Moved material on business combinations and consolidation from Chapter (in the fourth edition) to this chapter • Added and/or modified problems to reflect the above changes Chapter • Moved the section on disclosure and presentation standards from Chapter (in the fourth edition) to this chapter 508  Chapter Twelve At the end of 2016, it was announced on the local radio that Modco was using child labor at two factories in Bangladesh Children aged 10–14 years old were found to be working in the factories for less than $50 a month, making products of the Modco brand for export to the United States Modco’s annual report, called “Global Responsibility Report,” covers the three dimensions of “People, Planet, Profit.” This report emphasizes gender equality and a diverse workforce In 2015, Modco took the commitment one step further with the incorporation of the Advisory Board on Gender Equality and Diversity, with the specific function of providing equal and enhanced opportunities for all in top leadership roles Modco has also committed itself to selling products that sustain people and the environment Required: Assume that you are part of a research team examining the sustainability reporting and stakeholder relations policies of large companies Evaluate the policies of Modco Index Note: Page numbers followed by n indicate source notes or footnotes Abbott Laboratories, 251, 252 AbbVie, 14 Abdallah, W M., 417n AB Electrolux, 48, 49, 83 Abode, for tax purposes, 357 Accountancy Foundation (UK), 452–454 Accounting diversity, 22–54 as argument against convergence, 78–79 classification of accounting systems, 36–40 evidence of, 23–27, 41–51 disclosure differences, 48–50 format of financial statements, 23–27, 41–45, 47 level of detail in financial statements, 45–47 measurement differences, 50–51 notes to financial statements, 47, 251–252 recognition differences, 50–51 terminology of financial statements, 23–27, 48 impact of, 22–23 problems caused by, 34–36 consolidated financial statement preparation, 34 financial statement comparability, 35–36, 63, 78, 80, 94 foreign capital market access, 34–35 high-quality accounting information, lack of, 36 U.S GAAP reconciliation requirements, 34–35, 53–54, 59–60, 85, 277 reasons for, 27–34, 39–40 accounting change in Europe, 40 economic ties, 30 inflation, 29 legal system, 27–28, 30, 37 national culture, 30–34 political ties, 30 providers of financing, 29 taxation, 28–29 reduction or elimination of See Convergence of financial reporting; International Financial Reporting Standards (IFRS) Accounting policies changes in, 193 selection of, 193 Accounting Standards Codification (ASC, U.S.), 28 See also Financial Accounting Standards Board (FASB, U.S.) Topic 606, Revenue from Contracts with Customers, 173–174 Topic 805, Business Combinations, 130 Topic 810, Consolidation, 129 Topic 815, Derivatives and Hedging, 225, 227 Topic 820, Fair Value Measurements and Disclosures, 90 Topic 830, Foreign Currency Matters, 220–223, 225, 284, 285, 288–290, 312–313, 314 Topic 842, Leases, 187, 189–190 Accounting system classification, 36–40 Gernon-Meek system of, 36–37, 37n See also Anglo-Saxon/Anglo-American accounting systems; Continental European accounting systems Nobes’s system of, 37–40, 63, 96n, 97n Accounts receivable derecognition, 185–186 hedging foreign-currency-denominated assets, 231–239 sales of, 185–186 Accrual basis accounting, 80 foreign currency transactions, 222–223 Accumulated depreciation of property, plant, and equipment (PPE), 287 temporal method of translating foreign currency, 287 Accumulated foreign earnings, deemed repatriation of, 350–351, 354 Accumulated other comprehensive income (AOCI), 226, 287, 288, 304–305 Acquisition method, 129–132 Acquisitions, See also Business combinations; Foreign direct investment (FDI) accounting diversity and, 35–36 acquisition currency and, 14 Actuarial gains and losses, 164 Adjusting events, 192 Advance pricing agreements (APAs), 390–392 Afterman, Allan B., 35n Air Canada, 111 AkzoNobel N.V., 48–49, 50 Alexander, David, 97n All Nippon Airways, 471 Alphabet, 120 Altice NV, 13 American Accounting Association (AAA), 87 American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB), 455 IFRS convergence and, 85–87 Web Trust Program for Certification Authorities, 474 American Jobs Creation Act (2004, U.S.), 347 Amortization amortized cost financial assets, 180–181 amortized cost financial liabilities, 181–182 of intangible assets, 120–127 Anglo American PLC, 13 Anglo-Saxon/Anglo-American accounting systems, 37–38, 40, 91–92, 96–97, 449, 450, 452–454 Anheuser Busch/Inbev SA/NV, 11 Anthony, Robert N., 411n Apple Computer Inc., 120, 391 Apple Inc., 214–215, 505 Applicable federal rate (AFR), 386 Archer, Simon, 97n “Arm’s-length range” of prices, 387 Arnold, Jerry L., 289n Arthur Andersen, 128, 462 ASEAN-China Free Trade Area, 5, 462n Asian Development Bank, 64–65 Asian financial crisis (1997–1998), 36, 64–65, 66, 445, 446, 448 Asian-Oceanian Standard Setters Group (AOSSG), 82 Assada, T., 417n, 431n Asset exposure, 221 Assets accounts receivable See Accounts receivable contingent, 160, 161 deferred tax assets, 170–172 defined, 80 financial See Financial assets impairment of See Impairment of assets intangible See Intangible assets inventory See Inventory investment property See Investment property property, plant, and equipment See Property, plant, and equipment (PPE) recognition of, 80 Association of Chartered Corporate Accountants (ACCA, UK), 453 Assurance services importance of, 445–446, 474 limited assurance, 498 reasonable assurance, 498 sustainability reporting and, 10, 496–503 Audit committees, 467–468 Audit expectation gap, 456–457 Auditing See also International auditing defined, 445n external See External auditing internal See Internal auditing Auditing Practices Board (APB, UK), 453, 459, 460 Auditing Standards Board (ASB, U.S.), 455 Audit quality, 446, 451–452 Audit Quality Framework, The (Financial Reporting Council, UK), 446 Australia external auditor liability, 463 internal control in, 473 in Nobes’s accounting system classification, 37–38 Authoritarian leadership style, 431 Bailes, J C., 417n, 431n Bailey, A D., 470n Baker, C R., 449n, 454n, 461n, 463n Balanced scorecard, 419 Balance sheet cumulative translation adjustment, 289 effects of capitalizing product development costs, 126–127 foreign currency translation current rate method, 285, 295–296 exchange rates in translating foreign currency, 285 foreign exchange transactions with balance sheet date before date of payment, 221–223 highly inflationary economies, 308, 312–314 temporal method, 285, 297, 308, 312–314 hedge accounting, 230–231 off-balance-sheet financing, 187–189 Balance sheet exposure versus transaction exposure, 281 in translating foreign currency financial statements hedging, 302–304 net asset exposure, 281–282, 283, 296, 302–303 net liability exposure, 282, 283 Baliga, B R., 413n, 414n Banco Bilbao Vizcaya Argentaria (BBVA), 129 Bank of China, 490 Bank overdrafts, 157 Bargain purchase, 132 Base erosion and profit shifting (BEPS), 341, 351, 352–353, 377 Base erosion anti-abuse tax (BEAT), 352–353 BASF Group, 305, 306, 496, 497 Baxter, W T., 92, 92n Baxter International, 496, 497, 501 Bayer, 40, 454 Belgium, in Nobes’s accounting system classification, 37–38 Berkshire Hathaway, 183 Bertelsmann, 125 BHP Billiton (BHP), 454, 506–507 Big Four accounting firms, 8–9, 462, 464, 474, 475 Bill-and-hold sales, 176 Bill and Melinda Gates Foundation, 483 Biological assets, 114–116 509 510 Index BlackRock, 485, 486 Black-Scholes option pricing model, 219, 226, 240, 240n Blocher, Edward J., 403n BMW, 125–127, 448 Board of directors See also Corporate governance audit committees, 467–468 internal control and, 473 shareholder orientation, 443, 444, 449, 485 single-tier, 443, 444, 449 stakeholder orientation, 443–444 two-tier, 443–444, 449, 476 The Boeing Company, 11, 14, 250, 251, 454 Bolkestein, Fritz, 98 Bona fide residence test, 357 Bonds See Debt securities Bonus plans, 162 Borkowski, S C., 419n Borrowing costs, 123, 135–136 appropriate interest rate, 135–136 defined, 135 Borsa Italiana, foreign stock exchange cross-listings, 35 Boston Consulting Group, 475 BP PLC, 211–213 Braskem SA, 48 Brazil, tax treaties, 340–341 Breakage, 177, 177n Brexit (2016), 223, 275, 459 Bribery, 8, 471–472 Broadcom Limited, 13 Brod, Frank, 174, 174n Brooks, Jermyn Paul, 28n Browning, Lynlley, 350n Bryant, Stephanie M., 67n Bureaucratic (output) management control systems, 413–414 Bureau Veritas, 497 Business combinations, 128–135 See also Consolidated financial statements acquisition method, 129–132 determination of control, 128–132 goodwill and goodwill impairment, 117–120, 130–135 intangibles acquired in, 120–122 Business form, 328–329 auditors’ liability and, 462 Business model and innovation, in sustainability reporting, 482, 483 Cadbury PLC, 471 Cairns, David, 67, 67n Callaway Gold Company, 43, 44, 46 Call options, 218 Canada external auditor liability, 463 foreign stock exchange cross-listings, 14 internal control in, 473 measures of performance, 418 in Nobes’s accounting system classification, 37–38 Canadian Institute of Chartered Accountants (CICA), 224, 466–467 internal control framework, 473 Web Trust Program for Certification Authorities, 474 Capalan, D., 473n CAP Gemini Group SA, 466 Capital budgeting, 330, 402, 403–411 cultural differences and, 431 defined, 403 illustration, 406–411 inflation in, 405, 406–407 by multinational corporations, 404–406 steps in, 403 taxation and, 405, 407 techniques in, 403–404, 408–411 Capital-export neutrality, 338 Capitalization of borrowing costs, 135–136 of intangible assets, 120–127 Capitalization ratio, 125–127 Capital maintenance, financial versus physical capital, 81 Carbon dioxide equivalent (CO2-e), 494–496 Carbon Disclosure Project (CDP), 489, 494 Carbon emissions reporting, 489, 493–496 Carrefour, 113 Carsberg, Bryan, 61, 62n Cases Besserbrau AG, 19 Better Food Corporation, 276 BP PLC Deepwater Horizon oil spill, 211–213 The Case of Modco Inc., 507–508 Columbia Corporation, 324–326 Daimler AG, 480 Daimler-Benz, 52–54 Felix Machine Company, 439–441 Honda Motor Company, 480 impact of culture on conservatism, 58–59 International Lamp Company, 401 Jaguar Land Rover PLC, 153–154, 275 Jardine Matheson Group (Part 1), 100–101 Litchfield Corporation, 400 Palmerstown Company, 326–327 Portofino Company, 275 SKD Limited, 59–60 Telco Ltd., 154–155 Vanguard International Growth Fund, 19–21 Worldwide United Corporation, 367–368 Zorba Company, 274 Cash flow exposure, 227 Cash flow hedge accounting forecasted foreign-currency-denominated transactions, 248–250 option contracts, 249–250, 262–263 foreign-currency-denominated assets and liabilities, 230–231 forward contracts, 233–237, 254–256 option contracts, 240–242, 257–259 Cash flows to parent (CFP), 409–410 Cash-generating unit (CGU), 132–135 Cash-settled share-based payments, 165, 167–169 Caterpillar, 14 Center for Audit Quality (CAQ), International Practices Task Force (IPTF), 314 Chan, K Hung, 376, 376n Chartered Institute of Management Accountants (CIMA), 429–430 Checklist approach, 475–476 Chen, Kung H., 403n Chevron Corporation, 323, 493–494 Chicago Mercantile Exchange, 218 China auditors’ liability and, 462 external auditing in, 450, 451, 454 largest multinational corporations and, 12, 13 mandatory sustainability reporting for Hong Kong Stock Exchange, 490–491 China Construction Bank, The, 490 China Eastern Airlines Corporation Ltd., 450, 454, 460 China Huishan Dairy, 116 China Southern Airlines, 460 Choi, Frederick D S., 79, 79n, 418n Choice-of-settlement share-based payments, 165, 167–169 Chow, C W., 404, 404n, 419n, 451n Christensen, Hans B., 491n Chrysler Corporation, 14, 53 Circuit City, 158 Cisco Systems Inc., 466 Citigroup Inc., 444 Citizenship, international taxation and, 336–337, 356–358 Class A accounting systems, 39, 40 See also International Financial Reporting Standards (IFRS) Class B accounting systems, 39, 40 Climate Disclosure Project, 491 Climate Disclosure Standards Board, 494 Coca-Cola Company, 13, 238, 239, 392, 454, 472 Cochrane, James L., 35n Code law accounting diversity and, 27–28, 30, 37 auditing diversity and, 451 Cokins, Gary, 403n Collins, F., 431n Collins, Stephen H., 35n Collinson, Simon, 2n, 5n, 12n Commercial codes, 28 Committee of European Securities Regulators (CESR), 83 Committee of Sponsoring Organizations of the Treadway Commission (COSO, U.S.), 470–473 Common law accounting diversity and, 27–28, 30, 37 auditing diversity and, 451 Compagnie Générale des Établissements Michelin, 49–50 Comparability of financial statements, 35–36, 63, 78, 80, 94 Comparability of Financial Statements Project, 63 Comparable profits method of transfer pricing, 382, 383, 385, 391 Comparable profit split method of transfer pricing, 382–383 Comparable uncontrolled price method of transfer pricing, 378–380, 383 Comparable uncontrolled transaction (CUT) method of transfer pricing, 384 Compensated absences, 162 Competitiveness in the audit market, 475 cost minimization and, 374–376 Component depreciation, 111 Compound financial instruments, 180 Comprehensive income See also Other comprehensive income (OCI) changes in fair value of derivatives, 226 defined, 226 Congressional Research Service, 332 Conservatism as accounting value, 31–33, 58–59, 223 accrual approach to foreign exchange as violation, 223 impact of culture on, 58–59 Consolidated financial statements, 128–135 See also Translating foreign currency financial statements acquisition method, 129–132 adoption of IFRS and, 81 as argument for convergence of financial reporting, 78, 81 challenges of preparing, 34 determination of control, 128–129 goodwill and goodwill impairment, 130–135 nature of, reporting translation adjustments, 282, 287–288 Constructive obligations defined, 158 provision for contaminated land, 161 Consultative Committee of Accountancy Bodies (CCAB, UK), 453 Consumer demand See also Investor confidence for auditing of multinational corporations, 470–471, 474 Index 511 for sustainability information, 484–486 Continental European accounting systems, 37–38, 40, 91–92, 449–450 Contingent assets, 160–161 defined, 160 disclosure of, 160, 161 recognition of, 160, 161 Contingent liabilities defined, 158 disclosure of, 158, 159, 161, 211–213 recognition of, 158–159, 211–213 Controlled foreign corporation (CFC) rules, 341, 342–350 foreign tax credit (FTC), 343–347, 349–350 safe harbor test, 343, 349–350 Subpart F income, 341, 342–343, 349–350 U.S tax treatment of foreign operation income, 347–350 Controlling financial interests, 128–129 Control premium, 132 Convergence of financial reporting, 61–97 See also International Accounting Standards Board (IASB); International Financial Reporting Standards (IFRS) arguments against, 75, 78–79 arguments for, 78, 81 auditing standards and, 455–460 challenges to international, 83, 91–92 future of, 93–94 harmonization of accounting standards, 62–68 European Union (EU) and, 65–66, 82–84 harmonization, defined, 62 through the International Accounting Standards Board (IASB), 73–81, 87–91, 93–94 through the International Accounting Standards Committee (IASC), 62–64, 67–73 through the International Federation of Accountants (IFAC), 64–65, 75, 81–82, 86, 457–460 through the International Forum on Accountancy Development (IFAD), 66–68 through the International Organization of Securities Commissions (IOSCO), 63–64, 81, 82 move from harmonization to convergence, 73–75 obstacles to, 75, 78–79 Convertible bonds, 180 Copyrights See Intangible assets Corporate governance See also Board of directors auditing and, 445–448 See also External auditing; Internal auditing; International auditing defined, 442 different approaches to, 443–445, 471–474, 476 ethics and, 460–461, 464 principles of, 443–445, 447 risk management and, 444, 447–448, 469, 471, 472–473 stock returns and, 485 in sustainability reporting, 482 Corporate social responsibility (CSR) reporting, 483 See also Sustainability reporting Corporation law, 28 Correlative relief, for transfer pricing, 387–388 Cost-based transfer prices, 371, 372, 376, 381–382 Cost centers, 419–420 Cost minimization avoidance of withholding taxes, 374–375, 376 foreign direct investment and, of import duties (tariffs), 375, 376 improvement of competitive position of foreign operations, 375, 376 as objective of international transfer pricing, 370, 374–376 profit repatriation restrictions and, 375, 376 worldwide income taxes, 374 Cost of goods sold (COGS), temporal method of translating foreign currency and, 285–286 Cost-plus method of transfer pricing, 381–382, 383 Country-by-country (CbC) reporting of transfer pricing, 377, 389–390 Critical accounting policies, 103, 116, 174 Critical audit matters (CAMs, PCAOB), 446, 448, 455–456 Cross-listing See Foreign stock exchange cross-listings Cultural (behavioral) management control systems, 413–414 Culture See National culture Cumulative translation adjustment, 289, 305–306 Cunningham, Gary M., 414n Current exchange rate See also Translation adjustments defined, 279 in translating foreign currency financial statements See also Translating foreign currency financial statements all assets and liabilities, 279–280 balance sheet exposure, 281–282 monetary assets and liabilities, 280–282 Current liabilities, 156–157 Current rate method average exchange rate and, 285 balance sheet items, 285, 295–296 calculating cost of goods sold (COGS), 285 cumulative translation adjustment in stockholders’ equity, 287, 288 current exchange rate and, 279–282, 283–284, 285 described, 283–284 functional currency determination, 289–290, 292 for highly inflationary economies, 290–291, 310–312 historical exchange rates and, 283–284, 285 illustration, 294–296 income statement items, 284, 285, 294–295 local-currency perspective and, 288 in performance evaluation, 423 for property, plant, and equipment (PPE) foreign currency translation, 287 versus temporal method, 300–302, 423 translating foreign currency financial statements and, 290–291 translation gain or loss in net income, 287, 288 Current ratio, 301–302 Current service cost, 163 Curtailment, pension plan, 164 Customer loyalty programs, 176–178 Czechowicz, I J., 418n Da Hua CPAs (China), 462 Daimler AG, 18, 35n, 53, 480 Daimler-Benz, 14, 35, 35n, 52–54 DaimlerChrysler, 14, 53 Daimler Group, 125–127 Datar, Srikant M., 372n DeAngelo, L., 451n Debreceny, R., 474n Debt/equity ratio, 301–302 Debt securities borrowing costs, 123, 135–136 convertible bonds, 180 debt covenant violation, 157 at fair value through other comprehensive income (FVOCI), 184 as financial liabilities, 179 foreign currency borrowing/debt, 264–265, 355, 386 impact of debt financing on audit environment, 451 impairment, 184–185 as method of financing, 329 thin capitalization and, 333–334 Decentralization, advantages and disadvantages, 370–371 Deferral approach, to foreign currency transactions, 222 Deferred revenue, 176–178 Deferred tax assets and liabilities, 170–172 Deficits, revaluation of assets, 109 Defined post-employment benefit plans, 162–164 Deloitte & Touche LLP, 86, 462, 473n Deloitte Touche Tohmatsu, Demirag, I S., 417n Depreciation component, 111 of property, plant, and equipment (PPE), 108, 111, 287 temporal method of translating foreign currency, 287 Derecognition defined, 112 of property, plant, and equipment (PPE), 106, 112 of receivables, 185–186 Derivatives/derivative financial instruments, 179, 185 See also Foreign currency forward contracts; Foreign currency options accounting for, 224–226 See also Hedge accounting defined, 4n, 185, 224n in hedging foreign exchange risk, 3–4, 223–224, 250–252 Deutsche Bank, 40 Deutsche Treuhand-Gesellschaft, Development costs, 121, 122–127 Direct foreign tax credit, 344 Direct quotes, foreign exchange, 217 “Disappearing plant problem,” 290 Disclaimer of liability, 463 Disclose-or-explain approach, to sustainability reporting, 490–491 Disclosure standards, 190–195 See also Sustainability reporting accounting diversity and, 48–50 accounting policies and, 193 changes in estimates, 193 contingencies and, 159–161, 211–213 correction of errors, 193–194 discontinued operations, 194 earnings per share, 194 foreign exchange risk, 251–252 hedge accounting, 227–228 income taxes, 171 interim financial reporting, 194 noncurrent assets held for sale, 112, 194 related party disclosures, 194 segment reporting, 190, 194–195 for shareholder wealth maximization, 443, 444 statement of cash flows, 191–192 subsequent event reporting, 192–193 translating foreign currency financial statements, 304–306 Discontinued operations, 112, 194 Discount, in forward contracts, 218, 236–237 Discount rate, in capital budgeting process, 404, 406 “Discretionary” transfer pricing, 7–8, 373–374 See also International transfer pricing Diversity in external auditing, 449–454 See also External auditing audit environments, 450–452 audit reports, 454 purpose of auditing, 449–450 regulation of auditors and audit firms, 452–454 512 Index Diversity in financial reporting See Accounting diversity; Convergence of financial reporting Dividends classification on statement of cash flows, 191–192 dividends received deduction (DRD), 336 double taxation of, 6–7, 170, 335, 337–338, 343–347 on equity financing, 329 tax treaties and, 338–341 withholding taxes, 333–334, 339–341, 374–375, 376 Divisions, 370–371 Documentation in hedge accounting, 229 for international transfer pricing, 388–389 Dodd-Frank Act (2010, U.S.), 89 Doğuş Group, 129 Domestic markets See Home country Domicile, 357 Double taxation, 6–7 foreign tax credit, 7, 338, 343–347 relief from, 7, 170, 338, 343–347 standards for neutrality, 337–338 tax jurisdiction and, 7, 335, 337–338 Doupnik, Timothy S., 33n, 34n, 38n, 66n, 75n, 289n Dow Jones Sustainability Indices, 490 Dual pricing, 374 Earnings before interest and taxes (EBIT), 422 Earnings per share, disclosure standards, 194 East Asian financial crisis (1997–1998), 36, 64–65, 66, 445, 446, 448 Eccles, Robert G., 371n Economic blocs foreign direct investment and, major blocs, Economic exposure defined, 427 in operational budgeting, 427–429 Economic risk, in capital budgeting process, 405 Economic ties, as reason for accounting diversity, 30 Ecopetrol S.A., 27, 27n Effective control, 129 Effective interest rate method, 181 Emerging markets, foreign direct investment and, Employee benefits, 161–165 See also Share-based payments other long-term benefits, 165 post-employment benefits, 162–165 short-term benefits, 162 Enron, 128, 445, 465 Entity concept, 450 Environment, in sustainability reporting, 482, 483, 488 Equity capital contributions as, 329, 483 defined, 81 thin capitalization and, 333–334 Equity investments equity instruments, defined, 179 as financial assets at fair value through other comprehensive income (FVOCI), 183–184 Equity-settled share-based payments, 165–169 Ericsson, 412 Ernst & Young, 9, 383, 392, 393, 466, 500 Error correction, 193–194 ESG (environmental, social, and governance) reporting, 483 See also Sustainability reporting Estimates, changes in, 193 Ethics, international auditing and, 460–461, 464 Ethnocentric organizational structure, 412 Euronext Corporate Governance Guidelines, 464 Euronext Paris, 14, 35 European Central Bank, 216 European Commission, 40, 66, 69, 73, 95, 459 European Financial Reporting Advisory Group (EFRAG), 83–84 European Monetary System (euro), 65, 65n, 216 European Union (EU), 40 adoption of IFRS in 2005, 6n, 35, 40, 62, 82–84, 85 See also Convergence of financial reporting Brexit (2016), 223, 275, 459 conservatism and, 223 Continental European accounting systems, 37–38, 40, 91–92, 449–450 Directives Eighth (statutory auditors), 459, 466 Fourth (valuation rules), 65–66, 82, 459 Seventh (consolidated financial statements), 65–66, 82 euro as common currency, 65, 65n, 216, 216n external auditing requirements, 448 external auditing standards, 455–456 harmonization efforts, 65–66, 82–84 International Accounting Standards (IASs) and, 66, 82–84 largest multinational corporations and, 12–13 as major economic bloc, 5, 12–13 mandatory sustainability reporting, 490 tax treaties with the U.S., 340 in “triad,” 12–13 Evans, Thomas G., 289n Excess foreign tax credits, 345–346 Expansion projects See also Foreign direct investment (FDI) extent of, 11–12 Expatriates, U.S., 336–337, 356–358 foreign earned income exclusion, 356–358 foreign housing cost exclusion, 358 Expenses defined, 80–81 recognition of, 81 Export sales, 2–3, 219 asset exposure, 221 one-transaction perspective, 220 transaction exposure, 219, 221 two-transaction perspective, 220–221 U.S taxes on foreign currency transactions, 355 External auditing, 8–9, 449–468 audit committees, 467–468 audit expectation gap, 456–457 auditor independence, 463–467 auditors’ liability, 461–463, 475–476 corporate governance and, 445–448 defined, 449 diversity in, 449–454 audit environments, 450–452 audit reports, 454 purpose of, 449–450 regulation of auditors and audit firms, 452–454, 465 ethics and, 460–461, 464 foreign stock exchange cross-listings and, 10 future directions for, 474–476 importance of assurance services, 445–446, 474 international accounting firms and, 8–9 international and U.S standards, 455–460 key audit matters (KAM, ISA), 103, 116, 120, 448, 455 nature of, professional accountants’ role, 448 External reporting See Financial reporting ExxonMobil Corporation, 323, 484, 496, 502–503 Facebook, 120 Fair Presentation/Full Disclosure Model See Anglo-Saxon/Anglo-American accounting systems Fair value exposure, 227 Fair value hedge accounting foreign-currency-denominated assets and liabilities, 231 forward contracts, 237–239, 256–257 option contracts, 243 foreign currency firm commitments forward contracts, 244–246, 259–260 option contracts, 246–248, 261–262 Fair value measurement biological assets/agriculture, 115–116 defined, 106 defined benefit pension plan, 162–164 derivatives, 225–226 European Union (EU) and, 82–84, 91 financial assets and liabilities, 181, 183–184 goodwill, 131–132, 134–135 in hedge accounting, 82–83, 185, 227, 231 impairment of assets, 117–118 intangible assets, 127 investment property, 112–114 property, plant, and equipment (PPE), 51, 106, 107, 171–172 relevance-reliability trade-off and, 116 for share-based payment transactions, 165–169 United States and, 89–90, 91 Fair value of plan assets (FVPA), 162–164 Fair value through other comprehensive income (FVOCI), 181, 183–184 Favere-Marchesi, M., 452n, 461n, 462n, 468n Fédération des Experts comptables Européens (FEE), 459, 467 Feldman, James, 452n Fiat, 35 Fiat Chrysler, 125 Finance lease model, 187–189 Financial Accounting Foundation (FAF, U.S.), 86 Financial Accounting Standards Board (FASB, U.S.) See also Statements of Financial Accounting Standards (SFAS, U.S.) accounting standards codification (ASC) and updates, 28 See also Accounting Standards Codification (ASC, U.S.) comparison of IASC standards and U.S GAAP, 84 Conceptual Framework for Financial Reporting, 92–93, 97 Financial Crisis Advisory Group (FCAG), 88–89 future of convergence efforts, 93–94 IFRS convergence and, 86, 87–94, 105 joint conceptual framework project with IASB, 92–93, 97 as model for Sustainability Accounting Standards Board (SASB), 492–493 Norwalk Agreement (2002), 87–91 “standards overload” and, 28 Financial assets See also Financial instruments amortized cost, 180–181 classification and measurement, 180–181, 183–184 defined, 178 derivatives See Derivatives/derivative financial instruments at fair value through other comprehensive income (FVOCI), 181, 183–184 at fair value through profit and loss (FVPL), 181 impairment, 184–185 sales of receivables, 185–186 Financial crisis of 2008 See Global financial crisis (GFC) Financial instruments, 178–186 See also Debt securities; Derivatives/derivative financial instruments; Share-based payments as assets See Financial assets classification and measurement, 180–184 Index 513 compound, 180 definitions, 178–179 impairment, 184–185 as liability or equity, 179, 181–182 sales of receivables, 185–186 Financial liabilities See also Financial instruments classification and measurement, 181–182 defined, 179 financial liabilities at fair value through profit or loss (FVPL), 181 foreign currency borrowing/debt, 264–265, 355, 386 measured at amortized cost, 181–182 Financial measures of performance, 416–417, 418–419 Financial reporting See also Disclosure standards; Financial statements accounting system classification, 36–40 consolidated financial statements See Consolidated financial statements convergence in See Convergence of financial reporting diversity in See Accounting diversity in evolution of multinational corporations, foreign currency translation, See also Translating foreign currency financial statements in foreign stock exchange cross-listings See Foreign stock exchange cross-listings home country generally accepted accounting principles, host country generally accepted accounting principles, subsequent events, 192–193 sustainability See Sustainability reporting Financial Reporting Council (FRC, UK), 84, 86, 446, 453 Financial risk See also Risk management in capital budgeting process, 405 foreign exchange See Foreign exchange risk Financial statements See also Disclosure standards; Financial reporting accounting diversity and, 22–54 comparability issues, 35–36, 63, 80, 94 disclosure requirements See Disclosure standards evidence of, 41–45 format of, 23–27, 41–45, 47 lack of high-quality accounting information, 36 level of detail, 45–47 measurement differences, 50–51 notes, 47, 251–252 recognition differences, 50–51 terminology, 23–27, 48 balance sheet See Balance sheet capitalizing product development costs, 125–127 comparability of, 35–36, 63, 78, 80, 94 consolidated See Consolidated financial statements elements of, 80–81 foreign currency See Translating foreign currency financial statements income statement See Income statement qualitative characteristics of, 80 statement of cash flows See Statement of cash flows translating See Translating foreign currency financial statements Financing sources challenges of accounting diversity and, 34–35 correlation with legal system and tax conformity, 30 impact on audit environment, 451 institutional investors, 444, 485, 486, 489 international taxation and, 329 as reason for accounting diversity, 29 thin capitalization and, 333–334 Fink, Larry, 485, 486 Finland, audit reports in, 454 First-in, first-out (FIFO) inventory method, 104 Fisher, Liz, 462n Fixed assets See Property, plant, and equipment (PPE) Flexibility, as accounting value, 31 Floyd, Eric, 491n Ford Motor Company, 35, 125, 277 Forecasting foreign direct investment (FDI) and, hedge of forecasted foreign-currencydenominated transactions, 224, 230, 248–250, 262–263 Foreign Corrupt Practices Act (FCPA, 1977), 8, 471–472 Foreign currency borrowing/debt, 264–265, 355, 386 Foreign currency derivatives See Derivatives/ derivative financial instruments; Foreign currency forward contracts; Foreign currency options Foreign currency forward contracts, fair value determination, 225–226 forward rates, 217–218 hedge accounting, 227–229 foreign-currency-denominated assets and liabilities, 231–239, 254–257 foreign currency firm commitments, 244–246, 259–260 illustration, 254–257, 259–260 to reduce transaction and translation exposure, 427 use of hedging instruments, 250–252 Foreign currency loans, 265, 386 Foreign currency options, 218–219 fair value determination, 226 hedge accounting, 227–229 cash flow hedge of forecasted transaction, 249–250, 262–263 firm commitments, 246–248, 261–262 foreign-currency-denominated assets and liabilities, 239–243, 257–259 in hedging foreign exchange risk, 3–4 intrinsic value, 218–219 nature of, 3–4, 218 to reduce transaction and translation exposure, 427 strike price, 3–4, 218–219, 242–243 time value, 219 use of hedging instruments, 250–252 Foreign currency transactions, 219–223 See also Foreign currency forward contracts; Foreign currency options accounting issues in, 220–223 accrual approach, 222–223 balance sheet data before date of payment, 221–223 deferral approach, 222 one-transaction perspective, 220 transaction exposure, 219, 221 two-transaction perspective, 220–221 Foreign currency translation See International transfer pricing; Performance evaluation; Translating foreign currency financial statements Foreign direct investment (FDI) See also Acquisitions; Expansion projects as argument for convergence of financial reporting, 78 capital budgeting and, 330 in evolution of multinational corporations, 4–5 financing method, 329 in global economy, 11–12 greenfield, 4, 11–12 growth in, 11–12 legal form of operation, 328–329 location decisions, 328 reasons for, taxation issues See International taxation Foreign exchange markets, 215–219 choice of currency in measuring profit, 423 choice of currency in operational budgeting, 424–427 direct and indirect quotes, 217 exchange rate mechanisms, 216 foreign exchange rates See Foreign exchange rates Foreign exchange rates, 215, 215n, 216–218 effects of changes, 220–223, 284, 285, 291–292, 305, 307–308 forward, 217–218 risk in See Foreign exchange risk spot, 217–218 translating See Translating foreign currency financial statements Foreign exchange risk asset exposure, 221 in capital budgeting process, 405, 406–407 defined, disclosure standards, 251–252 in foreign currency transactions, 3, 219–223 hedging See Hedging foreign exchange risk liability exposure, 221, 282, 283 protection of cash flows from currency devaluation, 375, 376 Foreign markets See Host country Foreign operation income See Foreign source income Foreign source income See also Translating foreign currency financial statements base erosion and profit shifting (BEPS), 341, 351, 352–353, 377 controlled foreign corporation (CFC) rules, 341, 342–350 foreign earned income exclusion for U.S expatriates, 336–337, 356–358 foreign tax credits (FTC), 7, 338, 343–347, 349–350 repatriation of accumulated foreign earnings, 350–351, 354, 375, 376, 392–393, 407 tax havens, 331–333, 336n, 340–341, 342, 342n, 349–350 tax jurisdiction of, 7, 335–338, 349–350 tax treaties, 338–341, 389–390 U.S tax treatment of foreign source income, 336–337, 347–350, 353–358 Foreign stock exchange cross-listings acquisition currency and, 14 as argument for convergence of financial reporting, 78, 81 challenges of accounting diversity and, 34–35 in evolution of multinational corporations, 9–10 examples of, 14, 52–54 and International Financial Reporting Standards (IFRS), 9–10, 23, 23n, 28n, 35, 40, 81, 84, 84n need for, 14 Foreign tax credits (FTC), 7, 338, 343–347 calculating, 344–345 direct vs indirect, 344 excess, 345–346 FTC baskets, 347, 349–350, 352 overall FTC limitation, 344–345 Fortune 500 companies, 332–333, 372 Fortune Global 250, 487, 497 Forum for Sustainable and Responsible Investment, 486 514 Index Forward contracts See Foreign currency forward contracts Foster, George, 372n Framework for the Preparation and Presentation of Financial Statements (IASC/IASB), 63, 71, 76, 79–81 France mandatory sustainability reporting, 490 in Nobes’s accounting system classification, 37–38 Frequent-flyer programs, 177–178 Functional currency See also Translating foreign currency financial statements defined, 289, 291 determining, 289–290, 292, 294, 353–355 GAAP (generally accepted accounting principles) See Accounting diversity; National GAAP (generally accepted accounting principles); U.S GAAP (generally accepted accounting principles) Gain or loss on net monetary position, 308, 309–314 Gains and losses on settlements, 164 Gangolly, J S., 457n Garanti Bank, 129 Gardner, Matt, 332n Gates Foundation, 483 General Electric (GE), 14 Generally accepted accounting principles (GAAP) See Accounting diversity; National GAAP (generally accepted accounting principles); U.S GAAP (generally accepted accounting principles) Generally accepted auditing standards (GAAS), 455–456 General Motors Corporation, 34, 125 General price index, 308–309 Geocentric organizational structure, 412–413 German Financial Analysts Federation (DVFA), 53 Germany auditors’ liability and, 461, 463 automobile industry development costs, 125–127 Class B accounting system, 40 as code law country, 28 corporate governance model, 445 external auditing in, 449–450, 454, 463 harmonization of accounting standards with European Union (EU), 66 mandatory sustainability reporting, 490 measures of performance, 418 in Nobes’s accounting system classification, 37–38 reverse conformity principle removed, 28–29 taxation and financial reporting, 28–29 Gernon, Helen, 36–37, 37n GFC See Global financial crisis (GFC) Glassdoor, 120 GlaxoSmithKline plc, 483 Global Accounting Alliance (GAA), 78, 78n Global accounting standards See also Convergence of financial reporting; International Financial Reporting Standards (IFRS) in evolution of multinational corporations, 10 importance of, 10 Global Crossing, 445 Global economy, 10–14 foreign direct investment See Foreign direct investment (FDI) international capital markets See International capital markets international trade See International trade multinational corporations See Multinational corporations (MNCs) Global financial crisis (GFC) Dodd-Frank Act (2010), 89 Financial Crisis Advisory Group (FCAG), 88–89 impact on standard-setters, 85, 87, 88–89, 445–446, 456, 460–461 importance of assurance services, 445–446, 474 Global innovators, 412 Global intangible low-taxed income (GILTI), 351–352 Global Reporting Initiative (GRI), 487–489 companies using, 487, 491, 498, 499–500, 501, 502 comparison with SASB, 492–493 development of, 487 establishment of, 484 GRI-informed reporting, 487, 496, 500, 502 growth of, 484 nonfinancial materiality and, 488–489, 492–493 organization of GRI standards, 487–488 Global Sustainability Standards Board, 487 Goal congruence, 370–371, 372–376 Goerdeler, Reinhard, Goldman Sachs & Co LLC, 333 Gompers, Paul, 485, 485n Goodwill fair value measurement, 131–132, 134–135 impairment of, 117–120, 132–135 recognition and initial measurement, 130–132 Govindarajan, Vijay, 411n, 413n, 415n Graham, L E., 450n, 451, 451n, 462n Gramling, A A., 470n Gravelle, Jane G., 332n Gray, G., 474n Gray, Sidney J., 67n cultural accounting framework, 31–34, 39, 58–59 “Green cards,” 337 Greenfield investments See also Foreign direct investment (FDI) defined, extent of, 11–12 Greenhouse Gas Protocol, 494–496 Greenwashing, 486 Gresham, Thomas, 79n Gresham’s law, 79, 79n Gross negligence, 213 Gross profit ratio, 301–302 Group, defined, 128 Group accounting, 128 Gupta, A K., 413n Halliburton Company, 211 Harmonization of accounting standards, 62–68 European Union (EU) and, 65–66 formal or de jure harmonization, 62 harmonization, defined, 62 material or de facto harmonization, 62 move from harmonizations to convergence, 73–75 See also Convergence of financial reporting through the International Accounting Standards Committee (IASC), 62–64, 67–73 through the International Federation of Accountants (IFAC), 64–65, 81–82 through the International Forum on Accountancy Development (IFAD), 66–68 through the International Organization of Securities Commissions (IOSCO), 63–64, 81, 82 Harmonization of auditing standards, 457–460 Hassel, Lars G., 414n, 416n Hedge accounting, 227–263 balance sheet, 230–231 cash flow exposure, 227 disclosures, 227–228 effectiveness requirements, 228–229 fair value exposure, 227 fair value measurements in, 82–83, 185, 227, 231 hedge documentation, 229 hedging combinations, 230–263 factors in, 230 forecasted foreign-currency-denominated transactions, 224, 230, 248–250, 262–263 foreign-currency-denominated assets and liabilities, 224, 230–243, 254–259 foreign currency firm commitments, 224, 230, 244–248, 259–262 illustration, 253–263 illustration, 253–263 statement of cash flows, 229 Hedging foreign exchange risk, 3–4, 223–224 balance sheet exposure, 302–304 in evolution of multinational corporations, 3–4 hedge accounting See Hedge accounting use of hedging instruments, 250–252 See also Foreign currency forward contracts; Foreign currency options Highly inflationary economies changes in general purchasing power (GPP), 308, 309–314 identifying, 314 translating foreign currency financial statements, 290–291, 292, 307–314 balance sheet, 308, 312–314 current rate method, 290–291, 310–312 functional currency, 292 general price index, 308–309 illustration, 310–314 income statement, 308, 311–312 temporal method, 290–291, 312–314 Historical cost measurement biological assets, 114–115 investment property, 112–114 property, plant, and equipment (PPE), 106, 107–111 temporal method in translating foreign currency financial statements, 279, 282–283, 284, 285–287, 288, 297–301, 310–314 Historical exchange rate See Temporal method Hofstede, G., cultural dimensions model, 30, 30n, 32–33, 39 Holcim Ltd., 130–131, 132–133, 495 Holder, William W., 289n Holzmann, O J., 431n Home country foreign direct investment to protect, generally accepted accounting principles of, income taxation, 6–7 of largest companies, 12–13 Honda Motor Company LTD, 99, 125, 148, 480 Hongkong and Shanghai Hotels, Ltd (HKSH), 110–111, 112, 113–114, 114n, 120 Hong Kong Stock Exchange (HKEX), mandatory sustainability reporting, 490–491 Hoogervorst, Hans, 73, 93 Horngren, Charles T., 372n Hosseini, A., 417n Host country foreign direct investment to protect, generally accepted accounting principles of, income taxation, 6–7 items controlled by, 421 organizational structure and, 412 HSBC Holdings, 490 Human capital, in sustainability reporting, 482–483, 488 Hunt, Harold, 29n Hussein, M E., 457n Index 515 Hwang, R N., 451n Hyperinflation See Highly inflationary economies Hyundai, 125 IAASB See International Auditing and Assurance Standards Board (IAASB) IASB See International Accounting Standards Board (IASB) IASC See International Accounting Standards Committee (IASC) IBM (International Business Machines Corporation), 13, 30, 250, 251, 303, 305–306, 333 ICAEW (Institute of Chartered Accountants of England and Wales), 82, 453, 463, 473 IFAC See International Federation of Accountants (IFAC) IFRS See International Financial Reporting Standards (IFRS) IKEA, 486, 487, 496, 498–500 Illigworth, David, 78n Impairment of assets, 117–120 annual assessment, 117 financial assets, 184–185 goodwill, 117–120, 132–135 impairment, defined, 117 intangible assets, 117–120, 127, 132–135 measurement of impairment loss, 117–118 property, plant, and equipment (PPE), 105, 117–120 reversal of impairment loss, 118–120 Imperial Petroleum plc, 505 Implementers, 412 Import duties (tariffs), 375, 376 Import purchases, 219 liability exposure, 221 transaction exposure, 219, 221 U.S taxes on foreign currency transactions, 355 Income defined, 80 recognition of, 81 Income statement earnings per share disclosure standards, 194 effects of capitalizing product development costs, 125–126 foreign currency translation current rate method, 284, 285, 294–295 highly inflationary economies, 308, 311–312 remeasurement gains and losses, 289, 298–299 temporal method, 283, 285, 297–299, 311–312 Income taxes, 6–7, 169–172, 329–333 See also International taxation deferred tax assets and liabilities, 170–172 disclosures, 171 double taxation See Double taxation foreign tax credits (FTC), 343–347 tax havens, 331–333, 336n, 340–341, 342, 342n, 349–350 tax laws and rates, 169–170, 329–331, 333–334 tax minimization, 374–375, 376 translation of foreign operation income, 353–355 U.S expatriates living abroad, 336–337, 356–358 withholding taxes, 333–334, 339–341, 374–375, 376 Independence of external auditors, 463–467 Independent float, 216 Indirect foreign tax credit, 344 Indirect quotes, foreign exchange, 217 Individualism, in national culture, 30–33 Industrial and Commercial Bank of China, 490 Inflation in capital budgeting process, 405, 406–407 foreign currency translation in highly inflationary economies, 290–291, 292, 307–314 as reason for accounting diversity, 29 Inflation-Adjusted Model, 37 Information gap, in audit expectations, 456 Institute of Chartered Accountants in Ireland, 453 Institute of Chartered Accountants of England and Wales (ICAEW), 82, 453, 463, 473 Institute of Internal Auditors (IIA), 468 Institutional investors defined, 444 as socially responsible investors (SRIs), 485, 486, 489 Intangible assets, 120–127 acquired in business combination, 120–122 defined, 121 fair value measurement, 127 with finite useful lives, 121 impairment of, 117–120, 127, 132–135 with indefinite lives, 121, 122 internally generated, 120–121, 122–127, 153–154 international transfer pricing, 383–386 licenses of intangible property, 383–386 purchased intangibles, 120, 121 Integrated players, 412–413 Intellectual property See Intangible assets Interbrand, 125 Intercompany transactions, 369–370 See also International transfer pricing Interest classification on statement of cash flows, 191–192 on debt financing, 329 tax treaties and, 338–341 withholding taxes, 333–334, 339–341, 374–375, 376 Interest rate parity, 218n Interim financial reporting, 194 Internal auditing, 468–474 corporate governance and, 445–448 defined, 468 demand for, in multinational corporations, 470–471 ethics and, 460–461, 464 importance of, 8, 469 international and U.S standards, 468–470 international frameworks for internal control, 473 nature of, U.S Foreign Corrupt Practices Act of (FCPA, 1977), 8, 471–472 Internally generated intangible assets, 120–121, 122–127, 153–154 International accounting See also Multinational corporations (MNCs) in evolution of multinational corporations, 2–10 See also Accounting diversity cross-listing on foreign stock exchanges, 9–10 See also Foreign stock exchange cross-listings financial reporting for foreign operations, See also Financial reporting and entries beginning with “Foreign currency”; Translating foreign currency financial statements foreign direct investment, 4–5 See also Foreign direct investment (FDI) global accounting standards, 10 See also Convergence of financial reporting; International Financial Reporting Standards (IFRS) hedges of foreign exchange risk, 3–4 See also Hedge accounting international auditing, 8–9 See also External auditing; Internal auditing international taxation, 6–7 See also Income taxes; International taxation international transfer pricing, 7–8 See also International transfer pricing performance evaluation, See also Performance evaluation sales to customers, 2–3 See also International trade; Sales sustainability reporting, 10 See also Sustainability reporting framework for defining, 1–2 global economy and, 10–14 foreign direct investment, 11–12 See also Foreign direct investment (FDI) international trade, 10–11 See also International trade levels of, 1–2 International Accounting Standards (IASs), 102 See also International Accounting Standards Committee (IASC) in the European Union (EU), 66, 82–84 IAS 1, Presentation of Financial Statements, 67, 76–77, 101, 103, 156–157, 172, 191, 459 IAS 2, Inventories, 103–105 IAS 7, Statement of Cash Flows, 191–192, 229 IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, 193–194 IAS 10, Events after the Reporting Period, 192–193 IAS 11, Construction Contracts, 63 IAS 12, Income Taxes, 169–172 IAS 16, Property, Plant, and Equipment, 105–112, 113, 115n, 171–172, 308 IAS 17, Leases, 187–189 IAS 18, Revenue, 81, 175 IAS 19, Employee Benefits, 161–165 IAS 21, The Effects of Changes in Foreign Exchange Rates, 220–223, 284, 285, 291–292, 305, 307–308 IAS 23, Borrowing Costs, 123, 135–136 IAS 29, Financial Reporting in Hyperinflationary Economies, 292, 307–310 IAS 32, Financial Instruments: Presentation, 178–180, 224 IAS 33, Earnings per Share, 194 IAS 34, Interim Financial Reporting, 194 IAS 36, Impairment of Assets, 105, 117–120, 127, 187 IAS 37, Provisions, Contingent Liabilities and Contingent Assets, 157–161, 211–213 IAS 38, Intangible Assets, 120–127 IAS 39, Financial Instruments: Recognition and Measurement, 64, 82–83, 181, 183, 224–225, 228 IAS 40, Investment Property, 112–114 IAS 41, Agriculture, 115–116 in the United States, 84–91 International Accounting Standards Board (IASB), 1–2, 10, 68–73 See also International Financial Reporting Standards (IFRS) Anglo-Saxon/Anglo-American accounting and, 96–97 Conceptual Framework for Financial Reporting, 92–93, 97 convergence efforts, 73–81, 87–91, 93–94 coordination with U.S Securities and Exchange Commission (SEC), 101–102 creation in 2001, 63–64, 68 due process procedures, 71 evolution of, 62 Exposure Draft on Fair Value Measurement, 83–84 516 Index International Accounting Standards Board (IASB), (Continued) Financial Crisis Advisory Group (FACG), 88–89 Framework for the Preparation and Presentation of Financial Statements (IASC/IASB), 63, 71, 76, 79–81 future of convergence efforts, 93–94 International Financial Reporting Interpretations Committee (IFRIC), 70, 73, 102, 459 joint conceptual framework project with FASB, 92–93, 97 key responsibilities, 70 Norwalk Agreement (2002), 87–91 principles-based standards, 77–78, 85, 91, 455 restructuring from International Accounting Standards Committee (IASC), 68, 72–73, 81, 102 Standing Interpretations Committee (SIC), 102 structure of, 69–73 IFRS Advisory Council, 69, 71–72 IFRS Foundation Constitution, 72–73 IFRS Interpretations Committee, 69, 72 Monitoring Board, 69 organization chart, 69 Trustees of the IFRS Foundation, 69, 70 International Accounting Standards Committee (IASC), 62–64 See also International Accounting Standards (IASs) challenges to, 68 code of conduct for Internet-based business reporting, 474 compliance with international accounting standards, 67–68 establishment in 1973, 62–63 evolution of, 62 Framework for the Preparation and Presentation of Financial Statements, 63, 71, 76, 79–81 harmonization efforts, 62–64, 67–73 Comparability of Financial Statements Project, 63 IOSCO agreement, 63–64, 81, 82 “lowest-common-denominator” approach, 63 restructuring into the International Accounting Standards Board (IASB), 68, 72–73, 81, 102 Standing Interpretations Committee (SIC), 84 International Anti-Bribery and Fair Competition Act (1998), 472 International auditing, 442–477 defined, 445 diversity in, 449–454 audit environments, 450–452 audit reports, 454 purpose of auditing, 449–450 regulation of auditors and audit firms, 452–454 ethics in, 460–461, 464 in evolution of multinational corporations, 8–9 external auditing See External auditing future directions, 474–476 internal auditing See Internal auditing linkages between corporate governance and, 447 new laws and standards, 445–447 professional accountants’ role, 448 of transfer prices, 378, 392–393 International Auditing and Assurance Standards Board (IAASB), 103, 448, 455–460 See also International Standards on Auditing (ISAs) International Auditing Practices Committee (IAPC), 458–459 See also International Auditing and Assurance Standards Board (IAASB) International Auditing Practice Statements (IAPSs), 457–458 International Business Machines Corporation (IBM), 13, 30, 250, 251, 303, 305–306, 333 International capital markets See also Convergence of financial reporting; Debt securities; Equity investments; Financing sources; Foreign stock exchange cross-listings accounting diversity and, 61–62 nature of, 14 International convergence See Convergence of financial reporting International Education Standard (IES), 459 International Federation of Accountants (IFAC), 1–2, 455 See also International Auditing and Assurance Standards Board (IAASB) challenges to the International Accounting Standards Committee (IASC), 68 Code of Ethics for Professional Accountants, 464 Compliance Committee, 458 corporate governance and, 447–448, 469 Forum of Firms, 65, 458 harmonization efforts, 64–65, 75, 81–82, 86, 457–460 internal auditing and, 470 International Forum on Accountancy Development (IFAD), 64–65, 66–68 mandatory rotation of auditors, 465–466 Public Interest Oversight Board (PIOB), 460, 465 International Financial Reporting Interpretations Committee (IFRIC), 70, 73, 102, 459 International Financial Reporting Standards (IFRS), 81–92, 102 See also International Accounting Standards (IASs); International Accounting Standards Board (IASB) adoption requirements, 81–82 challenges to international convergence, 83, 91–92 ethics and, 461 in the European Union, 6n, 35, 40, 62, 82–84, 85 foreign stock exchange cross-listings and, 9–10, 23, 23n, 28n, 35, 40, 81, 84, 84n IFRS 1, Presentation of Financial Statements, 67, 74–77, 81, 82 IFRS 2, Share-Based Payment, 161, 165–169 IFRS 3, Business Combinations, 88, 129–130, 132–135 IFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, 112, 194 IFRS 7, Financial Instruments: Disclosure, 178 IFRS 8, Operating Segments, 190, 194–195 IFRS 9, Financial Instruments, 89, 178, 180–186, 225, 227, 228, 229, 230 IFRS 10, Consolidated Financial Statements, 128–135, 154–155 IFRS 13, Fair Value Measurement, 89–90 IFRS 15, Revenue from Contracts with Customers, 173–178 IFRS 16, Leases, 187–190 IFRS 17, Insurance Contracts, 81 as principles-based system, 102–103 in the United States, 84–91 versus U.S GAAP, 102–103 biological assets, 114–116 borrowing costs, 123, 135–136 business combinations and consolidated financial statements, 128–135 contingent assets, 160–161 contingent liabilities and provisions, 157–160 convergence and, 86, 87–94, 105 See also Convergence of financial reporting current liabilities, 156–157 disclosure and presentation standards, 190–195 employee benefits, 161–165 financial instruments, 178–186 impairment of assets, 117–120 income taxes, 169–172 intangible assets, 120–127 inventories, 103–105 investment property, 112–114 leases, 187–190 property, plant, and equipment, 105–112 revenue recognition, 173–178 share-based payment, 165–169 translating foreign currency financial statements, 288–302, 307–314 types of differences, 102–103 use in jurisdictions worldwide, 77 International Forum on Accountancy Development (IFAD), 64–65 GAAP Convergence 2002, 67 harmonization efforts, 66–68 International Hotel Properties, Ltd (IHP), 110–111 International Monetary Fund (IMF), 64–65 World Bank/International Monetary Fund Report on the Observance of Standards and Codes (ROSC), 443 International Organization for Standardization (ISO) ISO 9000, 405 ISO 26000, 489–491 International Organization of Securities Commissions (IOSCO) agreement with IASC, 63–64 harmonization efforts, 63–64, 81, 82 principles-based standards, 78 Technical Committee, 64, 84 International Petroleum Industry Environmental Conservation Association (IPIECA), 502 International Practices Task Force (IPTF), Center for Audit Quality (CAQ), 314 International Standards on Auditing (ISAs), 455–459, 470 See also International Auditing and Assurance Standards Board (IAASB) ISA 610, Using the Work of Internal Auditors, 469 ISA 700, Forming an Opinion and Reporting on Financial Statements, 458, 459 ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report, 103 International sustainability reporting See Sustainability reporting International taxation, 328–358 See also Income taxes; Tax conformity in capital budgeting process, 405, 407 controlled foreign corporation (CFC) rules, 341, 342–350 of foreign currency transactions, 355 foreign tax credits (FTC), 343–347, 349–350 Subpart F income, 342–343, 349–350 tax havens, 331–333, 336n, 340–341, 342, 342n, 349–350 tax holidays, 331 tax jurisdiction, 7, 335–338, 349–350, 357–358 tax rates, 169–170, 329–331, 333–334 tax treaties, 338–341, 387–388, 389–390 transfer pricing and See International transfer pricing translation of foreign operation income, 353–355 types of taxes, 329–335 income taxes See Income taxes value-added taxes, 334–335 withholding taxes, 333–334, 339–341, 374–375, 376 United States, 29 foreign operation income, 336–337, 347–350, 353–358 Index 517 foreign tax credit (FTC), 344–345, 349–350 model tax treaty, 339–340, 387–388, 389–390 participation exemption system, 336 Tax Cuts and Jobs Act (TCJA) of 2017, 331, 336, 344, 347, 350–353 transfer pricing See International transfer pricing U.S expatriates living abroad, 336–337, 356–358 International trade in evolution of multinational corporations, 2–3 export sales to foreign customers, 2–3, 219–221, 355 and foreign direct investment, See also Foreign direct investment (FDI) foreign exchange risk See Foreign exchange risk in global economy, 10–11 growth in, 11, 214–215 largest exporters and importers, 11 nature of, 10 International transfer pricing, 369–394 decentralization and goal congruence, 370–371, 372–376 “discretionary,” 7–8, 373–374 in evolution of multinational corporations, 7–8 government regulation of, 370, 375, 376, 377–393 advance pricing agreements (APAs), 390–392 enforcement of transfer pricing regulations, 378, 392–393 OECD guidelines for transfer pricing, 377, 378, 389–390 profit repatriation restrictions, 350–351, 354, 375, 376, 392–393, 407 U.S transfer pricing rules, 377–393 methods of, 371–372, 376 objectives of, 369–370, 372–376 conflicting, 369–370, 374, 420–421 cost minimization, 370, 374–376 performance evaluation, 370, 372–374, 421–423 transfer pricing, defined, 369 Internet need for code of conduct for Internet-based business reporting, 474 Web Trust Program for Certification Authorities, 474 Interpretive gap, in audit expectations, 456 Intrinsic value, of options, 218–219 Inventory, 103–105 balance sheet reporting at lower of cost or net realizable value, 104–105, 286 cost formulas, 103–104 international transfer pricing for sale of, 378–383, 391 Investment See Foreign direct investment (FDI) Investment centers, 419–420 Investment property biological assets, 114–116 defined, 112 fair value accounting, 112–114 impairment of assets, 117–120 real estate investment trusts (REITs), 112n, 113 reversal of impairment losses, 118–120 Investor confidence as argument for convergence of financial reporting, 78, 79, 82, 85, 86 auditing procedures and, 447, 461, 465 corporate governance and, 445–447 IOSCO See International Organization of Securities Commissions (IOSCO) Ireland, in Nobes’s accounting system classification, 37–38 ISAs See International Standards on Auditing (ISAs) Ishii, Joy, 485n ISO See International Organization for Standardization (ISO) Italy, in Nobes’s accounting system classification, 37–38 Ittner, Christopher, 372n Jaeger, A M., 413n, 414n Jaguar Land Rover PLC, 153–154, 223, 275 Japan audit reports in, 454 external auditing in, 450, 451 group vs individual responsibility, 430–431 largest multinational corporations and, 12–13 Lockheed scandal, 471 measures of performance, 417, 418, 419 in Nobes’s accounting system classification, 37–38 in “triad,” 12, 13 Jardine Matheson Group, 100–101 Jardine Matheson Holdings Limited, 48 JBS, 115 Johnson & Johnson, 13 John Swire & Sons Limited, 13 Joint and several liability principle, 462 Jurisdiction International Financial Reporting Standards (IFRS), 77 international tax, 7, 335–338, 349–350 Just-in-time inventory, Kakuei, Tanaka, 471 Kato, Y., 404, 404n, 419n Keightley, Mark P., 332n Keller, D E., 417n Kelley, L., 431n Kellogg, 454 Key audit matters (KAM, ISA), 103, 116, 120, 448, 455 Key performance indicators (KPIs), in sustainability reporting, 490–491 Kitson, Kayla, 332n Klynveld, Piet, Klynveld Main Goerdeler (KMG), KPMG, 9, 86, 87, 113, 120, 211, 462, 498, 499–500 KPMG Audit PLC, 462 KPMG Consulting, 466 KPMG LLP, 466 Kubin, Konrad, 1n LafargeHolcim, 130–133, 483, 484, 489, 495 Lafarge SA, 130–131, 132–133, 495 Last-in, first-out (LIFO inventory method, 29n, 104, 331 Latin America, inflation and financial reporting, 29 Leadership, in sustainability reporting, 482 Leases, 187–190 finance lease model, 187–189 operating lease model, 187–189 Lee, C J., 451n Legal Compliance Model See Continental European accounting systems Legal system See also International taxation auditors’ liability, 461–463, 475–476 corporate governance See Corporate governance correlation with tax conformity and source of financing, 30 impact on audit environment, 451 laws governing cross-border intercompany transactions, 370 See also International taxation; International transfer pricing as reason for accounting diversity, 27–28, 30, 37 Legitimacy theory of sustainability reporting, 484 Lessard, D R., 425n Liabilities contingent See Contingent liabilities deferred tax liabilities, 170–172 defined, 80 financial See Financial liabilities matching principle in recognizing, 81 recognition of, 80, 81 Liability exposure auditor, 461–463, 475–476 foreign exchange risk, 221, 282, 283 gross negligence, 211, 213 willful misconduct, 211, 213 Liberty Global PLC, 13 Licenses See Intangible assets LIFO conformity rule, 29n Limited assurance, 498 Limited liability partnerships, 462 Lin, Thomas W., 403n Lindblom, C K., 484n Lipscomb, Joseph B., 29n Liu, Lisa Yao, 491n Lo, Agnes W Y., 376, 376n Loans See also Debt securities borrowing costs, 123, 135–136 foreign currency borrowing/debt, 264–265, 386 transfer pricing for intercompany, 386 Local-currency perspective to translation of foreign currency, 288 Local innovators, 412–413 Location decision for investments, 328 Lockheed, 471 London Stock Exchange, foreign stock exchange cross-listings, 14, 18 Long-term orientation, in national culture, 30–33 Lopez, Thomas J., 33n, 34n Lorange, P., 425n Louis Vuitton Moët Hennessy (LVMH), 151–152 Lower of cost or net realizable value rule, 104–105, 286 Lymer, A., 474n Macro-uniform accounting systems, 37–38 See also Continental European accounting systems Maffett, Mark, 491n Maher, Michael W., 370n Mahoney, Jeff, 86n Management accounting, 402–432 capital budgeting, 402, 403–411 conflicting objectives in, 370–371, 372–376 culture and management control, 429–431 defined, 402 management control systems, 402, 411–414 operational budgeting, 402–403, 423–429 performance evaluation See Performance evaluation transfer pricing and See International transfer pricing Management control systems, 411–414 culture and, 429–431 economic exposure and, 427–429 nature of, 402, 411 organizational structures, 412–413 types of, 413–414 Management style, 431 Managerial influence See Management control systems Managerial know-how, foreign direct investment and, Mandoza, R., 431n Market-based transfer prices, 371, 372, 376 Market share, in performance evaluation, 418, 419 Marks and Spencer (M&S), 504–505 Marsh & McLennan, 14 Marwick, James, Masculinity, in national culture, 30–33 518 Index Matching principle, in recognizing liabilities, 81 Materiality maps, 493 Matsushita, 391 Mazda, 496, 498, 499–500 McDonald’s Corporation, 304–305, 483 McKinnon, J., 450n McKinsey & Company, 475 Measurement accounting diversity and, 50–51 defined, 50 fair value See Fair value measurement historical cost See Historical cost measurement performance See Performance evaluation property, plant, and equipment (PPE), 51 Meek, Gary K., 27n, 36–37, 37n Meliá Hotels International SA, 44–45, 47 Mergers and acquisitions (M&A) See Business combinations Mertin, Dietz, 28n Metrick, Andrew, 485n Mexico, inflation and financial reporting, 29 Michelin Group, 49–50 Micro-based accounting systems, 37–38 See also Anglo-Saxon/Anglo-American accounting systems Microsoft Corporation, 120, 173–174, 337, 472 Mikol, A., 449n, 454n, 461n, 463n Mine Safety and Health Administration (MSHA, U.S.), 491 Minor International, 125 Mitchell, Roger, MNCs See Multinational corporations (MNCs) Mondelez, 13 Morris, Nancy M., 86n Morsicato, H G., 417n Motorola, 412 Mueller, G G., 450n Multinational corporations (MNCs) accounting issues in evolution of, 2–10 See also Accounting diversity cross-listing on foreign stock exchanges, 9–10 See also Foreign stock exchange cross-listings financial reporting of foreign operations, See also Financial reporting and entries beginning with “Foreign currency” foreign direct investment, 4–5 See also Foreign direct investment (FDI) global accounting standards, 10 See also International Financial Reporting Standards (IFRS) hedges of foreign exchange risk, 3–4 See also Hedge accounting international auditing, 8–9 See also External auditing; Internal auditing international taxation, 6–7 See also Controlled foreign corporation (CFC) rules; Income taxes; International taxation international transfer pricing, 7–8 See also International transfer pricing management accounting See Management accounting performance evaluation of foreign operations, See also Performance evaluation sales to customers, 2–3 See also International trade; Sales sustainability reporting, 10, 496–503 capital budgeting by, 404–406 defining, 2n, 12, 12n largest, 12–13 measures of multinationality, 12–13 in “triad” countries, 12–13 Nakagawa, Y., 404, 404n, 419n Napier, C J., 463n National Association of State Boards of Accountancy, 86 National culture accounting values and, 31–34, 39–40 capital budgeting decisions and, 431 external audit environments and, 450–452 Gray’s cultural accounting framework, 31–34, 39, 58–59 Hofstede’s cultural dimensions model, 30, 30n, 32–33, 39 impact on conservatism, 58–59 management control and, 429–431 management style and, 431 Nobes’s simplified model, 37–40 as reason for accounting diversity, 30–34 National GAAP (generally accepted accounting principles) See also names of specific countries adoption of IFRS and, 81–82 comparability of financial statements and, 35–36 convergence with IFRS See Convergence of financial reporting home country versus host country GAAP, for nonlisted companies in the European Union (EU), 82 of the United States See U.S GAAP (generally accepted accounting principles) U.S GAAP reconciliation requirements and, 34–35, 53–54, 59–60, 85, 277 Negative translation adjustment, 296 Negotiated transfer prices, 371–372 Nestlé SA, 13, 40, 171, 172, 227–228 Net asset balance sheet exposure, 281–282, 283, 296, 302–303 Netherlands audit reports, 454 in Nobes’s accounting system classification, 37–38 Netherlands Antilles, as tax haven, 340–341 Net income, translation gain or loss, 287, 288, 290–291, 310–314 Net interest on the net defined benefit liability (asset) (NIDBA), 163 Net liability balance sheet exposure, 282, 283 Net monetary liabilities, remeasurement gains and losses and, 298–299 Net monetary position, 309–310 Net present value (NPV) in capital budgeting process, 404, 406, 408–411 of cash flows on after-tax basis, 4–5 foreign direct investment (FDI) and, 4–5 from parent company perspective, 405–406, 409–411 from project perspective, 405, 408–409 Net purchasing power gain or loss, 308, 309–314 Net selling price, 117 New York Stock Exchange (NYSE) See also Foreign stock exchange cross-listings Euronext Corporate Governance Guidelines, 464 largest multinational corporations and, 13 New Zealand external auditor liability, 463 in Nobes’s accounting system classification, 37–38 Nike Inc., 13, 120, 333, 482–483, 486 Nissan, 125, 392 Nobes, Christopher W., classification of financial accounting systems, 37–40, 63, 96n, 97n Noerreklit, H., 415n, 430n Nokia Corporation, 303, 304, 454 Nokia OY, 13, 14 Nonadjusting events, 192–193 Noncontrolling interest (NCI), 130–135 Noncurrent assets held for sale, 112, 194 Nonemployees, share-based payments to, 166 Nonfinancial materiality, 488–489, 492–493 Nonfinancial measures of performance, 417–419 Nonlocal currency balances, 299–300 Normative gap, in audit expectations, 456 North American Free Trade Agreement (NAFTA), as major economic bloc, Norwalk Agreement (2002), 87–91 Notes to financial statements accounting diversity and, 47 foreign exchange risk and, 251–252 OANDA.com, 216 Obama, Barack, 86 Ocean Tomo, 120 OCI See Other comprehensive income (OCI) Off-balance-sheet financing, 187–189 Onerous contracts defined, 159 provision for, 159–160 One-transaction perspective, 220 Operating lease model, 187–189 Operating profit, 422 Operating segment reporting, 190, 194–195 Operational budgeting, 402–403, 423–429 choice of currency in, 424–427 economic exposure in, 427–429 transaction exposure in, 427–429 Optimism, as accounting value, 31 Options See Foreign currency options Oracle, 333 Organizational structure, 412–413 Organization for Economic Cooperation and Development (OECD), 1–2, 66 base erosion and profit shifting (BEPS), 341, 351, 352–353, 377 challenges to the International Accounting Standards Committee (IASC), 68 Guidelines for Multinational Enterprises, 490 member countries, 443n model tax treaty, 338–339, 341, 389–390 Principles of Corporate Governance, 443, 447 taxation participation exemption system, 336 transfer pricing guidelines, 377, 378, 389–390 Other comprehensive income (OCI) accumulated other comprehensive income (AOCI), 226, 287, 288, 304–305 changes in fair value of derivatives, 226 cumulative translation adjustment, 287, 288, 305–306 defined, 226 defined benefit cost, 162–164 fair value through other comprehensive income (FVOCI), 181, 183–184 revaluation increases, 107, 109, 111, 181, 183–184 Parent company, 128 foreign source income See Foreign source income level of control, 128–135 perspective in capital budgeting process, 405–406, 409–411 separating managerial and unit performance, 421–423 taxation See International taxation transfer pricing See International transfer pricing translating financial statements into parent’s currency See Translating foreign currency financial statements Parker, Andrew, 462n Parmalat, 99 Participation exemption system, 336 Partnerships, auditors’ liability and, 462 Passive income, in Subpart F income, 342 Pass-through arrangements, 186 Index 519 Past service cost, 163–164 Patents See Intangible assets Patten, D., 484n Payback period, in capital budgeting process, 404 PCAOB See Public Company Accounting Oversight Board (PCAOB) Peabody Energy, 492, 503 Peat, William Barclay, Peat Marwick International (PMI), Pegged exchange rates, 216 Peninsula Hotels, 110–111, 112, 113–114, 120 Performance evaluation, 402–403, 414–423 See also Translating foreign currency financial statements choice of currency in measuring profit, 423 economic exposure and, 427–429 in evolution of multinational corporations, foreign currency translation, 423 of foreign operations, 416 importance of, key factors in, 429–430 managerial versus unit performance, 421–423 as objective of international transfer pricing, 370, 372–374, 421–423 performance measures, 416–419 responsibility centers, 419–421 Performance gap, in audit expectations, 456 Permanent establishment, 338–339 PetroChina Company, 135, 490 Pfizer Inc., 333 Philadelphia Stock Exchange, 218 Phillips, Richard, 332n Physical presence test, 357–358 Political risk, in capital budgeting process, 405, 406, 407 Political ties, as reason for accounting diversity, 30 Polycentric organizational structure, 412 Porsche Autombil Holding SE (Porsche), 121–122 Post-employment benefits, 162–165 Power distance, in national culture, 30–33 Preferred shares, redeemable, 179 Premiums in forward markets, 218 option, 218 Present value See also Net present value (NPV) present value factors in capital budgeting process, 408 present value of the defined benefit obligation (PVDBO), 162–164 PricewaterhouseCoopers, 9, 50, 116, 335, 389, 418–419, 466 PricewaterhouseCoopers Oy, 116 Principles-based standards, 74, 77–78, 85, 90, 102–103, 455, 466–467 Principles of Corporate Governance (OECD), 443, 447 Procter & Gamble, 14 Product life cycle theory, 11 Professionalism, as accounting value, 31, 448 Professional Oversight Board for Accountancy (POBA, UK), 465 Profit centers, 419–421 Profit repatriation circumvention of restrictions, 375, 376 government restrictions on, 350–351, 354, 375, 376, 392–393, 407 U.S Tax Cuts and Jobs Act (TCJA) of 2017 and, 350–351, 354 Profits choice of currency in measuring, 423 deemed repatriation of accumulated foreign earnings, 350–351, 354 gross profit, 43 operating profit, 45, 422 taxation of distributed vs undistributed, 170 Profit-sharing plans, 162 Profit split method of transfer pricing, 382–383, 385–386 Project perspective, in capital budgeting process, 405, 408–409 Property, plant, and equipment (PPE), 105–112 current rate method of translating foreign currency, 287 depreciation of, 108, 111, 287 derecognition of, 106, 112 dismantling and removal costs, 106 impairment of, 105, 117–120 international transfer pricing for sale of, 378–383, 391 measurement subsequent to initial recognition, 51, 107–111 cost model, 105–106, 107–111 fair value (FV), 51, 106, 107, 171–172 historical cost (HC), 51, 105 historical cost adjusted for changes in general purchasing power (GPP), 51 revaluation model, 105, 107–111, 171–172 recognition of initial and subsequent costs, 106 temporal method of translating foreign currency, 286–287, 301 Proportionate liability, 462–463 Proportionate share measurement, goodwill, 131, 132–135 Provisions, 157–159 contaminated land constructive obligation, 161 defined, 157 for litigation loss, 159 for onerous contracts, 159–160 recognition of, 157–159 for restructuring, 48–50, 160 Psychic distance, 414n Public Company Accounting Oversight Board (PCAOB), 454 auditor independence and, 464, 465 critical audit matters (CAMs), 446, 448, 455–456 establishment in 2002, 452 internal auditing and, 469, 470, 472 international cooperation in regulating auditors and audit firms, 459–460 Public Interest Oversight Board (PIOB), 460, 465 Purchasing power gain, 309–310 Purchasing power loss, 309 Put options, 218 Quick, R., 449n, 454n, 461n, 463n Radebaugh, Lee H., 31n, 32n Ragan, Madhav, 372n Rahman, A., 474n Rahman, M Zubaidur, 36, 36n Ramamoorti, S., 468n, 470n Real estate investment trusts (REITs), 112n, 113 Reasonable assurance, 498 Receivables See Accounts receivable Recognition accounting diversity and, 50 of assets, 80 of contingencies, 158–161, 211–213 defined, 50 of expenses, 81 of goodwill, 130 of income, 81 of liabilities, 80, 81 of revenue, 90, 173–178 of share-based payments, 88 Recoverable amount, 117 Redeemable preferred shares, 179 Refinanced short-term debt, 157 Related party disclosures, 194 See also International transfer pricing Relevance fair value measurement and, 116 of financial statements, 80 reliability vs., 90, 116 Reliability fair value measurement and, 116 of financial statements, 80 relevance vs., 90, 116 Remeasurement gains and losses, 289, 297–299 Remeasurement of financial statements See Temporal method Remeasurement of net defined benefit liability (asset), 164 Reorganizations, 129 Repatriation of accumulated foreign earnings See Profit repatriation Reporting currency See also Translating foreign currency financial statements defined, 289 Resale price method of transfer pricing, 380–381, 383 Research and development (R&D), 121, 122–127 See also Intangible assets Residence foreign housing cost exclusion, 358 taxation of U.S expatriates living abroad, 336–337, 356–358 Residual profit split method of transfer pricing, 383 Responsibility accounting, 421 Responsibility centers, 419–421 Restructuring defined, 160 provision for, 48–50, 160 Retained earnings exchange rates in translating foreign currency, 284 translation of, 284 Return on equity, 301–302 Return on investment (ROI), in performance evaluation, 418, 419 Revaluation of assets See Fair value measurement Revenue centers, 419–420 Revenue recognition, 90, 173–178 bill-and-hold sales, 176 customer loyalty programs, 176–178 deferred revenue, 176–178 steps in, 173 transfer of control in, 173–178 variable consideration, 173, 175–176 Rezaee, Z., 417n Riccio, Edson L., 33n, 34n Richter, M., 75n Rio Tinto PLC, 13 Risk management See also Hedging foreign exchange risk in corporate governance, 444, 447–448, 469, 471, 472–473 high-quality accounting information and, 36 RobecoSAM Corporate Sustainability Assessment (CSA), 490 Robeco/SAM/Dow Jones Sustainability Index, 491 Robins, Alexandria, 332n Royalties, withholding taxes, 333–334, 339–341, 374–375, 376 Royalty relief method, 121n Rugman, Alan M., 2n, 5n, 12n Rules-based standards, 77–78, 90, 91, 102–103 SABMiller PLC, 11 Safe harbor test controlled foreign corporations (CFC), 343, 349–350 intercompany loans, 386 Sales See also Export sales; International trade; International transfer pricing accounting issues in foreign currency transactions, 220–223 520 Index Sales See also Export sales; International trade; International transfer pricing (Continued) in evolution of multinational corporations, 2–3, foreign direct investment to increase, in performance evaluation, 418, 419 in Subpart F income, 342 Salter, Stephen B., 38n Samsung Electronics, 120 Sanofi, 125 SAP SE, 13 Sarbanes-OxleyAct (SOX) of (2002, U.S.), 444, 445–446, 452, 464–465, 466, 468–469 SASB (Sustainability Accounting Standards Board), 489, 492–493 Saudagaran, Sharokh M., 27n Schipper, K., 83n Schlank, Rosemary, 422n Schlumberger, 13 Schneiderman, Eric, 492, 503 Schoenfeld, H W., 415n, 430n Schreuder, H., 450n Schultz, Joseph J., 33n, 34n Secrecy, as accounting value, 31, 32–33 Section 482 (U.S Internal Revenue Code), 377–390 Segment reporting, 190, 194–195 Sell-through accounting, 175 Seow, G S., 457n Service income, in Subpart F income, 342 Services, transfer pricing for intercompany, 386 SFAS See Statements of Financial Accounting Standards (SFAS, U.S.) Shanghai University, 462 Shapiro, James E., 35n Share-based payments, 161, 165–169 See also Stock option plans cash-settled, 165, 167–169 choice-of-settlement, 165–169 equity-settled, 165–169 recognition on financial statements, 88 Shareholder wealth maximization, 443, 444, 449, 485 Shields, M D., 404, 404n, 419n Shire PLC, 13 Single-tier board of directors, 443, 444, 449 SK Telecom Company Ltd., 22–23, 23n, 48 Social capital, in sustainability reporting, 482, 483 Socially responsible investors (SRIs), 485, 486 Soeters, J., 450n Sony Corporation, 16–17, 158 Sorkin, Andrew Ross, 485n Sources of financing See Financing sources South Africa, internal control in, 473 Spain, in Nobes’s accounting system classification, 37–38 Specified return, 351–352 Split accounting, for compound financial instruments, 180 Spot rates exceeding strike price in foreign currency options, 242–243 foreign exchange, 217–218 Stakeholder orientation, 443–444 Stakeholder theory of sustainability reporting, 484 “Standards overload” as argument against convergence of financial reporting, 79 FASB and, 28 Statement of cash flows basic requirements, 191 dividend classification, 191–192 effects of capitalizing product development costs, 127 hedge accounting, 229 interest classification, 191–192 Statements of Financial Accounting Standards (SFAS, U.S.) See also Financial Accounting Standards Board (FASB, U.S.) SAFS 87, Employers’ Accounting for Pensions, 97 SAFS 153, Exchange of Non-monetary Assets, 88 SFAS 8, Accounting for the Translation of Foreign Currency Transactions and Foreign Currency Financial Statements, 288 SFAS 52, Foreign Currency Translation, 288 SFAS 123, Share-based Payments, 88 SFAS 141 (revised), Business Combinations, 88 SFAS 151, Inventory Costs, 88 SFAS 157, Fair Value Measurements, 89–90 SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, 92 Statutory cap on liability, 463 Statutory control as accounting value, 31 parent-subsidiary, 128–135 Stewardship, usefulness vs., 90 STMicroelectronics, 35 Stockholders’ equity, cumulative translation adjustment, 287, 288, 305–306 Stock option plans graded-vesting options, 166 plan modification, 166–167 share-based payments, 165–169 Strabag SE, 41 Strategic business units, 412 Strategy formulation, 402 Strategy implementation, 402 Street, Donna L., 67n Strike price, option, 3–4, 218–219, 242–243 Stupak, Jeffry M., 332n Subpart F income (U.S Internal Revenue Code), 341, 342–343, 349–350 Subsequent events, 192–193 Subsidiary, 128 foreign source income See Foreign source income level of control, 128–135 separating managerial and unit performance, 421–423 taxation See Controlled foreign corporation (CFC) rules; International taxation transfer pricing See International transfer pricing translating financial statements into parent’s currency See Translating foreign currency financial statements Südzucker AG, 44, 45, 47 Sumitomo Corporation, 471 Sumitomo Metal Industries, 454 Supplier, choice-of-settlement share-based payment transactions, 165, 167–169 Surka, Michelle, 332n Surplus, revaluation of assets, 109–111 Sustainability Accounting Standards Board (SASB), 489, 492–493 Sustainability reporting, 481–504 carbon emissions reporting, 489, 493–496 in evolution of multinational corporations, 10 examples of, 496–503 importance of, 10 move toward mandatory reporting, 490–493 stand-alone vs integrated reports, 481 structure of reporting system, 486–490 Global Reporting Initiative (GRI) See Global Reporting Initiative (GRI) other reporting frameworks, 489–490, 492–493 taxonomy of topics in, 482–483 theories to support emergence of, 484–486 socially responsible investors and, 485, 486 traditional investors and, 485 Sweden, in Nobes’s accounting system classification, 37–38 Synergy, 132, 412 T Rowe Price New Asia Fund, 35 Tam, K., 457n Tang, Roger Y W., 372n Tariffs (import duties), 375, 376 Tata Motors, 124, 125, 223 Tax conformity See also International taxation correlation with legal system and source of financing, 30 as reason for accounting diversity, 28–29 Tax Cuts and Jobs Act (TCJA) (2017, U.S.), 331, 336, 344, 347, 350–353 base erosion anti-abuse tax (BEAT), 352–353 deemed repatriation of accumulated foreign earnings, 350–351, 354 global intangible low-taxed income (GILTI), 351–352 Tax havens, 331–333, 336n, 340–341, 342, 342n, 349–350 Tax holidays, 331 Tax home, 357 Tax jurisdiction, 335–338 citizenship, 336–337, 356–358 double taxation See Double taxation of foreign source income, 7, 335–338, 349–350 residence, 336–337, 356–358 source of income, 336–337 worldwide vs territorial approach, 7n, 335–337 Tax treaties, 338–341 OECD model, 338–339, 341, 389–390 treaty shopping, 340–341 United Nations model, 339 U.S model, 339–340, 387–388, 389–390 Technology audit environment and, 451 foreign direct investment and, Telco Ltd., 154–155 Temporal method average exchange rate and, 285 balance sheet items, 285, 297, 308, 312–314 calculating cost of goods sold (COGS), 285–286 cumulative translation adjustment in stockholders’ equity, 287, 288 versus current rate method, 300–302, 423 described, 282–283 functional currency determination, 289–290, 292 for highly inflationary economies, 290–291, 312–314 historical exchange rate and, 279, 282–283, 285 illustration, 297–299, 310–314 income statement items, 283, 285, 297–299, 311–312 in performance evaluation, 423 for property, plant, and equipment (PPE) foreign currency translation, 286–287, 301 remeasurement gains and losses, 289, 297–299 translation adjustment, 283, 287–291 translation gain or loss in net income, 287, 288 U.S.-dollar perspective and, 288 Tencent Holdings, 490 Territorial approach, to taxation, 7n, 336 Tesco PLC, 47, 171, 172 Tested income, 351–352 Thai Airways International Public Company Limited, 45–47 Thin capitalization, 333–334 Thomson-CSF, 67–68 Tillerson, Rex, 503 Time value See also Net present value (NPV); Present value in capital budgeting process, 408 of defined benefit obligations, 162–164 of options, 219 Tobin, Jean E., 35n Tokar, Mary, 94 Toshiba Corporation, 454 Total annual cash flow (TACF), 408–409 Index 521 Toyota, 125, 392 Trademarks See Intangible assets Transaction exposure versus balance sheet exposure, 281 defined, 427 export sales, 219, 221 import purchases, 219, 221 in operational budgeting, 427–429 Transfer pricing See also International transfer pricing defined, 369 Translating foreign currency financial statements, 6, 67, 74–77, 82, 277–314 appropriate exchange rate, 278–281, 294–296 balance sheet exposure, 281–282, 283, 296, 302–304 disclosures, 304–306 foreign operation income for U.S tax purposes, 353–355 functional currency, 289–290, 291, 292 highly inflationary economies, 290–291, 292, 307–314 IFRS and, 291–302 illustration, 292–302, 310–314 managerial versus unit performance evaluation and, 421–423 nonlocal currency balances, 299–300 reconciliation requirements under U.S GAAP, 34–35, 53–54, 59–60, 85, 277 translation adjustments See Translation adjustments translation methods, 282–287, 294–302 See also Current rate method; Temporal method U.S GAAP and, 288–302, 307–314 Translation adjustments, 6, 278–282 balance sheet exposure, 281–282 computation of, 296 cumulative translation adjustment in stockholders’ equity, 287, 288, 305–306 current rate method, 280–282, 284, 287, 288 disposition of, 287, 288 in performance evaluation, 423 reporting in consolidated financial statements, 282, 287–288 temporal method, 283, 287, 288 translation gain or loss in net income, 287, 288 U.S GAAP and, 288–291 Transocean Corporation, 211 Transparency, as accounting value, 31 “Triad” countries, 12–13 Triple bottom line, 483 See also Sustainability reporting Tsakumis, George T., 33n, 34n Turner, L., 448n Tweedie, David, 73, 77, 93 Two-tier board of directors, 443–444, 449, 476 Two-transaction perspective, 220–221 Type culture, 39, 40 Type culture, 39, 40 Uncertainty avoidance, in national culture, 30–33 Uncontrollable items, in performance evaluation, 421–423 Understandability, of financial statements, 80 Uniformity, as accounting value, 31 Unilever N.V., 13–14, 454, 460 Unilever PLC, 460 United Kingdom (UK) See also Anglo-Saxon/ Anglo-American accounting systems Brexit (2016), 223, 275, 459 Class A accounting system, 40 corporate governance model, 444–445 stakeholder orientation, 443, 444–445 two-tier boards, 443–445, 476 external auditing in auditor appointment, 464 auditor disclaimer of liability, 463 auditors’ liability and, 461 audit reports, 454 proportionate liability of auditor, 463 purpose of, 449 regulatory oversight of auditors, 465 statutory cap on auditors’ liability, 463 stringent admission criteria, 466 factors in successful performance evaluation system, 429–430 Financial Reporting Council (FRC), 84, 86, 446, 453 IFRS convergence and, 82–84, 86 internal control in, 473 limited partnerships, 462 measures of performance, 416–417, 418 in Nobes’s accounting system classification, 37–38 regulation of accounting and accounting firms, 452–454 United Nations (UN) challenges to the International Accounting Standards Committee (IASC), 68 model tax treaty, 339 multinationality of companies and, 12–13 United Nations Conference on Trade and Development (UNCTAD), 66 United States (U.S.) See also Anglo-Saxon/AngloAmerican accounting systems advance pricing agreements (APAs), 390–392 audit reports in, 454 as common law country, 28 corporate governance model, 443–444 separation of ownership and management, 444 shareholder orientation, 443, 444 single-tier boards, 444 external auditing in, 449, 454 fair value measurement and, 89–90, 91 generally accepted accounting principles (GAAP) See U.S GAAP (generally accepted accounting principles) IFRS and, 84–91 internal control in, 470–473 largest multinational corporations and, 12–13 limited liability partnerships, 462 mandatory sustainability reporting, 491–493 measures of performance, 416–419 in Nobes’s accounting system classification, 37–38 regulation of accounting and accounting firms, 452 taxation and financial reporting, 29 See also Income taxes; International taxation expatriates living abroad, 336–337, 356–358 of foreign operation income, 336–337, 347–350, 353–358 foreign tax credit (FTC), 344–345, 349–350 model tax treaty, 339–340, 387–388, 389–390 participation exemption system, 336 Tax Cuts and Jobs Act (TCJA) of 2017, 331, 336, 344, 347, 350–353 transfer pricing rules, 377–393 arm’s length range, 387 contemporaneous documentation, 388–389 correlative relief, 387–388 enforcement, 392–393 intercompany loans, 386 intercompany services, 386 licenses of intangible property, 383–386 penalties for underpayment of taxes, 388 reporting requirements, 389–390 sale of tangible property, 378–383, 391 transition from rules-based to principles-based approach, 90 in “triad,” 12, 13 U.S Blue Ribbon Committee, 467 U.S Citizenship and Immigration Services, 337 U.S Competent Authority through its Advance Pricing and Mutual Agreement (APMA) Program, 388 U.S Department of Defense, 491 U.S.-dollar perspective to translation of foreign currency, 288 U.S Environmental Protection Agency, 494 U.S GAAP (generally accepted accounting principles) See also Consolidated financial statements; Financial Accounting Standards Board (FASB, U.S.) versus International Financial Reporting Standards (IFRS), 102–103 biological assets, 114–116 borrowing costs, 123, 135–136 business combinations and consolidated financial statements, 128–135 contingent assets, 160–161 contingent liabilities and provisions, 157–160 convergence and, 86, 87–94, 105 See also Convergence of financial reporting current liabilities, 156–157 disclosure and presentation standards, 190–195 employee benefits, 161–165 financial instruments, 178–186 impairment of assets, 117–120 income taxes, 169–172 intangible assets, 120–127 inventories, 103–105 investment property, 112–114 leases, 187–190 property, plant, and equipment, 105–112 revenue recognition, 173–178 share-based payment, 165–169 translating foreign currency financial statements, 288–292, 307–314 types of differences, 102–103 reconciliation requirements in translating foreign currency financial statements, 34–35, 53–54, 59–60, 85, 277 as rules-based system, 102–103 translating foreign currency financial statements and, 288–302, 307–314 U.S GAAS (generally accepted auditing standards), 455–456 U.S General Accounting Office, 392 U.S General Services Administration, 491 U.S Internal Revenue Code Section 482 transfer pricing rules, 377–390 Subpart F income, 342–343, 349–350 U.S Internal Revenue Service (IRS), 333, 357, 378, 385, 389, 391–393 See also International taxation; United States, taxation and financial reporting U.S Securities and Exchange Commission (SEC) coordination with IASB in setting accounting standards, 101–102 EDGAR database, 17 Foreign Corrupt Practices Act (FCPA, 1977), 8, 471–472 foreign stock exchange cross-listings and, 9–10 Form 10-K, 53n Form 20-F, 17, 22, 53, 53n, 85 IFRS convergence and, 9–10, 35–36, 84–86 responsibility for authorizing accounting standards, 97, 101–102, 452, 486 shareholder wealth maximization principles, 443, 444, 486 sustainability reporting requirements, 491–492 UPM-Kymmene Corporation (UPM), 115, 116 Usefulness, stewardship vs., 90 522 Index Vale SA, 41, 42 Value-added tax (VAT), 334–335 Value in use, 117 Vanguard Group, 19–21 Vanguard International Growth Fund (case), 19–21 Variable consideration, revenue recognition and, 173, 175–176 Variable interest entities (VIEs), 128, 129 Variable returns, 129 Verizon Communications Inc., 23, 25 Violet, W J., 27n Vodafone Group PLC, 23, 24, 26, 43, 48 Volkswagen AG (VW), 18, 35, 121–122, 125–127, 277, 445 Walmart, 113 Walters, Ralph E., 35 Watergate scandal, 471 Web Trust Program for Certification Authorities, 474 Weighted-average cost of capital, in capital budgeting process, 407 Weighted-average cost of inventory, 104 Whatley, A., 431n Whittington, G., 74n, 83n Willful misconduct, 213 Withholding taxes, 333–334, 339–341, 374–375, 376 Wong, Jackie, 116n Wood, R A., 451n World Bank, 64–65, 66, 335, 448 World Bank/International Monetary Fund Report on the Observance of Standards and Codes (ROSC), 443 WorldCom, 85, 445 World economy See Global economy World Resources Institute, 494 World Trade Organization (WTO), 214 Worldwide accounting diversity See Accounting diversity Worldwide approach, to taxation, 7n, 335 Worthley, R., 431n Write-downs, inventory lower of cost or net realizable value rule, 104–105 X-rates.com, 216 Yamaha Motor U.S.A., 392 Zeff, Steven, 75, 75n, 94, 94n ... Journal of Accounting Literature; International Journal of Accounting; Advances in International Accounting; Journal of International Financial Management and Accounting; Abacus; Accounting and... are in international and financial accounting His papers have been published in the International Journal of Accounting; Journal of Accounting, Auditing & Finance; Journal of International Accounting. .. in the area of international accounting in various academic journals, including The Accounting Review; Accounting, Organizations, and Society; Abacus; Journal of International Accounting Research;