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1. INTRODUCTION TO
INTERNATIONAL ACCAOUNTING

2. The purpose of accounting is to provide
information that is useful for making business
and other economic decisions. For this reason,
accounting is commonly referred to as the
language of business.
The important categories of information
contained in accounting are operating
information, financial accounting information,
management accounting information and tax
accounting information.

3. Since countries have their own set of socio-
economic, political, legal, cultural, technological
and linguistic environment, financial reporting
diversities are quite eminent.
With diverse financial reports in hand,
decision makers find it difficult to make effective
decisions. To overcome this difficulty and to have a
more uniform and harmonized financial reporting
across the globe, the concept of INTERNATIONAL
ACCOUNTING has gained momentum.

4. International accounting is nothing but
international aspects of accounting, including such
matters as accounting principles and reporting
practices in different countries and their
classification patterns of accounting development;
international and regional harmonization, foreign
currency translation, foreign exchange risk,
international comparisons of consolidation
accounting and inflation accounting, accounting in
developing countries, performance evaluation of
foreign subsidiaries.

5. An understanding of the international dimension of the
accounting processes that were just described is
important to those seeking to manage a business or
obtain or supply of financing across notional borders.
Accounting amounts may vary significantly
according to the principles that govern them.
Differences in culture, business practices, political and
regulatory structures, legal systems, currency values,
local inflation rates, business risks, and tax codes all
affect how the MNC conducts its operations and
financial reporting around the World. Financial
statements and others disclosures are impossible to
understand without an awareness of the underlying
Accounting Principles and business culture.

6. Definition of International Accounting:
“International accounting would involve
accounting for international transactions, the operational
aspects of international firms, comparison of accounting
principles and practices found in foreign countries and
the procedures by which they were established”.
“International accounting is that branch of
accounting which analyses the different accounting
principles and practices prevalent around the globe, deals
with the specific technical problems encountered by
individuals and MNCs in international operations and as
its ultimate goal, attempts to develop a universal system
of accounting that would receive acceptance the world
over”.

7. International accounting may thus be
defined as that “branch of accounting which
deals with the recording and translation of
foreign transactions, preparation and
presentation of consolidated foreign financial
statements and presentation of international
financial reporting in accordance with
international GAAP and auditing practices”.

8. Importance of International Accounting:
1. It facilitates achieving harmonization of
accounting practices across nations.
2. It helps in reaching out to global investors.
3. It helps in taking informed decisions.
4. It helps in mobilizing global resources
5. It helps in establishing uniformity in global
financial reporting and disclosure practices
6. It helps in the professionalization of accounting
education world over.
7. It helps in inculcating ethics and transparency into
accounting practices.

9. Approaches to International Accounting:
1. Universal or world Accounting
2. Comparative International Accounting
3. Pragmatic or operational international
Accounting
4. Politicized International Accounting

10. Development of International
Accounting:
The factors, which have contributed towards the
development of international accounting, are:
1. Expansion of world trade
2. Emergence of multinational corporations
3. Increase in international flow of capital
4. Historical evolution of accounting
5. Need for harmonization of accounting
practices

11. Scope of International Accounting:
The scope of International accounting has been
justified with 3 concepts:
A. Financial Accounting
B. Management Accounting
C. Social and Allied Accounting activities

12. A. Financial Accounting:
1. Recording of foreign transactions
2. Foreign currency translation
3. Accounting for foreign inflation
4. Consolidation of foreign financial statements
5. Segment and Interim reporting

13. 1. Recording of foreign transactions:
International accounting essentially begins with
the recording of foreign transactions. A transaction, in
relation to importing, exporting, foreign borrowings
and lending, and forward contracts, taking place
between parties belonging to two different countries, is
said to be an international or foreign transactions.
As far as recording foreign transactions is
concerned, two approaches i.e., single transaction
approach and the dual transaction approach are
found to be popular.
The dates of the transaction such as
a) The initial transaction date
b) The interim reporting date
c) The settlement date

14. 2. Foreign Currency Translation:
Foreign currency translation means, converting the
financial figures which is one country’s currency to other
country's currency. Foreign currency translations refers to
the change in the monetary expression of the financial data
contained in the financial statements.
Ex. Figures of the balance sheet and income statement
expressed in rupees when restated in dollar equivalent or in
other similar foreign currency.
Issues or steps involved in FCT:
a) Recognition and recording of foreign currency
transactions
b) Recording of forward exchange contracts
c) Translation of foreign currencies
d) Understanding the international GAAP on foreign
currency translation.

15. 3. Accounting for foreign inflation:
Price level changes refer to the increase
or decrease in the purchasing power of money.
Purchasing power, in turn, refers to the ability
of a given sum of money to buy a certain
amount of goods or services now in
comparison to what the same of money could
have bought at a previous date.

16. 4. Consolidation of Foreign Financial
Statements :
consolidated refers to the preparation and
presentation of ‘integrated financial statements’,
popularly known as consolidated statements.
By incorporation the financial data of the
subsidiary, to the extent of the controlling interest,
in the financial statement of the parent company
with a view to giving the stakeholders information
as regards the economic resources being controlled
by the group.

17. 5. Segment and Interim Reporting:
Segment reporting refers to the reporting of
financial information in relation to different business
activities of the firm classified as business segment or
geographical segment.
Interim reporting refers to the presentation of
financial statements of the enterprise covering periods of
less than a full financial year. The purpose of such
presentation of financial statements is to provide the
decision makers with frequent and timely information for
taking investment and credit decisions, based on their
ability to predict full year’s financial results from the
interim results.

18. B. Management Accounting
1. Analysis of foreign financial statements
2. Multinational transfer pricing
3. Budgeting and performance evaluation of
foreign subsidiaries
4. Management of foreign exchange risk
5. International taxation

19. 1. Analysis of Foreign Financial Statements :
Financial statement analysis refers to an information
processing system that is meant for providing financial
data which are appropriate and useful to decision makers
who are concerned with evaluating the economic
situation of the firm and predicting its future course.
Techniques of financial statement analysis:
a) Economic Value Added (EVA)
b) Market Value Added (MVA)
c) Multiple Discriminate Analysis (MDA)

20. 2.Multinational Transfer Pricing:
Transfer pricing relates to the pricing of goods
and services that change hands between entities
engaged in inter firm trade. Transfer price is the price
at which goods or services are transferred between
affiliated entities within an organization.
Objectives of Transfer Pricing:
a) Appropriate evaluation of segment with
management performance
b) Avoidance of foreign currency restrictions and
quotas
c) Minimization of taxed and tariffs
d) Minimization of exchange risks
e) Avoidance of profit repatriation restrictions
f) Enhancement of shares of profits in joint ventures

21. 3.Budgeting and performance evaluation of
foreign subsidiaries :
Firms use budgeting and performance
evaluation as tools for strategic planning and
control. For multinational corporations, it is
essential that these budgeting and performance
evaluation tools are chosen appropriately so as to
fit to the environment of the countries of their own
domicile and also of the foreign countries.

22. 4. Management of Foreign Exchange Risk:
Exchange risk management aims at
monitoring and managing the firm’s foreign
exchange exposure so as to maximize its
profitability, cash flow and market value.
Foreign exchange exposure primarily assumes
three forms:
a) Translation exposure
b) Transaction exposure
c) Economic exposure

23. a) Translation exposure: The potential of an increase or decrease in
the parent company’s net worth and reported net income due to
fluctuations in the exchange rates. It arises from Buying and selling on
credit goods or services whose prices are contractually denominated in
foreign currency, Borrowing and lending funds in foreign currency,
Forward exchange contracts, Acquisition or disposal of assets
denominated in foreign currency, settlement of liabilities denominated
in foreign currency.
b) Transaction exposure: . In contrast, transaction exposure arises
due to the sensitivity of the firm’s contractual cash flows denominated
in foreign currency to exchange rate fluctuations.
c) Economic exposure: It refers to the extent to which the value of the
firm would be impacted by unexpected changes in the exchange rates.
The managerial efforts to manage economic exposure would be to
formulate long term strategies so as to enhance and preserve its value
in the event of unexpected exchange rate fluctuations.

24. 5. International Taxation:
International taxation is a complex
phenomenon that affects all the aspects of
multinational operations including foreign
investments, transfer pricing, marketing of product
and services, cost of capital and capital structure.
It is therefore imperative for multinational
corporations in particular to understand the
diversities that exist in relation to corporate tax
laws in different countries for better tax planning
and decision making.

25. C. SOCIALAND ALLIED ACCOUNTING POLICIES
1. Accounting for newer financial instruments
2. Global joint venture
3. Environmental disclosures
4. Social disclosure

26. 1. Accounting for newer financial instruments:
IAS 39 a derivative is a financial instrument, by classifying
option, swap, future and forward.
2. Global joint venture:
IAS 31 deals with the accounting procedure of investments in joint ventures, by
classifying jointly controlled operations, jointly controlled assets, and jointly
controlled entities.
3. Environmental disclosures:
Environmental disclosures by companies have increasingly
become a matter of interest not only to the environmentalists but
also to stakeholders like the investors, employees, customers,
regulatory agencies and the society at large.
4. Social disclosure: Social disclosure primarily aims at informing
general public about the social welfare measures taken by the
firm and their effects on the society.