Page 257 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes suppliers in a foreign country. Two types of FDI are Greenfield investment and acquisition.
Greenfield investment: The establishment of a new operation in the foreign country.

Acquisition: Investment in an existing operation in the foreign country.
fDi creates two Primary issues:
l z The need to convert from local to U.S. GAAP since accounting records are usually prepared
using local GAAP.

l z The need to translate from local currency to U.S. dollars since accounting records are
usually prepared using local currency.
international income taxation

l z Foreign Income Taxes: The foreign government will tax the company’s profits at applicable
rates.
l z U.S. Income Taxes: The U.S. will tax the company’s foreign-based income.
international transfer Pricing

l z Transfer Pricing: Setting prices on goods and services exchanged between separate
divisions within the same firm. These prices have a direct impact on the profits of the
different divisions.

l z these exchanges are not arms-length transactions, thus giving rise to the certain problems
in an international context:
l z Taxation: Governments in the various countries often scrutinize transactions to assure that
sufficient profits are being recorded in that country.

l z Performance evaluation issues: To the extent that division managers are evaluated based
on divisional profits, transfer prices influence division manager performance evaluation.

13.2.3 international auditing

Both internal and external auditors encounter differences that arise between auditing in an
international vs. domestic context. These include:

l z Language and cultural differences
l z Different accounting standards (GAAP) and auditing standards (GAAS)
cross-listing on foreign stock exchanges
MNEs frequently raise capital outside their home country. When a company offers its shares on
an exchange outside of its home country, this is referred to as Cross-Listing.
international Harmonization of accounting standards
The international movement towards a single set of worldwide accounting rules is referred to as
Harmonization. International Accounting Standards (IAS) and U.S. GAAP are currently the two
most important sets of accounting rules.
The Norwalk Agreement

l z Published in 2002.
l z Is a promise of cooperation in standard-setting between the International Accounting
Standards Board (IASB) and the Financial Accounting Standards Board (FASB).
l z Represents a significant step toward international harmonization.

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