STUDENT EDITION

MANAGEMENT
PowerPoint Presentation by ACCOUNTING
Gail B. Wright
Professor Emeritus of Accounting 8th EDITION
Bryant University
BY
© Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
HANSEN & MOWEN

18 INTERNATIONAL ISSUES IN
1MANAGEMENT ACCOUNTING
INTRODUCTION 1
 LEARNING
LEARNING OBJECTIVES
OBJECTIVES
1. Explain the role of the management
accountant in the international environment.
2. Identify the varying levels of involvement that
firms can undertake in international trade.
3. List the ways management accountants can
manage foreign currency risk.
4. Explain why multinational firms choose to
decentralize.

continued
2
 LEARNING
LEARNING OBJECTIVES
OBJECTIVES
5. Describe how environmental factors can
affect performance evaluation in the
multinational firm.
6. Discuss the role of transfer pricing in the
multinational firm.
7. Discuss ethical issues that affect firms
operating in the international environment.

3
 LO 1

MANAGEMENT ACCOUNTING

In
Inananinternational
internationalenvironment
environmentrequires
requiresaa
shift
shiftin
inperspective.
perspective.There
Thereare:
are:

Implications
Implicationsofofforeign
foreigncurrency
currencyexchange
exchange

Differences
Differencesinincredit
creditpractices
practices

Differences
Differencesinincultural,
cultural,legal,
legal,political,
political,and
and
economic
economicenvironments
environments

4
 LO 2

INTERNATIONAL TRADE
Levels of involvement
Importing & exporting
Concern:
Tariffs & foreign trade zones
Treaties
Wholly owned subsidiaries
Joint
Jointventures
ventures

5
 LO 2

TARRIFF:
TARRIFF: Definition
Definition

Is a tax on imported or
exported goods.

6
 LO 2

FOREIGN TRADE ZONES

Are
Areset
setup
upby
bygovernment
governmentininUS
USnear
nearports
portsof
of
entry
entrybut
butconsidered
consideredoutside
outsideUS
UScommerce.
commerce.

Goods
Goodsimported
importedinto
intoforeign
foreigntrade
tradezones
zonesare
areduty
duty
free
free

Company
Companycan canpostpone
postponepayments
paymentsofofduty
duty

NoNoduty
dutyonondefective
defectivematerials
materials

Imported
Importedgoods
goodscancanbe
bemodified
modifiedtotomeet
meetUS
US
regulations
regulations

High
Hightariff
tariffcomponents
componentscan canbe
beassembled
assembledinto
into
lower-tariff
lower-tarifffinished
finishedproducts
products
7
 LO 2

OUTSOURCING:
OUTSOURCING: Definition
Definition

Is payment by a company for

business functions formerly
done in-house.

8
 LO 2

JOINT
JOINT VENTURE:
VENTURE: Definition
Definition

Is a type of partnership in which

investors co-own the enterprise.
A special example is a
maquiladora, a manufacturing
plant in Mexico.

9
 LO 3

FOREIGN
FOREIGN CURRENCY
CURRENCY RISK:
RISK:
Definition
Definition

Refers to the company’s

management of its transaction,
economic, & translation risks
economic
due to exchange rate
fluctuations.

10
 LO 3

MANAGING CURRENCY RISK

 Transaction risk
 Possibility that future cash transactions will be affected by
exchange rate fluctuations
 Economic risk
 Possibility that a firm’s present value of future cash flows
will be affected by exchange rate fluctuations
 Translation (accounting) risk
 Degree to which firm’s financial statements are exposed to
exchange rate fluctuations

11
 LO 3

MANAGING TRANSACTION RISK

Companies face risk of currency appreciation

(depreciation). They can manage the effects
of fluctuating exchange rates on cash
transactions by using
Spot (immediate) rate
Hedging
Forward exchange contract for specified amount at
specified rate on specified future date.

12
 LO 3

MANAGING ECONOMIC RISK

Companies must manage risk to the present
value of future cash flows due to exchange
rate fluctuations. The management
accountant must:
Understand the company’s position in a global
economy
Provide financial structure and communication
for the firm
Encourage use of hedging

13
 LO 4

ADVANTAGES OF
DECENTRALIZATION
Local level information is higher quality
Local managers can make a more timely
response in decision making
Less likely to misinterpret instructions at local
level due to language differences

14
 LO 4

How do MNCs address

language differences?

MNCs 1) push decision making

down to local manager, and 2)
incorporate technology that
overrides language barriers.

15
 LO 4

How do MNCs address

decentralization?

MNCs create different divisions

by 1) geographic
geographic lines
lines, 2)
product lines, and 3) functional
management lines.

16
 LO 5

EVALUATING PERFORMANCE
Managers should be evaluated only on those
factors that the manager has control over.
Evaluations based on revenues or costs are
not affected by currency fluctuations.
Comparative evaluations are difficult
because of cultural differences between
countries.

17
 LO 5

What measures are best for

performance evaluation in an
international setting?

Multiple measures are the best

approach. Include EVA
(economic value added) or ROI
ROI
for short term measures.

18
 LO 5

OTHER PERFORMANCE
MEASURES
To
Todiscourage
discouragemyopic
myopicbehavior
behaviorfrom
fromrelying
relying
on
onshort
shortterm
termperformance
performancemeasures,
measures,
include
include

Market
Marketshare
share

Customer
Customercomplaints
complaints

Personnel
Personnelturnover
turnoverratios
ratios

Personnel
Personneldevelopment
development

19
 LO 6

How can transfer pricing

affect the taxes a company
pays?

Transfer pricing can shift

revenues and costs between
high & low tax countries.

20
 LO 6

What methods can be used

for transfer pricing?

Transfer pricing methods

include 1) comparable
uncontrolled price, 2) resale
price, and 3) cost-plus price.

21
CHAPTER 18

THE
THE END
END

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