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Test Bank for International Accounting, 3th Edition by Timothy Doupnik
Test Bank for International Accounting, 3th Edition by Timothy Doupnik
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Third EditionINTERNATIONAL
ACCOUNTING
Timothy Doupnik
Hector Perera
, International
Accounting
Third Edition
Timothy Doupnik
University of South Carolina
Hector Perera
Macquarie University
dou10955_fm_i-xviii.indd i 2/24/11 2:53 PM
, INTERNATIONAL ACCOUNTING, THIRD EDITION
Published by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of
the Americas, New York, NY 10020. Copyright © 2012 by The McGraw-Hill Companies, Inc. All
rights reserved. Previous editions © 2009 and 2007. No part of this publication may be reproduced or
distributed in any form or by any means, or stored in a database or retrieval system, without the prior
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outside the United States.
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ISBN 978-0-07-811095-5
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All credits appearing on page or at the end of the book are considered to be an extension of the
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Library of Congress Cataloging-in-Publication Data
Doupnik, Timothy S.
International accounting/Timothy Doupnik, Hector Perera.—3rd ed.
p. cm.
ISBN 978-0-07-811095-5 (alk. paper)
1. International business enterprises—Accounting. I. Perera, M. H. B. II. Title.
HF5686.I56D68 2012
657’.96—dc22 2011001155
www.mhhe.com
dou10955_fm_i-xviii.indd ii 3/17/11 9:42 AM
, To my wife Birgit and children Stephanie and
Alexander
—TSD
To my wife Sujatha and daughter Hasanka
—HBP
dou10955_fm_i-xviii.indd iii 2/24/11 2:53 PM
, About the Authors
Timothy S. Doupnik University of South Carolina
Timothy S. Doupnik is a Professor of Accounting at the University of South Caro-
lina, where he has been on the faculty since 1982, and primarily teaches financial
and international accounting. He served as director of the School of Accounting
from 2003 until 2010, when he assumed the position of Vice Provost for interna-
tional affairs. He has an undergraduate degree from California State University–
Fullerton, and received his master’s and Ph.D. from the University of Illinois.
Professor Doupnik has published exclusively in the area of international
accounting in various journals, including The Accounting Review; Accounting, Orga-
nizations, 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 Outstand-
ing International Accounting Educator Award in 2008. He has taught or con-
ducted research in the area of international accounting at universities in a number
of countries around the world, including Brazil, China, Dominican Republic, Fin-
land, Germany, and Mexico.
Hector B. Perera Macquarie University
Emeritus Professor Hector Perera is at Macquarie University, Australia. Prior
to joining Macquarie University in January 2007, he was at Massey University,
New Zealand, for 20 years. He has an undergraduate degree from University of
Sri Lanka, Peradeniya, and received his Ph.D. from the University of Sydney,
Australia.
Professor Perera’s research has dealt mainly with international accounting
issues and has been published in various journals, including Journal of Inter-
national Accounting Research; Journal of Accounting Literature; International Jour-
nal of Accounting; Advances in International Accounting; Journal of International
Financial Management and Accounting; Abacus; Accounting and Business Research;
Accounting, Auditing and Accountability Journal; Accounting Education; Aus-
tralian Accounting Review; International Journal of Management Education; and
Pacific Accounting Review. In an article appearing in a 1999 issue of the Interna-
tional Journal of Accounting, he was ranked fourth 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 is currently an associate editor for the Journal of International Accounting
Research and on the editorial boards of several other journals.
Professor Perera has been a visiting professor at a number of universities,
including the University of Glasgow in Scotland; NewSouth Wales University,
Wollongong University, and Northern Territory University in Australia; Turku
School of Economics and Business Administration, and Åbo Akademi University
in Finland; Unversiti Teknologi Mara, Malaysia; and University of Shahjah.
iv
dou10955_fm_i-xviii.indd iv 2/24/11 2:53 PM
, 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 nota-
bly 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, but that focuses on the accounting issues related to international busi-
ness 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 International Financial Reporting Standards (IFRS);
and coverage of nontraditional but important topics such as strategic account-
ing issues of 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 to demonstrate financial
reporting issues especially relevant for multinational corporations.
• Incorporation of research findings into the discussion on many issues.
• Extensive end-of-chapter assignments that help students develop their analyti-
cal, communication, and research skills.
• Detailed discussion on the most recent developments in the area of interna-
tional harmonization/convergence of financial reporting standards.
• Two chapters on International Financial Reporting Standards 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 topics such as
business combinations, foreign currency, and segment reporting are covered
in other chapters.) The IFRS chapters also include numerical examples demon-
strating 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 cur-
rency exposure.
• Separate chapters for international taxation and international transfer pricing,
with detailed examples based on provisions in U.S. tax law.
v
dou10955_fm_i-xviii.indd v 2/24/11 2:53 PM
, vi Preface
• A chapter devoted to a discussion of the strategic accounting issues facing mul-
tinational corporations, with a focus on the role accounting plays in strategy
formulation and implementation.
• Use of a corporate governance framework to cover external and internal audit-
ing issues in an international context, with substantial coverage of the Sarbanes-
Oxley Act of 2002.
• A new chapter on corporate social responsibility reporting, which is becoming
increasingly more common among global enterprises.
CHAPTER-BY-CHAPTER CONTENT
Chapter 1 introduces the accounting issues related to international business by
following the evolution of a fictional company as it grows from a domestic com-
pany to a global enterprise. This chapter provides the context into which the top-
ics covered in the remaining chapters can be placed.
Chapters 2 and 3 focus on differences in financial reporting across countries
and the international convergence of accounting standards.
• Chapter 2 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 coun-
tries. In this chapter, we also describe and compare several major models of
accounting used internationally. We discuss the potential impact that culture
has on the development of national accounting systems and present a simpli-
fied 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 3 focuses on the major efforts worldwide to converge financial report-
ing practices with an emphasis on the activities of the International Account-
ing Standards Board (IASB). We explain the meaning of convergence, identify
the arguments for and against convergence, and discuss the use of the IASB’s
International Financial Reporting Standards (IFRS), including national efforts
to converge with those standards.
The almost universal recognition of IFRS as a high-quality set of global account-
ing standards is arguably the most important development in the world of inter-
national accounting. Chapters 4 and 5 introduce financial reporting under IFRS
for a wide range of accounting issues.
• Chapter 4 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; intangible assets; and leased assets. Numeri-
cal examples demonstrate the application of IFRS, differences between IFRS
and U.S. GAAP, and the implications for financial statements. This chapter also
describes the requirements of IFRS in a variety of disclosure and presentation
standards.
• Chapter 5 focuses on current liabilities, provisions, employee benefits, share-
based payment, income taxes, revenue, and financial instruments, including
major differences between IFRS and U.S. GAAP.
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, Preface vii
Chapter 6 describes the accounting environment in five economically signifi-
cant countries—China, Germany, Japan, Mexico, and the United Kingdom—that
are representative of major clusters of accounting system. The discussion related
to each country’s accounting system is organized into four parts: background,
accounting profession, accounting regulation, and accounting principles and
practices. Exhibits throughout the chapter provide detailed information on dif-
ferences between each country’s GAAP and IFRS, as well as reconciliations from
local GAAP to U.S. GAAP.
Chapters 7, 8, and 9 deal with financial reporting issues that are of particular
importance to multinational corporations. Two different surveys of business exec-
utives indicate that the most important topics that should be covered in an inter-
national accounting course are related to the accounting for foreign currency.1
Because of its importance, this topic is covered in two separate chapters (Chapters
7 and 8). Chapter 9 covers three additional financial reporting topics of particular
importance to multinational corporations—inflation accounting, business combi-
nations and consolidated financial statements, and segment reporting. Emphasis
is placed on understanding IFRS related to these topics.
• Chapter 7 begins with a description of the foreign exchange market and then
demonstrates 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 demonstrate the accounting for forward contracts and
options used as cash flow hedges and fair value hedges to hedge foreign cur-
rency assets and liabilities, foreign currency firm commitments, and forecasted
foreign currency transactions.
• Chapter 8 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 do 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.
• Chapter 9 covers three additional financial reporting issues. The section on
inflation accounting begins with a conceptual discussion of asset valuation and
capital maintenance through the use of a simple numerical example and then
summarizes the inflation accounting methods used in different countries. The
second section focuses on International Financial Reporting Standards related
to business combinations and consolidations, covering issues such as the deter-
mination of control, the acquisition method, proportionate consolidation, and
1
T. Conover, S. Salter, and J. Price, “International Accounting Education: A Comparison of Course
Syllabi and CFO Preferences,” Issues in Accounting Education, Fall 1994; and T. Foroughi and B. Reed,
“A Survey of the Present and Desirable International Accounting Topics in Accounting Education,”
International Journal of Accounting, Fall 1987, pp. 64–82.
dou10955_fm_i-xviii.indd vii 2/24/11 2:53 PM
, viii Preface
the equity method. The final section of this chapter focuses on International
Financial Reporting Standard 8, Operating Segments.
Chapter 10 introduces issues related to the analysis of foreign financial state-
ments. We explore potential problems (and possible solutions to those problems)
associated with using the financial statements of foreign companies for decision-
making purposes. This chapter also provides an example of how an analyst would
reformat and restate financial statements from one set of GAAP to another.
Business executives rank international taxation second only to foreign currency
in importance 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 11 and 12.
• Chapter 11 focuses on the taxation of foreign operation income by the home-
country government. Much of this chapter deals with foreign tax credits, the
most important mechanism available to companies to reduce double taxation.
This chapter provides a comprehensive example demonstrating the major
issues involved in U.S. taxation of foreign operation income. We also discuss
benefits of tax treaties, translation of foreign currency amounts for tax pur-
poses, and tax incentives provided to attract foreign investment.
• Chapter 12 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 per-
formance evaluation and cost minimization can conflict in determining inter-
national 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.
Chapter 13 covers strategic accounting issues of particular relevance to mul-
tinational corporations. This chapter discusses multinational capital budgeting
as a vital component of strategy formulation and operational budgeting as a key
ingredient in strategy implementation. Chapter 13 also deals with issues that must
be addressed in designing a process for evaluating the performance of foreign
operations.
Chapter 14 covers comparative international auditing and corporate gov-
ernance. This chapter discusses both external and internal auditing issues as
they relate to corporate governance in an international context. Chapter 14 also
describes international diversity in external auditing and the international harmo-
nization of auditing standards.
Chapter 15 introduces the current trend toward corporate social reporting
(CSR) by multinational corporations (MNCs). We describe theories often used to
explain CSR practices by companies and the motivations for them to engage in
CSR practices. We also examine the implications of climate change for CSR. Fur-
ther, we discuss some issues associated with regulation of CSR at the international
level and identify international organizations that promote CSR, such as Global
Reporting Initiative (GRI). Finally, we provide examples of actual CSR practices
by MNCs.
2
Ibid.
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, Preface ix
SUPPLEMENTARY MATERIAL
International Accounting is accompanied by supplementary items for both students
and instructors. The Online Learning Center (www.mhhe.com/doupnik3e) is a
book-specific website that includes the following supplementary materials.
For Students:
• Chapter Summaries
• Learning Objectives
• Links to Relevant Sites
• Online Quizzing
For Instructors:
• Access to all supplementary materials for students
• Instructor’s Manual
• Solutions Manual
• PowerPoint Presentations
• Test Bank
dou10955_fm_i-xviii.indd ix 02/03/11 3:01 PM
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