International ACCOUNTING

Exercise 4.

The New York Stock Exchange (NYSE) provides a list of non-U.S. companies listed on the exchange on its Web site (www.nyse.com). (Hint: Search the inter- net for “NYSE List of Non-U.S. Listed Issuers.”)

Required:

a. Determine the number of foreign companies listed on the NYSE and the number of countries they represent.

b. Determine the five countries with the largest number of foreign companies listed on the NYSE.

c. Speculate as to why non-U.S. companies have gone to the effort to have their shares listed on the NYSE

Case 1. Besserbrau AG

Besserbrau AG is a German beer producer headquartered in Ergersheim, Bavaria. The company, which was founded in 1842 by brothers Hans and Franz Besser, is publicly traded with shares listed on the Frankfurt Stock Exchange. Manufacturing in strict accordance with the almost 500-year-old German Beer Purity Law, Besser- brau uses only four ingredients in making its products: malt, hops, yeast, and water. While the other ingredients are obtained locally, Besserbrau imports hops from a company located in the Czech Republic. Czech hops are considered to be among the world’s finest. Historically, Besserbrau’s products were marketed exclusively in Germany. To take advantage of a potentially enormous market for its products and expand sales, Besserbrau began making sales in the People’s Republic of China three years ago. The company established a wholly owned subsidiary in China (BB Pijio) to handle the distribution of Besserbrau products in that country. In the most recent year, sales to BB Pijio accounted for 20 percent of Besserbrau’s sales, and BB Pijio’s sales to customers in China accounted for 10 percent of the Besserbrau Group’s total profits. In fact, sales of Besserbrau products in China have expanded so rapidly and the potential for continued sales growth is so great that the company recently broke ground on the construction of a brewery in Shanghai, China. To finance construc- tion of the new facility, Besserbrau negotiated a listing of its shares on the London Stock Exchange to facilitate an initial public offering of new shares of stock.

Required:

Discuss the various international accounting issues confronted by Besserbrau AG.

Exercise 7.

As noted in the chapter, diversity in accounting practice across countries gener- ates problems for a number of different groups.

Required:

Answer the following questions and provide explanations for your answers. a. Which is the greatest problem arising from worldwide accounting diversity? b. Which group is most affected by worldwide accounting diversity? c. Which group can most easily deal with the problems associated with

accounting diversity?

Exercise 8.

Various attempts have been made to reduce the accounting diversity that exists internationally. This process is known as convergence and is discussed in more detail in Chapter 3. The ultimate form of convergence would be a world in which all countries followed a similar set of financial reporting rules and practices.

Required:

Consider each of the following factors that contribute to existing accounting diversity as described in this chapter:

• Legalsystem • Taxation • Providersoffinancing • Inflation • Politicalandeconomicties • Culture

Which factor do you believe represents the greatest impediment to the inter- national convergence of accounting? Which factor do you believe creates the smallest impediment to convergence? Explain your reasoning.

Exercise 3 CooperGrantisthepresidentofAcmeBrushofBrazilthewhollyownedBrazilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grant’s compensation package consists of a combination of salary and bonus. His annual bonus is calculated as a predetermined percentage of the pretax annual income earned by Acme Brush of Brazil. A condensed income statement for Acme Brush of Brazil for the most recent year is as follows (amounts in thousands of Brazilian reals [BRL]):

Sales . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . Pretax income . . . . . . . . . . . . . . . . .

BRL10,000 9,500 BRL 500

After translating the Brazilian real income statement into U.S. dollars, the con- densed income statement for Acme Brush of Brazil appears as follows (amounts in thousands of U.S. dollars [US$]):

Sales . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . Pretax income (loss) . . . . . . . . . . . . .

US$3,000 3,300

US$ (300

Required:

a. Explain how Acme Brush of Brazil’s pretax income (in BRL) became a U.S.-dollar pretax loss.

b. Discuss whether Cooper Grant should be paid a bonus or not.