Ch05 Int Fin Analysis

Chapter 5 International Financial Statement  Analysis

International Accounting Differences and Financial Statement Analysis 

#he "ey $uestion 

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#hese assessments are important to  

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%o do di''erences in accounting a''ect earnings and cash 'lo assessments ( are the di''erences material in the decision process In)estors Corporations concerned ith 'oreign direct in)estment

roing number o' companies are listing on international international e*changes +ondon, e .or"/

Stock Market Comparisons

International Accounting Differences and Financial Statement Analysis  A tendency e*ists to loo"s at earnings 'rom a home country perspecti)e ( that may or may not place a high )alue on accounting0

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#his tendency may ignore accounting di''erences

 A need e*ists to better understand 'oreign accounting principles in the conte*t in hich they are deri)ed

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International comparability is important in considering alternati)e in)estments

Major Differences in Accounting Principles Around the World 

In)entory measurement 

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enerally based on 1loer o' cost or mar"et2 ith mar"et de'ined as either  

et reali3able )alue

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Replacement cost

IF4 is permitted 'or ta* purposes in 0S0 and 6apan, but not in the E

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Construction contracts 

7ide usage o' percentage-o'completion method ( is this better 8 more accurate9

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Completed contract method ( Sit3erland, China, 6apan

Major Differences in Accounting Principles Around the World 

Measurement basis used 

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%istorical cost is used in the 0S0, !ra3il, Sit3erland, China, and 6apan0 More 'le*ible approach ith some restatements to mar"et )alue or replacement cost ( 0:0, %olland

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;epreciation accounting 

se'ul economic li'e concept ( 0S0 and E

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 Accelerated methods ( France, ermany, Sit3erland, 6apan

Major Differences in Accounting Principles Around the World 

R&; costs 

E*pensed immediately in  Anglo-American and ermanic countries

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!ra3il has a more 'le*ible approach

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Some countries allo capitali3ing the borroed cost o' assets

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Retirement bene'its 

enerally accounted 'or on the basis o' accrued and8or proaries ith alloance o' pooling-o'-interests

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=urchase method is generally re$uired

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oodill is amorti3ed in !ra3il, China, and 6apan

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oodill impairment tests are used in 0S0, 0:0

Major Differences in Accounting Principles Around the World 

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Intangibles 

enerally are capitali3ed and sub