Adding an international dimension to upper-level financial accounting courses by utilizing foreign annual reports

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~ d i n g an international dimension to upper-level financial accounting courses by utilizing foreign annual" ~ p o r t sTondkar, Rasoul H; Adhikari, Ajay; Coffman, Edward N. Issues in Accounting Educat ion 9. 2 (Fall 1994): 271.Find a copy_.....UNK'W to FUll "lll!xlhttp://gp9bz7mp8a.search.serialssolutions.com/?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&rfr_id =info: sid/ProQ%3Aabig oba l&rft_val_fmt =info:ofi/fmt: kev: mtx journal&rft.genre=article&rft.jtitle=Issues+in +Accounting +Ed ucation&rft.atitle=Addhlevel+financial+acc'ounting+courses+by+utilizing+foreign+annual+reports&rft.au=Tondkar%2C+Rasoui+H%3BAdhikari%2C+Ajay%3BCoffman%2C+Edwar10-0l&rft.volume=9&rft.issue=2&rft.spage=271&rft.isbn=&rft.btitle=&rft.title=Issues+in+Accounting+Education&rft.issn=07393172

Abstract {summary)Two approaches to adding an international dimension to upper-level financial accounting courses are presented by utilizing foreign annual reports: 1.integrating international accounting topics into selected upper-level courses, and 2. covering international accounting topics as a distinct component of aspecific course. International accounting materials that instructors can use in implementing these approaches are also identified. Regardless of theapproach taken, adding an international dimension to accounting courses will make accounting education more dynamic, interesting, and helpful inpreparing students to meet the challenges of a global economy.

Full TextSEVERAL recent reports have recommended that significant changes be made in accounting education [AAA, 1986; Perspectives ... 1989; AECC, 1990]."The need for changes has arisen because accounting programs have no t kept pace with the dynamic, complex, expanding, and constantly changingprofession for which students are being educated" [AECC, 1990, p. 1]. A common theme shared by these recommendations is that accounting educationshould be more broadly based with a strong international emphasis.The Accounting Education Change Commission (AECC) recommends that accounting education include international business and accounting [AECC,0 0, p. 8]. This position is supported by the chief executives of the major public accounting firms in their document Perspectives on Education:abilities for Success in the Accounting Profession, which states that ''The successful practi tioner requires general knowledge that covers a number ofactors ... [including] a sense of the breadth of ideas, issues and contrasting economic, political and social forces in the world" [p. 7]. Additionally, theAmerican Assembly of Collegiate Schools of Business (AACSB) requires that the curriculum include coverage of global issues [AACSB, 1991, p. 18].In many situations, accountants and auditors in the U.S. need to be familiar with the accounting principles of other countries. This is particularly truewhen (1) a U.S. company's financial statements are prepared for inclusion. in consolidated financial statements of a non-U.S. parent, (2) a U.S. companyseeking to raise capital in other countries is required to prepare financial statements in conformity with the accepted accounting principles in thesecountries, or (3) a U.S. company having non-U.S. investors prepares two sets of financial statements--one in accordance with accounting principles ofanother country for use by non-U.S. investors and the other in accordance with U.S. accounting principles [AICPA, SAS No. 51, par. 1-8].The objectives of this paper are to discuss two approaches to adding an international dimension to upper-level financial accounting courses and toidentify international accounting materials that instructors can use in implementing these approaches.PREVIOUS STUDIES AND PROPOSED APPROACHES TO ADDING AN INTERNATIONAL DIMENSION TO UPPER-LEVEL FINANCIAL ACCOUNTING COURSESMeek [1985] suggests that international managerial accounting topics, such as planning and control, transfer pricing, and performance evaluation, can beincorporated into the introductory managerial accounting course. Meek also suggests international accounting materials that instructors might use.McClure [1988], on the other hand, advocates incorporating international topics into the introductory financial accounting course and suggestsinstructional materials that might be used. These two articles, among other things, illustrate how the AACSB's accreditation requirement on "worldwidedimension" could be met.(l)The Meek and McClure papers are pioneer works in discussing and illustrating how international topics can be incorporated into the undergraduatecurriculum. A limitation of their studies, however, is that introductory courses may no t be the best place in the curriculum to cover internationalaccounting topics. Students in such courses have limited exposure to accounting and business in general, and thus may lack sufficient knowledge to fullyunderstand and appreciate accounting practices, concepts, and reporting requirements of other countries.The papers by Stout et al. [1988] and Bloom et al. [19921 suggest approaches to covering international accounting topics in upper-level accountingcourses. Stout et al. present a case study approach to adding an international dimension to upper-level financial accounting courses. Based on anassumed set of transactions and events, the authors cons tructed comparative income statements fo r companies located in the U.S., U.K., Australia, andGermany. These income statements can be used by instructors in discussing transnational differences in accounting principles.

~ m et al. discuss differences in the accounting treatment of certain topics such as inventory costing, depreciation methods, and business" hbinations in the U.S., U.K., France, Japan, and Sweden. This information is summarized in a table that can be used by instructors for discussing

transnational accounting differences. The authors suggest that understanding of accounting principles in other countries increases students' "culturalawareness" and enhances their understanding of U.S. accounting principles.Survey studies (e.g., Burns, 1979; Mintz, 1980) indicate that coverage of international accounting topics is more desirable when such topics areintegrated throughout the curriculum rather than when covered in a separate undergraduate-level course. These studies point out, however, that


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because of the lack of instruct ional materials and familiarity of instructors with international accounting topics, the integration of international accountingthroughout the curriculum has not been adopted at many universities.This paper presents two approaches for adding an international dimension to upper-level financial accounting courses: 1) integrating international topicsinto selected upper-level financial accounting courses, and 2) covering international accounting topics as a distinct component of a specific upper-level

C_nancia l accounting course. Both approaches rely on the use of foreign annual r e p o r t s ~ The use of foreign annual reports offers certain advantages. When used in conjunction with a textbook, annual reports enhance students' understanding

of the concepts and procedures discussed in the text [Harkins and Mills, 1985]. Foreign annual reports can be stimulating and exciting to studentsbecause they provide "real life" examples and because they are--in many cases--the first time that students have been exposed to accounting as itrelates to companies located outside the U.S. Students benefit from foreign annual reports by comparing and contrasting their contents with those ofU.S. companies, thus allowing them to better understand the differences between U.S. accounting concepts, practices, and reporting requirements aridthose of other countries. This paper identifies the annual reports of eight companies, one located in the U.S. and one located in each of seven othercountries--Canada, Australia, the United Kingdom, France, Germany, the Netherlands, and Japan.(2) Appendix A contains a list of the companies andtheir addresses where copies of annual reports can be obtained. (Appendix A omitted) These annual reports were used in Implementing the twoapproaches presented in this paper.The annual reports of the seven foreign companies were selected for comparison with the annual report of the U.S. company because(1) thesecompanies are located in some of the most industrialized countr ies-- thus, their financial accounting and reporting practices are relativelyadvanced, (2)most of the countries in which the companies are domiciled influence accounting systems and practices in other countries, and (3) these companiesprovide financial statements in English for the benefit of international investors.(3)Approach One: International Accounting Integrated into Existing CoursesAn international dimension can be added to the accounting curriculum by Integrating international accounting topics into existing upper-level financialaccounting courses. Students would be introduced to the international dimensions of topics generally covered in these courses, such as the form andcontent of financial statements, accounting for marketable securities and inventories, accounting for goodwill and deferred taxes, consolidations, foreigncurrency translation, and segment reporting. When discussing topics such as these, instructors could present information on the treatment of thesetopics in selected countries by utilizing foreign annual reports.To assist instructors in this process, table 1 presents 21 accounting topics and indicates how these topics are accounted fo r (shaded areas of table) ineach of the given countries.(4) (Table 1 omitted) To heip locate the companies' discussions of the topics in their respective annual report, page numbersare presented in the unshaded areas of table 1.By utilizing table 1 and the annual reports, instructors could discuss how the formats of financial statements (topic 1) of foreign companies vary fromthat of U.S. companies. In the U.S., for example, assets are generally reported in order qf liquidity; however, in a typical European company's report,

~ s s e t s are highlighted in the reverse order of liquidity (for example, see annual reports of Imperial Chemical, Daimler-Benz, Philips, and Renault).' - . -when discussing accounting for goodwill, table 1 and foreign annual reports are most helpful in illustrating that the treatment of goodwill (topic 9) variesfrom country to country. In the u.s. and Canada, purchased goodwill is capitalized and amortized over periods not exceeding 40 years. In Australia,purchased goodwill is also capitalized; however, the amortization period is limited to 20 years. In the United Kingdom and the Netherlands, goodwill isimmediately charged against retained earnings [Dunne and Rollins, 1992] or amortized over a specific period. Companies in France amortize goodwill overits economic life; however, in some cases it can be charged against retained earnings immediately. In Germany, goodwill may be written-off againstretained earnings, amortized over four years or the number of years benefitted. While expensing of goodwill is encouraged in Japan, it can be capitalizedand amortized over five years. For a further treatment of this topic in Japan, see Dunne and Rollins [1992].

Foreign annual reports in conjunction with table 1 provide a valuable means of illustrating how the method of accounting for foreign currency translationand the treatment of translation gains and losses (topics 19 and 20) vary in different countries. For instance, accounting for foreign currency translationin the U.S. and Canada is very similar. Depending on the particular situation, companies in the U.S. and Canada use either the temporal method("remeasurement") or the current rate method in which translation gains and losses are included either in income of the period or in stockholders' equityas a translation adjustment.Accounting for foreign currency translation and the treatment of translation gains and losses in the United Kingdom, Australia, and the Netherlands arevery similar to that of the U.S. In Germany and France, there is no prescribed method of accounting for foreign currency translation; however, themethod applied must be disclosed. Companies in Japan use the "modified temporal" method whereby translation gains and losses are treated astranslation adjustments and disclosed on either the asset or liability side of the balance sheet.Similarly, by referring to deferred taxes (topic 12) in table 1, we see that the use of deferred taxes is a common practice in all countries presented.However, by referring to the annual reports of the Japanese, German, and French companies, we see that deferred taxes account for relatively smallamounts on these annual reports. The instructor could take the opportunity here to explain that this is due, at least in part, to the strong influence oftax laws on financial reporting in Japan, Germany, and France. Because of the similarities of tax and accounting rules in these countries, temporarydifferences between taxable and financial income are not as significant as they are in countries such as the U.S., U.K., Australia, Canada, and theNetherlands. An example such as this not only exposes students to accounting practices in other countries, it also enhances and reinforces theirunderstanding of the accounting principles under discussion.Again, by utilizing table 1, we see that, with the exception of Germany, segment reporting (topic 21) is a common practice in the countries presented in .this study. Even though segment reporting is not required in Germany, Daimler-Benz reports segment information in its (1990-91) annual report.

,.,. addition to providing information on common accounting practices in different countries, table 1 provides the specific page numbers of the annual" )po r ts of selected companies so that one can refer to the annual reports to see how companies accounted for each topic listed in table 1. On the onehand, a discussion of differences in accounting practices in various countries allows instructors the opportunity to discuss environmental factors thatinfluence accounting practices in different countries. On the other hand, an examination of the discrepancies between a common accounting practice in acountry and the manner that a selected company from that country accounted for that item provides instructors the opportunity to introduce anddiscuss international forces (e.g., international capital markets) that may have contributed to such discrepancies. To assist in providing accountinginstructors basic background information on accounting practices of different countries, several source materials along with a description of each are

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presented in appendix -B. (Appendix B omitted)Naturally, the eight annual reports and the 21 topics presented in table 1 are not intended to be all-inclusive. Instructors should have the flexibility toexpand the number of annual repor ts or modify the topics shown in table 1.

c p r o a c h Two: International Accounting Covered As a Distinct Component of a Specific Course,


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Canada, U.K., Australia; France, Germany, the Netherlands, and Japan). Also Includes selected international accounting topics such as harmonization ofaccounting standards, consolidation and foreign currency translation practices, segment reporting, and inflation accounting practices in differentcountries.The Spicer & Oppenheim, Guide to Financial Statements Around the World (New York: John Wiley & Sons, 1989).

C'rov ides an overview of accounting systems and practices in 26 countries.2. Annual ReportsAnnual Reports of Eight Companies (see appendix A).3. ArticlesChoi, F. D. S. and V. B. Bavishi, "International Accounting Standards: Issues Needing Attention , "Journa l of Accountancy (March 1983), pp. 62-68.Daley, L.A. and G. G. Mueller, "Accounting in the Arena of World Politics: Crosscurrents of International Standard-Setting Activities," Journal ofAccountancy (February 1 9 8 2 ) ~ pp. 40-50.Fleming, P. D., "The Growing Importance of International Accounting Standards," Journal of Accountancy (September 1991), pp. 100-106.Horner, L. D., "The New Rosetta Stone, " Ohio CPA Journal (Autumn 1986), pp. 5-7.Korbel, J, J. and C. J. Brescia, "Europe 1992: Changing the Rules of the Game," Price Waterhouse Review, No. 1 (1989), pp. 2-16.These articles provide excellent background information on the accounting standard -setting processes in different countries, international accountingorganizations involved in harmonizing accounting practices, and the European Community's initiatives to achieve a single and unified market.REFERENCESAccounting Education Change Commission (AECC), "Objectives of Education fo r Accountants: Position Statement Number One," Issues in AccountingEducation (Fall1990), pp. 307-312.American Accounting Association (AAA), Committee on the Future Structure, Content, and Scope of Accounting Education (The Bedford Committee),"Future Accounting Education: Preparing fo r the Expanding Profession," Issues in Accounting Education (Spring 1986), pp. 168-195.American Assembly of Collegiate Schools of Business (AACSB), The AACSB Accreditation Project: Final Report 1991 (AACSB, 1991).

11"\nerican Institute of Certified Public Accountants (AICPA), SAS No. 51, "Reporting on Financial Statements Prepared for Use in Other Countries," AICPA, ....fofesslonal Standards Vol. 1 (Chicago: Commerce Clearing House, 1992).Bloom, R., J. Fuglister, and J. Kantor, ''Toward Internationalization of Upper-Level Financial Accounting Courses," Advances in International Accounting, 5(1992), pp. 239-253.Burns, J. 0. , "A Study of International Accounting Education In the United States," Internationa l Journal of Accounting (Fall1979), pp. 135-145.Dunne, K. M. and T. P. Rollins, "Accounting for Goodwill: A Case Analysis of the U.S., U.K., and Japan," Journal of International Accounting, Auditing andTaxation, 1(2)(1992), pp. 191-207.Harkins, J. L. and J. Mills, "Annual Reports: A Pedagogical Tool for Intermediate Accounting," Advances in Accounting, 2 (1985), pp. 149-166.McClure, M. M., "Internationalization of the Introductory Financial Accounting Course," Journal of Accounting Education (Spring 1988), pp. 159-181.Meek, G. K., "Adding an International Dimension to the Introductory Managerial Accounting Course," Journal of Accounting Education (Spring 1985), pp.57-68.Mintz, S.M., "Internationalization of the Accounting Curriculum," International Journal of Accounting (Fall1980), pp. 137-151.Perspectives on Education: Capabilities for Success In the Accounting Profession (New York: Arthur Andersen & Co., Arthur Young, Coopers & Lybrand,Deloitte Haskins & Sells, Ernst & Whinney, Peat Marwick Main & Co., Price Waterhouse, and Touche Ross, 1989).Stout, D. E., D. E. Wygal, and J. Volpi, "A Comparative Income Statement Approach to Integrating International Topics In the Financial AccountingCurriculum," Advances in International Accounting, 2 (1988), pp. 149-168.Rasoul H. Tondkar is a Professor and Edward N. Coffman is a Professor both at Virginia Commonwealth University, and Ajay Adhikari is an AssistantProfessor at The American University.Copyright American Accounting Association Fall1994

~ n d e x i n g (details)~ b j e c t Studies;

Multinational corporations ;Higher education;Curricula;Annual reports;


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AccountantsusAdding an international dimension to upper-levelfinancial accounting courses by utilizing foreignannual reportsTondkar, Rasoul H; Adhikari, Ajay;Coffman, Edward NIssues in Accounting Education922711994Fall19941994American Accounting AssociationSarasotaUnited StatesEducation--Teaching Methods And Curriculum,Business And Economics--Accountinq07393172Scholarly JournalsEnglishPERIODICAL00497783210920436http:/ ezproxy.oswego.edu: 2048/login?url=http://search.proquest.com/?url=http://search.proquest.com/docview/210920436?accountid=13025Copyright American Accounting Association Fall19942010-06-083 databases View list

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Adding an international dimension to upper-level financial accounting courses by utilizing foreign annual reports