INTERNATIONAL FINANCE ANDACCOUNTING HANDBOOKTHIRD EDITION

Edited by

FREDERICK D.S. CHOI

JOHN WILEY & SONS, INC.

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INTERNATIONAL FINANCE ANDACCOUNTING HANDBOOKTHIRD EDITION

INTERNATIONAL FINANCE ANDACCOUNTING HANDBOOKTHIRD EDITION

Edited by

FREDERICK D.S. CHOI

JOHN WILEY & SONS, INC.

This book is printed on acid-free paper.

Copyright 2003 by John Wiley & Sons, Inc., Hoboken, New Jersey. All rights reserved.

Published simultaneously in Canada

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Library of Congress Cataloging-in-Publication Data:International finance and accounting handbook / edited by Frederick D.S. Choi.3rd ed.

p. cm.Rev. ed. of: International accounting and finance handbook. 2nd ed. New York: Wiley, 1997.Includes bibliographical references and index.ISBN 0-471-22921-0 (cloth)1. International business enterprisesAccounting. 2. International business

enterprisesAccountingStandards. 3. Comparative accounting. I. Choi, Frederick D.S.,1942 II. International accounting and finance handbook.HF5686.I56H36 2003657.96dc21 2002192266

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vii

ABOUT THE EDITOR

Frederick D.S. Choi, is the Abraham L. Gitlow Professor of Accounting and Inter-national Business and Dean of the Undergraduate College at the Stern School ofBusiness at New York University. He has served as chairman of NYUs Departmentof Accounting, Taxation, and Business Law and its International Business Area andis former Director of the Vincent C. Ross Institute of Accounting Research.

He has lectured at such institutions as the Cranfield School of Management (Eng-land), I.N.S.E.A.D. (France), University of Washington, Japan America Institute ofManagement Science, University of Bocconi (Italy), and the Stockholm School ofEconomics (Sweden) and served as a member of the First American Visiting Team toestablish the National Center for Industrial Science and Technology ManagementDevelopment in the Peoples Republic of China.

Professor Choi has contributed more than 100 pieces to the scholarly and profes-sional literature including 20 books on the subject of international accounting and fi-nancial control. The first edition of this Wiley publication, the Handbook of Interna-tional Accounting, received the Most Outstanding Book Award, having been judgedthe best work on law and accounting for 1991 by the American Association of Pub-lishers. A Fellow of the Academy of International Business, he is a recipient of theCitibank Excellence in Teaching Award and the American Accounting AssociationsOutstanding International Accounting Educator Award.

Currently serving as co-editor of the specialist journal, The Journal of Interna-tional Financial Management and Accounting, Professor Choi joined NYU in 1981.

ix

ABOUT THE CONTRIBUTORS

Carol Adams is a Professor of Accounting and Head of School of Business and Eco-nomicsGippsland at Monash University. She is a Council Member and Director ofthe Institute of Social and Ethical AccountAbility.

Linda Allen is a professor of finance at the Zicklin School of Business at BaruchCollege, City University of New York, and Adjunct Professor of Finance at the SternSchool of Business New York University. She is also the author of Capital Marketsand Institutions: A Global View (Wiley) and co-author of Credit Risk Measurement:New Approaches to Value at Risk and Other Paradigms, 2nd edition (Wiley). She isan associate editor of the Journal of Banking and Finance, Journal of Economics andBusiness, Multinational Finance Journal, Journal of Multinational Financial Man-agement, and The Financier, and has published extensively in top academic journalsin finance and economics.

Edward I. Altman, MBA, PhD, is the Max L. Heine Professor of Finance at theStern School of Business, New York University. He is the Vice Director of the NYUSalomon Center and an international authority on credit risk management, corporatedistress analysis, and fixed income valuation.

Paul M. Bodner, Esq., CPA, is an attorney with offices in Great Neck, New York.He has written and spoken extensively on international tax matters.

Paul Brunner, CPA, BCA (Hons), is a Partner in the Global Capital Markets Groupof PricewaterhouseCoopers LLP and provides U.S. accounting advice to non-U.S.companies registered with the United States Securities and Exchange Commissionand to companies seeking to undertake securities offerings, cross-border mergers andacquisitions, and structured transactions.

Mikelle A. Calhoun, J.D., received her undergraduate degree and a masters degreein speech communications and later obtained an MBA and a JD from the Universityof North Carolina. As the result of her experience practicing law for ten years, Ms.Calhouns interests are primarily in the areas of service and financial industry corpo-rate strategy decisions and international operations.

Ya-Ru Chen, PhD, is currently an assistant professor of management and interna-tional business at New York University. Her research has examined how fundamen-tal processes of organizational behavior, such as feedback, intergroup processes, andconflict resolution, operate in various cultural settings. She has published numerousarticles in these areas. She has also begun work exploring the social psychology ofstatus, particularly with respect to its effects on behavior in negotiations.

Marcia Millon Cornett, PhD, is a professor of finance at Southern Illinois Univer-sity, Carbondale. She has written several articles in the areas of bank performance,bank regulation, corporate finance, and investments. She has served as an associateeditor for Financial Management and is currently an associate editor for the Multi-national Finance Journal. She is a member of the Board of Directors of the South-ern Illinois University Credit Union.

Aswath Damodaran is a professor of finance at the Stern School of Business at NewYork University, and teaches the corporate finance and equity valuation courses in theMBA program. He has published in the Journal of Financial and Quantitative Analy-sis, the Journal of Finance, the Journal of Financial Economics, and the Review ofFinancial Studies, and has written three books on equity valuation (Damodaran onValuation, Investment Valuation, The Dark Side of Valuation) and two on corporatefinance (Corporate Finance: Theory and Practice and Applied Corporate Finance:A Users Manual). He has co-edited a book on investment management with PeterBernstein (Investment Management). He was profiled in BusinessWeek as one of thetop 12 business school professors in the United States in 1994.

William E. Decker, CPA, is the senior partner and founder of Pricewaterhouse-Coopers LLPs Global Capital Markets Group. He has served on the AICPAs Inter-national Practices Task Force and is the author of The Coopers & Lybrand SEC Man-ual, 7th ed. (John Wiley & Sons, 1997).

Gunter Dufey, DBA (University of Washington, Seattle), is an adjunct professor inbanking and finance at Nanyang Technological University, Nanyang BusinessSchool, Singapore. He also serves as a senior advisor with McKinsey and Company,supporting the corporate governance practice of the firm in Asia.

David K. Eiteman, PhD, is emeritus professor in international finance at the JohnE. Anderson Graduate School of Management at UCLA. He has been a visiting pro-fessor at the National University of Singapore and the Hong Kong University ofScience and Technology. He is a past president of the Western Finance Associationand the International Trade and Finance Association. He is a co-author of Multina-tional Business Finance, Fundamentals of Multinational Finance, and Essentials ofInvesting.

Edwin J. Elton, PhD, is a Nomura Professor of Finance at the Stern School of Busi-ness at New York University. Professor Elton has authored or co-authored six booksand over 90 articles, and is a former president of the American Finance Association.

Robert Feinschreiber is an attorney and counselor in Miami. His firm, Feinschreiber& Associates, concentrates on international transfer pricing. He has written and ed-ited many books on taxation, including Transfer Pricing Handbook, Transfer PricingInternational: A Country-by-Country Guide, and International Mergers: A Country-by-Country Tax Guide. He is the editor of Interstate Tax Report and the founding ed-itor of the International Tax Journal.

Lisa Filomia-Aktas is a partner in Ernst & Youngs New York Financial Services of-fice. She leads the On-Call Advisory Services group, which assists with evaluating

x ABOUT THE CONTRIBUTORS

the accounting, tax, and regulatory aspects of derivative, securitization, corporate fi-nance, M&A, leasing, compensation, and structured product transactions. Lisa hasadvised a significant number of leading investment banks, global financial institu-tions, and Fortune 1000 corporations on capital market transactions. She is a mem-ber of the accounting subcommittee for the American Securitization Forum and is afrequent speaker at conferences.

Carol A. Frost, PhD, is president of Global Capital Markets Access, LLC, a con-sulting and research company based in Hanover, New Hampshire. Prior to formingGCMA LLC, she was on the faculties of the Tuck School of Business at DartmouthCollege and the Olin School of Business at Washington University (St. Louis). Shealso is a member of the Nasdaq Listing and Hearing Review Council.

Geoff Frost is a senior lecturer in accounting at the University of Sydney. His majorresearch interests are environmental accounting and reporting.

Ian H. Giddy, PhD, is a visiting associate professor of finance at New York Univer-sitys Stern School of Business and a consultant to multinational companies andbanks.

Sidney J. Gray is Professor of International Business and Associate Dean (Post-graduate) in the Faculty of Commerce and Economics at the University of New SouthWales, Sydney, Australia. He is also currently President of the Australia and NewZealand International Business Academy (ANZIBA).

Martin J. Gruber, PhD, is the past president of the American Finance Association,and the author of more than seven books and 75 articles. The sixth edition of hisbook, Modern Portfolio Theory and Investment Analysis, has recently been publishedby John Wiley & Sons.

Sara Hanks is a partner with the international law firm Clifford Chance, where shepractices international securities law. She was formerly chief of the SECs Office ofInternational Corporate Finance.

Seymour Jones is Clinical Professor of Accounting at the Stern School of Business,New York University. Previously, he was a senior partner of Coopers & Lybrand(now PricewaterhouseCoopers). He teaches auditing, accounting, tax and legal issuesfor entrepreneurs, and international financial statement analysis. Mr. Jones has writ-ten several books and publications on accounting subjects and is also associate di-rector of the Ross Institute of Accounting Research, New York University.

Margaret Kent is an attorney and counselor at Feinschreiber & Associates in Miami,Florida.

Stephen J. Mezias, PhD, is a professor in the Department of Management at NewYork University. His current research focuses on institutional processes, especially asthey apply to public policy regarding financial reporting standards, simulation of or-ganizational learning processes, and cultural differences and similarities in multina-tional corporations.

ABOUT THE CONTRIBUTORS xi

James L. Mills, PhD, is a professor of international finance and banking at Thun-derbirdThe American Graduate School of International Management. He hasserved as visiting faculty at the Institute of International Studies and Training(Japan), McMaster University (Canada), and Stichting Nijenrode (Netherlands). Inaddition to teaching courses in international treasury management and financial en-gineering, he is co-author of Prime Cash: First Steps in Treasury Management (Mc-Graw-Hill, 1993).

Michael H. Moffett, PhD, is a professor of international finance at ThunderbirdThe American Graduate School of International Management. He has served as vis-iting faculty and researcher at the Helsinki School of Economics (Finland), the In-ternational Center for Public Enterprises (Slovenia), Handelsjoskoen I Aarhus(Denmark), the University of Michigan, Ann Arbor (USA), and the Brookings Insti-tution (USA). In addition to teaching classes in international corporate financial man-agement, he is the co-author of Multinational Business Finance (Addison-Wesley,1994) and International Business (Dryden, 1995).

Patrice Murphy, PhD, holds degrees in business, labor relations, and political sci-ence. Her research interests include cross-cultural issues in performance manage-ment, and the effects of diversity on intragroup processes. She is a consultant withRobert H. Shaffer and Associates, Stamford, Connecticut.

Paul Narayanan is an independent financial consultant. He co-authored one of thepioneering works in business failure classification models, the Zeta score model(1977).

Belverd E. Needles Jr., PhD, CPA, is the Anderson LLP Distinguished Professor ofAccountancy at DePaul University. He is the author of many publications in the fieldof international accounting and auditing. He has served as chair of the InternationalSection of the American Accounting Association, has been on the Executive Com-mittee of the European Accounting Association, and served on the Education Com-mittee of the International Federation of Accountants. He is currently president of theInternational Association for Accounting Education and Research and is senior vicechair of the Illinois CPA Society.

Paul Pacter, PhD, CPA, is director of the Global IAS Office of Deloitte ToucheTohmatsu. He is based in Hong Kong. His primary responsibilities at Deloitte are de-veloping his firms responses to IASB proposals; responding to client technical ques-tions; writing an IAS newsletter called IASPlus; managing the Website www.ias-plus.com; training; and a project to assist the Ministry of Finance of China indeveloping accounting standards. From 1996 to 2000 he was International Account-ing Fellow at the International Accounting Standards Committee, London. Previ-ously, he worked for the U.S. Financial Accounting Standards Board from its incep-tion in 1973 and, for seven years, was Commissioner of Finance of the City ofStamford, Connecticut. Paul was vice chairman of the Advisory Council to the U.S.Governmental Accounting Standards Board (19841989) and a member of GASBspensions task force and FASBs consolidation task force.

xii ABOUT THE CONTRIBUTORS

Lee H. Radebaugh, DBA, is the KPMG Peat Marwick Professor of Accounting atBrigham Young University and Co-Director of the BYUUniversity of Utah Centerfor International Business Education and Research. He is the author of InternationalBusiness Environments Operations, 7th ed. (Addison-Wesley) with John D. Daniels,International Accounting and Multinational Enterprises (John Wiley & Sons, 3rdEdition) with S. J. Gray, and Introduction to Business: International Dimensions(South-Western Publishing Company) with John D. Daniels.

Kurt P. Ramin, MBA, CPA, CEBS, is commercial director, International Account-ing Standards Committee Foundation, in London. He is a former partner of Pricewa-terhouseCoopers LLP, New York. He currently also acts as vice chair for XBRL In-ternational, a worldwide consortium to improve worldwide financial reporting.

James R. Ratliff is a retired professor of accounting at the Leonard N. Stern Schoolof Business at New York University. His professional interests include financial ac-counting, not-for-profit auditing, auditing, and ERISA.

Anthony Saunders is John M. Schiff Professor of Finance and Chair of the Depart-ment of Finance at the Stern School of Business at New York University. He holdspositions on the Board of Academic Consultants of the Federal Reserve Board ofGovernors and the Council of Research Advisors for the Federal National MortgageAssociation. He is an editor of the Journal of Banking and Finance and FinancialMarkets, Instruments and Institutions.

Tony Shieh, PhD, is an assistant professor in the Department of Accountancy at theCity University of Hong Kong.

Roy C. Smith is the Kenneth Langone Professor of Entrepreneurship and Finance,and Clinical Professor of International Business and of Professional Responsibility atthe Stern School of Business, New York University. Prior to joining the faculty atStern in 1987, he was a general partner of Goldman, Sachs & Co., specializing in in-ternational investment banking and corporate finance. During his career at GoldmanSachs he served as President of Goldman Sachs International Corp. while resident inthe firms London office. In addition to various articles in professional journals andop-ed pieces, he is the author of several books on financial topics.

Richard C. Stapleton is professor of accounting and finance at Strathclyde Univer-sity, Glasgow, United Kingdom. Formerly, he taught at Lancaster University, Uni-versity of Cambridge, Manchester Business School, and New York University. He isa past president of the European Finance Association. He has advised several globalfinancial institutions in the area of derivatives. He has also published extensively onasset pricing and financial markets, with particular reference to derivatives.

Donna L. Street, PhD, is the Mahrt Chair in Accounting at the University of Day-ton. She is Vice President of Publications for the International Association for Ac-counting Education and Research and Secretary of the International Accounting Sec-tion of the American Accounting Association. Professor Street has published severalpapers on segment reporting in journals including Journal of International Account-ing Research; Accounting Horizons; Journal of International Accounting, Auditing,and Taxation; Accountancy; and Journal of Accountancy.

ABOUT THE CONTRIBUTORS xiii