Accounting and Finance in International Business

Practice vocabulary flashcards covering accounting standards, global money management, investment decisions, and financial transfer strategies in international business.

Financial Management

Involves investment decisions, financing decisions, and money management decisions to manage firm resources efficiently.

Investment Decisions

Decisions concerning what to finance.

Financing Decisions

Decisions concerning how to finance investment decisions.

Money Management Decisions

Decisions concerning how to manage the firm’s financial resources most efficiently.

Accounting

The language of business; the way firms communicate their financial positions.

U.S. and Great Britain Accounting Orientation

Systems that are oriented toward individual investors as providers of capital.

Switzerland and Germany Accounting Orientation

Systems that focus on providing information to banks as providers of capital.

Accounting Standards

Rules for preparing financial statements that define useful accounting information.

Auditing Standards

Rules for performing an audit, specifying the technical process by which an independent person gathers evidence to determine if financial accounts conform to required standards and are reliable.

International Accounting Standards Board (IASB)

A major proponent of standardization of accounting standards; by 2012, 100 nations had adopted its standards or permitted their use.

Financial Accounting Standards Board (FASB)

The major accounting body with substantial influence on global reporting in the U.S.

Capital Budgeting

A process used to quantify benefits, costs, and risks by estimating project cash flows over time and discounting them to determine net present value.

Net Present Value (NPV) Decision Rule

If the net present value of the discounted cash flows is $> 0$, the firm should go ahead with the project.

Political Risk

The likelihood that political forces will cause drastic changes in a country’s business environment that hurt the profit and other goals of a business.

Economic Risk

The likelihood that economic mismanagement will cause drastic changes in a country’s business environment, with the biggest risk being inflation reflected in falling currency values.

Double Taxation

Occurs when the income of a foreign subsidiary is taxed by both the host-country government and the home-country government.

Tax Credits

Allow the firm to reduce the taxes paid to the home government by the amount of taxes paid to the foreign government.

Tax Treaties

Agreements specifying what items of income will be taxed by the authorities of the country where the income is earned.

Deferral Principle

Specifies that parent companies are not taxed on foreign source income until they actually receive a dividend.

Tax Havens

Countries with a very low, or no, income tax where firms can avoid income taxes by establishing non-operating subsidiaries.

Dividend Remittances

The most common method of transferring funds from subsidiaries to the parent, influenced by tax regulations, exchange risk, and age of the subsidiary.

Royalty Payments

The remuneration paid to the owners of technology, patents, or trade names for the use of that technology or the right to manufacture products under those names.

Fee

Compensation for professional services or expertise supplied to a foreign subsidiary by the parent company or another subsidiary.

Transfer Prices

The price at which goods and services are transferred between entities within the firm; can be manipulated to reduce tax liabilities or import duties.

Fronting Loans

Loans between a parent and its subsidiary channeled through a financial intermediary, usually a large international bank, to circumvent remittance restrictions or gain tax advantages.