Answer the following homework problems thoroughly and in complete sentences. Save your answers in a Microsoft® Word® document.

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

1. Determine the number of foreign companies listed on the NYSE and the number of countries they represent.
2. Determine the five countries with the largest number of foreign companies listed on the NYSE.
3. Speculate as to why non-U.S. companies have gone to the effort to have their shares listed on the NYSE.

2. 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, Besserbrau uses only four ingredients in 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 3 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% of Besserbrau’s sales, and BB Pijio’s sales to customers in China accounted for 10% 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 construction 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.

1. Discuss the various international accounting issues confronted by Besserbrau AG.

3. Access the financial statements from the most recent annual report of a foreign company and a domestic company that you are familiar with to complete this assignment. Choose one company that uses U.S. Generally Accepted Accounting Principles (GAAP) and one company that does not.

1. Determine the accounting principles the foreign and domestic companies use to prepare financial statements.
2. Determine whether the foreign and domestic companies provide a set of financial statements that includes the same components (e.g., consolidated balance sheet, consolidated income statement, and consolidated cash flows statement).
3. List five format differences in the companies’ income statements.
4. List five format differences in the companies’ balance sheets.
5. Note any terminology differences that exist between the two companies’ income statements and balance sheets.
6. Assess whether the scope and content of the information provided in the notes to the financial statements is similar between the two companies.
7. Compare the overall presentation of the financial statements and notes to the financial statements between the two companies.

4. In what way does Nobe’s simplified model of accounting diversity appear to explain accounting developments that have occurred in Europe over the past three decades?

5. The Impact of Culture on Conservatism

PART I

The framework created by Professor Sidney Gray in 1988 to explain the development of a country’s accounting system is presented in Chapter 2 in Exhibit 2.8. Gray theorized that culture has an impact on a country’s accounting system through its influence on accounting values. Focusing on that part of a country’s accounting system comprised of financial reporting rules and practices, the model can be visualized as follows:

In short, cultural values shared by members of a society influence the accounting values shared by members of the accounting subculture. The shared values of the accounting subculture in turn affect the financial reporting rules and practices found within a country. With respect to the accounting value of conservatism, Gray hypothesized that the higher a country ranks on the cultural dimensions of uncertainty avoidance and long-term orientation, and the lower it ranks in terms of individualism and masculinity, then the more likely it is to rank highly in terms of conservatism. Conservatism is a preference for a cautious approach to measurement. Conservatism is manifested in a country’s accounting system through a tendency to defer recognition of assets and items that increase net income and a tendency to accelerate the recognition of liabilities and items that decrease net income. One example of conservatism in practice would be a rule that requires an unrealized contingent liability to be recognized when it is probable that an outflow of future resources will arise but does not allow the recognition of an unrealized contingent asset under any circumstances.

1. Discuss the implications for the global convergence of financial reporting standards raised by Gray’s mode.

PART II

Although Gray’s model relates cultural values to the accounting value of conservatism as it is embodied in a country’s financial reporting rules, it can be argued that the model is equally applicable to the manner in which a country’s accountants apply those rules:

1. Discuss the implications this argument has for the comparability of financial statements across countries, even in an environment of substantial international accounting convergence. Identify areas in which differences in cultural dimensions across countries could lead to differences in the application of financial reporting rules.

PART III

Cancan Enterprises, Inc., is a Canada-based company with subsidiaries located in Brazil, Korea, and Sweden. (Hofstede’s cultural dimension index scores for these countries are presented in Exercise 4.) Cancan Enterprises must apply Canadian GAAP worldwide in preparing consolidated financial statements. Cancan has developed a corporate accounting manual that prescribes the accounting policies based on Canadian GAAP that are to be applied by all the company’s operations. Each year, Cancan’s internal auditors have the responsibility of ensuring that the company’s accounting policies have been applied consistently companywide.

1. Discuss the implications that the model presented in Part II of this case has for the internal auditors of Cancan Enterprises in carrying out their responsibilities.