What Is An International Accountant?
by Paul E. Holt, PhD
Decades ago, few accounting professionals had taken a university
course in international accounting. It was not a required course in their
curricula and probably was not even offered at their alma maters. Today,
there are a lot more international accounting courses available, and if
you are a recent accounting graduate, you probably at least had the opportunity
to take such a course.
If you judge international accounting by the number of courses offered,
you might conclude that it is a new field compared with other areas of
accounting. Actually, it is an ancient field because international trade
is thousands of years old. However, due to the vast increase in international
business over recent decades and the development of new business activities
that did not previously exist, many of the challenges of international
accounting are new. Because of the rapid change in international business,
the content of international accounting courses changes every semester,
and the people who write international accounting textbooks are profoundly
challenged just to keep up.
Is international accounting a specialty like auditing, cost accounting,
or tax preparation? How do you become an international accountant? If
you do become an international accountant, would you be someone that employers
are looking for?
The best way to answer these questions is to look at some of the functions
of accounting in the modern business world and see how the international
environment affects those functions.
In financial accounting, you analyze and record transactions and prepare
periodic financial statements. However, as soon as your company has a
transaction of any kind with an entity in another country, you have entered
into international business.
What if you buy something that requires payment in a foreign currency
or sell something for which you will receive foreign currency? You are
immediately challenged with a number of new problems that you don't have
to deal with in domestic accounting. For example, what if the exchange
rate between the U.S. dollar and the foreign currency changes between
the date you record an accounts payable and the date you actually make
payment in foreign currency? There would be either a gain or loss from
the exchange rate fluctuation. An international accountant is needed to
deal with these new accounting problems; if you are the one to analyze
and record these transactions, then you have become an international accountant.
If your company is somewhat larger, it may have a subsidiary in another
country. It is likely that the foreign company will have to prepare financial
statements using the accounting rules and the currency of that country.
At the end of the fiscal year, it will usually be necessary to prepare
consolidated financial statements. This task requires the international
accountant to recast the foreign financial statements into U.S. GAAP,
remeasure or translate foreign currency amounts into U.S. dollars, and
then do the consolidation.
If you are going to be a financial analyst in the 21st century, it is
hard to believe that you will never have to analyze the financial statements
of a foreign entity. However, you cannot analyze foreign financial statements
in the exact same way that you analyze the financial statements of U.S.
companies. Foreign accounting rules can be very different from U.S. GAAP.
Analyzing and comparing the financial statements of ten companies in ten
countries could be a daunting task. You might be able to recast all of
these financial statements using U.S. GAAP, but there would still be major
differences in business environments to contemplate.
For example, the financial statements of a Japanese or Korean company,
even when recast in into U.S. GAAP, will likely reflect a very high debt/assets
ratio compared to those statements of U.S. companies. Such a high ratio
would be suspicious in a U.S. company, but desirable and expected in Japan
and Korea. An international accountant cannot do financial analysis without
understanding the cultural and environmental differences that exist from
country to country.
If you are going to be an auditor, either internal or external, it is
not likely that you will be able to confine your activities to a single
country throughout your entire career. In internal auditing---even if
you never leave your birth country and your company has no foreign subsidiaries---you'll
have to audit foreign transactions and their effects on the financial
statements. If your company does have foreign subsidiaries, the internal
auditor will have to be aware of differences in GAAP, tax laws, business
environments, culture, and many other factors from country to country.
In external auditing, GAAP variations in different countries cause major
auditing variations as well. In some countries, such as the U.S., Canada,
and the U.K., financial accounting must generate financial statements
that are useful to a variety of users in decision making. However, in
some countries, the primary purpose of accounting is to determine the
amount of taxable income or to assist the government in achieving its
macroeconomic goals. In some countries, the auditor's main function may
be to determine if the company's reporting requirements are in conformity
with national law instead of with accounting principles which are generated
primarily by the private sector (as in the U.S.).
Obviously, tax laws are drastically different in different countries.
An international tax accountant has to understand those differences when
preparing tax returns for the domestic parent company and foreign subsidiaries.
Tax return preparation is only a part of tax accounting. The very demanding
field of tax planning takes on numerous complications when affiliated
companies do business in several countries. Transfer price planning is
intimately related to tax planning.
Tax rates are different in different countries, and tax rules are always
changing. In Russia, for example, tax planning is extremely difficult
because the tax rates and rules change so often; and some countries have
taxes (such as the value-added tax in the U.K.) that other countries (such
as the U.S.) do not have at all.
Because of differentials in wage rates, availability of natural resources,
tax laws, and many other factors, a manufacturing company is likely to
spread its manufacturing processes over several countries. Beanie Babies,
for example, are made in China. The international cost accountant's job
is therefore complicated by fluctuations in currency exchange rates, transfer
pricing decisions, tax laws, and many other factors.
Management requires a lot of information for decision- making, and the
demand will not diminish in the future. Managerial accountants will need
to contemplate the financial statements of foreign subsidiaries, cost
reports that include the effects of foreign taxation and exchange rate
fluctuations, and numerous other data that are affected by international
Any management decision becomes more complex when the international element
is introduced into the equation. The centralization or decentralization
issue is a good example. The internal audit can be decentralized in order
to reduce auditor travel to subsidiaries throughout the world, take advantage
of professionals with a deep understanding of local accounting and culture,
and perform audit steps in a more timely manner. It can be centralized
if strong professional auditors are not available in the subsidiaries'
countries or if it is believed that centralization will result in greater
control. The management of exchange rate risk, however, is usually centralized.
The foreign currency needs and risks of one subsidiary might be offset
by the needs and risks of another subsidiary in a different country. The
risks associated with exchange rate fluctuations can best be managed by
centralized management that is aware of the parent's and subsidiaries'
currency flows worldwide.
So, What Is An International Accountant?
If you are going to do financial accounting, financial analysis, auditing,
tax accounting, cost accounting, managerial accounting, or any other aspect
of accounting during the next few decades, it will be virtually impossible
to perform any of these professional functions without being profoundly
influenced by the international business environment.
So, what is an international accountant? If you are going to be a professional
accountant in the 21st century, you are going to be an international accountant.
If you master the international aspects of business, you will be in great
demand by employers. Your viewpoint will be world-embracing, and your
career is going to be as exciting and challenging as the everchanging
international business environment in which you will live.
Paul E. Holt is an accounting professor at Texas A&M University in