International Financial Statement Analysis

Whether the financial analysis is for an in-country ("domestic") customer or an offshore customer (potential or existing), there are certain characteristics and approaches in the analysis that are similar. In this section, you will look at financial statements and determine what credit analysts need to gauge credit risks compared to other groups such as investors, company management. Accounting standards are compared, both in the U.S. and for the international environment. In addition, events that impact source and use of funds are identified, along with ratios and what to look for in order to recognize problems in financial statements.

Culture is a major source of influence on accounting standards and practices. This is important for the export credit manager because differences in measurement and disclosure practices differ among countries.

Measurement = issues such as how assets are valued, including inventory and fixed assets.

Disclosure = the presentation of information and discussion of results in documents that are prepared and presented in documents like an annual report.

Secrecy and transparency are culturally significant as to determining which corporations disclose information to the public.

In accounting terms there are levels of caution that companies display in valuing assets and recognizing income:

Optimism - more liberal in recognizing income
Conservatisim - understating assets

International Accounting Standards

Internationally no equivalent organization exists--instead as in US it is the national authorities of each sovereign nation

International Acctg. Standards Board (IASB) based in London was set up in 2001 and took over from the part-time

International Acctg. Standards Committee (est. 1973)

Funding comes from contributions by major accounting firms, private financial institutions, global industrial companies, central & development banks, etc.

Primary goal is development of single set of high-quality, global accounting standards that require transparent & comparable financial information

Why Accounting Standards?

• High quality accounting standards critical to development of high quality global financial reporting structure
• Varying needs of users in different countries has led to different accounting traditions
• In some countries it is private creditors, others it is tax authorities, central planners or as in the US the needs of participants in capital markets
• Efficient cross-border capital listings and capital allocation is the intended outcome

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