“International Financial Statement Analysis” by Choi and Meek

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The chapter under consideration is called International Financial Statement Analysis and is written by Choi and Meek. In this chapter, the researchers investigate the difficulties in evaluating business strategy analysis as well as main approaches to data collection; they also describe six approaches to carrying out an accounting analysis, and identify a number of coping mechanisms to deal with the differences in cross-country accounting (Choi and Meek 281). The authors disclose the effect of cross-country fluctuations in accounting auditing quality, measurement, disclosure and measurement on accounting analysis. Finally, the chapter emphasizes the role of the World Wide Web in obtaining data for company researches and analyses. The chapter provides a great number of cases and examples underscoring the importance of successful financial statement analysis.

Main Discussion

Challenges and Opportunities in Cross-Border Analysis

Before proceeding with the evaluation of international business approaches, Choi and Meek pay sufficient attention to the consideration of difficulties in undertaking cross-border analysis. In particular, they insist on the fact that there are tangible discrepancies in legal environments and national business, which should be carefully evaluated. Another problem lies in the specifics of business risk management and sources of profit. In addition, successful performance of international business largely depends on sufficient information availability. The authors also state that the differences between within-border and cross-border analysis have been blurred due to the implementation of the common currency in European practices. Such a situation allows to focus on the leading companies in European Union irrespective of country. In general, the process of internalization the analysis of domestic analyses has become less appropriate, which leads to more dramatic integration process making a separate country immune to the events happening worldwide. Nevertheless, much concern has been left with measurement standards differences that have a tangible impact on financial statement analysis.

Business analysis framework

While discussing various aspects of business analysis, Choi and Meek apply to the framework proposed by Palepu, Bernard, and Healy (282). These theorists have greatly contributed to exploration of financial statements and have given credit to the role of financial reporting in business analysis (Palepu et al. 5). International financial statements analysis largely depends on business activities carried out in a multinational companies (Choi and Meek 283). Hence, all business operations, including investment activities, financial operations, and business transactions, are reported and measured. All these accounting reports serve as the basic information for managers to make their decisions (Robinson et al. 3).

Information availability

The authors place an emphasis on the fact that that the implement of business strategy analysis is difficult in certain countries due to deficiency of valid and reliable information about macroeconomic progress. The situation is especially intrinsic in developing countries and emerging economies as the government often conceals or provides false and undue information about financial and economic situation in a country. The chapter also explores the problems of industry information proliferation in some countries (Choi and Meek 283). The problem is that the information availability is dramatically low in developing countries and this aggravates their business cooperation at the international level.

Recommendations for analysis

In this extract, the researchers consider the challenge of performing business strategy evaluation and analysis due to the problems with data availability. In order to compensate this problem, travel is important for defining local business climates, companies’ operations, and manufacturing process, particularly in emerging economies. Another useful strategy to be taken is searching for information on the World Wide Web offering an easy and faster access to pertinent data. Online information about countries can also be detected in various international reports or recorded meetings. Finally, the authors also recommend to search for online official site providing recent statistics and figures pursuant to international accounting.

Accounting analysis

In this section, Choi and Meek discuss various cases of accounting practices both in developed and developing countries. In the course of analysis, they have found that most of accounting analyses are based on financial reports where the emphasis was made on creditors rather than on investors. The researchers have reached a conclusion concerning the role of discretion and transparency in introducing financial reports and statistics to public. Otherwise, “conservative reporting bias may generate accounting amounts that do not reflect actual operating performance” (Choi and Meek 287). In response to that statement, Elliot and Elliot agree that the importance of financial reporting lies in regulating and ensuring all companies in presenting reliable and transparent information to public (3). What is more, they believe that the success of international accounting analysis in pursuing international requirements and standards (Elliot and Elliot 4).

International financial analysis

While investigating this issue, the authors’ specific concerns have been largely focused on the role of financial analysis in evaluating a company’s contemporary and past performance, including the level of its sustainability and stability. In this respect, Choi and Meek attains much significance to such important tools as cash flow statement and ration analysis.

Ratio analysis

For better understanding of such tool as ration analysis, the authors provide exhibits depicting the most frequently used financial rations. The main scope of this procedure lies in comparing several firms’ ratio of the same specialization to a particular benchmark. This comparison is carried out within a particular period of time; it throws the light on the importance of certain financial statement issues allowing managers to estimate the efficiency of business financing, investing, and profit retention strategies.

Cash flow analysis

Choi and Meek refer to cash flow analysis as to companies’ inflow and outflow operations forming financial statement items. In this regard, the basis principle of performing the analysis is using Generally Accepted Accounting Principle (GAAP), a standard framework for the evaluation of financial statements. In this section, the authors are focused on GAAP in Japan, United States, and other developed economies for illustrations good examples and strategies of adjusting to accounting measurement differences. While examining this issue, much attention has also been paid to the difficulties in talking the measurement differences (Choi and Meek 291). As a result, the authors propose to reorganize foreign GAAP into domestic GAAP and to adopt a mutual fund strategy for investing. Moreover, they have also put forward the necessity to connect financial issues with language and currency of the country to be invested.

Coping mechanisms

In this section of the chapter, much consideration is dedicated to the introduction of various strategies and coping mechanism for talking measurement and disclosure differences (Choi and Meek 298). In particular, the authors consider it necessary to introduce company visitations and provide changes to investment classifications to improve the disclosure grades. In order to adjust to audit differences, the authors propose to examine the auditing environment in the country under analysis. Additionally, those investors should ask for other audit opinion to engage an acknowledged audit firm provided the confidence in the attest function is integrity is in doubt.

International perspective analysis

In the beginning of the chapter, the authors provide a generation definition of prospective analysis that involves a company’s prospects predetermined by an evaluation of a companies business policy and strategy, and its accounting and financial issues. Further on, Choi and Meek proceed with displaying the complicated factors for carrying out a successful international perspective analysis (292). Among them are exchange rates variations hampering accurate forecasting of firms’ future revenues, national fluctuations in disclosure, auditing, and measurement practices, and variations in pricing polices. Making reference to particular examples, the authors provide bright models of international practices of financial performance. To be more specific, they address restatement algorithms of Japan and United States as well as the factors influencing their effectiveness.

Further issues

After a thorough analysis of all stages of business analysis, the authors introduce the factors affecting those stages. In particular, they refer to such issues as information access, foreign currency considerations, discrepancies in statement formats, and terminology and language barriers (Choi and Meek 295).

Information access

Explaining this issue, the author pay attention to connection between financial reporting and availability of information on which the report is based. The problem is that if the report is not recognized, there is a higher probability to receive false information and inaccurate statistics. In this regard, Exhibit 9-4 provides information on available web sites displaying information on various financial reports and data pursuant to a particular company (Choi and Meek 298). Therefore, it is possible to assume, the globalization process in accounting is closely associated with the advent of the Internet.

Foreign currency considerations

While evaluating problems and challenges of foreign currency issues, the authors have scanned fiscal system of leading economies such as Japan, Germany, the United Kingdom and the United Stages.

Differences in statement format

While discussing this question, the authors attain importance classification differences. On the basis of examples, they have concluded that “…in contrast to U.S. balance sheets, which display assets in decreasing order of liquidity and liabilities in increasing order of maturity, in many countries the most liquid assets and the shortest term liabilities appear at the foot of the balance sheet” (Choi and Meek 303). There are many other classification differences that have been taken into considerations by the authors, but little attention has been paid to the developing economies and their situation with statement format standards. Nevertheless, the researchers take notice to the discrepancies in structures of financial statement, which is quite critical for international financial statement analysis.

Language and terminology barriers

According Choi and Meek, lack of understanding of legal, political, and business environment negatively affects the evaluation of financial rations (304). Therefore, language barriers should be carefully considered with regard to this problem.

Financial statement analysis and auditing

The attest function

The attest function is an inherent part of financial reporting (Choi and Meek). It lies in reviewing the financial information submitted by firm’s managerial staff and attesting fairness, reliability, sustainability and stability. Such operation is crucial for maintain and establishing the integrity of financial data.

The audit report

Choi and Meek believe that auditing and audit report are often neglected by the investors and companies’ managers (307). This can be explained by impossibility to predict company’s failure with the help of the audit report date. Nevertheless, auditing has a tangible impact on the communication process between the investors and company’s owners. Such reports can serve as guarantor of fairness and transparency of the information submitted to shareholders (Ittonen 5).

Auditing and credibility

Viewing the connection between auditing and credibility, they single out such linking factors as “the source of auditing standards, their enforcement, and the professionalism of the individual or individual performing the audit” (Choi and Meek 309). All these aspects should be carefully tackled before conducting an evaluation of financial information.

Coping mechanisms

In order to cope with the problem stated above, the authors propose the following solutions. First, they consider it necessary to analyze the auditing environment in the country under consideration. Second, the investors should have guarantees that the obtained audit report is recognized by another audit opinion. Finally, it is imperative to evaluate the audit risk (Choi and Meek 309). In addition, the authors also pay much attention to the education qualifications of the individuals producing the audit report.

Internal auditing

According to Choi and Meek, the consideration of regional standards of auditing is crucial for stabilizing of the international auditing formats (310). Alternatively, the absence of relevant audit standard can create difficulties in understanding the specifics of auditing on a local basis. What is more important is that “this diverse range of accounting structures makes it very difficult to secure agreement in the audit area” (Choi and Meek 310). In general, the author agrees that the discrepancies in audit standards, particularly those attached to legal system provide great difficulties in harmonizing the globalization process.


Choi, Frederick D., and Meek, Gary K. International Accounting. US: Prentice Hall, 2007. Print.

Elliot, Barry, and Elliot Jamie. Financial accounting, reporting and analysis: international edition. Pearson Education, 2006. Print.

Ittonen Kim. Audit reports and stock markets. University of Vaasa, 2009. Print.

Palepu, Kristina G., Healy Paul M., and Bernard, Victor L. Business Analysis and Evaluation: Using Financial Statements. South-Western College Pub, 2003. Print.

Robinson, Thomas R., Van Greuning Henne, Henry Elane, Broihahn, Michael A. and CFA. International Financial Statement Analysis. John Wiley and Sons, 2008. Print.

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