TAILIEUCHUNG - Lecture International accounting (4/e): Chapter 12 - Timothy Doupnik, Hector Perera

Chapter 12 - International transfer pricing. The learning objectives for this chapter include: Describe the importance of transfer pricing in achieving goal congruence in decentralized organizations, explain how the objectives of performance evaluation and cost minimization can conflict in determining international transfer prices, show how discretionary transfer pricing can be used to achieve specific cost minimization objectives, | Chapter 12: International Transfer Pricing Chapter Topics Transfer prices, corporate objectives, national tax laws Cost minimization and performance evaluation . transfer pricing rules Five specific methods to determine arm’s-length prices Advance pricing agreements (APAs) Enforcement of transfer pricing regulations 12-2 Learning Objectives Describe the importance of transfer pricing in achieving goal congruence in decentralized organizations Explain how the objectives of performance evaluation and cost minimization can conflict in determining international transfer prices Show how discretionary transfer pricing can be used to achieve specific cost minimization objectives Describe governments’ reaction to the use of discretionary transfer pricing by multinational companies Discuss the transfer pricing methods used in sales of tangible property 12-3 Learning Objectives Explain how advance pricing agreements can be used to create certainty in transfer pricing Describe worldwide efforts to enforce transfer pricing regulations 12-4 Introduction Transfer pricing Determination of price on the exchange of goods or services between related parties Also referred to as intercompany transactions Upstream transfers go from subsidiary to parent, while downstream transfers are from parent to subsidiary Transfers also occurs between different subsidiaries of the same parent Significant proportion of international transactions are intercompany transfers (In 2012, represented 42% of . total goods trade) 12-5 Decentralization and Goal Congruence Decentralized companies are organized by division and division managers have significant authority Decomposes problems into smaller pieces Permits local decision making which provides more responsibility for division managers An agency problem can occur since division managers make decisions in their self-interest Manager’s self-interest can vary with the best interests of the company An effective accounting system can alleviate this .

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