Academic journal article Journal of Accountancy

The Risks of Being Global: How to Manage Overseas Opportunities

Academic journal article Journal of Accountancy

The Risks of Being Global: How to Manage Overseas Opportunities

Article excerpt

EXECUTIVE SUMMARY

* Increased international trade regulations have led to greater risks for companies that do business abroad. How CPAs help companies manage these risks will vary based on the countries and products involved, the size of the company, the potential penalties and the company's import/ export structure.

* In going global, companies face a number of import/export risks including exporting without a license, attempting to re-export to bypass an embargo and improper tariff classification.

* Companies face significant penalties if they do not comply with relevant import/export rules and regulations.

* Some companies participate in voluntary self-governance programs offered by the U.S. government in exchange for not being audited.

* CPAs can help companies identify the possible risks, test the adequacy of internal controls intended to spot those risks and consider any violations before they become costly in terms of penalties and damaged reputation.

* CPAs can provide companies with information that will enable them to develop appropriate internal controls. Reviewing data from the Census Bureau about a company's trade activities can give accountants the information they need to make these recommendations.

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As global competition expands, companies are exposed to, myriad risks related to their international trade activities. It's important for companies to manage these trade risks in the same way they manage other business risks. New opportunities overseas, increased government scrutiny of exports due to heightened security concerns, a surge in special trade programs and increasing trade activity make 2007 a year in which businesses will need to manage these trade risks more than ever before.

The potential for severe noncompliance penalties has made monitoring import and export activities a key requirement for U.S. business, and CPAs who work for or advise companies that do business internationally need to be aware of trade-compliance risks. This article takes a closer look at the international trade regulations with which companies must comply and provides guidance to help CPAs advise them on how to minimize risk and remedy trade-compliance-related internal control deficiencies.

WHAT ARE THE RISKS?

Trade risk is not as simple to manage as other business risks, given the number of government agencies involved and the fact that every transaction may be subject to numerous regulations. Importers and exporters use a variety of risk-management approaches depending on the countries and products involved, the size of the company, the financial impact of noncompliance and the company's overall import/export structure.

Some companies participate in voluntary self-governance programs offered by the U.S. government in exchange for not being audited. Others incorporate the import/export function into their Sarbanes-Oxley Act testing program. But perhaps the most common practice is to rely on customs brokers, the agents responsible for filing entry paperwork with U.S. Customs and Border Protection, to help manage trade risk.

In the United States, the importer of record must use "reasonable care" to enter, classify and determine the value of imported merchandise and provide any other necessary information Customs needs to properly assess duties, collect accurate statistics and determine whether the transaction meets all applicable legal requirements. Customs also is responsible for determining the final classification and value of the merchandise. An importer's failure to exercise reasonable care could delay release of merchandise and, in some cases, result in the imposition of penalties.

A number of executive branch agencies have responsibilities for regulating exports from the United States, including

* The Bureau of Industry and Security (BIS), which implements and enforces the Export Administration Regulations (EAR), which regulate the export and re-export of most commercial items. …

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