Kế toán, kiểm toán - International accounting and financial reporting issues

International Accounting and Financial Reporting IssuesIssues in Accounting for International OperationsAccounting standards differ around worldExchange rates between countries change frequentlyDiffering Accounting StandardsCountries like US have private standard setting bodiesCountries with strongly socialized economies like Germany, government agencies sets standardsInternational Accounting Standards Committee’s goal to reduce differences in accounting methodsFinancial Reporting Issues & International TransactionsAccounting for foreign currency exchange transactionsTranslation of foreign subsidiary financial statements from foreign currency to reporting currencyForeign Currency Exchange TransactionsWhen sales transaction denominated in a foreign currency, cash received will be the foreign currencyChange in exchange rates between date of sale and date of collection will cause foreign currency exchange gain or lossForeign Currency Exchange TransactionsDate of saleConvert foreign currency to dollar equivalentRecord as receivableDate of collectionConvert foreign currency to dollar equivalentRecord foreign currency exchange gain or loss for differenceTranslation of Foreign Currency StatementsFunctional currency is currency of the primary economic environment in which the foreign entity generates revenues and expends cashDifferent translation methods depending on whether functional currency isLocal currency of subsidiaryReporting currency of parentTranslation of Foreign Currency StatementsWhen functional currency is local currency of subsidiaryFollow current rate method of translationUse current exchange rate for assets and liabilitiesUse average for period for revenues and expensesTranslation of Foreign Currency StatementsWhen functional currency is reporting currency of parentUse current/historical methodTranslate monetary assets and liabilities at current rateTranslate other assets, liabilities, and owners’ equity at historical reatesTranslate revenue and expense at weighted average rates for periodTranslation of Foreign Currency StatementsAny change in currency exchange gives rise to situation where difference between assets and liabilities does not equal owners’ equityTo reconcile difference, parent reports foreign currency translation adjustmentReported as part of owners’ equityHedging StrategiesLimit or avoid losses from changes in exchange ratesCompany may enter into transactions of equal valueEnter into hedging contractsContract to buy the foreign currency in the future at exchange rates on date of initial transactionSources of Generally Accepted Accounting PrinciplesAmerican Institute of Certified Public Accountants1937 through 1973Accounting Research BulletinsOpinions of the Accounting Principles BoardFinancial Accounting Standards BoardStatements of Financial Accounting StandardsBasic GAAPEntity conceptGoing concernConsistencyConservatismPeriodicityObjective evidenceMaterialityFull disclosureBasic GAAPHistorical costStable dollarRevenue realizationPoint of saleCollection methodInstallment methodPercentage of completion methodMatching expenses and revenuesStatements of Financial Accounting ConceptAttempt to develop a conceptual framework within which new accounting standards are developedImportant topicsObjectives of financial reportingQualitative aspects of accounting informationElements of financial statementsObjectives of Financial ReportingProvide information useful in making investment and credit decisionsProvide information useful in judging amounts, timing, and certainty of future cash flowsProvide information about resources of the business, claims on the resources, and changes in the resources during the periodQualitative CharacteristicsOverall constraintsBenefits > costsMaterialityQualitative CharacteristicsDecision usefulnessRelevancePredictive value, feedback value, timelinessReliabilityVerifiability, neutrality, representational faithfulnessImpact of Inflation on Accounting InformationHistorical cost assumes the value of the dollar does not change significantlyBalance sheetMost assets do not reflect current valueIncome statementSome expenses may reflect historical cost versus current cost