chapter 19: issues in international accounting
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Chapter 19: Issues in International Accounting. Translation of foreign operations National accounting differences Anglo-American model Continental model International harmonization of accounting standards. Translation of Foreign Operations. CAP issued two ARBs on the subject 4 43 - PowerPoint PPT PresentationTRANSCRIPT
Chapter 19: Issues in International Accounting
Translation of foreign operationsNational accounting differences
Anglo-American modelContinental model
International harmonization of accounting standards
Translation of Foreign Operations
CAP issued two ARBs on the subject443
APB issued APB Opinion No. 6 FASB has issued three SFASs
No. 1No. 8No. 52
Exchange Rate Between Currencies of Different Countries
Assumed to be the result of two factors: different nominal interest rates arising from differences in expected inflation rates occurring in different countries the ratio of the relative prices of a common “market basket” of goods and services
Instability in foreign exchange rates that has the potential to create large translation gains and losses
Approaches to Translation
U.S. dollar orientation
Foreign currency orientation
SFAS No. 8
Consistent with the U.S. $ orientation
Temporal method of translation was required: all balance sheet items that were carried at current or future exchange prices
Foreign currency exposure Accounting exposure
Economic exposure
SFAS No. 52
May 1978, FASB requested comments from constituents regarding the first twelve SFASs
88% of the comments received requested that the board reconsider SFAS No. 8
primary complaints about SFAS No. 8: exchange gains and losses are reported, when from an economic viewpoint the reverse had occurred
Adopts a functional currency orientation rather than a U.S. dollar orientation
SFAS No. 52
Net income is measured in the foreign currency and then restated into dollars at the average exchange rate for the periodBalance sheet items are translated at the current exchange rate at the end of the periodObjective is to avoid reporting
accounting exchange gains and losses when an economic gain or loss has not occurred foreign-currency-denominated operations as if they had occurred in U.S. dollars
Functional Currency Determination
Cash flow indicators
Sales price indicators
Sales market indicators
Expense indicators
Financing indicators
Intercompany transactions and arrangements indicators
National Accounting Differences
Anglo-American model
Continental model
Anglo-American model
USA
United Kingdom
Canada
Australia
New Zealand
Continental Model
France
Germany
Japan
International Harmonization of Accounting Standards
IASC IFAC European Union United Nations OECD IOSCO
Chapter 19: Issues in International Accounting
Translation of foreign operationsNational accounting differences
Anglo-American modelContinental model
International harmonization of accounting standards