International Final

Regulators outside the home country accept a firm's financial statements.

limited restatement

Least costly, encourages cross-listing

Does not improve comparability, unlevel playing field

comparability, less expensive than a full restatement

Does not provide the full picture.

Mutual recognition, reconciliation, international standards

Increases comparability, lowers cost of capital, better resource allocation

Narrow the differences between existing standards

Eliminate all the differences, all are the same.

Like harmonization, but can create new.

1978 - Format, disclosures, valuation, true and fair view, only applies to individual company financial statements.

1983 - Consolidated financial statements

1984 - ammended and became Statutory Audit Directive - 2006 - Auditor qualifications, auditor rotation, audit standards,, all statutory auditors must follow ISA, each member state must establish a public oversight body, established the EGAOB (Audit oversight). (Like SOX)

2007 - Annual and interim reporting requirements for listed companies, responsibility statement by the board of directors (for both annual and half-year), narrative management report (quarterly)

EFRAG interacts with IASB, SARG considers whether EFRAG's opinion is well balanced and objective, ARC considers EFRAG's and SARG's advice and either recommends endorsement or not based on whether the standard is condusive to the Europeon public good, EC approves or doesn't.

All except for a carve out of IAS 39.

Global organization of professional bodies (Like the AICPA and NIvRA). Its IAASB sets International Standards on Auditing (ISA). It is the leading organization for the harmonization of audit standards.

Sets international audit standards. (ISA). Part of IFAC.

Organization of market-economy countries. Promotes good governance in companies.

Comparability, transparency, high quality standards, understandability. Promote the use of the standards. Consider the needs of SMEs and emerging economies. Converging national accounting standards with IFRS.

Trustees - IASB Board - IFRS Interpretations Committe. Monitoring Board overall. IFRS Advisory Council (seperate).

15 members (4 from NA), make IFRSs

14 members. Implementation guidance.

Raise funds, assign members to groups - 22 members (6 from NA).

Over 30 members. Gives advice to the board or trustees about their agendas.

Overseers. Appoint trustees. Representatives of securities market regulators (SEC is a member)

Discussion paper with arguments for and against, exposure draft issued for public comment, examine comments and decide on final form. ED's and Standards can only be issued with at least 9 votes.

1973 - IASC formed with 9 countries, goal of harmonization, fair presentation as guiding principle, issued IASs with many alternative treatments allowed, Comparability Project (E32). 2001 - IASB formed, convergence, IFRS. 2002 - EU 2005, all EU listed companies had to follow IFRS by 2005. 2006 - Memorandum of Understanding, convergence of US GAAP and IFRS. 2007 - SEC eliminates reconciliation for IFRS financial statements.

Develops agenda from various inputs, Technical Staff researches, discussion memorandum issued for comment, exposure draft issued for public comment, 3 of 5 must approve.

Maintain U.S. GAAP, maintain U.S. GAAP with continued convergence, allow a choice between IFRS and US GAAP but with reconciliation, allow unrestricted choice, US specific IFRS (IFRS+), Set a conditioned timetable to adopt IFRS, Create international US GAAP.

Primary currency in which an entity does business and generates/spends cash

that the subsidiary is self-contained, and has independent operations

that the subsidiary is dependent, and just an extension of the parent.

Current rate method - since the subsidiary is independent the the gain/loss should effect the consolidated financial statements.

Temporal method

High inflation causes currency to lose value.

Lose monetary policy increases the money supply and results in higher inflation. Thus, devalues the currency.

If imports are greater than exports the currency is weakened. If exports are greater than imports the currency is strengthened. (Indirect)

If more is spent and invested abroad then the currency is devalued. (Indirect)

Devaluation can be prevented by drawing on savings or borrowing, but as resources decrease the likelihood of devaluation increases.

Deficits caused by excess spending can worsen inflation.

If a currency can be acquired for future delivery at a deep discount, then there will be reduced confidence in the currency.

Unofficial rates increase the spread and increases pressure for the government to align with market rates.

Currencies will behave similarly to those countries they have close economic ties to.

Paying higher interest strengthens the currency.

Exchange controls, tariffs, safe currencies

Risk associated with fluctuating exchange rates, can have an impact on the value of assets, earnings and cash flows.

Risk that future operations, including future cash flows, may be affect by exchange rate changes.

risk that current operation/actual transactions will be affected by exchange rate fluctuations. Real cash flow effects.

Risk that value may be reduced due to foreign currency translation. No true value is lost, just on paper. (Accounting exposure)

The exchange rate on the financial statements date. End of the year rate. Its use causes translation gains or losses.

The exchange rate when the transaction happened. Its use shields from translation gains or losses.

Beginning rate + ending rate / 2. (Variation of the current rate).

Current rate for A/L, I/S items use average rate. Capital accounts use the historic rate. The imbalance goes on the balance sheet and into OCI.

Current A/L use the current rate (& COGS). Long-term A/L use the historic rate (& depreciation). I/S items use the average rate. Imbalance can go to either.

Monetary A/L use the current rate (receivables,payables, long-term debt). Nonmonetary A/L use the historic rate (inventory, COGS, depreciation) I/S items use the average rate. Imbalance can go to either.

Monetary A/L use current rate, nonmonetary A/L if valued at historic cost use historic rate and if valued at fair value use current rate. I/S items use the average rate. Imbalance goes to income.

Reflect the financial results and relationships measured in the functional currency. If functional currency is local use current rate method. If functional currency is parent's use temporal method. In hyperinflationnary economy use temporal method.

Easy to recognize and normally are disclosed on a firm's financial statements. Income tax.

Not so clearly recognized or as frequently disclosed. Import duties, value-added tax, withholding tax.

Taxes imposed by the government on dividends and interest.

Consumption tax. Levied on the value added at each stage of production or distribution.

Taxes are levied at the corporate level and the shareholder level. Double taxation.

Corporate and shareholder taxes are integrated to reduce or eliminate double taxation. Variations: imputation/tax credit and split rate system.

Variation of the integrated system. Tax levied at the corporate level, but part can be treated as a credit for shareholders.

Only tax corporations based on income generated in the country.

Tax income no matter where it was generated.

Pay tax when the income is repatriated.

Relief from paying taxes for a certain period of time.

A country with low or no income tax.

Tariffs, taxes, competitive factors, environmental risk, performance evaluation, resolving trade-offs, cosmetic reasons

Move profits to subsidiaries in low tax countries by having a low transfer price.

Lower the transfer price when exporting goods to a high tariff country.

The parent can subsides the subsidiary by charging a lower cost in order to increase market share.

Charge a higher price for subsidiaries in high inflation countries. Charge more if in a country with an unstable government. Move cash to stable countries.

May not be good for the overall firm, but allows for flexibility. Also reflects economic reality better.

The decision takes the entire company into consideration, but reduces local flexibility. Also distorts the numbers.

MNC and tax authority agree on the transfer price methodology. (3 years in US)

Comparable uncontrolled price, comparable uncontrolled transaction, resale price method, cost-plus pricing method (Transaction based methods), comparable profits method, profit-splitting method (Profits based methods).

Use the open market price, or the price the company would charge a third party. Usually used for commodities.

For intangibles. Use external benchmarks to determine price for same or similar transfer of intangibles.

Works backwards. Begins with final price when sold to third party, margin to cover expenses and normal profit is deducted to derive the transfer price. Good for distributors.

Works forwards. Markup is added to the cost to determine the transfer price. Useful for semi-finished goods.

Similarly situated firms should earn similar returns over a reasonable period of time.

When no benchmarks are available. Divides profits among affiliated companies in an arm's-length fashion.

Alternative to transfer pricing. Takes MNC profits and splits based on criteria.

Fourth (1978, Seventh (1983), Eighth (1984) (Statutory Audit Directive [2006]), Transparency Directive (2007)

If a U.S. MNC is using a foreign subsidiary to conceal profits, then that income is considered Subpart F income and is subject to taxation.

Reduces or eliminates the risk of an audit, saves everyone time and money, increases stability.

Potentially lost opportunities, cost to setup, could reveal sensitive information.

The best method for the company.

Transactions based (popular) and profits based.

Coordinates the activities of the EU member states' public oversight bodies.

Whenever the exchange rate used to book the original transaction differs from the rate used at settlement.

Whenever the financial statements are prepared before a transaction has been settled. G/L results from the restatement process, no cash flows are affected.

Assumes that all local currency assets are exposed to exchange risk, does not align with economic reality, translating items valued at historic cos using the current rate distorts, creates translation g/l every time.

Does not usually align with economic reality, based on a classification scheme.

Relies on a classification scheme, distorts profit margins by matching sales at current prices/rates against cost of sales measured at historic costs/rates.

Since monetary items are settled in cash the use of the current rate is appropriate.

Does not change the attribute of an item just its unit of measure.

Use only the temporal method.

Helped remove income volitality

The statutory rate does not equal the effective tax rate. Due to items such as depreciation and social overhead. A low tax rate does not necessarily mean a low tax burden.

A lower tax is levied on distributed earnings. Variant of the integrated system. Used in the US.

Requires that intracompany transfers be based on an arm's-length price.

International group of security market regulators. Promote high quality standards and the development of markets.

Principles-based, allows revaluation, prohibites extraordinary items, consolidation is based on control, joint ventures use either proportional consolidation or equity method, capitalize development costs, prohibits LIFO.

Inflation, monetary policies, balance of trade, balance of payments, internal monetary reserves/debt capacity, national budget, forward exchange quotes, unofficial rates, behavior of related currencies, interest rates

Only current A/L are exposed to exchange risk, because they are used in operations.

Only monetary A/L are exposed to exchange risk, because monetary items can be converted into dollars.

All A/L are exposed.

Accounting theory arguments, preserves the attribute.

Reflects the effects of exchange rates, shouldn't hide risks, deferral is artificial.

The G/L is artificial, it is only on paper and there is not cash flow affect.

Exchange between units of the same company