2. Some issues in accounting due to engaging in international trade is the risk that the foreign currency will decrease in US $ value over the life of the receivable. A company can hedge against a loss from an exchange rate fluctuation by having a foreign currency option or a forward contract.
3. Increase sales and profits, enter rapidly growing or emerging markets, reduce costs, protect domestic markets, protect foreign markets, and acquire technological and managerial know-how.
5. Some financial reporting issues of making a foreign direct investment is the need to convert from local to U.S. GAAP since accounting records are usually prepared using local CAAP. Also the need to translate from local currency to U.S. dollars since accounting records are usually prepared using local currency.
6. Foreign income taxes; the foreign government will tax the company’s profits at applicable rates. U.S. income taxes; the U.S. will tax the company’s foreign based income. Income earned by foreign operations of U.S. companies is subject to double taxation.
7. Issues in evaluating and maintaining control over foreign operations are caused by transfer pricing. Transfer pricing means setting prices on goods and services exchanged between separate divisions’ within the same firm. These prices have direct impact on profits of the different divisions. Transfer pricing creates performance evaluation issues. Division managers are evaluated based on divisional profits. Transfer prices influence division manager performance evaluation.
8. Having shares trade in multiple time zones and in multiple currencies. This gives companies greater ability to raise capital. Companies must meet the same requirements as any other listed member like financial reporting for example.
10. Advantages of a single set of accounting standards worldwide would be the elimination of the need to convert from local GAAP when preparing consolidated financial statements. We would also be in a better position to evaluate foreign direct investments.
Assignment # 2
1. Companies in North America present assets in order of liquidity beginning with cash. Companies in Europe present assets in reverse order of liquidity, beginning with fixed assets.
2. The two major types of legal systems are “code law” and “common law”. In code law countries they tend to have an accounting law that is more general and without detail. In common law countries, a non-legislative organization creates accounting standards. Those tend to provide much more detail than what is found in code law countries.
3. Some countries attempt to minimize income for tax purposes. For example, through the use of accelerated depreciation, so as to reduce their tax liability. As a result of the…