Nama : Nurbani Ismei Daryani
Kelas : 4EB12
NPM : 20208922
A. REPORTING DISCLOSURE AND DEVELOPMENT OF DISCLOSURE - INTERNATIONAL ACCOUNTING
Development of the disclosure system is closely associated with the development of accounting systems. Disclosure standards and practices are influenced by financial resources, legal systems, political and economic ties, the level of economic development, education, culture, and other influences.
National differences in disclosure is driven largely by differences in corporate governance and finance. In the United States, Britain and other Anglo-American countries, equity markets provided most of the funding that the company needs to be very advanced. In these markets, ownership tends to spread widely among many shareholders and investor protection is emphasized. Institutional investors play an increasingly important role in these countries, demanding financial returns and increasing shareholder value.
In most other countries (like France, Japan and some emerging market countries), share ownership is still highly concentrated and the bank (or the owner and family) has traditionally been a major source of corporate financing. These banks, and the other in obtaining more information about the company's financial position and activities.
EVOLUTION OF CORPORATE DISCLOSURE
Obligations and corporate disclosure practices are influenced by a number of things, including the following:
Effect of Capital Market
In a competitive economy, the disclosure is a means to channel koorperasi koorperasi accountability to capital providers (investors) and to water down allocation of resources to their most productive use.
Koorperasi a need to attract capital in a very large amount to finance the production and distribution activities are extensive. Therefore internal defrayal is highly dependent on external capital invested by the investor on a koorperasi, In return, an investor requires disclosure (transperancy koorperasi) in which investors can assess the quality of their stock to cultivate.
Conceptual link between disclosure and cost of capital meingkat of the theory of investment behavior under conditions of uncertainty, namely:
1. In a world of uncertainty, investors look at returns on investment securities as money received as a consequence of ownership.
2. Because of the uncertainty of return is viewed in a probabilistic sense.
3. Investors use a number of different measures to quantify the expected results of a security.
4. Investors prefer a high return rate for a certain risk level or vice versa.
5. The value of a security is positively related to the flow of expected results and inversely related to the risks associated with the refund.
6. Thus, disclosure of the company will increase the probability distribution of outcomes expected by investors by reducing the uncertainty associated with the refund. So will improve performance (performance of the company) in the eyes of investors that lure investors to invest on a larger similar securities so as to reduce the cost of capital.
Effect of Non-Financial
This happens when there is a growing trend where public koorperasi responsible for policies and actions. This is due to the small countries tend to see multinational companies as a direct threat to the sovereignty of the country, where multinational companies are able to create the general living standards of a country with multinational business activities, such as direct investment strategies that affect exchange rates abroad.
Besides the welfare of society can be influenced by the tax payment arbiter (arbitrary) between countries, or a series of manipulation by multinational companies, so that "shareholders non - financial, such as trade unions, government, and the general public requires transparency (disclosure) corporations, both financial and non-financial.
UN efforts to move the observance of foreign direct investment activities, as follows:
1. Value of direct investment limit is where a single foreign investor controlling more than 10% of common shares or voting rights is effective in management.
2. Composition of direct investment income, are dividends, retained earnings, and accrued interest.
3. Elimination of capital gains / losess: where profits must not contain any capital gain or losess already / not yet realized.
4. Inter-company accounts receivable billing must enter the transaction in the stock, or long-term debt and short.
5. Conversion procedure where the interest, dividends, profits are distributed and retained in foreign currency shall be converted in the spot rate on the date of receipt.
6. Measurement of direct investment should be measured using the book value of the share capital and reserves.
7. Re-estimate the stock of direct investment, where the ownership of the shares must be re-estimated using replacement cost instead of book value.
Response Koorperasi
A number of companies looking at expansion of the demand for transparency of reporting as something positive, but there are some companies who oppose transparency the following reasons:
1. Discriminatory, distinguishing multinationals with purely domestic firms.
2. Premature, because there is no real need for disclosure is recommended.
3. Costs.
However, increased demand for transparency koorperasi information can not be ruled out from the various interested parties. Especially the investors who invest.
A number of koorperasi are experiencing delays in the grip caused discloser regulations regarding disclosure standards published by organizations such as: UNCTC, OECD, EC, IASC, ICFTU, and IOSCO. Therefore, modern koorperasi should anticipate increased demand for transparency koorperasi as to attract investors to invest in koorperasi.
REGULATORY DISCLOSURE OBLIGATIONS
As a cornerstone investor protection, the U.S. SEC, and COSOB Italian Japanese Finance Minister, together with the government regulators impose disclosure obligations to domestic and foreign companies seeking to gain access to the stock market, with the aim of ensuring that investors get the minimum disclosures that allow to assess past performance or prospects of the company.
Liabilities – Liabilities SEC
Securities trading on the regulated market managed by the Securities Exchange Act (SEC).
Non-US firms affected by regulation and disclosure of SEC in the event of conditions:
· The company issuing the securities for sale to the public premiere U.S.
· The company wants to trade in securities that are still outstanding at a market in the U.S. managed
· The company's shares are traded outside the U.S. managed markets but the company has assets of more than $ 1 million, more than 500 shareholders worldwide, and of that number 300 or more living in the U.S..
The main exception for foreign koorperasi associated with the following:
· Financial statements of non-US koorperasi must contain the same information with the financial statements contain a reconciliation koorperasi domestic except for significant variations from U.S. GAAP and Regulation SX.
· Unless a full reconciliation with U.S. GAAP is required, only the income information per line of business or geographical segment should be disclosed.
· Provision of salary to non-US company directors need not be disclosed.
· Disclosure of material transactions the company is required only if required by law the country of origin or have been informed earlier.
· The disclosures required by U.S. GAAP but not required by GAAP Abroad need not be given, unless the information is significant.
Non-US companies that have been listed in national stock exchange shall periodically submit reports to the SEC within six months of its fiscal year. For koorperasi which had assets of more than $ 5 million and more than 500 shareholders worldwide with the exception of less than 300 people who live in the U.S., then the material is required to report:
· disseminated to the public the country of origin
· delivered to the market place where securities are traded
· distributed to shareholders
VOLUNTARY DISCLOSURE
Some studies show that managers have incentives to reveal information about the company's current performance and future time voluntarily. In a recent report, the Financial Accounting Standards Board (FASB) describes a FASB project on business reporting which supports the view that the company will benefit from the capital market by increasing voluntary disclosure. The report outlines how companies can describe and explain its investment potential to investors.
A number of rules, such as accounting and disclosure rules, and approval by a third party (such as auditing) can improve the functioning of the market. Accounting rules to try to reduce the ability of manjer in record economic transactions in ways that do not represent the best interests of shareholders. Disclosure rules establish provisions to ensure that shareholders receive timely, complete and accurate.
MANDATORY DISCLOSURE PROVISIONS
Stock exchanges and government regulatory agencies generally require that listed companies to foreign companies to share financial information and nonfinancial information similar to that required for domestic firms. Any information that was announced, which was distributed to shareholders or reported to regulatory agencies in the domestic market. However, most states do not monitor or enforce the implementation of the provisions of "suitability disclosure between the (jurisdiction)."
Protection of shareholders differ from country to country. Anglo-American countries such as Canada, Britain and the United States to provide protection to shareholders who are widely and strictly enforced. In contrast, the protection to the shareholders received less attention in some other countries like China for example, prohibiting insider trading (trading that involves the inner circle), while weak law enforcement make the enforcement of these rules are almost non-existent.
REPORTING AND DISCLOSURE PRACTICES
Disclosure rules are very different around the world in some ways like the statement of cash flows and changes in equity, related party transactions, segment reporting, the fair value of financial assets and liabilities and earnings per share. In this section attention is focused on:
1. Disclosure of information to see the future "information look to the future" that includes:
a. Forecast revenue, profit and loss, profit and loss per share (EPS), capital expenditures, and other financial post
b. Prospective information regarding the performance or future economic position that is not too sure when compared with the projected post, fiscal period, and the projected number
c. Report management plans and objectives of future operations.
Most companies in each country presents a disclosure of information about plans and goals management. Conversely fewer companies that disclose prophecy, from the lowest two companies in Japan and the highest 31 companies in the United States. Most forecasts in the U.S. and Germany regarding capital expenditure, not profits and sales.
2. Disclosure of segment
Investors and analysts will request information regarding operating results and financial industry segments classified as significant and increasing. Example, financial analysts in the United States has consistently been asked disagregat report data in the form of a much more detailed than they are now. International Financial Reporting Standards (IFRS) also discussed the highly detailed segment reporting. This report helps the users of financial statements to better understand how the parts of a company affects the whole enterprise.
3. Cash flow statement and fund flow
IFRS and accounting standards in the United States, Britain, and a large number of other countries require the presentation of cash flows.
4. Disclosure of social responsibility
Today the company is required to demonstrate a sense of responsibility to a bunch of so-called interested parties (stakeholders) - employees, customers, suppliers, governments, activist groups, and the general public.
Information regarding the welfare of employees has long been a concern for labor organizations. The problem areas of concern related to working conditions, job security, equality of opportunity, workforce diversity and child labor. Employee disclosure also preferred by investors because it provides valuable input regarding labor relations, cost, and productivity.
5. Specific disclosures for non-domestic users of financial statements and the accounting principles used.
Financial statements may contain specific disclosures to accommodate the users of financial statements non domestic. Such disclosure is:
a. "Re representation for the convenience" of financial information in nondomestic currencies
b. Repeated presentation of the results and financial position is limited by the two accounting standards group
c. A complete set of financial statements prepared in accordance with accounting standards accourding to groups, and some discussion about the differences between the accounting principles that are widely used in the primary financial statements and a few other sets of accounting principles.
Many companies in countries that do not use English as primary language translation also perform throughout the annual report of the home country language into English. Also, some companies prepare financial statements in accordance with accounting standards more widely accepted than domestic standards (particularly IFRS or U.S. GAAP) or in accordance with both domestic and a second group of standard accounting principles.
Many companies in countries that do not use English as primary language translation also perform throughout the annual report of the home country language into English. Also, some companies prepare financial statements in accordance with accounting standards more widely accepted than domestic standards (particularly IFRS or U.S. GAAP) or in accordance with both domestic and a second group of standard accounting principles.
CORPORATE GOVERNANCE DISCLOSURES
Corporate governance related to the internal tools used for running and controlling a firm - responsibility, accountability and the relationship between the shareholders, board members and managers are designed to achieve corporate objectives. The problems of corporate governance include the rights and treatment to the shareholders, the board's responsibilities, disclosure and transparency and the role of the parties concerned. Corporate governance practices has gained the attention of regulators, investors and analysts.
DISCLOSURE AND REPORTING ON INTERNAL BUSINESS
World Wide Web is increasingly being used as channels of information dissemination, where the print media now plays a secondary role. Business Reporting Language (Extensible Business Reporting Language - XBRL) is an early stage of financial reporting revolution. This computer language is built into almost all software for accounting and financial reporting to be issued in the future, and most users do not need to learn how to cultivate it so that it can directly enjoy the benefits.
DISCLOSURE REPORTS ANNUAL MARKET IN DEVELOPING COUNTRIES
Disclosure of the company's annual report on emerging market countries are generally less extensive and less credible than the reporting companies in developed countries. For example, the disclosure of which is insufficient and misleading and neglected consumer protection cited as the cause of the East Asian financial crisis in 1997.
Low level of disclosure in emerging market countries is consistent with the system of corporate governance and finance in these countries. Less developed equity markets, banks and internal parties such as family groups distribute most financing needs and generally not too much of a need for public disclosure of credible and timely manner, when compared with the more advanced economies.
However, investor demand for information about the company in a timely and credible in emerging market countries more and more regulators to respond to this demand by creating more stringent disclosure provisions and increase surveillance efforts and enforcement.
However, investor demand for information about the company in a timely and credible in emerging market countries more and more regulators to respond to this demand by creating more stringent disclosure provisions and increase surveillance efforts and enforcement.
IMPLICATIONS FOR USERS AND FINANCIAL MANAGERS
The managers of many companies are constantly heavily influenced by the cost of mandatory disclosure, the level of mandatory and voluntary disclosure is increasing worldwide. Managers in countries that traditionally have low disclosure should consider whether it operates a policy of disclosure may provide significant benefits in the amount of their company. Moreover, the managers who decided to provide more disclosure in areas considered important by investors and financial analysts, such as disclosure of segment and reconciliation, can gain competitive advantage from another company that has a strict disclosure policy.
2. FOREIGN CURRENCY TRANSLATION
Background
Translation is a change of monetary units, as well as a balance sheet presented are expressed in Indonesia Rupiah equivalent value back into the U.S. Dollar. There is no physical exchange that occurred, and no relevant transaction.
Balances in foreign currencies are translated into domestic currency equivalent value based on the foreign exchange rate is the price of one unit of a currency expressed in another currency. State's major trading currencies are bought and sold in global markets. With linked via a sophisticated telecommunications network, market participants include banks and other currency intermediaries, businesses, individuals and professional traders. By providing a place for the buyer and the seller's currency, the foreign exchange market to facilitate the international transfer payments (eg, from importers to exporters), allow for international sale or purchase on credit (eg, a bank letter of credit that allows the goods delivered to the buyer unknown prior to payment), and providing tools for individuals or businesses to protect themselves from the risk of the currency is unstable.
Foreign currency transactions occur on the spot market, forward, or swap. Currency bought or sold on the spot generally must be sent as soon as possible, ie within 2 working days. Spot market exchange rate is influenced by many factors, including differences in inflation rates between countries, differences in national interest and expectations of the future exchange rate. Transaction on forward markets is an agreement to exchange one currency for a certain amount into another currency at a future date.
Quotations on forward markets is expressed by the discount or premium of the spot rate.
Swap transaction involves the purchase of spot and forward sales or spot sales or purchases forward, on a currency simultaneously. Investors often make use of swap transactions to take advantage of interest rates higher in a foreign country, the same opportunity to protect themselves against unfavorable movements of the exchange rate of foreign exchange.
Swap transaction involves the purchase of spot and forward sales or spot sales or purchases forward, on a currency simultaneously. Investors often make use of swap transactions to take advantage of interest rates higher in a foreign country, the same opportunity to protect themselves against unfavorable movements of the exchange rate of foreign exchange.
Measuring and anticipating accounting exposure
Accounting exposure is measure how far the report noted that financial statements of an enterprise is affected by fluctuations in foreign currency exchange rate. These exposures arise because of the need to convert the financial statements of overseas operations that use local currencies in the currency's country of origin for the purpose of consolidation and reporting. The consolidated financial statements are generally used by the company management to assess the performance of affiliated companies abroad. If the exchange rate changed since the previous reporting period, then the translation or a reassessment of the assets, liabilities, revenues, expenses, profits, and losses are denominated in foreign currency will cause the profit / loss forex (foreign exchange gains or losses). The possibility of profit / loss of this foreign exchange exposure is measured by accounting numbers.
Should measure the exposure of accounting
Transnational corporations are not concerned with accounting exposure is generally argued that the income earned by the branches of the company does not need to be converted in the currency of its parent company. This is caused because they are unsure of relevant accounting exposure. Nevertheless, it is necessary to understand what influences the degree of exposure of the company against the possibility of profit / loss for the financial report conversion. The size of the accounting exposure depends on:
· How well the role of the branches of overseas companies. The greater the percentage of companies that do business overseas branches, the greater the percentage of financial statement items are easily affected by the exposure of accounting.
· The location of branches of overseas companies. This is caused by items of financial statements in each branch is usually expressed in local currency in the country.
· Accounting standards are used. Each country generally has been standard accounting standards, which vary greatly among countries.
The reasons for doing translational
Companies with significant overseas operations prepare consolidated financial statements that enable the reader to gain a holistic understanding of the operating companies, both domestic and abroad. To achieve this, the financial statements of foreign subsidiaries are denominated in foreign currencies are presented back to the parent company's reporting currency. The process of re-presentation of financial information from one currency to another currency is called translation.
Most of the problems associated with currency translation comes from the fact that the relative value of foreign currencies is rarely defined. The exchange rate variable, which combined with a variety of translation methods that can be used and the difference in treatment based on the advantages and disadvantages of translation, making comparisons of financial results of one company with another company, or a comparison of the results of the same company from one period to another difficult. This situation is a challenge for multinational companies to provide disclosure of operating results and financial position.
Additional reasons for the translation of foreign currency is to record foreign currency transactions, measure risk of a company to effect changes in currency and communicate with interested parties from abroad. For accounting purposes, the assets and liabilities of foreign currency exchange risk is said to face if a change in the currency exchange rate causes the currency to the parent company (reporting) are also changed. Measurement of this risk will vary depending on the method chosen for the translation used by the company.
Method of currency conversion
Known around the world at least 5 kinds of currency conversion methods, namely:
· Method of Single Currency
This method has long been popular in Europe, applying the exchange rate, the current exchange rate and the closing exchange rate, for all assets and liabilities lancer. Revenues and expenses denominated in foreign currencies are generally translated using the exchange rate prevailing at the time the posts are recognized. However, to facilitate these items are generally translated using the weighted average exchange rates are appropriate for the period. The financial statements of a foreign operation has its own reporting domicile, local currency environment in which the foreign affiliate companies do business. An asset or liability denominated in foreign currency is said to face foreign exchange risk if the equivalent in the currency used to translate the asset or liability.
· Method of Multiple Exchange Rates
The method combines Multiple Currency exchange rate exchange rate historically and now in the process of translation.
· Method Now – Non Now
Based on the Method of Non-Now-Now, current assets and current liabilities of foreign subsidiaries are translated into the reporting currency of its parent company based on the exchange now. Non-current assets and liabilities are translated based on the historical exchange rate. Items of income statement (except for depreciation and amortization) are translated based on the average rate prevailing in each month of operation, or based on a weighted average over the entire reporting period. Depreciation and amortization are translated based on the historical exchange rate recorded moment assets acquired. However, this method does not consider the economic element. Using year-end exchange rate to translate current assets implies that cash, receivables, and inventory in foreign currencies are equally at risk of exchange rate.
· Monetary – Nonmonetary Method
Non-monetary method Monetary also use the balance sheet classification scheme fatherly determine the appropriate exchange rate translation. Monetary assets and liabilities are translated based on the exchange rate now. Items of non-monetary assets, long-term investment, and stock investors are translated using historical exchange rates. Items of income statements are translated using a procedure similar to that described for the concept of non-present now.
· Methods of Temporal
By using the temporal method, translation currency conversion is a process of re-measurement or presentation of a certain value. This method does not change the attributes of an item being measured, but only change the unit of measurement. Translation of these balances in foreign currency-denominated causes repeated measurements such items but not the actual assessment. Under U.S. GAAP, measured by the amount of cash on hand at the balance sheet date. Receivables and liabilities are stated at amounts expected to be received or paid at maturity.
Under the temporal method, monetary items such as cash, receivables, and liabilities are translated based on the exchange now. Such items are translated at the exchange rate of monetary base that maintains in the first measurement. In particular, the value of assets in foreign currencies are reported at historical cost, are translated based on the historical exchange rate. Why is that? This is because of historical cost in foreign currencies are translated at the exchange rate exchange rate historically produces historical cost in domestic currency.
These five methods discussed at one time been used in the United States and can be found even today in many countries. In general, these methods lead to the translation of foreign currency which is quite different. The first three methods (method of exchange rate now, the method now-non-date, and method-monetary non-monetary) are used in the identification of assets and liabilities which are at risk or may be protected from foreign exchange risk.
There are three important questions related to the discussion of translation methods:
1. Do use more than one translation method allowed?
2. If yes, what method is used and under what conditions the method should be applied?
3. Are there situations in which the translation should not be done at all?
Associated with the first question, it is clear that one method of translation alone can not meet with the same translational performed under different conditions and for different purposes. More than one method of translation is required. Associated with the second question, we argue that there are three different translational approaches are acceptable:
· Historical method,
· The method is now,
· Do not do the translation at all.
Associated with the third question, need no translation may be done if the parent company and subsidiaries located in one particular country because it does not need to be needed. It's caused because the two companies (both child and parent are in a country whose currency is the same).
However, if the child and the parent company's separate, in the sense of being in two different countries, the translation method to be applied to implement the process of foreign exchange.
However, if the child and the parent company's separate, in the sense of being in two different countries, the translation method to be applied to implement the process of foreign exchange.
Right now the exchange rate
So far this term the exchange rate used in translation method refers to the historical or present exchange rate. The average rate is often used in the income statement for the posts load. Some countries use the exchange rate is different for different transactions. In this situation should be selected some existing exchange rate. Some suggested alternatives are:
1. Currency dividend payment
2. Free market rate,
3. Exchange rate penalty or preferences that can be used, such as those involved in import export activities.
Transactions in foreign currency
The main characteristic of a particular foreign currency transactions are his solution influenced in a foreign currency. Thus, transactions in foreign currency occurs when a company buys or sells goods to the payments made in a foreign currency or when companies borrow or lend in foreign currencies.
A foreign currency transactions can be denominated in one currency, but the measured or recorded in other currencies. To understand why this is happening, consider first term functional currency. Functional currency of a company is defined as the currency of the primary economic environment in which firms operate and generate cash flow. If a foreign subsidiary operations relative stand-alone and integrated in a foreign country (which is a subsidiary that produces products for local distribution), will generally produce and spend money in local currency (countries of residence). Thus the local currency (eg euros for the subsidiary of a U.S. company in the Netherlands) is the functional currency.
To illustrate the difference between a transaction that is denominated in a currency, but measured in other currencies, eg, a U.S. subsidiary in Hong Kong to buy stock of merchandise from the People's Republic of China paid in renmimbi. Subsidiary's functional currency is U.S. dollars. In this case, the subsidiary will measure foreign currency transactions are denominated in renmimbi into U.S. dollars, the currency used in the record book. From the standpoint of the parent companies, subsidiaries liabilities denominated in renmimbi, but measured in U.S. dollar functional currency, for the purposes of consolidation.
A foreign currency transactions can be denominated in one currency, but the measured or recorded in other currencies. To understand why this is happening, consider first term functional currency. Functional currency of a company is defined as the currency of the primary economic environment in which firms operate and generate cash flow. If a foreign subsidiary operations relative stand-alone and integrated in a foreign country (which is a subsidiary that produces products for local distribution), will generally produce and spend money in local currency (countries of residence). Thus the local currency (eg euros for the subsidiary of a U.S. company in the Netherlands) is the functional currency.
To illustrate the difference between a transaction that is denominated in a currency, but measured in other currencies, eg, a U.S. subsidiary in Hong Kong to buy stock of merchandise from the People's Republic of China paid in renmimbi. Subsidiary's functional currency is U.S. dollars. In this case, the subsidiary will measure foreign currency transactions are denominated in renmimbi into U.S. dollars, the currency used in the record book. From the standpoint of the parent companies, subsidiaries liabilities denominated in renmimbi, but measured in U.S. dollar functional currency, for the purposes of consolidation.
3. FINANCIAL REPORTING AND PRICE CHANGES
DEFINITION OF PRICE CHANGES
DEFINITION OF PRICE CHANGES
There are two terms in the price changes that must be understood as follows:
1. General price changes occur when the average price of all goods and services in an economy subject to change. Monetary units gain or a loss of purchasing power. Price increases are collectively known as inflation (inflation), while the price declines known as deflation (deflation).
2. Specific price changes refers to changes in the price of goods or services which are caused by changes in demand and supply. So the rate of inflation per year in one country may range from about 5%, while the price of one unit with one bedroom apartments may be increased by 50% over the same period.
Why Has Potential Financial Statements For the Period Price Changes Over Misleading?
During periods of inflation, asset values are recorded at acquisition cost less initially reflect its current value (the higher). Values of the assets yield lower assessed expenses lower and profits are valued more highly.
From the management point of view, this inaccuracy distorts:
1. To be based financial projections on historical time series of data
2. The budget is the basis of performance measurement
3. Performance data can not isolate the effect of inflation that can not be controlled
It creates a profit:
· An increase in the proportion of tax
· Request for more dividends of shareholders
· Request and pay higher wages than workers
· Actions that harm the host country (such as taxation of profits is very large)
And if the company has distributed its profits then most likely the company can not do the replacement of certain assets has increased the price due to lack of resources.
Financial statements are not adjusted to purchasing power will also affect the reader in interpreting the report and compare the performance of the company operation. If revenues are recorded in accordance with the present value of purchasing power, while the cost of purchasing power are recorded at historical earnings will make measurements inaccurate. Conventional accounting procedures also ignore the purchasing power gains and losses arising from the ownership of cash (or equivalent) during the period of inflation.
Explicit recognition of the effects of inflation needs to be done because:
1. The effect of price changes in part depend on the transaction and the circumstances facing the company. The user does not have complete information on these factors.
2. Manage the problems caused by price changes depend on an accurate understanding over the issue. Requires an accurate understanding of business performance reported in conditions that take into account the effect of price changes.
3. Reports from the manager about the problems caused by price changes more easy to believe when businesses publish financial information that addresses these problems.
Inflation Adjustment Types
Statistical series that measure changes in both general and specific price rates generally do not move in parallel. Any type of price changes have different effects on measures of financial position and operating performance of a company and caused by the different goals that are hidden.
General Price Level Adjustment
Currency amount to be adjusted to changes in the general price level (referred to as the power beli0 constant currency historical cost or equivalent general purchasing power. Amount of currency that has not been adjusted in such a manner is referred to as the nominal amount. For example, during periods of rising prices, long-lived assets reported in the balance sheet at acquisition cost initially expressed in nominal currency. If historical cost is allocated to the present period profit, revenue, which reflects the purchasing power now, matched with a cost that reflects the purchasing power (higher) than the previous period when the asset is purchased.
Inflation is a worldwide phenomenon that occurs in many developing countries, but trends in developed countries to adopt "inflation accounting" to correct the deviation from the conventional historical cost accounting that incorporates elements of price changes and inflation on income and assets.
A. Effect of inflation on the Company
Inflation affects the financial position and performance of a company, for example, managers can make decisions that are not operating efficiently if he does not understand influence inflation. In regard to the financial position, financial assets will decrease in value during inflation due to reduced purchasing power. Therefore, an alternative system of inflation accounting is introduced, the general purchasing power accounting and current value accounting.
B. Alternative Accounting Measurements
1. General Purchasing Power (General Accounting Purchasing Power)
General purchasing power accounting includes all systems designed to maintain the real purchasing power of capital owners to accounting for changes in price levels. The main philosophy is to report the assets, liabilities, income and expense in the monetary unit and the same purchasing power. According to the non-financial GPP in the financial statements be reassessed to reflect the purchasing power of a similarity or a common purchasing power generally at the end of the balance sheet date. As for the financial statements of assets and liabilities in the form of liquid assets typically are not adjusted for purchasing power stable in the period December 31, but other assets, revenues and expenses should be adjusted.
2. Current Value Accounting (Accounting Flows Current Value)
CVA covers all of the system to calculate the present value or change in the current special price includes cost accounting, accounting and the current replacement price accounting exit / selling price accounting. CVA associated with the rise and fall of the value of certain assets is not diminished purchasing power now, are not considered income.
There are two main approaches in the CVA. First, the current cost / replacement cost (replacement cost) is widely used in non-monetary assets valued asset that is what is sacrificed in his place. Second, the current exit price / selling price / net realiable value (Cost of Sales) assess the asset at the selling price less cost of sales complementary. CVA resulted in the holding gains and losses as non-financial asset be reassessed and more complex management.
3. Current Value: Accounting GPP
GPP and CVA are combined in the real value system.
C. IASB on Accounting for Changes in Rates and Inflation
The first thing shown IASC, or now called IASB regarding inflation accounting that emerged in 1977 in IAS 6, accounting responses to changes the price. At that point, there is no definitive standard both in the United States or in England, and there is uncertainty as to how inflation accounting problem can be solved in two states.
More definitive standard of inflation which does not appear, until in 1981 with the release of IAS 15, the Reflection Effect of Change in Price Information, which supersedes IAS 6. At that time, the FASB issued SFAS 33 on Financial Reporting and Changing Prices.
The main types following information reflects the impacts of price changes that are recommended for disclosure by IAS 15 as follows:
1. The number of adjustments for depreciation or the amount of the adjustment of property, plant and equipment.
2. Number or amount of adjustment for the adjustment of cost of goods sold.
3. Adjustments relating to financial items, the impact of borrowing, or ownership interest when the adjustment has been incorporated into account in determining income under the accounting method adopted.
4. The overall impact of the results or earnings of adjustment as the other items that reflect the impact of price changes are reported under the accounting method adopted.
5. When the current cost method is adopted, the cost now for property, plant and equipment and supplies.
6. The method adopted to calculate the information referred to in previous posts, including the nature of the index used.
It is important to make IAS 15 IAS 15 to recognize is that information needs to be disclosed, the impact of price changes and inflation, as well as provide specific guidelines to be followed by various companies to improve the quality of disclosure. The fact that the basic information from one country to another can be different, of course this is a problem, but obviously the accounting profession can not be adapted to the solution of the world.
D. Accounting Systems for the development of inflation in Britain, the United States and Continental Europe
1. English
Accounting profession introduced SSAP 16 (Statement of Standard Accounting Practice - 16), "Accounting for Costs Now" in 1980, which needs the financial statements present the cost accounting as well as additional reports and the main report. Provided that the historical cost reports must be provided. However, SSAP 16 was officially withdrawn in 1988 following the rejection rate of inflation and criticism of the business. At the same time, many companies to reevaluate periodically the land and buildings at their market value (estimated output or sales price).
2. United States
Regulations were first introduced to the legal prescribed by the SEC in 1976 (Accounting Series Release 1990) to reveal information replacement costs associated with depreciation, cost of goods sold, fixed assets and inventory. Furthermore, in 1979, the FASB issued SFAS No. 33 (Statement of Financial Accounting Standard - 33), entitled "Financial Reporting and Changing Prices".
3. Continental Europe
There is less enthusiasm for the introduction of accounting system for inflation, despite the official recommendations on the subject, for example, in France and Germany. In France in late 1970 when the re-evaluation is done using the government indexes are needed for all long-term assets and fixed assets. This re-evaluation has no impact on taxable income, such as the additional depreciation. In Sweden, there are no needs for accounting for inflation, but some special voluntary disclosure has been made.
E. Development of accounting systems in South America
In Brazil, accounting for inflation used in the early 1950s, but the new corporate law in 1976 to make adjustments, the company presents a re-account - an account of fixed assets and shareholders' equity by using a price index which is recognized by the government to measure the local currency devaluation.
In Argentina, accounting for inflation was introduced primarily through the initiative and the involvement of the accounting profession. 1972, issued a statement that recommends the publication of financial statements Additional GPP.
In Argentina, accounting for inflation was introduced primarily through the initiative and the involvement of the accounting profession. 1972, issued a statement that recommends the publication of financial statements Additional GPP.
F. Current Value Accounting (Accounting Present Value) in the Netherlands
In the Netherlands, people have been aware of the current accounting value (current value accounting) since long. Extensive education for accountants in business economics generate accounting philosophy that is focused to the value and costs now and with the principles and practices of business economics. Even though it is not necessary to use the accounting requirements of the current value (current value accounting), as primary or supplementary information, However there are several contributing factors to use.
There are two reasons why the focus on the Netherlands, although there is no requirement for current expenses or accounting GPP are:
1. Professor Theodore Limperg involving theory, which is often referred to as the father of the theory of exchange value because of the pioneering work in the Netherlands in 1920 and 1930. He focused on the strong relationship between economics and accounting, and trust that can not be searched without a revenue source to maintain the business income of a business continuity or continuous angle. Therefore, income is a function of income and the replacement value rather than historical cost. In addition, the Limperg maintain that the current information will be used by all management decision-makers as a shareholder.
2. Netherlands to learn from experience in large multinational companies, namely Philips, which was the forerunner of the financial statements present value. In fact, Philips first time using this approach in 1936 for the purpose of internal cost accounting in 1952 and introduced it into the main report for financial reporting purposes. But in 1992, the company decided to return to historical cost accounting and will improve communications to shareholders, with a simple accounting system and procedures used, and closer to international accounting practices. Even so, Philips is an interesting and valuable examples of practical applications in current value accounting. In the financial statements present value, using a Philips replacement value now along with the correlation process to reflect the degree to which there are additional advantages of financial assets from loans rather than equity capital. Under the accounting system of the present value, be it a trial balance and income statement be adjusted in certain circumstances lower business value (or values that can be achieved) is taken as the present value. For stock, the default value is determined at the beginning of the year. For changes in prices, the index developed by the purchase of assets for which a homogenous group and applied to the standard cost to produce a present value. Index-index prepared by three months or two months in a situation where inflation is more extreme. Present values are determined by the purchasing department for machining of fixed assets by department for the design specifications for specialized equipment, and the design of buildings and machinery for the building department of building. At inventory case, the index is typically used to update the current value of a group of similar assets. The addition (or subtraction) in value of inventories and fixed assets for a given price change is credited (debited) to the revaluation surplus account on the balance sheet compared to the income statement. Due to changes in current value is shown in the income statement as cost of goods sold is higher or lower (as a result of the addition or reduction in stock prices) and higher depreciation costs or lower.
As shown Brink (1992), Philips tends to several years to implement the replacement value accounting in a way that is far from conservative and design to enhance profits. Treatment on the reduction of inventories and the value of the correlation process in countries experiencing hyperinflation, as a particularly controversial example is quite separate from the accounting policy relating to foreign currency, goodwill and intangible assets in common.
As shown Brink (1992), Philips tends to several years to implement the replacement value accounting in a way that is far from conservative and design to enhance profits. Treatment on the reduction of inventories and the value of the correlation process in countries experiencing hyperinflation, as a particularly controversial example is quite separate from the accounting policy relating to foreign currency, goodwill and intangible assets in common.
G. Problems and Prospects
Existence of a significant level of inflation and price changes in many countries affect the need and usefulness of inflation accounting system that may remain will be the subject of much controversy in predicting the future.
Although the General Purchasing Power accounting (general purchasing power) has been used in several Latin American countries that inflation high, there are no examples of current cost accounting standards or regulations in the United Kingdom and the United States at the national level of the survivors of inflation accounting in mid-1989. Even so, some European companies to make voluntary disclosure of current value.
Controversy, it is still surrounds many aspects of current cost accounting, particularly with changes in the acquisition and maintenance of equipment and items of monetary damages. Other problems include the use of indexes, in particular additional abroad, and verification costs are now experiencing industrial companies with rapid technological change.
Provide a new interest in the Current Value Accounting or fair, it is expected there will be some further experiments on the variation of the type of accounting system changes in the price. And there is also the growth of the environmental assessment of alternative approaches which may or may not be done in the measurement of income and assets. Usefulness of the output or the selling price in the context of price changes, particularly with the value or property and investment, can also be assessed better. And there are also opportunities to use relevant information sources such as the cash flow.
Sources:
anice86.files.wordpress.com/.../slide-pelaporan-dan-pengungkapan-keuangan.ppt
pksm.mercubuana.ac.id
http://dedysuarjaya.blogspot.com/2010/09/akuntansi-internasional-untuk- perubahan_16.html
http://www.scribd.com/doc/17223640/320267625961047911
http://dedysuarjaya.blogspot.com/2010/09/akuntansi-internasional-untuk- perubahan_16.html
http://www.scribd.com/doc/17223640/320267625961047911
