INTERNATIONAL ACCOUNTING (The third task)

Nama   : Nurbani Ismei Daryani

Kelas   : 4EB12

NPM   : 20208922

7. INTERNATIONAL ACCOUNTING HARMONIZATION

Understand the differences in the harmonization and standardization policies in accounting standards.
Harmonization is a process to improve the compatibility (suitability) accounting practices by setting limits on how large these practices may vary. Harmonization of standards will be free of conflicts of logic and can improve the comparability (comparability) of financial information from different countries.

Efforts to harmonize accounting standards have been started long before the establishment of the International Accounting Standards Committee in 1973. More recently, a number of companies seeking to raise capital in markets outside the country of origin and the investors who seek to diversify their investments internationally face increasing problems as a result of national differences in terms of accounting, disclosure, and audit.

Sometimes people use the term harmonization and standardization as if both have the same meaning. However, contrary to the harmonization, standardization generally means the determination of a group of rigid rules and narrow and may even be the application of a single standard or rule in any situation. Standardization does not accommodate the differences between countries, and therefore more difficult to implementasion internationally. Harmonization is much more flexible and open, do not use one size fits all approach, but to accommodate some of the differences and have experienced great progress internationally in recent years.

DIFFERENCES BETWEEN HARMONIZATION AND STANDARDIZATION

Harmonization
- The process to improve the compatibility (kesesuian) accounting practices to determine the limits of how much these practices may vary
- Not using a one size fits all
- But accommodates be some agreement and has experienced great progress internationally in recent years
- Hamonisasi much more flexible and open
Standardization
- Determination of a group of rigid rules and narrow
- Application of a single standard or rule in any situation
- Standards do not accommodate the differences between countries
- More difficult for the international implementasion

Include the harmonization of accounting harmonization

1. Accounting standards (which relates to the measurement and disclosure
2. Disclosures made by public companies associated with the securities offering and listing on the stock exchange, and
3. Auditing standards

Advantage of international harmonization
• Languages
Those who use English as their mother may feel fortunate that English be the language that is widely used around the world.
• Harmonization of taxation's social security system

Profits. Businesses will experience great benefits cukuo in planning, systems and training costs, and so of harmonization.
Losses. Taxation and social security systems have a strong influence on economic efficiency. Different systems have different effects. The ability to compare how the different approaches in different countries led to the countries capable of increasing their respective systems. Countries competing and competition forced them to adopt an efficient system through the operation of such market power. Approval of the tax system would be like establishing a cartel and would eliminate the potential benefits of interstate competition.

PROS AND CONS HARMONIZATION OF INTERNATIONAL ACCOUNTING STANDARDS

Proponents say that the harmonization of international harmonization (even standardized) has many advantages. Sir Bryan Carsberg, former Secretary General of the IASC, written sometime in September 2000:

Cautious approach to analyze the desire for international harmonization shows that the costs and benefits vary from case to case. Those who use English as their mother may feel fortunate that English be the language that is widely used around the world. However, although it can be done, we can not obtain an agreement that the British or other common language should be used to replace the 6800 or so languages ​​currently used in the world. We recognize that language is the vehicle of an irreplaceable cultural and distinct culture that removal would cause huge losses in the field of literature and other cultural expressions.

What about the harmonization of taxation and social security systems? Businesses will have considerable benefits in planning, systems and training costs, and so of harmonization. But this case shows us that the harmonization of other losses.

Taxation and social security systems have a strong influence on economic efficiency. Different systems have different effects. The ability to compare how the different approaches in different countries led to the countries capable of increasing their respective systems. Countries competing and competition forced them to adopt an efficient system through the operation of such market power. Approval of the tax system would be like establishing a cartel and would eliminate the potential benefits of competition between countries.

A recent article also supports the existence of a "global GAAP" harmonized. Some of the benefits mentioned include:
1. Into global capital markets and investment capital can move across the world without any fuss. High-quality financial reporting standards that are used consistently throughout the world will improve the efficiency of capital allocation.
2. Investors can make better investment decisions; portfolio will be more diverse and less financial risk.
3. Companies can improve decision making strategies in the areas of mergers and acquisitions
4. The best ideas arising from the creation of standards activities can be deployed in developing high-quality global standard.

JOINT RECONCILIATION AND RECOGNITION (RECIPROCITY) DIFFERENCES ACCOUNTING STANDARDS

Two approaches are proposed as a solution to overcome the problems associated with cross-border financial report:
(1) Reconciliation
(2) Recognition of joint (referred to as the "payoff" / reciprocity)

Reconciliation lower cost when compared with the full financial statements based on different accounting principles. But only provides a summary, not a complete picture of the company.
Mutual recognition occurs when the regulator outside the country of origin to receive the financial statements of foreign companies which are based on the principles of country of origin. Payoff does not increase the cross-country comparisons of financial statements and can lead to "unequal playing field" which allows foreign companies to apply less stringent standards than those applied to domestic firms.

The debate over harmonization may never be fully resolved. Most companies are voluntarily adopting International Financial Reporting Standards (International Financial Reporting Standards-IFRS). And many countries have adopted IFRS as a whole.
International accounting standards are used as a result of:
(A) international agreements or political;
(B) Compliance is voluntary (or driven professionally);
(C) The decision by the national accounting standards-making body.

Efforts of other international standards in accounting is essentially voluntary. Those standards will be accepted or not depends on the people who use the accounting standards. Current international standards and national standards are not the same, do not be a problem, but when these two different standards, national standards should be the first reference (to have the advantage).

PROMOTER ORGANIZATION OF HARMONISATION OF INTERNATIONAL ACCOUNTING STANDARDS

International Organizations That Promote Harmonization and become a major player in the international accounting standard setting and in promoting international harmonization of accounting:
1) International Accounting Standard Board (IASB)
2) The Commission of the European Union (EU)
3) The International Organization of the Capital Market Commission (IOSCO)
4) The International Federation of Accountants (IFAC)
5) intergovernmental expert working group of the United Nations on the International Standard Accounting and Reporting, part of the United Nations conference on trade and development.
6) Working Group in the Accounting Standard Organisation of Economic cooperation and Development (OECD working group)

Also important is the International Federation of Stock Exchanges (FIBV) trade organization for securities and derivatives markets are organized around the world. One goal is to establish standards FIBV harmony to business processes in cross-border securities trading, including cross-border public offerings.

DESCRIBE A NEW APPROACH TO THE EUROPEAN UNION AND RELATE IT TO THE EUROPEAN FINANCIAL MARKET INTEGRATION.

The European Union (EU)
Treaty of Rome established the EU in 1957, with the aim to harmonize the legal and economic systems of its member countries. The EU goal is to Achieve integration of European financial markets.

International Federation of Accountants (IFAC)
IFAC is a world-class organization has 159 member That Organizations in 118 countries, representing more than 2.5 Million Accountants. Founded in 1957, IFAC's mission is to support the development of the Accountancy profession with harmonized standards so can Accountants That Provide consistently high quality services in the public interest.

The Intergovernmental Working Group of the United Nations expert in the International Standard for Accounting and Reporting Isar

Isar was formed in 1992 and is the only inter-governmental working group to discuss accounting and auditing at the corporate level. Isar is an early supporter of the environment reporting and a number of recent initiatives focused on corporate governance and accounting for small and medium sized companies.

Organization for Economic Cooperation and Development (OECD)
OECD is an international organization of industrialized countries developed market-oriented economy. With a membership consisting of the advanced industrial countries are larger, OECD opponents Often Becomes tanggh to other agencies (Such as the United Nations or the International Confederation of Free Trade Union) the which has a Tendency to perform acts Contrary to the interests of member

Source :

1. http://muhamadramdani17.wordpress.com/2011/02/27/harmonisasi-akuntansi-internasional/
2. http://alindamartha.blogspot.com/2011/02/harmonisasi-standar-akuntansi.html

8. INTERNATIONAL FINANCIAL ANALYSIS

UNDERSTANDING THE DIFFICULTIES OF INTERNATIONAL BUSINESS STRATEGY ANALYSIS AND BASIC STRATEGY FOR THE COLLECTION OF INFORMATION

Analysis of business strategy is an important first step in the analysis of financial statements. This analysis provides a qualitative understanding of the company and its competitors related to the economic environment. By identifying the drivers of profit and risk factor is the main business, business strategy or business analysis will help the analyst to make a realistic prediction.

The difficulties of analysis of international business strategy:
a. Availability of information
Analysis of business strategy particularly difficult in some countries due to lack andalnya information about macroeconomic developments. Obtain information about the industry is also very difficult in many countries and the number and quality of information companies are very different. Availability of specific information about the company is very low in developing countries. Lately, many large companies that keep records and raise capital in foreign markets and have expanded their disclosure voluntarily switch to accounting principles that are recognized globally as an international financial reporting standards.

b. Recommendations for analysis
Data limitations make the effort to analyze the business strategy by using traditional research methods to be difficult. Often frequent trips to study the local business climate and real bagaimanan industry and company operations, particularly in emerging market countries.

EXPLAINING STEPS ACCOUNTING ANALYSIS

The purpose of accounting analysis is to analyze the extent to which the company reported results reflect the economic reality. Analysts need to evaluate kebujakan and accounting estimates, and analyze the nature and flexibility lungkup accounting of a company. The managers of the company is allowed to make a lot of considerations related to the accounting, because they know more about the financial condition and operations of their companies. Reported earnings is often used as a basis for evaluating the performance of their management.
Step-langah in doing evalusai accounting quality of a company:
a) Identify the main accounting policies
b) Analyze the flexibility of accounting
c) Evaluate the accounting strategy
d) Evaluate the quality of disclosure
e) Indentifikasikanlah potential problems
f) Make adjustments for accounting distortions

UNDERSTANDING THE EFFECT OF THE ACCOUNTING ANALYSIS OF THE ACCOUNTING BETWEEN COUNTRIES AND THE DIFFICULTY IN OBTAINING THE NECESSARY INFORMATION

Analysts need to evaluate policies and accounting estimates, and analyze the nature and scope of a company's accounting flexibility. Effect on the measurement of quality of accounting, and auditing are very dramatic.

In obtaining the data of International Accounting, there are several difficulties, among others:
a. Depreciation adjustment
Depreciation will affect profits, it is necessary to consider the age of the functions that must be decided manajemen.b assets. LIFO to FIFO inventory adjustment
Inventories should be converted in FIFOc method. Reserve
Reserves are the company's ability to pay or cover expenses for removing beban.d. Reformulation of Financial Statements
Adjustment of some of the changes after a few calculations on the points above TSB.

RECOGNIZE THE MECHANISM TO RESOLVE DIFFERENCES BETWEEN STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
SEVERAL APPROACHES CAN BE DONE AS FOLLOWS:

- Some analysts present the foreign accounting resize according to a group of internationally recognized principles or according to other, more general basis.
- Some others develop a complete understanding of accounting practices in a particular group of countries and limited their analysis to firms located in these countries.

UNDERSTAND THE DIFFICULTIES AND WEAKNESSES IN INTERNATIONAL FINANCIAL STATEMENT ANALYSIS

a. Access to information
Information about thousands of companies from around the world have been widely available in recent years. Sources of information in countless numbers up through the World Wide Web (WWW). Companies in the world today have a website and annual report are available for free of charge from various other sources.
b. Timeliness of information
Timeliness of financial statements, annual reports, reports to regulators vary in each country.
c. Barriers of language and terminology.
d. Foreign currency issues.
e. Differences in the type and format of financial statements.

UNDERSTANDING HOW TO USE THE WWW FOR INFORMATION RESEARCH COMPANY

a. The majority of companies have their own Web site and the majority use their homepage to inform the financial statements, especially financial information, namely the principal balance sheets and profit and loss. Not much, less than 40% of companies that provide additional financial information (notes to financial statements, auditors opinions and analysis of management).
b. The majority of companies only provide information or partial duplication of hard copy reports of historical information which is converted in the form of hypertext or pdf format.
c. Not many companies that really take advantage of Internet features optimally. This is evident, less than 10% of the company that delivered the information about the stock movement. In addition, although the majority of the home page displays the press release, but less than 35% is to update the information displayed.
d. The majority of companies have used technology is quite advanced. This is evidenced by the speed of displaying the information (94%), the use of JAVA applications to enhance the appearance, the use of hyperlinks and external links in home page. In addition, the majority view (interface) of the sample firms are well structured.

Source :

1. AICPA, 1994 ‘Improving Business Reporting – A Customer Focus’ New York: Report of the AICPA Special Committee on Financial Reporting
2. Baldwin, A.A. & Williams, S.L.M., 1999 ‘The Future of Intelligent Internet Agents in European Financial Reporting’ The European Accounting Review, Vol. 8, Iss. 2, pp. 303 - 319
3. Choi, F.D.S., Frost, C.A., & Meck, G.K. 2002 ‘International Accounting’, 4th Ed., Pearson Education Ltd.
4. Choi, Frederick D.S., and Gerhard D. Mueller, 2005., Akuntansi Internasional – Buku 1, Edisi 5., Salemba Empat, Jakarta.
5. Choi, Frederick D.S., and Gerhard D. Mueller, 2005., Akuntansi Internasional – Buku 2, Edisi 5., Salemba Empat, Jakarta.
6. Pirchegger, B. & Wagenhofer, A., 1999 ‘Financial Information on The Internet: A Survey of The Homepages of Austrian Companies’ The European Accounting Review, Vol. 8, Iss. 2, pp. 383 – 395

9. MANAGEMENT PLANNING AND CONTROL

FOUR-DIMENSIONAL STATES IN THE MODELING BUSINESS

The latest survey found that management accountants spend more time in strategic planning issues than before. Determination of the business model of the big picture, and consists of the formulation, implementation and evaluation of long-term business plan of a company. It includes four main dimensions.

1. Identify the major factors relevant to the company's progress in the future.

2. Formulate an adequate technique to predict future developments and analyze the company's ability to adapt or take advantage of these developments.

3. Develop data sources for menditkung strategic choices.

4. Certain choices translate into a series of specific actions.

UNDERSTANDING THE DIFFERENCE BETWEEN STANDARD COST CONCEPT AND KAIZEN

Determining the standard cost system tries to minimize the variance between budgeted costs with actual costs. Kaizen Costing ynag stressed to do what is necessary to achieve the desired levels of performance in a competitive market conditions.

Returns from these two viewpoints may differ significantly because of several things:
1. Government restrictions on repatriation of profits and capital
2. License fees, royalties and other payments are income to the parent company but is a burden for subsidiaries
3. Differences in national inflation rate
4. Changes in foreign exchange rates
5. Differences in tax

MEASURE ESTIMATES THE RETURN OF FOREIGN INVESTMENT

The decision to invest abroad is a very important element in the global strategy of a multinational company. Foreign direct investment generally involves a large number of modaldan prospects uncertain. Investment risk, followed by the foreign environment, complex and constantly changing. Formal planning is a must and is generally performed in a capital budgeting framework that compares the benefits and costs of the proposed investment.

In the international environment, investment planning is not as simple as that. Differences in tax law, accounting systems, the rate of inflation, the risk of nationalization, currency framework, market segmentation, restrictions on the transfer of retained earnings, and differences in language and culture adds to the complexity of elements that are rarely found in domestic environments. The difficulty for the quantification of these data make existing problems worse.

UNDERSTANDING THE PROCESS OF CALCULATING THE CAPITAL COSTS OF MULTINATIONAL COMPANIES

If foreign investment is evaluated by using a discounted cash flow models, the appropriate discount rate should be developed. The theory of capital budgeting in particular using cost of capital as the level diskontonya, thus a project must generate returns at least equal to the cost of capital in order to be acceptable. The level of the benchmark (hurdle rate) is related to the proportion of debt and equity in the company's financial structure as follows.

It is not easy to measure the cost of capital of a multinational company. The cost of equity capital can be calculated in several ways. One popular method that combines the expectations of return on the dividend by the dividend growth rate expectations. Although capital is to measure the price of the shares present, in most countries where shares of listed multinational companies, is often quite difficult to measure in and g. In the first place because of the expectations.

Expected dividend depends on the company's operating cash flow as a whole. Measuring the cash flow is complicated by the consideration of environmental factors. Moreover measurement of the dividend growth rate a function of expectations of future cash flows is complicated by the exchange control and other pemerntah restrictions in cross-border transfer of funds.

UNDERSTAND THE PROBLEMS AND COMPLEXITIES IN DESIGNING INFORMATION SYSTEMS AND FINANCIAL CONTROL OF MULTINATIONAL CORPORATIONS

Management accountants to prepare some information for the management of companies, ranging from data collection to reporting of liquidity and operational forecasts of the various types of expenditure weights. For each group of data submitted by the company management should determine the relevant time period for the report, the level of accuracy required, the frequency of reporting and the costs and benefits of depreciation and timely delivery.
Here also the environmental factors affecting the use of information in translational dihasilakn. Reports from overseas operations multinasioanal perusaaan U.S. generally translated into an equivalent value doalr that managers at the headquarters of the U.S. to evaluate their investment in dollars.

Information Management and hyperinflation
In an environment of high inflation, financial statements prepared in accordance with FAS 52 tends to cause destorsi reality through:
a. Rate is more or less rate of income and expenses
b. Reported a gain or loss on the translation of the which is difficult, to interpret
c. Distort the intertemporal comparison of performance.

Issues in Financial Control
Financial control system is a quantitative measurement and communication systems facilitate the control melelui That:
1. Financial goals are Appropriate communication within the organization
2. Refine the criteria and standards in the performance evaluation
3. Monitor performance
4. Communicate Between the deviation of actual performance and a plan to the Responsible Party

Domestic Versus Multinational Control Systems
Numerous studies have shown That the system used by many multinational companies to control its foreign operations in many ways similar to Those used domestically. Parts of the System Generally the which is sent out a budget That includes financial controls and a Tendency to apply the same standard was developed to evaluate That the domestic operations.

Operational Budgeting
Gains and losses from foreign currency translation is not Considered at the time of surgery was evaluated in the local currency. A comparable exchange rate can be used to track the relative performance against the budget. If the combination of different exchange rates used to prepare the budget and to track performance, this will cause differences in the allocation of responsibility for exchange rate changes and lead to the possibility of different management responses. Some possibilities are as follows:
A. Budgets and tracking performance based on the initial spot rate
2. Budget at the end of the exchange rate and tracking based on the closing exchange rate
3. Budgeting based on the initial rate and tracking based on the closing exchange rate
4. Budgets and tracking performance using the exchange rate projections
5. Budget based on the exchange rate projections and tracking based on the closing exchange rate

Determinants of Strategic Cost
The concept of strategic cost determination introduced by the Japanese is the determination of cost behavior. In determining the cost of the process, the overhead is applied to the goods or services by using a routine application of overhead rates. From the standpoint of traditional cost accounting, overhead manufaktr allocated to products on the basis of causation.

Consistency
The results showed That the main purpose of performance evaluation is to Ensure profitability. However, there is potential for conflict if the performance evaluation system does not correspond to the specific nature of foreign operations may have different goals That than short-term profits. Emphasis on short-term profitability and efficiency in diverting the attention of corporate strategy and an Important manufacturing and negate the company's employees.

Performance Criteria
In an evaluation study by the International Business before, both U.S. and non-MNCs from the U.S. That states the WHO studied the most crucial financial criteria used to evaluate the performance of foreign income units are budgeted versus actual income, Followed by ROI. Which is Considered the most Important is the budgeted sales versus actual sales, return on sales, return on assets, return on investment versua actual and budgeted operating cash flow.

Issues of Measurement and Evaluation of Changes in Price in
Designer Sitem evaluation for overseas operations also have to deal with issues of accounting measurement. Repeated presentation will directly affect the measurement of Various components of the ROI and performance statistics for evaluation and performance budgeting.

Evaluation of Practice Performance: ICI
ICI divides performance measures into two categories: long-term and short term. Cash flow generated by the product and long-term ROI is a measure of the primary. With a measure of cash flow, ICI sought to determine whether a product will generate enough to pay Cash plant replacement, parts for the company's costs and generate profits sufficient to characterize realistic growth.

Effect of Foreign Currency
Economic influences fostered by exchange rate changes on performance can be seen through Greater Than That of accounting measures alone. To be Able to more fully analyze the effects of inflation and currency volatility and Strengthen Their ability to React, companies need to conduct a competitive market share analysis and the influence of changes in the currency against the costs and revenues and to competition.

Performance Standards
A company may already have some standards in a corporate environment, Such as the minimum required level of ROI That APPLIES to its own subsidiaries or to its product line, or the company may specify different levels of ROI or other reference to the child or the Integration of different product lines. These standards can be incorporated into the budget and can then be compared with the results Achieved. Performance can also be Measured intertemporal. Companies can Establish an official increase of in specific ratios or earnings. Past performance is usually significantly used to the make the next budget period. Finally, companies can compare with the performance of Their Own performance of its foreign competitors, or compare Themselves with one unit to another unit.

Source of: Federick D.S Choi and Gary K. Meek. , 2005. International accounting. The fifth edition. jakarta - Salemba four.

10. FINANCIAL RISK MANAGEMENT

It Fundamental

The main objective of financial risk management is to minimize the potential loss arising from unexpected changes in currency rates, credit, commodities and equities. The risk of price volatility faced is known as market risk. There is market risk in various forms. Although the focus of the volatility of prices or rates, management accountants need to consider other risks such as:
1. Liquidity risk arises because not all financial risk management products can be traded freely.
2. Market discontinuity refers to the risk that the market does not always lead to price changes gradually.
3. Credit risk is the possibility that the other party in contract management resikotidak can meet its obligations.
4. Regulatory risk is the risk arising from public authorities banned the use of a financial product for a particular purpose.
5. Tax risk is the risk that certain hedging transactions can not obtain the desired tax treatment.
6. Accounting risk is the chance that a hedging transaction can not be recorded as part of a transaction that seeks to protect the value.

Why Manage Financial Risk?
The growth of risk management services that quickly shows that management can enhance shareholder value by controlling the financial risk. If the company equal the present value of future cash flows, active management of potential risks can be justified in a number of reasons. Stable earnings reduce the probability of default and bankruptcy risk or the risk that profits may not be able to cover contractual debt service.

The Role of Accounting
Management accounting plays an important role in the risk management process. They assist in the identification of market exposure, quantified the balance associated with alternative risk response strategies, measure the potential risks facing the company against certain, noting certain hedging products and evaluate the effectiveness of the hedging program.

Identification of Market Risk
The basic framework is useful for identifying different types of market risk could potentially be referred to as risk mapping.

Balancing quantify
The role played by accountants in the process of risk management involves balancing the quantification process relating to the alternative risk response strategies. Leih management may prefer to maintain some of the risks involved rather than have to do when the cost of hedging the perceived risk protection higher than the benefits.

Risk Management in the World with a Floating Exchange Rate
In a world of floating exchange rates, risk management include:
1. Anticipation of exchange rate movements
2. Measurement of exchange rate risk faced by companies
3. The design of an adequate protection strategy
4. Preparation of internal risk management control

Forecasting the exchange rate changes
In developing the program exchange rate risk management, financial managers must have information about the possible direction, time, and magnetudo changes in exchange rates. Aware of the previous exchange rate outlook, financial management can develop adequate defensive measures with a more efficient and effective. However, is it possible to predict accurately the movement of currency remains a problem.

If the exchange rate forecasting is not possible or too expensive to do, then the manager
finance and accounting have to adjust their corporate problems in such a way as to minimize the adverse effect of exchange rate changes. This process is known as the management of potential risks.

Management of Potential Risks
Potential for foreign exchange risk arises when the foreign exchange rate changes also change the net asset value, earnings and cash flows of the company.

Potential Risk of Translation
Translational gauge potential risk of exchange rate changes impact on the domestic currency equivalent value of assets and liabilities denominated in foreign currency held by the company.

Protection Strategy
These strategies include:
1. Balance sheet hedging
2. Operational hedging
3. Contractual hedging

Strategies for Hedging Products
Product contractual hedge is a contract or financial instrument that allows the user to minimize, eliminate, or at least divert the market risk on the shoulders of others.

Forward Foreign Currency Contracts
Currency forward contract is an agreement to send or receive a certain amount of currency is exchanged for domestic currency, at a date in the future, based on fixed exchange rates are referred to as the forward exchange rate.

Future of Finance
A financial futures contract has properties similar to a forward contract. As a case of forward, futures are commitments to buy or deliver a series of foreign currency at a specified future date at a price that has been specified.

Currency Options
Currency option entitles the buyer to buy or sell a currency based on the seller's specified price on or before the specified expiration date. European type options can be exercised only on expiration date.

Currency Swap
Currency swap involves an exchange of present and future of two different currencies based on a pre-determined exchange rate. Currency swaps allow companies to gain access to capital markets can not be obtained before access to a relatively low cost. Swap is also possible for companies to hedge against exchange rate risks arising from international business activities.

Accounting Treatment
FASB issued FAS No.. FAS 133 is clarified through 149 in April 2003, transform and provide a single approach that kompherensif on accounting for derivatives and hedging transactions. No IFRS. 39 contains the newly revised guidelines for the first time provide universal guidance on accounting for financial derivatives. Before the two standards made global accounting standards for the products of incomplete and inconsistent developed gradually.

Practice Issues
Although the guiding rules issued by the FASB and IASB have a lot to clarify the recognition and measurement of derivatives, there are still some problems. The first relates to the determination of fair value. Wallance says there are 64 possible calculations to measure the change in fair value of the risk being protected and the value of hedging instruments.

Speculate in Foreign Currencies
Accounting treatment for foreign currency instruments to be discussed is similar to treatment for forward contracts. The accounting treatment described here is based on the nature of the hedging activities is whether the company's commitment to protect the value of derivatives, the transaction will occur, the net investment in foreign operations, and so forth.

Disclosure
Analyzing the potential impact of derivative contracts are reported on the performance and characteristics of the rumor of a company is difficult. Disclosures required by FAS 133 and IAS 39 has more or less solved this problem.

Disclosure, among others:
1. Objectives and risk management strategies for hedging transactions
2. Description of the items hedged
3. Identification of the market risk of the posts which the hedged item
4. Description of the hedging instrument
5. Amount not included in the assessment of hedge effectiveness
6. Initial justification that the hedging relationship will be very effective to minimize the risk of market
7. Runs on hedge effectiveness assessment of the actual value of all derivatives that are used during the period

The finer points of Financial Control
Performance evaluation system proved useful in various sectors. These sectors include but are not limited to the corporate treasury, purchasing and overseas subsidiaries. Control of the treasury company-wide performance measurement program include exchange rate risk management, hedging is used to identify and report the results of the hedge. The evaluation system also includes documentation on how and to what extent the company tresury help other business units within the organization.

Proper reference
The object of risk management is to achieve a balance between risk and cost reduction. Thus the proper standard by which to judge the actual performance is a necessary part of any performance appraisal system. This should make clear reference section at the beginning before the creation and protection program should be based on the concept of opportunity cost.

Reporting System
Financial risk reporting system should be able to reconcile the internal and external reporting systems. Risk management activities have a future orientation. But in the end they have to reconcile with the measurement of the potential risks and financial accounts for external reporting purposes.

Source of: Federick D. Choi S and Gary K. Meek. , 2005. International accounting. The fifth edition. jakarta - Salemba four.

11. TRANSFER PRICING AND TAXATION INTERNATIONAL

Early concept
The complexity of the laws and rules that determine the tax for foreign companies and the profits generated abroad actually derived from some basic concepts. This concept includes the term:
1. Neutralists tax means the tax has no effect on resource allocation decisions
2. Tax equity, meaning taxpayers who are facing similar situations should pay similar taxes the same but there are disagreements between how to interpret this concept.

Diversity of the National Tax System
Effective management requires an understanding of the potential tax on the national tax system is very different from one country to another.
Various Kinds of taxes
Five kinds of taxes, namely:
1. Corporate income tax
2. Tax levy
3. Value added tax
4. Border tax
5. Transfer tax


Tax Burden
As more and more companies are reducing the marginal corporate tax rate, many states are expanding the tax base of the company. In the real world is rarely effective tax rate equal to the nominal tax rate. Thus it is inappropriate to base the comparison between countries on tax rates must be. Besides low tax rate does not necessarily mean a lower tax burden. Internationally, the tax burden must always be determined by observing the effective tax rate.

Tax Administration System
For simplicity there are two systems, namely:
1. Classical system
2. Integrated system

Foreign tax incentives
Many states offer tax incentives to attract foreign investment. Incentives may include tax-free cash grants are used for the cost of fixed assets of new industrial processes or remission of taxes to pay for some period of time.
Tax competencies that are Hazardous
Diseluh world trends that lead to a reduction in corporate income tax rate is the direct impact of tax competition. The competition is conducted by a tax haven country would benefit if it can make government more efficient. While the harmful effects if the transfer tax revenue for governments that actually requires these revenues to provide services required by businesses.
Taxation Of Income From Foreign Sources and Double Taxation
Most countries apply the principle of the world and impose taxes on profits or income of companies and citizens in it, regardless of the country. The underlying idea is that a foreign subsidiary of a local company is a local company that happens to operate overseas.

Foreign Tax Credit
Foreign tax credit can be counted as a direct credit on income tax paid on earnings branch or subsidiary and any tax withheld at source such as dividends, interest, and royalties are sent back to domestic investors. The tax credit can also in the estimate if the amount of foreign income tax paid is not too clear.

Tax Credit Restrictions
Foreign tax credit limitation applies separately to U.S. tax on foreign source income tax for each of the following types of income:
1. Passive income
2. Financial services revenue
3. Income levy high taxes
4. Transportation revenue
5. Dividend for each of the foreign company with a share of ownership by 10% to 50%

Tax Treaty
Tax treaties affect the tax levy on dividends, interest and royalties paid by companies in the country to foreign shareholders. These agreements typically provide a reciprocal reduction of tax levies on dividends and royalties are often exempt from taxes and interest charges.
Consideration of Foreign Currencies
Gains or losses in foreign currencies are generally located between U.S. sources and foreign sources with reference to the domicile of the taxpayer in its accounting books reflect the assets or liabilities in currencies asing. Source gain or loss is the United States.

Dimensions Tax Planning
Observations on the issue of tax planning starts with two basic things:
1. Tax considerations should never have control of the business strategy
2. Constant changes in tax laws limit the tax benefit in the long-term planning

Organizational Considerations
If the overseas operations initially predicted to cause harm may be advantageous if the taxes are organized in a branch at an early stage. If the subsidiary is organized in a tax haven country that does not tax at all, then the tax deferral will increasingly look attractive.

Controlled Foreign Company Profits And Subdivision F
United States to close the hole this weakness with a controlled foreign company and the provision of income Subdivision F. Profit Subdivision F includes several sales and services revenue associated with the special.

Parent Company Abroad
Parent company concerning taxes, among others:
1. Maintaining the benefits of the tax rate levies on dividends, interest, royalties, and other similar payments.
2. Defer U.S. taxes on overseas profits until those profits repatriated to the U.S. parent company (ie to reinvest these earnings outside the country)
3. Defer U.S. taxes on gains from the sale of shares of subsidiaries of foreign operations

Overseas Sales Company
United States created the company's overseas sales of FSC to encourage exports and improve the U.S. balance of payments position continued to deteriorate. Under the FSC provisions of U.S. export earnings in part by FASC exempted by the U.S. income tax.
Funding decisions
As shown by the following diagram of affiliates of foreign funding can also be used to shift profits from high-tax state with the location of the parent company or companies afiliasike state that low tax jurisdictions where affiliates who provide funding.


Merger Tax Credit
The combined profit of the many possible sources of excess credits generated from countries with high tax rates to reduce the income received from areas with low tax rates. excess tax credit can be extended for taxes paid relating to dividends distributed by foreign companies second and third tier in a multinational network.

Allocation of Cost Accounting
Internal cost allocation between the companies was another means to shift profits from high tax countries to low tax countries. The most common is the allocation of corporate overhead expenses to affiliates in countries with high taxes.

Location and Transfer Pricing
Location of production and distribution systems also offer tax advantages. Profit for the company as a whole system can be improved by determining the transfer price is high for the components were shipped from subsidiaries in countries with relatively low tax rates and low transfer rates of components are shipped from our subsidiaries located in countries with a relatively high tax rates.

Transfer Pricing International: A COMPLEX VARIABLE
Transfer pricing is anything new lately arise. Transfer pricing in the United States evolved along with the decentralization movement that influenced many American businesses during the first half of the 20th century. Once the company expands internationally transfer pricing issues are also expanding rapidly. There are factors such as:
1. Tax factor
2. Factor Tariff
3. Competitiveness Factors
4. Job Evaluation factors


Transfer Pricing Methodology
In a world with a highly competitive market, there will be a big deal when they wanted to transfer pricing resources and services between companies. Transfer pricing can be based on the difference in cost increases or market price. Environmental influences on transfer pricing also raises several questions regarding the pricing methodology.

Price Versus Cost Versus
Cost-based transfer pricing system can overcome this deficiency. After all this is simple untukdigunakan system, based on data readily available, easy to explain to the tax authorities, it is routinely carried out so as to avoid occurrence of internal friction that often occurs when the system arbiter is used.
Cost-based systems rely too much on historical costs that ignores the relationship of demand and supply on a competitive basis and does not allocate costs to products or services in a satisfactory manner. Problem of determining the costs are felt in the international level because of these cost accounting concepts are from country to country.

Principle of Fair
OECD identifies some broader meode to ensure a fair price is. Method are:
1. Uncontrolled price method is equivalent
2. Uncontrolled transaction method is equivalent
3. Resale price method
4. Cost plus method
5. Comparable profits method
6. Method of income splitting

Future
Each state will impose a tax on most income tax rates are deemed appropriate. Clearly the future of taxation faced many changes and challenges.

Source of: Federick D. Choi S and Gary K. Meek. , 2005. International accounting. The fifth edition. jakarta - Salemba four.

INTERNATIONAL ACCOUNTING (The Second Task)

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.

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.

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.

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.

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.

3. FINANCIAL REPORTING AND 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.

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.

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.

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