question archive Jubail University College Department of Business Administration Semester 431 Assignment 1 Section No: Course Name: Course Code: Student ID INTERNATIONAL ACCOUNTING ACCT 304 Student Name Group Discussion Topic: Contemporary concerns of Multinational Organisations Instructors: Zakiya Abdul Samad Discussions: Week 3 - 5 Report Submission Deadline: Week 6 Thursday Cover Page Instructions and steps for the assignment Objectives: This assignment aims to provide opportunity for the students to discuss their learning and critically evaluate contemporary issues in International Accounting Field
Jubail University College Department of Business Administration Semester 431 Assignment 1 Section No: Course Name: Course Code: Student ID INTERNATIONAL ACCOUNTING ACCT 304 Student Name Group Discussion Topic: Contemporary concerns of Multinational Organisations Instructors: Zakiya Abdul Samad Discussions: Week 3 - 5 Report Submission Deadline: Week 6 Thursday Cover Page Instructions and steps for the assignment Objectives: This assignment aims to provide opportunity for the students to discuss their learning and critically evaluate contemporary issues in International Accounting Field
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Jubail University College Department of Business Administration Semester 431 Assignment 1 Section No: Course Name: Course Code: Student ID INTERNATIONAL ACCOUNTING ACCT 304 Student Name Group Discussion Topic: Contemporary concerns of Multinational Organisations Instructors: Zakiya Abdul Samad Discussions: Week 3 - 5 Report Submission Deadline: Week 6 Thursday Cover Page Instructions and steps for the assignment Objectives: This assignment aims to provide opportunity for the students to discuss their learning and critically evaluate contemporary issues in International Accounting Field. It targets the course learning objective 4.1: Demonstrate effective communication skills consistent with the business and professional environment. . Instructions: • • • • • Each team should have 4 to 6 members. You will communicate with each other only virtually. (Blackboard) Each team will select one topic from the below list and discuss the issue on the discussion forum. At the end of the discussion week, the team will prepare a discussion report. a. Universal Accounting Standards: What are the advantages of having a single set of accounting standards used worldwide? What are some of the major problems caused by worldwide accounting diversity a multinational corporation? b. IFRS Vs GAAP: What are the differences that exist between IFRS and U.S. GAAP? Provide three examples of the differences in the recognition and measurement under IFRS. c. Hedging Currency Risks: What does hedging mean? Why do companies hedge foreign exchange risk? Under what conditions can hedge accounting be used to account for a foreign currency option used to hedge a forecasted foreign currency transaction? d. Foreign Risk Exposure: What factors create a balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure? e. Inflation Accounting: Why is it important that, in countries with high inflation, financial statements be adjusted for inflation? In what ways do International Financial Reporting Standards (IFRS) address the issue of accounting for changing prices (inflation)? f. International Tax: What are the mechanisms used by countries to provide relief from double taxation? Under what circumstances is it advantageous to take a deduction rather than a credit for taxes paid in a foreign country? g. Transfer Pricing: How can transfer pricing be used to reduce the amount of withholding taxes paid to a government on dividends remitted to a foreign stockholder? The team will then submit an experience and learning report before Thursday – Week 6 through the submission link on Blackboard. Format the report professionally and submit through Blackboard only as a .doc file. (no .pdf, .pages or any other format please). Plagiarized work will not be marked. The Report should have following headers: 1. Introduction: Introduce the topic and explain the questions, the purpose of the report and topics. 2. Discussion summary: Briefly Summarize the theme of your team topics, the points/ observations presented, the discussion points and the final agreement of the team. 1 3. Conclusion: Team conclusion about the learning and the experience from the assignment task. Conclude with at least three concluding points. Research and referencing are important. Please use APA style of referencing. 4. Team Member Contribution Table: a table indicating the extent of work done by each one of you. References and Appendix. Rubrics: Your assignment will be evaluated according to this Assignment Grading Criteria Criteria Report Content (60%) Group Dynamics (20%) Marking Points • Provides a sound introduction to the topic and previews major points. • Responses thoroughly cover the topic elements in a substantive manner. • Response demonstrates critical thinking and analysis. • Paper structure is clear and easy to follow. Ideas flow in a logical sequence. • The conclusion thoroughly reviews the major points. Writing Style, Grammar, APA • Teamwork Table is completed with details. • Discussion demonstrate a clear understanding of the key elements of assignment questions. Y/N Grade • Active discussion and involvement from all group member • Discussion spread over at least three days and about 2-3 meaningful discussion from each member • The tone is appropriate to the content and assignment. Individual • Demonstrated sufficient understanding of the Participation group topic (20%) • Played an important role in the discussion and responded well to team questions • Used examples and illustrations to clarify the topic • Participate sufficiently and spread the discussion to at least three days and a minimum of 3 posts. Total (100) Wish you the best of learning and Experience!! 2 - Start your Report from Here – 3
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Foreign Risk Exposure
Introduction
In today's most competitive business environment, major companies in the US, such as Amazon Inc. and Apple Inc., make strategic measures to penetrate foreign markets. As a result, these companies engage in foreign exchange risk exposure as they try to transact their businesses in foreign currencies. For instance, they receive most of their foreign payments in foreign currencies, thereby generating a foreign exchange gain or loss recorded in cash, a situation known as a transaction exposure or balance sheet exposure. This implies that their transactions will be either in a net liability or asset balance sheet exposures depending on the current value of the currency they translated in. Therefore, this report addresses the factors that create a translation (balance sheet) exposure to foreign exchange risks and how balance sheet exposure compares with the transaction exposure.
Discussion summary
Translation of foreign assets into the financial statement in the domestic currency is vital in completing the consolidation process of a company and in preparing the company's financial statement (Kim, 2016). Today, major companies in the US have subsidiaries in different countries across Europe and Asia. However, these companies provide their financial statements in local currencies to comply with GAAP regulatory requirements. As a result, they are forced to convert their foreign subsidiaries' financial statements into domestic currency financial statements. Therefore, one major factor that influences this transaction is the existence of an appropriate foreign exchange rate policy applied in all the items recorded in the financial statements of a foreign subsidiary company. The policy necessitates the valuation of foreign currency items in the US currency (dollar) in the form of a consolidated financial statement. Another factor is the treatment of translation adjustments where a foreign currency balance is effectively converted as per the current exchange rate (Kim, 2016). This can cause a devaluation of the dollar currency. Besides, foreign exchange losses and gains arise because of exchange rates and foreign currency exposures in foreign currency payables and receivables (Aizenman et al., 2017). More so, the reverse of currency applies where depreciation of the foreign currency will, on the other hand, bring about losses on the receivables and gains on the payables.
Balance sheet exposure compares with transaction exposure in that both of them involve the translation of currencies or assets of one country to another. Similarly, unlike balance sheet exposure, whose translation does not generate inflow and outflow of cash, transaction exposure's translation generates either gains or losses realized in terms of monetary value. Transaction exposure also affects cash movement and mainly arises when making a purchase or sale transactions involving diverse currencies (Jayashree et al., 2019). This is, however, not the case with balance sheet exposure that arises after consolidating a foreign subsidiary's results. The key driver for this exposure is legal requirements which tend to ask the parent company to consolidate financials. In terms of affiliation status, transaction exposure occurs if the parent company does not have any foreign affiliation with its foreign subsidiary company. Contrarily, the balance sheet exposure only arises when a parent company has to be consolidating the financials of a subsidiary or a foreign affiliate (Jayashree et al., 2019). In addition, a transaction exposure results in an actual cash flow impact, and it can significantly affect the company's value, whereas the balance sheet does not directly affect the company's value in terms of cash flow currency exposure. Lastly, unlike transaction exposure, where losses and gains to the cash flow are measured on account of forex movements, in balance sheet exposure, the measurements are solely based on measurement concept rather than dealing with the actual cash flow impact on account of forex (Madura, 2020). In this case, there is no tax exemption or even resultant benefits on losses due to balance sheet exposure.
Conclusion
In summary, understanding foreign exchange risk is paramount for any organization doing international business. This is simply because the currency's values are dynamic and can fluctuate against the dollar, thus resulting in income uncertainties for the organization's financial status. Therefore, one of the key strategies businesses can use to eliminate uncertainty in balance sheet exposure by locking in future exchange rates.
Group members contribution table
|
Group Member |
Area(s) Covered |
|
Member 1 |
Introduction in Foreign Risk Exposure |
|
Member 2 |
Factors that create a translation (balance sheet) exposure to foreign exchange risks |
|
Member 3 |
How does balance sheet exposure compares with the transaction exposure |
|
Member 4 |
How do balance sheet exposure compares with the transaction exposure and Conclusion section |
