1. Chapter 19: Issues in International Accounting Translation of foreign operations National accounting differences Anglo-American model Continental model International harmonization of accounting standards

2. Translation of Foreign Operations CAP issued two ARBs on the subject 4 43 APB issued APB Opinion No. 6 FASB has issued three SFASs No. 1 No. 8 No. 52

3. Exchange Rate Between Currencies of Different Countries Assumed to be the result of two factors: different nominal interest rates arising from differences in expected inflation rates occurring in different countries the ratio of the relative prices of a common “market basket” of goods and services Instability in foreign exchange rates that has the potential to create large translation gains and losses

4. Approaches to Translation U.S. dollar orientation Foreign currency orientation

5. SFAS No. 8 Consistent with the U.S. $ orientation Temporal method of translation was required: all balance sheet items that were carried at current or future exchange prices Foreign currency exposure Accounting exposure Economic exposure

6. SFAS No. 52 May 1978, FASB requested comments from constituents regarding the first twelve SFASs 88% of the comments received requested that the board reconsider SFAS No. 8 primary complaints about SFAS No. 8: exchange gains and losses are reported, when from an economic viewpoint the reverse had occurred Adopts a functional currency orientation rather than a U.S. dollar orientation

7. SFAS No. 52 Net income is measured in the foreign currency and then restated into dollars at the average exchange rate for the period Balance sheet items are translated at the current exchange rate at the end of the period Objective is to avoid reporting accounting exchange gains and losses when an economic gain or loss has not occurred foreign-currency-denominated operations as if they had occurred in U.S. dollars

8. Functional Currency Determination Cash flow indicators Sales price indicators Sales market indicators Expense indicators Financing indicators Intercompany transactions and arrangements indicators

9. National Accounting Differences Anglo-American model Continental model

10. Anglo-American model USA United Kingdom Canada Australia New Zealand

11. Continental Model France Germany Japan

12. International Harmonization of Accounting Standards IASC IFAC European Union United Nations OECD IOSCO

13. Chapter 19: Issues in International Accounting Translation of foreign operations National accounting differences Anglo-American model Continental model International harmonization of accounting standards