The accounting and financial issues related to foreign direct investment are the conversion of foreign GAAP to domestic GAAP, translation of statements kept in foreign currency to domestic currency so as to prepare a consolidated financial statement and make required supplementary disclosures of the subsidiary operations. There are two issues of taxes that relate to foreign direct investment. First, the company is taxed in the foreign country where the subsidiary is located. Second, the domestic tax department will also tax foreign income. The company should calculate, pay, and subtract the amount of tax paid by a foreign subsidiary. This allows it to determine the amount payable to the domestic tax department.
In evaluating the performance of managers of the subsidiary, the head office will make two decisions. First, it will decide whether the managers will be evaluated according to the financial statement prepared in foreign or domestic currency. Second, it will decide whether variables that are out of the control of subsidiary will be factored.
Transfer price is the price that the head office will charge subsidiary for the sale of its inventory. The price charged affects the tax payable to foreign and domestic tax departments because it affects taxable income of head office and subsidiary. Transfer price charged should meet IRS sec 482. The acceptable transfer price should equate the price that could have been charged to an unrelated party (Mckinley & john, 1).
In carrying out an international audit, the auditors will be required to visit the foreign subsidiary and ascertain the truth of financial recorded forwarded to head office. They auditors should also examine whether an adequate provision of foreign exchange risks has been made.
The company will qualify for cross-listing after meeting the requirements provided for any company in both countries security markets. The company will be required to provide financial statement according to accounting policies of each country it wishes to list its shares. Then it will file required financial reports.
References
MCKINLEY, and JOHN OWSLEY. "Transfer Pricing and Its Effect on Financial Reporting."
