Part one
U.S president purchases a Mercedes Benz C230
Mercedes is made in Germany therefore it will have to be imported to the United States. This is a debit in the balance of payment account. Importing the Mercedes is a transfer of good meaning the current account will be the one to be affected.
U.S resident purchases Chevrolet Impala
Chevrolet is a U.S based firm. Therefore, this is a no entry to the country’s balance of payment statement.
Foreigner purchases GE dryer
GE is a company based in U.S. The country has to export GE dryer to the foreigner leading to a credit entry in the balance of payment. Export is a transfer of goods, and thus, the credit account will be the one to be affected
U.S resident purchases UK stock
This is an oversee investment that is made by U.S residents hence a debit in the balance of payment. As this is a transfer of financial assets, the capital account will be affected.
U.S resident borrows funds from British broker to purchase stock
In this case, funds are being borrowed by a resident of U.S from overseas which is a credit to the balance of payment. The current account will be affected as this is a transfer of money.
Part two
Question one
The direction that is taken on revenue acknowledgment is broader in US GAAP than it is in IFRS. For every investor, it is important to look at the two key frameworks of accounting when they are doing their analysis. GAAP has been utilized widely in the United States, but the Security Commission has had hopes of changing to IFRS since 2015. The framework has been utilized as a European Union part as well as numerous other countries. Every country has its accounting framework that it uses. The IFRS accounting framework was constructed and adopted by many nations for the world organizations to apply the same framework to assist agents and investors around the globe understand financial circumstance of organizations that they invested their resources or stretched out credit to. Therefore, at theoretical levels, the IFRS is viewed as a “principal based” accounting standard when compared to U.S GAAP as it viewed as “guidelines based.” As a result of being “principal based,” the IFRS catches financial aspects of exchange superior to anything U.S. GAAP.
H&M is the second largest retailer, and it has watched a significant enlargement by approximately 11%. Nevertheless, its global vicinity, the firm has been listed on the Stockholm exchange in Sweden and hence uses the IFRS, which has been acknowledged by the European Union. This is mainly to enable them to show their financial statements both in English and Swedish. Among the three organizations, H&M, Gap, and Inditex, have distinctive surroundings due to the standard method that is adopted by each of them. The distinctions bring notable changes to an organization's accounting results. Meaning that credible results in IFRS will not look repulsive under GAAP.
Question two
It becomes impervious to see how some ecological factors can shape revelation standards and accounting with a specified end objective of anticipating advancements towards harmonization of endeavors. One of the factors includes; the reason as to why economic ties change every time is due to globalization. Appropriations that exist in the accounting standards give a venue where all the factors can be linked with advancements in accounting. H&M warrants that reviews done inside their organization are involved with auditing financial issues as well as the inner arrangement of the organization. The part of consistency that the organization should maintain when it comes to laws and regulations impacts the practices and standards of accounting used by an organization . The going concern suspicion and financial report statements of an organization are supposed to agree with the genuine financial statements of the organization. So, the H&M accounting standards are most likely going to be affected by conservatism concepts.
Part three
The CFO of H&M will be to expose to the fact that recognition of cash on the balance sheets that will be prepared will be different under IFRS that it is under Swedish GAAP. Use of IFRS leads to different results when it comes to net income got at the end of an organization’s financial period. However, use of IFRS in the reporting financial statements aligns the country closely with US GAAP.
Some of the hedging strategies that may offset the exposure include the use of financial contracts and operational techniques (DeCovny & Tacchi, 1991). Under financial contracts, future contracts, options contracts, or borrowing or investing in local markets can be used. When it comes to operational techniques, geographical diversification which is also known as spreading the risk can be applied. Forward contracts are the foreign exchange contracts that are offered in the markets by maker banks. They allow global organizations to lock in a home currency that is equivalent to some contractual foreign cash flow. The contracts are applied when offsetting exposure of foreign exchange that results from initial financial or commercial transaction.
References
Yip, R. W., & Young, D. (2012). Does mandatory IFRS adoption improve information comparability? The Accounting Review, 1767-1789.
DeCovny, S. & Tacchi, C. (1991). Hedging strategies. New York: Woodhead-Faulkner.
