HARMONIZATION OF INTERNATIONAL ACCOUNTING
Harmonization is a process to improve the compatibility (suitability) accounting practices by setting limits on how large these practices may vary. International accounting harmonization is now one of the most important issues faced by the makers of accounting standards, capital market regulators, stock exchanges, and those who prepare or use financial statements.
Harmonization and standardization of the term as if it has the same meaning. In general, standardization means that the determination of a group of rigid rules and narrow even possible application of a single standard or rule in any situation. Standardization does not accommodate differences between countries, and therefore more difficult to be implemented internationally.
While harmonization is more flexible and open, do not use one size fits all approach, but to accommodate some of the differences and has undergone major advances internationally in recent years.Alpha Comparability of financial information is a concept that is more clear than harmonize. Financial information generated from the system of accounting, disclosure, or auditing can be different than if you have similarities in the way in which users can compare the financial statements (at least in some aspects) without the need to familiarize themselves with more than one system.
Harmonization of accounting include:
- Harmonization of accounting standards for measurement and related disclosures,
- Harmonization of disclosure will be made by public companies, related to the securities offering and listing on the stock exchange, and
- Harmonization of standards for audit
Supporting the International Harmonization
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:
- 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.
- Investors can make better investment decisions; portfolio will be more diverse and less financial risk.
- Companies can improve decision making strategies in the areas of mergers and acquisitions
The best 4.Gagasan arising from the creation of standards activities can be deployed in developing high-quality global standard.
Determining the history of the International Accounting Standards
Beginning in 1971 (before the establishment of IASC), some argue that the determination of international standards is a very simple solution for complex problems. Also stated that the accounting, the social sciences, has had the flexibility that is built up by itself in it and the ability to adjust to a very different situation is one of its most important values. At the international standards of doubt can be flexible to overcome differences in background, tradition, social and economic environment, some people argue that this will be a challenge politically unacceptable to national sovereignty.
Some other observers say that the international accounting standard-setting is essentially a tactic of the accounting firm that provides international accounting services to expand the market. Furthermore, it feared that the adoption of international standards will lead to “standards overload.” Companies have to respond to pressure the composition of national, social, political, and economic growing and increasingly prepared to meet the additional international regulations are complicated and costly. Related argument is the concern of national politics often influence of accounting standards and that influence international politics will again lead to the inevitable compromise of accounting standards.
Two approaches are proposed as a solution to overcome the problems associated with cross-border financial report:
- Mutual recognition (which is 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:
- International treaties or political;
- Kepatuhan voluntarily (or driven professionally);
- 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).
International Organizations That Promote Harmonization
Six organizations have become a major player in the international accounting standard setting and in promoting international harmonization of accounting:
- Agency for International Accounting Standard Board (IASB)
- Commission of the European Union (EU)
- International Organization of the Capital Market Commission (IOSCO)
- International Federation of Accountants (IFAC)
- 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.
- Accounting standards working group within the Organization 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.
Agency for International Accounting Standard
Agency for International Accounting Standards Board (IASB) formerly IASC, is a standards-making body that is independent of the private sector which was founded in 1973 by professional accounting organizations in nine countries and restructured in 2001. Before the restructuring of the IASC issued 41 International Accounting Standards (IAS) and a basic framework for the preparation and presentation of financial statements.
IASB objectives are:
- To develop in the public interest, a set of global accounting standards are of high quality, understandable and can be applied which requires high quality information, transparent, and comparable in the financial statements and other financial reporting to help participants in capital markets and other users in making economic decisions.
- to encourage the use and application of these standards are strict.
- to bring the convergence of national accounting standards and international accounting standards and International Financial Reporting standards towards high quality solutions.
IASB represents accounting organizations from some 100 countries. With such a wide base of support, the IASB is the driving force in the determination of accounting standards.
Structure of the IASB’s New
IASB Council establish a working group to consider how the strategy should have a strategy and structure of the IASC after completing the program of work of this standard. On November 1999 the IASC board unanimously approved a resolution supporting the proposed new structure is essentially:
- The IASC will be established as an independent organization
- The organization will consist of two main parts, the Trust and the Council, and committee and advisory interpretation remains the standard
- The Trust will appoint board members, conduct surveillance and gather the necessary funds, while the board has sole responsibility for the determination of accounting standards
Restructured IASB met for the first time in April 2001. IASB, after the reorganized entity will include the following:
- Guardian Agency. Trustee body lift IASB board members, international financial reporting interpretations committee and the advisory board of standards. The Trust is responsible for collecting funds and to monitor and evaluate the priorities and operation of the IASB.
- Council IASB. Council to establish and improve standards of financial accounting and reporting efforts. Responsibilities include “meet the responsibility for all IASB technical permasahalan including the preparation and publication of the International Accounting Standard, International Financial Reporting Standards, and the Draft Standard … as well as final approval of the interpretations issued by the Financial Reporting Interpretation Committee.” And approve project proposals and methods and procedures to develop the standard. Council appointed by the Mayor to give “the best available combination of technical expertise and background of international business experience and relevant market conditions”. The members are appointed for a period of five years, and can be renewed only once.
- Standard Advisory Council. Standard advisory board appointed by the trustees, who have professional backgrounds and different geographical, appointed for a three-year renewable “. Standard Advisory Council generally meets three times each year. Responsibilities is to advise the board on the agenda and priorities, to provide views on the council “organization and individual in the determination of the board of the primary standard for the project” and to provide “other counsel” to the board and trusts.
- International Financial Reporting Interpretation Committee (IFRIC). IFRIC appointed by the trust. IFRIC interpret the “Application of International Accounting Standards and the international financial reporting standards in the context of the basic framework of the IASB” published draft interpretation and evaluate the comments above and obtain board approval for the final interpretation. Recognition and support for the IASB.
International Financial Reporting Standards have now widely accepted throughout the world, for example:
A. used by many countries as the basis of national accounting terms;
B. used as an international benchmark in most major industrial countries and emerging market countries that make his own standards;
C. accepted by many stock exchanges and regulatory bodies that allow foreign or domestic companies to submit financial statements prepared under IFRS;
D. recognized by the European Commission and other supranational bodies.
U.S. Capital Market Commission’s response to the IFRS
SEC (U.S. Capital Market Commission) stated that three conditions must be met by the company before the SEC accept IASB standards. The three conditions are as follows:
- Standards must include the core accounting provisions that determine a comprehensive basis of accounting and generally accepted
- Standards should be high quality, resulting in comparability and transparency, and provide full disclosure
- Standards must be interpreted and applied strictly.
Comparison between IFRS and other contents of the Comprehensive Accounting Principles
The U.S. Financial Accounting Standards Board (FASB) has initiated a major project to compare IAS with U.S. standards in 1995, and published a detailed report in 1996 and 1999. project comparison between IASC and U.S. GAAP FASB is part of a plan for international activities, which include the promotion of international comparability of accounting standards. The main objective of this study is to provide information in assessing the acceptability of IAS for the registration of securities in the United States. Other studies have been conducted with the aim to encourage convergence between national accounting standards with IFRS.
The EU (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. European Commission (EC, the EU ruling body) possess full power over its accounting directive to all member countries.
One goal is to achieve the integration of EU financial markets of Europe. To achieve this goal, the EC has introduced a directive and take a huge initiative to achieve a single market for:
- Acquisition of capital in the EU
- Create a common legal framework for securities and derivatives markets are integrated
- Achieve a single set of accounting standards for companies whose shares are listed.
EC has launched a major program of harmonization of law firm immediately after its formation. EC directive today cover all aspects of company law, some of which have a direct influence on accounting. Fourth EU directive, issued in 1978 is a set of accounting rules of the most extensive and comprehensive in the basic framework of the EU. Provisions of the Fourth Directive applies to the accounts of individual companies and include the rules of the form of financial statements, disclosure provisions, and valuation rules. Appropriate and fair view of the most basic provisions and affect disclosure in the form of footnotes, as well as affecting the financial statements. Fourth directive also requires financial statements to be audited. The aim is to ensure that European companies to disclose information that is comparable and equivalent in its financial statements. Seventh directive, issued in 1983, addresses issues consolidated financial statements. At that time, the consolidated financial statements are the exception and not a liability. Seventh Directives require the consolidation of business groups in the amount above a certain size, determines the disclosure in the notes and the directors report, and it does require an audit. Eighth Directive, issued in 1984, discussed various aspects of professional qualifications that are authorized to carry out the audit as required by law (mandatory audit). Basically, this directive determines the minimum qualifications of auditors. This directive also does not address the professional freedom of establishment in the EU countries. Training must be completed under the supervision of an auditor who has been appointed. There should indepedensi, but the Eighth Directive gives discretionary powers to the EU countries to determine the conditions indepedensi.
INTERNATIONAL FINANCIAL ANALYSIS
The purpose of financial analysis is to evaluate the performance of companies on the present and past, and to assess whether the performance can be maintained. Investors, equity research analysts, financial managers, bankers, and users of financial reports other has a greater need to read and analyze reports keuanganasing.
The need to use and to understand, foreign financial statements also increased due to merger and acquisition activities occurring internationally.
1. Analysis of International Business Strategy
Analysis and assessment of international finance is characterized by many contradictions. On one hand, how quickly the process of harmonization of accounting standards lead to a growing pretext comparability of financial information around the world.
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.
2. Step Step Analysis of Accounting
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. Analysis of accounting flexibility
c. Evaluation of accounting strategy
d. Evaluation of the quality of disclosure
e. Indentifikasikan potential problems
f. Make adjustments for accounting distortions.
3. Effect Of Accounting Accounting Analysis of Inter-State
Financial analysis covers different areas of jurisdiction. For example, an analyst mengkin several times to study a firm outside the country of origin or to compare companies from two countries or more. A number of countries that have very large differences in accounting practices, disclosure quality, legal system and laws, the nature and scope of business risks, and how to run a business.
This difference means that a very effective analytical tool in the region to be less effective in other regions. The analysts also often face a great challenge to obtain credible information. In most emerging market countries, financial analysts often have high levels of confidence or of limited reliability.
4. Difficulty of Obtaining Information International Accounting
In obtaining the data of International Accounting, there are several difficulties, among others:
a. Depreciation Depreciation expense adjustment will affect profits, it is necessary to consider the age of the functions that must be decided asset management.
b. LIFO to FIFO inventory adjustment supplies should be converted into the FIFO method
c. Backup Backup is the company’s ability to pay or cover expenses for removing the load.
d. Financial Statement Adjustments reformulation of some of the changes after a few calculations on the points above TSB.
5. Coping mechanisms Differences Between Accounting Principles of the State
In addressing the Inter-country differences in accounting principles can be done by several approaches such as:
a. Some analysts present the foreign accounting resize according to a group of internationally recognized principles, or according to other, more general basis.
b. Some of the Others develop a complete understanding of accounting practices in a particular group of countries and companies to limit their analysis of companies located in the State that State.
6. Set the difficulty of International Financial Analysis
Palepu, Bernard and Healy kerangkan make a useful basis for analyzing and assessment efforts by using financial statement data. The basic framework consists of four stages of analysis, namely:
a. Analysis of Business Strategy
b. Accounting Analysis
c. Financial analysis (ratio analysis and cash flow analysis)
d. Prospective analysis (forecasting and assessment)
The degree of importance of each depends on a purpose of analysis. Business analysis framework can be applied in many situations the decision.
7. Use of Website For information about Research Company
To Obtain Information Research Company Many companies do not make optimum use of disclosure of corporate information via the website, both for financial and corporate sustainability. Another finding in this study is that many companies can not provide information for investors, most of the information presented in the company’s website is about the products or services produced and the many companies that do not update the information presented.
a. Internet Financial and Sustainability Reporting
Since 1995, there have been developments of empirical research related to Internet Financial Reporting (IFR), which reflects the development of forms of corporate disclosure. Some studies examine the factors that influence disclosure policy in Alphathe company’s website, such as research conducted by Pirchegger and Wagenhofer (1999) and Saso and Luciana (2008a). Some studies examine the nature and expansion of financial reporting on the company website as an instrument that relate to the stakeholder.
b. Corporate Social Responsibility
Understanding and awareness of business entities to maintain good relations with all stakeholders in an effort to minimizing negative impacts and maximizing positive impacts of the operational activities of the company towards the development berkelanutan this is now understood as a CSR (Corporate Social Responsibility. Strengthening the sustainable development paradigm and corporate social responsibility initiatives CSR reporting or making social and environmental performance are considered as important as the reporting of economic performance. biggest problem is that the quality of non-financial reports are not yet as good as the quality of financial reporting. In addition to far adrift age (> 500 vs. 10-20 years), the gap between the two is marked by a degree of formality, the destination number and interval report.Gazdar (2007) states there are four things that make non-financial reporting is why it becomes very important:
First, the company’s reputation. The more transparent companies in those aspects that are required by all stakeholders, the higher also the reputation of the company. Of course, if the reported performance is good and valid. Therefore, companies should first improve its performance seriously. Validity is also very important, because stakeholders will never forgive a company that does public deception.
Second, serving the demands of stakeholders. Stakeholders are parties who are affected by and could affect the company in achieving its goals. Of course, those who influenced his life by the company are entitled to know the aspects that come into contact with their lives. Those who could affect the company is very necessary to get the right information, so that their influence can be directed to the appropriate destination.
Third, help the company make decisions. A good performance report would certainly include indicators that will help companies see the strengths and weaknesses of himself. Company can be a little more quiet in the aspect that the indicators show strength. On the other hand, companies need to devote greater resources to those aspects that seem weak. Periodic memilikiLaporan company with a consistent indicator is needed here, so the ups and downs of the performance can be monitored and addressed with appropriate keputusanyang.
Fourth, making investors easily understand the performance of the company. As already stated above, there is a higher demand from investors to be able to find out the real performance of the company. Long-term investors really want to know whether the embedded capital is safe or not. Companies that have social and environmental performance have a high likelihood that it is better to continue business, and investors would be more interested to invest in these companies.
MANAGEMENT PLANNING AND CONTROL
Global competition that occurs along with advances in technology are constantly changing significantly the scope of business and internal reporting requirements. Reduction in national trade barriers on an ongoing basis, a floating currency, sovereign risk, restrictions on sending funds across national borders, differences in national tax systems, the difference in interest rates and commodity prices and the effect of changing equity to assets, earnings , and the cost of capital is a variable that complicates management decisions. At the same time, developments such as the Internet, video conferencing, and electronic transfer change the economics of production, distribution, and financing. Global competition and rapid dissemination of information to support the limited national differences in management accounting practices. Additional pressures include, among others, changes in markets and technologies, the growth of privatization, incentive costs, and performance, and coordination of global operations through joint ventures (joint ventures) and other strategic links. Does it improve the management of multinational companies to not only implement internal accounting techniques that can be compared, but also use these techniques in the same way.
MAKING BUSINESS MODEL
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.
- Identify the major factors relevant to the company’s progress in the future.
- Formulate an adequate technique to predict future developments and analyze the company’s ability to adapt or take advantage of these developments.
- Develop data sources for menditkung strategic choices.
- Certain choices translate into a series of specific actions.
In identifying the relevant factors in the future, scanning the external and internal environment will greatly assist companies in recognizing the challenges and opportunities. A system can be applied to gather information on competitors and market conditions. Both competitors and market conditions are analyzed to see the influence of both the standing of the competition and the level of corporate profits. Inputs obtained from this analysis are used to plan the measures used to maintain or increase market share or to recognize and utilize the new product and market opportunities.
One such tool is the WOTS-UP analysis. This Analicis regarding the strengths and weaknesses of the company relating to the company’s operating environment. This technique helps in generating a series of management strategies that can be run.
Decision tools that are currently used in the strategic planning system relies entirely on the quality of information about internal and external environment of an enterprise. Accountants can help corporate planners to obtain useful data in strategic planning decisions. Most of the required information comes from sources other than the accounting records.
The decision to invest abroad is a very important element in the global strategy of a multinational company. Foreign direct investment generally involves large amounts of capital and the prospects are 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.
Approach to more complex investment decisions are also available. There are several procedures to determine the optimum capital structure of a company, measuring the cost of capital of a company, and evaluate investment alternatives under conditions of uncertainty. Decision rule for investment options generally require a discounted cash flow investment based on risk-adjusted interest rates are adequate: the weighted average cost of capital. Generally, companies can increase the prosperity of the owner to make an investment that promises a positive net present value. When considering the options that are mutually separated or mutually independent (mutually exclusive), a rational firm will choose the option that promises the net present value of the maximum.
In the international environment, investment planning is not as simple as that. Huokum differences intax, accounting system, 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.
Adaptation (adjustment) by multinational companies for investment planning models have traditionally been carried out in three areas of measurement: (1) determine the relevant returns for multinational investments, (2) measure of cash flow expectations, and (3) calculate the cost of multinational capital. This adaptation provides data that support the strategic choices, the third step in the process of enterprise modeling.
VIEWPOINT FINANCIAL RESULTS
A manager must determine the rate of return that are relevant for analyzing foreign investment opportunities. However, the relevant rate of return is a matter of perspective. Should the international financial manager to evaluate expectations of return on investment from the standpoint of foreign project or from the perspective of the parent company? Returns from these two viewpoints may differ significantly due to several reasons such as: (1) restrictions on repatriation of profits by the government and capital, (2) license fees, royalties and other payments which is the profit for the parent company but is a burden for subsidiaries , (3) differences in national inflation rate, (4) changes in exchange rates acing, and (5) differences in taxes.
Opinion that the rate of return and the risk of a foreign investment can be evaluated from the viewpoint of the parent company’s domestic shareholders, are no longer sufficient because:
- Investors in the parent company of the more that comes from the world community.
- Investment objectives must reflect the interests of all shareholders, not just from domestic.
- Observations also show that multinational companies have long-term investment horizon ‘(and not short term). Funds generated abroad tend to be reinvested rather than repatriated to the parent company. Under these conditions, would be more appropriate to evaluate the return from the standpoint of the host country. The emphasis on local projects of return consistent with the objective to maximize the value of the consolidated group.
Adequate solution is to recognize that financial managers must meet multiple objectives, by providing a response to investor groups and noninvestor in organization and in its environment. Host country governments is one of the group for foreign investment. Match between the goals of multinational investors and host countries should be achieved through two financial return calculations: one from the standpoint of the host country, and the other from the viewpoint of the parent company. The host country’s point of view assumes that a favorable foreign investment (including capital costs of local opportunities) would not be wrong in the somber allocate scarce host country. Evaluation of investment opportunities from the local viewpoint also provides useful information for the parent company.
If a foreign investment does not promise a return on risk adjusted value is higher than the return obtained by a local competitor, then the parent company’s shareholders would be better to invest directly in local companies.
FINANCIAL RISK MANAGEMENT
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 various types of risks mengidentiofikasikan market could potentially be referred to as risk mapping.
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.
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 mengalihkanresiko market on the other shoulder.
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 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 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.
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.
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.
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.
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.
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.
TRANSFER PRICING AND INTERNATIONAL TAXATION
Of all the environmental variables that must be considered by the manager of finance, foreign currency only variable that had an effect equal to the tax variable. Tax factors greatly affect the decision regarding which company to invest, what form of organization is used, how to fund it, when and where to recognize the elements of income, expenses and how the transfer prices charged.
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 instilah tax neutrality and tax equity. Neutrality means that the tax has no effect (neutral) to the resource allocation decisions. In other words a business decision driven by economic fundamentals seoperti rate of return and not tax considerations. Tax means tax equity wajub facing similar situations should pay similar taxes, but there is disagreement antarbagaimana interpret this concept.
DIVERSITY OF NATIONAL TAX SYSTEM
A company can do business internationally by exporting goods and services or to make foreign investments, directly or indirectly. Rarely lead to potential export taxes in the importing country, it is difficult for importing countries to set a tax on foreign exporters. On the other hand a company that is oriented in the other State through a branch or affiliate company is taxable in that State.
TYPES OF TAX
Oriented companies overseas face various types of taxes. Direct taxes such as income tax, is easy to recognize and generally disclosed in the financial statements of the company. Indirect taxes such as consumption taxes can not be identified clearly and not too often expressed, they are generally hidden in postal costs and other expenses.
Corporate Income Tax, may be used more widely to generate revenue for the government compared with other major taxes with the possible exception of an excise bead.
Tax levy is a tax imposed by the government of dividends, interest and royalty payments received by foreign investors.
Value added tax is a consumption tax that is found in Europe and Canada. The tax is generally imposed on the value added of each stage of production or distribution. This tax applies to total sales minus purchases of intermediate unit seller.
Border taxes such as customs and import duties are generally geared to keep Agara domestic goods can compete with the price of imported goods. Thus the tax imposed on imports is generally performed in parallel, and other indirect taxes paid by domestic manufacturers of similar goods.
Transfer tax is a type of other indirect taxes. The tax is imposed on transfers (transfer) tax antarpembayar objects and can cause a critical influence on business decisions such as the structure of the acquisition.
USE OF SOURCES OF INCOME FROM ABROAD AND DOUBLE TAXATION
Each country claims the right to impose taxes on income generated within its borders. However, the national philosophy on the taxation of resources from abroad is different and this is important from the perspective of a tax planner. Most countries (including Australia, Brazil, China, Czech Republic, Germany, Japan, Mexico, Netherlands, United Kingdom, and United States) to apply the principles throughout the world and impose taxes on profits or income of the company and the citizens in it without looking at the territory of the State. The underlying idea is that a foreign subsidiary of a local company is a local company that happens to operate overseas.
TAX PLANNING DIMENSIONS
In the tax planning of multinational companies have certain advantages over a purely domestic firm because it has greater flexibility in determining the geographic location of production and distribution system. In wearing a lot of sources of foreign tax that the tax authorities to focus on the organizational form of foreign operations. A branch is generally regarded as an extension of the parent company. Thus the profits immediately consolidated with the parent company’s profits and fully taxed as income in the year generated, regardless of whether sent back to the parent company or not.
VARIABLES IN TRANSFER PRICING
Transfer prices set a monetary value on the exchange between firms that take place between the operating unit and is a substitute for market prices. In general, the transfer price is recorded as revenue by one unit and the unit cost by others. Cross-border transactions of multinational corporations are also open to a number of environmental influences that created the same time destroying the opportunity to increase profits through transfer pricing. A number of variables separti tax rate competition infalsi rates, currency values, limitations on the transfer of funds, political risk and the interests of joint venture partners are very complicated transfer pricing decisions.
Reasonable transaction price is the price to be received by parties not related to special items the same or similar in the exact same situation or similar. Reasonable method of determining the transaction price that is acceptable is:
(1) the method of determining the comparable uncontrolled price.
(2) method of determining the resale price.
(3) plus the cost price determination methods and
(4) other methods of assessment rates
Tariffs for imported goods also affect transfer pricing policies of multinational corporations. In addition to the balance didentifikasikan, mulinasional companies should consider the costs and benefits tambaha, both internal an external maupum. High tax rates paid by the importer will generate the income tax base is lower.
Similarly, a lower transfer price can be used to protect the ongoing operation of the influence of foreign competition is increasingly tied to the local market or other markets. Such competitiveness considerations must be balanced against the many losses that the opposite effect. Transfer rates for competitive reasons may invite anti-trust action by the government.
Performance Evaluation Factors
Transfer pricing policy is also influenced by their influence on behavior management and is often the main determinant of company performance.
Accounting for Contributions
The management accountant can mamainkan a significant role in calculating the balance (trade-offs) in transfer pricing strategies. The challenge is to mempertahanka global perspective when mapping the benefits and costs associated with determining pricing decisions
TRANSFER PRICING METHODOLOGY
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. The principle of fair or transfer pricing between firms by assuming that the transaction occurred between parties who are not related instimewa in a competitive market. According to the Income Tax laws in the U.S. are the methods:
1. Method of Equivalent Rates are Not Controlled
Based on this method of transfer pricing is determined by reference to prices used in transactions between companies that equal or equivalent independent company with unrelated third parties.
2. Method of Controlled Transaction Not Equal
This method is applied to the transfer of intangible assets. This method identifies the level of royalty rates with reference to uncontrolled transaction in which the intangible assets of the same or similar transferable. As uncontrolled price method are equivalent, this method relies on a comparison of the market.
3. Method of Selling Price Return
This method of calculating reasonable transaction price that begins with the prices charged on the sale of the goods in question to an independent buyer. Sufficient margin to cover expenses and profit nomal then subtracted from this price for transfer pricing between companies.
4. Method of Determining the Cost Plus
This method is useful when the semi-finished goods transferred between firms or foreign affiliates if an entity is a sub-contractor for other companies.
5. Comparable Profit Methods
This method supports the general view which states that taxpayers are facing a similar situation should also get similar benefits for some period of time.
6. Separation Methods Profit
This method is used if the reference product or the market is not available. This method involves the division of profits generated through transactions with related parties that is special between affiliated companies is based on a reasonable way.
7. Other Pricing Methods
This method can be used if it produces a more reasonable price measure accurately.
PRICE TRANSFER PRACTICES
In practice, some transfer pricing methods are used together. Factors that influence the selection of transfer pricing methods, among others, the company’s goal: if the goal is to manage the tax burden, or maintain the company’s competitive position, or an equivalent job evaluation memprromosikan.
Technology and the global economy raises its own challenges for many of the underlying principles of international taxation, that every nation has every right to decide for itself how much tax can be collected from people and businesses in the region. However, governments around the world requires the transfer pricing method to the principle of a fair price. That is, multinational companies in different countries are taxed as if they were independent companies which operate naturally from one another. The calculation of fair prices is irrelevant as fewer and fewer companies are Beropreasi in this way. The effect of national taxation, cooperation and sharing of information between tax authorities more closely around the world. Tax competition is also getting bigger. Internet makes the effort to take advantage of a tax haven country more easily. Single tax also used as an alternative to use in determining the transfer price of taxable income.
- Choi, Frederick D.S., and Gerhard D. Mueller, 2005., Akuntansi Internasional – Buku 1, Edisi 5., Salemba Empat, Jakarta.
- Choi, Frederick D.S., and Gerhard D. Mueller, 2005., Akuntansi Internasional – Buku 2, Edisi 5., Salemba Empat, Jakarta.
- Lymer, A., (Ed), (1999), Special Section: The Internet and Corporate Reporting in Europe. European Accounting Review Vol. 9, pp. 287-396.