Jeffrey S. Gardner
ACCT 632: Advanced Financial Accounting Theory
Professor Wendy Achilles
January 26, 2023
Case Assignment Two (Case 3-2)
Five approaches to transnational financial reporting were identified in the chapter. List
some of the advantages and disadvantages of each approach. Which approach do you
favor? Why?
Transnational financial reporting is complex with multiple different processes that
require the highest level of professional judgement. The preparation and thoroughness of the
work needs to be the number one priority especially when financial statements and reporting
are crossing borders. Inaccurate information can lead to many legal ramifications rather than
just the normal US government. The best ways to properly file these financial statements is in
one form, this allows for effective communication and uniformity throughout all levels of the
organization. Throughout this discussion, I will include the five approaches comparing both
the advantages and disadvantages of these approaches.
The five approaches of transnational financial reporting are: (1) similar sets of
financial statements to all company stakeholders and investors, (2) preparation of financial
statements followed by translation of the statement into different languages, (3) translating
these statements into foreign languages and currencies, (4) preparing different sets of
financial statements, and (5) preparing financial statements based on world-wide accredited
accounting principles. The first approach requires accountants to prepare just a single set of
financial statements with common language and currency. This is the easiest approach which
reduces the workload for accountants. Another advantage of this approach is the uniformity
of the reporting which offers trust to the investors providing them with most precise
information. The disadvantage of this approach is the translation across borders could lead to
misrepresentation of information, hindering relationships with stakeholders. The second
approach includes the single set of financial statements supported by translation for all the
foreign nation users. This process is great because it ensures that the information is properly
translated avoiding any room for interpretation. However, the main disadvantage is the
increase in workload for accountants and the resources needed to hire interpreters (for all
languages needed). The next approach is similar to the second approach but includes the
translation of currencies into their nations currency. Again, this approach ensures that all
statements are translated and readable by the nations, avoiding any error in translation. In
addition, the currency would be translated to their foreign currency to ensure the numbers are
understood as well. The disadvantage of this approach is the workload placed on their
accountants and the increase in need of translators for each language. Another disadvantage
includes the constant change in rate of exchange for currency, which could cause some
misleading financial statements. The fourth approach is the organizations ability to create
multiple financial statements for each foreign stakeholder. The advantage of this approach is
the ability to prepare these statements using the country’s language, currency, and accounting
codes. This tends to be the most meticulous approach which allots additional employees and
man hours and workload on accountants, but offers the best results. The final approach
includes the preparation of one financial statement that follows the world accepted
accounting principles. This form of reporting ensures the transparency and uniformity
worldwide.
My favorite approach would be the fifth one and the uniformity throughout the world.
As an accountant, this would ensure that there is no loss in translation and that the
organization can save money on time the other approaches would need. I think that
companies need to consider their position and decide which approach works best for them.
The Bible says in Proverbs 21:5, “The plans of the diligent lead to profit as surely as haste
leads to poverty (Proverbs 21:5; NIV).
(559 words)
Works Cited:
The Bible. New International Version. Proverbs 21:5.
BohatALA. Transnational Financial Reporting Approaches. Retrieved from: Transnational
Financial Reporting Approaches | Bohatala.com
Schroeder, Clark, & Cathey: Financial Accounting Theory and Analysis: Text and Cases.
(Pg. 109). Case 3-2.
