ACCT 632 – Advanced Financial Accounting Theory
Case 3-2 The Approaches to Transnational Financial Reporting
Liberty University
CASE 3-2, WEEK TWO 2
Case 3-2 The Approaches to Transnational Financial Reporting
Five approaches to transnational financial reporting were identified in the chapter.
Required:
a.List some of the advantages and disadvantages of each approach.
1.Send the same set of financial statements to all users (domestic of foreign).
a.The advantage a business might face by sending the same financial statements
to all users would be that users of the statements would all be viewing the
same information across the board. It would eliminate discrepancies and can
allow for greater comparability to other companies that also report their
financials the same way. A disadvantage to this approach however could be
language and currency barriers. The users of the financial statements might
not be proficient in the language or currency in which the financials are issued
and therefore their interpretation of the statements might be different then the
meaning by which it is intended. Also, using just one nation’s accounting
methods could make them incorrect to others.
2.Translate the financial statements sent to foreign users into the language of the
foreign nation’s users.
a.An advantage to translating financial statements to a foreign user’s language
or currency might be the ease of readability with which those users are then
able to understand them. It shows flexibility of the company and can show the
users that they care about those they use and trust their financials. Adversely,
unless the company had great interpreters and translators, they could be
looking at a costly bill to translate the financial statements, especially if they
CASE 3-2, WEEK TWO 3
are needing to make the statements available in many different languages and
currencies. There also is a much greater risk that there will be an error in
translation or calculations and then the financial statements will no longer be
truthful or effective for their intended purpose.
3.Translate the financial statements sent to foreign users into the foreign nation’s
language and currency.
a.The answer to this question is similar as above with the inclusion of the
currency (which is explained above). When the language and the currency are
both translated, it not only shows flexibility of the company but also enforces
the importance of producing a financial statement that could be easily
readable by the users. Companies due run risk however during this process of
translating information incorrectly, depending on the language, type of
currency, or even accounting rules within the foreign nations.
4.Prepare two sets of financial statements, one using the home country’s language,
currency, and accounting principles, the second using the language, currency,
and accounting principles of the foreign country’s users.
a.While this form of preparation might make the financial statements the most
understandable to a foreign nation, it runs the highest risk of manipulation and
error. The flip-flopping of different accounting methods between nations, in
addition to the language and currency translation leaves the financial
statements vulnerable to changes that would otherwise not be detected if they
were prepared in the same way and with the same method, language or
currency.
CASE 3-2, WEEK TWO 4
5.Prepare one set of financials statements based on worldwide accepted accounting
principles.
a.This fifth approach to preparing financial statements for different nations
would be the most advantageous approach. It provides uniformity in
representing the company’s financials honestly and in an accounting language
that all the users understand and are familiar with. It can easily be translated
because the rules are applicable to all. One small disadvantage is that for
financials produced within some home countries, the adoption of worldwide
accounting principles in other parts of their report accounting might not be
accepted yet.
b.Which approach do you favor and why?
a.While the International Accounting Standards Committee’s (IASC) aim is to
create accounting standards for financial reporting that can be accepted worldwide
(Schroeder, Clark, Cathey, 2020). I think that I favor the most effective approach
which would be the last one, preparing one set of financial statements based on
worldwide accepted accounting principles. My reasonings for choosing this
method would be:
1.that it provides greater comparability overall when looking at other
financial statements of similar companies with the same standards
2.there is a much smaller margin of error as there is only one type of
financial statement being prepared and its standard is universally
accepted
3.it is more cost effective
CASE 3-2, WEEK TWO 5
c.Biblical Perspective
a.There has been a strong pull to create accounting standards that will work
synergistically world-wide for publicly traded companies as well as private
companies as well. The benefits to the ease of interpretation of these financials’
statements can help increase their capital and the effect that they have in their
markets. One issue that these committees and organizations keep running into is
the overload of policies and standards. The convergence is far too complex to just
be written into law and abided by. Studies have also proven that harmonization
between GAAP and IFRS are creating synergy within themselves and a major
shift or change in policy might not even be necessary (Schroeder, Clark, Cathey,
2020).
While the potential for standards to change at any time is open to debate,
the revelation of the Lord’s prophecy’s we know are unchangeable and consistent
in his teachings throughout the bible. Revelations 22:19 states, “And if any man
shall take away from the words of the book of this prophecy, God shall take away
him part out of the book of life, and out of the holy city, and from the things
which are written in this book.” The same as we can be damned from the
presence of God for obeying false scripture, failure to follow the principles and
guidelines set for international reporting can cause demise to corporations that
rely heavily on being able to produce honest, compliant financial statements.
CASE 3-2, WEEK TWO 6
References
Schroeder, R. G., Clark, M., Cathey, J. M. (2020). Financial Accounting Theory and
analysis: Text and cases. Wiley.
Richardson, A. J., & Eberlein, B. (2011). Legitimating Transnational Standard-
Setting: The Case of the International Accounting Standards Board: JBE. Journal of
Business Ethics, 98(2), 217-245. http://dx.doi.org/10.1007/s10551-010-0543-9
Revelation 22:19. The Church of Jesus Christ of Latter-day Saints. (n.d.). Retrieved
from https://abn.churchofjesuschrist.org/study/scriptures/nt/rev/22?lang=eng.
