REPORTING AND DISCLOSURE
The equity market has an important position in the national economy and individual investors are becoming increasingly active in these markets. As a result, and public disclosure, investor protection, shareholder value and form of corporate governance (corporate governance) are driven by the stock market is increasingly important. Likewise, although the disclosure practices vary widely from country to country, slowly began to arise similarity (convergence). However, important differences between countries will continue to affect the whole company, except the largest, especially companies that are active in capital markets or international product markets.
Government regulators are trying to maintain or enhance the credibility of the national capital market also affect the disclosure practices around the world. Stock exchanges also concluded that the continued growth and success they achieve depends on market supply of high quality with an effective investor protection. As a result, oversight by regulators and exchanges sefek increasing and becoming more stringent disclosure provisions. Trends that lead to increased disclosure and investor protection will continue as the stock exchanges face increasing competition from other exchanges and trading system that is not too organized.
Disclosure standards and practices are influenced by financial resources, legal systems, economic political ties, the level of economic development, education, cultural and other influences. National differences in disclosure is driven largely by differences in corporate governance and finance.
In the United States, Britain, and the country - other countries Aglo American equity markets was widespread among shareholders and investor protection is priority. Investor institutionally plays an important role, demanding financial returns and increasing shareholder value. Public disclosure is advanced as a public company respos of accountability.
In other countries such as France, Japan, and some developing countries share ownership remains highly concentrated and the bank is the main source of finance companies advanced on the market - this market and the huge difference in the amount of information that is given to large shareholders and creditors to that given to public is still allowed. And establish firm discipline.
Voluntary disclosure
Some studies show that managers have an incentive to disclose more. Benefit from a more enhanced disclosure is lower transaction costs in trading securities issued by companies, the interest of financial analysts and investors on the company's growing, the increased share liquidity, and lower capital costs.
Investors the world demanding more detailed information and more timely voluntary disclosure level is increasing both in developed countries and developing countries. Financial reporting to be a mechanism of communication with outside investors who do not complete if the incentives are not aligned with the interests of managers of all shareholders. Communications manager with outside investors would be incomplete if :
1. Manager has the advantage of information about the company.
2. Urge managers are not perfectly aligned with the interests of all shareholders.
3. Accounting and auditing rules are not perfect.
Company managers often delay disclosure of negative news and the financial statements further demonstrate the positive side of the company and assess more performance and the company's financial prospects. Disclosure rules stipulate provisions - provisions to ensure that shareholders receive timely, complete and accurate. While the external auditor to try to ensure that accounting managers apply appropriate accounting policies, make a reasonable estimate, has a record of accounting and control systems are adequate and provide timely disclosure. Choice of disclosure by managers and reflects the combined effect of the disclosure provisions and incentives to disclose information voluntarily.
Mandatory Disclosure Provisions
Stock and government regulatory agencies generally require that records the shares of foreign companies to provide financial and nonfinancial information similar to that required for domestic firms. Mandatory disclosure is the disclosure of accounting and reporting must be reported in accordance with Accounting Standards which embrace in their respective countries.
Disclosure of Corporate Governance
Corporate governance related to the internal tools used for running and controlling a company's responsibility, accountability and the relationship between the shareholders, board members and managers are designed to achieve corporate objectives. The problems of corporate governance include the rights and treatment to the shareholders, the board's responsibilities, disclosure and transparency and the role of the parties concerned. Corporate governance practices has gained the attention of regulators, investors, and analysis.
Accounting Disclosure purposes in Equity Markets
In a competitive economy, the disclosure of corporations is a means to channel corporations accountable to capital providers (investors) and to facilitate allocation of resources to their most productive use.
An corporations need to attract capital in a very large amount to finance the production and distribution activities are extensive. Therefore, internal financing is highly dependent on external capital invested by the investor on the corporations, In return, an investor requires disclosure (transparency corporations) in which investors can assess the quality of their stock to cultivate.
Conceptual link between increased disclosure and cost of capital of the theory of investment behavior under conditions of uncertainty, namely:
1. In a world of uncertainty, investors look at returns on investment securities as money received as a consequence of ownership.
2. Because of the uncertainty of return is viewed in a probabilistic sense.
3. Investors use a number of different measures to quantify the expected results of a security.
4. Investors prefer a high return rate for a certain risk level or vice versa.
5. The value of a security is positively related to the flow of expected results and inversely related to the risks associated with the refund.
6. Thus, disclosure of the company will increase the probability distribution of outcomes expected by investors by reducing the uncertainty associated with the refund. So will improve performance (performance of the company) in the eyes of investors that lure investors to invest on a larger similar securities so as to reduce the cost of capital.
Disclosure rules around the world are very different in some ways like:
Statement of cash flows and changes in equity, related party transactions, segment reporting, the fair value of financial assets and liabilities and earnings per share. Disclosure to be discussed are:
1 . Disclosure of the Seeing The Future of Information Disclosure of information to see the future is considered highly relevant in equity markets around the world. The term "information see the future" include:
- Forecast revenues, income (loss), earnings (loss) per share, capital expenditures and other financial post
- Prospective information regarding the performance or future economic position is not too sure when compared with the projection of the post, the fiscal period, and the projected number of Reports of management plans and objectives of future operations.
2. Disclosure of segment
Investors and analysts will request information regarding operating results and financial industry segments classified as significant and increasing. Example, financial analysts in the United States has consistently been asked disagregat report data in the form of a much more detailed than they are now. International Financial Reporting Standards (IFRS) also discussed the highly detailed segment reporting. This report helps the users of financial statements to better understand how the parts of a company affects the whole enterprise.
3. Cash flow statement and fund flow
IFRS and accounting standards in the United States, Britain, and a large number of other countries require the presentation of cash flows.
4. Disclosure of social responsibility
Today the company is required to demonstrate a sense of responsibility to a bunch of so-called interested parties (stakeholders) - employees, customers, suppliers, governments, activist groups, and the general public.
Information regarding the welfare of employees has long been a concern for labor organizations. The problem areas of concern related to working conditions, job security, equality of opportunity, workforce diversity and child labor. Employee disclosure also preferred by investors because it provides valuable input regarding labor relations, cost, and productivity.
5. Specific disclosures for non-domestic users of financial statements and the accounting principles used
Financial statements may contain specific disclosures to accommodate the non-domestic users of financial statements. Such disclosure is :
- Repeated for the convenience of the presentation of financial information to non-domestic currency
- Repeated presentation of the results and financial position is limited by a second group of accounting standards
- A complete set of financial statements prepared in accordance with a second group of accounting standards, and some discussion about the differences between the accounting principles that are widely used in the primary financial statements and a few other sets of accounting principles.
Many companies in countries that do not use English as primary language translation also perform throughout the annual report of the home country language into English. Also, some companies prepare financial statements in accordance with accounting standards more widely accepted than domestic standards (particularly IFRS or U.S. GAAP) or in accordance with both domestic and a second group of standard accounting principles.
FOREIGN CURRENCY TRANSLATION
Difference between the translation and conversion of foreign currency
Foreign currency translation The process is repeated presentation of financial information from one currency to another currency. While foreign currency conversion between the exchange of one currency to another currency physically.
The difference is, the translation is simply a change of monetary units, for example, on a balance sheet that is expressed in British pounds are presented back to the U.S. dollar equivalent value. There is no physical exchange that occurred, and no relevant transaction occurs. While the conversion, allowing the physical exchanges that occur and there is a related transaction occurring.
In terms of foreign currency translation
- Conversion, an exchange of one currency into another currency.
- Exchange rate now, the exchange rate prevailing on the date of the relevant financial statements
- Net asset position at risk, the excess assets are measured or denominated in foreign currency and in translation at the exchange rate of duty is now measured or denominated in foreign currencies and translated at the exchange rate now.
- Exchange forward contracts, an agreement to exchange currencies of different countries by using a specific rate (forward rate) at a given date in the future.
- Functional currency, is the main currency used by a company in the conduct of business activities. Usually such currency is the currency of the State where the company is located.
- Historical exchange rate, the exchange value of foreign currency that is used when an asset or liability denominated in foreign currencies bought or going.
- Reporting currency, the currency used in preparing the company financial statements.
- Spot exchange rate, the exchange rate for currency exchange in the time immediately.
- Translation adjustments, the adjustments arising from the translation of financial statements of a company's functional currency into the reporting currency.
Glossary of foreign currency translation, adapted from GAAP (SFAS) No.52, 1981.
- Attributes, quantitative characteristics of an item being measured for accounting purposes. Example, historical cost and replacement cost which is an attribute of an asset.
- Conversion, exchange of one currency into another currency.
- Present exchange rate, exchange rate prevailing on the date of the relevant financial statements.
- Discount, while the subsequent exchange rate lower than current levels.
- Net asset position at risk, as measured in excess of assets or denominated in foreign currencies and translated at the exchange rate of duty is now measured or denominated in foreign currencies and translated at the exchange rate now.
- Foreign currency, a currency other than the currency used by a State, a currency other than the reporting currency used by the company.
- Financial statements in foreign currencies, the financial statements using foreign currency as the unit of measurement.
- Foreign currency transactions, the transaction (ie sale or purchase of goods or services, or debt loans or accounts receivable) under the conditions stated in currencies other than the functional currency of the company.
- Foreign currency translation, the process to declare the amounts denominated or measured in one currency into another currency using the exchange rate between two currencies.
- Foreign operation, an operation that produces financial statements that (1) combined or consolidated or accounted for under the equity method in reporting the company's financial statements and (2) arranged in foreign currencies other than the reporting currency of the reporting enterprise.
- Forward exchange contacts, an agreement to exchange currencies of different countries by using a specific rate (forward rate) at a given date in the future.
- Functional currency, the main currency used by a company in the conduct of business activities, and in generating or using cash.
- Historical exchange rate, exchange rate of foreign currency that is used when an asset or liability denominated in foreign currencies bought or going.
- Local currency, the currency of a State that is used; the reporting currency used by a domestic or foreign operations.
- Items of monetary policy, the obligation to pay or the right to receive a unit of currency in a fixed value in the future.
- Reporting currency, the currency used in preparing the company financial statements.
- Completion date, the date when the debt is paid by an uncollectible receivables.
- Spot exchange rate, exchange rate for currency exchange in the time immediately.
- Date of the transaction, the date when a transaction is recorded in the accounting records of the reporting company.
- Translation adjustments, adjustments arising from the translation of financial statements of a company's functional currency into the reporting currency.
- Unit of measurement, the currency used to measure the assets, liabilities, revenues and expenses.
Differences in gains and losses of foreign currency translation
If the point of view of local currency to be used (local companies viewpoint), the entry of the translation adjustment in current earnings do not need to be done. Enter translation gains and losses in earnings will distort the real financial relationships and can mislead the users of such information. Translation gains or losses should be treated from the standpoint of local currency as an adjustment to equity owners.
If the parent company's reporting currency is the unit of measurement of the financial statements are translated (the parent company's point of view), it is advisable to recognize gain or loss on translation of profit as soon as possible. Point of view of the parent company saw overseas subsidiaries as an extension of its parent company. Translation gains and losses reflect the increase or decrease in equity of foreign investment in domestic currency and should be recognized.
Advantages and disadvantages of foreign currency translation
1. Suspension
Changes in the value of domestic currency equivalent of the net assets of foreign subsidiaries are not realized and no effect on the local currency cash flows generated from foreign entities. Translation adjustment should be accumulated separately as part of consolidated equity.
2. Suspension and Amortization
Suspension of translation gains or losses and to amortize it over the useful adjustment items related to balance, especially as related to the debt will be deferred and amortized over the related fixed assets, which is charged against earnings in the same way with the burden of depreciation or deferred and amortized over the remainder of the loan as an adjustment to interest expense.
3. Partial Suspension
Translation gains and losses is to recognize the losses as soon as possible after it happens, but admitted only after the profits realized, this is simply because it is an advantage, it ignores the changes in exchange rates.
4. Not suspended
Recognize translation gains and losses in the income statement as soon as possible. However, inserting translation gains and losses in the current year's profit will introduce a random element in the profits that may result in significant fluctuations in earnings in case of exchange rate changes.
Translation gains and losses reflect the increase or decrease in equity investments in domestic currency and should be recognized.
Effect of foreign currency translation method to the Financial Statements
Although most of the technical issues in accounting tends to resolve itself over time, foreign currency translation turned out to be an exception. That this trend will continue to be supported by such developments as the collapse of the dominance of the dollar, the currency rate movements are approved by the government, and the globalization of world capital markets, which have increased the importance of reporting and financial disclosure. Such developments have profoundly increase the interest of financial executives, accountants, and financial community on the importance and economic consequences of foreign currency translation. Let us look at the nature and development of international accounting puzzle this puzzle.
a. Single Rate Method
Based on this translational approach, the financial statements of foreign operations, which are considered by the parent company as an autonomous entity, has the reporting of their own domicile. This is a local accounting environment where the foreign affiliate company to transact its business affairs. To maintain the "flavor" of the local currency reports, a way must be found so that translation can be implemented with minimal distortion. The best way is the use of the method of exchange rate policies.
Since all financial reports of foreign exchange is actually multiplied by a konstanst, this translation method to maintain its financial results and the original relation (eg financial ratios) in the consolidated statements of individual entities that are consolidated. Only the form of overseas estimates, not the essence, the change in the method of exchange rate policies.
Although interesting and conceptually simple, the method of exchange rate policies were blamed by some people because it undermines the basic purpose of the consolidated financial statements, that is because it presents, for the benefit of shareholders of the parent company, operating results and financial position of the parent company and firms from the perspective of children the single currency. maintain the parent company's reporting currency as the unit of measurement. In the prevailing exchange rate method, the results will reflect the consolidation of perspekfif-exchange perspective of each country where companies are children. For example, if an asset dip = roleh an overseas subsidiary company for when the rate was 1.000 VA VA 1 = $ 1, then from the perspective of historical cost dollars is $ 1,000; from the perspective of local currency is also $ 1000. If the exchange rate changed to VA 5 = $ 1, the historical cost of those assets from the perspective of the dollar (translas' historical cost) remains $ 1,000. If the local currency will be retained as the unit of measurement, will be expressed nifai assets of $ 200 (exchange rate translation effect).
Rate method applies also to blame because it assumes that all assets are influenced by local-currency exchange rate risk (ie, assuming that the fluctuations in the domestic currency equivalent, which is caused by fluctuations translational running, an indicator of changes in the intrinsic value of those assets). Hat is rarely true because the value of inventory and fixed assets in foreign countries are generally supported by local inflation.
b. Multiple Rate Methods
Methods of combining multiple exchange rate exchange rate historically runs and in the process of translation. 3 Such methods are discussed below.
Force-historical method. Based on the true-historical approach, which is popular in the U.S. and other places before the year 1976, current assets and current liabilities of a subsidiary abroad are translated into the reporting currency using the exchange rate of its parent company applies. Assets and liabilities are non-smooth translated with historical rates. Items of income statement, except for depreciation and amortization, are translated at the exchange rate on average each month of operation or on the basis of the weighted average of the entire period to be reported. Depreciation and amortization are translated using historical exchange rates prevailing at the time of the relevant asset is obtained. This methodology is, unfortunately, has some drawbacks. For example, this method is less choose a conceptual justification. Existing definitions of assets and liabilities and non-current classification does not explain why such a manner which will determine the exchange rate used in the translation process.
Monetary-nonmonetary method. As with any true-historical method, the method moniter using pattern-classification of non-monetary balance sheet to determine the appropriate exchange rate translation. Due to monetary items in cash settled; usage rate applicable to translate the items of foreign exchange domestic currency equivalent yield that reflects the realizable value or value of the solution.
Temporal method according to the temporal approach, translational currency conversion is a process of measurement (ie, repeated presentation of a particular value). Therefore, this method can not be used to change the attributes of an item that is being measured; this method can only change the unit of measurement. Balance of foreign currency translation, for example, just change the (restate) the denomination of inventory. not the actual assessment. In U.S. GAAP, assets are measured based on the amount of cash on hand at the balance sheet date. Receivables and payables expressed in a number expected to be received or paid at maturity. Liabilities and other assets are measured at the prevailing price when the item is acquired or item ¬ occurs (historical price). Even so, some of which are measured by the prices prevailing at the date of financial statements (the price goes), such as inventory under the rules of cost or market. In short, there is a dimension of time associated with the values of this money.
By Lorensen, the best way to maintain accounting bases are used to measure these items is to translate the foreign currency amount of foreign currency at the exchange rate prevailing on the date of the measurement of foreign currency takes place. Temporal principle thus stated that money, receivables, and payables are measured at the promised amount should be translated using the exchange rates prevailing at balance sheet date. Assets and liabilities are measured at the price of money should be translated using the exchange rates prevailing on the date with respect to the price of money.
Translation methods can be classified into two types of methods that use a single exchange rate for the present re-translation of foreign currency balances to the equivalent value in domestic currency or a method that uses a variety of rates.
1. Methods Single Currency
This method has long been popular in Europe, applying the exchange rate, the current exchange rate and the closing exchange rate, for all assets and liabilities. Revenues and expenses denominated in foreign currencies are generally translated using the exchange rate prevailing at the time the posts are recognized. However, to facilitate these items are generally translated using the weighted average exchange rates are appropriate for the period. The financial statements of a foreign operation has its own reporting domicile, local currency environment in which the foreign affiliate companies do business. An asset or liability denominated in foreign currency is said to face foreign exchange risk if the equivalent in the currency used to translate the asset or liability.
2. Multiple methods of exchange rate
The method combines Multiple Currency exchange rate exchange rate historically and now in the process of translation.
3. Now the method - Non-Now
Now based methods - Non Now, current assets and current liabilities of foreign subsidiaries are translated into the reporting currency of its parent company based on the exchange now. Non-current assets and liabilities are translated based on the historical exchange rate. Items of income statement (except for depreciation and amortization) are translated based on the average rate prevailing in each month of operation, or based on a weighted average over the entire reporting period. Depreciation and amortization are translated based on the historical exchange rate recorded when the asset is acquired. However, this method does not consider the economic element. Using year-end exchange rate to translate current assets implies that cash, receivables, and inventory in foreign currencies are equally at risk of exchange rate.
4. Monetary-nonmonetary method
Non-monetary method Monetary also use the balance sheet classification scheme fatherly determine the appropriate exchange rate translation. Monetary assets and liabilities are translated based on the exchange rate now. Items of non-monetary assets, long-term investment, and stock investors are translated using historical exchange rates. Items of income statements are translated using a procedure similar to that described for the concept of non-present now.
5. Temporal method
By using the temporal method, currency translation is a process of re-conversion of the measurement or presentation of a certain value. This method does not change the attributes of an item being measured, but only change the unit of measurement. Translation of these balances in foreign currency-denominated causes repeated measurements such items but not the actual assessment. Under U.S. GAAP, measured by the amount of cash on hand at the balance sheet date. Receivables and liabilities are stated at amounts expected to be received or paid at maturity.
Evaluation and selection of foreign currency translation method
Under the temporal method, monetary items such as cash, receivables, and liabilities are translated based on the exchange now. Such items are translated at the exchange rate of monetary base that maintains in the first measurement. In particular, the value of assets in foreign currencies are reported at historical cost, are translated based on the historical exchange rate. Why is that? This is because historical cost in foreign currencies are translated at the exchange rate exchange rate historically produces historical cost in domestic currency.
These four methods discussed at one time been used in the United States and can be found even today in many countries. In general, these methods lead to the translation of foreign currency which is quite different. The first three methods (method of exchange rate now, the method now-non-date, and method-monetary non-monetary) are used in the identification of assets and liabilities which are at risk or may be protected from foreign exchange risk. Then, the translation method applied consistently by taking into account these differences.
WHICH IS BEST? EXCHANGE RIGHT NOW
So far this term the exchange rate used in translation method refers to the historical or present exchange rate. The average rate is often used in the income statement for the posts load. Some countries use the exchange rate is different for different transactions. In this situation should be selected some existing exchange rate. Some suggested alternatives are:
a. rate of dividend payment
b. free market rate, and
c. penalty rates or preferences that can be used, such as those involved in import export activities.
Foreign currency translation relationship with inflation
The use of the exchange rate is now to translate the cost of non-monetary assets are located in the inflation environment will ultimately lead to an equivalent value in domestic currency is much lower than the initial baseline measurement. At the same time, earnings will be much larger translated with respect to depreciation are also lower. The translation as it can be more easily mislead readers as to give information to the reader. Assessment of the lower dollar is usually lower than actual earnings power of foreign assets which are supported by local inflation and the ratio of return on investment that affected inflation in a foreign operation may create false expectations on future profits.
FASB rejected before the inflation adjustment process of translation, because the adjustment is not inconsistent with the historical cost basis of the assessment framework used in the basic financial statements in the U.S.. As a solution FAS No. 52 requires the use of the U.S. dollar as the functional currency for those residing overseas operations with hyperinflation environment. This procedure will maintain a constant value of the dollar equivalent of foreign currency assets, because these assets will be translated according to the historical rate. The imposition of losses on fixed assets in the translation of foreign currency to equity shareholders will cause a significant effect on financial ratios. Foreign currency translation problem can not be separated from the problem of accounting for foreign inflation.
FINANCIAL REPORTING AND PRICE CHANGES
Changes the definition of price
To understand the notion of price changes, we must distinguish between the general price movements and price movements specific. General price changes occur when the average price of all goods and services in an economy subject to change. Called inflation in the event of price increases as a whole and is called deflation if prices decline. Specific price changes refers to changes in the price of goods or services which are caused by changes in demand and supply.
Why Has Potential Financial Statements For the Period Price Changes Over Misleading?
- During periods of inflation, asset values are carried at acquisition cost less initially reflect its current value (the higher). Lower value of the assets yield a lower rated load and rated higher profits. This distorts the measurement inaccuracies (1) financial projections based on historical time series of data, (2) the budget is the basis of performance measurement, and (3) performance data can not isolate the effect of inflation that can not be controlled. Earnings are valued more in turn will lead to:
- The increase in the proportion of taxes.Demand more dividends than shareholders.
- Request for salary and wages higher than the workers.
- Adverse action of the host country (the imposition of higher taxes).
Explicitly recognize the effect of inflation is useful to do because :
1. The effect of price changes in part depend on the transaction and the circumstances facing the company.
2. Manage the problems caused by price changes depend on an accurate understanding of the problem.
3. Reports from managers about the problems caused by price changes much easier to believe when businesses publish financial information that addresses these problems.
Inflation Adjustment Types :
1. Adjustment of the general price level (constant purchasing power historical cost).
a. Currency amount to be adjusted to changes in the general price level is called a constant currency historical cost.
b. Amount of currency that has not adjusted nominal currency called.
Index:
- Changes in the general price level is usually measured by the price level.
- A price index is the ratio of the cost.
Use of Price Indices:
- Numbers price index used to translate the amount of money paid during the previous period to the equivalent purchasing power at the end of the period.
- Numbers - numbers that have been adjusted price levels do not represent the current cost items in question or the numbers are still the historical cost figures - historical cost figures are presented only repeated in the new measurement unit - the general purchasing power at the end of the period.
General Price Level Adjustment object:
- Traditionally, profit is part of the company's assets that could be drawn by the company during an accounting period without reducing his wealth to below the starting position.
- Accounting conventional measure of income as the maximum amount that can be drawn from the company without reducing the amount of money into capital initially.
- During inflation, the company will experience a change in wealth that is not related to operating activities which generally arises from changes in assets or liabilities.
2. Now Cost Adjustment (Current Cost Accounting).
- The fixed assets are now valued at cost rather than historical cost.
- Profit is the amount that can be distributed by the company of a period but still be able to maintain productive capacity and physical capital of the company.
- One way to preserve capital is to adjust the initial net asset position of the company (which uses a specific price index is right or direct pricing) to reflect changes in the equivalent current cost of assets during the period.
- This method is viewed as income the amount of resources can be distributed over a certain period, by ignoring tax considerations, and at the same time maintaining the productive capacity or physical capital firm.
Viewpoint Internassional to international accounting
United States
1. In 1970, the FASB issued Statement of Financial Accounting Standards (Statement of Financial Accounting Standards, SFAS) No. 33 Entitled "Financial Reporting and Changing Prices", this statement requires U.S. companies that have inventory and fixed assets worth more than $ 125 million or total assets of more than $ 1 billion, for the past five years trying to make disclosure of constant purchasing power historical cost and current cost of constant purchasing power.
2. FASB issued guidance (SFAS 89) to assist companies that report the effect of a statement of the price change
3. Reporting company is encouraged to disclose the following information for the last 5 years:
- Net sales and other operating income
- Profit from continuing operations based on current cost basis
- Purchasing power gain or loss (monetary) on net monetary item.
- Increases or decreases in current cost or recoverable amount (the amount of net cash is expected to be recovered through use or sale) is lower than the inventory or fixed assets, net of inflation (the general price level changes).
- Each aggregate foreign currency translation adjustments, based on current cost, arising from the consolidation process.
- Net Assets at the end of the year on the basis of current cost
- Earnings per share (from current operations) on the basis of current cost.
- Dividends per common share.
- The market price of the end of the year per ordinary share.
- The Consumer Price Index (Consumer Price Index-CPI) used to measure income from current operations.
4. To enhance the comparability of data, information can be presented in:
- Equivalent purchasing power of the average (or late), or
- Dollar base period (1967) used in calculating the CPI.
English
1. UK Accounting Standards Committee (Accounting Standard Committee-ASC) issued Statement of Standard Accounting Practice 16 (Statement of Standards Accounting Practice, SSAP 16), "Accounting for Costs Now" for a trial period of 3 years in March 1980.
- SSAP 16 adopt only the current cost method for external reporting
- The cost report is now in the UK requires that both the income statement and balance sheet are now charged, along with explanatory notes
2. Standards in the UK to allow the three reporting options:
- Presenting the accounts as a current cost basis financial statements with supplementary accounts of historical cost
- Presenting the accounts of historical cost as the basis of financial statements with supplementary accounts of current cost
- Present the current cost accounts as the only account that is equipped with an adequate historical cost information.
3. In the treatment of gains and losses relating to monetary items SSAP 16 requires two numbers, both of which reflect the effect of specific price changes, namely:
- monetary working capital adjustment (Monetary Working Capital Adjustment-MWCA), acknowledges the influence of price changes specific to the total amount of working capital used by the company in its operations.
- adjustment mechanism, allowing the effect of price changes specific to non-monetary assets of the company (such as depreciation, cost of goods sold, and the monetary working capital). Adjustment mechanism recognize that the income statement does not require additional replacement cost operating assets as far as assets are financed through debt.
Brazil
The recommended inflation accounting in Brazil reflects the two groups reporting options, namely :
1. Brazilian Corporate Law
birthday presents accounts of permanent assets and shareholders' equity by using a price index which is recognized by the federal government to measure the local currency devaluation
2. Brazilian Capital Market Commission
requires a method of accounting for companies whose shares are publicly traded have to resize all transactions that occur within a period by using the functional currency.
At the end of the period, the index prevailing general price level to change the general purchasing power of the unit to be nominal local currency units. Also:
a. Inventory is categorized as non-monetary assets and re-measured using the functional currency
b. monetary items are non-interest bearing with maturities exceeding 90 days are discounted to present value to allocate profits and losses of inflation that occurred in a period of adequate accounting
c. Adjustments also reclassified to the balance sheet items related to the income statement.
Financial reporting in hyperinflation economy
FINANCIAL REPORTING IN ECONOMIC hyperinflation Statement of Financial Accounting Standard 63: Financial Reporting in Hyperinflation Economic consists of paragraphs 1-40. The entire paragraph has the power to set the same. Paragraphs which are printed in bold and italics to set the main principles. IAS 63 should be read in the context of goal setting and the Framework of the Preparation and Presentation of Financial Statements. IAS 25 (revised 2009) Accounting Policies, Changes in Accounting Estimates and Errors provides a basis to select and apply accounting policies when no explicit guidance. This statement is not intended to apply to elements that are not material :
1. This statement is applicable to the financial statements, including the consolidated financial statements of each entity that functional currency is the currency of an economy experiencing hyperinflation (hereinafter referred to as hyper-inflation economies).
2. Hyperinflation in the economy, reporting of operating results and financial position in the local currency without restatement is not useful. Money loses purchasing power such that the ratio of the amounts of transactions and other events from time to time, even within the same accounting period, be misleading.
3. This statement does not set at a certain level of inflation is considered hyperinflation. Consideration is required in determining when restatement of financial statements need to be done in accordance with this statement. Characteristics of the economic environment of a country which is an indication that the country is experiencing hyperinflation, among others: (a) inhabitants prefer to store their wealth in the form of non-monetary assets or in a foreign currency is relatively stable. Amount of local currency held immediately invested to maintain purchasing power; (b) the population consider the monetary amount is not in the local currency but in foreign currencies are relatively stable. The prices may be confined in a foreign currency account; (c) the prevailing price in the sales and purchases on credit is determined by inserting a factor expected loss of purchasing power during the credit period, even if the short loan period, (d) interest rates, wages and prices associated with the price index, and (e) the cumulative inflation rate over three years approaches or exceeds 100%.
4. All entities that prepare financial statements in the currency of the same hyper-inflation economies are encouraged to apply this statement from the same date. However, this statement is applied to the financial statements of each entity since the beginning of the reporting period when the entity identifies the existence of hyperinflation in the country whose currency is used by such entities to prepare financial statements.
5. Price change from time to time as a result of political influence, economic, social and general or specific. Specific influences such as changes in supply and demand and technological changes may cause individual prices increase or decrease significantly and independently from one another. In addition, the general effects can cause changes in general price levels and purchasing power of money.
6. Entities that prepare financial statements on the basis of historical cost accounting do so without considering changes in general price level or a specific price increase of a recognized asset or liability. An exception to this principle is applied to the assets and liabilities as required, or elected, to be measured at fair value. For example, fixed assets are revalued at fair value. However, some entities present the financial statements based on current cost approach that reflects the impact of changes in specific prices of assets.
7. Hyperinflation in the economy, financial statements, either prepared on the historical cost approach and cost approach now, it will only work if it is expressed in units of measurement that applies at the end of the reporting period. Therefore, this statement is applied to entities that provide financial statements denominated in hyperinflation economy. Entities are not allowed to present separate financial statements are not restated, although attaching the information required by this Statement.
8. Entity's financial statements that functional currency is the currency hyperinflation economy, based on historical cost approach or a current cost approach, are presented in units of measurement that applies at the end of the reporting period. Corresponding figures for the previous period required by IAS 1 (revised 2009) Presentation of Financial Statements and any information in the previous period are also presented in the unit of measurement is now at the end of the reporting period. For the purpose of presenting comparative amounts in a different presentation currency, applied IAS 10 (revised 2010): Effects of Changes
Avoiding the Fall Doubles
1. At present over foreign accounts for inflation in foreign countries, one must be careful to avoid what is called a double fall. This problem arises because the direct effect on the local inflation rate used in translation.
2. inflation adjustment to the cost of goods sold or are intended to reduce the depreciation expense amount of income "as reported" to avoid further assessment of net income. However, due to the influence of an inverse relationship between local inflation and currency values, changes in foreign exchange rates in the financial statements of the sequence, which is generally caused by inflation, causing some of the effects of inflation on the operating results of companies "as reported". To avoid the influence of the adjustment process inflsi twice the inflation adjustment must take into account the loss of translation that has been reflected in the results "as reported" from a company.
