State and Federal Governments in Environmental Regulation

Submitted by Mr. Greene.

State and Federal governments play a major role in environmental regulation all around the country, and this affects businesses all around the nation as they must comply with regulations set by the government to protect the environment that people live and work in every day. One such case occurred in Oregon a few years ago during a drought that caused many people all across the state to lose their livelihoods due to being forced to comply with government regulations to protect wildlife. This paper will discuss some of the roles that governments play in businesses and how they affect businesses around the nation.

To gain a better understanding of the actual affect of regulations upon businesses it is important to first look at a case in which regulations played a key role in governing businesses practices. In Oregon in 2002 during a particularly dry period both State and Federal governments enacted policies to protect wildlife reserves from being used for water sources in order to protect the wildlife in the area. Oregon farmers and business owners, being forced to comply with the regulations, had to seek other sources of water to help protect the environment and as a result many people lost their homes due to their inability to find appropriate alternative sources of water and thus being unable to continue business operations and maintain an income.

The case of Oregon farmers and related individuals is only one of many such cases around the nation where government regulations play an important role in controlling business practices for the sake of the environment. While businesses may suffer sometimes the regulations act to protect all individuals and ensure environmental wellbeing. In this case the Endangered Species Act was used to protect the area due to a rare fish that was found in the Klamath Basin, though other regulations such as the Occupation Safety and Health Act (OSHA) operate throughout all forms of business daily to help protect employees on the job. All companies, my employer included, must abide by these rules in order to protect both employees and the environment around them from hazards that may cause damage to their health and wellbeing. The Environmental Protection Agency (EPA) is responsible for developing and regulating many of these acts and acts to ensure the good working conditions and healthy environment for all people around the nation.

In conclusion, both State and Federal government regulation plays an important role in regulating business practices on a regular basis. While some people may suffer from this, as is the case of the Oregon farmers during the 2002 drought, most if not all people benefit from the regulations.

Tax Law and Accounting

Submitted by Alice.

There is an old saying that says, “There are only two things that are certain in life: death and taxes.” While some people may think of this as simply an old saying to not take so seriously (while others still may think of it merely as a catchy quote from “Meet Joe Black” starring Brad Pitt), the fact is that almost everywhere you are in the world taxes play a key role in our lives. Despite their large role, however, many people do not fully understand how they do actually affect us. This paper will hopefully shed some light into this mystery by focusing on three primary aspects: the objectives of modern income tax statues, how Generally Accepted Accounting Principles (GAAP) and tax accounting are different, and the difference between tax avoidance and tax evasion.

The first step to understanding taxes is, for many, to first understand why we have taxes in the first place. As citizens many people take for granted what benefits we gain from the government developing the country around us. The various infrastructures, public systems, education, and the very safety of the citizens in a country are all affected by government funds. People generally are unable to pay for these services directly out of their own pockets, so the government provides for the care of its citizens out of its own funds. Every day there are numerous activities going on throughout the country and, as the US Department of the Treasury states on its website, “taxes, and especially the paying of taxes, yield citizens a personal sense of the total price of those activities” (Taxes and Society, 2008).

So how does this pay into the objectives of modern income taxes? As most people know, the United States tax system is special in that citizens generally can pay taxes to a variety of levels: federal, state, and even city taxes depending on where you live. Regardless of whom you pay taxes to, or if you live in the United States or in some other country around the world, the objective of income taxes still remains the same. Just as was mentioned in the previous paragraph, taxes are used to fund various government activities that affect the citizens of a country throughout their everyday life. Income taxes provide a way to ensure that the government is able to collect revenue from its citizens efforts at a variety of governmental levels to provide proper care and service for its people and keep the country running.

After understand why taxes are important, another important aspect to understand is how tax accounting differs from Generally Accepted Accounting Principles (GAAP) that most businesses in the United States use for their financial reporting. The primary cause of the difference between the two is the usage of the Matching Principle that is required by GAAP. Under the Matching Principle all revenue and losses need to be recorded when they are officially received or expended by the company while the tax code recognizes them automatically, such as the case where fees are collected in advance and GAAP would recognize the revenue when it is earned over time while tax code considers the rent taxable income automatically (Accounting for Income Taxes, 2003). This difference could cause a variety of differences, such as in depreciation consideration as well where GAAP may allow for the use of a depreciation method such as straight-line depreciation where the tax code may require accelerated depreciation methods. The resulting differences often cause differed tax assets or liabilities that individuals may transfer from one accounting period to another depending on the financial situation of the organization in question.

Finally, one last important issue to understand is the difference between two very different things that may not seem so different from each other at first glance—tax avoidance and tax evasion. To put it tax avoidance simply, “The courts recognize the fact that no taxpayer is obliged to arrange his/her affairs so as to maximize the tax the government receives. Individuals and businesses are entitled to take all lawful steps to minimize their taxes” (Tax Evasion and Tax Avoidance, 2008). That means that if anyone follows proper tax reporting procedures and follows all lawful steps to minimize the amount of taxable income possible during a tax period this is not an illegal action. This can be done through a variety of means, both on at a personal and a corporate level. This is, however, much different than intentionally falsifying tax information that is provided to the government.

Tax evasion, a very serious issue for many people, occurs when people may intentionally falsify financial information in order to pay fewer taxes than are due to the government for any financial period in time. This is usually done by not reporting actual income accordingly or by reporting incorrect deductions to the government for a period of time. This is a crime that is one of the duties of the Internal Revenue Service (IRS) to detect and ensure doesn’t occur regularly, punishing offenders accordingly. Tax evasion can easily be confused with tax avoidance for many people in consideration of how taxes can be paid or have payment differed over a period of time. For example, reinvesting capital gains from the sale of real estate into new real estate in order to differ the capital gains tax that needs to be paid is tax avoidance rather than evasion as it is a legal means of “putting off” paying the tax until a later date through deferment, rather than evading it entirely. In essence, tax avoidance means using acceptable means to pay less taxes legally, while tax evasion means falsifying records to pay less taxes illegally.

In short, taxes are an aspect of life that are constantly changing in minor details, but almost always there no matter where you live. While understand the objectives of modern income tax statues, how Generally Accepted Accounting Principles (GAAP) and tax accounting are different, and the difference between tax avoidance and tax evasion may help clear some of the fog that may revolve around tax issues the best guarantee for understanding the issues in an ever changing world is to keep up on legal news. There may be many things that come and go with time but, as the old saying goes, there will always be taxes.

References

Accounting for Income Taxes (2003). MIT. Retrieved March 9, 2008, from http://ocw.mit.edu/NR/rdonlyres/Sloan-School-of-Management/15-514Financial-and-Managerial-AccountingSummer2003/3E30FF40-96C8-42B8-857B-9EC7F7407A5C/0/lec11notes.pdf

Taxes and Society (2008). United Stated Department of the Treasury. Retrieved March 8, 2008, from http://www.ustreas.gov/education/faq/taxes/taxes-society.shtml

Tax Evasion and Tax Avoidance (2008). FreeAdvice, Tax Law. Retrieved March 9, 2008, from http://law.freeadvice.com/tax_law/income_tax_law/tax_evasion.htm

Comprehensive Annual Financial Report (CAFR) Analysis

Submitted by Annie.

References

Clifford, Catherine. CNNMoney.com (2008). Dallas-Fort Worth, Texas Grows More

Than Any Other U. S. City, Retrieved April 17, 2008 from

http://money.cnn.com/2008/03/26/real_estate/Metropolitan_Population/index.htm?postversion=2008032708.

DFW 2007 CAFR. Retrieved April 16, 2008, from

http://www.dfwairport.com/airport/pdf/financial/annual/comp-ar2007.pdf.

DFW 2007 Budget. Retrieved April 18, 2008.

http://www.dallascityhall.com/council_briefings/briefings0806/20060816_DFW_BudgetPrint.pdf.

Inventory Valuation Methods

Submitted by Doug Phillips

While specific identification for inventory valuation is the most accurate and provides the most real figures, FIFO, weighted average, and LIFO methods are more cost-effective and provide a much better financial look for a company if used in the proper situations. While under times of inflation LIFO offers the best inventory valuation for income tax purposes, allowing for inventory to be valued according to the most recent market prices in order to reduce company inventory accounts and provide a more conservative income. FIFO works the same for periods of deflation, removing the most expensive inventory from records first regardless of which item is actually on hand, thus reducing inventory costs and providing a positive income evaluation. The weighted average approach provides a general valuation for fluctuating period of both inflation and deflation. Utilizing these other methods is much more cost effective than specific identification and can be used regularly from year to year, this allowing a company to reduce its recorded assets and limit its income in a conservative manner, thus providing the most benefit from income tax and reporting purposes in regards to assets and revenues.

Accounting Cycle

Submitted by Jim

Within every organization there are a variety of different procedures that are followed in the accounting cycle, and though the general process remains the same the people, individual processes, and systems that are involved. My company, Education First (EF), is no exception to this rule and has a variety of accounting processes in place to ensure the accurate and timely reporting of all of its financial figures around the world. This paper will discuss the company procedures in depth, and give an overview of the entire process in my company.

Being a service company that focuses on student recruitment for sales the primary source of company credits comes from the sales staff known as Course Consultants, or CCs. All CC profits are collected and recorded on a worksheet by the head CC and submitted to the accounting department, along with other expense reports from the Sales and Marketing department, Member Life department (a department that organizes and executes various activities for both students and staff members), and Purchasing department. The accounting departments for each center journalize the transactions and each week submit their reports to the main center in the country that all of the centers are located in where the reports are compiled into one primary report that is sent to the main headquarters in Stockholm for review. The reports are also examined on a monthly basis to see the overall activity for the month, and on a yearly basis to see how the company is faring over the course of the year.

At the end of each week the balances that have been reported for that week are checked, with trial balances, adjusting entries, and adjusting trial balances being done before being submitted for weekly review by the regional headquarters. The accounts are only closed, however, on a monthly basis where all entries previously made in the week are checked for accuracy, after which a post-closing trial balance and reversing entries can be made the following cycle to correct any problems that may have been found in the initial recording.

This process seems a bit extensive at times and involves a lot of checking and re-checking, something that costs a fair amount of money and manpower, yet at the same time for a company like Education First it is almost necessary. Being located in every continent save Antarctica and having centers established in over 70 countries EF is the largest and one of the oldest language education providers in the world. As such the company must maintain accurate records for recording practices on a regular basis or its centers around the world may cause its annual reports to be off by a significant margin, even if each center was off by only a small amount. While computing systems have helped streamline the process across the world there is still the constant issue of human error being present, and to help combat this the company established the reporting chain to ensure that no one center is responsible for all of the financial reporting in an area and the financial figures are checked both locally and internationally in order to ensure accuracy.

To help assist with communication and allow ease of access across the board for staff members regardless of where the staff is located at the time Microsoft Exchange servers are in place with staff logins that allow all reports, emails, and other company information to be easily accessed, shared, and submitted in a timely manner without having to wait for long transfer times or rely on other third party servers. The company also has a dedicated IT team outsourced to India for full coverage all the time that can handle any server errors or other problems that may arise and ensure that the company’s servers are working 100%, save for natural disasters that damage the infrastructure of the country.

In conclusion, to sum up the process one last time, the accounting process for Education First can be described as credits/debits being reported to center accountants, center accountants then reporting to local headquarters accountants, then local headquarters accountants submitting their reports to global headquarter accountants. This process is done worldwide to ensure that figures remain accurate regardless of what country the figures are generating in, from China to the US to Argentina. This process has helped ensure that the company has maintained accurate records for the past 40 years and, with the adaptation of new technology, can only continue to be improved upon and streamlined further in the future.

Auditing and Attestation Services

Submitted by Frank

Auditing Services

Auditing is a term that is used a lot these days in regard to business dealings and establishing whether or not we should trust a company. As stated in the book Modern Auditing, the Report of the Committee on Basic Auditing Concepts of the American Accounting Association (Accounting Review, vol. 47) defines auditing as

a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users (Louwers, Ramsay, Sinason, and Strawser, 2007, 6).

An example of this service applied to everyday life could include financial auditing services provided by a variety of certified auditors around the world in order to verify the content of the financial statements of a company or organization and ensure that the company is maintaining proper reporting practices.

Auditing services are generally requested by any company that has a vested interest in ensuring that their financial records are true and accurate, especially for public review. This generally includes publicly traded companies such as Microsoft, Nike, Intel, and thousands of others around the world that sell shares in the public market. Verification of financial report accuracy is essential both for securing investor trust and for complying with various regulations (such as the Sarbanes-Oxley Act of 2002) in order to ensure that the company is complying with set financial reporting standards and maintaining proper records.

Auditing standards generally follow generally accepted accounting principles (GAAP) that are set by the Financial Accounting Standards Board (FASB) and, in turn, also follow generally accepted auditing standards (GAAS). These principles and standards are influenced by various government acts as well, such as the Sarbanes-Oxley Act of 2002 (SOX) and other governmental decisions designed to promote transparency of financial reports and ensure that auditing is done both professionally and accurately.

Attestation Services

Attestation services vary slightly from standard auditing services yet still relate to both auditing and assurance services. Attestation services are defined as

engagements in which a certified public accountant in the practice of public accounting (often referred to as the practitioner) is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about the subject matter (the assertion), that is the responsibility of another party (Louwers, Ramsay, Sinason, and Strawser, 2007, 943).

In short, in an attestation service a CPA is verifying the claims that another individual’s assertion is correct.

In the growing market today of both traditional and electronic business a wide number of individuals have discovered the need for attestation services. For instance, the growth of the usage of the internet over the past few decades has dramatically increased the public’s need for security and reliability as more and more businesses have gone from traditional commerce to e-commerce. WebTrust for example, a joint venture by both the AICPA and Canadian Institute for Chartered Accountants (CICA), is specifically designed to provide assurance services for e-business customers in today’s changing business world.

In guaranteeing that all attestation follows proper regulations, CPAs performing attestation services must follow eleven general attestation standards as stated in SSAE 1 (compared to the ten generally accepted accounting standards (GAAS))(Louwers, Ramsay, Sinason, and Strawser, 2007, 944). In general, the attestation requirements set forth do not work against the GAAS but instead work to extend the initial guidelines set forth in the GAAS to encompass the wider range of services attestation encompasses.

Assurance Services

Assurance services include areas that are covered in auditing and attestation while also covering non-financial information. Auditing deals with certification of financial statements while attestation deals with the additional financial information. Other areas of assurance services cover non-financial information and they can be provided by CPAs as a way to enhance the quality of information for decision makers. These decision makers of non-financial information are generally smaller user groups (Louwers, Ramsay, Sinason, and Strawser, 2007).

With the popularity of the internet has come the need for assurance services such as WebTrust. This internet website certification helps smaller user groups determine the type of website they are dealing with. Other forms of assurance services are SysTrust, Performance View, Risk Advisory, ElderCare, CPA Performance View, customer satisfaction surveys, evaluation of investment management policies, and fraud and illegal acts prevention and deterrence.

The standards for assurance services are established in part by the AICPA through the development of the Assurance Services Executive Committee (ASEC). The ASEC looks to fill in the gap in information as well as to “develop practice guidelines that will assist CPAs in industry, government, or public practice in implementing new assurance methodologies and services” (AICPA, 2008, ¶7). Other standards in the areas of auditing are also established GAAS and regulations set forth by the Securities and Exchange Commission.

References

AICPA. (2008). Business Reporting Assurance Services. Retrieved May 25, 2008, from

http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/BRAAS/

Louwers, Ramsay, Sinason, and Strawser. (2007). Auditing and Assurance Services (2^nd. Ed.)

McGraw-Hill Companies, Inc

Fun Business Law Scenarios (and possible analysis)

Submitted by Bob Yang

Fact Pattern #1

Your neighbor hangs plants on your fenceline and they stay there for 20 years.  You sell your home and the new buyer objects to the hanging of the plants on the fence.  You are gone, you don’t care.  But can the new homeowner object or is there some legal issue he isn’t aware of?  Hint:  It isn’t trespassing, check the real property law.

According to the Uniform Commercial Code Section 9-334 covering Secured Transactions and, in this particular section, Priority of Security Interests in Fixtures and Crops, the plants have become fixtures and the code prevents the creation of an encumbrance upon fixtures under real property law. Given that the plants have remained on the fence for over 20 years without prior objection they are protected. The neighbor has no legal grounds for objection.

Fact Pattern #2

You have a feeling that you might have to file bankruptcy.  So two months before, you decide to transfer your house to your uncle in Albany. Is this necessary? Is this legal?

According to bankruptcy law the transfer of property within 730 days (2 years) if filing are tangible assets for creditors to cover bankruptcy debts during bankruptcy proceedings. The transfer of the house to the uncle in Albany 2 months prior to filings to avoid losing the property can be considered fraud in bankruptcy court is illegal therefore the property transfer is neither necessary nor legal in this case.

Fact Pattern #3

You run a Pet Store that allows dogs to enter.  You are formed as a C-Corporation and have only two or three shareholders.  One day, a dog comes in and bites another customer after the customer tried to give it a cookie.  You leave cookies out for people to give to their dogs.  Can the customer sue you and go after your personal assets because of this?

According to my understanding of the “At-Risk Rules” that apply to C-Corporations if a C-Corporation has five or fewer stockholders that control at least 50% of the company stock then At-Risk Rules apply and therefore the shareholders may lose up to all of their investment in the company however they may not lose more than their investment. In this case, given the circumstances, the consumer can sue the company but not the personal assets of the company’s shareholders.

Fact Pattern #4

I fire you because you have too much debt.  You have no employment contract.  Can I do that?

In normal employment situations an employer may not terminate an employee for bad debt in their financial history. In this case, however, the employee does not have an employment contract with their employer. Seeing as the employer has no legal obligation to keep the employee with the company the employer may choose to terminate the employment agreement with the employee at any time. In this case, though the actual actions of the employer are illegal in normal employment settings, there is no obligation on the employer’s part to continue having the employee with the company and therefore the employer can terminate the employee.

Fact Pattern #5

You are a director in a C Corporation you formed.  You are running a little short on funds, so you dip into the corporate account to take the horse races. You dip a little too much and someone notices.  Could your personal assets be at risk if you are sued over this?

In a C-Corporation if a member takes funds from the company for personal use the corporation has legal right to acquire from the embezzler assets to regain its loses in the matter. If the corporation decides to sue the director in this case the assets at risk can be considered company property and therefore personal assets can be acquired to compensate the corporation for its loses, therefore the director may lose personal assets due to fraudulent activity.

Business Entity Regulations

Submitted by Bremm

Within Oregon the laws and regulations governing the formation and filings for corporations are similar to those in all other states. These laws are in place in order to ensure that corporations adhere to proper guidelines and obey all regulations that are pertinent to proper business operations, from their formation through their operations process. This paper will describe the formation codes for a business in Oregon, provide the locations of the state’s corporation commission, and describe the process for obtaining an annual filing report for a corporation currently registered in the state.

When forming a business in Oregon, the first step for most businesses is the Business Formation Center, a cooperative outreach effort that is designed to assist in the formation processes of business throughout the state (Oregon Secretary of State, 2007). This center was designed to assist in the formation of business and is a government effort to assist in the formation of new job opportunities throughout the state. All business and formation codes as well as laws and regulations may be found through this source, or online at the Secretary of State’s website. This is especially important given the number of new laws that come out each year, such as HB 2090 that prevents corporations from submitting documents containing social security numbers in exchange for a unique identifier in order to help prevent identity theft (New State Laws, 2007). Knowledge of these laws and regulations is important in ensuring that the business formation process and the businesses’ continuing operations continue without any major difficulties, especially for a multi-national corporation such as the one I currently work for that has employees and offices in every continent, excluding Antarctica, and must maintain up-to-date business procedures for every area of operation.

Knowledge of the location of the Oregon corporate commission is also important should any individual wish to seek additional information about corporations currently in operation throughout the state. The Oregon’s corporate commission can be found through the Secretary of State, Corporate Division at the capital building on 255 Capital St, Ste. 151 in Salem, Oregon 97310-1327, or they can be contacted by phone at (503) 986-2200 (National Corporate Records Directory, 2007).

For obtaining an annual report filing for corporation in Oregon, the process can be accomplished by contacting the Secretary of State, Corporate Division mentioned above and requesting the information (or simply search on the corporation’s website). If the Corporate Division is contacted directly a small fee will be required ranging anywhere from $5 to $15 for processing; however no corporate tax returns are public information for retrieval (National Corporate Records Directory, 2007).

Understanding each of these aspects of company formation and operation is important for any company either starting off or wishing to continue operations in any given area. For my particular company is it especially important given the fact that they are an international company that needs constant proper knowledge of all business procedures in the geographic area of operation they decided to operate in. Regardless, big or small, basic legal knowledge is important to all companies around the world, from the location of laws and codes to the offices in which they can seek help if needed.

References:

New State Laws (2007). Retrieved August 19, 2007, from http://www.filinginoregon.com/lawsandrules/2007_new_state_laws.htm

National Corporate Records Directory (2007). Oregon. Retrieved August 19, 2007, from http://www.courtguide.com/pro/main5.html

Oregon Secretary of State (2007). Corporate Division. Retrieved August 19, 2007, from http://www.filinginoregon.com/business/starting_a_business.htm

FAS 52

Submitted by Abby Cross

With a multitude of Financial Accounting Standards (FAS) to choose from it is difficult to choose only one to analyze and provide opinions about. For me there is one in particular, however, that I find interesting and can relate to at a personal level. That Standard is FAS 52, covering foreign currency translations for businesses with operations in multiple countries dealing with various currencies. To be more specific, this paper will provide a brief recap of the Federal Accounting Standards Board (FASB) statement, interpretation of the statement and its usefulness in accounting, application of the statement to business, and conclusions from additional research that has been done into the statement.

To briefly introduce the Statement, Statement of Financial Accounting Standards No. 52 on foreign currency translation (FAS 52) was introduced in December 1981 as a way to address businesses with large amount of foreign currency being used overseas and to help address hedging procedures and issues used by businesses. These changes were partially brought about by the previous FAS 8 that initially attempted to address these issues as well as the strength of the US currency against foreign currencies at the time that led many businesses to have overseas investments.

The importance of FAS 52 to the accounting profession is actually something that remains important to this day, and although it was amended later by FAS 133 in June of 1998 it has for the most part remained unchanged due to its usefulness in the field. Prior to FAS 52 companies reported funds generated overseas in a variety of ways and attempted to hedge their overseas spending that, in turn, provided inaccurate financial reports due to lax procedures in the past. Following the introduction of FAS 52 companies could differ translation gains and losses (putting them into a new “equity adjustment for translation” account) and adjust hedging procedures accordingly.

For me I find this Statement of particular interest as I am an American currently living and working in an overseas environment and dealing with international business daily. While my particular employer at the moment is actually a Swedish company we have a number of locations throughout the world, including the United States, and as such have to deal with a multitude of currencies. To focus on one particular currency, however, I’d like to examine my own local currency more and how FAS 52 affects business dealings with it: the Chinese Ren Min Bi (RMB).

Up until recent years the RMB has been pegged to the US dollar in that the conversion rate was a steady 8.26:1 RMB to USD regardless of the actual fair market value of the US dollar or the Chinese RMB. Beginning in 2005, however, the RMB was “un-pegged” and allowed to float (albeit restricted) and appreciate against foreign currencies. While the result was slow at first the RMB has now appreciated to 6.845:1 RMB to USD. This shift may not seem like a major difference to some (a mere less than two points) however the result is substantial when examined at a large scale. Suddenly $1 million USD is now worth only 6.845 million RMB instead of 8.26 million, whereas conversely 1 million RMB is now worth $146,092 when it used to be worth only $121,065.40 a few short years ago. Further, the RMB has appreciated a steady 0.1 points against the USD a month for the past 10 months straight. The result? Any business done even a month ago is no longer worth the same value now in conversion as it was at that time, thus greatly affecting company books around the globe.

For many businesses the appreciation of the RMB has had a profound effect upon their business returns and expenses, both in a positive way for revenues generated domestically in China as well as in a negative way for increased expenses with less benefit for funds invested from overseas. While it would be a major oversight to say that China is the only country experiencing situations such as this I can relate to many of the effects of this from personal and professional observations of changes that are occurring. Still, the changes are not entirely negative and are not necessarily a major loss for many companies. FAS 52, for example, accounts for currency changes and allows for temporal adjustments rather than fixed rates at the time of reporting (depending on what the primary currency being used for computation is) and reported appropriately on a company’s financial reports. That means that a company may still experience financial shifts such as what is happening in China at the moment and adjust its books accordingly rather than have extreme differences exist between company accounts.

With the previously mentioned items in mind FAS 52 has a profound impact upon business decision makers when consider both transaction and economic exposure. In many cases in the past businesses have hedged against transactions exposure in the past, dealing with individual transactions and short-term realizations of gains and losses in a fluctuating foreign market. Under FAS 52, however, the deferment of gains and losses when the primary currency is not the US dollar means that businesses are more concerned with economic exposure, or the overall long-term state of the market.

When examining all of these changes that have occurred in the past, however, the question does come to mind: how will future developments affect FAS 52 as we continue to develop and expand businesses across a global market place rather than the limited domestic marketplace of the past? FAS 52 was created in 1981 to help address US interests abroad at the time where FAS 8 failed, and was later amended by FAS 133 to accommodate change in 1998. Ten years later than the last amendment now we are in a world that is smaller and smaller in the sense of business interaction, communication, and travel, and with growing universal changes and acceptance of some currencies (as is the case with the Euro throughout most of the European Union) as well as the amount of foreign currencies that are dealt with each and every day by businesses how will accounting guidelines adapt to the changing world demands?

While conducting research on the subject I came across a variety of different sources of information. Of particular note I think, though, is not what is contained within the various resources but the quantity of resources available out there. Having been in use and affecting businesses for nearly 30 years now FAS 52 has become ingrained in the minds of financial decision makers throughout the United States, from CFOs to accountants dealing with international exchanges. While this may seem as a blessing to those studying current financial standards it is actually a blessing in disguise when the long-term state of global markets is concerned. Just as the United States is facing the issue of global standardization of accounting policies to merge International Accounting Standards Board (IASB) and FASB protocols to harmonize financial reports so could the presence of outdated (or soon to be outdated) policies being widespread affect the overall flexibility of financial decision makers and potentially have a great negative effect on the effectiveness of changing policies when the time comes.

With future positive changes aside, analysis of the Financial Statement as it stands leaves some vagueness in interpretation of the standard that could easily lead to confusion for many businesses that do not have experienced professionals to assist them in adapting their books to the set standards and could continue to cause issues even years after the Standard has been enacted. Some of these vague areas include even basic issues such as economic exposure and adjustments that affect them, when less experienced (and sometimes even long-term financial professionals) make adjustments to their financial planning in regards to their international areas of interest that may not be to the greatest benefit to the company and may in fact be contra-productive to the overall goal of FAS 52.

In some ways this issue has been addressed internationally as well as domestically within the US with the introduction of International Accounting Standard No. 21 (IAS 21) that is in effect similar to FAS 52 and addresses many of the issues that FAS 52 addresses, however despite its relative newness compared to the old FAS 52 standard it still has similar weaknesses to FAS 52 in that it does not entirely address the growing problem of higher globalization of companies and the pure mass of information being handled, and with talks of merging IASB and FASB standards into a harmonious global standard this can be even more difficult to achieve in the short-run as accommodations need to be made to merge existing systems that may actually slow down the handling of global issues in the near future if harmonization is achieved. Still, the potential exists to address the issues should that time become necessary.

In retrospect there is a lot that surrounds Financial Account Standard No. 52 and its current and potential impact upon both domestic and international business operations. As discussed in this paper’s brief analysis of it as well as the following discussion of the Standard, its application to business, and other issues that affect it both today and potentially in the future it is something that has both had a major impact upon the accounting profession and if addressed properly will continue to have a lasting and positive effect on accounting in future. The key to achieving that effect and seeing it through to future years, however, is due diligence and attention that many times FAS 52 seemingly does not get in regards to updating it for coming changes rather than simply amending it to accommodate changes as they occur. With any luck accounting policy decision makers will realize this and make appropriate changes to the policy to adjust for current and foreseeable future needs before it is too late.

Resources

Consolidating Foreign Subsidiaries (1997). University of Illinois at Urbana Champion. Retrieved August 24, 2008, from http://www.business.uiuc.edu/doogar/ACCY493/Sp%2004%5CDay%2011%20FAS%2052%20Lecture%20Notes.pdf

FAS 52 (2008). Statement of Financial Accounting Standards No. 52, Foreign Currency Translation (first issued Dec. 1981). Retrieved August 23, 2008, from http://www.fasb.org/pdf/aop_FAS52.pdf

FAS 133 (2008). Status of Statement No. 133. Retrieved August 23, 2008, from http://www.fasb.org/st/status/statpg133.shtml

IAS 21 (2008). IAS 21: The Effects of Changes in Foreign Exchange Rates. Retrieved August 24, 2008, from http://www.iasb.org/Products+and+Services/Education/Education+Material+and+Services+by+Standard/IAS+21.htm

Norton, Edgar (1993, June 1). Hedging considerations under FAS #52. Retrieved August 24, 2008, from http://www.allbusiness.com/human-resources/careers-career-path/389720-1.html