Research Articles Base: International Finance

BP BILLITON CASE STUDY ON INTERNATIONAL FINANCE

BP BILLITON CASE STUDY ON INTERNATIONAL FINANCE MULTINATIONAL FINANCIAL MANAGEMENT <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Company Background</li> BP Billiton is a global leader in the natural resources sector formed from a merger in 2001 between two complementary companies – BP (Broken Hill Proprietary Company), an Australian company, and Billiton, a British firm. The organization is headquartered in Melbourne, Australia, with significant corporate management presence in London, as well as corporate centers in Johannesburg, South Africa and Houston, USA. The company provides a range of products: aluminum, base metals, carbon and stainless steel-making raw materials, diamonds, energy coal and petroleum. The firm has a total workforce of over 100,000 people from their areas of operation. <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Company Goal</li> According to the 2006 Annual report, BP Billiton’s primary business goal is to create long-term value through the discovery, development and conversion of natural resources, and the provision of innovative customer and market-focused solutions. <li class="MsoNormal" style="text-align: justify; line-height: 200%"> International  Business Methods Utilized</li> Exporting. Primarily, they export mining products to their countries of operation. For instance, they sell lump ore and fines from Australia and Samar co sells pellets from Brazil to steel producers, which are principally exported to China, other countries in Asia, Africa and the Middle East, Europe and the United States. Further, most of their export sales are made under short and medium-term contracts in Europe, Asia and the US. Importing. They import but this is only one of their support activities, as they sometimes have to purchase equipment and acquire of services from outside Australia. International Joint Ventures. They have various international joint ventures with other companies. They hold a 38.5% working interest in the Samara project, a 33.76% working interest in the West Cameron 76 joint venture, a 30.95% working interest in the Star lifter (West Cameron 77), a 43.66% working interest in the Mustang (West Cameron 77) joint venture, a 45% working interest in the Angostura development joint venture, a 46.1% working interest in the joint venture of the Liverpool Bay asset, a 16% interest in the Bruce field, an effective 45% working interest in the Hornet joint venture, a 45% interest in the joint venture contracted under the 401a/402a PS, among many others. They are likewise a participant in the North West Shelf (NWS) Project, an unincorporated joint venture. Also, they hold a 90% share of Minerva development in a joint venture agreement. Foreign Subsidiaries. In addition to the joint ventures, they also have subsidiaries which help them operate internationally. For example, Ingwe Collieries Limited, a wholly-owned subsidiary, they are able to operate six coal mines in the Wit bank region of Mpumalanga province of South Africa. Jersey Limited is likewise a wholly-owned subsidiary of BP Billiton Plc. Additionally they have the Billiton Investment 3 BV, Billiton Investment 3BV and Billiton Investment 8 BV (BP Billiton Shareholders) subsidiaries. <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Significant Agency Problems</li> Due to the immensity of the scope of their operations, the major problems lie in the a great demand for everything the world’s biggest mining company pulls out of the ground, especially iron ore and coal (the two elements that produce steel), but with too few workers for their size. Also, because of the nature of their business, they touch on the very delicate issue of environmental protection in the course of their business operations. Further, since they operate in several countries where ownership of land is uncertain and where disputes may arise in relation to ownership, there is a risk that this may cause disruption to some of their mining projects and prevent the development of new projects. Additionally, the business could be adversely affected by new government regulation such as controls on imports, exports and prices, new forms or rates of taxation and royalties. <li class="MsoNormal" style="text-align: justify; line-height: 200%">BP Billiton Expansion Plans</li> BP Billiton’s current chairman, Don Argus, stated that his organization believes that they have unique opportunities and challenges as a result of the new industry environment, most importantly the potential for a multi-decade of high demand growth driven by China, India, Russia and the developing South American economies. The integration of W.M Resources’ assets into the BP businesses and the sale of its fertilizer business were successfully completed during the year with the result of significantly boosting nickel and copper production during a year of strong prices, adding uranium to BP’s product range and providing growth options for the future while continuing to optimize the business portfolio. Their global exploration activities continued to increase as they search for the next set of options for growth, many of which will be in regions that will create their own set of challenges, as they focus more intently on opportunities in sub-Saharan Africa. INTERNATIONAL FLOW OF FUNDS <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Countries of Operation</li> BP Billiton has operations in the major resources provinces of Africa, Australia and Latin America, as well as a presence in the markets of North America, Europe and Asia. <li class="MsoNormal" style="text-align: justify; line-height: 200%">Effect of Changes in International Trade to Export Business</li> Diversified across products, markets and regions, our asset base provides relatively stable cash flows regardless of variations and risks in areas such as commodity prices, currency exchange rates and geopolitical conditions. This was shown in their consolidated cash flow statement, where the entry for the effect of foreign currency exchange rate changes on cash and cash equivalents is a positive USM, as compared to last year’s negative USM. Their export activities was affected in that foreign exchange rate movements resulted to the rise to a wider range of deferred tax assets and liabilities and an increase in the volatility of deferred tax balances. INTERNATIONAL FINANCIAL MARKETS <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Foreign Exchange Market Utilization</li> The foreign exchange market is used by BP as the medium in where it facilitates trading with other multinational corporations. Also, since they seek for foreign exchange to purchase the materials and acquire the services that they need, the foreign exchange market is the playing field of such activities. <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Eurocurrency Market Utilization</li> Since BP makes bank deposits in the various countries that they operate in, it makes use of the Eurocurrency because the latter are the deposits residing in banks that are located outside the borders of the country that issues the currency the deposit is denominated in. For instance, an African bank where they put in their money has a deposit denominated in Australian dollars; the deposit is called Eurocurrency deposit. <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Eurobond Market Utilization</li> The Eurobond market, together with the Eurocurrency, is utilized by the MNC under study as they avoid domestic interest rate regulations, reserve requirements and other barriers to the free flow of capital (Butler 2004). BP uses it because they most of the times need to issue Australian currency to be traded outside of Australia and in a different monetary system, like South African rand. <li class="MsoNormal" style="text-align: justify; line-height: 200%">Stock Listing</li> BP Billiton has a primary listing on the Australian Stock Exchange, and secondary listings in Germany (Frankfurt) and Switzerland (Zurich). In addition, American Depositary Shares (each representing two ordinary BP Billiton Limited shares) evidenced by American Depositary Receipts (Adds), trade on the New York Stock Exchange. Further, they are also listed in the Johannesburg Stock exchange and the London Stock Exchange. EXCHANGE RATE DETERMINATION <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Currencies Utilized in Conducting International Business</li> The currencies in which the BP uses to conduct its businesses are: Australian dollars, Pounds Sterling, US dollars, South African rand, Euro, Chinese Yuan, Brazilian real, the Chilean peso and Colombian peso, among dozen others. <li class="MsoNormal" style="text-align: justify; line-height: 200%">Last Year’s Changes in the Currencies</li> The US dollar is the main currency used by BP to conduct most of its businesses. The said foreign currency has witnessed some notable swings versus major currencies in recent times. For instance, over most of 2005, it expanded 13% against the Euro and nearly 18% vs. the yen, while between March and May 2006, it sharply decreased in value against the mentioned currencies, losing almost 10% of its value. Also, the UK Pounds Sterling saw a 12.05% and a 15.11% positive movement as against the US dollars and Japanese yen, respectively, during the last year. CURRENCY DERIVATIVES             For the multinational company, expert knowledge and skills are essential in managing the vast and complex global array of financial markets, financial institutions and financial instruments. BP Billiton trades in the financial futures and options exchange market to protect or hedge the firm against future financial risks such as adverse interest rate movements by using interest rate futures contracts. GOVERNMENT INFLUENCE ON EXCHANGE RATES             Aside from the US dollar, one other foreign currency used by BP is the UK Pound Sterling (GAP). As against the dollar, it has the following changes on the daily basis, starting last week: 02/09/2007 1.96620 02/10/2007 1.95380 02/11/2007 1.94980       02/12/2007 1.94970 02/13/2007 1.950 02/14/2007 1.94640     02/15/2007 1.95230               Further, the Loanda site showed the following data, which is additional evidence that the GAP changes on a daily basis as against the US dollar: Currency Pair Current Rate Previous Day Last Week Last Month Last Year EURO/USED 1.3072 0.60 % 1.02 % 1.10 % 9.84 %             INTERNATIONAL ARBITRAGE AND INTEREST RATE PARITY             The 3 month yield comparison of the US treasuries and the UK government bonds show that the foreign interest rate of the latter is higher at 5.35 as against the former’s 5.14. Given this information, the GAP is at a forward premium, meaning the USED is at a discount. For the MNC under study, a working assumption is that interest rate parity holds for the inter-bank rates in this information, and therefore there is no profit in trying to get a better deal by borrowing in GAP and hedging or by borrowing in USED. Credit:ivythesis.typepad.com

BP BILLITON CASE STUDY ON INTERNATIONAL FINANCE

BP BILLITON CASE STUDY ON INTERNATIONAL FINANCE MULTINATIONAL FINANCIAL MANAGEMENT Company Background BP Billiton is a global leader in...

Sample International Conference on the Health Promotion Essay

Health Promotion in Australia   Ottawa Charter for Health Promotion The first International Conference on Health Promotion was held in Ottawa, Canada on 17-21 November, 1986. The conference was the response to growing expectations for a new public health movement around the world. Discussions focused on needs within industrialized countries, but took into account similar concerns in all other regions.   The following information is taken from the Ottawa Charter for Health Promotion. Health promotion Health promotion is process of enabling people to increase control over, and improve, their health. Health is seen as resource for everyday life, not the objective of living. Health promotion is not just responsibility of the health sector, but goes beyond healthy lifestyles to wellbeing. People are involved as individuals and as members of families and communities as professional and social groups, and health personnel, have a major responsibility to mediate between differing interests in society for the pursuit of health. Health promotion strategies and programs should be adapted to the local needs and possibilities of individual countries and regions to take into account differing social, cultural and economic systems.   Commitment to health promotion Move into the arena of healthy public policy, and advocate a clear political commitment to health and equity in all sectors. Counteract the pressures towards harmful products, resource depletion, unhealthy living conditions and environments, and bad nutrition; focus attention on public health issues such as pollution, occupational hazards, housing and settlements. Respond to the health gap within and between societies, and tackle the inequities in health produced by the rules and practices of these societies. Acknowledge people as the main health resource – to support and enable them to keep themselves, their families and friends healthy through financial and other means – and accept the community as the essential voice in matters of its health, living conditions and wellbeing. Reorient health services and their resources towards the promotion of health; share power with other sectors, disciplines and with people. Recognize health and its maintenance as a major social investment and challenge, and address the overall ecological issues of our ways of living.       A history of health promotion development in Australia   Partly because of this success health promotion and preventative programs have attracted increasing attention and resources from all levels of Government. This trend is likely to continue as we have firm evidence that these programs give a big return on the Government’s investment as detailed in a recent report commissioned by my department. The report by Applied Economics was detailed examination ever attempted of costs and benefits of Australian public health programs and found that of the five national programs considered, every one has delivered social and community benefits for beyond its costs.  While there is no formal, nationally agreed policy statement in Australia on health promotion, the principles of prevention and education are now an accepted and increasingly integrated part of our health system. This is supported by a strong infrastructure within both the government and non-government sectors, and greatly improved research. While government action is central, governments cannot work in isolation on the issues as health promotion and disease prevention can only be effective if it reaches people in their homes, workplaces and communities as people have to work across levels of governments, with business, with the medical profession and importantly – with a range of community agencies. Aside, one of the agencies is the national professional association, the Public Health Association of Australia, which was founded in 1967. The association provides strong advocacy for health promotion and prevention, and is actively involved in policy development, research and training. It also provides a forum for the exchange of ideas, knowledge and information on public health in Australia.     Within government, milestone was reached with the creation of the National Public Health Partnership in 1996. With strategic leadership from the Commonwealth, the Partnership was formed by the Health Ministers of the Commonwealth and all of the States and Territories. The Partnership’s role is to identify public health priorities in Australia, and plan and coordinate national strategies to address them. Its key objective is to ensure that all levels of government are working together in an effective and efficient way on important public health issues pulling together rather than just doing their own thing. Australia is grappling with a progressively less active and overweight and obese population with implications for escalating levels of chronic disease. During April 2002, the Council of Australian Governments comprising the Prime Minister, State and Territory Premiers and Chief Ministers and the Local Government Association – made an unprecedented agreement to work together to improve health and status of Aboriginal and Torres Strait Islander people in Australia. There have been improvements in primary care, important raise in attendance for antenatal care attending, reductions in pre-natal mortality rates and low birth-weights and close to such vaccine coverage for children under the age of five years in that community. The ability to work together is essential to delivering future health promotion programs as the programs will need to be effective and flexible in order to address local issues and needs and to respond to international emergencies and to devise new and innovative ways to tackle the difficult problems of co-morbidity and multiple risk factors which are a characteristic of our modern lifestyle. Source of insights above: http://www.health.gov.au/internet/wcms/publishing.nsf/Content/health-mediarel-yr2004-dept-deptsp04002.htm       Explain the rationale for change in at least 3 health or social concerns More than one in ten internet users in Australia suffers from respiratory disease such as asthma and bronchitis and high cholesterol, making them the two main illnesses affecting Australians, according to ACNielsen, a unit of The Nielsen Company, the world’s leading marketing and media information company. In a recently released Global Consumer Report on health concerns, ACNielsen surveyed 25,408 internet users in 46 markets from Europe, Asia Pacific, North America and the Middle East, including 500 consumers in Australia, about their attitudes to and concerns with disease and health issues. Source of insights above: http://au.acnielsen.com/site/Healthconcerns.shtml   Explain how the WHO 5 keys areas of HP action are used in each health concern: o Build healthy public policy o Strengthen community action o Develop personal skills o Create supportive environments o Reorient health services   Build healthy public policy Health promotion policy combines diverse but complementary approaches, including legislation, fiscal measures, taxation and organisation change. Health promotion policy requires the identification of obstacles to the adoption of healthy public policies in non-health sectors and the development of ways to remove them.     Create supportive environments The protection of the natural and built environments and the conservation of natural resources must be addressed in any health promotion strategy. Strengthen community actions Community development draws on existing human and material resources to enhance self-help and social support and to develop flexible systems for strengthening public participation in, and direction of, health matters. This requires full and continuous access to information and learning opportunities for health, as well as funding support. Develop personal skills This will enable people to learn to prepare themselves for all of its stages and to cope with chronic illness and injuries is essential. This has to be facilitated in school, home, work and community settings. Reorient health services The role of the health sector must move increasingly in a health promotion direction, beyond its responsibility for providing clinical and curative services. Reorienting health services also requires stronger attention to health research, as well as changes in professional education and training.  A guiding principle should be that women and men should become equal partners in each phase of planning, implementation and evaluation of health promotion activities.     Identify of keys strategies used in the change action process There were basic strategies from Ottawa Charter for health promotion: Advocate Good health is a major resource for social, economic and personal development, and an important dimension of quality of life. Political, economic, social, cultural, environmental, behavioral and biological factors can all flavour or harm health. Health promotion aims to make these conditions favorable, through advocacy for health. Enable Health promotion focuses on achieving equity in health. Health promotion action aims to reduce differences in current health status and ensure the availability of equal opportunities and resources to enable all people to achieve their full health potential. This includes a secure foundation in a supportive environment, access to information, life skills and opportunities to make healthy choices. People cannot achieve their fullest health potential unless they are able to control those things that determine their health. This must apply equally to women and men. Mediate The prerequisites and prospects for health cannot be ensured by the health sector alone. Health promotion demands coordinated action by all concerned, including governments, health and other social and economic sectors, non-government and voluntary organisations, local authorities, industry and the media.   Examine the use of evidence based research to justify and discuss the topic   Infrastructure refers to the systems for policy development,priority setting and resource allocation, monitoring and surveillance, research and evaluation, workforce development, and programdelivery that direct and support action to promote, protectand maintain the health of the population (National Health andMedical Research Council, 1997 p. 342).Health promotion programs are ‘delivered’ throughspecialist health promotion services, community health and primaryhealth care services, hospitals, and general practice. In addition,the private sector, non-government organizations and communityorganizations also fund and/or deliver health promotion. The plethora of fenders and providers of health promotion has resulted in some confusion about roles and responsibilities,and about leadership. A National Public Health Partnership hasbeen established in an effort to develop a more consistent,comprehensive approach to identifying and solving public healthproblems.There has been concern that the separation of policy, purchasingand service provision in health and disability services hasled to fragmentation of effort, and some reduction in investmentin infrastructure development. But there have been advantages,e.g. better information about what is purchased, increased focuson health outcomes, and the development of Maori purchasingand provider organizations.           HEALTH PROMOTION PROGRAMS In Australia, priority populations have been identifiedin relation to each of the national health priority areas, butthere is a worrying lack of priority given to the health ofadolescents. Positive changes have been achieved in health literacy, environments, policies, structures, and in some cases, the reorientation ofhealth services. These have, in turn, resulted in reductionsin the prevalence of risk behaviors and in premature mortalityfrom a range of conditions (National Health and Medical ResearchCouncil, 1997 p. 876; Ministry of Health, 1998 p. 385). The priority programshave enabled comprehensive approaches to develop over sufficienttime in which to achieve changes in the health of the population.The challenge lies in achieving equity in health outcomesacross the populations in each country. The focus of priorityprograms must change to address equity rather than specifichealth problems if success is to be achieved. In Australia, the national peak body responsible for medicaland public health research and policy advice recently restructuredand reduced its capacity to fund the research that is necessaryto guide effective health promotion interventions and to providepolicy advice (1996 p. 396; 1998 p. 799). There systems need to be maintainedand strengthen and be successin the following. Ensuring that the health impact of decisions made by all sectorsis assessed and acted upon routinely.Disseminating and implementing sustained programs that incorporatecurrent knowledge of bestpractice.Engaging the personal health sector in actionto promote health (1998 p. 788).     In Australia there are some signs that the success in achievingpolicy and legislative changes across a range of sectors hasled to some concern that the importance of health educationas a vital component of comprehensive health promotion programsis being overlooked.The instability caused by constant restructuring within the health sector militates against the sustained investment in comprehensive programs that is needed for effective health promotion. For health promotion to succeed in the future,the priority health goals and targets will need to include thedeterminants of health, such as income, education and employment.This will provide a mandate for broadening the base from whichaction to promote health is taken, to include all governmentsectors as the non-government, private and communitysectors ensure that there is a much greater emphasison reducing inequalities in health.Priority will need to be given to restoring or building a senseof social cohesion and a sense of well-being across the population tocreating social capital, and nations will need to invest inboth institutional and community capacity to promote health(1997 p. 822). Within the health sector there will beneed for greater and sustained investment in the infrastructureand action needed to promote health. Creative use of the new communications technologies has thepotential to extend community participation in health promotion,to expand and share the information base, and to expand opportunitiesfor community and professional development. It will benecessary to ensure that there is powerful advocacy to securecontinuing investment in action to promote, protect and maintainthe health of the population.There will be need for further development of rangingseries of strategic alliances between the health sector andother sectors. It will mean the health sector identifying theorganizations and sectors with whom it shares interests, anddeveloping the skills and programs necessary to achieve sharedbenefits. Presently, of critical importance will be to extend the debate beyond the academic, political and professional realms and engage citizens in the process of health reform. Although there needs to identify the organizational model that best fits their unique circumstances, the core values and approaches to health promotion including evidence regarding the effectiveness of health promotion interventions have global applicability to health systems. Credit:ivythesis.typepad.com

Sample International Conference on the Health Promotion Essay

Health Promotion in Australia Ottawa Charter for Health Promotion The first International Conference on Health Promotion was hel...

INTERNATIONAL FINANCIAL REPORTING STANDARDS ( IFRS )

International Financial Reporting Standards     This essay takes a look on the issues raised regarding the implementation of the International Financial Reporting Standards. It discusses the benefits associated with the adoption of such standards as well as its implications on companies in different countries. Introduction   International consistency in accounting and auditing standards has become the demand of the global financial markets. With this, several countries have started adopting the International Financial Reporting Standards while others base their local standards on the IFRS. In Europe, public enterprises have already been required to prepare financial statements under the IFRS. On the other hand, reconciliation on the U.S General Accepted Accounting Principles (GAAP) is already being facilitated. The trend towards these international standards is evidently growing and is expected to result in greater comparability and disclosure of information. The transition though encompasses not just the changing of accounting procedures. Companies will have to undergo extensive change and risk management to facilitate adoption. Also there remains to be issues concerning the complexities of the IFRS requirements in terms of measurement and accounting as well as the amount of information to be disclosed. Such areas of concern are yet to be fully resolved as continuous efforts are being made to improve the conflicts and contradictions. Ultimately, the IFRS will be beneficial only after a consensus is achieved on how to apply such standards. Also, there are arguments that the IFRS is specifically suited to developed economies. As such, its implementation may be inappropriate to developing countries. Unless these critical issues are resolved, the objectives of the IFRS towards a single accounting standard may be far from reach. The transition and conversion to IFRS entails tremendous amount of changes to be undertaken. The adoption must eventually be able to bridge the gap between the IFRS and companies’ perception as to what is relevant to its circumstances. Standardizing International Financial Reporting Primarily, financial reporting is aimed at providing information to the existing and the potential partners of an enterprise as well as to the public. Well founded decisions are supported by the information resulting from the management’s stewardship. The framework of financial reporting standards mentions the concept of useful decision making. These kinds of frameworks are used in countries where there is noncodified law on financial reporting. With this, the standard setters are provided with important guidelines.  Paragraph 12 of the International Financial Reporting standards state that “The objective of a financial statement is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.”  Moreover, the Statement of Financial Accounting Concepts says that financial reporting function primarily to provide useful information to those who make economic decisions regarding business enterprise and investments to these enterprises (, 2004, ) The International Financial Reporting Standards (IFRS) refers to a set of standards in the area of accounting. This body of financial reporting standards is developed by the International Accounting Standards Board (IASB). To date, major nations are adopting these standards to a certain extent.             A trend towards the use of the International Financial Reporting Standards (IFRS) is emerging in the global financial markets.  Historically, such standards are used on voluntary basis. Today, there have been a growing number of jurisdictions requiring the use of IFRS among companies for local reporting as well as listing purposes. In Europe alone, public listed companies are required by the European Commission quartered within the European Union to prepare financial statements that are in accordance with the IFRS. Such requirement affects about 7,000 enterprises. The evolution has affected the nature and the scope of national standard-setters which include that of the U.S Financial Accounting Standards Board (FASB) (, 2005)             The primary focus of the International Accounting Standard Board is the convergence of accounting standards worldwide. In order to achieve this, the IASB will designate official liaisons to national standard-setters. As such they are responsible for close contact with their respective national standard setters. Agenda coordination and the assurance that IASB and national bodies are working for convergence are part of their responsibility. Among the countries with formal liaison are Australia (including New Zealand), Canada, France, Germany, Japan, the United Kingdom and the United States (, 2005) Impact on the U.S GAAP Implementation Significant consistency in accounting recognition and measurement and the greater disclosure of information regarding financial statements are among the benefits of the IFRS implementation. However, there is still a long way before reasonable consistency can be achieved under the IFRS. Primarily, this is caused by the fact that there remains to be no substantial body of custom and practice or an accepted way by which IFRS shall be applied. A number of years of implementation by representatives of cross section businesses in different countries and industries are needed to attain a consensus on how IFRS can be applied. Until that is achieved, divergent practices and the limited comparability remain unavoidable Undoubtedly, the current IFRS reporting platform is far from being perfect. The IASB announced that there will be no new international standards to be effective until the year 2009. Ongoing improvements are aimed at the elimination of deficiencies within the current standards and to facilitate global convergence and ultimately, to remove the onerous requirement of the reconciliation with the US GAAP. It is expected that five new or revised standards will be implemented by the year 2009(, 2006).             Continued discussions are being made in the UK with regard to the future direction of corporate reporting and as to what type of convergence with the IFRS should be made. Among the many benefits of a common financial reporting language are greater transparency, consistency and comparability with entities. The adaptation of IFRS by companies is aimed to provide a competitive advantage in terms of quality, clarity and the credibility of disclosures (, 2006).             The IFRS conversion is a huge challenge which has been dictated by the International Law in a relatively short time scale. In the UK finance community, almost all of the companies are able to achieve it on schedule indicating their expertise and professionalism. It is projected that around 100 countries will permit and require the use of IFRS by the year 2007(, 2006). In this sense, it will become the most widely used accounting standard in the world. The challenge remains on the part of the investors to engage in the debate and to influence future developments Implementing IFRS requires the companies to an extensive change as well as risk management process. The conversion process would entail time, cost, effort and expertise to be able to be able to meet deadlines. Larger listed groups found it vital to use effective and timely communication with investors and analysts. The conversion to IFRS is not just changing a set of accounting principles with another. It involves a number of different financial accounting and disclosure requirements that may result to differences in the financial report. With it, the company executives are provided with the opportunity to challenge the way the company is evaluated by investors, stakeholders and competitors. Since the IFRS will affect every decision of the company, it is necessary that the management is able to foresee changes in terms of market perception.             Primarily, there is concern about the preparedness of companies regarding the changes which IFRS will require. In February 2004, an Accountancy Age Survey revealed that only 34% of financial Directors are confident that their employees are ready for the IFRS implementation. In addition to this, a concern over the lack of attention on the implications of the IFRS to companies accounting systems is expressed by providers of software and accounting systems (‘’, 2004).             One of the key issues that need to be addressed by companies is to educate the employees who are responsible for the preparation and use of financial statements. It is only in 2004 that international standards are introduced onto the syllabi by the professional bodies. Professional training firms need to be considered by the companies to provide training. Since the use of IFRS is expected to impact the transactions processes and the way they are given value, businesses should ensure the understanding of the impacts by the analyst and investors. Lastly, an accounting system that is capable of collecting, processing and reporting the information under the IFRS format is required of for the transition (‘’, 2004) Critical Issues on IFRS Implementation Generally, the IFRS is recognized by companies to bring more economic substance. The criticisms related to its implementation are the complexity of the new standard as well as the amount of work required to correctly implement the standards. IFRS financial statements pose greater complexities as compared to those which are based on national accounting standards. Such complexities arise from the extensive measurement rules and the greater number of disclosures required in IFRS than those of the national accounting standards. The disclosure requirements of the of the IFRS approximately doubled those of the UK GAAP and the Australian GAAP and four times to that of the French GAAP. The more complex accounting standards are interpreted and applied properly by a small number of technical experts. These experts are mostly employed by accounting firms and regulators rather than those which prepares and uses such financial statements (‘’, 2007). The increasing number of complexities in terms of accounting measurements and disclosure requirements of the IFRS poses a danger to companies. This is because the preparation of the financial reports may only lead to a sheer volume of data rather than the communication of the performance and financial performance of the company. Moreover, the numbers of required disclosures are not assessed based on their significance to the company’s particular circumstances.             Clearly, the implementation of these standards will require extensive judgment as to the selection and the application of the accounting treatments. In turn, consistency and comparability is restricted. Inconsistencies and conflicts within individual standards and between different standards are likely to arise as a result of the non coherent and integrated set of principles. Areas of known difficulty are yet to be addressed and the industry related accounting guidance on the IFRS shows to be very little. The selection and application of the appropriate accounting policies remain greatly dependent on the judgment of the management. This in turn becomes a limiting factor as to the degree of comparability to be achieved. Hence, the low level of familiarity and industry practices undermine the very objective of the IFRS (‘’, 2007) The challenge of this principle based approach is the consistency in application and the transparent judgments towards the application of the standards. Participants must agree that the accounting made under the international standards conform to the spirit of the standards. Varying interpretation can cause tensions and even threaten the consistency of the application. Thus, the consistency within the conceptual parameters of the international standards must be ensured by the companies. The movement to a principle based approach entails the difficulty to accommodate greater acceptance of judgment. In order for such standards to work, rigorous interpretations and effective application must be ensured (, 2005). Since the IFRS are principle based standards, they focus on the understanding of the economics which underlie transactions or events. They can be applied to differing environments and thus require a high degree of professional judgment (, 2005) As such, interpretations of similar issues may vary from company to company and perhaps from country to country. The aim of the single accounting standard is to enable comparability. Hence, the differences in the interpretations will have to be limited. The country adopting IFRS is required to fall in line with the international interpretations of the standard. In this sense, local interpretations must be in line with the interpretations of the rest of the world. The use of non-IFRS measures in the result announcements of companies reflects the gap between the IFRS and what the company perceives as essential in communicating the information to the market. The usefulness of information is dependent on individual decision contexts. Apparently, standard-setters of financial reporting are incapable of knowing in advance which information is useful for the company. Both in the national and international levels, the data that is decided to be recorded and the way by which it will be disclosed in accounting statements are based on what the society, groups or interests of individuals consider to be significant to the needs of the users. This only suggests that the differing interest can not easily be transformed to a unified interest that will satisfy all the demands and interest of different groups. Recent arguments on the adaptation of IFRS suggest that its standards are designed specifically for developed capital markets which may not be applicable to those developing economies. There is a school of thought suggesting that the standardization of the world accounting standards is not practicable considering the different socio-political and economic environment  as the issue of standard setting is a subject of local politics(, n.d). Moreover, the standards and principles that are appropriate in the western developed countries may be inappropriate or may inflict undue hardships to those developing countries Also, the IFRS may be seen as a blocking mechanism in which the developing countries that adopt its standards may be prevented from evolving their own standards which is significant in the social, political and the economic environment. Hence, perpetual tendency is likely to be caused by the adoption to the emerging economies. The nature of the socio-economic, political and cultural environment of developing countries require their economies to apply appropriate accounting standards based on their economic problems than merely adopting the standards of advanced economies (, n.d) Conclusion   The objective of having a single accounting standard worldwide is clearly manifested by the IFRS efforts. Indeed, such standards will foster benefits to the global financial market as it introduces a new trend in the area of financial reporting. However, it is also important not to disregard the possible implications of such standardization. Companies who are converting to IFRS are faced with the challenge of changing not only their accounting procedures but the understanding of the real impact of IFRS on their accounting system. Moreover, companies are confronted with the lack of general accepted ways of applying these standards. The IFRS implementation is at its early years and only through continued implementation can a consensus be laid on how to effectively apply it. And as far as adoption is concerned, international standards must be appropriate to the economic problems of the countries worldwide to be truly beneficial. References   Books   Journal     Internet Sources     Credit:ivythesis.typepad.com

INTERNATIONAL FINANCIAL REPORTING STANDARDS ( IFRS )

International Financial Reporting Standards This essay takes a look on the issues raised regarding the implementation of the Interna...

Case study 2

1.    How do you think the hedge will accomplish Carolina Furniture Company’s objective of protecting the value of its foreign currency cash flows? Answer: Accordingly, a hedge is a financial investment which is taken out in purpose of reducing or canceling out financial risks in another investment. The strategy which is designed to lessen the exposure of finances to an unwanted business risk is called hedging. This strategy still permits the business to gain from an investment operation. It is noted that one of the primary goal of an industry, like for example the Carolina Furniture Company, is to protect the value of its foreign currency cash flows. The hedge can be able to help or assists CFC in its objective by making sure that the organisation is not losing cash due to the changes in line with exchange rate. One is through the use of foreign currency cash flow hedging currency hedging. The hedge will enable the company to manage the risks that will encounter. Furthermore, foreign currency hedging can help CFC to minimise the effects of foreign exchange risks and be able to sustain the capability of the foreign currency cash flows. The way firms manage the exchange-rate risk associated with their transactions depends on the nature of, and market for, the good or service for which they are exchanging value. Accordingly, hedging strategies vary considerably between exporters and importers, between export sectors, and between firms in a given sector. While revenues may be sensitive to exchange-rate movements at the individual firm level, they are more stable in aggregate across industrial sectors, across exports and across the economy as a whole, indicating that risk is well diversified   2.    What are the expected cash flows from the DM transaction if it is hedged in the forward market? Answer: If transaction of DM 2,000,000 will fall in a 180-day forward rate at .5700, the expected cash flows after hedging will amount to US,140,000.   3.    How would the DM inflows be hedged in the money market? If this transaction is hedged in the money market, what are the expected cash flows? Answer:       The Money market hedging has been formulated on the notion of creating an opposite currency for the similar amount to the flow which will undergo hedging. In this instance, since the receivables which will be hedged is an inflow of DM2, 000,000 to be received in a 180-day period, it is important to make a   DM2, 000,000 outflows in 180 days.  In this case, in the money market hedge, the DM 2,000,000 can be subjected into to two various interest rates from the currency loan; namely, US0,940.80 if this will be acquired in prime rate while US9,193.60 if acquired in LIBOR (London). For this instance, , the total money would be US,023,859.20 while the latter is US,025,606.40 with a difference of US,747.20 in favor of the LIBOR.  4.    Given the answer to the two previous questions, which alternative would you choose to hedge the DM transaction? Answer: Based on the computations above, it can be said that the best alternative that could be chosen to hedge the DM transaction is the first option which is the money market hedge. Given the condition of German Transaction done by the CFC, money market hedge is chosen because of its compatibility in the given LIBOR’s lower interest rate. Hence, the currency risk of the Carolina Furniture Company in line with having investment in the money market is lessening or mitigating.     5.    What are the expected cash flows from the JY transaction if it is hedged in the forward market? Answer: If transaction of JY falls in a 90-day forward rate, the expected cash flows after hedging will amount to US,118,100,000.00.   6.    How would the JY inflows be hedged in the money market? If this transaction is hedged in the money market, what are the expected cash flows? Answer: The Money market hedging has been formulated on the notion of creating an opposite currency for the similar amount to the flow which will undergo hedging. In this instance, since the receivables which will be hedged is an inflow of JY to be received in a 90-day period, it is important to make a   JY outflows in 90 days. If the Japan transaction will be quoted in terms of prime rate, the expected cash flow would be US,049,349,600. On the other hand, if this will be quoted in LIBOR it will be US,051,703,910 with a difference of US,354,310.  Due to substantial amount of the transaction, it can be hedged in the money market through cross-country investment.   7.    What should be done regarding the JY inflows? Why? Some Multinational organisations are now approaching liquidation which can be noticed by the sale of stake in its finance subsidiary.  In this case, if the interest rate different between the currency of Japan and US, it is considered that this main hindrance for the investments of industries in the United States, With this situation, one can assume that it is more advantageous to invest in Japan, Multinational companies may appeal for the government’s action to hold more Japanese yen or encourage some activities in terms of exports as an economic approach. When this option has been implemented there is a possibility that the strength of US dollar in its spot rate will now appreciate offsetting the lower interest rate. In addition, stability may also be achieved by merely increasing the interest rate. However, such action may lead to inflation. With this, the local currency effects can be reconsidered as a way to achieved parity and uniformity.     For this period, the following situations can be attached to the Japan transaction. First, the client is largely positioned in the capital city of the country, In this condition, the payment for transaction will be in September 1991 and the orders for this transaction was already been shipped last. In this case, it is said that the client holds a large bargaining power position. Hence, Carolina Furniture Company must be able to find ways on making this client stay with the company.    8.    What would be the net cash flows to Carolina Furniture Company by hedging the S$ cash flows in the money market? Answer:             If the S$ cash flows will be hedged in money market, it can be assumed that the net cash flows of Carolina Furniture Company or the expected cash flows will be US1,866.03.    Appendices   Germany Japan Singapore1 Sing 2 Sale price (DM)  2,000,000.00 1.5E+11  250,000.00  250,000.00 Remarks Hotel client, opening, parts of order alerady shipped, last consignment on second week of Oct 1991, payment will be given on Nov. 14 large trading company in Tokyo, payment will be given on Sep 18, 1991, shipped on Aug due on nov 23, 1991 from furniture retailer, shipped in the last week of july another from the same company on 2/17/92, shipment will be made on December 1991   Cash flow in the forward market           Contract Price Spot 30-day forward 90-day forward 180-day forward Germany            2,000,000.00          1,164,800.00         1,159,200.00        1,146,600.00         1,140,000.00 Japan 1.5E+11    1,121,100,000.00  1,120,500,000.00  1,118,100,000.00   1,115,250,000.00 Sing 1               250,000.00             143,700.00       Sing 2               250,000.00             143,700.00       TOTAL      1,121,934,000.00         PREVIOUS                       In the money market           Contract Price 1-month 3-months 6-months   Germany            2,000,000.00             140,940.80     Japan 1.5E+11 7.2E+07       Sing 1               250,000.00                 7,515.51     Sing 2               250,000.00                   8,018.46      On LIBOR         Germany               139,193.60         Japan 6.9E+07         Sing 1           Sing 2                         Total at prime rate Total at LIBOR rate       Germany            1,023,859.20          1,025,606.40       Japan      1,049,349,600.00    1,051,703,910.00       Sing 1               136,184.49         Sing 2               135,681.54                1,050,645,325.23    1,052,729,516.40                              Credit:ivythesis.typepad.com

Case study 2

1. How do you think the hedge will accomplish Carolina Furniture Company’s objective of protecting the value of its foreign currency ...