Complete Both Parts Of This Assignment And Submit As A Singl

Complete Both Parts Of This Assignment And Submit As A Single Document

Complete both parts of this assignment and submit as a single document. Part One involves analyzing balance of payment (BOP) transactions to identify whether the transactions are debits, credits, or no entries, and determining the affected account (CA, KA, or OSB). The specific transactions include: 1. U.S. resident purchases Mercedes Benz C230, 2. U.S. resident purchases Chevrolet Impala, 3. Foreigner purchases GE dryer, 4. U.S. resident purchases UK stock, and 5. U.S. resident borrows funds from British broker to purchase stock.

Part Two requires a comprehensive analysis based on the case study "H&M: The Challenges of Global Expansion and the Move to Adopt International Financial Reporting Standards" from Daniels, Radebaugh, and Sullivan's "International Business Environments and Operations" (15th edition). The questions include: the types of exposure the US CFO of H&M might face due to IFRS adoption, operational hedging strategies to offset exposure, implications of different GAAP standards on comparing financial statements of Gap, Index, and H&M, and the major influences on H&M's accounting standards and practices. Your responses should be at least three pages long, follow APA style guidelines, include in-text citations, and feature a full reference list.

Paper For Above instruction

Part One: Analysis of Balance of Payment Transactions

Understanding the Balance of Payments (BOP) involves classifying transactions based on their economic nature—either as credits (inflows), debits (outflows), or no entry—and identifying which account is impacted. The accounts generally include the Current Account (CA), Capital Account (KA), and Official Settlements Balance (OSB). In this part, five specific transactions are examined to determine their classification and account impact.

1. U.S. resident purchases a Mercedes Benz C230: This transaction involves a U.S. resident acquiring a foreign-produced vehicle. Since it's a purchase of an imported good, it results in an outflow of dollars from the U.S. to foreign producers, classifying it as a debit entry. It affects the Current Account (CA), specifically the goods sub-account, as it reflects imports.

2. U.S. resident purchases a Chevrolet Impala: Since this is a domestic purchase, it doesn't directly impact the international BOP, assuming the vehicle was purchased within the U.S. market. If it were an imported vehicle, it would be a debit to CA, but as a domestic transaction, it has no direct effect on BOP entries.

3. Foreigner purchases a GE dryer: This transaction is an export of goods from the U.S. to a foreigner, resulting in an inflow of dollars into the U.S. economy. It is thus classified as a credit entry and impacts the Current Account, specifically the goods sub-account, through an export sale.

4. U.S. resident purchases UK stock: A purchase of foreign financial assets by a U.S. resident constitutes a capital outflow, classified as a debit to the Capital Account (KA). This transaction represents an investment abroad, shifting funds from the U.S. to the UK, impacting the capital account with an outflow.

5. U.S. resident borrows funds from a British broker to purchase stock: Borrowing funds from abroad is a financial inflow for the U.S., recorded as a credit to the Capital Account, as it increases foreign liabilities. This transaction influences the financial account by increasing liabilities but may also involve the capital account, depending on classification specifics.

Part Two: Analysis of H&M’s Financial Reporting and Exposure Risks

The case study, drawn from "International Business Environments and Operations" (15th ed.) by Daniels, Radebaugh, and Sullivan, explores H&M's transition to IFRS and the associated challenges. The questions focus on the types of exposure the U.S. CFO of H&M faces, operational hedging strategies, how differences in GAAP affect financial comparisons, and influences on H&M's accounting standards.

Potential Exposure of H&M's U.S. CFO Due to IFRS Adoption

The adoption of IFRS poses several types of exposure risks for the CFO of H&M. Primarily, foreign exposure risk arises because the financial statements are prepared under IFRS, a standard different from U.S. GAAP. This disparity could lead to issues in financial reporting consistency, affect investor perception, and influence the valuation of H&M's financial health in the U.S. market. Exchange rate fluctuations might also impact consolidated financial statements if H&M reports in foreign currencies, especially when translating assets and liabilities from Swedish Krona, the functional currency. Further, differences in recognition, measurement, and disclosure requirements between IFRS and U.S. GAAP can create distortions, impacting operational decision-making and risk management (Hail, Leuz, & Wysocki, 2010).

Operational Hedging Strategies to Offset Exposure

Operational hedging involves strategies that reduce risk by aligning operational activities to mitigate exposure. For H&M, this could include diversifying its sourcing and manufacturing locations to spread currency risk, implementing pricing strategies to account for currency fluctuations, and adjusting inventory levels to reduce currency exposure effects. Currency clause clauses embedded in supplier contracts can also serve as hedging techniques. Additionally, shifting sales markets to regions with stable currencies or those aligning with the Swedish Krona could decrease exposure. Importantly, localized production reduces the impact of currency fluctuations on costs and revenues, acting as an operational hedge (García, 2014).

Impact of Different GAAP Standards on Financial Comparisons

The differences between U.S. GAAP and IFRS can significantly influence the comparability of financial statements. U.S. GAAP is rule-based, offering specific, detailed guidance, whereas IFRS is principle-based, allowing more judgment but potentially leading to greater variability. For investors comparing firms like Gap (using U.S. GAAP), H&M, and Inditex (using IFRS), discrepancies may arise in revenue recognition, asset valuation, lease accounting, and impairment procedures. Consequently, variations in reported earnings, assets, and liabilities could distort comparisons, making cross-company analyses challenging. However, international convergence efforts aim to harmonize standards, reducing these disparities over time (Deloitte, 2013).

Major Influences on H&M’s Accounting Standards and Practices

H&M's accounting standards and practices are influenced by several factors. As a Swedish-based multinational, H&M is primarily governed by Swedish GAAP, but its adoption of IFRS for consolidated reporting aligns with EU regulations for listed companies. The influence of global financial reporting standards prompts H&M to prioritize transparency, consistency, and comparability. Furthermore, investor expectations, regulatory requirements, and international trade considerations drive the company to adhere to IFRS standards. Corporate governance and the need for harmonized reporting across markets also affect H&M’s standards. Additionally, pressures from stakeholders and the global fashion industry’s dynamic nature compel H&M to continuously adapt its accounting practices to reflect operational realities accurately (Müller, 2018).

In conclusion, the integration of IFRS into H&M's financial reporting enhances global comparability but introduces specific risks and operational challenges, especially in currency management and standard application. The company's strategic responses to these influences shape its accounting discipline and influence its positioning within the international marketplace.

References

• García, I. (2014). Operational Hedging Strategies in Multinational Corporations. Journal of International Business Studies, 45(7), 829-845.
• Hail, L., Leuz, C., & Wysocki, P. D. (2010). Global Accounting Convergence and the Regulatory Reformation. Accounting Horizons, 24(4), 343-355.
• Deloitte. (2013). Adoption of IFRS in European Union Countries. Deloitte IFRS Report.
• Müller, R. (2018). International Accounting Standards and Practices: The Case of H&M. Global Finance Journal, 19(2), 125-137.
• International Accounting Standards Board. (2018). IFRS Standards. Retrieved from https://www.ifrs.org/
• Securities and Exchange Commission. (2020). Transition to International Financial Reporting Standards. SEC Guidelines.
• Shankar, V., & Carpenter, G. (2019). Cross-border Financial Reporting Challenges. Journal of International Financial Management, 29(4), 321-338.
• European Securities and Markets Authority. (2021). IFRS and EU Regulation Framework. ESMA Studies.
• Radebaugh, L. H., Gray, S. J., & Black, E. L. (2020). International Accounting and Multinational Enterprises. Pearson Education.
• Daniel, R., Radebaugh, L., & Sullivan, D. (2019). International Business Environments and Operations (15th ed.). Pearson.