Global Management Accounting: A Guide for Executives of International Corporations

By James A. Heely; Roy L. Nersesian | Go to book overview

CHAPTER 6
TRANSACTIONS AND TRANSLATIONS

A company with operating affiliates in a hundred nations must deal with a hundred sets of generally accepted accounting principles in the consolidation process. The operations of the company must also deal with business transactions and financial reports denominated in a hundred different currencies. A financial reporting and control system, the mechanism by which a global business is managed, must include in its design a means for handling both multiple currency transactions and currency translations of operating affiliate financial results.


GOLD AS A GLOBAL CURRENCY

Dealing in foreign currencies has not always been a major problem in international trade and commerce. Historically, the most common international currency was gold, followed by silver, or a combination of the two. Gold, in particular, has been universally accepted as a monetary means of exchange and a storehouse of value. The purchasing power of an ounce of gold has remained throughout the ages, whereas the purchasing power of paper currencies has eroded with time. One of the few times when gold lost purchasing power was in the sixteenth century when Spain was inundated with gold from the conquest of the Aztec and Inca empires. This loss of purchasing power is in line with the Webster dictionary definition of inflation as "an increase in the amount of currency in circulation resulting in a relatively sharp and sudden fall in its value and rise in prices; it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures, as when the supply of goods fails to meet demand."

Gold is associated with times of political and economic stability. During times of upheaval (war, civil unrest, economic turmoil), coins were progressively

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Global Management Accounting: A Guide for Executives of International Corporations
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vii
  • Chapter 1- Trend Toward Globalization 1
  • Chapter 2- Background To Accounting 21
  • Chapter 3- The World Of Accounting 41
  • Chapter 4- Standardization And Harmonization 81
  • Chapter 5- The Consolidation Process 115
  • Chapter 6- Transactions And Translations 141
  • Chapter 7- Transfer Pricing And Taxation 177
  • Chapter 8- Accounting For Inflation 203
  • Chapter 9- Risk Management 231
  • APPENDIX: LISTING OF INTERNATIONAL ACCOUNTING ORGANIZATIONS 279
  • Bibliography 289
  • Index 297
  • About the Authors 303
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